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The Offering		Per Share		Total
Public Offering Price		$6.00		$20,100,000
Underwriting Discounts and Commissions		$0.42		$ 1,407,000
Proceeds, Before Expenses, to Catalyst		$5.58		$18,693,000

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		Page
Prospectus Summary			3
Risk Factors			10
Forward-Looking Statements			26
Use of Proceeds			27
Dividend Policy			27
Capitalization			28
Dilution			29
Selected Financial Data			31
Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Our Business			41
Our Management			63
Our Principal Stockholders			70
Certain Relationships and Related Transactions			71
Description of Our Capital Stock			72
Shares Eligible for Future Sale			75
Material U.S. Federal Income and Estate Tax Consequences to Non-U.S. Holders			76
Underwriting			80
Notice to Investors			83
Legal Matters			85
Experts			85
Where You Can Find Additional Information			86
Index to Financial Statements			F-1

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	•	Focus on CPP-109 for cocaine addiction. We intend to commence a Phase II clinical trial for the use of CPP-109 as a treatment for cocaine addiction. Treatment for cocaine addiction addresses a significant unmet medical need, and we believe that our receipt of Fast Track status may facilitate the regulatory approval process.
	•	Develop additional indications for CPP-109. The mechanism of action of CPP-109 makes it suitable as a potential treatment for addiction states that share the common element of heightened dopamine levels. Subject to the availability of additional funding, of which there can be no assurance, we plan next to develop CPP-109 for the treatment of methamphetamine addiction. Further, our research indicates that CPP-109 is a platform technology with the potential to treat other conditions involving heightened dopamine levels such as addictions to nicotine, prescription pain medications, alcohol, marijuana, and related addictive disorders, including obesity and compulsive gambling.
	•	Acquire or license additional addiction therapies. We know of other product candidates that may have potential for the treatment of addiction. Subject to the availability of additional funding, of which there can be no assurance, we may seek to acquire or license one or more of these product candidates to expand our development programs. We have entered into no such agreements to date.
	•	Develop second generation of CPP-109. Subject to the availability of additional funding, of which there can be no assurance, we plan to develop a new form of CPP-109. If we are successful, we intend to initially seek approval for this new form in Europe, where we may be able to obtain exclusive marketing rights. Subsequently, we may seek approval for this new formulation in the United States.
	•	Leverage the services of thought leaders in addiction treatment. We believe that members of our Scientific Advisory Board are among the most respected researchers in the field of addiction therapy. We intend to utilize their knowledge, services and relationships to guide our development process and commercialization strategy.

	•	We have a limited operating history, currently have no products approved for sale and have incurred operating losses of approximately $3.7 million from inception through June 30, 2006. We expect to incur operating losses for the foreseeable future.
	•	Our product candidate, CPP-109 is at an early stage of development and has not yet been approved for use in the treatment of cocaine addiction, methamphetamine addiction or any other type of addiction. Failure can occur at any stage of development of a pharmaceutical product such as CPP-109, and it may be years (if ever) before our product development efforts produce viable products that we can commercialize.
	•	We may never generate any product revenues, achieve profitability or achieve our business objectives.
	•	We will need additional capital in order to pursue our business strategy. While we expect that the net proceeds of this offering will allow us to complete all of the clinical and non-clinical trials required to seek approval of an NDA for CPP-109 to treat cocaine addiction, our expectation, which is based on information available to us at the date of this prospectus, may not be correct. In addition, this offering will not provide us with the funds needed to evaluate CPP-109 as a treatment for methamphetamine or nicotine addiction, to seek approvals to commercialize CPP-109 in Europe or to acquire or license

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		other products that show promise in treating addiction. We can provide no assurance that we will be able to obtain additional financing on acceptable terms, or at all.
	•	We may not be able to acquire or license other product candidates that have the potential for the treatment of addiction or that other product candidates will be available for us to acquire on acceptable terms, or at all. Further, we may not have the funds for any such acquisition, even if we believe the terms of such acquisition to be favorable. Further, any product we acquire is likely to require substantial additional development, requiring significant funding, and we may not have the funds for such purpose. Finally, any product we acquire may not ultimately be determined to be safe and effective for the treatment of addiction. As a result, we may not be able to commercialize any product we acquire.
	•	We may not be able to successfully develop a new version of CPP-109. Further, we may not have the funding to develop such new version. In such event, we may not obtain any exclusive marketing rights with respect to such product.
	•	We may not be able to retain access to the expertise of our scientific advisors. Without our scientific advisors, our product development efforts may be delayed or frustrated.

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Common stock offered		3,350,000 shares
Common stock outstanding after this offering		12,516,667 shares
Use of proceeds		We plan to use the net proceeds from this offering:
		• to fund our planned U.S. Phase II clinical trial of CPP-109 for use in treating cocaine addiction;
		• to conduct, if required, a U.S. Phase III clinical trial of CPP-109 for use in treating cocaine addiction, to submit and seek approval of an NDA for CPP-109 for use in treating cocaine addiction and to pay for any other required clinical and non-clinical testing of CPP-109; and
		• for working capital and other general corporate purposes.
Nasdaq Global Market symbol		CPRX
Risk factors		You should read the “Risk Factors” section of this prospectus for a discussion of factors to consider before deciding whether to invest in our common stock.

	•	2,339,128 shares of common stock reserved for issuance upon the exercise of outstanding stock options having a weighted average exercise price of $1.14 per share; and
	•	2,188,828 additional shares of common stock reserved for future grants under our 2006 Stock Incentive Plan.

	•	gives retroactive effect to a forward stock split of our common stock of approximately 1.4592-to-one (effected in the form of a stock dividend) declared and effective on October 3, 2006;
	•	gives effect to the automatic conversion of all of our outstanding preferred stock into 2,136,880 shares of our common stock immediately upon the completion of this offering; and
	•	assumes no exercise of the underwriters’ over-allotment option.

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		June 30, 2006
		Actual				Pro forma(1)				Pro forma as adjusted(2)
Balance Sheet Data:
Cash and cash equivalents		$	324,154			$	3,549,294			$	21,242,294
Working capital (deficiency)			(107,516	)			3,312,624				21,005,624
Total assets			365,113				3,590,253				21,283,253
Total liabilities			434,351				239,351				239,351
Stockholders’ equity (deficit)			(69,238	)			3,350,902				21,043,902

(1)	Pro forma gives effect to our completion of a private placement on July 24, 2006 of 7,644 shares of our Series B Preferred Stock from which we received net proceeds of $3,225,140, the automatic conversion of these Series B preferred shares upon the closing of this offering into 1,115,427 shares of our common stock, the automatic conversion of our outstanding Series A Preferred Stock into 1,021,453 shares of our common stock on the closing of this offering, and the issuance of 142,274 shares of our common stock in July 2006 as payment of $195,000 of previously deferred compensation for services performed for us by certain of our consultants and scientific advisors during 2005 and the first six months of 2006.
(2)	Pro forma information as adjusted gives further effect to our sale of 3,350,000 shares of common stock in this offering and our receipt of an estimated $17,693,000 in net proceeds therefrom, after deducting underwriting discounts and commissions and estimated offering expenses to be paid by us.

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	•	CPP-109 may be found to be ineffective or unsafe, or fail to receive necessary regulatory approvals;
	•	CPP-109, even if found to be safe and effective, could prove difficult or impossible to manufacture on a large scale or on a cost-effective basis;
	•	CPP-109 may be uneconomical to market or take substantially longer to obtain necessary regulatory approvals than anticipated; or
	•	competitors may market equivalent or superior products.

	•	regulators or institutional review boards, which are commonly called IRBs, may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site;
	•	conditions may be imposed upon us by the FDA regarding the scope or design of our clinical trials, or we may be required to resubmit our clinical trial protocols to IRBs for reinspection due to changes in the regulatory environment;
	•	we may be unable to reach agreements on acceptable terms with prospective clinical research organizations;
	•	the number of subjects required for our clinical trials may be larger than we anticipate, patient enrollment may take longer than we anticipate, or patients may drop out of our clinical trials at a higher rate than we anticipate;

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	•	we may have to suspend or terminate one or more of our clinical trials if we, regulators, or IRBs determine that the participants are being subjected to unreasonable health risks;
	•	our third-party contractors or clinical investigators may fail to comply with regulatory requirements or fail to meet their contractual obligations to us in a timely manner;
	•	our tests may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional testing; and
	•	the costs of our clinical trials may be greater than we anticipate.

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	•	we may be required to pay substantial financial damages if a court decides that our technologies infringe a competitor’s patent, which can be tripled if the infringement is deemed willful, or be required to discontinue or significantly delay development, marketing, selling and licensing of the affected products and intellectual property rights;
	•	a court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available on commercially acceptable terms or at all, or which may require us to pay substantial royalties or grant cross-licenses to our patents; and
	•	we may have to redesign our product so that it does not infringe others’ patent rights, which may not be possible or could require substantial funds or time.

