**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-KSB**




(Mark One)


x ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      The
      Fiscal Year Ended December 31, 2005





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





For
      the
      transition period from ____________ to ____________





COMMISSION
      FILE NO. **000-32947**





**LEV
      PHARMACEUTICALS, INC.**


(Name
      of
      Small Business Issuer in Its Charter)




**Delaware**
              **88-0211496**(State
                  or Other Jurisdiction of
              (I.R.S.
                  EmployerIncorporation
                  or Organization)
              Identification
                  No.)







**122
                East 42nd Street, Suite 2606, New York, New
                York**
            **10168**(Address
                of Principal Executive Offices)
            (Zip
                Code)




**(212)
      682-3096**


------------------------------------------------


(Issuer's
      Telephone Number, Including Area Code)





SECURITIES
      REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:




**NONE**




SECURITIES
      REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:





**Common
      Stock, $.01 Par Value Per Share**




Check
                  whether the issuer is not required to file reports pursuant to
                  Section 13
                  or 15(d) of the Exchange Act.
              o


Check
      whether the issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
      (or for such shorter period that the registrant was required to file such
      reports), and (2) has been subject to such filing requirements for the past
      90
      days: Yes x No o





Check
      if
      there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
      S-B contained herein, and no disclosure will be contained, to the best of
      registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB. x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x





The
      issuer's revenues for the year ended December 31, 2005 were $0.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the registrant on March 16, 2006, based on the closing bid
      price on such date was $31,141,602.





As
      of
      March 16, 2006 the issuer had a total of 81,527,544 shares of common stock
      outstanding.





Transitional
      Small Business Disclosure Format (Check one): Yes o No x







**TABLE
      OF CONTENTS**











Page


PART
      I




Item
                  1.
              DESCRIPTION
                  OF BUSINESS
              3Item
                  2.
              DESCRIPTION
                  OF PROPERTY
              28Item
                  3.
              LEGAL
                  PROCEEDINGS
              28Item
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              29




PART
      II


Item
                  5.
              MARKET
                  FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
              30Item
                  6.
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
              31Item
                  7.
              FINANCIAL
                  STATEMENTS
              40Item
                  8A.
              CONTROLS
                  AND PROCEDURES
              40Item
                  8B
              OTHER
                  INFORMATION
              40




PART
      III


Item
                  9
              DIRECTORS
                  AND EXECUTIVE OFFICERS OF THE REGISTRANT
              41Item
                  10.
              EXECUTIVE
                  COMPENSATION
              44Item
                  11.
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT
              49Item
                  12
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              50Item
                  13.
              EXHIBITS
              51Item
                  14.
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              53




SIGNATURES







**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS**





*The
      Private Securities Litigation Reform Act of 1995 provides a safe harbor for
      forward-looking statements made by us or on our behalf. We and our
      representatives may from time to time make written or oral statements that
      are
“forward-looking,” including statements contained in this Form 10-KSB and other
      filings with the Securities and Exchange Commission, reports to our stockholders
      and news releases. All statements that express expectations, estimates,
      forecasts or projections are forward-looking statements within the meaning
      of
      the Act. In addition, other written or oral statements which constitute
      forward-looking statements may be made by us or on our behalf. Words such as
      “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,”
“projects,” “forecasts,” “may,” “should,” variations of such words and similar
      expressions are intended to identify such forward-looking statements. These
      statements are not guarantees of future performance and involve risks,
      uncertainties and assumptions which are difficult to predict. Therefore, actual
      outcomes and results may differ materially from what is expressed or forecasted
      in or suggested by such forward-looking statements. We undertake no obligation
      to update publicly any forward-looking statements, whether as a result of new
      information, future events or otherwise. Among the important factors on which
      such statements are based are:*





·  *assumptions
      concerning uncertainties associated with product development;*


·  *the
      risk that we will not obtain approval to market our products;*


·  *the
      risk that our products will not gain market acceptance;*


·  *our
      ability to obtain additional financing;*


·  *our
      ability to attract and retain key employees;*


·  *our
      ability to protect intellectual property; and*


·  *our
      ability to adapt to economic, political and regulatory conditions affecting
      the
      healthcare industry.*





*All
      references to “we,” “our,” “us,” “Lev” and the “Company” in this Annual Report
      on Form 10-KSB refer to Lev Pharmaceuticals, Inc. and its wholly-owned
      subsidiary, Lev Development Corp.*





**Introduction**





Lev
      Pharmaceuticals, Inc. is a development stage biopharmaceutical company that
      was
      formed in July 2003 to focus on developing and commercializing therapeutic
      products for the treatment of inflammatory diseases. Our product candidates
      are
      based on C1-esterase inhibitor (“C1-INH”), a human plasma protein that mediates
      inflammation and is potentially applicable as a treatment for a range of medical
      indications. We initiated a Phase III clinical trial of our lead product
      candidate, C1-INH for the acute treatment of hereditary angioedema (“HAE”), in
      March 2005. In November 2005, we initiated a Phase III clinical trial of C1-INH
      for the prophylactic treatment of HAE. In October 2005, Lev received fast track
      designation status by the U.S Food and Drug Administration, (“FDA”) for the
      treatment of HAE. Lev is also developing C1-INH for the treatment of acute
      myocardial infarction (“AMI”), or heart attack, and selective other diseases and
      disorders in which inflammation is known or believed to play an underlying
      role.
      We have certain rights to C1-INH technology through agreements with Sanquin
      Blood Supply Foundation, an Amsterdam-based not-for-profit organization that
      provides blood and plasma products and related services, carries out research
      and provides education, primarily in the Netherlands.




3




**General**




Our
      principal executive office is located at 122 East 42nd Street, New
      York, New York 10168 and our telephone number is (212) 682-3096. Our website
      iswww.levpharma.com. Information contained in our website shall not be
      deemed to constitute a part of this Form 10-KSB.




**Public
      Company Merger**





On
      November 5, 2004, Fun City Popcorn, Inc. a non-operating public company
      incorporated in Nevada (“FCP”), Lev Acquisition Corp., its wholly-owed
      subsidiary (“Lev Sub”), and Lev Development Corp., previously know as Lev
      Pharmaceuticals, Inc. (“Old Lev” or “LDC”), entered into an Agreement and Plan
      of Merger (as amended on December 8, 2004, the “Agreement”). On December 29,
      2004, the merger closed and pursuant to the Agreement, Lev Sub merged into
      Old
      Lev and the combined entity became a wholly-owned subsidiary of FCP (the “Public
      Company Merger”). As a result of the Public Company Merger, FCP issued 5,029,795
      shares of common stock and 4,789,433 shares of Series A convertible preferred
      stock to holders of outstanding Old Lev common stock.





**Delaware
      Reincorporation**





Later,
      on December 29, 2004, the Board of Directors and stockholders of FCP approved
      a
      merger of FCP into a newly formed, wholly-owned subsidiary of FCP incorporated
      in Delaware (the “Recapitalization Merger”). This merger was undertaken to
      increase the authorized number of shares of common stock to permit the
      conversion of the Series A preferred stock, to reincorporate FCP in the State
      of
      Delaware and to change the name of the company. On February 17, 2005, the
      Recapitalization Merger closed and the issued and outstanding Series A Preferred
      Stock of FCP was automatically converted into an aggregate of 66,767,994 shares
      of common stock, which, along with the 4,505,530 shares of FCP common stock
      outstanding prior to the Public Company Merger and the 5,029,795 shares of
      common stock issued to the Old Lev stockholders in the Public Company Merger,
      resulted in a total of 76,303,319 shares of common stock outstanding as of
      February 17, 2005. As part of the Recapitalization Merger, Old Lev changed
      its
      name to Lev Development Corp. and FCP changed its name to Lev Pharmaceuticals,
      Inc. As a result of these mergers, the stockholders of Old Lev acquired
      approximately 94% of our outstanding common stock.




**Product
      Programs**





Our
      lead program is the development of C1-INH for the treatment of HAE. HAE is
      a
      rare genetic disorder characterized by episodic attacks of edema (swelling)
      in
      the extremities, face, abdomen and, most seriously, the airway passages. The
      disease is caused by a deficiency of C1-INH, and there are believed to be 6,000
      or more people with HAE in the United States.





Sanquin
      Blood Supply Foundation has been producing and selling successive generations
      of
      C1-INH, prepared from human plasma, in the Netherlands for over 30 years for
      the
      treatment of HAE. Continuous product development efforts at Sanquin have
      resulted in the product under investigation, a highly purified C1-INH that
      is
      the next generation of the product that has been marketed in the Netherlands
      since 1997. Despite its long record of use in Europe, however, C1-INH has never
      been introduced in the United States. Through a supply and distribution
      agreement with Sanquin, we have the exclusive right to market and sell C1-INH
      prepared by Sanquin for the treatment of HAE in North America and certain other
      geographic regions.




4





In
      July 2004, we received orphan drug designation from the FDA for C1-INH (human),
      which, upon product licensure from the FDA, could provide us with a seven-year
      exclusive right to market the C1-INH product as a treatment for HAE in the
      United States. **** This
      designation is for both acute and prophylactic treatment. **** In
      October 2005, we received fast track designation status by the FDA
      for **** both
      acute and prophylactic treatment of HAE. Fast
      track
      designation facilitates the development and expedites the review of drugs and
      biologics intended to treat serious or life-threatening conditions and that
      demonstrate the potential to address unmet medical needs. We
      initiated a Phase III clinical trial of C1-INH for the acute treatment of HAE
      in
      March 2005. In November 2005, we initiated a Phase III clinical trial of C1-INH
      for the prophylactic treatment of HAE. The trials are multi-center,
      placebo-controlled, double-blind studies designed to examine the use of C1-INH
      in both treating acute attacks of HAE and in preventing the onset of such
      attacks. Phase III clinical trials of this type are highly unpredictable, and
      may take from one year to many years for completion, depending on a large number
      of factors, most of which are entirely beyond our control. Following completion
      of a successful Phase III trial, we intend to submit a biologics license
      application, or BLA, to the FDA. Preparation of this BLA could take from six
      months to substantially more than one year. Following the submission of the
      BLA,
      the FDA may take from six months, in the case of an expedited review, to more
      than one year, to review the BLA. There can be no assurance that any of these
      timelines can or will be met, and there can be no assurance that the outcome
      of
      our Phase III trials will be successful or that the results of the trials will
      support licensure by the FDA.




Our
      second development program is focused on the use of C1-INH in treating acute
      myocardial infarction (“AMI”), commonly known as a heart attack. AMI results
      from an obstruction of blood flow to the heart. There are approximately 865,000
      patients with AMI in the United States annually, resulting in an estimated
      171,000 directly attributable deaths. Current treatments for AMI, both surgical
      and pharmaceutical, are directed at restoring blood flow to heart tissue or
      preventing further obstruction. Despite a widespread appreciation for the role
      of inflammation in AMI in both the scientific and medical communities, no
      presently available treatments directly target the mechanisms of inflammation.
      Based on preliminary animal and clinical data presented by others, we believe
      that C1-INH may be useful as a treatment for AMI. We
      intend
      to initiate a research program in 2006 for the development of a genetically
      engineered or recombinant version of C1-INH to be used in the treatment of
      AMI.
      In 2007, we may initiate studies for C1-INH in treating AMI, if we obtain
      additional funding and if we are able to acquire additional C1-INH product
      from
      Sanquin. There can be no assurance that we will raise any additional funds
      or
      that we will acquire the resources needed to conduct further research and trials
      for the treatment of AMI.





The
      process of inflammation underlies a number of other serious diseases, including
      gram-negative septicemia and inflammatory bowel disease, and is now also
      understood to play a role in other disorders previously thought to be unrelated
      to inflammation, including Alzheimer's disease and stroke. As a potent mediator
      of inflammation, C1-INH has been examined as a potential treatment for some
      of
      these diseases in animal studies, and, in a limited number of disorders, in
      clinical studies as well. Based on these studies, and on the role C1-INH is
      known to play in inhibiting key inflammatory pathways, we intend to develop
      C1-INH for certain other diseases and disorders. We believe that the extensive
      clinical experience with C1-INH in treating HAE in Europe will facilitate its
      introduction into other clinical indications.




5





**Strategy**





Our
      goal is to create a biopharmaceutical company that develops and commercializes
      a
      portfolio of C1-INH products that offer improved efficacy and safety
      characteristics over existing treatments. The key elements of our strategy
      are
      to:




·
              complete
                  the development of our lead product candidate, C1-INH for the treatment
                  of
                  HAE;
 ·
              market
                  and sell our HAE product independently or together with a third
                  party;
 ·
              advance
                  our second product candidate, C1-INH for the treatment of AMI,
                  into
                  early-stage clinical development in the United States;
                  and
 ·
              selectively
                  develop C1-INH for additional therapeutic
                  indications.


**Technology**





C1-INH
      is a human plasma protein that mediates inflammation and coagulation. In Europe,
      C1-INH, produced by several manufacturers, has been used to treat patients
      with
      HAE safely and effectively for more than 30 years, and is widely accepted as
      the
      treatment of choice for HAE. It is this extensive record of safety and efficacy
      that provides the basis for our lead program, the development of C1-INH in
      the
      United States for the treatment of HAE.





Beyond
      this record of clinical experience, however, C1-INH is also a well-characterized
      and well-understood molecule that is known to play a key role regulating the
      complex biochemical interactions of blood-based systems involved in inflammation
      and coagulation. C1-INH is known to be either a major or minor inhibitor of
      multiple proteins involved in these systems. More specifically, C1-INH is known
      to inhibit three key biochemical pathways underlying inflammation and/or
      coagulation - the complement system, the contact pathway of intrinsic
      coagulation and the fibrinolytic system. Under normal circumstances, these
      systems play important roles in defending the body from infection, injury and
      disease and in repairing tissue damage. If improperly controlled, however,
      these
      same systems can cause or contribute to disease and tissue damage. Excessive
      activity in one or more of these systems is known or believed to contribute
      to a
      number of diseases or disorders, including: myocardial infarction,
      ischemic-reperfusion injury, inflammatory bowel disease, gram-negative
      septicemia, Alzheimer's disease and stroke.





Based
      on (i) the demonstrated role of these inflammatory pathways in specific
      diseases, (ii) the known function of C1-INH in regulating these pathways and
      (iii) the extensive clinical experience in using C1-INH to treat HAE, C1-INH
      has
      been extensively studied, both clinically and pre-clinically, as a potential
      treatment for a number of diseases. We intend to leverage and extend these
      studies to develop a portfolio of products based on C1-INH.





**Hereditary
      Angioedema (HAE)**





**Background**





HAE
      is a genetic disorder characterized by episodes of edema (swelling) in the
      extremities, face, abdomen, and airway passages. The majority of patients have
      stretches of severe abdominal pain, nausea, and vomiting that is caused by
      swelling in the intestinal wall. Attacks that involve the face and throat must
      be taken seriously and medical treatment should be sought without delay.
      Swelling of the throat can close the air passage and cause death by suffocation.
      The mortality rate from untreated airway obstruction has been reported to be
      over 30% with death most frequently caused by asphyxiation due to airway
      closure. The course of the disease is diverse and unpredictable, even within
      a
      single patient over his lifetime. Swelling caused by HAE usually lasts for
      24-72
      hours, but the length of an attack can range from four hours to four days.
      On
      average, patients experience approximately one attack per month, but the
      frequency is highly variable. As many as 5% to 10% of patients are severely
      affected, experiencing attacks one to three times per week. HAE affects between
      1:10,000 and 1:50,000 individuals worldwide and there are believed to be 6,000
      or more people with HAE in the United States.




6





HAE
      is caused by a defective gene for C1-INH, and this defect is passed on in
      families - a child has a 50% chance of inheriting this disease if one parent
      is
      affected. The absence of family history, however, does not rule out HAE
      diagnosis, and as many as 20% of HAE cases involve patients who appear to have
      had a spontaneous mutation of the C1-INH gene at conception. The genetic defect
      results in production of either inadequate or nonfunctioning C1-INH
      protein.





C1-INH
      is known to inhibit three key biochemical pathways underlying inflammation
      and/or coagulation - the complement system, the contact pathway of intrinsic
      coagulation and the fibrinolytic system. Excessive activity of each of these
      systems has been demonstrated in HAE, as evidenced by increased levels of
      components of the complement system, kallikrein, coagulation Factors XIa and
      XIIa, and plasmin. The biochemical imbalance that results from reduced levels
      of
      functional C1-INH leads to the production of proteins and peptides that cause
      fluids to be released from the capillaries into surrounding tissues thereby
      causing edema.





In
      the absence of C1-INH activity, activated C1 and plasmin generate certain
      inflammatory mediators that are thought to be causal factors of the angioedema
      observed in patients with HAE. C1-INH concentrate replaces the missing or
      non-functional protein and inhibits the catalytic subunits of the first
      component of the classic complement pathway (C1r and C1s), and also inhibits
      the
      function of kallikrein, plasmin, and coagulation factors XIa and
      XIIa.





Because
      HAE is rare and has a wide variability in disease expression, it is not uncommon
      for patients to remain undiagnosed or misdiagnosed for many years. Many patients
      report that their frequent and severe abdominal pain was inappropriately
      diagnosed as psychosomatic. Although rare, HAE is a disease with potentially
      catastrophic consequences for those affected. Aside from the potentially fatal
      acute respiratory compromise, unnecessary exploratory surgery has been performed
      on patients experiencing gastrointestinal edema because abdominal HAE attacks
      mimic conditions requiring surgery.





Traditionally,
      HAE has been classified into two types (I and II). The most common form of
      the
      disease, Type I, is characterized by low levels of C1-INH and affects about
      85%
      of patients, whereas Type II HAE affects 15% of patients and is characterized
      by
      non-functional C1-INH. A third type of HAE has been identified in which the
      abnormal C1-INH protein binds to albumin, effectively reducing the amount of
      functional C1-INH.





**Current
      Treatments of HAE**





Treatment
      of HAE can be categorized as: (i) mitigation or acute treatments to remedy
      the
      symptoms of infrequent episodic acute attacks; and (ii) preventive or
      prophylactic treatments for patients severely affected by HAE.





7





There
      are currently no approved treatments for acute attacks available in the United
      States. Rather, current therapies primarily focus upon treating the symptoms
      of
      an acute attack. For swelling of the intestinal wall, which can cause
      debilitating pain, narcotics such as morphine and antiemetics for nausea are
      given, but these medications only address the symptoms and not the underlying
      cause. For severe laryngeal swelling, which can be life threatening, rescue
      therapy such as intubation or tracheotomy may be required. The use of fresh
      frozen plasma, which contains C1-INH but which also contains a wide variety
      of
      other factors that may activate multiple inflammatory pathways and exacerbate
      an
      attack, is also used in some instances. Facial and extremity attacks are usually
      left to resolve on their own.





Long-term
      prevention therapy is recommended for patients who experience more than one
      attack per month, or for whom the disease significantly interferes with their
      quality of life. Most of these patients are currently treated with anabolic
      steroids that reduce the frequency of attacks of edema. The most commonly used
      steroids are alpha-alkylated androgens such as stanozolol and danazol. Although
      these drugs are effective in some patients in reducing the number and severity
      of the most serious attacks, they do not prevent all attacks. In addition,
      use
      of such anabolic steroids can have numerous side effects ranging from
      hepatotoxicity (liver toxicity), virilization (development of male sexual
      characteristics in a female), weight gain, acne and hirsutism (unwanted hair
      growth).





**C1-Esterase
      Inhibitor (C1-INH) for the Treatment of HAE**





HAE
      has been shown to be effectively treated with intravenous administration of
      C1-INH purified from human plasma. In Europe, C1-INH, produced by several
      manufacturers, has been used to treat patients with HAE safely and effectively
      for more than 30 years, and is widely accepted by treating physicians and HAE
      associations around the world as the treatment of choice for acute attacks
      of
      HAE. It can be used to treat acutely, when there is an attack, or
      prophylactically, to prevent attacks. This treatment concept is similar to
      hemophilia, in which a patient is treated regularly with the particular clotting
      factor for which he is deficient, as well as on demand for specific bleeding
      episodes. In spite of this long record of safety and efficacy in Europe, C1-INH
      has never been introduced in the United States, and it is our objective to
      bring
      C1-INH to the United States for the treatment of patients with HAE.





Our
      first product candidate, C1-INH prepared from human plasma, is being developed
      for both acute and prophylactic treatment of HAE. C1-INH is given by intravenous
      administration. Published studies by others have shown C1-INH treatment to
      resolve angioedema in 30 minutes to two hours, compared to 24-72 hours when
      untreated. A research study published in the New England Journal of Medicine
      in
      1996 provided evidence that this treatment was safe and effective for both
      prevention of attacks and as an acute attack therapy. In addition, rapid
      resolution of laryngeal, facial, abdominal, and extremity swelling was observed.
      A study published in the Archives of Internal Medicine in 2001 concluded C1-INH
      to be highly effective in treating the laryngeal edema of HAE with rapid
      resolution of symptoms. We believe these studies, which did not involve our
      product, and others showing comparable efficacy, are representative of the
      extensive European clinical experience using C1-INH as a treatment for HAE
      for
      more than 30 years.





On
      March 2, 2005, we entered into a CRO (Clinical Research Organization) services
      agreement with INC Research which governs INC Research's provision of services
      in connection with the support of clinical investigation, management and/or
      research of our Phase III clinical trial. We estimate that we will pay INC
      Research approximately $700,000 for its services in 2006 and 2007. In October
      2005, we received fast track designation status by the FDA for the treatment
      of
      HAE. We initiated a Phase III clinical trial of C1-INH for the acute treatment
      of HAE in March 2005. In November 2005, we initiated a Phase III clinical trial
      of C1-INH for the prophylactic treatment of HAE.




8





**Acute
      Myocardial Infarction**





**Background**





AMI,
      commonly known as a heart attack, is a sudden, life-threatening cardiac disorder
      caused by an obstruction of blood flow to the heart. The major symptom of AMI
      is
      chest discomfort, but associated symptoms include nausea, vomiting, shortness
      of
      breath, and dizziness. AMIs vary in severity and symptoms, and the intensity
      of
      the symptoms depends on the size of the area of heart muscle affected by the
      infarction. Clinical diagnosis of AMI is typically based on elevation of two
      cardiac enzyme markers, creatine kinase and troponin, markers considered highly
      reliable measures of cardiac injury.




AMI
      results in the development of myocardial necrosis, or death of heart cells
      or
      tissue, due to ischemia (lack of oxygen). The heart cells are not supplied
      with
      sufficient oxygen to meet their metabolic requirements. The most common cause
      of
      AMI is atherosclerosis or the accumulation of plaques in the arterial wall.
      Plaques can rupture and form a thrombus, or clot, that partially or totally
      blocks arterial blood flow. Patients with this condition suffer the disruption
      of the normal pattern of contractions of the heart muscle leading to atrial
      fibrillation (rapid uncontrolled beat) and/or heart failure. There are
      approximately 865,000 patients with AMI in the United States annually, resulting
      in an estimated 171,000 directly attributable deaths.





**Current
      Treatments of AMI**





Current
      treatments of AMI are limited and are aimed at restoring blood flow, improving
      tissue oxygenation and preventing further arterial obstruction. The first line
      of treatment usually includes oxygen (to reduce the workload of the heart),
      aspirin (to inhibit further clot formation), nitroglycerin (to reduce the oxygen
      requirements of the heart) and morphine (for pain). Fibrinolytic drugs, such
      as
      streptokinase, urokinase or alteplase, are administered to dissolve clots,
      and
      heparin is given as an anticoagulant to prevent further clot formation.
      Percutaneous transluminal coronary angioplasty, or PTCA, is commonly performed
      to restore blood flow to the affected coronary artery, a procedure that may
      involve the placement of a stent to prevent closure of the vessel. In some
      cases, coronary arterial bypass graft surgery may be required. Antiplatelet
      medications, such as aspirin and clopidogrel, have become a cornerstone of
      therapy for AMI. These medications prevent the accumulation of platelets, a
      trigger event in clot formation. Newer strategies include the use of platelet
      glycoprotein IIb-IIIa receptor inhibitors, low molecular weight heparin, and
      Factor Xa inhibitors.





**C1-INH
      for the Treatment of AMI**





Current
      treatments for AMI, both surgical and pharmaceutical, are directed at restoring
      blood flow to heart tissue or preventing further obstruction. The later stages
      of cardiac cell injury during AMI, however, result at least in part from an
      inflammatory response. Activation of the complement system has been
      demonstrated, inflammatory mediators have been identified, and certain
      anti-inflammatory drugs have been shown to reduce infarct size in animal models.
      Despite a widespread appreciation for the role of inflammation in AMI in both
      the scientific and medical communities, no presently available treatments
      directly target the mechanisms of inflammation. **** Based
      on preliminary animal and clinical data, we believe that C1-INH may be useful
      as
      a treatment for AMI.




9





Two
      of the major inflammatory pathways believed to be involved in AMI are the
      complement system and the contact pathway of intrinsic coagulation. C1-INH
      is an
      important inhibitor of both of these pathways and, therefore, may provide a
      therapeutic benefit in the treatment of AMI. C1-INH has been studied extensively
      in animal models of myocardial infarction in rat, pig, cat and dog models.
      In
      these studies, C1-INH was shown both to restore blood flow and to reduce cardiac
      damage. The use of C1-INH in treating AMI has also been studied in a preliminary
      clinical trial published in the European Heart Journal in 2002. In 13 patients,
      release of troponin T and creatine kinase MB, two accepted biochemical markers
      of cardiac damage, were reduced by 36% and 57%, respectively, compared to 18
      controls. We entered into an exclusive worldwide license with Sanquin for the
      use of C1-INH for the treatment of AMI.





