SB-2/A 1 a5121352.htm PHARMAFRONTIERS CORP. PharmaFrontiers Corp.
As filed with the Securities and Exchange Commission on April 10,2006 Registration No. 333-126687
 

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
___________________
FORM SB-2
POST-EFFECTIVE AMENDMENT NO. 2
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
___________________
PharmaFrontiers Corp.
(Name of small business issuer on its charter)
 
 
Texas
2834
76-0333165
(State or Other Jurisdiction of Incorporation or Organization)
(Primary Standard Industrial  Classification Code Number)
(I.R.S. Employer Identification Number)
 

2635 N. Crescent Ridge Drive
The Woodlands, Texas 77381
(281) 272-9331
(Address and telephone number
of principal executive offices and principal place of business)
___________________
C. William Rouse
2635 N. Crescent Ridge Drive
The Woodlands, Texas 77381
(281) 272-9331
(Name, address and telephone number
of agent for service)
___________________
Copy to:
Michael C. Blaney
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, TX 77002
(713) 758-2222
___________________
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: x
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box: o
 

 
 
PharmaFrontiers Corp.
 
25,217,237 Shares of Common Stock
 
This prospectus relates to the resale from time to time by the selling stockholders of up to 25,217,237 shares of our common stock, including 12,723,562 shares of common stock previously issued and 12,493,678 shares of common stock issuable upon the exercise of common stock purchase warrants. A series of warrants underlying 10,411,400 shares of common stock expired on February 17, 2006. The selling stockholders may sell the shares of common stock from time to time in the principal market on which the stock is traded at the prevailing market price or in negotiated transactions.
 
Shares of our common stock are traded on the NASD OTC Bulletin Board under the symbol “PFTR.OB.” April 6, 2006, the last reported sales price for our common stock on the OTC Bulletin Board was $0.56 per share.
 
We will not receive any proceeds from the sale of the shares of our common stock covered by this prospectus.
 
___________________________________
 
Investing in our common stock involves a high degree of risk. You should read carefully this entire prospectus, including the section captioned “Risk Factors” beginning on page 3, before making a decision to purchase our stock.
 
___________________________________
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
 

 


 
 

 
The date of this prospectus is April 10, 2006.
 
 

 

TABLE OF CONTENTS

 
Page 
PROSPECTUS SUMMARY
1
RISK FACTORS
3
FORWARD LOOKING STATEMENTS
9
USE OF PROCEEDS
10
PRICE RANGE OF OUR COMMON STOCK AND DIVIDEND POLICY
10
SELECTED HISTORICAL FINANCIAL DATA
11
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
11
OUR BUSINESS
16
MANAGEMENT
30
EXECUTIVE COMPENSATION
34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
36
SELLING STOCKHOLDERS
38
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
61
DESCRIPTION OF SECURITIES
61
PLAN OF DISTRIBUTION
63
LEGAL MATTERS
65
EXPERTS
65
WHERE YOU CAN FIND MORE INFORMATION
65
INDEX TO FINANCIAL STATEMENTS
67
INFORMATION NOT REQUIRED IN PROSPECTUS
69

 
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these shares of our common stock. The information in this prospectus may only be accurate as of the date of this prospectus.
 
This prospectus provides you with a general description of the shares of our common stock that the selling stockholders may offer. Each time a selling stockholder sells shares of our common stock, the selling stockholder is required to provide you with a prospectus containing specific information about the selling stockholder and the terms of the shares of our common stock being offered to you.
 
This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission for a continuous offering. Under this prospectus, the selling stockholders may, from time to time, sell the shares of our common stock described in this prospectus in one or more offerings. This prospectus may be supplemented from time to time to add, update or change information in this prospectus. Any statement contained in this prospectus will be deemed to be modified or superseded for the purposes of this prospectus to the extent that a statement contained in a prospectus supplement modifies such statement. Any statement so modified will be deemed to constitute a part of this prospectus only as so modified, and any statement so modified will be deemed to constitute a part of this prospectus.
 
The registration statement containing this prospectus, including the exhibits to the registration statement, provides additional information about us, the selling stockholders and the shares of our common stock offered under this prospectus. The registration statement, including the exhibits, can be read on the SEC website or at the SEC offices mentioned under the heading “Where You Can Find More Information.”
 

 

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PROSPECTUS SUMMARY
 
The following summary highlights selected information from this prospectus and does not contain all of the information that you should consider before investing in our common stock. This prospectus contains information regarding our businesses and detailed financial information. You should carefully read this entire prospectus, including the historical financial statements and related notes, before making an investment decision.
 
In this prospectus, “PharmaFrontiers Corp.,” the “company,” “we,” “us” or “our” refer to PharmaFrontiers Corp., a Texas corporation, and its subsidiaries, except where otherwise indicated or required by context.
 
Our Business
 
We are a biopharmaceutical company engaged in developing autologous personalized cell therapies. Our strategy is to develop and commercialize cell therapies to treat several major diseases including multiple sclerosis, cardiovascular diseases, and diabetes. We have an exclusive license to an individualized T cell therapy that is in FDA Phase I/II human dose ranging clinical trials to evaluate its safety and effectiveness in treating multiple sclerosis. We have an exclusive worldwide license for the intellectual property rights and research results of an autologous T cell vaccine for rheumatoid arthritis from the Shanghai Institutes for Biological Sciences (SIBS), Chinese Academy of Sciences of the People's Republic of China. We also have an exclusive license to a stem cell technology in which adult pluripotent stem cells are derived from monocytes obtained from the patient’s own blood. We are initially pursuing indications in heart failure and Type I diabetes with our stem cell therapy.
 
Autologous therapies use cells or other materials from the patient’s own body to create treatments for the patient, thus preventing rejection complications that result when “foreign” or “non-self” cells are introduced into a patient. Cellular therapies are expected to play a large role in the treatment and cure of a broad spectrum of human diseases. According to independent market researchers, cellular therapies along with their related technologies, such as diagnostics and blood banking, may exceed $30 billion by 2010.
 
Our multiple sclerosis cell therapy, Tovaxin™, is currently in Phase I/II studies. Tovaxin™ consists of modified autoreactive T cells. Multiple sclerosis is a result of a person’s own T cells attacking the myelin sheath that coats the nerve cells of the central nervous system. These T cells, that attack a person’s own body, are referred to as “autoreactive” T cells. In our treatment the T cells are taken from the patient, modified and returned to the patient. The modified T cells cause an immune response directed at the autoreactive T cells in the patient’s body. This immune response reduces the level of autoreactive T cells and potentially allows the myelin sheath to be repaired. In addition, we are evaluating whether this technology will allow us to diagnose multiple sclerosis and determine the severity of the disease through an analysis of the level of autoreactive T cells in a patient’s blood.
 
Two clinical studies of Tovaxin™ have reached critical milestones:
 
·  
The dose escalation study was designed for patients with relapsing-remitting or secondary-progressive MS, intolerant of, or having failed, current therapy. Blood was obtained from each patient from which T cells reactive to two peptides each of three proteins (MBP, PLP, and MOG) were expanded ex vivo and prepared as a trivalent formulation of MRTCs. The MRTCs were attenuated by Cesium137 irradiation prior to patients receiving subcutaneous injections of either 6-9 million cells (Dose 1) or 30-45 million cells (Dose 2) at weeks 0, 4, 12 and 20. MRTC frequencies were performed at baseline and weeks 5, 13, 21, 28 and 52. Patients were evaluated for changes in EDSS, MSIS and exacerbations.
 
 
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Tovaxin is a patient-specific therapeutic vaccination strategy for MS patients. To formulate Tovaxin T cell vaccine, the patient's own myelin peptide-specific activated T cell lines are harvested and attenuated on the day of vaccine administration.
 
The study's results demonstrated that MRTCs in the peripheral blood were depleted in a dose dependent manner and analyses showed reductions in all three types of MRTCs at all follow-up visits. All patients in the Dose 2 group had a 100% reduction in MRTC counts at the week five follow-up visit. Percentage reductions were greater in the Dose 2 group than in the Dose 1 group at every follow-up visit. Correlation between the reduction in overall MRTC frequencies and the physical component of the MSIS (p=0.0086) was strong. There was a trend to improved EDSS (p=0.0561). The annual relapse rate (ARR) for the patients prior two years before therapy was 1.28 and following therapy the ARR was 0.10 (92 percent reduction) adjusted for the number of months in the study. The treatment appears to be safe and well tolerated with minimal adverse events and no dose-limiting toxicities.
 
·  
Phase I/II extension study: The analysis of data on ten (10) patients that have been enrolled in a Phase I/II open-label extension study of Tovaxin(TM) T-Cell vaccine in worsening multiple sclerosis indicates that the treatment is safe and well-tolerated. Adverse events were mild or moderate in severity. None of the ten patients reported an MS exacerbation while on study. Analysis of myelin-reactive T-cell (MRTC) counts showed a percentage reduction from baseline at 3, 6, and 9 months, for all three types of MRTC, as well as the Total MRTC. Reductions in disease assessment disability scores were observed at all follow-up visits. No therapy induced lesions were observed on week 52 MRI's for three patients. These results suggest that MRTC vaccination is safe and well tolerated and also suggest that MRTC vaccination reduces MRTC counts, as well as EDSS and MSIS scores.
 
In October 2005, the FDA approved the protocol for our Phase IIb clinical trial of Tovaxin. We intend to enroll the first patient in this pivotal Phase IIb in the first half of 2006.
 
Our Rheumatoid Arthritis (RA) T-cell vaccination (TCV) technology is conceptually similar to Tovaxin. RA is an autoimmune T-cell-mediated disease in which Pathogenic T-cells trigger an inflammatory autoimmune response of the synovial joints of the wrists, shoulders, knees, ankles and feet which causes pain, stiffness, and swelling around the joints. Our RA TCV technology allows the isolation of these pathogenic T-cells from synovial fluid drawn from a patient. We expand and modify these T-cells in our laboratory. The modified T-cells are injected subcutaneously into patients thereby inducing an immune response directed at the Pathogenic T-cells in the patient’s body. This immune response reduces the level of Pathogenic T-cells and potentially allows the reduction of joint swelling in RA patients. Human trials that have been conducted in China show minimal side-effects and promising efficacy measured as a reduction of joint swelling following the T-cell vaccination.
 
Our stem cell technology allows us to create adult pluripotent stem cells from monocytes isolated from blood drawn from the patient. We believe that these stem cells, if successfully developed, may provide the basis for therapies to treat a variety of diseases and conditions. We anticipate that our stem cell technology will have a significant competitive advantage over many of the other stem cell technologies. The peripheral blood monocytes, used by our technology to produce stem cells, have the advantage of being relatively abundant and easy and cost effective to obtain. Our technology does not have the collection and storage difficulties presented by umbilical cord blood or the controversial ethical and regulatory issues associated with embryonic stem cells. In addition, our technology is less difficult and less risky than collecting adult stem cells from tissues such as bone marrow, spinal fluid or adipose (fat) tissue. Furthermore, our stem cells are pluripotent, whereas adult stem cells used in competitive technologies are not likely to be pluripotent.
 
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Our stem cell technology will also avoid rejection issues because it is autologous (“self”). This is as opposed to the embryonic, umbilical, and some adult stem cell technologies, which in some cases must be taken from one individual and given to another. Further, we believe our stem cell therapies will be regulated as autologous “manipulated” non-homologous use cell therapies. Thus, we use one’s own stem cells, and we therefore do not expect to encounter the same significant pre-clinical and clinical development regulatory hurdles that embryonic, umbilical, and some adult stem cells therapies are expected to face.
 
Initially we are conducting pre-clinical research to develop stem cell therapies to treat Type I diabetes and heart failure. We believe that with our stem cell technology plus our additional technology related to the differentiation of stem cells into islet cells, we will be able to create insulin producing islet cells derived from the patient’s own blood. We are currently conducting laboratory research and plan to move expeditiously through pre-clinical development of our diabetes stem cell therapy and, if successful, initiate human testing in 2006.
 
Our Executive Offices
 
Our principal executive and administrative office facility is located in The Woodlands, Texas at 2635 N. Crescent Ridge Drive, The Woodlands, Texas 77381 and our telephone number is (281) 272-9331. We maintain a website at www.pharmafrontierscorp.com, however the information on our website is not part of this prospectus, and you should rely only on information contained in this prospectus when making a decision as to whether or not to invest in shares of our common stock.
 
 
RISK FACTORS
 
The shares offered hereby have not been approved or disapproved by the SEC or the securities regulatory authority of any state, nor has any such regulatory body reviewed this memorandum for accuracy or completeness. The shares offered hereby are speculative, involve an unusually high degree of risk and should only be purchased by those who can afford to lose their entire investment. Therefore, prospective investors should carefully consider the following risk factors before purchasing the shares offered hereby.
 
The following factors affect our business and the industry in which we operate. The risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties not presently known or that we currently consider immaterial may also have an adverse effect on our business. If any of the matters discussed in the following risk factors were to occur, our business, financial condition, results of operations, cash flows, or prospects could be materially adversely affected.
 
Risks Related to Our Business
 
Our business is at an early stage of development.
 
Our business is at an early stage of development. We do not have any products in late-stage clinical trials or on the market. We are still in the early stages of identifying and conducting research on potential products. Only one of our products has progressed to the stage of being studied in human clinical trials. Our potential products will require significant research and development and preclinical and clinical testing prior to regulatory approval in the United States and other countries. We may not be able to develop any products, to obtain regulatory approvals, to enter clinical trials for any of our product candidates, or to commercialize any products. Our product candidates may prove to have undesirable and unintended side effects or other characteristics adversely
 
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affecting their safety, efficacy or cost-effectiveness that could prevent or limit their use. Any product using any of our technology may fail to provide the intended therapeutic benefits, or achieve therapeutic benefits equal to or better than the standard of treatment at the time of testing or production.
 
We have a history of operating losses and do not expect to be profitable in the near future.
 
We have not generated any profits since our entry into the biotechnology business, have no source of revenues, and have incurred significant operating losses. We expect to incur additional operating losses for the foreseeable future and, as we increase our research and development activities, we expect our operating losses to increase significantly. We do not have any sources of revenues and may not have any in the foreseeable future.
 
We will need additional capital to conduct our operations and develop our products and our ability to obtain the necessary funding is uncertain.
 
We need to obtain significant additional capital resources from sources including equity and/or debt financings, license arrangements, grants and/or collaborative research arrangements in order to develop products and continue our business. As of December 31, 2005, we had cash and cash equivalents of approximately $2.5 million. Our current burn rate is approximately $400,000 per month excluding capital expenditures.  However, this burn rate is expected to increase to $800,000 per month once the IIb clinical trails begin. We will need to raise additional capital to fund our working capital needs during the second quarter of 2006. We do not have any credit facilities available with financial institutions or any other third parties and as such we must rely upon best efforts third-party funding and we can provide no assurance that we will be successful in any future investment best efforts. The failure to raise such funds will necessitate the curtailment of operations and delay of the start of the clinical trials. The timing and degree of any future capital requirements will depend on many factors, including:
 
·  
the accuracy of the assumptions underlying our estimates for capital needs in 2005 and beyond;
 
·  
scientific progress in our research and development programs;
 
·  
the magnitude and scope of our research and development programs;
 
·  
our ability to establish, enforce and maintain strategic arrangements for research, development, clinical testing, manufacturing and marketing;
 
·  
our progress with preclinical development and clinical trials;
 
·  
the time and costs involved in obtaining regulatory approvals;
 
·  
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; and
 
·  
the number and type of product candidates that we pursue.
 