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	•	reliance on the third party for regulatory compliance and quality assurance;
	•	limitations on supply availability resulting from capacity and scheduling constraints of the third parties;
	•	impact on our reputation in the marketplace if manufacturers of our products, once commercialized, fail to meet the demands of our customers;
	•	the possible breach of the manufacturing agreement by the third party because of factors beyond our control; and
	•	the possible termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.

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	•	developments concerning our clinical studies and trials;
	•	announcements of product development failures and successes by us or our competitors;
	•	new products introduced or announced by us or our competitors;
	•	changes in reimbursement levels;
	•	changes in financial estimates by securities analysts;
	•	actual or anticipated variations in operating results;
	•	expiration or termination of licenses (particularly our license from Brookhaven), research contracts or other collaboration agreements;
	•	conditions or trends in the regulatory climate and the biotechnology and pharmaceutical industries;
	•	intellectual property, product liability or other litigation against us;
	•	changes in the market valuations of similar companies; and
	•	sales of shares of our common stock, particularly sales by our officers, directors and significant stockholders, or the perception that such sales may occur.

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	•	pay a price that substantially exceeds the value of our tangible assets after subtracting our liabilities; and
	•	contribute 79% of the total amount that has been invested to fund our operations, but only receive 27% of the outstanding shares of our common stock and related voting rights.

	•	the ability of our board of directors to issue preferred stock with voting or other rights or preferences;
	•	limitations on the ability of stockholders to amend our charter documents, including stockholder supermajority voting requirements;
	•	the inability of stockholders to act by written consent or to call special meetings;
	•	requirements that special meetings of our stockholders may only be called by the board of directors; and
	•	advance notice procedures our stockholders must comply with in order to nominate candidates for election to our board of directors or to place stockholders’ proposals on the agenda for consideration at meetings of stockholders.

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	•	our ability to successfully complete clinical trials required to file and obtain approval of an NDA for the commercialism of CPP-109, and the timing of any such filing and approval;
	•	our ability to protect our intellectual property rights;
	•	market acceptance of any products as to which we may receive approval for commercialization;
	•	the ability of others to develop, obtain approval of, and commercialize competitive products; and
	•	the information contained in the “Risk Factors” section.

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	•	approximately $6.5 million will be used to fund our U.S. Phase II clinical trial to evaluate CPP-109 for the treatment of cocaine addiction;
	•	approximately $5.2 million will be used to fund a U.S. Phase III clinical trial to evaluate CPP-109 for the treatment of cocaine addiction, if required; and
	•	up to approximately $4.0 million will be used to fund other costs relating to our filing of an NDA for CPP-109 to treat cocaine addiction, including any Phase I clinical trials and other non-clinical studies that may be required.

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	•	on an actual basis;
	•	on a pro forma basis to give effect to our completion on July 24, 2006 of a private placement of 7,644 shares of our Series B Preferred Stock from which we received net proceeds of $3,225,140, the automatic conversion of these Series B preferred shares upon the closing of this offering into 1,115,427 shares of our common stock, the automatic conversion upon the closing of this offering of the outstanding Series A Preferred Stock into 1,021,453 shares of our common stock, and the issuance of 142,274 shares of our common stock in July 2006 as payment of previously deferred compensation for services performed for us by certain of our consultants and scientific advisors during 2005 and the first six months of 2006; and
	•	on a pro forma as adjusted basis to give further effect to our sale of 3,350,000 shares of common stock in this offering and our receipt of an estimated $17,693,000 in net proceeds therefrom, after deducting underwriting discounts and commissions and estimated offering expenses to be paid by us.

			June 30, 2006
											Pro forma as
			Actual				Pro forma				adjusted
Cash and cash equivalents			$	324,154			$	3,549,294			$	21,242,294
Stockholders’ equity (deficit):
	Preferred stock, $.01 par value, 5,000,000 shares authorized; 70,000 shares actual, no shares pro forma and pro forma as adjusted		$	700			$	–			$	–
	Common stock, $.01 par value, 100,000,000 shares authorized; issued and outstanding: 6,887,513 shares actual, 9,166,667 shares pro forma; and 12,516,667 shares pro forma as adjusted			68,875				91,667				125,167
	Additional paid-in capital			3,557,772				6,955,820				24,615,320
	Accumulated deficit			(3,696,585	)			(3,696,585	)			(3,696,585	)
Total stockholders’ equity (deficit)				(69,238	)			3,350,902				21,043,902
Total capitalization			$	(69,238	)		$	3,350,902			$	21,043,902

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Public offering price per share							$	6.00
	Historical net tangible book value		$	(0.01	)
	Change in value attributable to conversion of preferred stock outstanding at June 30, 2006 (pro forma)			—
	Increase in value attributable to preferred stock issued after June 30, 2006 (assuming conversion) and payment of compensation through issuance of common stock after June 30, 2006			0.38
	Pro forma net tangible book value per share at June 30, 2006			0.37
	Increase in pro forma net tangible book value per share attributable to this offering			1.31
	Pro forma net tangible book value per share after this offering							1.68
Dilution in pro forma net tangible book value per share to investors in this offering							$	4.32

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			Shares Purchased								Total Consideration Paid
																			Average Price Per
			Number				Percent				Amount				Percent				Share
Existing stockholders				9,166,667				73	%		$	5,334,140				21	%		$	0.58
New investors				3,350,000				27				20,100,000				79				6.00
	Total			12,516,667				100	%		$	25,434,140				100	%

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																							Period from				Cumulative period
																							January 4, 2002				from January 4,
			Six Months Ended June 30,								Year Ended December 31,												(date of inception)				2002 (date of
																							through				inception) through
			2006				2005				2005				2004				2003				December 31, 2002				June 30, 2006
			(unaudited)																				(unaudited)				(unaudited)
Statement of Operations Data:
Revenues			$	–			$	–			$	–			$	–			$	–			$	–			$	–
Operating costs and expenses:
	Research and development			432,764				1,200,769				1,462,889				378,829				268,829				137,680				2,680,416
	General and administrative			242,194				126,811				359,279				164,704				165,483				118,265				1,049,925
Total operating expenses				674,958				1,327,580				1,822,168				542,958				434,312				255,945				3,730,341
Loss from operations				(674,958	)			(1,327,580	)			(1,822,168	)			(542,958	)			(434,312	)			(255,945	)			(3,730,341	)
Interest income				8,133				5,908				16,788				3,138				5,697				–				33,756
Loss before income taxes				(666,825	)			(1,321,672	)			(1,805,380	)			(539,820	)			(428,615	)			(255,945	)			(3,696,585	)
Provision for income taxes				–				–				–				–				–				–				–
Net loss			$	(666,825	)		$	(1,321,672	)		$	(1,805,380	)		$	(539,820	)		$	(428,615	)		$	(255,945	)		$	(3,696,585	)
Basic and diluted net loss per share			$	(0.10	)		$	(0.24	)		$	(0.29	)		$	(0.18	)		$	(0.15	)		$	(0.11	)
Weighted average shares outstanding — basic and diluted				6,887,513				5,496,926				6,204,918				2,918,438				2,918,438				2,358,737
Pro forma basic and diluted net loss per share(1)			$	(0.08	)						$	(0.25	)
Pro forma weighted average shares outstanding — basic and diluted(1)				7,908,966								7,226,371

(1)

Pro forma gives effect to the conversion of shares of our Series A Preferred Stock into 1,021,453 shares of our common stock as if such shares of Series A Preferred Stock had been converted into common stock as of the earlier of January 1, 2005 or the beginning of the reporting period. Such shares of Series A Preferred Stock will automatically convert into common stock on the closing of this offering.

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										December 31,
		Pro forma June 30,				June 30,
		2006(1)				2006				2005				2004				2003				2002
		(unaudited)				(unaudited)												(unaudited)				(unaudited)
Balance Sheet Data:
Cash and cash equivalents		$	3,549,294			$	324,154			$	771,127			$	183,911			$	416,262			$	107,089
Working capital (deficiency)			3,312,624				(107,516	)			428,579				116,111				362,563				40,388
Total assets			3,590,253				365,113				789,450				185,376				416,262				111,589
Total liabilities			239,351				434,351				342,988				67,800				53,699				66,701
Stockholders’ equity (deficit)			3,350,902				(69,238	)			446,462				117,576				362,563				44,888

(1)

Pro forma gives effect to our completion of a private placement on July 24, 2006 of 7,644 shares of our Series B Preferred Stock from which we received net proceeds of $3,225,140, the automatic conversion of these Series B preferred shares upon the closing of this offering into 1,115,427 shares of our common stock, the automatic conversion of our outstanding Series A Preferred Stock into 1,021,453 shares of our common stock on the closing of this offering, and the issuance of 142,274 shares of our common stock in July 2006 relating to services performed for us by certain of our consultants and scientific advisors during 2005 and the first six months of 2006.

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	•	the scope, rate of progress and expense of our clinical trials and our other product development activities;
	•	the results of future clinical trials, and the number of clinical trials (and the scope of such trials) that will be required to seek and obtain approval of an NDA for CPP-109; and
	•	the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

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	Revenues

	Research and development expenses

	Selling and marketing expenses

	General and administrative expenses

	Stock-based compensation

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	Income taxes

	Non-clinical study and clinical trial expenses

	Stock-based compensation

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	•	approximately $100,000 to purchase the active pharmaceutical ingredient required to manufacture batches of CPP-109 for use in our U.S. Phase II clinical trial; and

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	•	approximately $600,000 to pay a contract manufacturer for services in connection with the development and manufacture of our formulation of vigabatrin and to pay for required bioequivalency studies with respect to the chemical composition of CPP-109.