The
      supply of plasma derived C1-INH may not be sufficient for the treatment of
      AMI,
      therefore we intend to initiate a research program in 2006 for the development
      of a genetically engineered or recombinant version of C1-INH.




**Distribution,
      Manufacturing and Licensing Relationships**





**Distribution
      and Manufacturing Services Agreement with Sanquin**





We
      entered into a Distribution and Manufacturing Services Agreement with Sanquin
      as
      of January 16, 2004. Under this agreement, Sanquin has granted us (i) the
      exclusive right to distribute, market, offer for sale, sell, import and promote
      C1-INH derived from human plasma manufactured by Sanquin for the treatment
      of
      HAE, in Israel and in all countries in North America and South America (other
      than the Dutch Overseas Territories, Argentina and Brazil), and (ii) a right
      of
      first refusal to distribute, market, offer for sale, sell, import and promote
      C1-INH derived from human plasma manufactured by Sanquin for the treatment
      of HAE in certain other geographic regions and under certain
      conditions.





Under
      the distribution agreement, it is our responsibility to conduct the Phase III
      clinical trials of C1-INH for the treatment of HAE and to prepare and file
      all
      regulatory applications necessary to register the product candidate. **** In
      exchange, Sanquin agreed to provide us with the technical data and support
      necessary to assist us in preparing and filing all such regulatory
      applications.





Furthermore,
      Sanquin agreed to supply C1-INH for our Phase III clinical trials. Upon receipt
      of FDA approval for our product candidate for the treatment of HAE, upon
      commercial launch of this product and thereafter during the term of the
      agreement, Sanquin will supply us with our commercial requirements for C1-INH
      for the treatment of HAE in each country where we have received regulatory
      approval, subject to minimum annual purchase requirements in Euros equal to
      approximately $6,900,000 per year.





The
      initial term of this agreement expires on December 31, 2007, subject to
      extension. We have the right to extend the term of this agreement for up to
      six
      years in two successive three year periods upon written notice to Sanquin no
      later than six months before this agreement or an extension of this agreement
      terminates.




10





In
      accordance with the agreement, we have obtained FDA consent for our plan to
      collect necessary data to support licensure by the FDA in the United States
      and
      we have secured the support of a clinical research organization to conduct
      our
      Phase III clinical trials for our HAE product candidate. Sanquin has the right
      to terminate this agreement in the event, among other things, that:


·
              we
                  fail to complete the enrollment of our Phase III clinical trials
                  for our
                  HAE product candidate by July 2007;
 ·
              we
                  fail to submit a BLA to the FDA within a specified time frame;
                  or
 ·
              we
                  fail to obtain marketing approval in the United States within a
                  specified
                  time frame.


**Exclusive
      License Agreement with Sanquin**





We
      entered into a license agreement with Sanquin on January 27, 2004. Under this
      agreement, we have an exclusive, worldwide, royalty-bearing license, with the
      right to sublicense Sanquin patent rights and know-how relating to the use
      of
      C1-INH for the treatment of AMI. In connection with the license agreement,
      we
      paid Sanquin certain fees and reimbursed Sanquin for certain expenses. In
      addition, we have an obligation to pay Sanquin royalties on sales of products
      incorporating the licensed technology.




We
      are required to create a comprehensive research plan for the commercial
      exploitation of the licensed technology. We are continuing to work with Sanquin
      on the design of the research plan. We agreed to commit a minimum of $125,000
      per annum during the first three years following the execution of the license
      agreement toward research on the licensed technology conducted by Sanquin and
      other parties. As of March 17, 2006, we have funded approximately $141,000
      to
      third parties engaged in this research. In addition, we have agreed to use
      commercially reasonable efforts to manufacture and market products incorporating
      the licensed technology. We
      intend
      to initiate a research program in 2006 for the development of a genetically
      engineered or recombinant version of C1-INH to be used in the treatment of
      AMI.
      In 2007, we may initiate studies for C1-INH in treating AMI, if we obtain
      additional funding and if we are able to acquire additional C1-INH product
      from
      Sanquin. There can be no assurance that we will raise any additional funds
      or
      that we will acquire the resources needed to conduct further research and trials
      for the treatment of AMI.





The
      license agreement, unless it is terminated earlier, shall continue in force
      until the expiration, invalidation or unenforceability of the last to expire
      patent licensed pursuant to the agreement. The U.S. patent licensed from Sanquin
      will expire on July 18, 2017, provided that applicable maintenance fees are
      timely paid. **** Either
      party may terminate the agreement in the event of an uncured material breach
      by
      the other.





**Intellectual
      Property**





The
      following factors are important to our success:




·receiving
                  patent protection for our product
                  candidates;
 ·not
                  infringing the intellectual property rights of
                  others;
 ·preventing
                  others from infringing our intellectual property rights;
                  and
 ·maintaining
                  our patent rights and trade
                  secrets.
  11




We
      actively seek, when appropriate, protection for our proposed products,
      technologies and proprietary information through United States and foreign
      patents. In addition, we rely upon trade secrets and contractual arrangements
      to
      protect our proprietary information.





As
      of December 31, 2005, under our license agreement with Sanquin, we license
      a
      United States patent and an International Patent Application including any
      foreign patents issuing therefrom related to our technologies, compounds and
      their applications in pharmaceutical development or their use as pharmaceuticals
      and in particular for the use of C1-INH in the treatment of AMI. We face the
      risk that our licensed patent and any patents issued to us in the future may
      be
      challenged or circumvented or may otherwise not provide protection for any
      commercially viable products that we develop. We also note that United States
      patents and patent applications may be subject to interference proceedings
      and/or reexamination proceedings in the United States Patent and Trademark
      Office (and foreign patents may be subject to opposition or comparable
      proceedings in the corresponding foreign patent office), which could result
      in
      either loss of the patent or denial of the patent application or loss or
      reduction in the scope of one or more of the claims of the patent or patent
      application. In addition, such interference, reexamination and opposition
      proceedings may be costly. Furthermore, an adverse decision in an interference
      proceeding can result in a third party receiving the very patent rights sought
      by us, which in turn could affect our ability to market a potential product
      to
      which that patent filing was directed. In the event that we seek to enforce
      any
      of our owned or exclusively licensed patents against an infringing party, it
      is
      likely that the party defending the claim will seek to invalidate the patents
      we
      assert, which, if successful, would result in the entire loss of our patent
      or
      the relevant portion of our patent and not just with respect to that particular
      infringer. Any litigation to enforce or defend our patent rights, even if we
      were to prevail, could be costly and time-consuming and would divert the
      attention of our management and key personnel from our business
      operations.





In
      addition, our ability to assert our patents against a potential infringer,
      depends on our ability to detect the infringement in the first instance. Many
      countries, including certain European countries, have compulsory licensing
      laws
      under which a patent owner may be compelled to grant licenses to third parties
      in some circumstances (for example, when the patent owner has failed to “work”
the invention in that country, or the third party has patented improvements).
      In
      addition, many countries limit the enforceability of patents against government
      agencies or government contractors. In these countries, the patent owner may
      have limited remedies, which could materially diminish the value of the patent.
      Compulsory licensing of life-saving drugs is also becoming increasingly popular
      in developing countries either through direct legislation or international
      initiatives. Such compulsory licenses could be extended to include some of
      our
      product candidates, which could limit our potential revenue opportunities.
      Moreover, the legal systems of certain countries, particularly certain
      developing countries, do not favor the aggressive enforcement of patent and
      other intellectual property protection.





Our
      success will also depend in part upon our not infringing patents issued to
      others. If our product candidates are found to infringe the patents of others,
      our development, manufacture and sale of such potential products could be
      severely restricted or prohibited.





Patent
      litigation can involve complex factual and legal questions and its outcome
      is
      uncertain. Any claim relating to infringement of patents that is successfully
      asserted against us may require us to pay substantial damages. Even if we were
      to prevail, any litigation could be costly and time-consuming and would divert
      the attention of our management and key personnel from our business operations.
      Furthermore, if a patent infringement suit were brought against us or our future
      strategic partners or licensees, if any, we or they may be forced to stop or
      delay developing, manufacturing or selling potential products that are alleged
      to infringe a third party's intellectual property unless that party grants
      us or
      our strategic partners or licensees rights to use its intellectual property.
      In
      such cases, we may be required to obtain licenses to patents or proprietary
      rights of others in order to continue to commercialize our products. However,
      we
      may not be able to obtain any licenses required under any patents or proprietary
      rights of third parties on acceptable terms, or at all. Even if we or our
      strategic partners or licensees were able to obtain rights to the third party's
      intellectual property, these rights may be non-exclusive, thereby giving our
      competitors access to the same intellectual property. Ultimately, we may be
      unable to commercialize some of our potential products or may have to cease
      some
      of our business operations as a result of patent infringement claims, which
      could severely harm our business.




Much
      of our technology and many of our processes depend upon the knowledge,
      experience and skills of our scientific and technical personnel. To protect
      rights to our proprietary know-how and technology, we generally require all
      employees, contractors, consultants, advisors, visiting scientists and
      collaborators as well as potential collaborators to enter into confidentiality
      agreements that prohibit the disclosure of confidential information. The
      agreements with employees and consultants also require disclosure and assignment
      to us of ideas, developments, discoveries and inventions. These agreements
      may
      not effectively prevent disclosure of our confidential information or provide
      meaningful protection for our confidential information.




12





**Competition**





We
      operate in an industry characterized by intense competition and rapid
      technological change. New developments occur and are expected to continue to
      occur at a rapid pace. Discoveries or commercial developments by our competitors
      may render some or all of our technologies, products or potential products
      obsolete or non-competitive.





Our
      principal focus is on the development of therapeutic products. We conduct
      research and development programs to develop and test product candidates and
      demonstrate to appropriate regulatory agencies that these products are safe
      and
      effective for therapeutic use in particular indications. Our principal
      competitors are companies that are already marketing products in those
      indications or are developing new products for those indications. Most of these
      organizations have greater financial resources and drug development experience
      than we do. Companies developing therapeutics for the treatment of HAE include
      Dyax Corp., Jerini AG, Pharming Group N.V. and ZLB Behring. Other competitors
      and potential competitors include companies that market and develop anabolic
      steroid-based drugs and anti-inflammatory compounds.





HAE
      is a
      disease that fits within the definition of the Orphan Drug Act, and therefore
      any company that develops a therapy for this indication could, upon licensure,
      obtain a seven year marketing exclusivity in the United States for the licensed
      indication. We believe ZLB Behring and Pharming Group N.V. are currently
      developing therapy for the acute treatment of HAE that the FDA may consider
      the
      same as ours under the Orphan Drug Act. In the event that these companies obtain
      FDA product licensures before us, we could be prevented from obtaining FDA
      licensure and marketing our C1-INH product for the treatment of HAE for up
      to
      seven years.





For
      potential cardiovascular disease product applications, our potential competitors
      include numerous pharmaceutical and biotechnology companies, most of which
      have
      substantially greater financial resources and experience than we
      do.




13





**Government
      Regulation**





Regulation
      by governmental authorities in the United States and other countries is a
      significant factor in the development, manufacture and marketing of
      pharmaceuticals, and in our ongoing research and development activities. All
      of
      our products will require regulatory approval by governmental agencies prior
      to
      commercialization. In particular, pharmaceutical drugs are subject to rigorous
      preclinical testing and clinical trials and other pre-marketing approval
      requirements by the FDA and regulatory authorities in other countries. In the
      United States, various federal, and in some cases, state statutes and
      regulations also govern or impact upon the manufacturing, safety, labeling,
      storage, record-keeping and marketing of pharmaceutical products. The lengthy
      process of seeking required approvals and the continuing need for compliance
      with applicable statutes and regulations, require the expenditure of substantial
      resources. Regulatory approval, when and if obtained for any of our product
      candidates, may be limited in scope which may significantly limit the indicated
      uses for which our product candidates may be marketed. Further, approved drugs
      and manufacturers are subject to ongoing review and discovery of previously
      unknown problems that may result in restrictions on their manufacture, sale
      or
      use or in their withdrawal from the market.





**Preclinical
      Studies**





Before
      testing any compounds with potential therapeutic value in human subjects in
      the
      United States, stringent government requirements for preclinical data must
      be
      satisfied. Preclinical testing includes both *in vitro* and *in vivo* laboratory evaluation and characterization of the safety and efficacy of a
      drug
      and its formulation. Preclinical testing results obtained from studies in
      several animal species, as well as from *in vitro* studies, are submitted to the FDA as part of an investigational new drug
      application, or IND, and are reviewed by the FDA prior to the commencement
      of
      human clinical trials. These preclinical data must provide an adequate basis
      for
      evaluating both the safety and the scientific rationale for the initial trials
      in human volunteers.





**Clinical
      Trials**





If
      a company wants to test a new drug in humans, an IND must be prepared and filed
      with the FDA. The IND becomes effective if not rejected or put on clinical
      hold
      by the FDA within 30 days. In addition, an Institutional Review Board comprised
      in part of physicians at the hospital or clinic, as well as others representing
      the interests of the community where the proposed trials will be conducted,
      must
      review and approve the trial protocol and monitor the trial and the
      investigators on an ongoing basis. The FDA may, at any time during the 30-day
      period or at any time thereafter, impose a clinical hold on proposed or ongoing
      clinical trials. If the FDA imposes a clinical hold, clinical trials cannot
      commence or recommence without FDA authorization and then only under terms
      authorized by the FDA. In some instances, the IND application process can result
      in substantial delay and expense.





**Clinical
      Trial Phases**





Clinical
      trials typically are conducted in three sequential phases, phases I, II and
      III,
      with phase IV trials potentially conducted after marketing approval. These
      phases may be compressed, may overlap or may be omitted in some
      circumstances.




·
              *Phase
                  I clinical trials*.
                  After an IND becomes effective, Phase I human clinical trials can
                  begin.
                  These trials evaluate a drug's safety profile, and the range of
                  safe
                  dosages that can be administered to healthy volunteers and/or patients,
                  including the maximum tolerated dose that can be given to a trial
                  subject
                  with the target disease or condition. Phase I trials also determine
                  how a
                  drug is absorbed, distributed, metabolized and excreted by the
                  body, and
                  the duration of its action.




14


·
              *Phase
                  II clinical trials*.
                  Phase II clinical trials typically are designed to evaluate the
                  potential
                  effectiveness of the drug in patients and to further ascertain
                  the safety
                  of the drug at the dosage given in a larger patient
                  population.·
              *Phase
                  III clinical trials*.
                  In Phase III clinical trials, the drug is usually tested in a controlled,
                  randomized trial comparing the investigational new drug to an approved
                  form of therapy in an expanded and well-defined patient population
                  and at
                  multiple clinical sites. The goal of these trials is to obtain
                  definitive
                  statistical evidence of safety and effectiveness of the investigational
                  new drug regime as compared to an approved standard therapy in
                  defined
                  patient populations with a given disease and stage of
                  illness.




**Biologics
      License Application**





After
      completion of clinical trials, if there is substantial evidence that the drug
      is
      safe, pure and potent, a biologics license application, or BLA, is prepared
      and
      submitted for the FDA to review. The BLA must contain all of the essential
      information on the drug gathered to that date, including data from preclinical
      and clinical trials, and the content and format of a BLA must conform with
      all
      FDA regulations and guidelines. Accordingly, the preparation and submission
      of a
      BLA is a major undertaking for a company. In addition, the FDA reviews a BLA
      to
      determine whether the facility in which a product is manufactured, processed,
      packed or held meets standards designed to assure the product's continued
      safety, purity and potency.





The
      FDA reviews all BLAs submitted before it accepts them for filing and may request
      additional information from the sponsor rather than accepting a BLA for filing.
      In such an event, the BLA must be submitted with the additional information
      and,
      again, is subject to review before filing. Once the submission is accepted
      for
      filing, the FDA begins an in-depth review of the BLA. By law, the FDA has 180
      days in which to review the BLA and respond to the applicant. The review process
      is often significantly extended by the FDA through requests for additional
      information and clarification. The FDA may refer the application to an
      appropriate advisory committee, typically a panel of clinicians, other
      scientific experts and patient representatives, for review, evaluation and
      a
      recommendation as to whether the application should be approved. The FDA is
      not
      bound by the recommendation, but gives great weight to it. If the FDA
      evaluations of both the BLA and the manufacturing facilities are favorable,
      the
      FDA may issue either an approval letter or an approvable letter, which usually
      contains a number of conditions that must be satisfied in order to secure final
      approval. If the FDA's evaluation of the BLA submission or manufacturing
      facility is not favorable, the FDA may refuse to approve the BLA or issue a
      not
      approvable letter.





**Other
      Regulatory Requirements**





Any
      products that we manufacture or distribute under FDA approvals are subject
      to
      pervasive and continuing regulation by the FDA, including record-keeping
      requirements and reporting of adverse experiences with the products. Drug
      manufacturers and their subcontractors are required to register with the FDA
      and, where appropriate, state agencies, and are subject to periodic unannounced
      inspections by the FDA and state agencies for compliance with current good
      manufacturing processes (“cGMP”) regulations which impose procedural and
      documentation requirements upon us and any third party manufacturers we
      utilize.




15





The
      FDA closely regulates the marketing and promotion of drugs. A company can make
      only those claims relating to safety and efficacy that are approved by the
      FDA.
      Failure to comply with these requirements can result in adverse publicity,
      warning letters, corrective advertising and potential civil and criminal
      penalties. Physicians may prescribe legally available drugs for uses that are
      not described in the product's labeling and that differ from those tested by
      us
      and approved by the FDA. Such off-label uses are common across medical
      specialties. Physicians may believe that such off-label uses are the best
      treatment for many patients in varied circumstances. The FDA does not regulate
      the behavior of physicians in their choice of treatments. The FDA does, however,
      restrict manufacturer's communications on the subject of off-label
      use.





The
      FDA's policies may change and additional government regulations may be enacted
      which could prevent or delay regulatory approval of our product candidates
      or
      approval of new indications for our existing products. We cannot predict the
      likelihood, nature or extent of adverse governmental regulations that might
      arise from future legislative or administrative action, either in the United
      States or abroad.





**Approvals
      Outside of the United States**





We
      will also be subject to a wide variety of foreign regulations governing the
      development, manufacture and marketing of our products. Whether or not FDA
      approval has been obtained, approval of a product by the comparable regulatory
      authorities of foreign countries must still be obtained prior to manufacturing
      or marketing the product in those countries. The approval process varies from
      country to country and the time needed to secure approval may be longer or
      shorter than that required for FDA approval. There is no assurance that clinical
      trials conducted in one country will be accepted by other countries or that
      approval in one country will result in approval in any other
      country.





**Employees**





As
      of March 17, 2006, we had six employees. We consider our relationship with
      our
      employees to be satisfactory.




**RISK
      FACTORS**





You
      should carefully consider the following risk factors and the other information
      included herein as well as the information included in other reports and filings
      made with the SEC. If any of the matters or events described in the following
      risks actually occurs, our business, financial condition or results of
      operations could be harmed. In addition, the trading price of our common stock
      could decline due to any of these risks.






16
 
  **Risks
          related to our business**
 
 *We
          are at an early stage of development as a company and currently have no
          source
          of revenue and may never become profitable.*





We
      are a development stage biopharmaceutical company with a limited operating
      history. Currently, we have no products approved for commercial sale and, to
      date, we have not generated any revenue. Our ability to generate revenue depends
      on: first, obtaining FDA marketing approval for any of our products and, second,
      successfully commercializing and bringing to market these products. In
      particular, if we do not successfully develop and commercialize C1-INH for
      the
      treatment of HAE, we will be unable to generate any revenue for many years,
      if
      at all and, even if successful in obtaining FDA marketing approval for C1-INH
      for the treatment of HAE, it will be at least two years before we can expect
      to
      begin to generate revenue. If we are unable to generate revenue, we will not
      become profitable, and we may be unable to continue our operations.








*We
      have incurred significant losses since inception and anticipate that we will
      incur continued losses for the foreseeable future.*





As
      of December 31, 2005, we had a deficit accumulated during the development stage
      of $11,420,850. We have from inception incurred and will continue to incur
      significant and increasing operating losses for the next several years as we
      conduct Phase III clinical trials of C1-INH for the acute and prophylactic
      treatment of HAE, and advance C1-INH for the treatment of AMI into clinical
      development. In addition, if we receive regulatory approval of any of our
      product candidates, we expect to incur significant sales and marketing expenses
      in the future. Because of the numerous risks and uncertainties associated with
      developing and commercializing these product candidates, we are unable to
      predict the extent of future losses or when and if we will become
      profitable.





*We
      will need to raise substantial additional capital to fund our operations, and
      our failure to obtain funding when needed may force us to delay, reduce or
      eliminate our product candidates.*





Our
      operations have consumed substantial amounts of cash since inception. We expect
      to continue to spend substantial amounts to:




·
              complete
                  the clinical development of C1-INH for the treatment of
                  HAE;
 ·
              continue
                  the development of our other product
                  candidates;
 ·
              finance
                  our general, administrative and license acquisition
                  costs;
 ·
              prepare
                  regulatory approval applications and seek approvals for C1-1NH
                  and our
                  other product candidates;
 ·
              launch
                  and commercialize our product candidates, if any such product candidates
                  receive regulatory approval; and
 ·
                develop
                    and implement manufacturing, sales, marketing and distribution
                    capabilities.




Our
      cash used in operations increased significantly over the period from July 21,
      2003 (inception) to December 31, 2005, and we expect that our cash used in
      operations will increase significantly over the next several years. We expect
      that our existing cash will be sufficient to fund our operations for the next
      twelve months. **** We
      will be required to raise additional capital to complete the development and
      commercialization of our current product candidates. Our future funding
      requirements will depend on many factors, including, but not limited
      to:




·
            the
                rate of progress and cost of our clinical trials and other development
                activities;·
            any
                future decisions we may make about the scope and prioritization of
                the
                programs we pursue;·
            the
                costs and timing of filing, prosecuting, defending and enforcing
                any
                patent claims and other intellectual property
                rights;




17




·
            the
                costs of regulatory approval;·
            the
                costs of establishing manufacturing, sales, marketing and distribution
                capabilities;·
            the
                effect of competing technological and market
                developments;·
            the
                terms and timing of any collaborative, licensing and other arrangements
                that we may establish; and·
            general
                market conditions for securities offerings by biopharmaceutical
                companies.




To
      date, our sources of cash have been primarily limited to the sale of equity
      securities. We cannot be certain that additional funding will be available
      on
      acceptable terms, or at all. To the extent that we raise additional funds by
      issuing equity securities, our stockholders may experience significant dilution.
      Any debt financing, if available, may involve restrictive covenants that impact
      our ability to conduct our business. If we are unable to raise additional
      capital, when required, or on acceptable terms, we may have to significantly
      delay, scale back or discontinue the development and /or the commercialization
      of one or more of our product candidates. We also may be required
      to:





·
            seek
                collaborators for our product candidates at an earlier stage than
                otherwise would be desirable and on terms that are less favorable
                than
                might otherwise be available; and·
            relinquish,
                license or otherwise dispose of rights to technologies, product candidates
                or products that we would otherwise seek to develop or commercialize
                ourselves on unfavorable terms.





*If
      either of our agreements with Sanquin terminate, we may be unable to continue
      our business.*





Our
      business is highly dependent on distribution and license rights that we have
      received from Sanquin pursuant to a distribution agreement relating to the
      treatment of HAE and a license agreement relating to the treatment of
      AMI.





If
      we fail to fulfill certain obligations or fail to meet certain milestones under
      the distribution agreement, including completion of enrollment in the
      trials by July 2007, the distribution agreement may be terminated. In
      addition, Sanquin has the right to terminate the agreement if Sanquin is unable
      to maintain liability insurance for its United States obligations. **** In
      addition, either party may terminate the agreement upon an uncured breach.
      If
      Sanquin terminates the distribution agreement, we would have to retain another
      supplier of C1-INH for the treatment of HAE. If we are unable to locate another
      supplier of C1-INH comparable to Sanquin on economically acceptable terms,
      or at
      all, we will not be able to commercialize our product candidates and we may
      be
      forced to cease our operations.





Under
      the license agreement, Sanquin granted us an exclusive license to use certain
      patent, patent applications and know-how related to the use of C1-INH technology
      for the treatment of AMI. Under the terms of the license agreement, we are
      obligated to make royalty and other payments to Sanquin. If we fail to fulfill
      those obligations or other material obligations, the license agreement may
      be
      terminated by Sanquin. If Sanquin terminates the license agreement, we will
      have
      no further rights to utilize the intellectual property covered by the license
      agreement, we would not be able to commercialize the applicable product
      candidate for the treatment of AMI and we may be forced to cease our operations
      relating to the treatment to AMI using C1-INH, particularly if we do not have
      rights to other product candidates.




18
 
  *We
        are
        dependent on Sanquin as our sole source of supply for
        C1-1NH.*





Pursuant
      to our distribution agreement with Sanquin, Sanquin will supply us with certain
      minimum and maximum amounts of C1-INH. In the event demand for C-1NH is greater
      than the amount supplied by Sanquin, we would have to find alternative suppliers
      of C1-1NH. If we are unable to locate another supplier of C1-1NH comparable
      to
      Sanquin on economical terms, or at all, we may lose business and our reputation
      in the marketplace could be adversely affected.





*Clinical
      trials involve a lengthy and expensive process with an uncertain outcome, and
      results of earlier studies and trials may not be predictive of future trial
      results.*





In
      order to receive regulatory approval for the commercialization of our product
      candidates, we must conduct, at our own expense, extensive clinical trials
      to
      demonstrate safety and efficacy of these product candidates. Clinical testing
      is
      expensive, can take many years to complete and its outcome is uncertain. Failure
      can occur at any time during the clinical trial process.