We do not have any committed sources of capital, although we have issued and outstanding warrants that, if exercised, would result in an equity capital raising transaction. Additional financing through strategic collaborations, public or private equity financings, capital lease transactions or other financing sources may not be available on acceptable terms, or at all. Additional equity financings could result in significant dilution to our stockholders. Further, if additional funds are obtained through arrangements with collaborative partners, these arrangements may require us to relinquish rights to some of our technologies, product candidates or products that we would otherwise seek to develop and commercialize ourselves. If sufficient capital is not available, we may be required to delay, reduce the scope of or eliminate one or more of our programs, any of which could have a material adverse effect on our financial condition or business prospects.
 
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Approximately 88% of our total assets are comprised of intangible assets that are subject to review on a periodic basis to determine whether an impairment on these assets is required. An impairment would not only greatly diminish our assets, but would also require us to record a significant non-cash expense charge.

We are required under generally accepted accounting principles to review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. At December 31, 2005, our intangible assets, consisting of the University of Chicago license and acquired intangible assets from the Opexa acquisition that is an inseparable group of patents and licenses that can’t function independently, were approximately $26.1 million. If management determines that impairment exists, we will be required to record a significant charge to expense in our financial statements during the period in which any impairment of our goodwill is determined.

 
Clinical trials are subject to extensive regulatory requirements, very expensive, time-consuming and difficult to design and implement. Our products may fail to achieve necessary safety and efficacy endpoints during clinical trials.
 
Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial process is also time consuming. We estimate that clinical trials of our product candidates will take at least several years to complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including: 
 
·  
unforeseen safety issues;
 
·  
determination of dosing issues;
 
·  
lack of effectiveness during clinical trials;
 
·  
slower than expected rates of patient recruitment;
 
·  
inability to monitor patients adequately during or after treatment; and
 
·  
inability or unwillingness of medical investigators to follow our clinical protocols.
 
In addition, we or the FDA may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the FDA finds deficiencies in our IND submissions or the conduct of these trials.
 
We are dependent upon our management team and a small number of employees.
 
Our business strategy is dependent upon the skills and knowledge of our management team. We believe that the special knowledge of these individuals gives us a competitive advantage. If any critical employee leaves, we may be unable on a timely basis to hire suitable replacements to effectively operate our business. We also operate with a very small number of employees and thus have little or no backup capability for their activities. The loss of the services of any member of our management team or the loss of a number of other employees could have a material adverse effect on our business.
 
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We are dependent on contract research organizations and other contractors for clinical testing and for certain research and development activities, thus the timing and adequacy of our clinical trials and such research activities are, to a certain extent, beyond our control.
 
The nature of clinical trials and our business strategy requires us to rely on contract research organizations, independent clinical investigators and other third party service providers to assist us with clinical testing and certain research and development activities. As a result, our success is dependent upon the success of these outside parties in performing their responsibilities. Although we believe our contractors are economically motivated to perform on their contractual obligations, we cannot directly control the adequacy and timeliness of the resources and expertise applied to these activities by our contractors. If our contractors do not perform their activities in an adequate or timely manner, the development and commercialization of our drug candidates could be delayed.
 
Our current research and manufacturing facility is not large enough to manufacture future stem cell and T-cell therapies.
 
We conduct our research and development in a 10,000 square foot facility in The Woodlands, Texas, which includes a 1,200 square foot suite of three rooms for the future manufacture of stem cell and T-cell therapies through Phase III trials. Our current facility is not large enough to conduct commercial-scale manufacturing operations. We will need to expand further our manufacturing staff and facility, obtain a new facility or contract with corporate collaborators or other third parties to assist with future drug production.
 
In the event that we decide to establish a commercial-scale manufacturing facility, we will require substantial additional funds and will be required to hire and train significant numbers of employees and comply with applicable regulations, which are extensive. We do not have funds available for building a manufacturing facility, and we may not be able to build a manufacturing facility that both meets regulatory requirements and is sufficient for our commercial-scale manufacturing.
 
We may arrange with third parties for the manufacture of our future products. However, our third-party sourcing strategy may not result in a cost-effective means for manufacturing our future products. If we employ third-party manufacturers, we will not control many aspects of the manufacturing process, including compliance by these third parties with the FDA’s current Good Manufacturing Practices and other regulatory requirements. We further may not be able to obtain adequate supplies from third-party manufacturers in a timely fashion for development or commercialization purposes, and commercial quantities of products may not be available from contract manufacturers at acceptable costs.
 
Patents obtained by other persons may result in infringement claims against us that are costly to defend and which may limit our ability to use the disputed technologies and prevent us from pursuing research and development or commercialization of potential products.
 
A number of pharmaceutical, biotechnology and other companies, universities and research institutions have filed patent applications or have been issued patents relating to cell therapy, stem cells, T-cells, and other technologies potentially relevant to or required by our expected products. We cannot predict which, if any, of such applications will issue as patents or the claims that might be allowed. We are aware that a number of companies have filed applications relating to stem cells. We are also aware of a number of patent applications and patents claiming use of stem cells and other modified cells to treat disease, disorder or injury.
 
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If third party patents or patent applications contain claims infringed by either our licensed technology or other technology required to make and use our potential products and such claims are ultimately determined to be valid, there can be no assurance that we would be able to obtain licenses to these patents at a reasonable cost, if at all, or be able to develop or obtain alternative technology. If we are unable to obtain such licenses at a reasonable cost, we may not be able to develop some products commercially. There can be no assurance that we will not be obliged to defend ourselves in court against allegations of infringement of third party patents. Patent litigation is very expensive and could consume substantial resources and create significant uncertainties. An adverse outcome in such a suit could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require us to cease using such technology.
 
If we are unable to obtain future patents and other proprietary rights our operations will be significantly harmed.
 
Our ability to compete effectively is dependent in part upon obtaining patent protection relating to our technologies. The patent positions of pharmaceutical and biotechnology companies, including ours, are uncertain and involve complex and evolving legal and factual questions. The coverage sought in a patent application can be denied or significantly reduced before or after the patent is issued. Consequently, we do not know whether the patent applications for our technology will result in the issuance of patents, or if any future patents will provide significant protection or commercial advantage or will be circumvented by others. Since patent applications are secret until the applications are published (usually eighteen months after the earliest effective filing date), and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that the inventors of our licensed patents were the first to make the inventions covered by the patent applications or that the licensed patent applications were the first to be filed for such inventions. There can be no assurance that patents will issue from the patent applications or, if issued, that such patents will be of commercial benefit to us, afford us adequate protection from competing products, or not be challenged or declared invalid.
 
Our competition includes fully integrated biopharmaceutical and pharmaceutical companies that have significant advantages over us.
 
The markets for therapeutic stem cell products, multiple sclerosis products, and rheumatoid arthritis products are highly competitive. We expect that our most significant competitors are fully integrated pharmaceutical companies and more established biotechnology companies. These companies are developing stem cell-based products and they have significantly greater capital resources and expertise in research and development, manufacturing, testing, obtaining regulatory approvals, and marketing than we currently do. Many of these potential competitors are further along in the process of product development and also operate large, company-funded research and development programs. As a result, our competitors may develop more competitive or affordable products, or achieve earlier patent protection or product commercialization than we are able to achieve. Competitive products may render any products or product candidates that we develop obsolete.
 
If we fail to meet our obligations under our license agreements, we may lose our rights to key technologies on which our business depends.
 
Our business depends on three licenses from third parties. Additionally, any business relating to a T cell vaccine for rheumatoid arthritis depends upon a license from the Shanghai Institute for Biological Science. These third party license agreements impose obligations on us, such as payment obligations and obligations to diligently pursue development of commercial products under the licensed patents. If  a licensor believes  that we  have  failed to meet our obligations under  a l icense agreement, the licensor could
 
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seek to limit or terminate our license rights, which could lead to costly and time-consuming litigation and, potentially, a loss of the licensed rights. During the period of any such litigation, our ability to carry out the development and commercialization of potential products could be significantly and negatively affected. If our license rights were restricted or ultimately lost, our ability to continue our business based on the affected technology platform could be severely adversely affected.
 
Restrictive and extensive government regulation could slow or hinder our production of a cellular product.
 
The research and development of stem cell therapies is subject to and restricted by extensive regulation by governmental authorities in the United States and other countries. The process of obtaining U.S. Food and Drug Administration, or FDA, and other necessary regulatory approvals is lengthy, expensive and uncertain. We may fail to obtain the necessary approvals to continue our research and development, which would hinder our ability to manufacture or market any future product.
 
To be successful, our product candidates must be accepted by the health care community, which can be very slow to adopt or unreceptive to new technologies and products.
 
Our product candidates, if approved for marketing, may not achieve market acceptance since hospitals, physicians, patients or the medical community in general may decide to not accept and utilize these products. The product candidates that we are attempting to develop represent substantial departures from established treatment methods and will compete with a number of more conventional drugs and therapies manufactured and marketed by major pharmaceutical companies. The degree of market acceptance of any of our developed products will depend on a number of factors, including:
 
·  
our establishment and demonstration to the medical community of the clinical efficacy and safety of our product candidates;
 
·  
our ability to create products that are superior to alternatives currently on the market;
 
·  
our ability to establish in the medical community the potential advantage of our treatments over alternative treatment methods; and
 
·  
reimbursement policies of government and third-party payers.
 
If the health care community does not accept our products for any of the foregoing reasons, or for any other reason, our business would be materially harmed.
 
Risks Related to Our Common Stock
 
There is currently a limited market for our common stock, and any trading market that exists in our common stock may be highly illiquid and may not reflect the underlying value of the Company’s net assets or business prospects.
 
Although our common stock is currently traded on the OTC Bulletin Board, there is currently a limited market for our common stock and there can be no assurance that an improved market will ever develop. Investors are cautioned not to rely on the possibility that an active trading market may develop.
 
As our share price is volatile, we may be or become the target of securities litigation, which is costly and time-consuming to defend.
 
 
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In the past, following periods of market volatility in the price of a company’s securities or the reporting of unfavorable news, security holders have often instituted class action litigation. If the market value of our common stock experiences adverse fluctuations and we become involved in this type of litigation, regardless of the outcome, we could incur substantial legal costs and our management’s attention could be diverted from the operation of our business, causing our business to suffer.
 
Our "blank check" preferred stock could be issued to prevent a business combination not desired by management or our current majority shareholders.
 
Our articles of incorporation authorize the issuance of "blank check" preferred stock with such designations, rights and preferences as may be determined by our board of directors without shareholder approval. Our preferred stock could be utilized as a method of discouraging, delaying, or preventing a change in our control and as a method of preventing shareholders from receiving a premium for their shares in connection with a change of control.
 
Future sales of our common stock in the public market could lower our stock price.
 
We may sell additional shares of common stock in subsequent public or private offerings. We may also issue additional shares of common stock to finance future acquisitions. We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.
 
We presently do not intend to pay cash dividends on our common stock.
 
We currently anticipate that no cash dividends will be paid on the common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of the business, it is anticipated that all earnings, if any, will be retained to finance the future expansion of the our business. Therefore, prospective investors who anticipate the need for immediate income by way of cash dividends from their investment should not purchase the shares offered in this offering.
 
 
FORWARD LOOKING STATEMENTS
 
This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933. These statements relate to future events and/or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Company or the industry in which it operates to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. These risks and other factors include those listed under “Risk Factors” and those described elsewhere in this Memorandum.
 
In some cases, you can identify forward-looking statements by the Company’s use of terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined under “Risk Factors.” These factors may cause the Company’s actual results to differ materially from any forward-looking statement.
 
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. The Company does not intend to update any of the forward-looking statements after the date of this Memorandum to conform prior statements to actual results.
 
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USE OF PROCEEDS
 
The selling stockholders will receive all of the proceeds from any sales of shares of our common stock. We will not receive any of the proceeds from any such sale by any selling stockholder. See “Selling Stockholders.”
 
 
PRICE RANGE OF OUR COMMON STOCK AND DIVIDEND POLICY
 
Shares of our common stock are traded on the National Association of Securities Dealers Inc. Over the Counter Bulletin Board under the symbol “PFTR.OB”. Our Common Stock trades on a limited, sporadic and volatile basis. As of April 5, 2006, the last reported sales price of our common stock on the OTC Bulletin Board was $0.60. As of March 31, 2006, there were 20,967,035 shares of our common stock outstanding that were held of record by 566 persons.
 
The following table sets forth, for the periods indicated, the range of high and low bid information for our common stock. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
 
 
 
Price Ranges 
 
   
High 
 
Low
 
Fiscal Year Ended December 31, 2004
           
First Quarter
   
0.03
 
0.01
 
Second Quarter
   
14.25
   0.01  
Third Quarter
   
8.15
   6.50  
Fourth Quarter
   
9.50
   5.90  
Fiscal Year Ended December 31, 2005
           
First Quarter
   
8.70
 
4.50
 
Second Quarter
   
5.50
 
2.46
 
Third Quarter
   
1.41
 
1.25
 
Fourth Quarter
   
0.63
   0.59  
Fiscal Year Ended December 31, 2006
           
First Quarter
   
0.62
   0.55  
 
 
Holders of shares of common stock will be entitled to receive cash dividends when, as and if declared by our Board of Directors, out of funds legally available for payment thereof. However, if dividends are not declared by our Board of Directors, no dividends shall be paid. We have not paid any dividends on our common stock since our inception.
 
We do not anticipate that any cash dividends will be paid in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of the business, we anticipate that all earnings, if any, will be retained to finance our future expansion. Therefore, prospective investors who anticipate the need for immediate income by way of cash dividends from their investment should not purchase the shares offered by this prospectus.
 
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SELECTED HISTORICAL FINANCIAL DATA
 

The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. The selected consolidated financial data in this section is not intended to replace the consolidated financial statements and accompanying footnotes. The selected consolidated balance sheet data as of December 31, 2005 and 2004 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Historical results are not necessarily indicative of the results to be expected in the future.