	Operating Capital and Capital Expenditure Requirements

	•	the scope, rate of progress and cost of our clinical trials and other product development activities;
	•	future clinical trial results;
	•	the terms and timing of any collaborative, licensing and other arrangements that we may establish;
	•	the cost and timing of regulatory approvals;
	•	the cost and delays in product development as a result of any changes in regulatory oversight applicable to our products;
	•	the cost and timing of establishing sales, marketing and distribution capabilities;
	•	the effect of competition and market developments;
	•	the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and
	•	the extent to which we acquire or invest in other products.

	Cash Flows

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	Contractual Obligations

Payments Due by Period

Less than

After 5

Total

1 year

1-3 years

4-5 years

years

Debt

$

–

$

–

$

–

$

–

$

–

Capital leases

–

–

–

–

–

Operating leases

33,285

17,736

15,549

–

–

Total

$

33,285

$

17,736

$

15,549

$

–

$

–

	•	Payment to Brookhaven under our license agreement. We have agreed to pay Brookhaven a fee of $100,000 in the year of NDA approval for CPP-109, $250,000 in each of the second and third years following approval, and $500,000 per year thereafter until the last patent expires.
	•	Payments to our contract manufacturer. We are obligated to pay our contract manufacturer approximately $513,200, with payments to be based on the achievement of milestones relating to the schedule of work that it has agreed to perform for us.
	•	We intend to enter into employment agreements with two of our executive officers, which will become effective on the closing of this offering and will require aggregate base salary payments of $515,000 per year following this offering.

	Off-Balance Sheet Arrangements

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	•	Focus on CPP-109 for cocaine addiction. We intend to commence a U.S. Phase II clinical trial evaluating the use of CPP-109 as a treatment for cocaine addiction. Treatment for cocaine addiction addresses a significant unmet medical need, and we believe that our receipt of Fast Track status may facilitate the regulatory approval process.
	•	Develop additional indications for CPP-109. The mechanism of action of CPP-109 makes it suitable as a potential treatment for addiction states that share the common element of heightened dopamine levels. Subject to the availability of additional funding, of which there can be no assurance, we plan next to develop CPP-109 for the treatment of methamphetamine addiction. Further, our research indicates that CPP-109 is a platform technology with the potential to treat other conditions involving heightened dopamine levels such as addictions to nicotine, prescription pain medications, alcohol, marijuana, and related addictive disorders, including obesity and compulsive gambling.
	•	Acquire or license additional addiction therapies. We know of other product candidates that may have the potential for the treatment of addiction. Subject to the availability of additional funding, of which there can be no assurance, we may seek to acquire or license one or more of these product candidates to expand our development programs. We have entered into no such agreements to date.
	•	Develop second generation of CPP-109. Subject to the availability of additional funding, of which there can be no assurance, we plan to develop a new form of CPP-109. If we are successful, we intend to initially seek approval for this new form in Europe, where we may be able to obtain exclusive marketing rights. Subsequently, we may seek approval for this new formulation in the United States.
	•	Leverage the services of thought leaders in addiction treatment. We believe that members of our Scientific Advisory Board are among the most respected researchers in the field of addiction therapy. We intend to utilize their knowledge, services and relationships to guide our development process and commercialization strategy.

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	•	no single compound has broad applicability for treatment of multiple addictions;
	•	many of these compounds are “receptor active,” which means they have drug-like effects themselves and have the potential for abuse or addiction;
	•	increasing dosages over time may be required; and
	•	they are often ineffective at eliminating drug cravings or responding to increasing levels of drug use.

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	•	Study design. The protocol was designed as an outpatient, open-label, fixed-dose, time-limited trial in a setting with psychotherapeutic support and intervention. A total of 20 subjects, consisting of 19 men and one woman were enrolled.
	•	Enrollment criteria. Subjects were primarily daily cocaine abusers meeting DSM-IV criteria for cocaine dependence with a minimum of three years of continuous use. Most of the subjects were

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		polydrug abusers whose cocaine use was often supplemented with methamphetamine, marijuana, and/or alcohol. As a prerequisite for inclusion, all subjects indicated that they were interested in breaking their drug dependence and gave informed, signed consent. Exclusion criteria included intravenous drug use and subjects treated within the past year for substance abuse. At the beginning of the study, the average age of the subjects was 29, with an average 12-year history of cocaine abuse and an average daily consumption of 1.7 grams of cocaine.
	•	Dosing. Following an admission physical examination and screening for medical exclusion criteria, all subjects were given a screening urinalysis and a craving questionnaire and were then placed on vigabatrin. Each subject was given escalating doses of vigabatrin. Vigabatrin was administered on day 1 at two grams, consisting of one gram twice daily. After 3 days, the dosage was increased to 1.5 grams twice daily and on day seven vigabatrin was administered at a continuing dose of two grams twice daily. All dosing was done under observation in the clinic. Subjects who had a negative drug screen for four successive weeks, or 28 days in total, were then tapered down by one gram of vigabatrin per day per week.

	•	Testing. All subjects were encouraged to participate in group and individual counseling programs and were required to twice weekly provide urine samples in addition to filling out a daily questionnaire of drug use and craving. The drug screen included cocaine, heroin, methamphetamine, tetrahydrocannabinol, or THC, and phencyclidine, or PCP.
	•	Results. Of the 20 subjects enrolled in the study:

	•	eight remained in the program and were drug-free for periods ranging from 46 to 58 days at the end of the study. Only two subjects had a single “slip” or relapse into cocaine use once the craving stopped. A slip restarted the consecutive days “clean” or drug-free value.
	•	Of the 12 subjects who failed to complete the program, eight requested termination within 10 days, stating that they did not wish to stop their cocaine use. The other four subjects stayed in the protocol for periods of 25 to 43 days but continued to use cocaine, although in reduced amounts: two out of the four had an 80% reduction, one out of the four had a 50% reduction, and the other did not reduce at all, according to self-reports by the subjects, despite their claim that the drug did not engender the usual “high.”

	Most trial completers reported that their craving was not eliminated until an average of 17.9 days following vigabatrin administration. Craving was never eliminated in the four subjects who continued to use cocaine in addition to vigabatrin for three weeks, nor in the eight early non-completers.
	The trial completers did not differ significantly from the non-completers in age, duration of cocaine abuse, or average daily use. The consecutive days “clean” for the completers averaged 48.5 days, compared to an average of 1.9 days for non-completers, with a P-value, which is a measure of statistical significance, of less than 0.0001. There was also a clear distinction between the two groups on the basis of weight gained during the trial: an average of 18.2 pounds for the completers, compared to an average of 0.2 pounds for non-completers, with a P-value of less than 0.0001. A “P-value” of less than .05 indicates that the different results between treatment groups was not random. No subject who continued cocaine use during their participation in the study reported increased appetite or experienced weight gain. In order for the study’s outcomes to be convincing in light of concerns about vigabatrin’s safety and efficacy, an outcome measure of 28 consecutive days clean, in which the subject tested negative for cocaine, was utilized. We believe this measure was particularly stringent for an outpatient setting and in the field of addiction therapy where statistical significance often exceeds therapeutic reality.

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	A comparison of statistical information regarding trial completers and non-completers is set forth below:

		Completers		Non-Completers
		(n = 8)		(n = 12)
Age		28.8 ±  5.7		29.3 ± 6.2		P=0.73 (ns)*
Abuse History (Years)		9.5 ±  4.9		11.5 ± 6.7		P=0.74 (ns)*
Mean Cocaine Use(g/day)		1.8 ±  1.5		1.6 ± 0.8		P=0.62 (ns)*
Consecutive Clean Days		48.5 ±  5.7		1.9 ± 3.3		P < 0.0001
Weight Increase (lbs)		18.2 ± 10.7		0.2 ± 0.6		P < 0.0001

	Subjects in this study were all cocaine users who consumed cocaine five to seven days per week and had been doing so for three to 15 years. Nevertheless, 40% of those who entered the study completed it without relapse. Once cocaine use ceased, six of the eight completers were entirely drug free for the duration of the study, or seven weeks. The others had a single “slip” and were again clean for greater than four weeks. On the other hand, the mean time to relapse of all 12 non-completers was less than 2 days. Significantly, all of the trial completers gained weight, while none of the non-completers gained any. Weight gain precisely paralleled cessation of cocaine use by self-report as well as by the twice weekly drug screen and daily observation. We believe that this is not surprising in view of the well-known appetite-suppressing effects of cocaine.
	Notwithstanding, because of the small size of the studies and the number of patients who dropped out, the results of these studies and the P-values derived from these studies may not be reliable or repeatable, and may not be duplicated in future larger studies. Further, the P-values derived from the results of this pilot study have no relevance in determining whether CPP-109 compared to placebo can be distinguished in a randomized placebo-controlled clinical study.
	We believe that trial completers manifested clear behavioral changes. They showed gains in self-esteem, reestablished healthy family relationships, and went to work or actively sought work. There were no relapses over an extended period despite completers remaining in the same neighborhood environment in which cocaine was readily available and with all of the cues and social pressures that had previously supported their addiction. We believe that without psychosocial intervention it is likely that the fraction of subjects who complete a program would be lower than observed in this study. For example, in this study most subjects who continued using cocaine reported an altered and diminished response or reward but persisted in their use, albeit at reduced amounts. If the outcome measure was a greater than 80% reduction in cocaine consumption, then that criterion was met by 10 of the 12 subjects who stayed on vigabatrin for more than 10 days. In addition, all eight subjects who completed the program noted a cessation of craving which persisted during the exit, or vigabatrin taper, phase. We believe this suggests that elimination of craving might be the single most important factor in achieving successful therapeutic remission.