The
      results of preclinical studies and early clinical trials of our product
      candidates do not necessarily predict the results of later-stage clinical
      trials. Product candidates in later stages of clinical trials may fail to show
      the desired safety and efficacy traits despite having progressed through initial
      clinical testing. The data collected from clinical trials of our product
      candidates may not be sufficient to support the submission of a biologics
      license application to the FDA or to obtain regulatory approval in the United
      States or elsewhere. Because of the uncertainties associated with drug
      development and regulatory approval, we cannot determine if or when we will
      have
      an approved product for commercialization or achieve sales or
      profits.





*Delays
      in clinical testing could result in increased cost to us and delay our ability
      to generate revenue.*





We
      may experience delays in clinical testing of our product candidates. We do
      not
      know whether planned clinical trials will need to be redesigned or will be
      completed on schedule, if at all. Clinical trials can be delayed for a variety
      of reasons, including delays in obtaining regulatory approval to commence a
      trial, in reaching agreement on acceptable clinical trial terms with prospective
      sites, in obtaining institutional review board approval to conduct a trial
      at a
      prospective site, in recruiting patients to participate in a trial or in
      obtaining sufficient supplies of clinical trial materials. Many factors affect
      patient enrollments, including the size of the patient population, the proximity
      of patients to clinical sites, the eligibility criteria for the trial, competing
      clinical trials and new drugs approved for the conditions we are investigating.
      Prescribing physicians will also have to decide to use our product candidates
      over existing drugs that have established safety and efficacy profiles. Any
      delays in completing our clinical trials will increase our cost, slow down
      our
      product development and approval process and delay our ability to generate
      revenue.





*We
      may be required to suspend or discontinue clinical trials due to unexpected
      side
      effects or other safety risks that could preclude approval of our product
      candidates.*





Our
      clinical trials may be suspended at any time for a number of reasons. For
      example, we may voluntarily suspend or terminate our clinical trials if at
      any
      time we believe that they present an unacceptable risk to the clinical trial
      patients. In addition, regulatory agencies may order the temporary or permanent
      discontinuation of our clinical trials at any time if they believe that the
      clinical trials are not being conducted in accordance with requirements or
      that
      they present an unacceptable safety risk to the clinical trial
      patients.




19





Administering
      any product candidates to humans may produce undesirable side effects. These
      side effects could interrupt, delay or halt clinical trials of our product
      candidates and could result in the FDA or other regulatory authorities denying
      further developments or approval of our product candidates for any or all
      targeted indications. Ultimately, some or all of our product candidates may
      prove to be unsafe for human use. Moreover, we could be subject to significant
      liability if any volunteer or patient suffers, or appears to suffer, adverse
      health effects as a result of participating in our clinical trials.





*If
      we are unable to satisfy regulatory requirements, we may not be able to
      commercialize our product candidates.*





We
      need FDA approval prior to marketing our product candidates in the United
      States. If we fail to obtain FDA approval to market our product candidates,
      we
      will be unable to sell our products in the United States and we will not
      generate any revenue.





The
      FDA regulatory review and approval process, which includes evaluation of
      preclinical studies and clinical trials of a product candidate as well as the
      evaluation of our manufacturing process and our contract manufacturers'
      facilities, is lengthy, expensive and uncertain. To receive approval, we must,
      among other things, demonstrate with substantial evidence from well-controlled
      clinical trials that the product is both safe and effective for each indication
      where approval is sought. Satisfaction of these requirements typically takes
      several years and the time needed to satisfy them may vary substantially, based
      on the type, complexity and novelty of the pharmaceutical product. We cannot
      predict if or when we might submit for regulatory review any of our product
      candidates currently under development. Any approvals we may obtain may not
      cover all of the clinical indications for which we are seeking approval. Also,
      an approval might contain significant limitations in the form of narrow
      indications, warnings, precautions, or contra-indications with respect to
      conditions of use.




The
      FDA has substantial discretion in the approval process and may either refuse
      to
      file our application for substantive review or may form the opinion after review
      of our data that our application is insufficient to allow approval of our
      product candidates. If the FDA does not file or approve our application, it
      may
      require that we conduct additional clinical, preclinical or manufacturing
      validation studies and submit that data before it will reconsider our
      application. Depending on the extent of these or any other studies, approval
      of
      any applications that we submit may be delayed by several years or may require
      us to expend more resources then we have available. It is also possible that
      additional studies, if performed and completed, may not be considered sufficient
      by the FDA to make our application approvable. If any of these outcomes occur,
      we may be forced to abandon our applications for approvals, which might cause
      us
      to cease operations.





We
      will also be subject to a wide variety of foreign regulations governing the
      development, manufacture and marketing of our products. Whether or not FDA
      approval has been obtained, approval of a product by the comparable regulatory
      authorities of foreign countries must still be obtained prior to manufacturing
      or marketing the product in those countries. The approval process varies from
      country to country and the time needed to secure approval may be longer or
      shorter than that required for FDA approval. We cannot assure you that clinical
      trials conducted in one country will be accepted by other countries or that
      approval in one country will result in approval in any other
      country.




20




*The
      commercial success of our product candidates will depend upon the degree of
      market acceptance of these products among physicians, patients, health care
      payors and the medical community.*





Our
      product candidates have never been commercialized in the United States for
      any
      indication. Even if approved for sale by the appropriate regulatory authorities,
      physicians may not prescribe our product candidates, in which case we could
      not
      generate revenue or become profitable. Market acceptance of C1-INH for the
      treatment of HAE and our other product candidates by physicians, healthcare
      payors and patients will depend on a number of factors, including:




·
            acceptance
                by physicians and patients of each such product as a safe and effective
                treatment;


·
              cost
                  effectiveness;
 ·
              adequate
                  reimbursement by third parties;
 ·
              potential
                  advantages over alternative
                  treatments;
 ·
              relative
                  convenience and ease of administration;
                  and
 ·
              prevalence
                  and severity of side effects.




*If
      our product candidates are unable to compete effectively with marketed
      treatments, our commercial opportunity will be reduced or
      eliminated* .





We
      face competition from established pharmaceutical and biotechnology companies,
      as
      well as from academic institutions, government agencies and private and public
      research institutions. Many products are either under development or are
      currently marketed for the treatment of HAE and AMI. Many of our competitors
      have significantly greater financial resources and expertise in research and
      development, manufacturing, preclinical testing, conducting clinical trials,
      obtaining regulatory approvals and marketing approved products than we do.
      Smaller or early-stage companies may also prove to be significant competitors,
      particularly through collaborative arrangements with large, established
      companies. Our commercial opportunity will be reduced or eliminated if our
      competitors develop and commercialize competing products that are safer, more
      effective, have fewer side effects or are less expensive than our product
      candidates. These third parties compete with us in recruiting and retaining
      qualified scientific and management personnel, establishing clinical trial
      sites
      and patient registration for clinical trials, as well as in acquiring
      technologies and technology licenses complementary to our programs or
      advantageous to our business.


Because
      we will most often be competing against significantly larger companies with
      established track records, we will have to demonstrate to physicians that based
      on experience, clinical data, side-effect profiles and other factors, our
      products are preferable to existing products. If we are unable to compete
      effectively and differentiate our products from currently marketed products,
      we
      may never generate meaningful revenue.





*If
      we are not first to market for our HAE product, the Orphan Drug Act may provide
      a competitor with up to seven years of market exclusivity.*





The
      Orphan Drug Act was created to encourage companies to develop therapies for
      rare
      diseases by providing incentives for drug development and commercialization.
      One
      of the incentives provided by the act is seven years of market exclusivity
      for
      the first product in a class licensed for the treatment of a rare disease.
      HAE
      is considered to be a rare disease under the Orphan Drug Act, and companies
      may
      obtain orphan drug status for therapies that are developed for this indication.
      We believe ZLB Behring and Pharming N.V. are currently developing products
      that
      the FDA may determine to be in the same class as our C1-INH product candidate.
      In the event that either of these companies are first to obtain FDA licensure
      for their product, we could be prevented from obtaining licensure and marketing
      our C1-INH product candidate for the treatment of HAE.




21





*We
      currently have no sales and marketing organization. If we are unable to
      establish a direct sales force or we are unable to enter into marketing
      agreements with third parties in the United States to promote our products,
      the
      commercial opportunity for our products may be diminished.*





We
      currently have no sales and marketing organization. If any of our product
      candidates are approved by the FDA, we intend to market these products directly
      to health care providers in the United States through our own sales force or
      enter into marketing agreements with third parties. We will incur significant
      additional expenses and may need to commit significant additional management
      resources to promote and sell our products. In the event we are unable to
      develop our own sales force or collaborate with a third party to sell our
      product candidates, we may not be able to commercialize our product candidates
      which would negatively impact our ability to generate revenue.





*If
      the FDA does not approve our contract manufacturers' facilities, we may be
      unable to develop or commercialize our product candidates.*





We
      rely on Sanquin to manufacture our product candidates, and currently have no
      plans to develop our own manufacturing facility. The facilities used by Sanquin
      to manufacture our product candidates will require approval by the FDA. There
      can be no assurance that Sanquin will be able to obtain FDA approval or maintain
      compliance with the FDA's requirements. We may need to find alternative
      manufacturing facilities, which would result in significant costs to us as
      well
      as a delay of up to several years in obtaining approval for and manufacturing
      of
      our product candidates.





*We
      rely on third parties to conduct our clinical trials. If these third parties
      do
      not successfully carry out their contractual duties or meet expected deadlines,
      we may not be able to seek or obtain regulatory approval for or commercialize
      our product candidates.*





We
      have an agreement with a third party clinical research organization, or CRO,
      to
      implement, provide monitors and manage data for our clinical programs. We and
      our CRO are required to comply with current Good Clinical Practices, or GCPs,
      regulations and guidelines enforced by the FDA for all of our products in
      clinical development. The FDA enforces GCPs through periodic inspections of
      trial sponsors, principal investigators and trial sites. In the future, if
      we or
      our CRO fails to comply with applicable GCPs, the clinical data generated in
      our
      clinical trials may be deemed unreliable and the FDA may require us to perform
      additional clinical trials before approving our marketing applications. We
      cannot assure you that, upon inspection, the FDA will determine that any of
      our
      clinical trials for products in clinical development comply with GCPs. In
      addition, our clinical trials must be conducted with products produced under
      current Good Manufacturing Practices, or cGMP regulations, and will require
      a
      large number of test subjects. Our failure to comply with these regulations
      may
      require us to repeat clinical trials, which would delay the regulatory approval
      process.




22





If
      any of our current or future relationships with these third-party CROs
      terminate, we may not be able to enter into arrangements with alternative CROs.
      If CROs do not successfully carry out their contractual duties or obligations
      or
      meet expected deadlines, if they need to be replaced, or if the quality or
      accuracy of the clinical data they obtain is compromised due to the failure
      to
      adhere to our clinical protocols, regulatory requirements or for other reasons,
      our clinical trials may be extended, delayed or terminated, and we may not
      be
      able to obtain regulatory approval for or successfully commercialize our product
      candidates. As a result, our financial results and the commercial prospects
      for
      our product candidates would be harmed, our costs could increase, and our
      ability to generate revenue could be delayed.




*If
      product liability lawsuits are successfully brought against us, we may incur
      substantial liabilities and may be required to limit commercialization of our
      product candidates.*





We
      face an inherent risk of product liability lawsuits related to the testing
      of
      our product candidates, and will face an even greater risk if we sell our
      products commercially. Currently, we are not aware of any anticipated product
      liability claims with respect to our product candidates. In the future, an
      individual may bring a liability claim against us if one of our product
      candidates causes, or merely appears to have caused, an injury. If we cannot
      successfully defend ourself against the product liability claim, we may incur
      substantial liabilities. We have clinical trial liability insurance that covers
      our clinical trials with an annual aggregate limit of $5,000,000. We intend
      to
      expand our insurance coverage to include the sale of commercial products if
      marketing approval is obtained for our product candidates. We believe that
      we
      will be able to procure sufficient insurance coverage for our proposed clinical
      development activities. However, as enrollment in our clinical trials increases
      and we initiate additional clinical trials, such insurance coverage may prove
      insufficient to cover any liability claims brought against us. In addition,
      because of the increasing costs of insurance coverage, we may not be able to
      maintain insurance coverage at a reasonable cost or obtain insurance coverage
      that will be adequate to satisfy any liability that may arise.





*Even
      if we receive regulatory approval for our product candidates, we will be subject
      to ongoing significant regulatory obligations and oversight.*





If
      we receive regulatory approval to sell our product candidates, the FDA and
      foreign regulatory authorities may, nevertheless, impose significant
      restrictions on the indicated uses or marketing of such products, or impose
      ongoing requirements for post-approval studies. If we fail to comply with
      applicable regulatory requirements, we may be subject to fines, suspension
      or
      withdrawal of regulatory approvals, product recalls, seizure of products,
      operating restrictions and criminal prosecution. Any of these events could
      harm
      or prevent sales of the affected products or could substantially increase the
      costs and expenses of commercializing and marketing these products.





*If
      we fail to attract and keep senior management and key scientific personnel,
      we
      may be unable to successfully develop our product candidates, conduct our
      clinical trials and commercialize our product candidates.*





Our
      success depends in part on our continued ability to attract, retain and motivate
      highly qualified management, clinical and scientific personnel and on our
      ability to develop and maintain important relationships with leading academic
      institutions, clinicians and scientists. We are highly dependent upon our senior
      management, particularly Judson Cooper, our Chairman and Executive Vice
      President, and Joshua D. Schein, Ph.D., our Chief Executive Officer. The loss
      of
      services of Mr. Cooper or Dr. Schein, or one or more other members of senior
      management could delay or prevent the successful completion of our planned
      clinical trials or the commercialization of our product candidates.




23





*We
      will need to increase the size of our organization, and we may experience
      difficulties in managing growth.*





We
      are a small company with six employees as of March 17, 2006. To continue our
      clinical trials and commercialize our product candidates, we will need to expand
      our employee base for managerial, operational, financial and other resources.
      Future growth will impose significant added responsibilities on members of
      management, including the need to identify, recruit, maintain and integrate
      additional employees. Our future financial performance and our ability to
      commercialize our product candidates and to compete effectively will depend,
      in
      part, on our ability to manage any future growth effectively.





*Reimbursement
      may not be available for our product candidates, including due to legislative
      or
      regulatory reform of the healthcare system, which could diminish our sales
      or
      affect our ability to sell our products profitably.*





As
      a result of legislative proposals and the trend towards managed healthcare
      in
      the United States, third-party payers are increasingly attempting to contain
      health care costs by limiting both coverage and the level of reimbursement
      for
      new drugs. Market acceptance and sales of our product candidates will depend
      on
      reimbursement policies and healthcare reform measures. The levels at which
      government authorities and third-party payers, such as private health insurers
      and health maintenance organizations, reimburse patients for the price they
      pay
      for our products will affect whether we are able to commercialize these
      products. We cannot be sure that reimbursement will be available for any of
      these products. Also, we cannot be sure that reimbursement amounts will not
      reduce the demand for, or the price of, our products. We have not commenced
      efforts to have our product candidates reimbursed by government or third party
      payers. If reimbursement is not available or is available only to limited
      levels, we may not be able to commercialize our products.




*Rapid
      technological change could make our product candidates
      obsolete.*





Biopharmaceutical
      technologies have undergone rapid and significant change and we expect that
      they
      will continue to do so. Any compounds, products or processes that we develop
      may
      become obsolete or uneconomical before we recover any expenses incurred in
      connection with their development. Rapid technological change could make our
      products obsolete or uneconomical.





**Risks
      related to our intellectual property**





*It
      is difficult and costly to protect our proprietary rights, and we may not be
      able to ensure their protection.*





Our
      commercial success will depend in part on obtaining and maintaining patent
      protection and trade secret protection of our product candidates and the methods
      used to manufacture them, as well as successfully defending these patents
      against third party challenges. We will only be able to protect our product
      candidates from unauthorized making, using, selling, and offering to sell or
      importation by third parties to the extent that we have rights under valid
      and
      enforceable patents or trade secrets that cover these activities.




24





The
      patent position of pharmaceutical and biotechnology companies can be highly
      uncertain and involve complex legal and factual questions for which important
      legal principles remain unresolved. No consistent policy regarding the breadth
      of claims allowed in biotechnology patents has emerged to date in the United
      States. The biotechnology patent situation outside the United States is even
      more uncertain. Changes in either the patent laws or interpretations of patent
      laws in the United States and other countries may diminish the value of our
      intellectual property. Accordingly, we cannot predict the breadth of claims
      that
      may be allowed or enforced in our licensed patents or in third-party
      patents.





The
      degree of future protection for our proprietary rights is uncertain because
      legal means afford only limited protection and may not adequately protect our
      rights or permit us to gain or keep our competitive advantage. For
      example:


·
              others
                  may be able to make compounds that are competitive with our product
                  candidates but that are not covered by the claims of our licensed
                  patents,
                  or for which we are not licensed under our license
                  agreements;
 ·
              we
                  or our licensors might not have been the first to make the invention
                  covered by our future pending patent applications, if any, or the
                  pending
                  patent applications and issued patents of our
                  licensors;
 ·
              we
                  or our licensors might not have been the first to file patent application
                  for these inventions;
 ·
              others
                  may independently develop similar or alternative technologies or
                  duplicate
                  any of our technologies;
 ·
              it
                  is possible that our pending patent applications, if any, or one
                  or more
                  of the pending patent applications of our licensors will not result
                  in
                  issued patents;
 ·
              the
                  issued patents of our licensors may not provide us with any competitive
                  advantage, or may be held invalid or unenforceable as a result
                  of legal
                  challenges by third parties;
 ·
              we
                  may not develop additional proprietary technologies that are patentable;
                  or
 ·
              the
                  patents of others may have an adverse effect on our
                  business.




We
      also may rely on trade secrets to protect our technology, especially where
      we do
      not believe patent protection is appropriate or obtainable. However, trade
      secrets are difficult to protect. While we use reasonable efforts to protect
      our
      trade secrets, our employees, consultants, contractors, outside scientific
      collaborators and other advisors may unintentionally or willfully disclose
      our
      information to competitors. **** Enforcing
      a claim that a third party illegally obtained and is using our trade secrets
      is
      expensive and time-consuming and the outcome is unpredictable. In additions,
      courts outside the United States are sometimes less willing to protect trade
      secrets. Moreover, our competitors may independently develop equivalent
      knowledge, methods and know-how.




*We
      may incur substantial costs as a result of litigation or other proceedings
      relating to patent and other intellectual property rights and we may be unable
      to protect our rights or use our technology.*





If
      we pursue litigation to stop someone else from using the inventions claimed
      in
      our owned or licensed patents or the patents issuing from the licensed
      application, that individual or company has the right to ask the court to rule
      that these patents are invalid and/or should not be enforced. These lawsuits
      are
      expensive and would consume time and other resources even if we were successful
      in stopping the infringement of these patents. In addition, there is a risk
      that
      the court will decide that these patents are not valid and that we do not have
      the right to stop the other party from using the inventions. There is also
      the
      risk that even if the validity of these patents is upheld, the court will refuse
      to stop the other party on the ground that such other party's activities do
      not
      infringe our rights to these patents.




25





Furthermore,
      a third party may claim that we are using inventions covered by the third
      party's patent rights and may go to court to stop us from engaging in our normal
      operations and activities, including making or selling our products. These
      lawsuits are costly and could affect our results of operations and divert the
      attention of managerial and technical personnel. There is a risk that a court
      would decide that we are infringing the third party's patents and would enjoin
      us from engaging in activities judged to be covered by the patents. In addition,
      there is a risk that a court will order us to pay the other party damages for
      having violated the other party's patents. The biotechnology industry has
      produced a proliferation of patents, and it is not always clear to industry
      participants, including us, which patents cover various types of products or
      methods of use. The coverage of patents is subject to interpretation by the
      courts, and the interpretation is not always uniform. If we are sued for patent
      infringement, we would need to demonstrate that our products or methods of
      use
      either do not infringe the patent claims of the relevant patent and/or that
      the
      patent claims are invalid and/or unenforceable, and we may not be able to do
      this. Proving invalidity and/or unenforceability is difficult since it requires
      a showing of clear and convincing evidence to overcome the presumption of
      validity enjoyed by issued patents.




Because
      some patent applications in the United States may be maintained in secrecy
      until
      the patents are issued, because patent applications in the United States and
      many foreign jurisdictions are typically not published until eighteen months
      after filing and because publications in the scientific literature often lag
      behind actual discoveries, we cannot be certain that others have not filed
      patent applications for technology covered by our licensors' issued patents
      or
      patents issued from the licensed application or our licensors' pending
      applications or that we or our licensors were the first to invent the
      technology. Our competitors may have filed, and may in the future file, patent
      applications covering technology similar to ours. Any such patent application
      may have priority over our licensors' patent applications and could further
      require us to obtain rights to issued patents covering such technologies. If
      another party has filed a United States patent application on inventions similar
      to ours, we may have to participate in an interference proceeding declared
      by
      the United States Patent and Trademark Office to determine priority of
      inventions in the United States. The cost of these proceedings would be
      substantial, and it is possible that such efforts would be unsuccessful,
      resulting in a loss of our United States patent position with respect to such
      inventions.





Some
      of our competitors may be able to sustain the costs of complex patent litigation
      more effectively than we can because they have substantially greater resources.
      In addition, any uncertainties resulting from the initiation and continuation
      of
      any litigation could have a material adverse effect on our ability to raise
      the
      funds necessary to continue our operations.





**Risks
      related to our common stock and its market value**





*Market
      volatility may affect our stock and the value of your
      investment.*





The
      market prices for securities of biopharmaceutical companies in general have
      been
      highly volatile and may continue to be highly volatile in the future. The
      following factors, in addition to other risk factors described in this section,
      may have a significant impact on the market price of our common
      stock:


·
              announcements
                  of technological innovations or new products by us or our
                  competitors;




26




·
            announcements
                of FDA approval or non-approval of our product candidates or delays
                in the
                FDA review process;·
            actions
                taken by regulatory agencies with respect to our product candidates,
                clinical trials, manufacturing process or sales and marketing
                activities;·
            regulatory
                developments in the United States and foreign
                countries;·
            the
                success of our development efforts to acquire or in-license additional
                products or product candidates;·
            any
                intellectual property infringement action, or any other litigation,
                involving us;·
            announcements
                concerning our competitors, or the biotechnology or biopharmaceutical
                industries in general;·
            actual
                or anticipated fluctuations in our operating results;·
            changes
                in financial estimates or recommendations by securities
                analysts;·
            sales
                of large blocks of our common stock;·
            sales
                of our common stock by our executive officers, directors and significant
                stockholders; and·
            the
                loss of any of our key scientific or management
                personnel.





In
      addition, the stock market in general, and the markets for biotechnology and
      biopharmaceutical stocks in particular, have experienced extreme volatility
      that
      has often been unrelated to the operating performance of particular companies.
      These broad market conditions may adversely affect the trading price of our
      common stock.





*We
      are at risk of securities class action litigation.*





In
      the past, securities class action litigation has often been brought against
      a
      company following a decline in the market price of its securities. This risk
      is
      especially relevant for us because biotechnology and biopharmaceutical stocks
      have experienced significant stock price volatility in recent years. If we
      faced
      such litigation, it could result in substantial costs and a diversion of
      management's attention and resources, which could harm our
      business.





*The
      ownership interests of our officers and directors could conflict with the
      interests of our other stockholders.*





As
      of March 17, 2006, our officers and directors beneficially own
      approximately 39.4% of our common stock. As a result, these stockholders, acting
      together, will be able to significantly influence all matters requiring approval
      by our stockholders, including the election of directors and the approval of
      mergers or other business combination transactions. The interests of this group
      of stockholders may not always coincide with our interests or the interests
      of
      other stockholders.





*Because
      our common stock is a “penny stock” there may be a limited trading
      market.*





Our
      common stock is currently listed for trading on the OTC Bulletin Board which
      is
      generally considered to be a less efficient market than markets such as NASDAQ
      or other national exchanges, and which may cause difficulty in obtaining future
      financing. Further, our securities are subject to the “penny stock rules”
adopted pursuant to Section 15(g) of the Securities Exchange Act of the 1934,
      as
      amended, or Exchange Act. The penny stock rules apply to non-NASDAQ companies
      whose common stock trades at less than $5.00 per share or which have a tangible
      net worth less then $5,000,000 ($2,000,000 if the company has been operating
      for
      three or more years). Such rules require, among other things, that brokers
      who
      trade “penny stock” to persons other than “established customers” complete
      certain documentation, make suitable inquiries of investors and provide
      investors with certain information concerning trading in the security, including
      a risk disclosure document and quote information under certain circumstances.
      Many brokers have decided not to trade “penny stock” because of the requirements
      of the penny stock rules and, as a result, the number of broker-dealers willing
      to act as market makers in such securities is limited. In the event that we
      remain subject to the penny stock rules for any significant period, there may
      develop an adverse impact on the market, if any, for our securities. Because
      our
      securities are subject to the penny stock rules, investors will find it more
      difficult to dispose of our securities. Further, for companies whose securities
      are traded on the OTC Bulletin Board, it is more difficult: (i) to obtain
      accurate quotations, (ii) to obtain coverage for significant new events because
      major wire services, such as the Dow Jones News Service, generally do not
      publish press releases about such companies, and (iii) to obtain needed
      capital.