 
   
Year Ended
December 31, 
   
Year Ended
December 31,
 
     
2005
   
2004
 
Consolidated Statements of Operations Data:
             
Revenues
 
$
-
 
$
-
 
Operating Expenses:
             
General and administrative 
 
$
550,178
 
$
572,534
 
Depreciation and amortization
   
1,735,209
   
264,819
 
Research and development 
   
9,892,253
   
2,465,634
 
Loss on disposal of assets 
   
22,810
   
457,122
 
Net operating loss
   
(12,200,450
)
 
(3,760,109
)
               
Interest Income 
   
81,930
   
5,992
 
Other Income 
   
28,174
   
2,379
 
Interest expense 
   
(7,323,851
)
 
(868,926
)
Net loss
 
$
(19,414,197
)
$
(4,620,664
)
Net loss per common share, basic and diluted 
 
$
(1.24
)
$
(0.73
)
Weighted average number of common shares outstanding, basic and diluted 
   
15,648,365
   
6,309,145
 
               
 
 
As of December 31,  
     
2005
   
2004
 
Consolidated Balance Sheet Data:
             
Cash and cash equivalents and prepaid expenses 
   
2,743,190
   
946,329
 
Intangible assets 
   
26,130, 441
   
26,791,073
 
Fixed Assets 
   
479,996
   
341,984
 
Other assets 
   
388,210
   
-
 
Total assets 
   
29,741,837
   
28,079,386
 
Current liabilities 
   
2,429,776
   
4,883,165
 
Common stock 
   
1,030,977
   
502,992
 
Total stockholders’ equity 
   
27,312,061
   
23,196,221
 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
 
The following discussion of our financial condition and results of operations should be read together with the consolidated financial statements and related notes that are included elsewhere in this prospectus. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors”, “Disclosure Regarding Forward-Looking Statements” or in other parts of this prospectus. We undertake no obligation to update any information in our forward-looking statements except as required by law.
 
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Overview
 
We are a development-stage company and have a limited operating history. Our predecessor company for financial reporting purposes was formed on January 22, 2003 to acquire rights to our adult stem cell technology. In November 2004 we acquired Opexa Pharmaceuticals, Inc. and its multiple sclerosis treatment technology. We are still developing all of our technology, and to date, we have not generated any revenues from our operations. As we continue to execute our operations plan, we expect our development and operating expenses to increase.
 
Research and development. We have made and expect to continue to make substantial investments in research and development in order to develop and market our technology. Research and development costs consist primarily of general and administrative and operating expenses related to research and development activities. We expense research and development costs as incurred. Property, plant and equipment for research and development that has an alternative future use is capitalized and the related depreciation is expensed as research and development costs. We expect our research and development expense to increase as we continue to invest in the development of our technology.
 
General and administrative. General and administrative expenses consist primarily of salaries and benefits, office expense, professional services fees, and other corporate overhead costs. We anticipate increases in general and administrative expenses as we continue to develop and prepare for commercialization of our technology
 
Results of Operations 
 
Comparison of Year Ended December 31, 2005 with the Year Ended December 31, 2004
 
Net Sales. 
 
We recorded no sales for the twelve months ended December 31, 2005 and 2004.
 
General and Administrative Expenses
 
Our general and administrative expenses during the twelve months ended December 31, 2005, was $550,178 as compared to $572,534 for the twelve months ended December 31, 2004. General and administrative expenses consist primarily of salaries and benefits, office expense, professional services fees, and other corporate overhead costs. We anticipate increases in general and administrative expenses as we continue to develop and prepare for commercialization of our technology
 
Research and Development Expense
 
Research and development expense was $9,892,253 for the twelve months ended December 31, 2005, as compared to $2,465,634 the twelve months ended December 31, 2004. The increase in expenses was primarily due the acquisition of Opexa and the assumption of its operations and research and development programs as well as our Phase I/II clinical trials for Tovaxin, stem cell development and pre-clinical costs, the hiring of personnel and other expenses associated with the increase in research and development efforts. We have made and expect to continue to make substantial investments in research and development in order to develop and market our technology. Research and development costs consist primarily of general and administrative and operating expenses related to research and development activities. We expense research and development costs as incurred. Property, plant and equipment for research and development that has an alternative future use is capitalized and the related depreciation is expensed as research and development costs. We expect our research and development expense to increase as we continue to invest in the development of our technology.
 
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Interest Expense
 
Interest expense was $7,323,851 for the twelve months ended December 31, 2005 compared to $868,926 for the twelve months ended December 31, 2004. The increase is primarily related to the amortization of the remaining discount under the beneficial conversion feature of the 15% exchangeable convertible promissory notes (the “Notes”); in 2005 the accrued interest on the Notes was converted into shares of Common Stock.
 
Net loss
 
We had a net loss for the year ended December 31, 2005, of $19,414,197 or ($1.24) per share (basic and diluted), compared with a net loss of $4,620,664 or ($.73) per share (basic and diluted), for the twelve months ended December 31, 2004. The increase in net loss is due primarily to the amortization of the remaining discount under the beneficial conversion feature of the Notes and the accrued interest on the Notes that was converted into shares of common stock, along with start-up of operations which included the hiring of new employees, directors and scientific advisory board members. These individuals have agreements with us that provide for salary payments. The increase in net loss is also attributable to the acquisition of Opexa Pharmaceuticals and the assumption of its operations and research and development programs. Also included are professional fees incurred from legal, accounting, and consulting services to secure and expand our license patent claims. Anticipated future expenses include research and development, professional and consulting fees, and expenses associated with the expansion of the office and laboratory/manufacturing facilities.
 
Liquidity and Capital Resources 
 
Since our inception, the Company has financed its operations from the sale of its debt and equity securities (including the issuance of its securities in exchange for goods and services) to accredited investors. Between September 2004 and February 2005, the Company privately placed an aggregate principal amount of $6.1 million of Bridge Notes. In June 3, 2005, the Company exchanged its Bridge Notes aggregating approximately $6.7 million in principal and interest for 4,433,598 units at a purchase price of $1.50 per unit; each unit comprised of one share of common stock and three separate types of warrants to purchase a total of 2.75 shares of common stock as follows: a series A warrant for 1.25 shares with an exercise price of $2.00 which expired on February 17, 2006; a series B warrant for one-half of a share with an exercise price of $2.90 which expires on October 17, 2006; and a Series C Warrant for one share with an exercise price of $4.00 that expires on May 25, 2010.
 
In June 2005, the Company completed a private placement of approximately $5.08 million to accredited investors by issuing 3,387,217 units at a purchase price of $1.50 per unit; each unit identical to those issued in the Bridge Note exchange. On July 18, 2005 the Company completed a follow-on private placement of approximately $760,000 to accredited investors and issued 507,292 additional units at a purchase price of $1.50 per unit.
 
As of December 31, 2005, the Company had cash of approximately $2.5 million.  Our current burn rate is approximately $400,000 per month excluding capital expenditures. Although our burn rate is expected to increase to $800,000 per month once the Phase IIb clinical trails begin, we do not intend to start the Phase 2b until we have raised additional capital. We will need to raise additional capital to fund our working capital needs during the second quarter of 2006. We do not have any credit facilities available with financial institutions or any other third parties and as such we must rely upon best efforts third-party debt or equity funding and we can provide no assurance that we will be successful in any funding effort. The failure to raise such funds will necessitate the curtailment of operations and delay of the start of the clinical trials.
 
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Contractual Commitments
 
In October 2005 the Company leased a facility to house its executive offices and research facilities for a term of ten years with two options for an additional five years each at the then prevailing market rate. The 10,200 sq. ft. facility is located on 3 acres at 2635 N. Crescent Ridge Drive in The Woodlands, TX. This location provides space for pipeline development through R & D; a specialized Flow Cytometry and Microscopy lab; support of clinical trials with GMP manufacturing Suites; Quality Systems management with Quality Control Laboratory, Regulatory Affairs, Quality Assurance; as well as administrative support space. There is 2,500 sq. ft. of space still available for future build-out. The facility including the property is leased for a term of ten years with two options for an additional five years each at the then prevailing market rate.
 
Off-Balance Sheet Arrangements
 
As of December 31, 2005, we had no off-balance sheet arrangements.
 
Related Party Transactions
 
For more information on these transactions, please read “Certain Relationships and Related Party Transactions,” in this prospectus.
 
Critical Accounting Policies
 
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our most significant judgments and estimates used in preparation of our consolidated financial statements.
 
Reverse Acquisition. We treated the merger of PharmaFrontiers Corp. into Sportan as a reverse acquisition. Pursuant to the guidance in Appendix B of SEC Accounting Disclosure Rules and Practices Official Text, the “merger of a private operating company into a non-operating public shell corporation with nominal net assets typically results in the owners and management of the private company having actual or effective operating control of the combined company after the transaction, with the shareholders of the former public shell continuing only as passive investors. These transactions are considered by the staff to be capital transactions in substance, rather than business combinations. That is, the transaction is equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation, accompanied by a recapitalization.” Accordingly, the reverse acquisition has been accounted for as a recapitalization. For accounting purposes, the original PharmaFrontiers Corp. is considered the acquirer in the reverse acquisition. The historical financial statements are those of the original PharmaFrontiers Corp. Earnings per share for periods prior to the merger are restated to reflect the number of equivalent shares received by the acquiring company.
 
 
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Impairment of Long-Lived Assets. We review long-lived assets and certain identifiable assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, further impairment analysis is performed. An impairment loss is measured as the amount by which the carrying amount exceeds the fair value of assets.
 
Stock-Based Compensation. We have adopted FAS No. 123, “Accounting for Stock-Based Compensation” for non-cash stock-based compensation issued to employees, directors and non-employees for goods or services. FAS No. 123 allows companies to continue to measure compensation costs for employees and directors using the intrinsic value method as prescribed by APB Opinion 25; however, the fair value method must be used to measure compensation costs issued to non-employees. FAS No. 123 states that the fair value method of accounting for stock-based compensation is preferable to the intrinsic value method; therefore, we use the fair value method to measure all stock-based compensation, including stock-based compensation to our employees and directors. Under this method, compensation cost is measured at the fair value of the award on the applicable measurement date. See Note 1 of the Notes to Consolidated Financial Statements for the pro forma net income and net income per share amounts, for Fiscal 2004 through Fiscal 2005, as if the Company had used a fair-value-based method similar to the methods required under SFAS 123R to measure compensation expense for employee stock incentive awards. The Company is evaluating the terms and structure of its current share based payments and does not expect the adoption to have a significant, adverse impact on the consolidated statements of income and net income per share as it relates to current granted options and warrants as of the date of the adoption.
 
Consolidation of Variable Interest Entities. In January 2003, the FASB issued Interpretation No. 46(R) (“FIN 46”), Consolidation of Variable Interest Entities. FIN 46 addresses consolidation by business enterprises of variable interest entities (formerly special purpose entities). In general, a variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. The objective of FIN 46 is not to restrict the use of variable interest entities, but to improve financial reporting by companies involved with variable interest entities. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements are effective for the first period that ends after March 15, 2004; the Company elected to adopt the requirements effective for the reporting period ending December 31, 2005. The adoption of FIN 46 had no effect on the consolidated financial statements.
 
Research and Development. The costs of materials and equipment or facilities that are acquired or constructed for research and development activities and that have alternative future uses are capitalized as tangible assets when acquired or constructed. The cost of such materials consumed in research and development activities and the depreciation of such equipment or facilities used in those activities are research and development costs. However, the costs of materials, equipment, or facilities acquired or constructed for research and development activities that have no alternative future uses are considered research and development costs and are expensed at the time the costs are incurred.
 
-15-

 
OUR BUSINESS
 
Overview
 
We are a biopharmaceutical company engaged in developing autologous personalized cell therapies. Our strategy is to develop and commercialize cell therapies to treat several major diseases including multiple sclerosis, cardiovascular diseases, and diabetes. We have an exclusive license to an individualized T cell therapy that is in FDA Phase I/II human dose ranging clinical trials to evaluate its safety and effectiveness in treating multiple sclerosis. We also have an exclusive license to a stem cell technology in which adult pluripotent stem cells are derived from monocytes obtained from the patient’s own blood. We are initially pursuing indications in heart failure and Type I diabetes with our stem cell therapy.
 
Our lead product, Tovaxin™, is a T-cell-based therapeutic vaccine for MS, offering a unique and personalized approach to treating the disease by inducing an immune response against the pathogenic myelin autoreactive T-cells. Tovaxin has just been accepted by the U.S. Food and Drug Administration’s (FDA) Center for Biologics Evaluation and Research (CBER) for a Phase IIb clinical study, entitled “A Multicenter, Randomized, Double-Blind, Placebo-Controlled Study of Subcutaneous Tovaxin™ in Subjects with Clinically Isolated Syndrome or Relapsing Remitting Multiple Sclerosis” following two successful Phase I/II open-label studies. The results from two Tovaxin Phase I/II clinical trials provided safety and effectiveness information. Human trials have shown that the our T-cell vaccination (TCV) safely induces immune responses that deplete and regulate myelin autoreactive T-cells, thus stabilizing the disease and it is the first MS drug to demonstrate sustained improvement in many of the patients and sustained reversal of disability in some of the patients that were treated. Moreover, we are evaluating T-cell assay technology, which can be used to monitor T-cell therapy and may have the potential for early diagnosis of MS.
 
We also hold the exclusive worldwide license to adult pluripotent stem cells derived from peripheral blood monocytes that allow for the isolation, propagation, and differentiation into cells and tissues for patient-specific cell-based therapies. We are currently pursuing indications for congestive heart failure (CHF) and Type 1 diabetes (T1D) with its stem cell technology. We expect to conduct basic research to determine the potential use of its stem cells in other indications, such as macular degeneration, stroke, and Parkinson’s disease.
 

Overview of PharmaFrontiers Corp Technologies and Programs
 
 
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In the United States, approximately 400,000 people suffer from multiple sclerosis, a chronic progressive autoimmune disease of the central nervous system (CNS) that is caused by myelin autoreactive T-cells progressively eroding the myelin that surrounds and insulates nerve fibers of the brain and spinal cord. Globally, there are approximately 2.5 million MS patients representing a drug market in excess of $4 billion. The US markets accounted for 50 per cent of global MS sales in 2004, at US$2.3 billion. MS remains a challenging autoimmune disease to study because the pathophysiologic mechanisms are diverse, and the chronic, unpredictable course of the disease makes it difficult to determine whether the favorable effects of short-term treatment will be sustained. Therapies that can prevent or stop the progression of disease and allow reversal of the neurological damage and disability caused by the disease represent the greatest unmet need in MS.
 
In recent years, the understanding of MS pathogenesis has evolved to comprise an initial, T-cell-mediated inflammatory activity followed by selective demyelination (erosion of the myelin coating of the nerve fibers) and then neurodegeneration. The discovery of disease-relevant immune responses has accelerated the development of targeted therapeutic products for the treatment of the early stages of MS. Healthy individuals have been found to have autoreactive T-cells, which recognize a variety of self-antigens (e.g., myelin basic protein [MBP], proteolipid protein [PLP], and myelin oligodendrocyte glycoprotein [MOG]) as part of the normal T-cell repertoire and circulate naturally in the periphery without causing an autoimmune disease.
 