	•	Side Effects Observed. Overall, vigabatrin was well tolerated. No subjects reported visual disturbances of any kind throughout their exposure to vigabatrin or admitted to vision changes of any kind upon questioning. The major side effects were transient somnolence, or drowsiness, in the first 10 days, observed in 17 of the 20 subjects, and an intermittent low-grade headache, observed in 9 of the 20 subjects, that occasionally persisted for several weeks, although never severe enough for the subject to request termination on that basis.

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	•	Study design. All subjects, consisting of 29 men and one woman, met DSM-IV criteria for drug dependence. The protocol for this study was reviewed and approved by the Government of Mexico according to the standards of the Helsinki Convention as currently modified.
	•	Enrollment criteria. Subjects abused methamphetamine, cocaine, or both on a daily basis, but were otherwise in good health. The average duration of drug dependence for all subjects was 12.8 years. All 30 subjects enrolled met DSM-IV criteria for substance abuse, three met the criteria for dependence on cocaine alone, 10 met the criteria for methamphetamine dependence alone, and 17 met the criteria for dependence on both cocaine and methamphetamine. A complete preadmission history and physical examination for all test subjects were obtained.
	•	Ophthalmologic Measurement. The baseline ophthalmologic examination consisted of funduscopy, in which a doctor examines the back of the eye with an ophthalmoscope in order to assess any damage to the blood vessels that supply the retina. In addition, visual acuity was determined by conventional ophthalmic techniques, and measurements of the subject’s visual field were performed utilizing a measurement technique known as an automated Humphreys VF60-4 protocol. These tests were repeated in the middle and end of treatment and again at one to two months following treatment cessation. Ophthalmic measurements were performed at the Codet Eye Institute, Tijuana, B.C. Mexico. In addition, these data were independently evaluated by a Board Certified Ophthalmologist at the University of Medicine and Dentistry, Newark, New Jersey, who had no knowledge of each subject’s identity.
	•	Dosing. Vigabatrin administration was initiated at 500 milligrams twice daily for three days, then 1.5 grams per day for the next four days and two grams per day for the next week. On day 15, subjects were placed on three grams per day, maintained at that dose for the next 28 days, and then tapered to zero over the next three weeks. Completers received a cumulative dose of vigabatrin of 137 grams, which is less than 10% of the 1,500 gram lifetime exposure that we believe is associated with an increase in the incidence of visual field defects.
	•	Testing. Twice-weekly urine samples were obtained under direct observation and tested for cocaine, methamphetamine, marijuana, heroin, and alcohol. Daily vital signs were monitored, and all subjects were encouraged to participate in weekly group therapy.
	•	Results. Of the 30 volunteers enrolled:

	•	11 subjects dropped out before completing 4 weeks,
	•	One subject completed 8 weeks; and
	•	18 subjects completed all nine weeks, consisting of all three cocaine-only users, 6 of the 10 methamphetamine-only users, and 9 of the 17 users of both methamphetamine and cocaine.

Completers did not differ significantly from non-completers in either the pre-study daily usage or years of dependence. Further administration of vigabatrin did not have an effect on vital signs, even with continued use of cocaine and methamphetamine. Further, there were no VFDs or other changes in visual acuity detected in any subject, regardless of whether the subject completed the study or not.

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Completers reported increased appetite and showed a significant weight gain over non-completers, gaining an average of 11.4 pounds, compared to an average of 4.4 pounds for non-completers, with a P- value of 0.004 (because of the small size of the study and the number of patients who dropped out of the studies, these results may not be reliable or repeatable, and may not be duplicated in future trials). Fifteen completers were methamphetamine-free and/or cocaine-free for four consecutive weeks, with no slips, while two were never drug-free although use was markedly reduced according to self-reports by the users. The average drug-free interval was 40.1 consecutive days, with an average use of 0.03 grams of cocaine or methamphetamine over the last three weeks of the study.

	•	CPP-109, if approved, will offer potentially significant advantages over current treatments for drug addiction. As set forth below, relapse rates for traditional counseling treatments are very high, while clinical studies of vigabatrin to date have shown low relapse rates among the 26 patients who completed treatment. There can be no assurance, however, that the relapse rates over wider studies or in general use will remain as low.
	•	If approved, we believe that the use of CPP-109 in conjunction with counseling will potentially offer a more efficacious and cost-effective addiction treatment than is currently available.
	•	Unlike other compounds, we believe that CPP-109 has no abuse liability; that is, we believe that CPP-109 does not substitute addiction to one drug for addiction to another drug. As a result, we believe it will be easier for patients to cease using CPP-109 after treatment without withdrawal effects.
	•	CPP-109’s mechanism of action potentially allows it to be used to treat most types of substance addiction and abuse.
	•	We have been granted Fast Track status for CPP-109 by the FDA, which allows us an expedited review process with the FDA of any NDA we may file for CPP-109.

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	•	Cocaine-mimetics. The mechanism of action of these drugs is similar to cocaine. None of these approaches have, to our knowledge, shown any efficacy. These compounds include:

	–	methylphenidate, which is marketed as Ritalin by Novartis, and
	–	GBR-12909, which is known as vanoxerine and is currently in Phase II clinical trials sponsored by the National Institute of Drug Abuse.

	•	Cocaine-antagonists. These compounds are intended to selectively target GABA, moderating dopamine levels in the brain. We believe that many of these compounds are receptor active and require increasing dosing over time. None of these compounds are presently approved for marketing to treat addiction. These compounds include:

	–	baclofen, marketed as Lioresal by Novartis,
	–	topiramate, marketed as Topamax by Ortho-McNeil Neurologics,
	–	tiagabine, marketed as Gabitril by Cephalon,
	–	gabapentin, marketed as Neurontin by Pfizer, and
	–	progabide, marketed as Gabrene by Sanofi-Aventis.

	•	Addiction Vaccines. These vaccines are designed to block cocaine transport into the brain. They do not address issues relating to craving or other behaviors associated with cocaine addiction. We also believe that they can be overwhelmed by increasing dosages of cocaine. These compounds include:

	–	TA-CD is a cocaine vaccine currently in Phase II clinical trials sponsored by Celtic Pharma Development U.K. Plc.

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	Brookhaven license agreement

	General

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	•	costs relating to any potential injury suffered by persons who take CPP-109 that PII manufactures;
	•	any losses arising from our negligence in labeling, handling or storing CPP-109;
	•	any specifications which we give them that are incorrect or do not meet FDA-approved standards;
	•	any misrepresentation or breach by us of the agreement; and
	•	any patent infringement claims that may result from the use of CPP-109.

	•	any losses related to its negligence or willful misconduct in the manufacture of CPP-109;
	•	any misrepresentation by PII in the agreement; and
	•	any claims by third parties that PII infringed or misappropriated any intellectual property in its manufacture of CPP-109.

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	United States

	•	completion of non-clinical laboratory and animal testing in compliance with FDA regulations;
	•	submission of an investigational new drug application, or IND, which must become effective before human clinical trials may begin;
	•	performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use; and
	•	submission and approval of an NDA by the FDA.

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	Foreign regulations

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Name		Age		Position(s)
Patrick J. McEnany		59		Co-Founder, Chairman, President and Chief Executive Officer
Hubert E. Huckel, M.D.(1)		75		Co-Founder and Director
Charles B. O’Keeffe(2)(3)		66		Senior Advisor and Director
Philip H. Coelho(3)		62		Director
David S. Tierney, M.D.(1)(2)(3)		43		Director
Milton J. Wallace(1)(3)		70		Director
Jack Weinstein		50		Vice President, Treasurer and Chief Financial Officer
M. Douglas Winship		57		Vice President of Regulatory Operations
Charles W. Gorodetzky, M.D., Ph.D.		69		Chief Medical Officer

(1)	Member of the Audit Committee.
(2)	Member of the Compensation Committee.
(3)	Member of the Nominating and Corporate Governance Committee.

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	•	selecting independent auditors;
	•	reviewing the scope of the audit to be conducted by them and the results of their audit;
	•	approving non-audit services provided to us by the independent auditor;
	•	reviewing the integrity, adequacy and effectiveness of our financial reporting process and internal controls; assessing our financial reporting practices, including the disclosures in our annual and quarterly reports and the accounting standards and principles followed; and
	•	conducting other reviews relating to compliance by our employees with our policies and applicable laws.