27




*A
      sale of a substantial number of shares of our common stock may cause the price
      of our common stock to decline.*





If
      our stockholders sell substantial amounts of our common stock in the public
      market, including shares issuable upon the exercise of outstanding options
      or
      warrants, the market price of our common stock could fall. In October 2005,
      we
      registered with the SEC for public resale approximately 85% of our outstanding
      common stock (assuming issuance of 3,203,431 shares of common stock upon
      exercise of the warrants issued in our May 2005 private placement), including
      approximately 38% of our outstanding common stock which is beneficially owned
      by
      our Chief Executive Officer and by our Chairman. These sales also may make
      it
      more difficult for us to sell equity or equity-related securities in the future
      at a time and price that we deem reasonable or appropriate. Stockholders who
      were issued shares in the Public Company Merger became eligible to sell their
      shares pursuant to Rule 144 under the Securities Act of 1933, beginning on
      December 29, 2005.





**ITEM
      2. DESCRIPTION OF PROPERTY**





Our
      principal executive office is located at 122 East 42nd Street, Suite 2606,
      New
      York, New York, and consists of approximately 2,200 square feet of space. Our
      sublease will expire on August 31, 2006. We believe we can find alternative
      space when our lease expires. The annual payment amounts due under the sublease
      are approximately $46,000 for 2006. We believe that our office space is adequate
      for our current needs and for the next few years, and we expect that additional
      facilities will be available in other locations to the extent that we require
      new or additional space.





**ITEM
      3. LEGAL PROCEEDINGS**




We
      are not currently a party to, nor is any of our property currently the subject
      of, any pending legal proceeding. None of our directors, officers or affiliates
      is involved in a proceeding that is adverse to our business and none of our
      directors, officers or affiliates has a material interest adverse to our
      business.




28


**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**





We
      held
      our Annual Meeting of Stockholders on December 12, 2005. The following
      represents the results of the voting on proposals submitted to the stockholders
      at the Annual Meeting:




(a)
            Proposalto
                elect five directors to the Company’s Board of Directors to serve for the
                ensuing year or until their successors are duly elected and qualified
                or
                until their earlier resignation or removal.






**NOMINEE**
            
            **VOTES
                FOR**
            
            **VOTES
                AGAINST**
            
            **BROKER
                NON -VOTES**Joshua
                D. Schein. Ph.D.
            
            52,094,561
            
            50
            
            29,432,929Judson
                Cooper
            
            52,094,561
            
            50
            
            29,432,929Scott
                Eagle
            
            52,094,561
            
            50
            
            29,432,929Eric
                I. Richman
            
            52,094,561
            
            50
            
            29,432,929Thomas
                Lanier
            
            52,093,561
            
            1,050
            
            29,432,929




(b)
            Proposal
                concerningthe
                repricing of options to purchase an aggregate of 2,854,900 shares
                of
                Common Stock held by Joshua D. Schein, the Company’s Chief Executive
                Officer, and Judson Cooper, the Company’s Chairman, Executive Vice
                President and Secretary.





**VOTES
                FOR**
            
            **VOTES
                AGAINST**
            
            **BROKER
                NON-VOTES**47,294,492
            
            3,859,994
            
            30,373,054














(c)
            Proposal
                to ratify
                the appointment of Eisner LLP as the Company’s independent registered
                public accountants for the year ended December 31, 2005.




**VOTES
                FOR**
            
            **VOTES
                AGAINST**
            
            **VOTES
                ABSTAINING**
            
            **BROKER
                NON-VOTES**52,091,079
            
            1,012
            
            2,520
            
            29,432,929





29




**PART
      II.**








**ITEM
      5** . **MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**





Our
      common stock has traded on the OTC Bulletin Board under the symbol “LEVP.OB”
since February 18, 2005. From April 10, 2002 to February 17, 2005 our common
      stock had been quoted on the OTC Bulletin Board under our prior name “Fun City
      Popcorn, Inc.” under the symbol “FNCY.”





As
      of March 17, 2006, there were 698 holders of record. This does not reflect
      those
      shares held beneficially or those shares held in “street” name.





The
      table below sets forth the high and low bid prices per share of the common
      stock
      for each full quarterly period in the last two fiscal years and the year to
      date
      as reported on the OTC Bulletin Board. These prices reflect inter-dealer prices,
      without retail mark-up, markdown or commissions and may not represent actual
      transactions. No prediction can be made as to the effect, if any, that future
      sales of shares of our common stock or the availability of our common stock
      for
      future sale will have on the market price of our common stock prevailing from
      time-to-time.


Quarter
                  Ended
              
              High
              
              LowDecember
                  31, 2005
              
              $
              0.82
              
              $
              0.37September
                  30, 2005
              
              $
              1.20
              
              $
              0.57June
                  30, 2005
              
              $
              1.50
              
              $
              0.56March
                  31, 2005
              
              $
              1.70
              
              $
              1.01December
                  31, 2004
              
              $
              2.00
              
              $
              0.12September
                  30, 2004
              
              $
              0.22
              
              $
              0.10June
                  30, 2004
              
              $
              0.35
              
              $
              0.05March
                  31, 2004
              
              $
              0.25
              
              $
              0.10




On
      March 16, 2006, the last reported sale price for the common stock on the OTC
      Bulletin Board was $0.66 per share.





**Dividend
      Policy**





It
      is our present policy not to pay cash dividends and to retain future earnings
      to
      support our growth. We do not anticipate paying any cash dividends in the
      foreseeable future.





**Recent
      Issuances of Unregistered Securities**





On
      October 7, 2005, we issued warrants to purchase 50,000 shares of common stock
      at
      $1.10 per share which vest immediately and expire in three years, to consultants
      to perform public and investor relations services. These securities were issued
      in reliance on Section 4(2) of the Securities Act of 1933.




30





**Equity
      Compensation Plan Information**





The
      following table shows information with respect to each equity compensation
      plan
      under which our common stock is authorized for issuance as of the fiscal year
      ended December 31, 2005.





Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            
            Weighted-average
                exercise price of outstanding options, warrants and rights
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans(excluding securities reflected in column
                (a))(a)
            
            (b)
            
            (c)Equity
                compensation plans
              approved
                by security holders
            
            
            3,629,900
            
            $
            0.38(1
            )
            
            6,370,100Equity
                compensation plans not approved by security holders
            
            
            3,364,772
            
            $
            1.31
            
            
            -0-Total
            
            
            6,994,672
            
            $
            0.83(1
            )
            
            6,370,100





(1) The
      weighted-average exercise price information has been adjusted for the repricing,
      from $0.85 to $0.30 per share, of options to purchase 2,854,900 shares. See
      Note
      I to the Consolidated Financial Statements.





**ITEM
      6** **.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**





The
      following discussion should be read in conjunction with our financial statements
      and other financial information appearing elsewhere in this Form 10-KSB. In
      addition to historical information, the following discussion and other parts
      of
      this Form 10-KSB contain forward-looking information that involves risks and
      uncertainties.




**Overview**





We
      are a development stage biopharmaceutical company that was formed in July 2003
      to focus on developing and commercializing therapeutic products for the
      treatment of inflammatory diseases. Our product candidates are based on C1-INH,
      a human plasma protein that mediates inflammation and is potentially applicable
      as a treatment for a range of medical indications. We initiated a Phase III
      clinical trial of our lead product candidate, C1-INH for the acute treatment
      of
      HAE, in March 2005. In November 2005, we initiated a Phase III clinical trial
      of
      C1-INH for the prophylactic treatment of HAE. In October 2005, we received
      fast
      track designation status by the FDA for the treatment of HAE. We are also
      developing C1-INH for the treatment of AMI and selective other diseases and
      disorders in which inflammation is known or believed to play an underlying
      role. **** We
      have certain rights to C1-INH technology through agreements with Sanquin, an
      Amsterdam-based not-for-profit organization that provides blood and plasma
      products and related services, carries out research and provides education,
      primarily in the Netherlands.




31





From
      July 21, 2003 (inception) through December 31, 2005, we have not generated
      any
      revenue from operations. We expect to incur additional losses to perform further
      research and development activities. We do not currently have any commercial
      biopharmaceutical products, and do not expect to have such for a number of
      years, if at all.





As
      a
      company that does not expect to generate product revenues or profits over the
      next several years, management of cash flow is extremely important. The most
      significant use of our cash is for research and development activities, which
      include clinical trials and regulatory clearance. During 2005, our research
      and
      development expenses were $2,368,834.





**Merger
      Transactions**





On
      November 5, 2004, FCP, Lev Sub and Old Lev entered into the Agreement. On
      December 29, 2004, the Public Company Merger closed and pursuant to the
      Agreement, Lev Sub merged into Old Lev and the combined entity became a
      wholly-owned subsidiary of FCP. As a result of the Public Company Merger, FCP
      issued 5,029,795 shares of common stock and 4,789,433 shares of Series A
      convertible preferred stock to holders of outstanding Old Lev common
      stock.





On
      December 29, 2004, the Board of Directors and stockholders of FCP approved
      a
      merger of FCP into a newly formed, wholly-owned subsidiary of FCP incorporated
      in Delaware. This merger was undertaken to increase the authorized number of
      shares of common stock to permit the conversion of the Series A preferred stock,
      to reincorporate FCP in the State of Delaware and to change the name of the
      company. On February 17, 2005, the Recapitalization Merger closed and the issued
      and outstanding Series A Preferred Stock of FCP was automatically converted
      into
      an aggregate of 66,767,994 shares of common stock which, along with the
      4,505,530 shares of FCP common stock outstanding prior to the Public Company
      Merger and the 5,029,795 shares of common stock issued to the Old Lev
      stockholders in the Public Company Merger, resulted in a total of 76,303,319
      shares of common stock outstanding as of February 17, 2005. As part of the
      Recapitalization Merger, Old Lev changed its name to Lev Development Corp.
      and
      FCP changed its name to Lev Pharmaceuticals, Inc. As a result of these mergers,
      the stockholders of Old Lev acquired approximately 94% of our outstanding common
      stock.





The
      Public Company Merger, which resulted in the stockholders of Old Lev obtaining
      control of FCP, represents a recapitalization of FCP, or a “reverse merger”,
      rather than a business combination. In connection therewith, Old Lev's
      historical capital accounts were retroactively adjusted to reflect the
      equivalent number of shares issued by FCP while Old Lev's historical accumulated
      deficit was carried forward.





**Plan
      of Operation**





Our
      plan of operation for the next twelve months is to focus primarily on our Phase
      III clinical trials of our lead product candidate, C1-INH for the acute and
      prophylactic treatment of HAE. In
      addition, we intend to initiate a research program in 2006 for the development
      of a genetically engineered or recombinant version of C1-INH to be used in
      the
      treatment of AMI.





We
      believe that our cash, cash equivalents and investment of $5,970,006 as of
      December 31, 2005 will be sufficient to meet our cash requirements for the
      next
      twelve months. We have cash
      commitments over the next year of approximately $1,510,000 to primarily fund
      our
      clinical research organization and executive employment contracts. Our most
      significant expense for the Phase III clinical trials is the C1-INH product
      that
      we purchase from Sanquin. However, this does not affect our cash position
      because Sanquin has granted a continuing loan to us in the amount of the
      aggregate purchase price of the C1-INH product. The loan will be forgiven if
      regulatory approval is obtained. If regulatory approval is not received, then
      the loan is payable on the earlier of January 16, 2014 or the termination of
      the
      Sanquin distribution agreement. We expect to increase our expenditures for
      the
      Phase III clinical trials over the next twelve months. We also expect that
      our
      general, administrative and license acquisition costs will increase for 2006
      as
      we hire additional marketing staff. To
      date, we have relied solely upon selling equity securities in private placements
      to generate cash to implement our plan of operations. We will need additional
      funding to complete the development and commercialization of our product
      candidates. We cannot be certain that additional funding will be available
      on
      acceptable terms, or at all.




32





**Hereditary
      Angioedema**





In
      January 2004 we entered into a distribution and manufacturing services agreement
      with Sanquin relating to the treatment of HAE. Sanquin currently manufactures
      and markets a highly purified preparation of C1-INH in Europe and pursuant
      to
      the agreement, Sanquin agreed to provide us with C1-INH for use in our clinical
      trials and for commercial distribution upon regulatory licensure. Pursuant
      to
      the agreement, we have distribution rights in Israel and all countries in North,
      Central and South America, with the exception of the Dutch Overseas Territories,
      Argentina and Brazil.





Under
      the distribution agreement, it is our responsibility to conduct the Phase III
      clinical trials of C1-INH for the treatment of HAE and to prepare and file
      all
      regulatory applications necessary to register the product candidate. Sanquin
      agreed to provide us with the technical data and support necessary to assist
      us
      in preparing and filing all such regulatory applications.





Furthermore,
      Sanquin agreed to supply C1-INH for our Phase III clinical trials. Upon receipt
      of FDA approval for our product candidate for the treatment of HAE, upon
      commercial launch of this product and thereafter during the term of the
      agreement, Sanquin will supply us with our commercial requirements for C1-INH
      for the treatment of HAE in each country where we have received regulatory
      approval. Our purchase of C1-INH from Sanquin is subject to minimum annual
      purchase requirements upon receipt of FDA approval.





We
      initiated a Phase III clinical trial of C1-INH for the acute treatment of HAE
      in
      March 2005. In November 2005, we initiated a phase III clinical trial for C1-INH
      for the prophylactic treatment of HAE. In July 2004, we received orphan drug
      designation from the FDA for C1-INH (human), which, upon product licensure
      by
      the FDA, could provide us with a seven-year exclusive right to market our C1-INH
      product as a treatment for HAE in the United States. In October 2005, we
      received fast track designation status from the FDA.





**Acute
      Myocardial Infarction**





We
      entered into a separate license agreement with Sanquin on January 27, 2004
      relating to the treatment of AMI. Under this agreement, we have an exclusive,
      worldwide, royalty-bearing license, with the right to sublicense, to the use
      of
      C1-INH for the treatment of AMI. In connection with the license agreement,
      we
      paid Sanquin certain fees and reimbursed Sanquin for certain expenses. In
      addition, we have an obligation to pay Sanquin royalties on sales of products
      incorporating the licensed technology.




33





This
      second development program is focused on the use of C1-INH in treating AMI.
      Current treatments for AMI, both surgical and pharmaceutical, are directed
      at
      restoring blood flow to heart tissue or preventing further obstruction. Despite
      a widespread appreciation for the role of inflammation in AMI in both the
      scientific and medical communities, no presently available treatments directly
      target the mechanisms of inflammation. Based on preliminary animal and clinical
      data, we believe that C1-INH may be useful as a treatment for AMI. We
      intend
      to initiate a research program in 2006 for the development of a genetically
      engineered or recombinant version of C1-INH to be used in the treatment of
      AMI.
      In 2007, we may initiate studies for C1-INH in treating AMI, if we obtain
      additional funding and if we are able to acquire additional C1-INH product
      from
      Sanquin. There can be no assurance that we will raise any additional funds
      or
      that we will acquire the resources needed to conduct further research and trials
      for the treatment of AMI.





**Off-Balance
      Sheet Arrangements**





We
      had no off-balance sheet arrangements as of December 31, 2005 with the
      exception of the lease of our office space.





**Critical
      Accounting Policies**





Financial
      Reporting Release No. 60 requires all companies to include a discussion of
      critical accounting policies or methods used in the preparation of financial
      statements. Our accounting policies are described in Note B of the notes to
      our
      financial statements included in this Form 10-KSB for the fiscal year ended
      December 31, 2005. The methods, estimates and judgments we use in applying
      our
      most critical accounting policies have a significant impact on the results
      we
      report in our financial statements. We evaluate our estimates and judgments
      on
      an ongoing basis. We base our estimates on historical experience and on
      assumptions that we believe to be reasonable under the circumstances. Our
      experience and assumptions form the basis for our judgments about the carrying
      value of assets and liabilities that are not readily apparent from other
      sources. Actual results may vary from what we anticipate, and different
      assumptions or estimates about the future could materially change our reported
      results. We believe the following accounting policies are the most critical
      to
      us, in that they are important to the portrayal of our financial statements
      and
      they require our most difficult, subjective or complex judgments in the
      preparation of our financial statements.


**Research
      and development costs**





We
      expense all research and development costs as incurred for which there is no
      alternative future use. Such expenses include licensing fees and costs
      associated with planning and conducting clinical trials.





**Income
      taxes**





We
      account for income taxes in accordance with the provisions of Statement of
      Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS No.
      109”). SFAS No. 109 requires that we recognize deferred tax liabilities and
      assets for the expected future tax consequences of events that have been
      included in the financial statements or tax returns. Under this method, deferred
      tax liabilities and assets are determined on the basis of the difference between
      the tax basis of assets and liabilities and their respective financial reporting
      amounts (“temporary differences”) at enacted tax rates in effect for the years
      in which the temporary differences are expected to reverse. We record an
      estimated valuation allowance on our deferred tax assets if it is not more
      than
      likely that these deferred tax assets will be realized.




34





**Equity-based
      compensation**





We
      account for stock-based compensation to employees in accordance with APB Opinion
      No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and related
      interpretations. Under APB No. 25, generally, no compensation expense is
      recognized in the financial statements in connection with the awarding of stock
      option grants to employees provided that, as of the grant date, all terms
      associated with the award are fixed and the fair value of our stock is equal
      to
      or less than the amount an employee must pay to acquire the stock. We will
      recognize compensation expense in situations where the terms of an option grant
      are not fixed or where the fair value of our common stock on the grant date
      is
      greater than the amount an employee must pay.





*Repricing
      of Warrants and Options*





Following
      consummation of the merger transactions under the Agreement, our Board of
      Directors in May 2005 determined that the basis for the exchange of
      warrants and options to purchase common stock of Old Lev that were outstanding
      prior to the mergers for warrants and options to purchase our common stock
      after
      the mergers should be changed. Though the number of shares issuable upon
      exercise of these warrants and options was increased, the parties to the mergers
      did not proportionately reduce the exercise price of these warrants and options
      to account for the increase in the number of shares outstanding after the
      mergers. The reduced exercise price of these warrants and options was calculated
      by multiplying the number of shares issuable upon exercise of these warrants
      and
      options prior to the mergers times the relevant exercise price, and then
      dividing that dollar amount by the new number of shares issuable upon exercise
      of these warrants and options after the mergers.




Prior
      to
      the mergers, warrants to purchase 66,667 and 39,000 shares of common stock
      were
      outstanding with exercise prices of $0.10 and $0.85 per share, respectively.
      After the mergers, pursuant to the exchange ratio in the Agreement, warrants
      to
      purchase 190,327 and 111,341 shares of common stock were outstanding with
      exercise prices of $0.10 and $0.85 per share, respectively. The Board believed
      this was unfair to the holders of the warrants and made a determination to
      treat
      the warrant holders on the same basis as the holders of common stock of Old
      Lev.
      Accordingly, in May 2005, the exercise price of outstanding warrants to purchase
      190,327 shares was reduced from $0.10 to $0.04 per share, and the exercise
      price
      of other outstanding warrants to purchase 111,341 shares was reduced from $0.85
      to $0.30 per share. At the date of this repricing, we recognized a charge to
      operations of approximately $28,000 for the incremental value of these warrants
      based upon the Black Scholes option pricing model. Prior
      to the mergers, stock options to purchase 500,000 shares of common stock at
      an
      exercise price of $0.85 per share were held by each of Joshua D. Schein, Ph.D.,
      our Chief Executive Officer, and by Judson Cooper, our Chairman. After the
      mergers, pursuant to the exchange ratio in the Agreement, each person’s options
      were converted into options to purchase 1,427,450 shares of common stock with
      an
      exercise price of $0.85 per share (an aggregate of 2,854,900 shares). In May
      2005, in addition to repricing the warrants, the Board further determined,
      subject to obtaining stockholder approval at our next annual meeting, to reduce
      the exercise price of these options from $0.85 to $0.30 per share. The Board
      made the determination to seek stockholder approval because it believed that
      stockholder approval was necessary to reduce the exercise price of such options
      under the terms of our 2004 Omnibus Incentive Compensation Plan. In addition,
      the Board believed that the repricing of these options should be subject to
      stockholder approval because the reduction in exercise price of the stock
      options directly benefits our Chief Executive Officer and Chairman. However,
      it
      should be noted that our Chief Executive Officer and Chairman are also principal
      stockholders who voted on this proposal. The stockholders approved this
      repricing at the annual meeting held on December 12, 2005. Messrs. Schein and
      Cooper each own options to purchase 1,427,450 shares of common stock at an
      exercise price of $0.30 per share as opposed to the prior exercise price of
      $0.85 per share. If they exercise all of these options, Messrs. Schein and
      Cooper would realize a cash savings of, and the proceeds received by the Company
      would be reduced by, $785,098 for each of them. A charge of $1,427,450 was
      recorded to our Consolidated Statement of Operations based upon our stock price
      when our stockholders approved the repricing at the stockholders’ meeting and
      subsequent changes to our stock price through December 31, 2005. These charges
      ceased upon the adoption of SFAS 123R on January 1, 2006.




35





The
      fair value of warrants granted to non-employees for financing or services are
      included in the financial statements and expensed over the life of the services
      performed, respectively. Warrants issued in connection with services or
      financings were valued at the grant date using the Black Scholes option pricing
      model. The amounts recorded for the year ended December 31, 2005 and December
      31, 2004 were $10,825 and $2,005,530 respectively.




**Recent
      Accounting Pronouncements**





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      SFAS No. 123(R), “Share Based Payment,” which is a revision of SFAS
      No. 123. SFAS No. 123(R) supersedes APB 25 and amends SFAS
      No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS
      No. 123(R) is similar to the approach described in SFAS No. 123.
      However, SFAS No. 123(R) requires all share-based payments to employees,
      including grants of employee stock options, to be recognized in our Consolidated
      Statements of Operations based on their estimated fair values. We adopted SFAS
      No. 123(R) on January 1, 2006, using the modified prospective
      application method described in the statement. Under the modified prospective
      method, we will apply the standard to new awards granted or modified effective
      January 1, 2006. Also, we will recognize compensation expense for the
      unvested portion of awards outstanding as of December 31, 2005 over the
      remaining service periods. At January 1, 2006, we had $259,523 of unearned
      compensation cost related to unvested stock option awards. This compensation
      cost will be recognized over the remaining vesting period, which is estimated
      to
      be $138,282 during 2006 and $121,241 during 2007. In addition, we will no longer
      mark to market variable awards. These amounts do not include the impact of
      any
      new awards granted after adoption of this accounting statement.




SFAS
      No. 123(R) also requires the tax benefits in excess of recognized
      compensation expenses to be reported as a financing cash flow, rather than
      as an
      operating cash flow as required under current literature. This requirement
      may
      serve to reduce our future cash provided by operating activities and increase
      future cash provided by financing activities, to the extent of associated tax
      benefits that may be realized in the future; however, it will not have an impact
      on the Company’s overall cash flows.




36
 
  **Results
          of Operations**
 
 *Year
          Ended December 31, 2005 as compared to Year Ended December 31, 2004*





We
      had no
      revenues during the year ended December 31, 2005 because we do not have any
      commercial biopharmaceutical products.





Research
      and development expenses for the year ended December 31, 2005 were $2,368,834
      as
      compared to $1,126,933 for the year ended December 31, 2004. The increase of
      $1,241,901 is primarily due to expenses for our Phase III clinical trials of
      our
      lead product candidate, C1-INH for the acute treatment of HAE, which commenced
      in March 2005. In addition, in November 2005, we initiated a Phase III clinical
      trial of C1-INH for the prophylactic treatment of HAE. In January 2004, our
      research and development activities commenced with the signing of a distribution
      and manufacturing services agreement. Included in research and development
      expense for the year ended December 31, 2004 was compensation expense of $19,968
      that was recorded at fair value and was for a warrant issued to a consultant
      who
      assisted us with development programs for the design of our clinical trials.





Merger
      costs of $283,732 were recorded for the year ended December 31, 2004 in
      connection with the Public Company Merger.




General
      and administrative expenses were $4,110,005 for the year ended
      December 31, 2005 as compared to $3,262,461 for the year ended December 31,
      2004. The increase of $847,544 was due to increased salaries and benefits,
      non-cash compensation charges, professional fees, travel and related costs
      and
      additional costs incurred as a result of being a public reporting company.
      For
      the year ended December 31, 2005, we recorded non-cash compensation expense
      of
      $1,466,094 consisting of (i) $1,427,450 for option repricing for the
      benefit of our Chairman and our CEO that was approved by our stockholders (see
      Note I to our Consolidated Financial Statements), (ii) $27,819 for warrant
      repricing that was approved by the Board of Directors (see Note I to our
      Consolidated Financial Statements) and (iii) $10,825 for the issuance of
      warrants to a consultant, the fair value of which was calculated based upon
      the
      Black-Scholes option pricing model. For the year ended December 31, 2004, there
      were non-cash compensation expenses of $2,060,763 consisting of (i) $1,985,562
      for the issuance of warrants to two consultants in connection with the
      development of our strategic business plan, obtaining our license from Sanquin
      and consulting on our corporate structure and (ii) $75,201 for the incremental
      increase in value of certain warrants and options based upon a modification
      in
      the terms of the agreements resulting from the Public Company Merger.
      Compensation expense was calculated based upon the Black-Scholes option pricing
      model.




Interest
      income for the year ended December 31, 2005 was $181,895 as compared to $50,912
      for the year ended December 31, 2004. The increase of $131,983 is attributable
      to obtaining a higher rate of interest in funds invested although there was
      less
      cash to invest during 2005 than in 2004.





Interest
      expense for the year ended December 31, 2005 was $11,412 and is primarily
      attributable to the imputed interest related to the loan from Sanquin, our
      supplier of C1-INH product.





Due
      to the factors mentioned above, the net loss for the year ended December 31,
      2005 was $6,308,356 or $0.08 per common share, basic and diluted, based upon
      weighted average shares outstanding of 79,624,173 shares as compared to a loss
      for the year ended December 31, 2004 of $4,622,214 or $0.07 per common share,
      basic and diluted, based upon weighted average shares outstanding of
      62,384,476.