Some subjects unfortunately who have the appropriate genetic background have increased susceptibility for the in vivo activation and clonal expansion of myelin autoreactive T-cells. These myelin autoreactive T-cells may remain dormant, but at some point they are activated in the periphery, possibly by molecular mimicry (i.e., recognition of epitopes that are common to autoantigens and microbial antigens as exogenous triggers), thus enabling them to cross the blood-brain barrier (BBB) and infiltrate the healthy tissue of the brain and spinal cord. The cascade of pathogenic events leads to demyelination of axons, which causes nerve impulse transmissions to diffuse into the tissue.
 
 
Current Therapy for Multiple Sclerosis 
 
Current MS disease modifying drugs on the market are only palliative and generally work through a mechanism of immunomodulation or immunosuppression. These therapies for MS are dominated by three forms of interferon that require frequent subcutaneous or intramuscular injections. Copaxone is an immunomodulator composed of a random copolymer of amino acids that is administered daily. Novantrone (mitoxanthrone) is an immunosuppressive  drug that can only be given four times  per year with a life
 
-17-

 
time limit of 8 to 12 doses. All of the current therapies only slow the progression of MS and they have significant patient compliance challenges because of the dosing schedule, limited decrease in relapse rate, side effects profile (e.g., the interferon formulations produce severe flu-like symptoms, injection site reactions, infection and neutralizing antibodies (range from 5% to 45%) are developed that limits the efficacy of treatment; copaxone causes significant injection site reactions; while novantrone causes infections, bone marrow suppression, nausea, hair thinning, bladder infections, and mouth sores). These drugs must be administered daily to weekly and they reduce relapses by about 38-75% (as compared to a patient’s prior 2-year history).
 
Tysabri, a selective adhesion molecule inhibitor (an alpha 4 integrin antagonist), represents another class of MS drugs which works by preventing immune system cells (all leukocytes carrying the alpha 4 integrin glycoprotein on their surface) from crossing the BBB and move into the CNS. Unfortunately, Tysabri blocks the movement of all inflammatory T-cells not just the myelin autoreactive T-cells and leaves patients at a risk of life threatening infections. Tysabri with a reduction in relapse rates of 67% (versus placebo) was still expected to generate $2 to 3 billion in peak annual sales in an existing products market of approximately $4 billion had it not been for the severe side effects.
 
A number of companies have committed resources to research and development programs to develop novel MS drug therapies. These programs represent incremental improvements over current therapy and their mechanisms of action are similar to current therapy. Tovaxin is the only whole T-cell based vaccination strategy that safely and effectively eliminates the myelin autoreactive T-cells and induces immune tolerance with the potential to prevent the disease or stop disease progression and perhaps to allow the reversal of disease symptoms and progression to severe disability.
 
In our open-label Phase I/II studies, Tovaxin has shown a reduction in relapses in excess of 90% with virtually no side effects based on only 4 injections annually administered over 3-4 months. Furthermore, approximately 40% of the MS patients treated with Tovaxin demonstrated a reversal of disability as measured by the Kurtzke Expanded Disability Status Scale (EDSS; a method of quantifying disability of MS patients) while the remainder of patients (except for one relapse) experienced no progression of disease. Based on the results of the Phase I/II studies a Phase IIb clinical trial to study Tovaxin therapy in early (clinically isolated syndrome (CIS) and early relapsing remitting (RR)) MS patients has been cleared by the FDA and is scheduled to be initiated the first half of 2006.
 
 
Tovaxin™ for Multiple Sclerosis
 

Tovaxin works selectively on the myelin autoreactive T-cells by harnessing the body’s natural immune defense system and feedback mechanisms to deplete these T-cells and induce favorable immune regulatory responses which rebalance the immune system. Tovaxin induces immune responses that deplete (Appendix C) and regulate the myelin autoreactive pro-inflammatory T-cells that cause the inflammation and erosion of the myelin sheath resulting in MS. Specifically, Tovaxin is manufactured by taking the MRTCs from the blood, expanding them to a therapeutic dose ex-vivo, and attenuating them with gamma irradiation to prevent DNA replication. These attenuated MRTCs are then injected subcutaneously into the body in large quantities. The body recognizes specific T-cell receptor molecules of these MRTCs as foreign and mounts an immune response reaction against them, not only destroying the injected attenuated MRTCs, but also the circulating, myelin autoreactive T-cells carrying the peptide-specific T-cell receptor molecules. In addition, T-cell activation molecules on the surface of the activated MRTCs used as vaccine induce favorable immune regulatory responses, which promote anti-inflammatory responses. Because the therapy uses an individual’s own cells, the only directly identifiable side effect is injection site reaction in a small percentage of the patients. These reactions clear within 24 hours. Clinical studies indicate that following TCV therapy the body does not attack normal T-cells so the patient is not put at peril for side effects and life threatening infections.
 
-18-

 
Tovaxin consists of a trivalent formulation (MBP, PLP and MOG) of attenuated myelin-peptide reactive T-cells (MRTCs) which targets only the myelin-specific subset of T-cells. Current therapies on the market and under development do not eliminate the MRTCs and are, therefore, only a palliative treatment to reduce the frequency and occurrence of MS symptoms. The current iteration of Tovaxin is a trivalent formulation, which uses six peptides (two each from three myelin proteins) to select the MRTCs. This formulation is very pharmacologically active with only minimal local and systemic side effects. Tovaxin, a whole T-cell vaccine, is a completely new class of drug for MS that works in concert with the body’s immune regulatory system to suppress the T-cell-mediated inflammatory activity and deplete the MRTCs.
 
This same technology platform will have application in other T-cell mediated diseases such as Crohn’s disease, psoriasis, rheumatoid arthritis and type 1diabetes.
 
Tovaxin™ Intellectual Property 

Tovaxin is protected by a series of patents and patent applications. There is also substantial know-how surrounding the Tovaxin manufacturing process that should be patentable.
 
The technology was discovered by Dr. Jingwu Zhang of Baylor College of Medicine in Houston. We have an exclusive, worldwide license from the Baylor College of Medicine to develop and commercialize three technology areas for MS, namely T-cell vaccination, peptides, and diagnostics. Under the License Agreement with the Baylor College of Medicine, we have rights to a total of 7 patents (2 U.S. and 5 foreign) and 69 patent applications (6 U.S., 62 foreign, and 1 Patent Cooperation Treaty [PCT]).
 
The license was granted to us by Baylor in exchange for common stock in Opexa Pharmaceuticals, Inc. (acquired by us in November 2004). The key terms of the agreement are: exclusive, worldwide, and a 2% royalty on net sales of licensed products. The royalty decreases after the aggregate net sales exceed $500 million. There are no other performance or payment terms in the license. We also have a separate consulting agreement with the inventor, Dr. Jingwu Zhang, which grants us the right of first refusal on all future discoveries made by Dr. Zhang.
 
Tovaxin™ Manufacturing 

We manufacture our TCV therapy in our own GMP facility. The TCV technology is similar to that of traditional microbial vaccine technology, where the pathogen (or the attenuated derivative) is used to derive the protective antigens necessary to induce protective immune responses. In preparing a TCV therapy, the myelin autoreactive T-cells causing the disease are taken from the blood, specifically identified, and expanded ex vivo by incubating these T-cells with MBP, PLP, and MOG-selected peptides in the presence of antigen-presenting cells and growth factors. Myelin-peptide reactive T-cells are grown to therapeutic levels and cryopreserved. Prior to use, the MRTCs are expanded, formulated, and attenuated (by irradiation) to render them incompetent to replicate but viable for therapy. These attenuated T-cells are administered subcutaneously through a series of injections. A single draw of a 500 ml bag of blood is sufficient to provide a full year’s therapeutic regime of Tovaxin.
 
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We have improved the manufacturing process of Tovaxin. Based on a new process, turnaround (receipt of blood from the patient and return Tovaxin to the patient) is decreased from 12 to 5 weeks and it is anticipated that the material and labor costs of an annual course of therapy will be approximately $4,000. Current therapies are priced at $16,000 to $25,000 annually. The price of newer therapies with better safety and efficacy profiles are anticipated to be priced at $20,000 to $25,000 annually.
 
We have also validated supply chain logistics improvements that make manufacturing with a regional central facility economical. The viability of blood MRTCs from the time the blood is drawn from the patient to receipt at the processing facility has been established at a minimum of 24 hours, which is sufficient for anywhere in the United States and, likely, Canada. Experiments are underway to determine whether blood MRTCs viability can be extended to at least 72 hours. Stability on the final TCV formulation for injection into patients has already been established at 72 hours. We are actively conducting experiments to improve the stability profile of Tovaxin.
 
We have developed a supply chain agreement with Lifeblood Biological Services (Memphis, TN) in which Lifeblood will manage blood collection and shipment to our manufacturing facility using the same infrastructure that is used to collect transfusable products. We will manage direct shipment of the TCV to the investigator for administration to patient.
 
Clinical Development of Tovaxin
 
 The intent of our clinical development program is to position Tovaxin as first-line therapy for MS. Improvements in efficacy combined with the inherent safety of the treatment make this goal realistic. If successful, Tovaxin would be the first product that specifically targets the “root cause” of MS—the myelin autoreactive T-cells. Compared to other treatments available, this therapy is individualized autologous, easier to tolerate and potentially places the disease into remission. If patients are treated early enough in the disease course, this therapy may prevent progression to more serious forms of MS and possibly allows the reversal of disease. Furthermore, Tovaxin seems to be appropriate to be combined with existing therapies to form a therapeutic cocktail that could be used over the entire life cycle of a patient as other treatments are added or replaced. Remyelination therapies should be easier to develop and implement following the depletion and regulation of the myelin autoreactive T-cells.
 
The clinical effectiveness of whole T-cell vaccines has evolved from 1990 to 2005 due to formulation improvements. There are three primary myelin proteins (MBP, MOG and PLP) that have been implicated in T-cell pathogenesis of MS. In the early 1990’s, Dr. Zhang used monovalent MBP-reactive T cell formulations to treat patients in an open-label clinical trial, which demonstrated an excellent safety profile and a 40% reduction in Annualized Relapse Rate (ARR; a primary outcome measure for licensing MS therapies) (Table 1). Patients treated in Israel with a divalent (MBP, MOG) formulation had an excellent safety profile and reduced ARR by 55% (Table 1). Most recently, patients treated in our Phase I/II open-label studies with trivalent (MBP, MOG, and PLP) formulations had an excellent safety profile and reduced ARR by 93% (Table 1). In the upcoming Phase IIb trial, a new formulation refinement will be implemented that is expected to further improve efficacy.
 
 
 
 
 
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Table 1. Comparison of Annual Relapse Rate Reductions with T-Cell Vaccine Formulations
T-Cell Vaccine
Formulation
Peptide
Formulation
Annual Relapse Rate
Reduction (%)*
Number Patients
Monovalent
MBP
40
114
Divalent
MBP, MOB
55
20
Trivalent
MBP, MOG, PLP
93
16
Patient-Specific**
Variable based on patient-specific T-cells
TBD***
150
* All three clinical trials were open-label. ** The Phase IIb trial will select peptide-specific myelin-reactive T-cells to tailor the T-cell vaccine specifically for the individual patient. *** TBD = to be determined. Over the past 10 years 150 patients have been treated with T-cell vaccine.
 
Tovaxin™ Phase IIb

The Phase IIb trial, entitled “A Multicenter, Randomized, Double-Blind, Placebo-Controlled Study of Subcutaneous Tovaxin™ in Subjects with Clinically Isolated Syndrome or Relapsing Remitting Multiple Sclerosis”, to be initiated in the first half of 2006, will be a multi-site double-blind, randomized, placebo-controlled 150 (100 treated, 50 placebo) patient trial. The patient population will be those patients with early stage disease where Tovaxin is likely to have its greatest impact. The primary endpoint will be lesion evaluation (the total number of gadolinium-enhancing lesions) via MRI with a secondary endpoint being annual relapse rate. This trial is designed to rigorously demonstrate the safety and efficacy of Tovaxin in the fastest, most economical manner prior to initiating a pivotal Phase III trial approximately the second half of 2007.
 
A rigorous, blinded study is now required using patient-specific formulation(s) in subjects with early stage disease (where the therapy is likely to work best) to specifically define safety and efficacy parameters prior to entering a Phase III registration study. The Tovaxin vaccine unlike other MS products in development activates regulatory T-cells (Tregs) that (1) induce the depletion of the myelin autoreactive T-cells (anti-idiotypic response of anti-id networks of CD4+ and CD8+ Tregs) that recognize specific MRTCs by their unique TCR CDR3 peptides, and (2) induce immune responses to T-cell activation markers (anti-ergotypic response that recognizes the state of activation of T-cells irrespective of their TCR specificity), and (3) skews the pro-inflammatory Th1 phenotype autoantigen-specific cells that produce IFN-gamma and interleukin [IL]-2 and IL-12 to anti-inflammatory Th2 phenotype autoantigen-specific cells that produce IL-4, IL-10, IL-6 and IL-12. These combined effects of TCV have the potential to allow the body to repair the multiple sclerosis lesions.
 
Stem Cell Therapy
Stem cells are undifferentiated primary cells that have the potential to become any tissues and organs of the body. They hold enormous therapeutic promise for the development of effective treatments and possibly cure various diseases. Hematopoietic stem cells, present in the bone marrow and precursors to all blood cells, are currently the only type of stem cells commonly used for therapy. Doctors have been transferring HSCs in bone marrow transplants for more than 40 years. Advanced techniques for collecting or “harvesting” HSCs are now used to treat leukemia, lymphoma and several inherited blood disorders.
 
The clinical potential of stem cells has also been demonstrated in the treatment of other human diseases, including diabetes and advanced kidney cancer. However, these new therapies have been offered only to a very limited number of patients using adult stem cells.
 
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New clinical applications for stem cells are currently being tested therapeutically for the treatment of liver diseases, coronary diseases, autoimmune and metabolic disorders (amyloidosis), chronic inflammatory diseases (lupus) and other advanced cancers.
 
Unfortunately stem cell therapies have technical, ethical and legal hurdles to overcome before they will be able to be used to effect tissue and organ repair in disease states that heretofore have only treated the symptoms. A significant hurdle to most uses of stem cells is that scientists do not yet fully understand the signals that turn specific genes on and off to influence the differentiation of the stem cell. Therefore, scientists will have to be able to precisely control the differentiation of stem cells into the specific cell type to be used in therapy and drug testing Current knowledge of the signals controlling differentiation fall well short of being able to mimic these conditions precisely to consistently have identical differentiated cells for each specified use.
 