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	•	developing guidelines and reviewing the compensation and performance of our executive officers;
	•	setting the compensation of the chief executive officer and evaluating his performance based on corporate goals and objectives;
	•	making recommendations to the board of directors with respect to incentive compensation plans, equity-based plans and deferred compensation plans; and
	•	reviewing director compensation levels and practices, and recommending, from time to time, changes in such compensation levels and practices to the board of directors.

	Current and historic compensation paid to executives and consultants

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	Post-offering compensation for Messrs. McEnany and Weinstein

	Currently outstanding stock options

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Number of

Value of Unexercised

Unexercised Options at

In-the-money Options at

December 31, 2005

December 31, 2005 ($)(1)

Name

Exercisable

Unexercisable

Exercisable

Unexercisable

Patrick J. McEnany

729,609

–

3,874,224

–

Jack Weinstein

291,844

145,922

1,351,238

440,684

(1)	Based upon the initial public offering price of $6.00 per share.

	The 2006 Stock Incentive Plan

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	•	each person or entity who we know beneficially owns more than 5% of our outstanding common stock;
	•	each of our directors and executive officers; and
	•	all directors and executive officers as a group.

						Percentage Owned
		Shares Owned				Before Offering				After Offering
Patrick J. McEnany(1)(2)			3,949,741				39.9	%			29.8	%
Hubert Huckel, M.D.(2)			1,878,744				19.0				14.2
Jonathan Brodie			459,654				5.0				3.7
Philip H. Coelho			218,883				2.4				1.7
Charles B. O’Keeffe(3)			324,676				3.4				2.5
David S. Tierney, M.D.			182,402				2.0				1.5
Milton J. Wallace(5)			313,732				3.4				2.5
Jack Weinstein(4)			437,766				4.6				3.4
M. Douglas Winship(6)			–				–				–
All officers and directors as a group (8 persons)			7,305,944				64.3				49.7

(1)	Includes 145,922 shares owned by Mr. McEnany’s wife.
(2)	Includes options to purchase 729,609 shares of our common stock at a price of $0.69 per share.
(3)	Includes options to purchase 291,844 shares of our common stock at a price of $1.37 per share.
(4)	Includes options to purchase 437,766 shares of our common stock, of which options to purchase 291,844 shares are exercisable at a price of $1.37 per share and options to purchase 145,922 shares are exercisable a price of $2.98 per share.
(5)	Includes 29,184 shares owned by Biscayne National Corp. Mr. Wallace is the president of Biscayne National Corp.
(6)	Excludes options to purchase 145,922 shares of our common stock exercisable at a price of $2.98 per share, none of which have vested or will vest within 60 days of the date of this prospectus.

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	•	either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder is approved by our board of directors before the date the interested stockholder attained that status;
	•	upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participates do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
	•	on or after that date, the business combination is approved by our board of directors and authorized at a meeting of stockholders, and not by written consent, by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

	•	any merger or consolidation involving the corporation and the interested stockholder;
	•	any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
	•	subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
	•	any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or
	•	the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

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	•	all 3,350,000 shares of common stock sold in the offering will be freely tradeable;
	•	4,049,551 shares will be “restricted securities” held by non-affiliates; and
	•	5,117,116 shares will be held by our executive officers and directors.

	•	one percent of the then outstanding shares of our common stock (approximately 125,167 shares immediately following the offering); or
	•	the average weekly trading volume during the four calendar weeks preceding filing of notice of such sale.

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	•	an individual who is a citizen or resident of the United States;
	•	a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any State of the United States or the District of Columbia;
	•	an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
	•	a trust (1) if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust, or (2) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

	•	U.S. federal gift tax consequences, or any U.S. state or local or non-U.S. tax consequences;
	•	the tax consequences for the stockholders or beneficiaries of a non-U.S. holder;
	•	any U.S. federal tax considerations that may be relevant to a non-U.S. holder in light of its particular circumstances or to non-U.S. holders that may be subject to special treatment under U.S. federal tax laws, such as financial institutions, insurance companies, tax exempt organizations, certain trusts, hybrid entities, certain former citizens or residents of the United States, holders subject to the U.S. federal alternative minimum tax, broker-dealers, controlled foreign corporations, passive foreign investment companies, and dealers and traders in securities; or
	•	special tax rules that may apply to a non-U.S. holder that holds our common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security,” or other integrated investment.

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	•	the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States and, if an income tax treaty applies, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States; in these cases, the non-U.S. holder generally will be taxed on its net gain derived from the disposition at the regular graduated rates and in the manner applicable to U.S. persons and, if the non-U.S. holder is a foreign corporation, the “branch profits tax” referred to above may also apply;

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	•	the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions are met; in this case, unless an applicable income tax treaty provides otherwise, the non-U.S. holder generally will be subject to a 30% U.S. federal income tax on the gain derived from the disposition; or
	•	our common stock constitutes a United States real property interest by reason of our status as a “United States real property holding corporation,” or a “USRPHC,” for U.S. federal income tax purposes at any time during the shorter of the 5 year period ending on the date of such disposition or the period that the non-U.S. holder held our common stock. While we believe that we are not currently, and will not become, a USRPHC, the determination of whether we are a USRPHC depends on the fair market value of our United States real property interests relative to the fair market value of our other business assets, and accordingly there can be no assurance that we will not become a USRPHC in the future. However, as long as our common stock is “regularly traded on an established securities market” within the meaning of Section 897(c)(3) of the Code, a non-U.S. holder would be subject to U.S. federal income tax on any gain from the sale, exchange or other disposition of our shares of common stock, by reason of USRPHC status, only if such non-U.S. holder, actually or constructively, owned more than 5% of our common stock at some time during the shorter of the periods described above. On the other hand, if we are or were to become a USRPHC and were to fail to qualify as “regularly traded on an established securities market,” then a non-U.S. holder generally would be subject to U.S. federal income tax on net gain derived from the disposition of our common stock at regular graduated rates and may be subject to U.S. federal income tax withholding on the gross proceeds realized with respect to such disposition. A non-U.S. holder may obtain a refund of any such amounts withheld in excess of the non-U.S. holder’s federal income tax liability.

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			Number of
Underwriter			Shares
First Albany Capital Inc.				2,177,500
Stifel, Nicolaus & Company, Incorporated				1,172,500
	Total			3,350,000

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			No				Full
			Exercise				Exercise
Per share			$	0.42			$	0.42
	Total			1,407,000				1,618,050

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	•	the information set forth in this prospectus and otherwise available to representatives;
	•	our history and prospects, and the history of and prospects for the industry in which we compete;
	•	our past and present financial performance and an assessment of our management;
	•	our prospects for future earnings and the present state of our development;
	•	the general condition of the securities markets at the time of this offering;
	•	the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and
	•	other factors deemed relevant by the underwriters and us.

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Years ended December 31, 2005, 2004 and 2003
Report of independent registered public accounting firm			F-2
Balance sheets as of December 31, 2005 and 2004			F-3
Statements of operations for the years ended December 31, 2005, 2004 and 2003			F-4
Statement of stockholders’ equity for the period from January 4, 2002 (date of inception) through December 31, 2005			F-5
Statements of cash flows for the years ended December 31, 2005, 2004 and 2003			F-6
Notes to financial statements			F-7
Six months ended June 30, 2006 and 2005
Balance sheets as of June 30, 2006 (unaudited) and December 31, 2005			F-15
Statements of operations for the six months ended June 30, 2006 and 2005 (unaudited)			F-16
Statement of stockholders’ equity (deficit) for the six months ended June 30, 2006 (unaudited)			F-17
Statements of cash flows for the six months ended June 30, 2006 and 2005 (unaudited)			F-18
Notes to interim financial statements			F-19

F-1

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				December 31,
				2005				2004
ASSETS
Current Assets:
	Cash and cash equivalents			$	771,127			$	183,911
	Prepaid insurance				440				–
		Total current assets			771,567				183,911
	Property and equipment, net				4,031				1,465
	Deposits				13,852				–
		Total assets		$	789,450			$	185,376
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Accounts payable			$	67,753			$	30,734
	Accrued expenses				275,235				37,066
		Total current liabilities			342,988				67,800
Commitments and contingencies (See notes)					–				–
Stockholders’ equity
	Preferred stock, $.01 par value, 5,000,000 shares authorized, 70,000 shares Series A Preferred Stock issued and outstanding				700				700
	Common stock, $.01 par value, 30,000,000 shares authorized, 6,887,513 shares issued and outstanding at December 31, 2005 and 2,918,438 shares issued and outstanding at December 31, 2004				68,875				29,184
	Additional paid-in capital				3,406,647				1,312,072
	Deficit accumulated during the development stage				(3,029,760	)			(1,224,380	)
		Total stockholders’ equity			446,462				117,576
		Total liabilities and stockholders’ equity		$	789,450			$	185,376