37




**Liquidity
      and Capital Resources**





As
      of
      December 31, 2005, we had cash, cash equivalents and investments of $5,970,006
      and working capital was $5,295,130. Net operating cash used in operations was
      $3,866,352 for the year ended December 31, 2005 and was primarily due to our
      loss of $6,308,353. The operating loss was reduced by non-cash charges of
      $1,782,171 primarily from option and warrant repricing, compensation to a
      consultant from issuance of a warrant and purchases of C1-INH product. Pursuant
      to the Sanquin loan agreement, purchases made during our Phase III clinical
      trials are added to our loan and we are not required to make any principal
      payments. The loan will be forgiven when regulatory approval from the FDA is
      received. If we do not receive regulatory approval, then the loan is repayable
      on the earlier of January 16, 2014, or the termination of the Agreement. The
      loan does not bear interest and we compute interest based on the imputed
      interest method using the effective interest rate method. Cash used in investing
      activities for the year ended December 31, 2005 was $2,560,636 resulting from
      the purchase of investments and fixed assets. Cash from financing activities
      for
      the year ended December 31, 2005 was $4,365,097 and resulted from the sale
      of
      common stock and warrants in a May 2005 private placement.





In
      the May 2005 private placement we received net proceeds of approximately
      $4,365,100 from the sale of 100.9 units. Each
      unit
      was sold at a price of $50,000 and consisted of 50,000 shares of common stock
      and a five-year warrant to purchase 25,000 shares of common stock at an exercise
      price of $1.35 per share. We issued an aggregate of 5,044,774 shares of common
      stock and warrants to purchase 2,522,387 shares of common stock to investors
      in
      this private placement. We paid $454,030 to the placement agent and issued
      warrants to the placement agent to purchase 681,044 shares of common stock.
      The
      placement agent warrants are exercisable at $1.35 per share and expire in May
      2010. ****





In
      February and March 2004, we received proceeds of $7,968,495 in a private
      placement, net of issuance costs of $51,465, from the sale of 3,425,879 shares
      of common stock at $0.26 per share and from the sale of 23,913,848 shares of
      common stock at $0.30 per share, respectively. In December 2003, we received
      proceeds in a private placement of $300,000 from the sale of 1,141,960 shares
      of
      common stock at $0.27 per share.





Lev
      has
      cash commitments over the next year of approximately $1,510,000 primarily to
      fund our clinical research organization and executives’ employment contracts. To
      date, we have relied solely upon selling equity securities in private placements
      to generate cash to implement our plan of operations. We believe that our cash
      and cash equivalents will be sufficient to meet our cash requirements for the
      next twelve months.




**Contractual
      Obligations and Commitments**





The
      following is a summary of our significant contractual cash obligations for
      the
      periods indicated that existed as of December 31, 2005.




38




Less
                  than
              
              1-2
              
              3-5
              
              More
                  thanTotal
              
              1
                  year
              
              years
              
              years
              
              5
                  yearsOffice
                  lease
              
              $
              46,365
              
              $
              46,365
              
              $
              0
              
              $
              0
              
              
              
              
              
              0CRO
                  contract
              
              
              704,779
              
              
              681,045
              
              
              23,734
              
              
              0
              
              
              
              
              
              0Executive
                  employment contracts
              
              
              2,765,145
              
              
              673,719
              
              
              1,448,350
              
              
              643,076
              
              
              
              
              
              0Research
                  and development contract
              
              
              109,000
              
              
              109,000
              
              
              0
              
              
              0
              
              
              
              
              
              0Total
                  obligations
              
              $
              3,625,289
              
              $
              1,510,129
              
              $
              1,472,084
              
              $
              643,076
              
              
              
              
              $
              0


Our
        major contractual
        obligations relate to our office lease, clinical trial costs, research and
        development, purchase commitments and obligations to pay royalties and
        compensation under employment contracts. We expect to devote substantial
        resources to continue our research and development efforts, to expand our
        product pipeline and to support our product candidates as they move forward
        in
        the clinical development process. Our funding requirements will depend on
        numerous factors, including:





·
            the
                scope and results of our clinical trials;·
            advancement
                of other product candidates into development;·
            potential
                acquisition or in-licensing of other product candidates, commercial
                products or technologies;·
            the
                timing of, and the costs involved in, obtaining regulatory
                approvals;·
            the
                cost of manufacturing activities for product
                candidates;·
            the
                costs involved in preparing, filing, prosecuting, maintaining and
                enforcing patent claims and other patent-related costs, including
                litigation costs and the results of such litigation;
                and·
            our
                ability to establish and maintain additional collaborative
                arrangements.





We
      expect product development costs to increase in the future as more of our
      product candidates enter clinical trials. In addition, we may be obligated
      to
      make milestone payments on certain of our product candidates as they progress
      through the clinical trial process.





The
      duration and cost of clinical trials may vary significantly over the life of
      a
      particular project as a result of, among other things, the following
      factors:




·
              the
                    length of time required to recruit qualified patients for clinical
                    trials;·
              the
                    duration of patient dosing and follow-up in light of trial
                    results;·
              the
                    number of clinical sites required for trials; and·
              the
                    number of patients that ultimately
                    participate.


The
      Sanquin distribution agreement terminates on December 31, 2007, unless extended
      by us for up to two three-year periods or by mutual agreement of the parties
      prior to its expiration. Commencing with the receipt of FDA regulatory approval
      of C1-INH and thereafter, we must purchase from Sanquin a minimum amount of
      C1-INH valued in Euros equal to approximately $6,900,000 per calendar year.
      In
      addition, during our clinical trial period we purchase C1-INH and our commitment
      is approximately $3,600,000. Such amount is added to our loan agreement with
      Sanquin and will be forgiven if regulatory approval is received. If regulatory
      approval is not received, then the loan is due on the earlier of January 16,
      2014 or the termination of the distribution agreement.




39




In
      connection with the license agreement with Sanquin for the treatment of AMI
      we
      are required to create a comprehensive research plan for the commercial
      exploitation of the licensed technology. We continue to work with Sanquin on
      the
      design of the research plan. We agreed to commit a minimum of $125,000 per
      annum
      during the first three years following the execution of the license agreement
      toward research on the licensed technology conducted by Sanquin and by other
      parties. To date, we have funded approximately $141,000 to third parties engaged
      in this research. We also have an obligation to pay Sanquin royalties on sales
      of products incorporating the technology.





On
      September 20, 2004, we entered into a services agreement with Compleware
      Corporation, **** a
      CRO, in connection with the management and implementation of our Phase III
      clinical trial of C1-INH for the treatment of HAE. On March 1, 2005, we
      terminated the agreement. In 2005, we paid Compleware $100,000. On March 2,
      2005, we entered into a new CRO services agreement with INC Research which
      governs INC Research's provision of services in connection with the support
      of
      clinical investigation, management and/or research of our Phase III clinical
      trial. It is estimated that we will pay INC Research approximately $700,000
      for
      its services in 2006 and 2007.




**ITEM
      7. FINANCIAL STATEMENTS**





The
      full
      text of our audited consolidated financial statements for the year ended
      December 31, 2005 and for the period July 21, 2003 (inception) to December
      31,
      2005 begins on page F-1 of this Annual Report on Form 10-KSB.





**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
      DISCLOSURE**





None.





**ITEM
      8A. CONTROLS AND PROCEDURES**





As
      of the end of the period covered by this report, we conducted an evaluation,
      under the supervision and with the participation of our Chief Executive Officer,
      of our disclosure controls and procedures (as defined in Rule 13a-15(e) and
      Rule
      15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive
      Officer concluded that our disclosure controls and procedures are effective
      to
      ensure that information required to be disclosed by us in the reports that
      we
      file or submit under the Exchange Act is recorded, processed, summarized and
      reported, within the time periods specified in the SEC’s rules and forms. There
      has been no significant change in our internal controls over financial reporting
      that could significantly affect internal controls subsequent to September 30,
      2005.





**ITEM
      8B. OTHER INFORMATION**





None.




40





**PART
      III.**





**ITEM
      9.** **DIRECTORS
      AND EXECUTIVE OFFICERS OF THE REGISTRANT**




Our
      executive officers, significant employees and directors as of March 17, 2006
      are:




Name
            Age
            PositionJoshua
                D. Schein, Ph.D.
            45
            Chief
                Executive Officer and
              DirectorJudson
                Cooper
            47
            Chairman
                of the Board,
              Executive
                Vice President and
              SecretaryDouglas
                J. Beck
            45
            Chief
                Financial OfficerJason
                Bablak
            39
            Vice
                President, Regulatory AffairsScott
                Eagle
            46
            DirectorEric
                I. Richman
            45
            DirectorThomas
                Lanier
            46
            Director




Joshua
      D. Schein, Ph.D. has been our Chief Executive Officer and a Director since
      December 29, 2004 and Chief Executive Officer and a Director of Lev Development
      Corp., or LDC, since the commencement of LDC's operations in July 2003. Dr.
      Schein is also a founder of SIGA Technologies, Inc., a publicly traded
      biotechnology company, and served as its Chief Executive Officer from August
      1998 to April 2001. Dr. Schein also served as SIGA's acting Chief Executive
      Officer from April 1998 to August 1998, as Secretary and a Director from
      December 1995 to April 2001, and as Chief Financial Officer from December 1995
      until April 1998. Dr. Schein is also a founder of DepoMed, Inc., a publicly
      traded drug delivery company, and served as a director of the company from
      December 1995 to June 1998. From January 1996 to August 1998, Dr. Schein was
      an
      executive officer and a director of Virologix Corporation, a private
      biotechnology company that he co-founded and which was subsequently acquired
      by
      Access Pharmaceuticals, a publicly traded biotechnology company. From June
      1996
      to September 1998, Dr. Schein was an executive officer and a director of
      Callisto Pharmaceuticals, Inc., a publicly traded biotechnology company that
      he
      co-founded. Dr. Schein is also a founder of Hemoxymed, Inc., a publicly traded
      biotechnology company. Since 1997, Dr. Schein has been a principal of Prism
      Ventures LLC, a privately held limited liability company focused on the
      biotechnology industry. From 1994 to 1995, Dr. Schein served as a Vice President
      of Investment Banking at Josephthal, Lyon and Ross, Incorporated, an investment
      banking firm. Dr. Schein received a Ph.D. in neuroscience from the Albert
      Einstein College of Medicine, an MBA from the Columbia Graduate School of
      Business, and a B.A. in biochemistry from Brandeis University.





Judson
      Cooper has been our Chairman of the Board, Executive Vice President and
      Secretary since December 29, 2004 and Chairman of LDC since the commencement
      of
      operations of LDC in July 2003 and Executive Vice President since November
      1,
      2004. Mr. Cooper is also a founder of SIGA Technologies, Inc., a publicly traded
      biotechnology company, and served as its Chairman from August 1998 to April
      2001. Mr. Cooper also served as SIGA's acting Chairman from April 1998 to August
      1998, as a Director from December 1995 to April 2001, as Executive Vice
      President from November 1996 to April 2001, and as its founding President from
      December 1995 to November 1996. Mr. Cooper is also a founder of DepoMed, Inc.,
      a
      publicly traded drug delivery company and served as a director of the company
      from December 1995 to June 1998. From January 1996 to August 1998, Mr. Cooper
      was an executive officer and a director of Virologix Corporation, a private
      biotechnology company that he co-founded and which was subsequently acquired
      by
      Access Pharmaceuticals, a publicly traded biotechnology company. From June
      1996
      to September 1998, Mr. Cooper was an executive officer and a director of
      Callisto Pharmaceuticals, Inc., a publicly traded biotechnology company that
      he
      co-founded. Mr. Cooper is also a founder of Hemoxymed, Inc., a publicly traded
      biotechnology company. Since 1997, Mr. Cooper has been a principal of Prism
      Ventures LLC, a privately held limited liability company focused on the
      biotechnology industry. Mr. Cooper is a graduate of the Kellogg School of
      Management.




41





Douglas
      J. Beck is a CPA and has been our Chief Financial Officer since May 23, 2005.
      He
      was our controller since February 21, 2005. From September 2004 to October
      2004,
      Mr. Beck served as a consultant to Pfizer, Inc. From December 2002 to September
      2004, Mr. Beck served in various capacities with Diversified Security Solutions,
      Inc., from Director of Finance to Chief Financial Officer. From November 2000
      to
      December 2002, Mr. Beck was a financial consultant to various companies. From
      March 2000 to October 2000, Mr. Beck served as Director of Financial Reporting
      for Urbanfetch.com, Inc. and from December 1998 to March 2000, Mr. Beck was
      an
      audit manager with Andersen LLP. Mr. Beck holds a B.S. from the Fairleigh
      Dickinson University.  He
      serves on the Chief Financial Officers and SEC Practice Committee for the New
      York Society for Certified Public Accountants.





Jason
      Bablak has served as our Vice President, Regulatory Affairs since January 2004.
      From 2000 to 2003, Mr. Bablak served as Vice President, Public Policy and Legal
      Affairs for the Immune Deficiency Foundation (“IDF”), a national healthcare and
      patient advocacy organization, and as Vice-President and General Counsel of
      Primaryimmune Services Inc., a wholly-owned subsidiary of IDF which was created
      to manage clinical trials. From 1997 to 2000, Mr. Bablak served as Director,
      Regulatory Affairs for the Plasma Protein Therapeutics Association, an
      international pharmaceutical trade association representing plasma derivative
      manufacturers, and from 1995 to 1997 Mr. Bablak served as Regulatory Counsel
      for
      the Voluntary Protection Programs Participants’ Association. From 1993 to 1995,
      Mr. Bablak was a contract attorney for Popham, Haik, Schnobrich & Kaufman.
      Mr. Bablak received his B.S. degree in biology and environmental science from
      Allegheny College and his J.D. degree from the University of Pittsburgh School
      of Law.





Scott
      Eagle has served as a Director of our company since December 29, 2004. Since
      November 1998, Mr. Eagle has been at Claria Corporation, a leading behavioral
      online marketing firm where he currently is Executive Vice President and CMO.
      Prior to joining Claria, Mr. Eagle was the Vice President of marketing at
      Concentric Network Corporation from 1996 to 1998. Before Concentric, from 1993
      to 1996, Mr. Eagle served as Vice President of Marketing at MFS Communications
      where he launched regional marketing campaigns for the start-up MFS Intelenet
      subsidiary. Mr. Eagle began his career at Procter & Gamble in marketing and
      new product development for consumer packaged goods, managing brands such as
      Formula 44 and Chloraseptic. Mr. Eagle holds a B.S. from the University of
      Pennsylvania, Wharton School.





Eric
      I. Richman has served as a Director of our company since December 29, 2004.
      Since October 2003, Mr. Richman has been Vice President, Business Development
      and Strategic Planning at PharmAthene, Inc., a private biotechnology company.
      From 2000 to 2003, he was Vice President, Corporate Development at MaxCyte,
      Inc., a private biotechnology company. Mr. Richman was part of the founding
      team
      at MedImmune, Inc., a publicly-traded biotechnology company, holding various
      administrative, financial, strategic planning, marketing and international
      positions between 1988 and 2000, including Director, International
      Commercialization with MedImmune, Inc. (1998-2000), and Senior Director of
      Transplantation Products (1993-1998). He was a key member on the launch teams
      for MedImmune's biotechnology products, both domestically and internationally.
      Mr. Richman received a B.S. degree in Biomedical Science in 1984 from the
      Sophie Davis School of Biomedical Education (CUNY Medical School) and
      a Masters of Business Administration from the American Graduate School of
      International Management in 1987.




42




Thomas
      Lanier has served as a Director of our company since December 29, 2004. Since
      1996, Mr. Lanier has served as an International Advisor for the U.S.
      Department of the Treasury; during this time he co-wrote the U.S. Treasury's
      guide to external debt issuance for emerging market borrowers. Mr. Lanier also
      served as Financial Attache in the Office of International Affairs, U.S.
      Treasury, Moscow, from 2003 to 2005. From 1988 until 1996, Mr. Lanier worked
      for
      Chemical Bank as a U.S. Government Bond Trader (1988-1993), Emerging Markets
      Salesperson (1993-1994) and Emerging Markets Debt Trader (1994-1996). In 1981,
      Mr. Lanier graduated from the United States Military Academy at West Point
      with
      a Bachelor of Science Degree. Prior to leaving the Army in 1986, he also
      graduated from the U.S. Army Airborne School and the U.S. Army Flight School
      and
      was responsible for planning, organizing and controlling logistical operations
      on an international project for the Army Chief of Staff. In 1988, Mr. Lanier
      received a Masters of Business Administration with an emphasis in finance and
      marketing from the Fuqua School of Business, Duke University.





**Compensation
      of Directors**





Upon
      their appointment to the Board of Directors, each of our three independent
      directors received a grant of options to purchase 225,000 shares of common
      stock
      at an exercise price of $0.80 per share which vest over a period of three years
      from the date of grant.





**Committees
      of the Board of Directors**





**Audit
      Committee**





The
      Audit Committee currently consists of Mr. Thomas Lanier. Our Board of Directors
      has determined that Mr. Lanier is “independent” as that term is defined under
      applicable SEC rules. We currently do not have an audit committee financial
      expert serving on our Audit Committee because we have not been able to identify
      a suitable candidate. However, we are interviewing candidates and expect to
      shortly appoint a director who qualifies as an “audit committee financial
      expert” as defined in Item 401(e) of Regulation S-B promulgated by the
      SEC. **** The
      Board of Directors has adopted a written charter setting forth the authority
      and
      responsibilities of the Audit Committee. A copy of this charter is available
      on
      our web site www.levpharma.com.





The
      Audit Committee's responsibilities include: (i) reviewing the independence,
      qualifications, services, fees, and performance of the independent auditors,
      (ii) appointing, replacing and discharging the independent auditors, (iii)
      pre-approving the professional services provided by the independent auditors,
      (iv) reviewing the scope of the annual audit and reports and recommendations
      submitted by the independent auditors, (v) reviewing the financial statements
      contained in the annual report and quarterly reports and (vi) reviewing our
      financial reporting and accounting policies, including any significant changes,
      with management and the independent auditors. The Audit Committee also prepares
      the Audit Committee report that is required pursuant to the rules of the
      SEC.




43





**Compensation
      Committee**





We
      have a Compensation Committee currently consisting of Mr. Eric Richman and
      Mr.
      Scott Eagle. The Board of Directors has determined both of the members of the
      Compensation Committee are “independent.” The Board of Directors has adopted a
      written charter setting forth the authority and responsibilities of the
      Compensation Committee. A copy of this charter is available on our web site
      at
      www.levpharma.com.





The
      Compensation Committee has responsibility for assisting the Board of Directors
      in, among other things, evaluating and making recommendations regarding the
      compensation of the executive officers and directors of our Company; assuring
      that the executive officers are compensated effectively in a manner consistent
      with the stated compensation strategy of our Company; producing an annual report
      on executive compensation in accordance with the rules and regulations
      promulgated by the SEC; and periodically evaluating the terms and administration
      of our incentive plans and benefit programs.





**Code
      of Ethics**





We
      have adopted a Code of Business Conduct and Ethics for Officers, Directors
      and
      Employees that applies to all of our officers, directors and employees. The
      Code
      of Business Conduct and Ethics is available on our website at
      www.levpharma.com.




**Compliance
      with Section 16(a) of the Exchange Act**





Section
      16(a) of the Securities Exchange Act of 1934 requires our directors and
      executive officers and persons who beneficially own more than ten percent of
      our
      common stock to file with the SEC initial reports of ownership and reports
      of
      change in ownership of common stock and other equity securities of our Company.
      Officers, directors and greater than ten percent stockholders are required
      by
      SEC regulations to furnish us with copies of all Section 16(a) forms they file.
      To our knowledge, none of our directors, executive officers or persons who
      beneficially own ten percent or more of our common stock have failed to file,
      on
      a timely basis, the identified reports required by Section 16(a) of the Exchange
      Act during the most recent fiscal year.




**ITEM
      10. EXECUTIVE COMPENSATION**




**Summary
      Compensation Table**





The
      following table sets forth information concerning the total compensation that
      we
      have paid or that has accrued on behalf of our chief executive officer and
      other
      executive officers (the “Named Executive Officers”) with annual compensation
      exceeding $100,000 during the fiscal year ended December 31, 2005.




44





Annual
                Compensation
            
            Long
                Term CompensationName
                and Principal Position
            
            Year
            
            Salary
                ($)
            
            Securities
                Underlying Options (#)Joshua
                D. Schein, Ph.D.
            
            
            2005
            
            $
            335,897
            (1)
            
            1,427,450Chief
                Executive Officer
            
            
            2004
            
            $
            258,080
            (2)
            
            --Judson
                Cooper
            
            
            2005
            
            $
            323,544
            (1)
            
            1,427,450Chairman,
                Executive Vice President and Secretary
            
            
            2004
            
            $
            270,433
            (2)
            
            --Douglas
                J. Beck
            
            
            2005
            
            $
            110,197
            
            
            100,000Chief
                Financial Officer (3)
            
            
            2004
            
            $
            0Yanina
                T. Wachtfogel
            
            
            2005
            
            $
            312,500
            
            
            --Former
                Chief Scientific Officer (4)
            
            
            2004
            
            $
            318,510
            
            
            --





(1)
      Includes auto allowance of $ 6,000


(2)
      Includes auto allowance of $ 1,200


(3)
      Includes compensation as our Controller since February 21, 2005


(4)
      Terminated on February 15, 2006





**Option
      Grants in Year Ended 2005**





The
      following table sets forth certain information concerning grants of options
      to
      purchase common stock made to the Named Executive Officers during the year
      ended
      December 31, 2004 that were repriced during the year ended December 31,
      2005.


Number
                of
            
            Percent
                of TotalShares
              Underlying
            
            Options
                Granted to Employees
            
            Exercise
                Price
            
            ExpirationName
            
            Options
                Granted
            
            in
                2004
            
            Per
                Share (1)
            
            DateJoshua
                D. Schein, Ph.D.
            
            1,427,450
            
            48.3%
            
            $0.30
            
            11/1/2014Chief
                Executive OfficerJudson
                Cooper
            
            1,427,450
            
            48.3%
            
            $0.30
            
            11/1/2014Chairman,
                Executive Vice President and SecretaryDouglas
                J. BeckChief
                Financial Officer
            
            100,000
            
            3.4%
            
            $1.20
            
            3/11/2015








(1)
      In May 2005, the Board of Directors determined to reduce the option exercise
      price from $0.85 to $0.30 per share. On December 12, 2005, the stockholders
      approved the repricing at the annual stockholder meeting. The Company recorded
      a
      compensation charge of $1,427,450. See (i) Management’s Discussion and Analysis
      and Plan of Operation - Equity and (ii) Note I to our Consolidated Financial
      Statements in this Form 10-KSB. No
      other options were granted during the fiscal year ended December 31,
      2005.




45





**Aggregated
      Option Exercises in 2005 and Year End Option Values**





The
      following table provides certain information with respect to the Named Executive
      Officers concerning the exercise of stock options during the fiscal year ended
      December 31, 2005 and the value of unexercised stock options held as of such
      date.





Number
                of Shares Underlying
            
            Value
                of Unexercised In the MoneyOptions
                at December 31, 2005
            
            Options
                at December 31, 2005 (1)Name
                and Position
            
            Exercisable
            
            Unexercisable
            
            Exercisable
            
            UnexercisableJoshua
                D. Schein, Ph.D.
            
            
            1,427,450
            
            
            0
            
            $
            $713,725
            
            
            $0Chief
                Executive OfficerJudson
                Cooper
            
            
            1,427,450
            
            
            0
            
            $
            $713,725
            
            
            $0Chairman,
                Executive Vice President and SecretaryDouglas
                J. Beck
            
            
            0
            
            
            100,000
            
            0
            $0
            
            
            $0Chief
                Financial Officer








(1)
            Amounts
                calculated by subtracting the exercise price of the options from
                the
                market value of the underlying common stock using the closing sale
                price
                on the OTC Bulletin Board of $0.80 per share on December 30, 2005
                (the
                last trading day of the year).





During
      the fiscal year ended December 31, 2005 no options were exercised.





**Employment
      Agreements**





We
      entered into four year employment agreements with each of Joshua D. Schein
      and
      Judson Cooper, effective as of November 1, 2004. Pursuant to the respective
      employment agreements, each of Mr. Schein and Mr. Cooper receives a base salary
      of $312,500 with an annual 5% increase each November ($328,125 effective
      November 1, 2005 to October 31, 2006), options to purchase up to 1,427,450
      shares of our common stock with an exercise price of $0.85 per share and
      customary benefits and reimbursements. In the event Messrs. Schein or Cooper
      are
      terminated in connection with a change in control of our Company, each will
      receive his salary for the remainder of the term of the employment agreement
      and
      all other amounts due pursuant to the employment agreement plus a tax gross-up
      payment. The exercise price of the options was reduced to $0.30 by the Board
      of
      Directors in May 2005, and was approved by the stockholders at the annual
      stockholder meeting on December 12, 2005.





**2004
      Omnibus Incentive Compensation Plan**





We
      rely on incentive compensation in the form of stock options to retain and
      motivate directors, executive officers, employees and consultants. Incentive
      compensation in the form of stock options is designed to provide long-term
      incentives to directors, executive officers employees and consultants, to
      encourage them to remain with us and to enable them to develop and maintain
      an
      ownership position in our common stock.




46





*Share
      Reserve* .
      A total of 10,000,000 shares of our common stock have been reserved for issuance
      under the 2004 Omnibus Incentive Compensation Plan (the “2004 Plan”). As of
      December 31, 2005, options for 3,629,900 shares were outstanding under the
      2004
      Plan.