To realize the promise of novel cell-based therapies for such pervasive and debilitating diseases, scientists must be able to easily and reproducibly manipulate stem cells so that they possess the necessary characteristics for successful differentiation, transplantation and engraftment. The following is a list of steps in successful cell-based treatments that scientists will have to learn to precisely control to bring such treatments to the clinic. To be useful for transplant purposes, stem cells must be reproducibly made to:
 
o  
Proliferate extensively and generate sufficient quantities of tissue
o  
Differentiate into the desired cell type(s)
o  
Survive in the recipient after transplant
o  
Integrate into the surrounding tissue after transplant
o  
Function appropriately for the duration of the recipient's life
o  
Avoid harming the recipient in any way
o  
Avoid the problem of immune rejection

Although there are many ways to access stem cells, our autologous blood monocyte-derived stem cells offer distinct advantages. The press has been focused on embryonic stem cells because, intrinsically, they have the most potential but recent studies have indicated that adult stem cells maybe better clinically. Embryonic stem cells have three major drawbacks: (1) They are very expensive to access, requiring 150 to 250 embryos to develop one cell line; (2) They are very difficult to control; and (3) They are used by administering them into another individual (allogeneic), thus risking rejection. Some of these drawbacks can be overcome if the cord blood stem cells are frozen at birth; but most people have not done this. Therefore, the only practical way to access one’s own stem cells is either through bone marrow, the spinal cord or fat tissue. All of these procedures require expensive, hospital treatment and are fairly traumatic to the patient.
 
Stem cell transplants have been shown to be successful. Investigators have conducted clinical studies on late stage heart failure patients using stem cells from the patients’ bone marrow injected directly into the damaged parts of the heart. This procedure involved threading a catheter through an artery into the left ventricle (the heart’s main pumping chamber) and “mapping” specific sites of muscle damage. Stem cells were then injected into these areas. After two months, the treated patients had significantly less heart failure and angina and were better able to pump blood than the untreated patients. The treated group also tended to do better on treadmill tests, and after four months, the treated patients had a sustained improvement in pumping power and the ability to supply blood to the entire body. A summary of several studies using stem cells to treat heart failure is provided in Appendix D.
 
Stem Cell Platform
 
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Our second exciting opportunity and comprehensive technology platform involves a proprietary process to produce large quantities of monocyte-derived stem cells (MDSC) from blood at a relatively low cost. The importance of these MDSC is that they can be prepared from a patient’s monocytes, expanded ex vivo, and then administered to the same patient. Because this is an autologous therapy, there should be no rejection issues and no need for the use of debilitating anti-rejection drugs. Moreover, this method avoids the controversial ethical issues associated with embryonic stem cells. Lastly, since the source of MDSC is the patient’s own peripheral blood, it has the advantage of being abundant, easy to obtain even on a repetitive basis, and cost effective.
 
Adult stem cells are unspecialized cells that have potential to develop into many different cell types in the body. Adult stem cells are believed to be a potential autologous renewable replacement source which might be used to treat various diseases, such as heart disease, type 1 diabetes, stroke, heart attack, burn injuries, spinal cord injuries, Parkinson’s and Alzheimer’s diseases, and many others. Adult stem cells are in clinical trials globally and are currently being used therapeutically in Thailand where hematopoietic stem cells (HSCs) are being used to treat cardiac disease (severe angina pectoris). In addition, adult stem cells are in clinical trials in the U.S. (mesenchymal stem cells), Brazil, Uruguay and Europe (bone marrow derived stem cells).
 
Working either alone or in conjunction with strategic partners, we intend to utilize these MDSC from the same patient to effect autologous tissue or organ repair. The initial internal therapeutic targets are late stage heart failure and type 1 diabetes. Other therapeutic targets would be pursued through early-stage licensing or strategic alliances. This program is currently in pre-clinical development. The value proposition is to confirm that we can make large amounts of inexpensive functional stem cells from easily accessible monocytes and then leverage off the advances being made globally to accelerate clinical trials.
 
Our technology and solution circumvents many of the problems other stem cell technologies have by being able to access large quantities of pluripotent (able to self replicate and be differentiated into all cell types except germ cells) stem cells from a patients own blood. The proprietary system works by first separating the monocytes (a type of white blood cell) from a patient’s blood. These monocytes are then reversed in their evolution (de-differentiated) by applying specific growth factors to them to yield a unique MDSC. Blood is rich in monocytes and a 500 ml bag of blood will yield over 100 million stem cells.
 
 
 
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Stem Cell Pre-Clinical and Clinical Development

We plan to conduct pre-clinical animal studies on these MDSC in the first quarter of 2006 before filing and IND. The plan is to leverage off of extensive international research and clinical trials and develop these cells internally for late stage heart failure and type 1 diabetes. All other potential applications will be out-licensed to generate upfront cash, milestone payments, and royalties.
 
Type 1 diabetes and heart failure were chosen for internal development because they are large markets (over 1 million patients in the U.S.) and we have a proprietary method of creating islet cells. Stem cell research using more expensive processes has shown encouraging clinical results for the use of cellular therapy in these indications. The objective will be to develop these programs through proof of principle in human and then out-license them to a major company.
 
Stem Cell Intellectual Property
 
We have an exclusive, worldwide license from the University of Chicago, through its prime contractor relationship with Argonne National Laboratory, to the development of pluripotent stem cells from monocytes isolated from human peripheral blood and their use in treating diseases. The technology was discovered at the Argonne National Laboratory, a U.S. Department of Energy Laboratory. Under the License Agreement with the University of Chicago, we have the rights to a total of 8 patent applications (3 US, 2 PCT and 3 Foreign). We hold a license to produce cells that generate insulin using its core stem cell technology as well as a license for the use of some unique growth factors, which have overcome the challenge of differentiating an adult stem cell to produce insulin. A patent application has been filed for the use of MDSC to develop beta-islet cells for treatment of type 1 diabetes. We have filed a patent application for the use of MDSC to treat heart disease based on technology developed by us since acquiring the license from the University of Chicago. Under the terms of this license, the University is entitled to 4% royalty on sales.
 
Stem Cell Strategy 
 
We will review possible strategic partners for stem cells following the proof-of-principle in animal models and the submission of an IND for diabetes and cardiology. Possible licensing would be for marketing rights in exchange for upfront money, milestone payments, payment of all ongoing clinical costs in licensed territories, and royalties on sales.
 
Synergy between T-Cell Vaccination and Stem Cell Therapeutics
 
Insulin dependent type 1 diabetes (T1D; insulin dependent diabetes (IDDM)) mellitus is a T cell-mediated inflammatory autoimmune disease of the pancreas, resulting in a lack of insulin. In a person with T1D, beta cells of Langerhans are damaged by autoimmune inflammation, leading to an insufficiency of insulin. In T1D several autoantigen-specific T cell autoreactivities have been identified. These include islet-specific antigens, like insulin, and other nonislet-specific antigens, like glutamic acid decarboxylase (GAD), carboxypeptidase H (CPH), and tyrosine phosphatase (IA-2) among others. Of all the known autoantigens implicated in the disease process, treatment with only insulin, GAD 65, and the heat shock protein 60 (HSP60) peptide p277 can protect nonobese diabetic (NOD) mice from disease. Insulin and GAD 65 are also the most prominent islet autoantigens shown to be recognized by peripheral T cells from T1D patients. These antigens, among others, may form the basis for a PharmaFrontier’s TCV therapy for T1D.
 
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Our TCV program has significant synergy with our stem cell program with respect to the treatment modality for T1D. Because autoreactive T-cells are implicated in the destruction of beta cells, a therapeutic strategy that includes T1D TCV followed by new stem cell derived beta cell replacement could be an extraordinary therapy or cure for T1D.
 
Licenses, Patents and Proprietary Rights
 
We believe that proprietary protection of our technologies will be critical to the development of our business. We intend to protect our proprietary intellectual property through patents and other appropriate means. We rely upon trade-secret protection for some confidential and proprietary information and take active measures to control access to that information. We currently have non-disclosure agreements will all of our employees.
 
Our intellectual property strategy includes developing proprietary technology for the sourcing, scale up, manufacturing, and storage of T cells and pluripotent adult stem cells and the use of these cells in multiple therapeutic applications. This strategy will include expanding on technologies in-licensed to us as well as in-licensing additional technologies through collaborations with universities and biotech companies.
 
We have licenses to certain patents that relate to our T cell technology and our pluripotent adult stem cell technology.
 
T Cell Therapy IP
 
We have an exclusive, worldwide license from the Baylor College of Medicine to patent applications claiming rights to the treatment of multiple sclerosis using modified T cells and to the use of the T cell technology as a diagnostic. Under the Baylor license we are obligated to pay a percentage of net sales of products subject to the licensed patents.
 
We also have an exclusive worldwide license for the intellectual property rights and research results of an autologous T cell vaccine for the treatment of rheumatoid arthritis from the Shanghai Institutes for Biological Sciences (SIBS), Chinese Academy of Sciences of the People's Republic of China. Pursuant to the SIBS license agreement, we made an initial payment to SIBS and we are obligated to pay a percentage of net sales of products subject to the licensed technology. SIBS’ initial human clinical trial results indicate that the T cell vaccination induces immune responses that correlate with clinical improvements measured as reductions in ACR50 (American College Rheumatology (ACR) criteria, which measures joint swelling and tenderness and other factors such as pain and disability) and reductions in rheumatoid arthritis laboratory parameters
 
Stem Cell Therapy IP
 
We have an exclusive, worldwide license from the University of Chicago to a patent application claiming rights to the development of adult pluripotent stem cells from monocytes isolated from adult human peripheral blood. The technology was developed at the Argonne National Laboratory, a U.S. Department of Energy Laboratory operated by the University of Chicago.
 
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Pursuant to the license we have issued a total of 533,064 shares of our common stock to the University of Chicago. We have also agreed to pay the University of Chicago $1.5 million upon the earlier of April 30, 2006 or our raising $10 million or more in any financing. We are also obligated to issue to the University of Chicago sufficient additional shares of common stock so that the University holds a total of 2.6% of our outstanding stock after our raising $10 million or more in any financing. We have agreed to pay a percentage of royalties on sales of products subject to the licensed patents, as well as sublicense fees. In addition, the University of Chicago license requires us to expend on research and development at least $2,000,000 before February 2006 and at least an additional $4,000,000 before February 2008. To date the Company has spent in excess of $2,000,000 and has met our obligations required by the license. The license also requires us to sell a product or method based on the licensed technology by February 2011.
 
Research Collaborations
 
We anticipate that from time to time in the future we will enter into collaborative research agreements with other academic and research institutions. We will use such agreements to enhance our research capabilities. Typically, in the industry, such agreements provide the industry partner with rights to license the intellectual property created through the collaboration. We may also enter into collaborative research agreements with other pharmaceutical companies when we believe such collaboration will support the development and commercialization of our technology.
 
Commercialization Through Third Parties
 
We anticipate that we will grant sublicenses for certain applications of our technologies. We believe that by sublicensing some of the rights to our technology to pharmaceutical companies and other third parties, we will be able to more efficiently develop some applications of our technologies. We currently do not have any sublicenses.
 
Competition
 
The development of therapeutic and diagnostic agents for human disease is intensely competitive. Major pharmaceutical companies currently offer a number of pharmaceutical products to treat heart attack, stroke, Parkinson’s disease, diabetes, liver diseases, arthritis and other diseases for which our technologies may be applicable. Many pharmaceutical and biotechnology companies are investigating new drugs and therapeutic approaches for the same purposes, which may achieve new efficacy profiles, extend the therapeutic window for such products, alter the prognosis of these diseases, or prevent their onset. We believe that our products, when and if successfully developed, will compete with these products principally on the basis of improved and extended efficacy and safety and their overall economic benefit to the health care system. We expect competition to increase. We believe that our most significant competitors will be fully integrated pharmaceutical companies and more established biotechnology companies. Smaller companies may also be significant competitors, particularly through collaborative arrangements with large pharmaceutical or biotechnology companies. Some of our primary competitors in the current treatment of and in the development of treatments for multiple sclerosis include Biogen, Elan, Serono, Aventis, Teva, and Schering AG. Some of our primary competitors in the development of stem cell therapies include Aastrom Biosciences, Geron, Gamida-Cell Ltd, Stem Cells Inc., Cellerant Therapeutics, Viacell, and Osiris Therapeutics. Many of these competitors have significant products in development that could be competitive with our potential products.
 
Sales and Marketing
 
We intend to develop a sales force to market our multiple sclerosis cell therapy and diagnostic products in the U.S. Given the concentration of multiple sclerosis among a relatively small number of specialized neurologists, we believe that a modest size sales force would be sufficient to market the multiple sclerosis products. Our plan is to start building the sales force with the launch of the multiple sclerosis diagnostic products.
 
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We expect to partner with large biotech and pharmaceutical companies for the marketing and sales of our stem cell therapy products.
 
Description of Property 
 
Our principal executive offices are located at 2635 N. Crescent Ridge Drive, The Woodlands, Texas, and our telephone number is (281) 272-9331. This 10,200 sq. ft. facility is located on 3 acres. This location provides space for research and development laboratories; a specialized flow cytometry and microscopy lab; support of clinical trials with GMP manufacturing suites; quality systems management with a quality control laboratory, regulatory affairs offices, quality assurance space; as well as administrative support space. There is 2500 sq. ft. of space in the facility still available for future build-out. The facility including the property is leased for a term of ten years with two options for an additional five years each at the then prevailing market rate. We believe that our lease is at a competitive or market rate.
 
Government Regulation
 
Our research and development activities and the future manufacturing and marketing of our potential products are, and will be, subject to regulation for safety and efficacy by a number of governmental authorities in the United States and other countries.
 
In the United States, pharmaceuticals, biologicals and medical devices are subject to Food and Drug Administration or FDA, regulation. The Federal Food, Drug and Cosmetic Act, as amended, and the Public Health Service Act, as amended, the regulations promulgated thereunder, and other Federal and state statutes and regulations govern, among other things, the testing, manufacture, safety, efficacy, labeling, storage, export, record keeping, approval, marketing, advertising and promotion of our potential products. Product development and approval within this regulatory framework takes a number of years and involves significant uncertainty combined with the expenditure of substantial resources.
 
FDA Approval
 
We will need to obtain FDA approval of any therapeutic product we plan to market and sell. The steps required before our potential products may be marketed in the United States include:
 
1.  Preclinical Laboratory and Animal Tests. Preclinical tests include laboratory evaluation of the product and animal studies in specific disease models to assess the potential safety and efficacy of the product and our formulation as well as the quality and consistency of the manufacturing process.
 
2.  Submission to the FDA of an Application for an Investigational New Drug Exemption, or IND, Which Must Become Effective Before U.S. Human Clinical Trials May Commence. The results of the preclinical tests are submitted to the FDA as part of an IND, and the IND becomes effective 30 days following its receipt by the FDA, as long as there are no questions, requests for delay or objections from the FDA.
 
3.  Adequate and Well-Controlled Human Clinical Trials to Establish the Safety and Efficacy of the Product. Clinical trials involve the evaluation of the product in healthy volunteers or, as may be the case with our potential products, in a small number of patients under the supervision of a qualified physician. Clinical trials are conducted in accordance with protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Any product administered in a U.S. clinical trial must be manufactured in accordance with clinical good manufacturing practices, or GMP, determined by FDA. Each protocol is submitted to the FDA as part of the IND.
 