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															Cumulative Period
															from January 4,
															2002 (date of
			Years Ended December 31,												inception) through
															December 31,
			2005				2004				2003				2005
Revenues			$	–			$	–			$	–			$	–
Operating costs and expenses:
	Research and development			1,462,889				378,254				268,829				2,247,652
	General and Administrative			359,279				164,704				165,483				807,731
	Total operating costs and expenses			1,822,168				542,958				434,312				3,055,383
Loss from operations				(1,822,168	)			(542,958	)			(434,312	)			(3,055,383	)
Interest income				16,788				3,138				5,697				25,623
Loss before income taxes				(1,805,380	)			(539,820	)			(428,615	)			(3,029,760	)
Provision for income taxes				–				–				–				–
Net loss			$	(1,805,380	)		$	(539,820	)		$	(428,615	)		$	(3,029,760	)
Loss per share-basic and diluted			$	(0.29	)		$	(0.18	)		$	(0.15	)
Weighted Average Shares outstanding — basic and diluted				6,204,918				2,918,438				2,918,438

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																Deficit
																Accumulated
																During the
																Development
				Preferred Stock				Common Stock				Paid-in Capital				Stage				Total
Balance at January 4, 2002 (date of inception)				$	–			$	21,908			$	78,092			$	–			$	100,000
	Issuance of common stock				–				7,276				117,724				–				125,000
	Issuance of stock options for services				–				–				75,833				–				75,833
		Net loss			–				–				–				(255,945	)			(255,945	)
Balance at December 31, 2002					–				29,184				271,649				(255,945	)			44,888
	Issuance of preferred stock				700				–				669,757				–				670,457
	Issuance of stock options for services				–				–				75,833				–				75,833
		Net loss			–				–				–				(428,615	)			(428,615	)
Balance at December 31, 2003					700				29,184				1,017,239				(684,560	)			362,563
	Issuance of stock options for services				–				–				294,833				–				294,833
		Net loss			–				–				–				(539,820	)			(539,820	)
Balance at December 31, 2004					700				29,184				1,312,072				(1,224,380	)			117,576
	Issuance of common stock				–				39,545				1,006,971				–				1,046,516
	Issuance of common stock and stock options for services				–				146				1,087,604				–				1,087,750
		Net loss			–				–				–				(1,805,380	)			(1,805,380	)
Balance at December 31, 2005				$	700			$	68,875			$	3,406,647			$	(3,029,760	)		$	446,462

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															Cumulative period
															from January 4,
			For the Years Ended December 31,												2002 (date of
															inception) through
			2005				2004				2003				December 31, 2005
Operating Activities:
	Net loss		$	(1,805,380	)		$	(539,820	)		$	(428,615	)		$	(3,029,760	)
Reconciliation of net loss to net cash used in operating activities:
	Depreciation			1,374				366				–				1,740
	Stock-based compensation			1,172,750				294,833				95,733				1,659,249
	(Increase) in other prepaid expenses and deposits			(14,292	)			–				–				(14,292	)
	(Decrease) increase in Accounts Payable			37,019				14,436				(50,403	)			67,752
	Increase (decrease) in accrued expenses			153,169				(335	)			17,501				170,236
	Net cash used in operating activities			(455,360	)			(230,520	)			(365,784	)			(1,145,075	)
Investing Activities:
Capital Expenditures				(3,940	)			(1,831	)			–				(5,771	)
	Net cash used in investing activities			(3,940	)			(1,831	)			–				(5,771	)
Financing Activities:
Proceeds from issuance of common stock				1,046,516				–				4,500				1,151,516
Proceeds from issuance of preferred stock				–				–				670,457				670,457
	Net cash provided by financing activities			1,046,516				–				674,957				1,821,973
Net increase in cash and cash equivalents				587,216				(232,351	)			309,173				671,127
Cash and cash equivalents — beginning of period				183,911				416,262				107,089				100,000
Cash and cash equivalents — end of period			$	771,127			$	183,911			$	416,262			$	771,127
Supplemental disclosures of cash flow information:
Cash paid during the year for interest				–				–				–				–
Cash paid during the year for income taxes				–				–				–				–

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1.	Organization and Description of Business

2.	Basis of Presentation and Significant Accounting Policies

	a.	DEVELOPMENT STAGE COMPANY. Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. Accordingly, the Company is considered to be in the development stage and the Company’s financial statements are presented in accordance with Statement of Financial Accounting Standards No. 7, “Accounting and Reporting by Development Stage Enterprises.” The Company’s primary focus is on the chemical compound gamma-vinyl-GABA, commonly referred to as vigabatrin as a potential treatment for addictions.
	b.	USE OF ESTIMATES. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
	c.	CASH AND CASH EQUIVALENTS. The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company has substantially all of its cash and cash equivalents deposited with one financial institution.
	d.	PROPERTY AND EQUIPMENT. Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, generally three to seven years.
	e.	RESEARCH AND DEVELOPMENT. Costs incurred in connection with research and development activities are expensed as incurred. These costs consist of direct and indirect costs associated with specific projects as well as fees paid to various entities that perform research for the Company. Total research and development expenses were $1,462,889, $378,254, and $268,829 in 2005, 2004, and 2003, respectively.
	f.	LICENSES AND OTHER PURCHASED PRODUCT RIGHTS. The costs of acquired licenses and other purchased product rights are capitalized and amortized over their respective useful lives, generally the actual life of the license agreement. The Financial Accounting Standards Board (“FASB”) has issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The provisions of SFAS 142 provide that the carrying value of intangible assets that have finite useful lives are to be amortized over their respected useful lives.

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	g.	STOCK BASED COMPENSATION. The Company has recognized in the income statement the costs related to employee/consultant services in share-based payment transactions by using the estimated fair value of the stock at the date of grant, in accordance with Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation” (SFAS 123).

	The Company accounts for the issuance of employee stock options using the intrinsic value method. Accordingly, compensation cost for stock options issued is measured as the excess, if any, of the fair value of the Company’s common stock at the date of grant over the exercise price of the options. In 2005, 2004, 2003 and during the period from January 4, 2002 (date of inception) through December 31, 2005, the Company recorded compensation expense of $1,067,750, $294,833, $75,833 and $1,514,249, respectively, related to the issuance of stock options to nonemployees. The weighted average fair value of the stock options granted in 2005, 2004 and during the period from January 4, 2002 (date of inception) through December 31, 2005 was $1.14, $1.00 and $0.99, respectively. There were no stock options granted in 2003. The fair values were determined using the Black-Scholes option-pricing model with an estimated annual volatility of 100% for all periods, expected holding periods of five to ten years, and a risk-free interest rate of 5% in all periods through 2004 and a risk free rate of 5.5% in 2005.
	Had compensation cost for the stock-based compensation plans been determined based on the fair value method at the grant dates for awards of employee stock options consistent with the method of SFAS No. 123, pro forma net loss and loss per share would be as follows:

		Years ended December 31,
		2005				2004				2003
Net loss, as reported		$	(1,805,380	)		$	(539,820	)		$	(428,615	)
Stock-based compensation expense determined under the fair value-based method, net of tax			(507,917	)			(75,833	)			(75,833	)
Net loss, pro forma		$	(2,313,297	)		$	(615,653	)		$	(504,448	)
Loss per share — basic and diluted, as reported		$	(.29	)		$	(.18	)		$	(.15	)
Loss per share — basic and diluted, pro forma		$	(.37	)		$	(.21	)		$	(.17	)

	The above pro forma disclosures may not be representative of the effects on reported net (loss) earnings for future years as options vest over several years and the Company may continue to grant options to employees.

	h.	DEFERRED COMPENSATION. The Company has an agreement with one of the executive officers to defer payment of a portion of his compensation due to him until the Company has completed an equity financing raising gross proceeds of at least $2.0 million. This contingency was satisfied at the closing of the recently completed private placement (See Note 10) and the full amount due to this executive officer for services has been recognized in the income statement for each period for which compensation was accrued subject to the contingency (See Note 7).
	i.	CONCENTRATION OF CREDIT RISK. The financial instrument that potentially subjects the Company to concentration of credit risk is cash. The Company places its cash with high-credit quality financial institutions.
	j.	INCOME TAXES. The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation

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		allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
	k.	EARNINGS (LOSS) PER SHARE. Basic earnings (loss) per share is computed by dividing net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net earnings (loss) for the period by the weighted average number of common shares outstanding during the period, plus the dilutive effect of common stock equivalents, such as convertible preferred stock and stock options. For all periods presented, all common stock equivalents were excluded because their inclusion would have been anti-dilutive. Potentially dilutive common stock equivalents as of December 31, 2005 include 70,000 shares of Series A Preferred Stock convertible into 1,021,453 shares of common stock as well as stock options to purchase up to 2,188,828 shares of common stock at exercise prices ranging from $0.69 to $2.98. In addition, on July 24, 2006, the Company completed a private placement of 7,644 shares of Series B preferred stock convertible into 1,115,427 shares of common stock.

	l.	NEW ACCOUNTING PRONOUNCEMENTS. In December 2004, the FASB issued Statement 123(R) which addresses the accounting for share-based payment transactions (for example, stock options and awards of restricted stock) in which an employer receives employee-services in exchange for equity securities of the company or liabilities that are based on a fair value of the company’s equity securities. This proposal eliminates use of APB Opinion No. 25, Accounting for Stock Issued to Employees, and requires such transactions to be accounted for using a fair value-based method and recording compensation expense rather than optional pro forma disclosure. The new standard substantially amends SFAS 123. Statement 123(R) is effective on January 1, 2006 and will require the Company to recognize an expense for the fair value of its unvested outstanding stock options in future financial statements. The Company had no unvested stock options to employees as of January 1, 2006.

