<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
                       FOR THE TRANSITION PERIOD FROM          TO

                        COMMISSION FILE NUMBER: 001-31925


                        VASO ACTIVE PHARMACEUTICALS, INC.
        (Exact name of small business issuer as specified in its charter)




           DELAWARE                                        02-0670926
   (State or other jurisdiction                (IRS Employer Identification No.)
of incorporation or organization)


    99 ROSEWOOD DRIVE, SUITE 260
             DANVERS, MA                                                01923
(Address of principal executive offices)                              (Zip code)

                    ISSUER'S TELEPHONE NUMBER: (978) 750-1991

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

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

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:

<TABLE>
<S>                    <C>                           <C>                                      <C>
Common stock, Class A, $0.0001 par value             5,828,613 shares outstanding on November 11, 2005
Common stock, Class B, $0.0001 par value             4,500,000 shares outstanding on November 11, 2005

</TABLE>

Transitional Small Business Disclosure Format (check one): Yes [ ] No [x]




<PAGE>

<TABLE>
<S> <C>
                                             VASO ACTIVE PHARMACEUTICALS, INC.

                                                    INDEX TO FORM 10-QSB


                                                                                                                 page
PART I.  FINANCIAL INFORMATION

ITEM 1 - Condensed Financial Statements (unaudited):

Condensed Balance Sheets as of September 30, 2005 and December 31, 2004                                            3
Condensed Statements of Operations for the Three and Nine-month Periods Ended September 30, 2005 and 2004          4
Condensed Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2005 and 2004                    5
Notes to the Condensed Financial Statements                                                                        6

ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations                    12

ITEM 3 - Controls and Procedures                                                                                  30

PART II .           OTHER INFORMATION

ITEM 1 - Legal Proceedings                                                                                        31
ITEM 6 - Exhibits                                                                                                 33
Signature                                                                                                         34

</TABLE>

         Unless the context requires otherwise, references in this Quarterly
Report to "Vaso Active," "the Company," "we," "our" and "us" refer to Vaso
Active Pharmaceuticals, Inc. Vaso Active, A-R Extreme(R), Termin8(R),
RepiDerm(R), and our logo are trademarks of the Company. Osteon(R) and
PENtoCORE(R) are registered trademarks of BioChemics, Inc. This Quarterly Report
on Form 10-QSB also contains trademarks and trade names of other parties.


                                       2



<PAGE>

<TABLE>
                             VASO ACTIVE PHARMACEUTICALS, INC.
                                  CONDENSED BALANCE SHEETS


                                                          SEPTEMBER 30,       DECEMBER 31
                                                          -------------      -------------
                                                              2005               2004
                                                          -------------      -------------
             ASSETS                                        (UNAUDITED)
<S>                                                       <C>                <C>
CURRENT ASSETS:
Cash and cash equivalents                                 $   1,613,938      $   2,175,388
Accounts receivable                                                 904                888
Inventory                                                       126,717            140,296
Prepaid expenses                                                 43,482             28,995
                                                          -------------      -------------

 TOTAL CURRENT ASSETS                                         1,785,041          2,345,567

Restricted cash                                                 437,000                 --
Prepaid offering costs - net                                    350,087                 --
Property and equipment - net                                     57,554             37,551
                                                          -------------      -------------
                                                          $   2,629,682      $   2,383,118
                                                          =============      =============

         LIABILITIES AND STOCKHOLDERS'( DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable                                          $     525,410      $     474,369
Accrued compensation                                             29,658             43,805
Other accrued expenses                                          145,141            116,045
Obligations under capital leases - short-term portion             2,351                 --
Due to parent company                                            44,753             10,780
                                                          -------------      -------------
TOTAL CURRENT LIABILITIES                                       747,313            644,999

LONG-TERM LIABILITIES:
Senior secured convertible notes, net of discount             2,026,017                 --
Accrued legal settlement                                        885,000                 --
Obligations under capital leases - long-term portion             12,231                 --
                                                          -------------      -------------
TOTAL LONG-TERM LIABILITIES                                   2,923,248                 --