*Eligibility
      and Terms of Awards* .
      The 2004 Plan permits the grant of cash-based awards, options, stock
      appreciation rights, restricted stock units, performance shares, performance
      units, covered employee annual incentive awards, restricted stock awards and
      other stock-based awards to our employees and directors. Options will be either
      incentive stock options, or ISOs, as defined under the Internal Revenue Code
      of
      1986, as amended, or the Code, which may be granted solely to employees
      (including officers); or nonstatutory stock options, or NSOs, that do not
      qualify as incentive stock options within the meaning of Section 422 of the
      Code
      and which may be granted to employees (including officers), directors and
      consultants.





*Administration* .
      Our Board of Directors administers the 2004 Plan unless it delegates
      administration of the plan to a committee. In either case, the plan
      administrator determines the recipients and terms and conditions applicable
      to
      each award made under the 2004 Plan, including the exercise or purchase price,
      the vesting schedule and the ability to exercise an award prior to vesting
      and
      the provisions related to the impact of a termination of employment or service
      on outstanding awards. The plan administrator may also amend the terms of the
      2004 Plan and outstanding equity awards, except that no amendment may adversely
      affect an award without the recipient's written consent. Subject to certain
      exceptions, **** the
      plan administrator may not amend an option to lower its exercise price or
      exchange an option for an option with a lower exercise price, another equity
      award, cash, or any other consideration or take any other action that is treated
      as a repricing under United States generally accepted accounting principles
      without the prior approval of our stockholders. Amendments to the 2004 Plan
      are
      subject to stockholder approval to the extent required by law, rule or
      regulation.





*Stock
      Options* .
      Stock options are granted pursuant to stock option agreements. The plan
      administrator determines the exercise price for a stock option subject, in
      the
      case of ISOs, to the requirements of Section 422 of the Code. Options granted
      under the 2004 Plan vest at the rate specified in the option
      agreement.





The
      plan administrator determines the term of stock options granted under the 2004
      Plan. Generally, the term of these stock options may not exceed ten years.
      The
      plan administrator determines the extent to which the optionee shall have the
      right to exercise the stock option following termination of the optionee's
      employment or provision of services to our Company. In no event may an option
      be
      exercised after the maximum term provided for in the stock option
      agreement.





Acceptable
      consideration for the purchase of common stock issued under the 2004 Plan will
      be determined by the plan administrator and may include cash, common stock
      previously owned by the optionee, consideration received in a “cashless”
exercise program implemented by us and other legal consideration approved by
      the
      plan administrator.





Generally,
      an optionee may not transfer a stock option other than by will or the laws
      of
      descent and distribution unless the stock option agreement provides otherwise.
      However, an optionee may designate a beneficiary who may exercise the option
      following the optionee's death.





*Restricted
      Stock Awards* .
      Restricted stock awards may be purchased through a restricted stock purchase
      agreement. The purchase price for restricted stock awards must be at least
      the
      par value of the stock. The purchase price for a restricted stock award may
      be
      payable in cash, the recipient's past services performed for our Company, or
      any
      other form of legal consideration acceptable to the plan
      administrator.




*Stock
      Appreciation Rights* .
      A stock appreciation right may be granted pursuant to a stock appreciation
      right
      agreement. The plan administrator determines the strike price and term for
      a
      stock appreciation right granted under the 2004 Plan. A stock appreciation
      right
      granted under the 2004 Plan vests at the rate specified in the stock
      appreciation right agreement. If an awardee's service relationship with us,
      or
      any of our affiliates, ceases, then the awardee, or his or her beneficiary,
      may
      exercise any vested stock appreciation right after the date such service
      relationship ends for the period of time provided in the stock appreciation
      right agreement. Different post-termination exercise periods may be provided
      in
      the stock appreciation right agreement for specific types of terminations such
      as death, disability or retirement. Our payment to a participant in settlement
      of a stock appreciation right may be made by the delivery of shares of our
      common stock, cash, or any combination of the two.




47





*Effect
      of a Change in Control* .
      Our standard form of stock option agreement provides that following specified
      change in control transactions, the equity awards granted under the 2004 Plan
      will be fully vested and exercisable if the optionee ceases to perform services
      for the surviving or acquiring company within 12 months after the close of
      the
      change in control transaction and the optionee is terminated by the surviving
      or
      acquiring company for any reason except cause.




**Report
      on Repricing of Options**





Following
      consummation of the Public Company Merger and the Recapitalization Merger,
      our
      Board of Directors in May 2005 determined that the basis for the exchange of
      warrants and options to purchase common stock of Old Lev that were outstanding
      prior to the mergers for warrants and options to purchase our common stock
      after
      the mergers should be changed. Though the number of shares issuable upon
      exercise of these warrants and options was increased, the parties to the mergers
      did not proportionately reduce the exercise price of these warrants and options
      to account for the increase in the number of shares outstanding after the
      mergers. The reduced exercise price of these warrants and options was calculated
      by multiplying the number of shares issuable upon exercise of these warrants
      and
      options prior to the mergers times the relevant exercise price, and then
      dividing that dollar amount by the new number of shares issuable upon exercise
      of these warrants and options after the mergers.




Prior
      to
      the mergers, stock options to purchase 500,000 shares of common stock at an
      exercise price of $0.85 per share were held by each of Joshua D. Schein, Ph.D.,
      our Chief Executive Officer, and by Judson Cooper, our Chairman. After the
      mergers, pursuant to the exchange ratio in the Agreement, each person’s options
      were converted into options to purchase 1,427,450 shares of common stock with
      an
      exercise price of $0.85 per share (an aggregate of 2,854,900 shares). In May
      2005, in addition to repricing certain warrants, the Board further determined,
      subject to obtaining stockholder approval at our next annual meeting, to reduce
      the exercise price of these options from $0.85 to $0.30 per share. The Board
      made the determination to seek stockholder approval because it believed that
      stockholder approval was necessary to reduce the exercise price of such options
      under the terms of our 2004 Omnibus Incentive Compensation Plan. In addition,
      the Board believed that the repricing of these options should be subject to
      stockholder approval because the reduction in exercise price of the stock
      options directly benefits our Chief Executive Officer and Chairman. However,
      it
      should be noted that our Chief Executive Officer and Chairman are also principal
      stockholders who voted on this proposal. The stockholders approved this
      repricing at the annual meeting held on December 12, 2005.




48





As
      a
      result of the option repricing, Messrs. Schein and Cooper each own options
      to
      purchase 1,427,450 shares of common stock at an exercise price of $0.30 per
      share as opposed to the prior exercise price of $0.85 per share. If they
      exercise all of these options, Messrs. Schein and Cooper would realize a cash
      savings of, and the proceeds received by the Company would be reduced by,
      $785,098 for each of them. A charge of $1,427,450 was recorded to our
      Consolidated Statement of Operations based upon our stock price when our
      stockholders approved the repricing at the stockholders’ meeting and subsequent
      changes to our stock price through December 31, 2005. These charges ceased
      upon
      the adoption of SFAS 123R on January 1, 2006.





**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT**





The
      following table indicates beneficial ownership of our common stock as of March
      17, 2006:


·  By
        each person or entity known by us to beneficially own more than 5% of the
        outstanding shares of our common stock;
 ·  By
        each of our executive officers and directors; and
 ·  By
        all of our executive officers and directors as a group.




Unless
      otherwise indicated, the address of each beneficial owner listed below is c/o
      Lev Pharmaceuticals, Inc., 122 East 42nd Street, Suite 2606, New York, NY
      10168.





Beneficial
      ownership is determined in accordance with the rules of the Securities and
      Exchange Commission and generally includes voting or investment power with
      respect to securities. Percentage of beneficial ownership is based on 81,527,544
      shares of our common stock issued and outstanding as of March 17,
      2006.




Name
                  of Beneficial Owner
              
              Number
                  of Shares
              
              Percentage
                of
                  Shares BeneficiallyOwnedJudson
                  Cooper (1)
              
              
              29,329,102
              
              
              36.0
              %Joshua
                  D. Schein, Ph.D. (2)
              
              
              29,894,372
              
              
              36.7
              %Douglas
                  J. Beck (3)
              
              
              50,000
              
              
              --Scott
                  Eagle (4)
              
              
              75,000
              
              
              --Eric
                  I. Richman (4)
              
              
              75,000
              
              
              --Thomas
                  Lanier (4)
              
              
              146,372
              
              
              *All
                  Directors and Executive Officers as a Group (6 persons)
              
              
              32,096,429
              
              
              39.4
              %Prism
                  Ventures, LLC (5)
              
              
              27,473,417
              
              
              33.7
              %




49


Emigrant
                  Capital Corp. (6)
              
              
              10,076,116
              
              
              12.4
              %Richard
                  Stone
              
              
              6,147,571
              
              
              7.5
              %Newton
                  Partners LLC (7)
              
              
              5,293,763
              
              
              6.5
              %Windsor
                  Ventures LLC (7)
              
              
              5,017,066
              
              
              6.2
              %




*
      less than 1%





(1)
      Consists of (i) 1,427,450 shares of common stock issuable upon exercise of
      stock
      options, (ii) 27,473,417 shares of common stock owned by Prism Ventures, LLC
      and
      the limited liability companies referred to in Note 5 below, each of which
      is
      owned by Prism Ventures, LLC, a limited liability company in which Mr. Cooper
      owns a 50% interest, and (iii) 428,235 shares of common stock owned by certain
      family members of Mr. Cooper.





(2)
      Includes (i) 1,427,450 shares of common stock issuable upon exercise of stock
      options and (ii) 27,473,417 shares of common stock owned by Prism Ventures,
      LLC
      and the limited liability companies referred to in Note 5 below, each of which
      is owned by Prism Ventures, LLC, a limited liability company in which Mr. Schein
      owns a 50% interest.




(3)
      Includes 50,000 options that vested under the 2004 Stock Option Plan.





(4)
      Includes 75,000 options that vested under the 2004 Stock Option
      Plan.





(5)
      Includes an aggregate of 20,621,658 shares of common stock owned by Newton
      Partners LLC, Windsor Ventures LLC, Sapphire Ventures LLC, Tudor Technology
      Ventures LLC and Entry Point Capital LLC, each of which is owned by Prism
      Ventures, LLC. Each of Judson Cooper and Joshua D. Schein own a 50% interest
      in
      Prism Ventures, LLC. The address of Prism Ventures, LLC is 524 Clubhouse Road,
      Woodmere, New York 11598.





(6)
      The
      address of Emigrant Capital Corp. is 6 East 43rd Street, New York, New York
      10017.





(7)
      Prism Ventures, LLC owns a 100% limited liability company interest in such
      company. The address of Newton Partners LLC and Windsor Ventures LLC is 524
      Clubhouse Road, Woodmere, New York 11598.




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**





On
      August 6, 2004, Timothy E. Evon, Thomas T. Evon and William H. Hamen (“Sellers”)
      sold an aggregate of 1,441,027 shares of FCP common stock to Earnest Mathis,
      Gary McAdam and Gary A. Agron, each former principal stockholders of our company
      (“Purchasers”). Messrs. Mathis, McAdam and Agron acquired 480,342 shares,
      480,342 shares and 480,343 shares, respectively. The purchase price for the
      shares was $300,000 plus the assumption by the Purchasers of approximately
      $66,800 of our liabilities. The Purchasers also agreed to pay the Sellers a
      portion of any profits earned by the Purchasers upon any resale of the shares.
      The purchase price was satisfied by the delivery to Sellers from Purchasers
      of a
      non-interest bearing $300,000 promissory note due no later than February 6,
      2006
      and the assumption by the Purchasers of the aforesaid liabilities of our company
      in the approximate amount of $66,800. On October 2, 2004, Gary J. McAdam, Gary
      A. Agron and Mathis Family Partners, Ltd., each a former principal stockholder,
      agreed to provide FCP a line of credit up to an aggregate of $100,000. Any
      borrowings were to bear interest at 6% per annum, any outstanding amounts were
      due on demand and the obligation of the lenders to loan any funds terminated
      upon the Public Company Merger. There were no borrowings under the line of
      credit. In consideration for the line of credit, FCP issued to each of Gary
      J.
      McAdam, Gary A. Agron and Mathis Family Partners, Ltd. 871,317 shares of FCP's
      common stock or an aggregate of 2,613,951 shares.




50





In
      March 2004, we entered into a consulting agreement with Richard
      Stone  a nd
      granted
      to Mr. Stone a fully vested warrant in consideration for assisting us in
      developing our strategic business plan, obtaining the Sanquin license and
      consulting on our corporate structure. The warrant was for the purchase of
      7,327,576 shares of common stock at an exercise price of $0.10 per share,
      expiring in March 2014. On April 1, 2005, w e
      entered into a one year consulting agreement commencing April 1, 2005 with
      Richard Stone. Mr. Stone is paid $120,000 per year for his services, with
      payments made quarterly. Mr. Stone beneficially owns 7.5% of our outstanding
      common stock.





**ITEM
      13. EXHIBITS**




Exhibit
              Number
            
            Description





2.1
            
            Agreement
                and Plan of Merger by and among Fun City Popcorn, Inc., Lev Acquisition
                Corp. and Lev Pharmaceuticals, Inc., dated November 5, 2004 (incorporated
                by reference herein to Exhibit 2.1 to Form 8-K filed November 10,
                2004).2.2
            
            Amendment
                No. 1 to Agreement and Plan of Merger by and among Fun City Popcorn,
                Inc.,
                Lev Acquisition Corp. and Lev Pharmaceuticals, Inc., dated as of
                December
                8, 2004 (incorporated by reference herein to Exhibit 2.2 to the Form
                10-K/SB filed December 29, 2004).3.1
            
            Certificate
                of Incorporation (incorporated by reference herein to Exhibit A to
                the
                Information Statement on Schedule 14C filed January 26,
                2005).3.2
            
            Bylaws
                (incorporated by reference herein to Exhibit B to the Information
                Statement on Schedule 14C filed January 26, 2005).4.1
            
            2004
                Omnibus Incentive Compensation Plan (incorporated by reference herein
                to
                Exhibit 4.1 to Form 8-K filed January 4, 2005).4.2
            
            Form
                of Investor Warrant issued in connection with May 2005 Private Placement
                (incorporated by reference herein to Exhibit 4.1 to Form 8-K filed
                May 9, 2005)4.3
            
            Form
                of Agent Warrant issued in connection with May 2005 Private Placement
                (incorporated by reference herein to Exhibit 4.2 to Form 8-K filed
                May 9, 2005).4.4
            
            Warrant
                issued to Ashton Partners dated March 17, 2004 (incorporated by reference
                herein to Exhibit 4.4 to Amendment No. 1 to Registration Statement
                on Form
                SB-2 filed October 24, 2005).4.5
            
            Warrant
                issued to Lawler Scientific, LLC dated August 9, 2004 (incorporated
                by
                reference herein to Exhibit 4.5 to Amendment No. 1 to Registration
                Statement on Form SB-2 filed October 24, 2005).10.1
            
            Employment
                Agreement dated as of November 1, 2004 between Lev Pharmaceuticals,
                Inc.
                and Judson Cooper (incorporated by reference herein to Exhibit 10.1
                to
                Form 8-K filed January 4, 2005).*10.2
            
            Employment
                Agreement dated as of November 1, 2004 between Lev Pharmaceuticals,
                Inc.
                and Joshua D. Schein (incorporated by reference herein to Exhibit
                10.2 to
                Form 8-K filed January 4, 2005).*


51




10.3
              
              Distribution
                  and Manufacturing Services Agreement between Lev Pharmaceuticals,
                  Inc. and
                  Sanquin Blood Supply Foundation dated as of January 16, 2004 (incorporated
                  by reference herein to Exhibit 10.3 to Form 10-KSB filed March
                  31,
                  2005).+10.3.1
              
              First
                  Amendment to the Distribution and Manufacturing Services Agreement
                  between
                  Lev Development Corp. and Sanquin Blood Supply Foundation dated
                  as of
                  January 30, 2006.10.3.2
              
              Amendment
                  No. 2 to Distribution and Manufacturing Services Agreement between
                  Lev
                  Development Corp. and Sanquin Blood Supply Foundation dated as
                  of January
                  31, 2006. ++10.4
              
              Exclusive
                  License Agreement between Lev Pharmaceuticals, Inc. and Sanquin
                  Blood
                  Supply Foundation dated as of January 27, 2004 (incorporated by
                  reference
                  herein to Exhibit 10.4 to Form 10-KSB filed March 31,
                  2005).+10.5
              
              Registration
                  Rights Agreement dated as of March 19, 2004 (incorporated by reference
                  herein to Exhibit 10.5 to Amendment No. 1 to Registration Statement
                  on
                  Form SB-2 filed October 24, 2005).10.5.1
              
              Form
                  of Amendment No. 1 to 2004 Registration Rights Agreement dated
                  as of July
                  21, 2005 (incorporated by reference herein to Exhibit 10.5.1 to
                  Amendment
                  No. 1 to Registration Statement on Form SB-2 filed October 24,
                  2005).10.6
              
              Form
                  of Investor Registration Rights Agreement dated as of May 3, 2005
                  (incorporated by reference herein to Exhibit 10.1 to Form 8-K filed
                  May 9, 2005).10.6.1
              
              Form
                  of Amendment No. 1 to Registration Rights Agreement dated as of
                  July 18,
                  2005 (incorporated by reference herein to Exhibit 10.6.1 to Amendment
                  No.
                  1 to Registration Statement on Form SB-2 filed October 24,
                  2005).10.7
              
              Form
                  of Placement Agent Registration Rights Agreement dated as of May
                  3, 2005
                  (incorporated by reference herein to Exhibit 10.2 to Form 8-K filed
                  May 9, 2005).10.8
              
              Investor
                  Rights Agreement dated as of March 19, 2004 (incorporated by reference
                  herein to Exhibit 10.8 to Amendment No. 1 to Registration Statement
                  on
                  Form SB-2 filed October 24, 2005).14.1
              
              Code
                  of Ethics (incorporated by reference herein to Exhibit 14.1 to
                  Form 10-KSB
                  filed March 31, 2005).21.1
              
              Subsidiary
                  of the Registrant (incorporated by reference herein to Exhibit
                  21.1 to
                  Form 10-KSB filed March 31, 2005).31.1
              
              Certification
                  by Chief Executive Officer pursuant to Rule 13a-14(a) under the
                  Securities
                  Exchange Act of 1934.31.2
              
              Certification
                  by Chief Financial Officer pursuant to Rule 13a-14(a) under the
                  Securities
                  Exchange Act of 1934.32.1
              
              Certification
                  by Chief Executive Officer pursuant to 18 U.S. C. Section
                  1350.32.2
              
              Certification
                  by Chief Financial Officer pursuant to 18 U.S. C. Section
                  1350.




*
      Management contract or compensatory plan or arrangement required to be filed
      as
      an Exhibit to this form pursuant to Item 601 of Regulation S-K.




+  Confidential
      treatment has been granted with respect to portions of this document pursuant
      to
      Rule 24b-2 of the Securities Exchange Act. The redacted portions of this
      document were filed separately with the Securities and Exchange
      Commission.




52




++  Confidential
      treatment has been requested with respect to portions of this document pursuant
      to Rule 24b-2 of the Securities Exchange Act. The redacted portions of this
      document were filed separately with the Securities and Exchange
      Commission.




**ITEM
      14.    PRINCIPAL ACCOUNTANT FEES AND
      SERVICES** ****






**Audit
      Fees.**




The
      aggregate fees billed and unbilled for professional services rendered by the
      Company’s principal accountants for the audits and reviews of the Company’s
      financial statements including the financial statements contained in this Form
      10-KSB were approximately $70,000 for the year ended December 31, 2005, which
      includes reviews of the Form 10-QSB and $90,000 for the year ended December
      31,
      2004 which includes an audit for the nine month period ended September 30,
      2004.
      The aggregate fees billed by the Company’s principal accountants, for
      professional services rendered for the audit of FCP’s annual financial statement
      for the year ended September 30, 2004 was $19,500.




**Audit-Related
      Fees.**




For
      the year ended December 31, 2005, we were billed $38,572 for non-audit fees
      related to the Company’s registration statement. For the year ended December 31,
      2004 there were no audit-related fees billed by the Company’s principal
      accountants. The aggregate fees billed by the Company’s principal accountants
      for FCP audit related matters were $5,046 for the fiscal year ended September
      31, 2004.




**Tax
      and Other Fees.**




The
      Company was not billed by its principal accountant for tax compliance matters
      or
      other services for the year ended December 31, 2005. For the year ended December
      31, 2004, the Company was billed $18,091 for tax services and other fees.




**Policy
      on Audit Committee Pre-Approval of Audit, Audit-Related and Permissible
      Non-Audit Services of the Independent Registered Public
      Accountants**




Consistent
      with SEC policies and guidelines regarding audit independence, the Audit
      Committee is responsible for the pre-approval of all audit and permissible
      non-audit services provided by our principal accountants on a case-by-case
      basis. Our Audit Committee has established a policy regarding approval of all
      audit and permissible non-audit services provided by our principal accountants.
      Our Audit Committee pre-approves these services by category and service. Our
      Audit Committee has pre-approved all of the services provided by our principal
      accountants.




53




**SIGNATURES**





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




LEV
                PHARMACEUTICALS, INC.March
                31, 2006
            By:
            /s/
                Joshua D. ScheinJoshua
                D. ScheinChief
                Executive Officer





**POWER
      OF ATTORNEY**




KNOW
      ALL
      PERSONS BY THESE PRESENTS, that each person whose signature appears below
      constitutes and appoints Joshua D. Schein, Chief Executive Officer, and Judson
      Cooper, Chairman of the Board, Executive Vice President and Secretary, and
      each
      of them, his true and lawful attorney-in-fact and agent, with the full power
      of
      substitution and resubstitution, for him and in his name, place, and stead,
      in
      any and all capacities therewith, to sign any and all amendments to this report
      on Form 10-KSB, and to file the same, with all exhibits thereto, and other
      documents in connection therewith, with the Securities and Exchange Commission,
      granting unto each said attorney-in-fact and agent full power and authority
      to
      do and perform each and every act in person, hereby ratifying and confirming
      all
      that each said attorney-in-fact and agent, or either of them, or their or his
      substitute or substitutes, may lawfully do or cause to be done by virtue hereof.





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




NAME
              
              TITLE
              DATE/s/
                  Joshua D. Schein
              
              Chief
                    Executive Officer and
                  Director
                (Principal
                  Executive Officer)
              March
                  31, 2006Joshua
                  D. Schein/s/
                  Judson Cooper
              
              Chairman
                    of the Board, Executive
                Vice
                  President and Secretary
              March
                  31, 2006Judson
                  Cooper/s/
                    Douglas J. Beck
              
              Chief
                  Financial Officer
                (Principal
                    Financial and Accounting Officer)
              March
                  31, 2006Douglas
                  J. Beck/s/
                  Scott Eagle
              
              Director
              March
                  31, 2006Scott
                  Eagle/s/
                  Eric I. Richman
              
              Director
              March
                  31, 2006Eric
                  I. Richman/s/
                  Thomas Lanier
              
              Director
              March
                  31, 2006Thomas
                  Lanier









**CONSOLIDATED
      FINANCIAL STATEMENTS**




Contents
              Page




Report
                  of independent registered public accounting firm
              F-2Consolidated
                  Balance sheet as of December 31, 2005
              F-3Consolidated
                  Statements of operations for the period from July 21, 2003 (inception)
                  toDecember
                  31, 2005 and for the years ended December 31, 2005 and
                  2004
              F-4Consolidated
                  Statements of changes in stockholders' equity for the year ended
                  December
                  31, 2005and
                  the period from July 21, 2003 (inception) to December 31,
                  2005
              F-5Consolidated
                  Statements of cash flows for the period from July 21, 2003 (inception)
                  toDecember
                  31, 2005 and for the years ended December 31, 2005 and
                  2004
              F-6Notes
                  to financial statements
              F-7





F-1




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





Board
      of Directors and Stockholders


Lev
      Pharmaceuticals, Inc.





We
      have audited the accompanying consolidated balance sheet of Lev Pharmaceuticals,
      Inc. and subsidiary (the “Company”) (a development stage enterprise) as of
      December 31, 2005, the related consolidated statements of operations and cash
      flows for the periods from July 21, 2003 (inception) to December 31, 2005 and
      for each of the years ended December 31, 2005 and December 31, 2004 and the
      consolidated statements of changes in stockholders’ equity for each of the years
      ended December 31, 2005 and 2004 and for the period from July 21, 2003
      (inception) to December 31, 2003. These financial statements are the
      responsibility of the Company's management. Our responsibility is to express
      an
      opinion on these financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our opinion, the financial statements enumerated above present fairly, in all
      material respects, the consolidated financial position of Lev Pharmaceuticals,
      Inc. and subsidiary as of December 31, 2005, and the consolidated results of
      their operations and their consolidated cash flows for the periods from July
      21,
      2003 (inception) to December 31, 2005 and for each of the years ended December
      31, 2005 and December 31, 2004, in conformity with U.S. generally accepted
      accounting principles.