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The protocol for each clinical study must be approved by an independent Institutional Review Board, or IRB, at the institution at which the study is conducted and the informed consent of all participants must be obtained. The IRB will consider, among other things, the existing information on the product, ethical factors, the safety of human subjects, the potential benefits of the therapy and the possible liability of the institution.
 
Clinical development is traditionally conducted in three sequential phases, which may overlap:
 
·  
In Phase I, products are typically introduced into healthy human subjects or into selected patient populations to test for adverse reactions, dosage tolerance, absorption and distribution, metabolism, excretion and clinical pharmacology.
 
·  
Phase II involves studies in a limited patient population to (i) determine the efficacy of the product for specific targeted indications and populations, (ii) determine optimal dosage and dosage tolerance and (iii) identify possible adverse effects  
and safety risks. When a dose is chosen and a candidate product is found to be effective and to have an acceptable safety profile in Phase II evaluations, Phase III trials begin.
 
·  
Phase III trials are undertaken to conclusively demonstrate clinical efficacy and to test further for safety within an expanded patient population, generally at multiple study sites.
 
The FDA continually reviews the clinical trial plans and results and may suggest changes or may require discontinuance of the trials at any time if significant safety issues arise.
 
1.   Submission to the FDA of Marketing Authorization Applications. The results of the preclinical studies and clinical studies are submitted to the FDA in the form of marketing approval authorization applications.
 
2.   FDA Approval of the Application(S) Prior to Any Commercial Sale or Shipment of the Drug Biologic Product Manufacturing Establishments Located in Certain States Also May be Subject to Separate Regulatory and Licensing Requirement. The testing and approval process will require substantial time, effort and expense. The time for approval is affected by a number of factors, including relative risks and benefits demonstrated in clinical trials, the availability of alternative treatments and the severity of the disease. Additional animal studies or clinical trials may be requested during the FDA review period, which might add to that time.
 
After FDA approval for the product, the manufacturing and the initial indications, further clinical trials may be required to gain approval for the use of the product for additional indications. The FDA may also require unusual or restrictive post-marketing testing and surveillance to monitor for adverse effects, which could involve significant expense, or may elect to grant only conditional approvals.
 
FDA Manufacturing Requirements
 
Among the conditions for product licensure is the requirement that the prospective manufacturer’s quality control and manufacturing procedures conform to the FDA’s current good manufacturing practices, or GMP, requirement. Even after product licensure approval, the manufacturer must comply with GMP on a continuing basis, and what constitutes GMP may change as the state of the art of manufacturing changes. Domestic manufacturing facilities are subject to regular FDA inspections for GMP compliance, which are normally held at least every two years. Foreign manufacturing facilities are subject to periodic FDA inspections or inspections by the foreign regulatory authorities with reciprocal inspection agreements with the FDA. Domestic manufacturing facilities may also be subject to inspection by foreign authorities.
 
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Fast Track, Priority Review and Accelerated Approval
 
Fast Track refers to a process for interacting with the FDA during drug development. Priority Review applies to the time frame the FDA targets for reviewing a completed application. Accelerated Approval (Subpart H) applies to the design and content of the studies used to support a marketing claim.
 
Fast Track is a formal mechanism to interact with the FDA using approaches that are available to all applicants for marketing claims. The Fact Track mechanism is described in the Food and Drug Administration Modernization Act of 1997. The benefits of Fast Track include scheduled meetings to seek FDA input into development plans, the option of submitting a New Drug Application (NDA) in sections rather than all components simultaneously, and the option of requesting evaluation of studies using surrogate endpoints as discussed below. The Fast Track designation is intended for the combination of a product and a claim that addresses an unmet medical need, but is independent of Priority Review and Accelerated Approval. An applicant may use any or all of the components of Fast Track without the formal designation. Fast Track designation does not necessarily lead to a Priority Review or Accelerated Approval.
 
Priority Review is a designation for an application after it has been submitted to the FDA for review for approval of a marketing claim. Under the Food and Drug Administration Modernization Act of 1997, reviews for New Drug Applications, or NDAs, are designated as either Standard or Priority. A Standard designation sets the target date for completing all aspects of a review and the FDA taking an action on the application (approve or not approve) at 10 months after the date it was filed. A Priority designation sets the target date for the FDA action at 6 months. A Priority designation is intended for those products that address unmet medical needs.
 
Accelerated Approval or Subpart H Approval is a program described in the NDA regulations that is intended to make promising products for life threatening diseases available on the market on the basis of preliminary evidence prior to formal demonstration of patient benefit. The studies are designed to measure and the FDA evaluation is performed on the basis of a surrogate marker (a measurement intended to substitute for the clinical measurement of interest, usually prolongation of survival) that is considered likely to predict patient benefit. The approval that is granted may be considered a provisional approval with a written commitment to complete clinical studies that formally demonstrate patient benefit. The Federal Register published a discussion of Accelerated Approval with comments. Absent a formal demonstration of patient benefit, a risk benefit assessment cannot be made. Accelerated Approval designation does not necessarily lead to a Priority Review.
 
Proposed FDA Regulations
 
The FDA is requiring human cell, tissue, and cellular and tissue-based product (HCT/P) establishments to follow current good tissue practice, which governs the methods used in, and the facilities and controls used for, the manufacture of HCT/Ps; recordkeeping; and the establishment of a quality program. The agency is also issuing new regulations pertaining to labeling, reporting, inspections, and enforcement that will apply to manufacturers of those HCT/Ps regulated solely under the authority of the Public Health Service Act, and not as drugs, devices, and/or biological products.
 
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As part of this approach, the FDA has published final rules for registration of establishments that engage in the recovery, screening, testing, processing, storage or distribution of human cells, tissues, and cellular and tissue-based products, and for the listing of such products. These products specifically include stem cells that are progenitors of blood cells; however, the FDA makes no explicit statement regarding the inclusion of other types of stem cells. In addition, the FDA has published proposed rules for making suitability determinations for donors of cells and tissue and for current good tissue practice for manufacturers using them. We cannot now determine the full effects of this regulatory initiative, including precisely how it may affect the clarity of regulatory obligations and the extent of regulatory burdens associated with pluripotent adult stem cell research (for stem cells that give rise to various tissue types, including blood), and the manufacture and marketing of adult stem cell products.
 
Other Regulations
 
In addition to safety regulations enforced by the FDA, we are also subject to regulations under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act and other present and potential future foreign, Federal, state and local regulations.
 
Outside the United States, we will be subject to regulations that govern the import of drug products from the United States or other manufacturing sites and foreign regulatory requirements governing human clinical trials and marketing approval for our products. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursements vary widely from country to country. In particular, the European Union is revising its regulatory approach to high tech products, and representatives from the United States, Japan and the European Union are in the process of harmonizing and making more uniform the regulations for the registration of pharmaceutical products in these three markets.
 
Employees
 
As of December 31, 2005, we had 18 full time employees. We believe that our relations with our employees are good. None of our employees is represented by a union or covered by a collective bargaining agreement.
 
Legal Proceedings
 
We are not currently a party to any legal proceedings.
 
MANAGEMENT
 
The following table sets forth certain information regarding our current directors and executive officers.
 
Our executive officers are elected by the board of directors and serve at the discretion of the board. All of the current directors serve until the next annual stockholders’ meeting or until their successors have been duly elected and qualified.
 
Name
Age
Position
David B. McWilliams
62
President and Chief Executive Officer, Director
Brooks Boveroux
62
Chairman of the Board
C. W. Rouse
58
Chief Financial Officer
Jim C. Williams
62
Chief Operating Officer
Donna R. Rill
52
Vice President of Operations
 
 
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Sandy L. Livney
50
Vice President of Administration / Controller
Anthony N. Kamin
45
Director
Paul M. Frison
69
Director
Terry H. Wesner
62
Director
 
Biographical information for our directors and executive officers is set forth below:
 
Brooks Boveroux was elected as the Chairman of the Board since October, 2005. Mr. Boveroux also serves as Chairman of our Audit Committee since that date. Mr. Boveroux had previously served as the senior vice president—finance, chief financial officer and treasurer of IMCOR Pharmaceutical Co. since August 1, 2000 and as that company's secretary since November 12, 2002 until his retirement in September 2004. For the five years prior to joining PharmaFrontiers Corp., Mr. Boveroux served as chief financial officer and vice president of investor relations for The Liposome Company, Inc., chief financial officer of Synergy Pharmaceuticals, Inc. and as a consultant advising corporations in the area of corporate finance. Mr. Boveroux is a graduate of Hamilton College and received his Masters of Business Administration in Finance from the Wharton School of the University of Pennsylvania.
 
David B. McWilliams was appointed President and Director in August 2004. From December 2004 until August 2004, Mr. McWilliams was a private investor. From June 2003 to December 2003, Mr. McWilliams served as President and CEO of Bacterial Barcodes, Inc., a molecular diagnostics company. From May 2002 to June 2003, Mr. McWilliams served as CEO of Signase, Inc., a cancer therapy company. Mr. McWilliams served as CEO of Encysive Pharmaceuticals Inc., a cardiovascular therapeutics company from June 1992 to March 2002. Prior to June 1992, Mr. McWilliams served as CEO of Zonagen Inc., a human reproductive products company. Prior to that time, Mr. McWilliams was a senior executive with Abbott Laboratories and a management consultant with McKinsey & Co. He currently serves as a director of Novelos Therapeutics, Inc. and Fairway Medical Systems, Inc. He also serves on the boards of the Texas Healthcare and Bioscience Institute and the Houston Technology Center. He received an MBA in finance from the University of Chicago, and a B.A. in chemistry, Phi Beta Kappa, from Washington and Jefferson College.
 
Jim C. Williams has served as our Chief Operating Officer since November 2004. Dr. Williams served as Vice President of Clinical and Regulatory Affairs and as Chief Operating Officer for Opexa Pharmaceuticals, Inc. from February 2004 to November 2004. From August 2003 to February 2004 he was Senior Vice President, Regulatory Affairs and Operations for OSIRIS Therapeutics, Inc., and from November 2002 to August 2003 Dr. Williams was Vice President US Regulatory Affairs for Powderject Vaccines. From September 2001 to November 2002 Dr. Williams served as Assistant Vice President, Worldwide Regulatory Affairs for Wyeth BioPharma. Prior to this Dr. Williams served as Executive Director Regulatory Affairs for Aventis Pasteur from November 1994 to September 2001. Dr. Williams retired in 1994 as Captain from the U.S. Public Health Service with over twenty years of service in applied research and human-use product development which included assignments with the FDA, Center for Biologics Evaluation and Research as a Director Scientist in the Division of Vaccine and Related Product Applications; the US Army Medical Research Institute of Infectious Diseases as Chief, Intracellular Pathogens branch and the National Institutes of Health, National Institutes of Allergy and Infectious Diseases; and at the U.S. Naval Medical Research Institute as a research microbiologist.
 
C. William Rouse has served as our Chief Financial Officer since May 2004. Prior to May 2004, Mr. Rouse was Managing Director of Rouse Associates from April 1999 until May 2004. From January 1995 to April 1999 he was Chief Marketing Officer for Futorian Inc. and from December 1990 to January 1995 he was a Division General Manager for Masco Corporation. Prior to 1990 Mr. Rouse was President of BEI, Inc. Mr. Rouse has led several startups and turnarounds and founded several successful companies.
 
-31-

 
Donna R. Rill has served as our Vice President of Operations since November 2004. Ms. Rill has nearly 30 years of extensive clinical and research laboratory experience in cell and gene therapy research and clinical application, immunological techniques and assessment, microbiology, diagnostic virology, experimental design, and method development and implementation. She has expertise in the areas of laboratory development and operations, FDA GMP and regulatory compliance, quality control/assurance system development, and clinical Standards of Practice. From April 2003 to November 2004 she was the Director of Quality Systems and Process Development at Opexa Pharmaceuticals, Inc. From November 1997 to April 2003 she was the Director of Translational Research for the Center for Cell & Gene Therapy at Baylor College of Medicine. She has worked to design, and qualify GMP Cell & Gene Therapy Laboratories, GMP Vector Production facilities, and Translational Research Labs at St. Jude Children¹s Research Hospital, Texas Children¹s Hospital, and Baylor College of Medicine. Ms. Rill has held the positions of Laboratory Director of Cell and Gene Therapy, Translational Research Center for Cell and Gene Therapy, Baylor College of Medicine; Associate Scientist/Lab Manager of the Bone Marrow Transplant Research Laboratory, and the GMP Cell & Gene Therapy Laboratories, St. Jude Children¹s Research Hospital; Clinical Infectious Disease Laboratory Manager, Education Coordinator and Clinical Instructor, Department of Clinical Laboratory, LeBonheur Children’s Medical Center and University of Tennessee Center for the Health Sciences..
 
Sandy L. Livney has served as our Vice President of Administration and Controller since November 2004. Ms. Livney has over 25 years of experience working in private and public enterprises in various accounting and marketing roles. She became certified as a Certified Public Accountant by the State of Texas in 1981. Prior to November 2004, Ms. Livney worked for Systems Management Solutions, Inc. as its Controller beginning in June 2003 and served as Secretary, Treasurer and Chief Financial Officer until joining PharmaFrontiers. From January 2001 until May 2003, Ms. Livney worked for Petro-Valve, Inc., a privately owned enterprise, in a variety of capacities including Vice President of Business Development, Interim Controller and Personal Assistant to the owner. From January 1999 to 2001, Ms. Livney worked for T. Warren Investments, Inc., a privately owned enterprise, in a variety of functions including Controller, Business Manager and Personal Assistant to the Owner.
 
Anthony N. Kamin has served as a Director since December, 2004. Since Mr. Kamin currently serves as President of two companies. Eastwood Investment Management is a private equity multi-strategy and multi-asset class manager. Interim Medical Management provides a range of management services primarily in the biotechnology and medical device fields. From 1998 to 2003, Kamin was a venture partner with Venture Strategy Partners. He is a co-founder of Nobex Corporation (oral protein and peptide delivery) and Hi Fidelity Entertainment. He is also currently Chairman of the Board of Advisors for Devlab, a center for technology commercialization at Northwestern University. He also serves on boards for Illinois Technology Enterprise Center (ITEC) in Chicago, Real American Restaurants, B2P.com, and The Cove School for children with learning disabilities. Kamin received a Masters Degree from Yale University in International Relations with a concentration in International Law.
 
Paul M. Frison has served as a Director of the Company since November, 2004. Mr. Frison has been President and CEO of the Houston Technology Center since January 1999. Before helping to found the Houston Technology Center in 1999, Frison spent 24 years as President and/or CEO building three public companies, NYSE-listed LifeMark, NASDAQ-listed ComputerCraft, and LifeCell Corp. (LIFC: NASDAQ-NM). Mr. Frison currently serves on the Board of Directors of the Houston Technology Center, Micromed Technologies, Inc., The Institute of Research and Rehabilitation, The Entrepreneurship Institute, The Houston Entrepreneurs Foundation, Texas Council of AEA, Texchange, and the Advisory Council of the University of Houston - College of Technology. He received his B.A. from Occidental College in Los Angeles, California.
 