	In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which changes the requirements for the accounting and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement that does not include specific transition provisions. SFAS No. 154 requires that changes in accounting principle be retrospectively applied. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of this standard to have a material effect on the Company’s financial statements.
	A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to our condensed consolidated financial statements.

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3.	Property and Equipment

			2005				2004
Computer equipment			$	3,303			$	1,831
Furniture and equipment				2,468				–
Accumulated depreciation				(1,740	)			(366	)
	Total property and equipment		$	4,031			$	1,465

4.	Lease Obligations

2006		$	17,736
2007			18,268
2008			6,149
		$	42,153

5.	Accrued Expenses

		2005				2004
Common stock payable		$	105,000			$	20,000
Deferred payroll			83,327				–
Accrued license fee			69,352				–
Accrued professional fees			15,000				15,000
Other			2,556				2,066
		$	275,235			$	37,066

6.	Agreements

	a.	LICENSE AGREEMENT WITH BROOKHAVEN. The Company has entered into a license agreement with Brookhaven Science Associates, LLC, as operator of Brookhaven National Laboratory under contract with the United States Department of Energy (“Brookhaven”), whereby the Company has obtained an exclusive license for several patents and patent applications in the U.S. and outside the U.S. relating to the use of vigabatrin as a treatment for cocaine and other addictions. This license agreement runs concurrently with the term of the last to expire of the licensed patents, the last of which currently expires in 2020. The Company paid a fee to obtain the license in the amount of $50,000. In addition the Company is required to reimburse Brookhaven for the costs they have incurred relative to the related patents. The amount of costs incurred prior to September 30, 2005 is $69,352, which will become payable in six monthly installments at the time the Company submits a new drug application (“NDA”) to the U.S. Food and Drug Administration (“FDA”). Costs incurred after September 30, 2005 will also be due after the submission of the

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		NDA. The license agreement also calls for annual royalty payments of $100,000 in the year of FDA approval of an NDA relating to the licensed patents, $250,000 in the second and third year after the approval and $500,000 for each subsequent year until the expiration of the license agreement. The Company also has the right to enter into sub-license agreements, and if it does, a royalty of 20% of any sub-license fees will be payable to Brookhaven.
	b.	AGREEMENT WITH CONTRACT MANUFACTURER. The Company has entered into an agreement with a contract manufacturer under which such manufacturer will develop for the Company its version of vigabatrin for use by the Company in its clinical trials. The gross minimum costs related to this agreement are estimated at $513,200. The contract manufacturer will progress bill under this agreement pursuant to a schedule of payments to run concurrent with the work they will be performing. The payments will be due 30 days from the time of invoicing of the schedule procedure.

7.	Deferred Compensation

8.	Related Party Transactions

9.	Stock Options Granted

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		2005								2004								2003
						Weighted-Average								Weighted Average								Weighted Average
		Number of Options				Exercise Price				Number of Options				Exercise Price				Number of Options				Exercise Price
Outstanding at beginning of year			948,492			$	.97				729,609			$	.69				729,609			$	.69
Granted			1,240,336				1.06				218,883				1.91				–				–
Exercised			–				–				–				–				–				–
Forfeited			–				–				–				–				–				–
Outstanding at end of year			2,188,828			$	1.02				948,492			$	.97				729,609			$	.69
Exercisable at end of year			2,042,906			$	.88				632,327			$	.84				243,203			$	.69

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		Options Outstanding
														Options Exercisable
						Weighted-Average
						Remaining				Weighted Average								Weighted Average
Range of Exercise Prices		Shares				Contractual Life				Exercise Price				Shares				Exercise Price
$0.69 — $1.37			2,042,906				8.57 years			$	.88				2,042,906			$	.88
$2.98			145,922				5 years			$	2.98				–			$	–
			2,188,828												2,042,906

10.	Private Placements

11.	Capitalization

	a.	COMMON STOCK. The Company has 30,000,000 shares of authorized common stock with a par value of $0.01 per share. At December 31, 2005 and 2004, 6,887,513 and 2,918,438 shares, respectively, of common stock were issued and outstanding. Each holder of common stock is entitled to one vote of each share of common stock held of record on all matters on which stockholders generally are entitled to vote.
	b.	PREFERRED STOCK. The Company has 5,000,000 shares of authorized preferred stock outstanding, $0.01 par value per share.

	i.	Series A Preferred Stock. At December 31, 2005, the Company had 70,000 shares of Series A Preferred Stock issued and outstanding. Each share of outstanding Series A Preferred Stock has a liquidation preference of $1.00 per share and votes with the Common Stock on the basis of approximately fifteen votes for each share of Series A Preferred Stock outstanding. Each share of Series A Preferred Stock is convertible, at the option of the holder, into approximately 15 shares of common stock; provided, however, that all of the outstanding shares of Series A Preferred Stock will automatically convert into shares of the Company’s Common Stock under certain circumstances, including the completion of an initial public offering.

12.	Income Taxes

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13.	Subsequent Events

	a.	PRIVATE PLACEMENT. On July 24, 2006, the Company completed a private placement in which it raised net proceeds of $3,225,140 through the sale of 7,644 shares of the Company’s Series B Preferred Stock. Each share of outstanding Series B Preferred Stock has a liquidation preference of $435 per share and votes with the Common Stock on the basis of approximately 145 votes for each share of Series B Preferred Stock outstanding. Each share of Series B Preferred Stock is convertible, at the option of the holder, into approximately 145 shares of common stock; provided, however, that all of the outstanding shares of Series B Preferred Stock will automatically convert into shares of common stock under certain circumstances, including the completion of an initial public offering.
	b.	2006 STOCK INCENTIVE PLAN. In July 2006 the Company adopted the 2006 Stock Incentive Plan (the “Plan”). The Plan provides for the Company to issue options, restricted stock, stock appreciation rights and restricted stock units (collectively, the “Awards”) to employees, directors and consultants of the Company. Under the Plan, 2,188,828 shares of the Company’s Common Stock have been reserved for issuance. No grants have been made to date under the Plan.

	c.	STOCK SPLIT. On October 3, 2006, the Company’s board of directors approved an approximate 1.4592 forward stock split (effected in the form of a stock dividend). All stock value, common shares outstanding and per share amounts set forth in these financial statements have been adjusted retroactively to reflect this split.

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				June 30,				December 31,
				2006				2005
				(unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents			$	324,154			$	771,127
	Prepaid insurance				2,681				440
		Total current assets			326,835				771,567
	Property and equipment, net				14,426				4,031
	Deposits				23,852				13,852
		Total assets		$	365,113			$	789,450
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
	Accounts payable			$	24,946			$	67,753
	Accrued expenses				409,405				275,235
		Total current liabilities			434,351				342,988
Commitments and Contingencies (See notes)					–				–
Stockholders’ equity (deficit)
	Preferred stock, $.01 par value, 5,000,000 shares authorized, 70,000 shares Series A Preferred Stock outstanding				700				700
	Common stock, $.01 par value, 30,000,000 shares authorized, 6,887,513 shares issued and outstanding at June 30, 2006 and December 31, 2005				68,875				68,875
	Additional paid-in capital				3,557,772				3,406,647
	Accumulated deficit				(3,696,585	)			(3,029,760	)
		Total stockholders’ equity (deficit)			(69,238	)			446,462
		Total liabilities and stockholders’ equity (deficit)		$	365,113			$	789,450

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												Cumulative Period
				For the Six Months Ended								from January 4,
				June 30,								2002 (date of
												inception) to June
				2006				2005				30, 2006
				(unaudited)								(unaudited)
Revenues				$	–			$	–			$	–
Operating costs and expenses:
	Research and development				432,764				1,200,769				2,680,416
	General and administrative				242,194				126,811				1,049,925
		Total operating costs and expenses			674,958				1,327,580				3,730,341
	Loss from operations				(674,958	)			(1,327,580	)			(3,730,341	)
Interest income					8,133				5,908				33,756
	Loss before income taxes				(666,825	)			(1,321,672	)			(3,696,585	)
Provision for income taxes					–				–				–
	Net loss			$	(666,825	)		$	(1,321,672	)		$	(3,696,585	)
Loss per share – basic and diluted				$	(0.10	)		$	(0.24	)
Weighted average shares outstanding – basic and diluted					6,887,513				5,496,925