**Eisner
      LLP**





New
      York, New York


March
      10, 2006





F-2
 LEV
          PHARMACEUTICALS, INC. AND SUBSIDIARY
 (a
          development stage enterprise)




**Consolidated
      Balance Sheet**


**December
      31, 2005**





**ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            3,482,616Investments
                - held to maturity
            
            
            2,487,390Prepaid
                expenses
            
            
            276,829Other
                assets
            
            
            60,081Total
                current assets
            
            
            6,306,916Fixed
                assets, net of accumulated depreciation
            
            
            69,922Other
            
            
            16,817$
            6,393,655**LIABILITIES**Current
                liabilities:Accounts
                payable
            
            $
            657,230Accrued
                expenses
            
            
            352,036Deferred
                rent
            
            
            2,519Total
                current liabilities
            
            
            1,011,785Loan
                payable net of discount
            
            
            316,077Total
                liabilities
            
            
            1,327,862Commitments
                and contingencies**STOCKHOLDERS'
                EQUITY**Preferred
                stock - $0.01 par value, 20,000,000 authorized,no
                shares issued and outstandingCommon
                stock - $0.01 par value, 200,000,000 shares authorized,81,527,544
                shares issued and outstanding at December 31, 2005
            
            
            815,275Additional
                paid-in capital
            
            
            15,671,368Deficit
                accumulated during the development stage
            
            
            (11,420,850
            )Total
                stockholders' equity
            
            
            5,065,793$
            6,393,655




See
          notes to consolidated financial statements
 F-3


LEV
      PHARMACEUTICALS, INC. AND
      SUBSIDIARY


(a
      development stage enterprise)




**Consolidated
      Statements of Operations**


Period
                    FromJuly
                    21, 2003
                
                Year(Inception)
                    to
                
                EndedDecember
                    31,
                
                December
                    31,2005
                
                2005
                
                2004Costs
                    and expenses:Research
                    and development
                
                $
                3,502,767
                
                $
                2,368,834
                
                $
                1,126,933Merger
                      cost payments to certain Fun City Popcorn, Inc.shareholders
                
                
                283,732
                
                
                -
                
                
                283,732General
                    and administrative7,485,637
                
                
                4,110,005
                
                
                3,262,461Loss
                    before other income (expense)
                
                
                (11,272,136
                )
                
                (6,478,839
                )
                
                (4,673,126
                )Other
                    income (expense):Interest
                    income
                
                
                232,807
                
                
                181,895
                
                
                50,912Interest
                    expense
                
                
                (11,466)
                
                
                (11,412)Net
                    loss
                
                $
                ($11,050,795
                )
                $
                ($6,308,356
                )
                $
                ($4,622,214
                )Net
                    loss per share - basic and diluted
                
                
                
                
                
                ($0.08
                )
                
                ($0.07
                )Weighted
                    average shares - basic and diluted
                
                
                
                
                
                79,624,173
                
                
                62,384,476




See
          notes to consolidated financial statements
 F-4


LEV
        PHARMACEUTICALS, INC. AND
        SUBSIDIARY
 (a
        development stage enterprise)


**Consolidated
      Statements of Changes in Stockholders' Equity (Notes A, G and
      I)**


**Year
      Ended December 31, 2005 and 2004 and the Period From July 21, 2003 (Inception)
      to December 31, 2003**




**Deficit****Accumulated****Additional**
            
            
            
            **During
                the****Preferred
                Stock**
            
            **Common
                Stock**
            
            **Paid-in**
            
            **Subscription**
            
            **Development****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Capital**
            
            **Receivable**
            
            **Stage**
            
            **Total**Issuance
                  of founders’ shares ($0.01 pershare)
                  issued July 22, 2003
            
            
            
            
            
            
            
            
            37,018,531
            
            $
            370,185
            
            
            
            
            $
            (130
            )
            $
            (370,055
            )
            $
            0Sale
                of shares in December 2003 at $0.26 per share
            
            
            
            
            
            
            
            
            1,141,960
            
            
            11,420
            
            $
            288,580
            
            
            
            
            
            
            
            
            300,000Proceeds
                from subscription receivable in December 2003
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            130
            
            
            
            
            
            130Net
                  loss for the period from July 21, 2003 (inception) toDecember
                  31, 2003
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (120,225
            )
            
            (120,225
            )Balance
                - December 31, 2003
            
            
            
            
            
            
            
            
            38,160,491
            
            
            381,605
            
            
            288,580
            
            
            0
            
            
            (490,280
            )
            
            179,905Sale
                of common stock in February 2004 at $0.26 per share
            
            
            
            
            
            
            
            
            3,425,879
            
            
            34,259
            
            
            865,741
            
            
            
            
            
            
            
            
            900,000Sale
                  of common stock in February and March 2004 at $0.30per
                  share, net of issuance costs of $51,465
            
            
            
            
            
            
            
            
            23,913,848
            
            
            239,138
            
            
            6,829,357
            
            
            
            
            
            
            
            
            7,068,495Issuance
                of warrants to purchase 7,327,576 shares of commonstock
                to consultants at fair value, in March 2004
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,985,562
            
            
            
            
            
            
            
            
            1,985,562Issuance
                  of warrants to purchase 111,341 shares of common stock to consultant
                  at
                  fair value, in August 2004
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            19,968
            
            
            
            
            
            
            
            
            19,968Cashless
                exercise of warrants in August 2004
            
            
            
            
            
            
            
            
            6,297,571
            
            
            62,976
            
            
            (62,976
            )
            
            
            
            
            
            
            
            0Shares
                    deemed issued in connection with Fun City Popcorn, Inc. merger
                    on December
                    29, 2004
            
            
            
            
            
            
            
            
            4,505,530
            
            
            45,055
            
            
            (109,518
            )
            
            
            
            
            
            
            
            (64,463
            )Issuance
                of Series A preferred stock and automatic conversion into common
                shares in
                connection with the merger of Fun City Popcorn, Inc. on December
                29, 2004
                (Note A)Modification
                  of options and warrants in connection with merger treated as compensation
                  expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            75,201
            
            
            
            
            
            
            
            
            75,201Net
                loss for the year ended December 31, 2004
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,622,214
            )
            
            (4,622,214
            )Balance
                - December 31, 2004
            
            
            
            
            
            
            
            
            76,303,319
            
            
            763,033
            
            
            9,891,915
            
            
            0
            
            
            (5,112,494
            )
            
            5,542,454Issuance
                of common stock and warrants in May 2005, at $1.00per
                share, net of issuance cost of $679,677
            
            
            
            
            
            
            
            
            5,044,774
            
            
            50,448
            
            
            4,314,649
            
            
            
            
            
            
            
            
            4,365,097Repricing
                of warrant (Note I) in May 2005
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            27,819
            
            
            
            
            
            
            
            
            27,819Cashless
                exercise of warrant in September 2005
            
            
            
            
            
            
            
            
            179,451
            
            
            1,794
            
            
            (
                1,794
            )
            
            
            
            
            
            
            
            0Issuance
                of warrants for services to purchase 50,000 shares of common stock
                at fair
                value in October 2005
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            11,329
            
            
            
            
            
            
            
            
            11,329Repricing
                of vested options to executive officers in December 2005
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,427,450
            
            
            
            
            
            
            
            
            1,427,450Net
                loss for the year ended December 31, 2005
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (6,308,356
            )
            
            (6,308,356
            )Balance
                - December 31, 2005
            
            
            
            
            
            
            
            
            81,527,544
            
            $
            815,275
            
            $
            15,671,368
            
            $
            0
            
            $
            (11,420,850
            )
            $
            5,065,793





See
          notes to consolidated financial statements
 F-5


LEV
        PHARMACEUTICALS, INC. AND
        SUBSIDIARY
 (a
        development stage enterprise)


**Consolidated
      Statements of Cash Flows**




CumulativePeriod
                  FromJuly
                  21, 2003
              
              Year(Inception)
                  to
              
              EndedDecember
                  31,
              
              December
                  31,2005
              
              2005
              
              2004**Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (11,050,795
              )
              $
              (6,308,356
              )
              $
              (4,622,214
              )Adjustments
                  to reconcile net loss to net cash usedin
                  operating activities:Repricing
                  of options and warrants
              
              
              1,455,269
              
              
              1,455,269Compensation
                  to consultants from issuance of warrants
              
              
              2,016,355
              
              
              10,825
              
              
              2,005,530Option
                  and warrants modification resulting from merger
              
              
              75,201
              
              
              
              
              
              75,201Depreciation
                  expense
              
              
              10,760
              
              
              10,474
              
              
              286Supplier
                  purchase funding
              
              
              316,077
              
              
              316,077Changes
                  in:Prepaid
                  expenses and other assets
              
              
              (353,223
              )
              
              (31,028
              )
              
              (322,065
              )Accounts
                  payable
              
              
              657,230
              
              
              657,230Accrued
                  expenses
              
              
              352,036
              
              
              108,411
              
              
              140,991Income
                  tax liability
              
              
              (64,463
              )
              
              (82,916
              )
              
              18,453Deferred lease liability
              
              
              2,519
              
              
              (2,338
              )
              
              4,857Net
                  cash used in operating activities
              
              
              (6,583,034
              )
              
              (3,866,352
              )
              
              (2,698,961
              )**Cash
                  flows from investing activities:**Purchase
                  of fixed assets
              
              
              (80,682
              )
              
              (73,246
              )
              
              (7,436
              )Purchase
                    of investments
              
              
              (2,487,390
              )
              
              (2,487,390
              )Net
                  cash used in investment activities
              
              
              (2,568,072
              )
              
              (2,560,636
              )
              
              (7,436
              )**Cash
                  flows from financing activities:**Proceeds
                  from notes payable to stockholder
              
              
              18,000Repayment
                  of notes payable to stockholder
              
              
              (18,000
              )
              
              
              
              
              (18,000
              )Net
                  proceeds from sale of common stock and warrants
              
              
              12,633,592
              
              
              4,365,097
              
              
              7,968,495Proceeds
                  from stock subscription receivable
              
              
              130Net
                  cash provided by financing activities
              
              
              12,633,722
              
              
              4,365,097
              
              
              7,950,495**Net
                  increase (decrease) in cash and cash equivalents**
              
              
              3,482,616
              
              
              (2,061,891
              )
              
              5,244,098Cash
                  and cash equivalents - beginning of period
              
              
              
              
              
              5,544,507
              
              
              300,409**Cash
                  and cash equivalents - end of period**
              
              $
              3,482,616
              
              $
              3,482,616
              
              $
              5,544,507**Supplemental
                  non-cash investing and financing activities:**


Issuance
      of 6,297,571 shares of common stock in connection with the cashless exercise
      of
      a warrant to purchase 7,137, 249 shares of common stock in August
      2004 (Note G.)


Issuance
      of 179,451 shares of common stock in connection with the cashless exercise
      of a
      warrant to purchase 190,327 shares in September 2005 (Note G.)


During
      the
      year ended 2005, Sanquin (our supplier) loaned the Company $316,077 for
      purchases of C1-INH (Note F.)


Debt
      discount of $268,040 was recorded in connection with our loan to Sanquin for
      the
      year ended December 31, 2005 (Note F.)


See
        notes
        to consolidated financial statements
  F-6
 **LEV PHARMACEUTICALS, INC. AND
        SUBSIDIARY**


(a
        development stage enterprise)
  **Notes
        to Consolidated Financial Statements**
 **December
        31, 2005**


**Note
      A - Organization and Business**





Fun
      City Popcorn, Inc. (“FCP”), a non-operating public company, was incorporated on
      September 18, 1985 in the State of Nevada.





On
      November 5, 2004, FCP entered into an agreement and plan of merger (the
“Agreement”) with Lev Development Corp., formerly known as Lev Pharmaceuticals,
      Inc. (“Lev”), which was incorporated on July 21, 2003 in the State of Delaware.
      Lev is a development stage company which is engaged in developing and
      commercializing therapeutic products for the treatment of inflammatory diseases.
      On December 29, 2004, the merger closed and pursuant to the Agreement, FCP
      acquired 100% of the outstanding capital stock of Lev through its subsidiary
      Lev
      Acquisition Corp. (“LAC”). In connection with the merger, FCP subsequently
      changed its name to Lev Pharmaceuticals, Inc. and increased its authorized
      common stock to 200,000,000 shares and its authorized preferred stock to
      20,000,000 shares. Under the terms of the Agreement, the stockholders of Lev
      exchanged all of their issued and outstanding shares of common stock for
      5,029,795 shares of FCP common stock, and 4,789,433 shares of FCP Series A
      voting convertible preferred stock (the “Exchange”). Each Series A voting
      convertible preferred share was converted automatically into 13.940668 shares
      of
      FCP common stock (an aggregate of 66,767,994 common shares). The 71,797,789
      shares of common stock represented approximately 94.10% of the ownership
      interests in FCP following the merger. The outstanding shares of FCP were deemed
      issued for 4,505,530 shares of LEV. In addition, all of the outstanding Lev
      options and warrants immediately prior to the merger were exchanged for
      2,854,900 FCP options and 301,668 FCP warrants. The Exchange, which resulted
      in
      the stockholders of Lev having control of FCP, represents a recapitalization
      of
      FCP, or a “reverse merger” rather than a business combination. In connection
      therewith, FCP's historical capital accounts were retroactively adjusted to
      reflect the equivalent number of shares issued by FCP in the Exchange while
      Lev's historical accumulated deficit was carried forward. The statement of
      operations reflects the activities of Lev from the commencement of its
      operations on July 21, 2003. In connection with the Agreement, Lev agreed to
      acquire FCP for $350,000. In December 2004, Lev paid certain FCP stockholders
      $283,731 which represents the acquisition price of $350,000 less the assumption
      of a tax liability of $66,269. In connection with the Exchange, the exercise
      price of the outstanding warrants and options remained the same. The Company
      recorded a charge of approximately $75,000 for the change in value of the
      Company's outstanding options and warrants as of December 29, 2004 as a result
      of the increase in the number of common shares into which these equity
      instruments are exercisable based on the exchange ratio used in the merger,
      since the aggregate intrinsic value of the warrants and options after the
      Exchange is greater than before. The Black-Scholes option-pricing model was
      used
      to calculate the value of certain options and warrants and the related charge
      based upon the following weighted average assumptions to determine fair value:
      risk-free interest rate of 3.58%; expected life of 5 years; dividend yield
      of
      0%; and expected volatility of 70%.





As
      a development stage enterprise, the Company's primary efforts are devoted to
      conducting research and development for the treatment of inflamatory
      diseases and raising capital. The Company has limited capital resources and
      has experienced net losses and negative cash flows from operations since
      inception and expects these conditions to continue for the foreseeable future.
      As of December 31, 2005, the Company had approximately $6 million in cash,
      cash
      equivalents and investments. Management believes that cash, cash equivalents
      and
      investments on hand as of December 31, 2005 will be sufficient to fund
      operations through December 31, 2006. In May 2005, the
      Company raised net proceeds of approximately $4,365,000 in a private placement,
      see Note G. However, the Company will be required to raise additional funds
      to
      meet long-term planned goals. There can be no assurance that such funds, if
      available at all, can be obtained on terms reasonable to the
      Company.




F-7


(a
      development stage enterprise)




**Notes
      to Consolidated Financial Statements**


**December
      31, 2005**





In
      addition to the normal risks associated with a new business venture, there
      can
      be no assurance that the Company's research and development will be successfully
      completed or that any product will be approved or commercially viable. The
      Company is subject to risks common to companies in the biotechnology industry
      including, but not limited to, dependence on collaborative arrangements,
      development by the Company or its competitors of new technological innovations,
      dependence on key personnel, protection of proprietary technology, and
      compliance with FDA and other governmental regulations and approval
      requirements.




**Note
      B - Summary of Significant Accounting Policies**





**[1]** **Basis
        of presentation:**





The
      consolidated financial statements include the accounts of Lev Pharmaceuticals,
      Inc. and its wholly-owned subsidiary, Lev Development Corp. All significant
      intercompany transactions and balances have been eliminated in consolidation.
      There has been no revenue generated from sales, license fees or royalties.
      The
      Company's financial statements are presented as statements of a development
      stage enterprise.





**[2]** **Cash
        and cash equivalents:**





The
      Company considers all highly liquid investments which have maturities of three
      months or less, when acquired, to be cash equivalents. The carrying amount
      reported in the balance sheet for cash and cash equivalents approximates its
      fair value.





**[3]** **Patents:**




The
      Company has applied or is applying for a number of patents to protect
      proprietary inventions. **** All
      costs associated with patents are expensed as incurred.





**[4]** **Research
        and development costs:**





The
      Company expenses all research and development costs as incurred including
      equipment for which there is no alternative future use. Such expenses include
      licensing fees and costs associated with planning and conducting clinical
      trials.




F-8


LEV
        PHARMACEUTICALS, INC. AND
        SUBSIDIARY
 (a
        development stage enterprise)
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2005**


**Note
      B - Summary of Significant Accounting Policies (continued)**





**[5]** **Investments:**





Securities
      that the Company has the positive intent and ability to hold to maturity are
      classified as held-to-maturity and are carried at amortized cost on the balance
      sheet.





**[6]** **Concentration
        of credit risk:**





Financial
      instruments which potentially subject the Company to concentrations of credit
      risk consist of cash and cash equivalents. As of December 31, 2005, the Company
      had approximately $2,590,000 over the FDIC limit.





**[7]** **Fixed
        Assets:**





Fixed
      assets are stated at cost less accumulated depreciation. Depreciation is
      calculated using the straight-line method over the asset's estimated useful
      life, which is five years.





**[8]** **Income
        taxes:**





The
      Company accounts for income taxes in accordance with the provisions of Statement
      of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS
      No. 109”). SFAS No. 109 requires that the Company recognize deferred tax
      liabilities and assets for the expected future tax consequences of events that
      have been included in the financial statements or tax returns. Under this
      method, deferred tax liabilities and assets are determined on the basis of
      the
      difference between the tax basis of assets and liabilities and their respective
      financial reporting amounts (“temporary differences”) at enacted tax rates in effect
      for the years in which the temporary differences are expected to reverse. The
      Company records an estimated valuation allowance on its deferred income tax
      assets if it is not more than likely that these deferred income tax assets
      will
      be realized.





**[9]** **Use
        of estimates:**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosures of contingent assets and liabilities at the date of the financial
      statements, and the reported amounts of revenues and expenses during the
      reporting period. Actual results could differ from those estimates.




F-9


LEV
        PHARMACEUTICALS, INC. AND
        SUBSIDIARY
 (a
        development stage enterprise)


**Notes
        to Consolidated Financial Statements**
 **December
        31, 2005**
  **Note
          B - Summary of Significant Accounting Policies
          (continued)**


**[10]** **Equity
        issuance costs:**





Costs
      incurred to issue the Company's common stock may be temporarily recorded as
      deferred offering costs. Upon issuance of the securities, those costs are
      reclassified as a reduction of the offering proceeds. In the event that an
      offering is not completed within a reasonable time, those costs would be
      expensed in the period the offering is determined to be
      unsuccessful.





**[11]** **Stock-based
        compensation:**





The
      Company accounts for stock-based compensation to employees in accordance with
      APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No.
      25”) and related interpretations. Under APB No. 25, generally, no compensation
      expense is recognized in the financial statements in connection with the
      awarding of stock option grants to employees provided that, as of the grant
      date, all terms associated with the award are fixed and the fair value of the
      Company's stock is equal to or less than the amount an employee must pay to
      acquire the stock. The Company will recognize compensation expense in situations
      where the terms of an option grant are not fixed or where the fair value of
      the
      Company's common stock on the grant date is greater than the amount an employee
      must pay to acquire the stock. The
      Company has a stock-based incentive plan, which is described in Note I. Had
      the
      Company accounted for its employee stock options under the fair value method
      of
      SFAS No. 123, “Accounting for Stock Based Accounting Compensation (“SFAS No.
      123”)” the Company’s net loss would have changed as follows:




Year
                Ended December 31,2005
            
            2004Net
                loss
            
            $
            (6,308,356
            )
            $
            (4,622,214
            )Total
                stock based employee compensation expense determinedunder
                fair value based method for all awards
            
            
            (470,051
            )
            
            (1,470,279
            )Stock
                based employee compensation related to re-pricing included in net
                loss as
                recorded
            
            
            1,427,450
            
            
            0Pro
                forma net loss
            
            $
            (5,350,957
            )
            $
            (6,092,493
            )Net
                loss per common share (basic and diluted):As
                reported
            
            $
            (0.08
            )
            $
            (0.07
            )Pro
                forma
            
            $
            (0.07
            )
            $
            (0.10
            )




The
      weighted average fair value at the date of grant for options granted during
      the
      year ended December 31, 2005 and December 31, 2004 was $0.73 and $0.50,
      respectively, and was estimated using the Black-Scholes option pricing model
      with the following weighted-average assumptions:




F-10


LEV
        PHARMACEUTICALS, INC. AND
        SUBSIDIARY
 (a
        development stage enterprise)
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2005**


**Note
      B - Summary of Significant Accounting Policies (continued)**




Year
                Ended December 31,2005
            2004Expected
                life in years
            5
            5Interest
                rate
            3.58
                - 4.39
            3.36
                - 3.58Volatility
            70%
            70%Dividend
                yield
            0%
            0%





The
      fair value of warrants issued to non-employees for services are included in
      the
      financial statements and expensed when services are performed. Warrants issued
      in connection with services or financings were valued at the grant date using
      the Black-Scholes option-pricing model.





**[12]** **Future
        impact of recently issued accounting standards:**





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      SFAS No. 123 (R), “Share Based Payment,” which is a revision of SFAS
      No. 123. SFAS No. 123(R) supersedes APB No.25 and amends SFAS
      No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS
      No. 123(R) is similar to the approach described in SFAS No. 123.
      However, SFAS No. 123(R) requires all share-based payments to employees,
      including grants of employee stock options, to be recognized in the Consolidated
      Statements of Operations based on their estimated fair values. The Company
      adopted SFAS No. 123(R) on January 1, 2006, using modified prospective
      application described in the statement. Under modified prospective application,
      the Company will apply the standard to new awards granted or modified effective
      January 1, 2006. Also, the Company will recognize compensation expense for
      the unvested portion of awards outstanding as of December 31, 2005 over the
      remaining service periods. As of January 1, 2006, the Company had $259,523
      of unearned compensation cost related to unvested stock option awards. This
      compensation cost will be recognized over the remaining vesting period, which
      is
      estimated to be $138,282 during 2006 and $121,241during 2007. These amounts
      do
      not include the impact of any new awards.





SFAS
      No. 123(R) also requires the tax benefits in excess of recognized
      compensation expenses to be reported as a financing cash flow, rather than
      as an
      operating cash flow as required under current literature. This requirement
      may
      serve to reduce future cash provided by operating activities and increase future
      cash provided by financing activities, to the extent of associated tax benefits
      that may be realized in the future; however, it will not have an impact on
      the
      Company’s overall cash flows.





**[13]** **Net
        loss per share:**





The
      Company prepares its per share data in accordance with Statement of Financial
      Accounting Standards No. 128, “Earnings Per Share” (“SFAS No. 128”). Basic net
      loss per share is computed on the basis of net loss for the period divided
      by
      the weighted average number of shares of common stock outstanding during the
      period. Potentially dilutive common shares of 6,994,672 and 3,831,568 as of
      December 31, 2005 and December 31,




F-11


LEV
        PHARMACEUTICALS, INC. AND
        SUBSIDIARY
 (a
        development stage enterprise)




**Notes
        to Consolidated Financial Statements**
 **December
        31, 2005**


**Note
      B - Summary of Significant Accounting Policies (continued)**





2004,
      respectively, related to stock options and warrants, were excluded from the
      diluted loss per share calculation because their effect would have been
      anti-dilutive.





**NOTE
      C - INVESTMENTS**





Investments
      with original maturities of 91 days to one year are considered short term
      investments and are carried at cost. Investments consist of $1,500,000
      certificate of deposits and $987,390 United States Treasury Bills. There were
      no
      gains or losses for the year ended December 31, 2005.





**Note
      D - Fixed Assets**





Fixed
      assets as of December 31, 2005 consist of the following:




Officer
                    equipment
                
                $
                69,037Lab
                      equipment
                
                
                11,64580,682Accumulated
                      depreciation
                
                
                (10,760
                )$
                69,992




Depreciation
      expense for the year ended December 31, 2005 was $10,474.





**Note
      E - Accrued Expenses**





Accrued
      expenses as of December 31, 2005 consist of the following:


Research
                    and development - sponsored research
                
                $
                125,000Research
                    and development - other
                
                
                70,526Research
                    and development - clinical research organization
                
                
                28,936Research
                    and development - payroll
                
                
                16,655Professional
                    fees
                
                
                64,311Payroll
                    - general and administrative
                
                
                20,466Other
                
                
                26,142Total
                
                $
                352,036


**NOTE
      F - LOAN PAYABLE**





The
      company purchases its C1-INH product from the Sanquin Blood Supply Foundation
      (“Sanquin”). Under our agreement with Sanquin, Sanquin provides a loan to the
      Company for the value of C1-INH purchased. The loan is subject to a purchase
      money security interest. **** Upon
      regulatory approval, Sanquin will forgive the loan and release any and all
      security interests. If
      regulatory approval is not obtained, then the loan must be repaid on the earlier
      of January 16, 2014 or the termination of the agreement. The principal loan balance outstanding as of December 31, 2005 is $316,077,
      net
      of discount of $268,040. This discount relates to interest imputed on the
      original loan balance as it is non-interest bearing and was recorded as a
      reduction to product costs included in research and development. The loan is
      payable in Euros and any currency differences are recorded in our Consolidated
      Statement of Operations. The
      Company has recorded interest
      expense using the effective interest rate method. Interest rates range from
      4.31% to 4.82%.




F-12


LEV
        PHARMACEUTICALS, INC. AND
        SUBSIDIARY
 (a
        development stage enterprise)




**Notes
        to Consolidated Financial Statements**
 **December
        31, 2005**




**NOTE
        F - LOAN PAYABLE (continued):**




The
      amount
      included in research and development expense for the year ended December 31,
      2005 was $306,858.




**Note
      G - Stockholders' Equity**





**[1]** **Common
        stock:**





Lev
      issued 37,018,531 shares of common stock at $0.01 par value to its founders
      (the
“Founders' Shares”) effective July 22, 2003 and recorded subscriptions
      receivable of $130. The Company increased its accumulated deficit by $370,055
      in
      connection with the par value differential of the shares relating to
      FCP.