-32-

 
Terry H. Wesner has served as a Director since August 2005. Mr. Wesner is a biostatistician and a graduate of The University of Memphis with degrees in biology, mathematics, and statistics. His first position after graduate school was an appointment to the faculty of Harvard School of Medicine as Director of Research for the National Diabetes Association. While a faculty member at Harvard School of Medicine, Mr. Wesner researched gestational diabetics. Since then he has been a Professor of Mathematics and Statistics, published a successful series of 30 college level mathematics textbooks with McGraw-Hill Publishers, and for the last five years has been the CEO and owner of Bernard J. Klein Publishing and GetMath Educational Software. Mr. Wesner brings a unique perspective to the Board as one of the founding investors in Opexa Pharmaceuticals, our wholly owned subsidiary; his son has been undergoing treatment with our T-cell based treatment for Multiple Sclerosis. Mr. Wesner also has been elected to the National Council of The Text and Academic Authors Association, his company has formed a partnership with World Vision to bring free educational materials to needy schools throughout the United States, served as Chair of his community's planning commission, founded and is now Vice-Chair of his community's building authority, serves on The Advisory Board for The Ann Arbor Academy a school for children with learning disabilities, and volunteers for various other community and civic organizations.
 
Committees of the Board of Directors
 
We currently have an audit committee, a compensation committee, and a nominating and corporate governance committee.
 
Audit Committee. The audit committee selects, on behalf of our board of directors, an independent public accounting firm to be engaged to audit our financial statements, discuss with the independent auditors their independence, review and discuss the audited financial statements with the independent auditors and management and recommend to our board of directors whether the audited financials should be included in our Annual Reports to be filed with the Securities and Exchange Commission. The Audit Committee operates pursuant to a written charter, which was adopted February 3, 2005. The current members of the audit committee are Messrs. Boveroux and Wesner.
 
All of the current members of the Audit Committee are non-employee directors who: (1) meet the criteria for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (2) have not participated in the preparation of our financial statements or the financial statements of Opexa; and (3) are able to read and understand fundamental financial statements, including a balance sheet, income statement and cash flow statement. The board has determined that Mr. Boveroux qualifies as an “Audit Committee Financial Expert” as defined by item 401(e) of Regulation S-B of the Exchange Act.
 
Compensation Committee. The compensation committee reviews and either approves, on behalf of our board of directors, or recommends to the board of directors for approval (1) the annual salaries and other compensation of our executive officers and (2) individual stock and stock option grants. The compensation committee also provides assistance and recommendations with respect to our compensation policies and practices and assists with the administration of our compensation plans. The members of our Compensation Committee are independent directors as defined in the applicable rules and regulations promulgated by the SEC, and are neither an officer nor employee of us or our subsidiary. The Compensation Committee operates pursuant to a written charter, which was adopted August 11, 2004. The current members of the compensation committee are Messrs. Wesner and Frison.
 
Nominating and Corporate Governance Committee. The nominating and corporate governance committee assists our board of directors in fulfilling its responsibilities by: identifying and approving individuals qualified to serve as members of our board of directors, selecting director nominees for our annual meetings of shareholders, evaluating the performance of our board of directors, and developing and recommending to our board of directors corporate governance guidelines and oversight with respect to corporate governance and ethical conduct. Messrs. Wesner, Kamin and Frison are the current members of the Nominating and Corporate Governance Committee, all of whom have been found by the Board of Directors to be an “independent director” pursuant to the applicable rules and regulations promulgated by the SEC. This committee operates pursuant to a written charter adopted on February 3, 2005.
 
-33-

 
Compensation Committee Interlocks And Insider Participation. Our Compensation Committee is comprised of Messrs. Wesner and Frison. None of the committee members has ever been an employee of PharmaFrontiers Corp. None of our executive officers serve as a member of the board of directors or compensation committee of any entity that has any executive officer serving as a member of our Board of Directors or Compensation Committee.
 
Compensation of Directors
 
Mr. Boveroux is compensated $3,000 per month and $5,000 quarterly plus $2,000 for each regular Board meeting attended in person and $1,000 for each regular meeting attended by teleconference. Mr. Boveroux is also compensated $1,000 for each Audit Committee meeting he attends. Mr. Kamin is compensated $3,000 per month and $2,500 quarterly plus $1,000 for each regular Board meeting attended in person and $500 for each regular meeting attended by teleconference. Mr. Kamin is also compensated $500 for each Nominating Committee meeting he attends. Messrs. Wesner and Frison are compensated $2,500 quarterly plus $1,000 for each regular Board meeting attended in person and $500 for each regular meeting attended by teleconference. Mr. Wesner is compensated $500 for each committee meeting he attends and Mr. Frison is compensated $1,000 for each Compensation Committee meeting he attends and $500 for each Nominating Committee meeting he attends. Mr. McWilliams who is a director and an officer does not receive any compensation for his services as a member of our board of directors. We reimburse our directors for travel and lodging expenses in connection with their attendance at board and committee meetings.
 
EXECUTIVE COMPENSATION
 
Summary Compensation Table
 
The following tables set forth certain information regarding our CEO and each of our most highly-compensated officers whose total annual salary and bonus for the fiscal years ending December 31, 2005, 2004 and 2003 exceeded $100,000.
 
 
 
Annual Compensation 
 
Long Term Compensation Awards
       
 
Name and
Principal Position
   
Year
   
Salary
($)
 
 
Bonus
($)
 
Securities Underlying
Options
(#)
 
 
All Other
Compensation
($)
David B. McWilliams (1)
   
2005
   
250,000
   
-
   
50,000
   
-
 
     
2004
   
83,000
   
-
   
370,000 (2
)
 
-
 
     
2003
   
-
   
-
   
-
   
-
 
                                 
C. William Rouse (3)
   
2005
   
180,000
   
-
   
50,000
   
-
 
     
2004
   
77,500
   
-
   
100,000 (2
)
 
-
 
     
2003
   
-
   
-
   
-
   
-
 
                                 
Warren Lau (4)
   
2005
   
-
   
-
   
-
   
-
 
     
2004
   
98,000
   
-
   
-
   
-
 
     
2003
   
-
   
-
   
-
   
-
 
                                 
 
 
-34-

 
 
Jason Otteson (5)
   
2005
   
-
   
-
   
-
   
-
 
     
2004
   
42,000
   
-
   
-
   
-
 
     
2003
   
102,000
   
-
   
24,000
   
-
 
___________
(1) Served as chief executive officer since August 2004.
(2) See “Executive Employment Contracts” for a discussion of the option.
(3) Served as chief financial officer since May 2004.
(4)  Served as chief executive officer from June 2004 through August 2004.
(5)  Served as chief executive officer until June 2004.

Option Grants in Last Fiscal Year
 
(Individual Grants) 

 
Name
Number of
Securities Options
Granted
% of Total Options
Granted to Fiscal
Year
Exercise/Base Price
($/Share)
Expiration
Date
David B. McWilliams
50,000
2%
3.00
01/21/2010
C. William Rouse
50,000
2%
3.00
01/21/2010
Warren Lau
-
-
-
-
Jason Otteson
-
-
-
-

 
Options Exercises and Fiscal 2005 Year End Values
 
   
Number of Shares
Underlying Unexercised
Options at December 31 2005  
 
Value of Unexercised
In-the-Money Options
at December 31 2005 (1)
Name
 
Exercisable
 
Unexercisable
 
Exercisable
 
Unexercisable
David B. McWilliams
 
 
243,333
 
 
 
176,667
 
 
$
-0-
 (1)
 
$
-0- 
(1) 
C. William Rouse
   
133,333
     
16,667
     
-0-
 (1)     
-0- 
(1) 
Warren Lau
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Jason Otteson
   
-
     
-
     
-
     
-
 
 
(1)
The value of “in-the-money” stock options represents the difference between the $3.00 exercise price of such options and the fair market value of $0.60 per share of common stock as of December 31, 2005, the closing price of the common stock reported on the OTC Bulletin Board for December 30, 2005.
(2)
The value of “in-the-money” stock options represents the difference between the $3.00 exercise price of 83,333 options and the fair market value of $0.60 per share of common stock as of December 31, 2005, the closing price of the common stock reported on the OTC Bulletin Board for December 30, 2005.
 
No options were exercised during the fiscal year ended December 31, 2005. No stock appreciation rights were outstanding at the end of the 2005 fiscal year.
 
Executive Employment Contracts
 
Mr. David B. McWilliams has an existing employment agreement with us that he entered into effective August 23, 2004. Mr. McWilliams’ current agreement for the position of chief executive officer is at an annual salary of $250,000 and may be terminated by us or Mr. McWilliams at any time for any or no reason. Mr. McWilliams has the right to purchase 370,000 shares of our common stock at a price per share of $3.00, of which 10,000 shares vest on the 1st day of each month of Mr. McWilliams’ employment. In January 2005, Mr. McWilliams was granted an option to purchase 50,000 shares of our common stock at a purchase price of $3.00 per share.
 
-35-

 
C. William Rouse entered into an employment agreement, expiring April 2006, providing for an annual salary of $180,000. Mr. Rouse has the right to purchase 100,000 shares of our common stock at a price per share of $3.00. This option will vest in three parts: 33,333 on April 29, 2005, 33,333 on April 29, 2006 and finally 33,334 on April 29, 2007. Any unexercised options will expire on April 29, 2009. In January 2005, Mr. Rouse was granted an option to purchase 50,000 shares of common stock at a purchase price of $3.00 per share.
 
Mr. Jim C. Williams has an existing employment agreement with us that he entered into effective November 6, 2004. Mr. Williams’ current agreement for the position of chief operating officer is at an annual salary of $215,000 and may be terminated by us or Mr. Williams at any time for any or no reason. In November 2004 Mr. Williams was granted a five year option to purchase 125,000 shares of common stock at a purchase price of $3.00 per share with such option vesting on the one year anniversary of the grant date over a period of three years. In December 2005, Mr. Williams was granted a 10 year option to purchase 125,000 shares of our common stock at a purchase price of $0.70 per share with such option vesting on the one year anniversary of the grant date over a period of four years.
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table sets forth the number of shares of our common stock beneficially owned as of December 31, 2005 by:
 
·  
those persons or groups known to beneficially own more than 5% of our common stock;
 
·  
each of our executive officers and directors; and
 
·  
all of our directors and executive officers as a group.
 
For purposes of this table, beneficial ownership is determined in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934. Except as indicated below, the security holders listed possess sole voting and investment power with respect to the shares beneficially owned by that person.
 
Name and Address of Beneficial Owner(1)
Number of
Shares Owned
Percentage of
Class(2)
George Jarkesy, Jr. (3)
1,897,887
9.10%
Top Tier Investments (4)
1,228,837
5.96%
Terry Wesner (5)
458,881
2.20%
David B. McWilliams (6)
 387,973
1.85%
C. William Rouse ((7)
 311,507
1.50%
Anthony N. Kamin (8)
  170,000
*
Jim C. Williams (9)
108,376
*
Sandy Livney (10)
63,333
*
Paul M. Frison (11)
38,333
*
Brooks Boveroux (12)
16,667
*
Donna R. Rill (13)
23,617
*
 
 
 
All directors and executive officers as a group (6 persons including the executive officers and directors listed above)
1,383,360
6.44%
_______
* Less than 1%.
 
 
-36-

 
 
(1)    Unless otherwise indicated the address of the beneficial owner is: c/o PharmaFrontiers Corp., 2635 N. Crescent Ridge Drive, The Woodlands, Texas 77381.
     
(2)  
Ownership percentages are based on 20,619,545 shares of common stock issued and outstanding as of December 31, 2005.
     
(3)   Includes 635,387 shares held by the Jarkesy Foundation, Inc. Mr. Jarkesy’s spouse holds voting and dispositive power with respect to these shares. (3) Address for Mr. Jarkesy and Jarkesy Foundation is 18205 Burkhardt Road, Tomball, TX 77377.
     
(4)   
Address of the beneficial owner is 1103 North Bay Front, Newport Beach, CA 92662-1237.
     
(5)   
Includes 33,332 shares of common stock that Mr. Wesner may purchase upon exercise of stock options that are currently vested or will become vested within 60 days of March 15, 2006. Includes 181,977 shares of common stock that Mr. Wesner may purchase upon exercise of warrants that are currently exercisable and held by Mr. Wesner and his wife Mary Ann Wesner.
     
(6)   
Includes 243,333 shares of common stock that Mr. McWilliams may purchase upon exercise of stock options that are currently vested or will become vested within 60 days of March 15, 2006. Includes 78,383 shares of common stock that Mr. McWilliams may purchase upon exercise of warrants that are currently exercisable.
     
(7)  
Includes 133,333 shares of common stock that Mr. Rouse may purchase upon exercise of stock options that are currently vested or will become vested within 60 days of March 15, 2006. Includes 13,753 shares of common stock that Mr. Rouse may purchase upon exercise of warrants that are currently exercisable.
     
(8)    
Includes 65,000 shares of common stock that Mr. Kamin may purchase upon exercise of stock options that are currently vested or will become vested within 60 days of March 15, 2006.
     
(9)  
Includes 41,667 shares of common stock that Dr. Williams purchase upon exercise of stock options that are currently vested or will become vested within 60 days of March 15, 2006. Includes 30,991 shares of common stock that Dr. Williams may purchase upon exercise of warrants that are currently exercisable.
     
(10)  
Includes 10,000 shares owned by Mrs. Livney’s husband, David. Includes 13,333 shares of common stock that Mrs. Livney may purchase upon exercise of stock options that are currently vested or will become vested within 60 days of March 15, 2006. Includes 15,000 shares of common stock that Mrs. Livney may purchase upon exercise of warrants that are currently exercisable. Includes 15,000 shares of common stock that Mrs. Livney’s husband, David, may purchase upon exercise of warrants that are currently exercisable.
     
(11)  
Includes 38,333 shares of common stock that Mr. Frison may purchase upon exercise of stock options that are currently vested or will become vested within 60 days of March 15, 2006.
     
(12)   
Includes 16,667 shares of common stock that Mr. Boveroux may purchase upon exercise of stock options that are currently vested or will become vested within 60 days of March 15, 2006.
     
(13)   Includes 20,000 shares of common stock that Mrs. Rill may purchase upon exercise of stock options that are currently vested or will become vested within 60 days of March 15, 2006.
 
 
-37-

 

SELLING STOCKHOLDERS
 
No stockholder may offer or sell shares of our common stock under this prospectus unless such stockholder has notified us of his or her intention to sell shares of our common stock and this prospectus has been declared effective by the SEC, and remains effective at the time such selling stockholder offers or sells such shares. We are required to amend this prospectus to reflect material developments in our business, financial position and results of operations. Each time we file an amendment to this prospectus with the SEC, it must first be declared effective prior to the offer or sale of shares of our common stock by the selling stockholders.
 