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																Deficit
																Accumulated
																During the
																Development
				Preferred Stock				Common Stock				Paid-in Capital				Stage				Total
Balance at December 31, 2005				$	700			$	68,875			$	3,406,647			$	(3,029,760	)		$	446,462
	Issuance of stock options for services				–				–				151,125				–				151,125
		Net loss			–				–				–				(666,825	)			(666,825	)
Balance at June 30, 2006				$	700			$	68,875			$	3,557,772			$	(3,696,585	)		$	(69,238	)

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											Cumulative period
											from January 4,
			For the Six Months Ended								2002 (date of
			June 30,								inception) through
											June 30,
			2006				2005				2006
			(unaudited)								(unaudited)
Operating Activities:
	Net loss		$	(666,825	)		$	(1,321,672	)		$	(3,696,585	)
Reconciliation of net loss to net cash used in operating activities:
	Depreciation			2,051				687				3,791
	Stock-based compensation			241,125				1,013,374				1,900,374
	(Increase) in other prepaid expenses and deposits			(12,241	)			(16,100	)			(26,533	)
	(Decrease) increase in accounts payable			(42,806	)			90				24,946
	Increase (decrease) in accrued expenses			44,169				79,510				214,406
	Net cash used in operating activities			(434,527	)			(244,111	)			(1,579,601	)
Investing Activities:
Capital expenditures				(12,446	)			(3,940	)			(18,218	)
	Net cash used in investing activities			(12,446	)			(3,940	)			(18,218	)
Financing Activities:
Proceeds from issuance of common stock				–				1,046,516				1,151,516
Proceeds from issuance of preferred stock				–				–				670,457
	Net cash provided by financing activities			–				1,046,516				1,821,973
Net increase in cash and cash equivalents				(446,973	)			798,465				224,154
Cash and cash equivalents — January 1				771,127				183,911				100,000
Cash and cash equivalents — June 30			$	324,154			$	982,376			$	324,154
Supplemental disclosures of cash flow information:
Cash paid during the year for interest				–				–				–
Cash paid during the year for income taxes				–				–				–

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1.	Organization and Description of Business

2.	Basis of Presentation and Significant Accounting Policies

	a.	DEVELOPMENT STAGE COMPANY. Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. Accordingly, the Company is considered to be in the development stage and the Company’s financial statements are presented in accordance with Statement of Financial Accounting Standards No. 7, “Accounting and Reporting by Development Stage Enterprises.”
	b.	INTERIM FINANCIAL STATEMENTS. The accompanying unaudited interim condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting of interim financial information. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. The accompanying unaudited interim condensed financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included elsewhere in this prospectus.

In the opinion of management, the accompanying unaudited interim condensed financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 2006, the results of its operations for the six month periods ended June 30, 2006 and 2005 and its cash flows for the six month periods ended June 30, 2006 and 2005. The results of operations and cash flows for the six month period ended June 30, 2006 are not necessarily indicative of the results of operations or cash flows which may be reported for the year ending December 31, 2006.

	c.	USE OF ESTIMATES. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

	d.	STOCK COMPENSATION PLANS. Through July 2006, the Company did not have a formal stock option plan. As of June 30, 2006, there were outstanding stock options to purchase 2,188,828 shares of common stock of which stock options to purchase 2,042,906 shares of common stock were exercisable as of June 30, 2006. There was no stock option activity during the six-month period ended June 30, 2006 or effect on cash flows.

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	For the six month periods ended June 30, 2006 and 2005, the Company recognized expense of $241,125 and $1,013,375, respectively, in stock-based compensation costs, which is reflected in research and development expenses. No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for substantially all net deferred tax assets. The Company elected to adopt the alternative method of calculating the historical pool of windfall tax benefits as permitted by FASB Staff Position (FSP) No. SFAS 123R-c, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards.” This is a simplified method to determine the pool of windfall tax benefits that is used in determining the tax effects of stock compensation in the results of operations and cash flow reporting for awards that were outstanding as of the adoption of SFAS No. 123R. As of June 30, 2006, the Company has no unrecognized compensation costs related to non-vested employee stock option awards.
	The following information applies to options outstanding and exercisable at June 30, 2006:

											Weighted-
							Weighted-				Average
							Average				Remaining				Aggregate
							Exercise				Contractual				Intrinsic
			Options				Price				Term (in years)				Value
Options outstanding at January 1, 2006				2,188,828			$	1.02				8.33			$	2,615,000
	Granted			0
	Exercised			0
	Forfeited			0
Options outstanding at June 30, 2006				2,188,828			$	1.02				8.33			$	2,615,000
Options exercisable at June 30, 2006				2,042,906			$	.88				8.57			$	2,447,500

		Options Outstanding
														Options Exercisable
						Weighted-Average
						Remaining				Weighted Average								Weighted Average
Range of Exercise Prices		Shares				Contractual Life				Exercise Price				Shares				Exercise Price
$.69 — $1.37			2,042,906				8.57 years			$	.88				2,042,906			$	.88
$2.98			145,922				5 years			$	2.98				—			$	—
			2,188,828												2,042,906

The Company utilizes the Black-Scholes option-pricing model to determine the fair value of stock options on the date of grant. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield. The Company’s expected volatility is based on the historical volatility of other publicly traded development stage companies in the same industry. The estimated expected option life is based upon estimated employee exercise patterns and considers whether and the extent to which the options are in-the-money. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve appropriate for the term of the Company’s stock options awards. For the period ended June 30, 2006 the assumptions used were an estimated annual volatility of 100%, expected holding periods of five to ten years, and a risk-free interest rate of 5.5%. The expected dividend rate is zero and no forfeiture rate was applied. As of June 30, 2006, the unrecognized compensation costs related to non-vested stock option is immaterial. There were no stock options granted during the six month period ended June 30, 2006. For the six month period ended June 30, 2005, the weighted average fair value of stock options granted was $1.14 per share.

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	Had compensation cost for the stock-based compensation plans been determined based on the fair value method at the grant dates for awards of employee stock options consistent with the method of SFAS No. 123, pro forma net loss and loss per share would be as follows:

		For the Six Months
		Ended
		June 30, 2005
Net loss, as reported		$	(1,321,672	)
Total stock-based employee compensation expense determined under fair value-based method			(488,959	)
Net loss, pro forma		$	(1,810,631	)
Loss per share — basic and diluted, as reported		$	(.24	)
Loss per share — basic and diluted, pro forma		$	(.33	)

	The above pro forma disclosures may not be representative of the effects on reported net (loss) earnings for future years as options vest over several years and the Company may continue to grant options to employees.

3.	Property and Equipment

			June 30,				December 31,
			2006				2005
Computer equipment			$	11,715			$	3,303
Furniture and equipment				6,502				2,468
Accumulated depreciation				(3,791	)			(1,740	)
	Total property and equipment		$	14,426			$	4,031

4.	Capitalization

	a.	COMMON STOCK. The Company has 30,000,000 shares of authorized common stock with a par value of $0.01 per share. At June 30, 2006 and December 31, 2005, 6,887,513 shares, respectively, of common stock were issued and outstanding. Each holder of common stock is entitled to one vote of each share of common stock held of record on all matters on which stockholders generally are entitled to vote.
	b.	PREFERRED STOCK. The Company has 5,000,000 shares of authorized preferred stock outstanding, $0.01 par value per share.

	i.	Series A Preferred Stock. At December 31, 2005, the Company had 70,000 shares of Series A Preferred Stock outstanding. Each share of outstanding Series A Preferred Stock has a liquidation preference of $1.00 per share and votes with the Common Stock on the basis of approximately 15 votes for each share of Series A Preferred Stock outstanding. Each share of Series A Preferred Stock is convertible, at the option of the holder, into approximately 15 shares of common stock; provided, however, that all of the outstanding shares of Series A Preferred Stock will automatically convert into shares of the Company’s Common Stock under certain circumstances, including the completion of an initial public offering.

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5.	Related Party Transactions.

6.	Subsequent Events

	a.	PRIVATE PLACEMENT. On July 24, 2006, the Company completed a private placement in which it raised net proceeds of $3,225,140 through the sale of 7,644 shares of the Company’s Series B Preferred Stock. Each share of outstanding Series B Preferred Stock has a liquidation preference of $435 per share and votes with the Common Stock on the basis of approximately 145 votes for each share of Series B Preferred Stock outstanding. Each share of Series B Preferred Stock is convertible, at the option of the holder, into approximately 145 shares of common stock; provided, however, that all of the outstanding shares of Series B Preferred Stock will automatically convert into shares of common stock under certain circumstances, including the completion of an initial public offering.
	b.	2006 STOCK INCENTIVE PLAN. In July 2006 the Company adopted the 2006 Stock Incentive Plan (the “Plan”). The Plan provides for the Company to issue options, restricted stock, stock appreciation rights and restricted stock units (collectively, the “Awards”) to employees, directors and consultants of the Company. Under the Plan, 2,188,828 shares of the Company’s common stock have been reserved for issuance. No options have been granted to date under the Plan.
	c.	STOCK SPLIT. On October 3, 2006, the Company’s board of directors approved an approximate 1.4592 forward stock split (effected in the form of a stock dividend). All stock value, common shares outstanding and per share amounts set forth in these financial statements have been adjusted retroactively to reflect this split.

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First Albany Capital