In
      December 2003, Lev received proceeds of $300,000 through the sale of
      1,141,960 shares of common stock to a single investor at $0.26 per share and
      received the payment of the $130 subscription receivable.





Between
      February and March 2004, Lev received proceeds of approximately
      $7,968,000, net of issuance costs of approximately $51,000, from the sale of
      3,425,879 shares of common stock at $0.26 per share and of 23,913,848 shares
      of
      common stock at $0.30 per share.





In
      February 2005, we increased our authorized common stock to 200,000,000 shares
      and our authorized preferred stock to 20,000,000 shares.





In
      May
      2005, we completed a private placement of units and raised gross proceeds of
      $5,044,774 from the sale of 100.9 units. Each unit was sold at a price of
      $50,000 and consisted of 50,000 shares of common stock and a five-year warrant
      to purchase 25,000 shares of common stock at an exercise price of $1.35 per
      share. Our net proceeds were $4,365,097 after payment of fees and expenses,
      including the estimated costs of registering the shares of common stock for
      resale. We paid $454,030 to the placement agent and issued warrants to the
      placement agent to purchase 681,044 shares of common stock. These warrants
      are
      exercisable at $1.35 per share and expire in May 2010. We issued an aggregate
      of
      5,044,774 shares of common stock and warrants to purchase 2,522,387 shares
      of
      common stock to investors in this private placement, not including the warrants
      issued to the placement agent.


The
        Company entered into a registration rights agreement in connection with a
        private placement that requires the Company to file a registration statement
        for
        the resale of shares of common stock and common stock issuable upon the exercise
        of warrants. The Company was required to use commercially reasonable efforts
        to
        have the registration statement declared effective by October 24, 2005. The
        Securities and Exchange Commission declared the registration statement effective
        on October 24, 2005. In addition, the Company is required to use its
        commercially reasonable efforts to maintain the effectiveness of the
        registration statement until the earlier date when all registrable securities
        (a) have been sold pursuant to the registration statement or an exemption
        from
        the registration requirements of the Securities Act, or (b) two years from
        the
        date of the effectiveness of the registration statement. If the Company fails
        to
        maintain the effectiveness of the registration statement pursuant to the
        registration rights agreement then the Company is required to make a cash
        payment of liquidated damages to the investors of 1% of the amount paid by
        the
        investors for each 30 day period, until such deficiency is cured.
 The
          Company has accounted for the registration rights agreement as a separate
          freestanding instrument and treated the liquidated damages provision as
          a
          derivative liability subject to SFAS 133. Accordingly, the liability is
          recordable at its estimated fair value. The amount of the liability determined
          by the Company was immaterial.


**[2]** **Warrants:**





In
        February, 2004, the Company entered into an engagement agreement (the
“Engagement Agreement”) with a placement agent (the “Placement Agent”), under
        which the Placement Agent was engaged to raise funds and assist the Company
        in
        an initial public offering. The Engagement Agreement also provided for the
        sale
        to the Placement Agent of a contingent warrant for $100,000 to purchase up
        to
        35,686,243 shares of common stock. The Placement Agent raised approximately
        $550,000 for the Company in February 2004. In June, 2004, the Company entered
        into an amended and restated engagement agreement (the “Amended Engagement
        Agreement”) which replaced the Engagement Agreement. In connection with the
        Amended Engagement Agreement, the warrant to purchase 35,686,243 shares of
        common stock was cancelled and terminated, and the Placement Agent would
        receive
        a defined number of warrants, exercisable at $0.85 per share to purchase
        up to a
        maximum of 7,137,249 shares of the Company's common stock based on the amount
        of
        funds raised from investors introduced by the Placement Agent. In addition,
        the
        Placement Agent would receive a defined amount of cash compensation. The
        Company
        was responsible for all expenses in connection with the private placement.
        No
        funds were raised under the Amended Engagement Agreement, which expired on
        September 1, 2004 and no warrants were issued there
        under.


F-13
  LEV
        PHARMACEUTICALS, INC. AND
        SUBSIDIARY
 (a
        development stage enterprise)


**Notes
      to Consolidated Financial Statements**


**December
      31, 2005**




**Note
      G - Stockholders' Equity**




**[2] Warrants
      (continued):**




In
      March
      2004, the Company granted fully vested warrants to two consultants, who had
      assisted the Company with developing its strategic business plan, obtaining
      its
      license for the C1-INH product and consulting on its corporate structure. The
      warrants are for the purchase of 7,327,576 shares of common stock at an exercise
      price of $0.10 per share, expiring in March 2014. The aggregate fair value
      of
      the warrants
      using the Black-Scholes option-pricing model, totaled approximately $1,986,000.
      The weighted-average assumptions used to determine the fair values of the
      warrants are as follows: risk-free interest rate of
      2.64%; expected warrant life of 5 years; dividend yield of 0% and expected
      volatility of 70%. On August 23, 2004, one of the consultants exercised
      warrants covering 7,137,249 shares of common stock in a net share
      settlement. The warrant exercise price of $250,000 was satisfied by reducing the number
      of
      shares exercised. The Company issued 6,297,571 shares of common stock. On
      September 12, 2005, one of the consultants exercised on a cashless basis
      warrants to purchase 190,327 shares of common stock and the Company issued
      179,451 shares of stock. See Note I - Stock Options. The warrant exercise price
      was satisfied by reducing the number of shares exercised.





In
      August 2004, the Company granted to a consultant, who had assisted the Company
      with its development programs and clinical trial design, warrants to purchase
      111,341 shares of common stock at an exercise price of $0.85 per share, expiring
      in August 2014. The aggregate fair value of the warrants on their issuance
      date,
      using the Black-Scholes
      option-pricing mode l,
      was approximately $20,000. The weighted-average assumptions used to determine
      the fair values of the warrants are as follows: risk-free interest rate of
      3.38%; expected warrant life of 5 years; dividend yield of 0% and expected
      volatility of 70%.





In
      October 2005, the Company entered an agreement for public and investor relation
      services. The consultant was compensated partly in cash and partly through
      the
      issuance of a warrant to purchase 50,000 shares of common stock at a $1.10
      per
      share that vested immediately and expires in three years. The
      fair value of the warrant, using the Black-Scholes option pricing model was
      $11,329. The weighted-average assumptions used to determine the fair value
      of
      the warrants are as follows: risk-free interest rate of 4.23%; warrant life
      of 3




F-14
 LEV
          PHARMACEUTICALS, INC. AND
          SUBSIDIARY
 (a
          development stage enterprise)
  **Notes
          to Consolidated Financial Statements**
 **December
          31, 2005**


**Note
      G - Stockholders' Equity**




**[2] Warrants
      (continued):**





years;
      dividend yield of 0% and expected volatility of 70%. In connection with the
      services, $10,825 was charged to operations and the contract expires on January
      5, 2006.




The
      weighted average fair value at the date of grant for warrants granted
      during the years ended December 31, 2005 and December 31, 2004 was $0.26 and
      $0.77, respectively, using the Black-Scholes pricing option
      model.





Warrant
      activity is summarized as follows:





**Weighted-****Average****Exercise****Shares**
            
            **Price**Outstanding
                as of December 31, 2003:Granted
            
            
            43,125,160
            
            $
            0.72Exercised
                (1)
            
            
            (7,137,249
            )
            $
            0.10Cancelled
            
            
            (35,686,243
            )
            $
            0.85Warrants
                outstanding and exercisableas
                of December 31, 2004
            
            
            301,668
            
            $
            0.38


Granted
                (2)
            
            
            3,555,099
            
            $
            1.24Exercised
                (3)
            
            
            (190,327
            )
            $
            0.04Cancelled
                (2)
            
            
            (301,668
            )
            $
            0.38Warrants
                outstanding and exercisableas
                of December 31, 2005
            
            
            3,364,772
            
            $
            1.31




(1)
            Exercised
                on a cashless basis for a net share issuance of 6,297,571 shares
                in
                August, 2004.


(2)
            Includes
                repriced warrants of 301,668, see Note
                I.


(3)
            Exercised
                on a cashless basis for a net share issuance of 179,451 shares in
                September, 2005.




F-15




LEV
      PHARMACEUTICALS, INC. AND
      SUBSIDIARY


(a
      development stage enterprise)




**Notes
        to Consolidated Financial Statements**
 **December
        31, 2005**


**Note
      G - Stockholders' Equity**




**[2] Warrants
      (continued):**




The
        following table summarizes information about warrants outstanding at December
        31, 2005:




**Weighted****Average****Number**
              
              **Remaining****Outstanding**
              
              **Contractual****Exercise**
              
              **And**
              
              **Life****Price**
              
              **Exercisable**
              
              **(In
                  Years)**$
              0.30
              
              
              111,341
              
              
              8.6$
              1.10
              
              
              50,000
              
              
              2.8$
              1.35
              
              
              3,203,431
              
              
              4.43,364,772





**Note
      H - Commitments and Contingencies**





**[1]** **Sanquin
        Blood Supply Foundation:**





Sanquin
      is
      an Amsterdam-based not-for- profit organization that provides blood and plasma
      products and related services, and carries out research and education in the
      Netherlands. **** The
      Company has a series of agreements (the “Sanquin Agreements”) with Sanquin,
      including an option agreement, a distribution and manufacturing services
      agreement and a license agreement. The Sanquin Agreements are intended to allow
      the Company to conduct clinical trials of the C1-INH (the “Product”)
      manufactured and supplied by Sanquin, and to sell the Product following
      regulatory approval.





(a)
            Option
                agreement:





In
      September, 2003, the Company and Sanquin entered into an option agreement (the
      “Option Agreement”) under which Sanquin granted to the Company an option for an
      exclusive, world-wide license to certain Sanquin technology and underlying
      patents. The Company paid Sanquin a non-refundable fee of $25,000 in exchange
      for the rights to this option. In January, 2004, the Company exercised its
      option under the Option Agreement (see License Agreement below).





(b)
            Distribution
                and manufacturing services
                agreement:





In
      January, 2004, the Company and Sanquin entered into a distribution and
      manufacturing services agreement (the “Distribution Agreement”) under which
      Sanquin agreed to manufacture and supply agreed-upon quantities of the Product
      to the Company, as soon as Sanquin obtained an export license during 2005,
      for
      an agreed-upon minimum price, which is subject to change. In connection with
      quantities supplied for the clinical trial prior to regulatory approval, Sanquin
      has provided a loan to the Company in the amount of the Product purchased,
      which
      is subject to a purchase money interest in the Product. The Company expects
      to
      purchase approximately $3,600,000 of Product for use in the clinical trial
      and
      such future purchases will be added to our loan account. Upon regulatory
      approval, Sanquin will forgive the loan and release any and all security
      interests. If regulatory approval is not obtained, the loan is payable on
      January 16, 2014. Title to the Product transfers to the Company upon delivery.
      The




F-16


LEV
        PHARMACEUTICALS, INC. AND
        SUBSIDIARY
 (a
        development stage enterprise)




**Notes
        to Consolidated Financial Statements**
 **December
        31, 2005**


**Note
      H - Commitments and Contingencies**




**[1]** **Sanquin
      Blood Supply Foundation: (continued)**





The
      Product is being used to conduct Phase III clinical trials. Sanquin also granted
      to the Company the exclusive right to distribute, market and sell the Product
      in
      the U.S. and certain other countries, upon receiving regulatory approval to
      do
      so in each respective country.





The
      Distribution Agreement terminates on December 31, 2007, unless extended by
      the Company for up to two three-year periods or by mutual agreement of the
      parties prior to its expiration. In addition, either party may terminate the
      Distribution Agreement upon breach, as defined, by the other party that is
      not
      cured within 30 days of written notice. Commencing with the commercial launch
      of
      the product and thereafter, the Company must purchase from Sanquin a minimum
      of
      approximately $6,900,000 of the Product per calendar year.




(c)
            License
                agreement:





In
      January, 2004, the Company obtained an exclusive world-wide license agreement
      (the “License Agreement”) with Sanquin, thus exercising its option under the
      Option Agreement. The Company has the right to grant sub-licenses under the
      License Agreement. The License Agreement gives the Company the right to perform
      research for, make, use and sell the licensed technology and licensed products,
      as defined.





In
      consideration for the granting of the license, the Company agreed to pay
      Sanquin, within 60 days of execution of the License Agreement, $82,000, the
      agreed-upon amount of expenses incurred by Sanquin for the preparation, filing
      and maintenance of the underlying patents through the date of execution of
      the
      License Agreement. In addition, the Company shall make the following payments
      to
      Sanquin during the course of the License Agreement: (i) royalties on net sales,
      as defined, of therapeutic products or diagnostic products, as defined; (ii)
      a
      non-refundable, non-creditable one-time license
      access fee of $175,000 within 60 days of execution of the License Agreement;
      (iii) minimum annual royalties beginning in the first year of commercialization,
      as defined; and (iv) 10% of the consideration received from patent infringement
      settlements. In addition, the Company is required to create a comprehensive
      research plan for the commercial exploitation of the licensed technology. The
      Company is continuing to work with Sanquin on the design of the research plan
      for AMI. The Company agreed to commit a minimum of $125,000 per annum during
      the
      first three years following the execution of the License Agreement toward
      research on the licensed technology conducted by Sanquin and other parties.
      In
      February 2004, the Company paid $257,000 in connection with execution of
      the License Agreement and such amounts were recorded in the statement of
      operations for the year ended December 31, 2004 as research and development
      expense.





F-17


LEV
          PHARMACEUTICALS, INC. AND
          SUBSIDIARY
 (a
          development stage enterprise)
  **Notes
          to Consolidated Financial Statements**
 **December
          31, 2005**




**Note
      H - Commitments and Contingencies**




**[1]**  **Sanquin
      Blood Foundation: (continued)**




The
      License Agreement will terminate upon the expiration of the last to expire
      patent underlying the related technology. In the event of expiration of the
      License Agreement, the Company will have a royalty-free, fully paid-up,
      non-exclusive license to the technology. Either party may terminate the License
      Agreement upon breach by the other party that is not cured within 30 days of
      written notice. The Company will have the right to terminate the License
      Agreement for any reason, with 90 days' written notice to Sanquin at which
      time
      the Company will be responsible to pay certain defined outstanding obligations.
      Sanquin may terminate the License Agreement if the Company does not perform,
      as
      defined, under the License Agreement and such failure to perform is not cured
      within 60 days after written notice to the Company.





**[2]** **Service
        agreements:**





In
      March,
      2005, the Company entered into an agreement with a clinical research
      organization for the design, management and implementation of clinical
      development programs. The Company made a payment of approximately $57,000 as
      a
      deposit against monthly invoices. The estimated fees for the services to be
      provided are approximately $700,000 in 2006 and 2007. Approximately $419,500
      has
      been incurred and recorded through December 31, 2005.





**[3]** **Operating
        lease:**


On
      July 1, 2004, the Company entered into an agreement to sublease office
      space through August 31, 2006 (the “Office Sublease”) and paid a security
      deposit of $16,817. The Office Sublease contains provisions for escalation
      of
      rental payments, a rental holiday during the first month of the sublease and
      a
      proportionate share of utilities and real estate taxes. In addition, the Company
      is required to make additional payments for utilities and real estate taxes.
      Prior to July 1, 2004, the Company utilized space provided
      by a founder/officer without remuneration. During the years ended
      December 31, 2005 and December 31, 2004, rent expense was $60,166 and
      $32,255, respectively before sublease income. In addition, the Company sublets
      a
      portion of its office space to third parties on a month-to-month basis. Rental
      income from these subleases amounted to $28,065 and $11,212 for the years ended
      December 31, 2005 and December 31, 2004, respectively. As of
      December 31, 2005, the Company recorded a deferred lease liability of
      $2,519, which represents the excess of rent expense recognized on a
      straight-line basis over the term of the office sublease over rental
      payments.





Future
      minimum rental payments under the Office Sublease are as follows:





Year
                Ending
            
            OperatingDecember
                31,
            
            Lease2006
            
            $46,000




F-18


LEV
          PHARMACEUTICALS, INC. AND
          SUBSIDIARY
 (a
          development stage enterprise)
  **Notes
          to Consolidated Financial Statements**
 **December
          31, 2005**


**Note
      H - Commitments and Contingencies** (continued)





**[4]** **Employment
        agreements:**





On
      November 1, 2004, the Company entered into employment agreements (the
“Employment Agreements”), expiring on October 31, 2008 (the “Initial
      Term”), with the Chief Executive Officer and with the Chairman and Executive
      Vice President of the Company (the “Employees”), who are also significant
      stockholders of the Company. Under the terms of the Employment Agreements,
      the
      Employees each receive annual base compensation of $312,500, (increased to
      $328,125 on November 1, 2005) which will increase every year by the greater
      of
      5% or the percentage increase of the Labor Consumer Price Index, and fully
      vested options to purchase 1,427,450 shares of the Company's common stock
      exercisable at $0.85 per share, which will expire on November 1, 2014. In
      July 2005, the Board determined to obtain stockholder approval to reduce the
      exercise price from $0.85 to $0.30 and in December 2005 our stockholders
      approved the repricing. Under the provisions of the Employment Agreements,
      the
      Employees will receive a cash payment equal to their salary for the remainder
      of
      the term of the Employment Agreements upon any occurrence of a change in control
      of the Company, as defined in the Employment Agreements. The Employment
      Agreements will be automatically renewed for additional one-year periods (the
      “Renewal Terms”) unless either party notifies the other in writing of its
      intention not to renew within 90 days prior to the expiration of the Initial
      Term or any Renewal Terms (the Initial Term together with the Renewal Terms
      are
      referred to as the “Term”). Upon termination, as defined in the Employment
      Agreements, the Employees will continue to receive compensation through the
      end
      of the current Term, unless such Term is reduced.





**Note
      I - Stock options and warrants:**





In
      March, 2004 (the “Effective Date”), the Company's Board and stockholders adopted
      the 2004 Omnibus Incentive Compensation Plan (the “Plan”). The Plan has been
      adopted as a means of attracting, motivating, and retaining the best available
      personnel for positions of substantial responsibility within the Company, and
      in
      order to provide additional incentive to directors, employees, and other
      eligible individuals (the “Awardees”). Under the Plan, the initial maximum
      number of options to acquire shares of the Company's common stock that were
      available for issuance to Awardees was 3,500,000.





Awards
      include options, restricted shares, stock appreciation rights, performance
      shares and cash-based awards (the “Awards”). The Plan contains certain
      anti-dilution provisions in the event of a stock split, stock dividend or other
      capital adjustment, as defined. The Plan provides for the Board or a Committee
      of the Board (the “Committee”) to grant Awards to Awardees and to determine the
      exercise price, vesting term, expiration date and all other terms and conditions
      of the Awards, including acceleration of the vesting of an Award at any time.
      All options granted under the Plan are intended to be non-qualified (“NQO”)
      unless specified by the Committee to be incentive stock options
      (“ISO”), as defined by the Internal Revenue Code. NQOs may be granted to
      employees, consultants or other individuals at an exercise price, equal to,
      below or above the fair value of the common stock on the date of grant. ISOs
      may
      only be granted to employees of the Company and may not be




F-19


LEV
          PHARMACEUTICALS, INC. AND
          SUBSIDIARY
 (a
          development stage enterprise)
  **Notes
          to Consolidated Financial Statements**
 **December
          31, 2005**


**Note
      I - Stock Options and Warrants (continued)**





granted
      at exercise prices below fair value of the common stock on the date of grant
      (110% of fair value for employees who own 10% or more the Company). Under the
      Plan, following the termination of an Awardee's employment or active involvement
      with the Company, the Committee shall determine the extent to which the Awardee
      has the right to exercise outstanding options. The Plan will terminate at the
      earliest of (i) its termination by the Committee or (ii) March 18, 2014.
      Awards granted before termination of the Plan will continue under the Plan
      until
      exercised, cancelled or expired.





On
      December 29, 2004, the Company increased the number of shares available for
      issuance under the Plan from 3,500,000 to 10,000,000. In addition, on such
      date
      the Company issued options to purchase 675,000 shares of common stock under
      the
      Plan to three directors at an exercise price of $0.80 per share that vest
      equally over three years. On March 11, 2005, the Company issued options to
      purchase 100,000 shares of stock under the Plan to its Chief Financial Officer
      at an exercise price of $1.20 that vest equally over two years.





Following
      the merger between Lev and a subsidiary of FCP, in May 2005 the Company's Board
      of Directors determined that the basis for the exchange of options and warrants
      to purchase common stock of Lev outstanding prior to the merger for options
      and
      warrants to purchase common stock of the Company should be changed. Though
      the
      number of shares issuable upon exercise of these options and warrants was
      increased, the parties to the merger did not proportionately reduce the exercise
      price of these options and warrants to account for the increase in the number
      of
      shares outstanding after the merger. Accordingly, in May 2005, the exercise
      price of outstanding warrants to purchase 190,327 shares was reduced from $0.10
      to $0.04 per share. Also, the exercise price of outstanding warrants to purchase
      111,341 shares was reduced from $0.85 to $0.30 per share. At the date of this
      repricing, the Company recognized a charge to the Statement of Operations of
      $27,819 for the incremental fair values of these warrants using the
      Black-Scholes option pricing model. The  weighted-average
      assumptions used to determine the fair values of the warrants are as follows:
      risk-free interest rate of 3.83%; expected warrant life of 3 years; dividend
      yield of 0% and expected volatility of 70%.





In
      July
      2005, the Board further determined to obtain stockholder approval at the
      Company's next annual meeting (held on December 12, 2005), to reduce the
      exercise price, from $0.85 to $0.30, of outstanding options to purchase
      1,427,450 shares of common stock held by each of the Chief Executive Officer
      and
      the Chairman, respectively (an aggregate of 2,854,900 shares). The stockholders
      approved the repricing. The Company recorded a charge to the Statement of
      Operations at the repricing date and at each reporting date, based upon
      subsequent changes in values of the price of Company’s stock and recorded an
      aggregate charge for these employee stock options of $1,427,450. These charges
      will cease upon adoption of SFAS 123R in 2006.





As
      of December 31, 2005, there are 6,370,100 options available to grant under
      the Plan.




F-20


LEV
          PHARMACEUTICALS, INC. AND
          SUBSIDIARY
 (a
          development stage enterprise)
  **Notes
          to Consolidated Financial Statements**
 **December
          31, 2005**


**Note
      I - Stock Options and Warrants (continued)**





Activity
      related to the Stock Option Plan is summarized as follows:


**Weighted****Average****Exercise****Outstanding**
                  
                  **Price**Outstanding
                      as of December 31, 2003:Granted
                  
                  
                  3,529,900
                  
                  $
                  0.84Outstanding
                      as of December 31, 2004
                  
                  
                  3,529,900
                  
                  $
                  0.84Granted
                  
                  
                  2,954,900
                  (1)
                  $
                  0.33Cancelled
                  
                  
                  (2,854,900
                  ) (1)
                  $
                  (0.85Outstanding
                      as of December 31, 2005
                  
                  
                  3,629,900
                  
                  $
                  0.42(1)Includes repriced options.





The
      following table summarizes information about stock options outstanding as of
      December 31, 2005:


**Weighted
                  Average****Remaining****Exercise**
              
              **Number**
              
              **Contractual
                  Life**
              
              **Number****Price**
              
              **Outstanding**
              
              **(In****Years)**
              
              **Exercisable**$
              0.30
              
              
              2,854,900
              
              
              8.8
              
              
              2,854,900$
              0.80
              
              
              675,000
              
              
              9.0
              
              
              225,000$
              1.20
              
              
              100,000
              
              
              9.2
              
              
              03,629,900
              
              
              
              
              
              3,079,900


**Note
      J - Income Taxes**





There
      is no provision (benefit) for federal or state income taxes for the years ended
      December 31, 2005 and December 31, 2004 since the Company has incurred
      operating losses and has established a valuation allowance equal to the total
      deferred tax asset.




F-21


LEV
          PHARMACEUTICALS, INC. AND
          SUBSIDIARY
 (a
          development stage enterprise)
  **Notes
          to Consolidated Financial Statements**
 **December
          31, 2005**


**Note
      J - Income Taxes (continued)**





The
      tax effect of temporary differences and net operating losses are as follows
      as
      of December 31, 2005:





Deferred
                tax asset and valuation allowance:Research
                and development cost
            
            $
            2,266,000Net
                operating loss carryforwards
            
            
            1,817,000Options
                and warrants
            
            
            648,000Other
            
            
            70,000Total
                deferred tax asset
            
            
            4,801,000Valuation
                allowance
            
            
            (4,801,000
            )Net
                deferred tax asset
            
            $
            0








At
      December 31, 2005, the Company has available, for tax purposes, unused net
      operating loss carryforwards of approximately $4,327,000 that expire from 2023
      to 2025. The Company has approximately $247,000 of research and development
      credits that expire from 2024 to 2025. The increase to the valuation allowance
      from December 31, 2004 to December 31, 2005 was $3,133,000. Pursuant
      to Sections 382 and 383 of the Internal Revenue Code, annual use of the
      Company's net operating loss and credit carryforwards prior to August 23, 2004
      was limited due to a cumulative change in ownership of more than 50% that
      occurred within a three-year period.





A
      reconciliation of the effect of applying the federal statutory rate and the
      effective income tax rate used to calculate the Company's income tax provision
      is as follows:








December
                31,2005
            
            2004Statutory
                federal income tax rate
            
            
            34
            %
            
            34
            %State
                income tax rate, net of federal taxes
            
            
            
            
            
            5Permanent
                difference
            
            
            0.3
            
            
            (2.9
            )Valuation
                allowance
            
            
            (34.3
            )
            
            (36.1
            )Income
                tax provision
            
            
            0
            %
            
            0
            %




F-22