The common stock covered by this prospectus is to be offered for the account of the selling stockholders in the following table. The selling stockholders may from time to time sell all, some or none of the shares of common stock offered by this prospectus.
 
The following table, which we have prepared based on information provided to us by the applicable selling stockholder, sets forth the name, the number of shares of common stock beneficially owned by the selling stockholders intending to sell our common stock and the number of shares of common stock to be offered. Unless set forth below, none of the selling stockholders selling in connection with the prospectus has held any position or office with, been employed by, or otherwise has had a material relationship with us or any of our affiliates during the three years prior to the date of the prospectus.
 
 
 Name of Selling Stockholder
   
Footnote
  Numbers
   
Number of
Shares of
Common
Stock
Beneficially
Owned (1)
   
Number of
Shares of
Common
Stock
Offered
Hereunder
   
Number and % of
Outstanding
Shares of
Common Stock
Owned After
Completion of
Offering
 
                       
Number
   
% (2)
 
 
682501 Alberta Ltd.
   
3.
   
41,668
   
41,668
   
-0-
   
*
 
AFDSMSSAS, L.P.
   
4.
   
35,000
   
35,000
   
-0-
   
*
 
Albert and Margaret Alkek Foundation
   
5.
   
416,668
   
416,668
   
-0-
   
*
 
Alkek & Williams Ventures
   
6.
   
341,668
   
341,668
   
0-
   
*
 
Alpine Atlantic Asset Management AG
   
7.
   
868,863
   
868,863
   
-0-
   
*
 
Anastasios & Tabitha Belesis
   
8.
   
1,867
   
1,867
   
-0-
   
*
 
 
-38-

 
 Name of Selling Stockholder
   
Footnote 
Numbers
   
Number of
Shares of
Common
Stock
Beneficially
Owned (1)
   
Number of
Shares of
Common
Stock
Offered
Hereunder
   
Number and % of
Outstanding
Shares of
Common Stock
Owned After
Completion of
Offering
 
                       
Number
   
% (2)
 
 
Andrew B. & Shanna Sue Linbeck
   
9.
   
85,000
   
85,000
   
-0-
   
*
 
Anthony J. Spatacco, Jr.
   
10.
   
51,547
   
51,547
   
-0-
   
*
 
Anthony M. Sensoli
   
11.
   
176,263
   
176,263
   
-0-
   
*
 
Anthony M. Sensoli, IRA Charles Schwab & Co., Inc. Custodian
   
12.
   
31,247
   
31,247
   
-0-
   
*
 
Archie McK Malone
   
13.
   
93,674
   
93,674
   
-0-
   
*
 
Armand LaSorsa
   
14.
   
165
   
165
   
-0-
   
*
 
Arthur J. & Phyllis C. Goodwin 2001 Family Trust Dated 4-26-01
   
15.
   
20,824
   
20,824
   
-0-
   
*
 
Ball Family Trust dtd 03/08/96
Richard K. Ball & Polly Ball
Co-TTEEs
   
16.
   
31
   
31
   
-0-
   
*
 
Beverly B. Arnold
   
17.
   
166,668
   
166,668
   
-0-
   
*
 
Beverly E. Wrubel
   
18.
   
20,756
   
20,756
   
-0-
   
*
 
Billie Willmon Jenkin
   
19.
   
42,237
   
42,237
   
-0-
   
*
 
Bobby D. Perry
   
20.
   
83,335
   
83,335
   
-0-
   
*
 
Bradley S. Stewart
   
21.
   
53,961
   
53,961
   
-0-
   
*
 
Brewer & Pritchard, PC
   
22.
   
365,838
   
365,838
   
-0-
   
*
 
Bruce C. Marek
   
23.
   
215,571
   
215,571
   
-0-
   
*
 
Bruno Nordberg
   
24.
   
41,750
   
41,750
   
-0-
   
*
 
Bruno or Joan A. Nordberg, JWROS
   
25.
   
51,838
   
51,838
   
-0-
   
*
 
C. William Rouse
   
26.
   
311,505
   
26,672
   
284,833
   
*
 
 
-39-

 
 Name of Selling Stockholder
   
Footnote 
Numbers
   
Number of
Shares of
Common
Stock
Beneficially
Owned (1)
   
Number of
Shares of
Common
Stock
Offered
Hereunder
   
Number and % of
Outstanding
Shares of
Common Stock
Owned After
Completion of
Offering
 
                       
Number
   
% (2)
 
 
Cameron Living Trust Ltd 8/31/95
   
27.
   
20,735
   
20,735
   
-0-
   
*
 
Capital Growth Planning
   
28.
   
46
   
46
   
-0-
   
*
 
Carmelo Troccoli
   
29.
   
350
   
350
   
-0-
   
*
 
Centrum Bank AG
   
30.
   
206,667
   
206,667
   
-0-
   
*
 
Charles L. Bradley
   
31.
   
83,335
   
83,335
   
-0-
   
*
 
Cimarron Biomedical Equity Master Fund, L.P.
   
32.
   
416,668
   
416,668
   
-0-
   
*
 
Citigroup Global Markets Custodian FBO Mary Ann Wesner,
2004 Roth IRA
   
33.
   
9,288
   
9,288
   
-0-
   
*
 
Citigroup Global Markets Custodian FBO Mary Ann Wesner,
2005 Roth IRA
   
34.
   
5,064
   
5,064
   
-0-
   
*
 
Citigroup Global Markets Custodian FBO Terry Wesner, 2004 Roth IRA
   
35.
   
7,224
   
7,224
   
-0-
   
*
 
Citigroup Global Markets Custodian FBO Terry Wesner, 2005 Roth IRA
   
36.
   
9,288
   
9,288
   
-0-
   
*
 
CKW LLC
   
37.
   
41,668
   
41,668
   
-0-
   
*
 
Clariden Investments LTD
   
38.
   
107,785
   
107,785
   
-0-
   
*
 
Clemente Capital Management, LLC
   
39.
   
3,733
   
3,733
   
-0-
   
*
 
Crestview Capital Master, LLC
   
40.
   
1,250,000
   
1,250,000
   
-0-
   
*
 
Crutchfield Family 1976 Trust
   
41.
   
103,402
   
103,402
   
-0-
   
*
 
Dale W. Spradling
   
42.
   
345,502
   
215,502
   
130,000
   
*
 
Daniel L. Zimmerman
   
43.
   
51,924
   
51,924
   
-0-
   
*
 
 
-40-

 
 Name of Selling Stockholder
   
Footnote 
Numbers
   
Number of
Shares of
Common
Stock
Beneficially
Owned (1)
   
Number of
Shares of
Common
Stock
Offered
Hereunder
   
Number and % of
Outstanding
Shares of
Common Stock
Owned After
Completion of
Offering
 
                       
Number
   
% (2)
 
 
David B. McWilliams
   
44.
   
387,972
   
142,639
   
245,333
   
*
 
David Carl Lustig, III
   
45.
   
33,335
   
33,335
   
-0-
   
*
 
David Livney
   
46.
   
25,000
   
25,000
   
-0-
   
*
 
David P. Haswell
   
47.
   
21,180
   
21,180
   
-0-
   
*
 
David R. & Alice M. Evers
   
48.
   
154
   
154
   
-0-
   
*
 
Davis Investments V LP
   
49.
   
1,532,089
   
1,474,316
   
57,773
   
*
 
Delaware Charter Guaranty & Trust fbo Andre Guay, IRA
   
50.
   
16,851
   
16,851
   
-0-
   
*
 
Delaware Charter Guaranty & Trust fbo Gisele Guay, IRA
   
51.
   
25,277
   
25,277
   
-0-
   
*
 
Delaware Charter Guaranty & Trust fbo Ronald Brangwyn, IRA
   
52.
   
21,256
   
21,256
   
-0-
   
*
 
Dietrich & Rosemarie Riemer
   
53.
   
50,000
   
50,000
   
-0-
   
*
 
DLD Family Investments, LLC
   
54.
   
333,335
   
333,335
   
-0-
   
*
 
Donald G. Stewart
   
55.
   
202,113
   
202,113
   
-0-
   
*
 
Donald J. Zinda
   
56.
   
31
   
31
   
-0-
   
*
 
Donald M. Ureel Trust dtd 09/24/97; Donald M. Ureel, TTEE
   
57.
   
240
   
240
   
-0-
   
*
 
Donald Zinman
   
58.
   
206
   
206
   
-0-
   
*
 
Douglas Alan Jenkin
   
59.
   
83,050
   
83,050
   
-0-
   
*
 
Douglas J. Cook & Christine Cook
   
60.
   
31
   
31
   
-0-
   
*
 
Douglas Miller
   
61.
   
6,548
   
6,548
   
-0-
   
*
 
 
-41-

 
 Name of Selling Stockholder
   
Footnote 
Numbers
   
Number of
Shares of
Common
Stock
Beneficially
Owned (1)
   
Number of
Shares of
Common
Stock
Offered
Hereunder
   
Number and % of
Outstanding
Shares of
Common Stock
Owned After
Completion of
Offering
 
                       
Number
   
% (2)
 
 
E. Elaine Schuster
   
62.
   
41,553
   
41,553
   
-0-
   
*
 
E55 LP
   
63.
   
41,668
   
41,668
   
-0-
   
*
 
Edward W. Gray and Sharon H. Gray
   
64.
   
20,694
   
20,694
   
-0-
   
*
 
Elizabeth J. Hanson
   
65.
   
50,000
   
50,000
   
-0-
   
*
 
Elizabeth J. Hanson, IRA
   
66.
   
20,783
   
20,783
   
-0-
   
*
 
Enable Growth Partners LP
   
67.
   
1,322,260
   
1,322,260
   
-0-
   
*
 
Enable Opportunity Partners LP
   
68.
   
150,000
   
150,000
   
-0-
   
*
 
Ervin Living Trust
   
69.
   
42,333
   
42,333
   
-0-
   
*
 
Ervin Living Trust Dtd.7/6/95, Robert D. Ervin & Rita Y. Ervin Co-TTEES
   
70.
   
41,668
   
41,668
   
-0-
   
*
 
First Trust Corporation TTEE FBO: Lynn C. Kalcic
   
71.
   
9,963
   
9,963
   
-0-
   
*
 
First Trust Corporation TTEE FBO: Mary A. Kalcic
   
72.
   
27,387
   
27,387
   
-0-
   
*
 
Frank M. Mandola
   
73.
   
86,228
   
86,228
   
-0-
   
*
 
Fred S. Harper
   
74.
   
114,241
   
114,241
   
-0-
   
*
 
Gary Hanson & Elizabeth Hanson
   
75.
   
22,239
   
22,239
   
-0-
   
*
 
Gemini Master Fund, Ltd.
   
76.
   
207,694
   
207,694
   
-0-
   
*
 
Geoffrey Kopecky
   
77.
   
556
   
556
   
-0-
   
*
 
George E. Liberato
   
78.
   
43,114
   
43,114
   
-0-
   
*
 
George Jarkesy, Jr.
         
1,212,500
   
1,212,500
   
-0-
   
*
 
 
-42-

 
 Name of Selling Stockholder
   
Footnote 
Numbers
   
Number of
Shares of
Common
Stock
Beneficially
Owned (1)
   
Number of
Shares of
Common
Stock
Offered
Hereunder
   
Number and % of
Outstanding
Shares of
Common Stock
Owned After
Completion of
Offering
 
                       
Number
   
% (2)
 
 
George and Linda Boston
   
79.
   
8,250
   
8,250
   
-0-
   
*
 
Gerald L. King & Sherry J. King
   
80.
   
31
   
31
   
-0-
   
*
 
Gerald W. Brown
   
81.
   
31
   
31
   
-0-
   
*
 
 
Greeley Orthodontic Center, P.C. Profit Sharing Trust fbo Gary J. Kloberdanz
   
82.
   
171
   
171
   
-0-
   
*
 
Gregg Lerman
   
83.
   
3,733
   
3,733
   
-0-
   
*
 
H. Michael Lambert
   
84.
   
258,105
   
213,105
   
45,000
   
*
 
Harold E. Tellefsen Trust
   
85.
   
58,269
   
58,269
   
-0-
   
*
 
Harry Groszecki
   
86.
   
75,000
   
75,000
   
-0-
   
*
 
HRBFA Custo. of the IRA FBO Mary Ann Sharrow
   
87.
   
75,016
   
75,016
   
-0-
   
*
 
HRBFA Custo. of the IRA FBO Paul G. Sharrow
   
88.
   
70,849
   
70,849
   
-0-
   
*
 
I. Dwyane Davis
   
89.
   
82,987
   
82,987
   
-0-
   
*
 
Insiders Trend Fund LP
   
90.
   
90,541
   
90,541
   
-0-
   
*
 
J. Roy Jones & James M. Jones, Charitable Remainder Unitrust
   
91.
   
31
   
31
   
-0-
   
*
 
Jack Dulworth
   
92.
   
83,335
   
83,335
   
-0-
   
*
 
Jack M. Franks Revocable Trust dtd 06/25/91; Jack M. Franks, TTEE)
   
93.
   
103
   
103
   
-0-
   
*
 
James A. Boston
   
94.
   
25,335
   
25,335
   
-0-
   
*
 
James E. Striedel
   
95.
   
107,135
   
107,135
   
-0-
   
*
 
James G. Geistfeld Living Trust
   
96.
   
20,763
   
20,763
   
-0-
   
*
 
 
-43-

 
 Name of Selling Stockholder
   
Footnote 
Numbers
   
Number of
Shares of
Common
Stock
Beneficially
Owned (1)
   
Number of
Shares of
Common
Stock
Offered
Hereunder
   
Number and % of
Outstanding
Shares of
Common Stock
Owned After
Completion of
Offering
 
                       
Number
   
% (2)
 
 
Jarkesy Foundation, Inc.
   
97.
   
635,387
   
635,387
   
-0-
   
*
 
Jaye S. Venuti, D.D.S. Retirement Plan Trust; Jaye S. Venuti & Michael Yokoyama, TTEES
   
98.
   
137
   
137
   
-0-
   
*
 
Jerome T. Usalis
   
99.
   
606,886
   
606,886
   
-0-
   
*
 
Jerry Sexton
   
100.
   
3,949
   
3,949
   
-0-
   
*
 
Jessica Spradling
   
101.
   
250,000
   
250,000
   
-0-
   
*
 
Jimmy C. Williams
   
102.
   
108,376
   
54,652
   
53,724
   
*
 
John C. Bult, TTEE
   
103.
   
31
   
31
   
-0-
   
*
 
John G. Ariko, Jr.
   
104.
   
343
   
343
   
-0-
   
*
 
John H. Crutchfield
   
105.
   
206,872
   
206,872
   
-0-
   
*
 
John Parmigiani
   
106.