Commitments and contingencies (Note 4)
                                                          -------------      -------------
                                                              3,670,561            644,999
                                                          -------------      -------------
STOCKHOLDERS' EQUITY:
Preferred stock - $0.0001 par value; authorized
10,000,000 shares; issued and outstanding, none                      --                 --
Common stock - $0.0001 par value; authorized
                                                                  1,033              1,033
Additional paid-in capital                                    8,630,629          8,093,656
Deferred compensation                                          (138,474)          (183,777)
Accumulated deficit                                          (9,534,067)        (6,172,793)
                                                          -------------      -------------

TOTAL STOCKHOLDERS' (DEFICIT) EQUITY                         (1,040,879)         1,738,119
                                                          -------------      -------------
                                                          $   2,629,682      $   2,383,118
                                                          =============      =============


    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL STATEMENTS.


                                             3



<PAGE>

                                            VASO ACTIVE PHARMACEUTICALS, INC.
                                      UNAUDITED CONDENSED STATEMENTS OF OPERATIONS


                                                           THREE-MONTH PERIOD                   NINE-MONTH PERIOD
                                                           ENDED SEPTEMBER 30,                 ENDED SEPTEMBER 30,
                                                     ------------------------------      ------------------------------
                                                         2005              2004              2005              2004
                                                     ------------      ------------      ------------      ------------

Net revenues                                         $      4,261      $      2,632      $     20,057      $     10,641
Cost of revenues                                            4,553             2,743            24,268            48,371
                                                     ------------      ------------      ------------      ------------
  GROSS PROFIT                                               (292)             (111)           (4,211)          (37,730)
                                                     ------------      ------------      ------------      ------------

Costs and expenses:
 Marketing, advertising and promotion                      10,221            79,796           211,957           156,645
 Selling, general and administrative                      760,332           578,707         1,905,424         3,264,252
 Research and development                                  67,879            71,187           272,772           241,109
 Legal settlement                                         135,000                --           885,000                --
                                                     ------------      ------------      ------------      ------------

Loss from operations                                     (973,724)         (729,801)       (3,279,364)       (3,699,736)

Other income (expense), net                               (93,872)           13,644           (81,910)           36,025
                                                     ------------      ------------      ------------      ------------

 NET LOSS                                            $ (1,067,596)     $   (716,157)     $ (3,361,274)     $ (3,663,711)
                                                     ============      ============      ============      ============

 Net loss per share - basic and diluted (Note 2)     $      (0.10)     $      (0.07)     $      (0.33)     $      (0.36)
                                                     ============      ============      ============      ============

Weighted average shares outstanding - basic and
 diluted (Note 2)                                      10,328,613        10,328,613        10,328,613        10,286,077
                                                     ============      ============      ============      ============


                  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL STATEMENTS.


                                                           4



<PAGE>

                                                  VASO ACTIVE PHARMACEUTICALS, INC.
                                            UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS


                                                                                              NINE-MONTH PERIOD ENDED SEPTEMBER 30,
                                                                                              -------------------------------------
                                                                                                 2005                      2004
                                                                                              -----------               -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                                      $(3,361,274)              $(3,663,711)
Adjustments to reconcile net loss to net cash used in operating activities:
 Depreciation and amortization                                                                     74,454                     1,331
 Stock-based compensation                                                                          45,303                   139,235
  Inventory write-down                                                                             10,632                    38,871
 Accrued legal settlement                                                                         885,000                   200,000
 Increase (decrease) in cash from change in:
Accounts receivable                                                                                   (16)                     (489)
Inventory                                                                                           2,947                  (103,557)
Prepaid expenses                                                                                  (14,487)                   41,040
Accounts payable                                                                                   51,041                   262,588
Accrued compensation                                                                              (14,147)                 (224,429)
Other accrued expenses                                                                             29,096                  (183,927)
                                                                                              -----------               -----------
Net cash used in operating activities                                                          (2,291,451)               (3,493,048)
                                                                                              -----------               -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to restricted cash                                                                     (437,000)                       --

Purchase of property and equipment                                                                (14,064)                  (38,094)
                                                                                              -----------               -----------
   Net cash used in investing activities                                                         (451,064)                  (38,094)
                                                                                              -----------               -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Issuance of Class A common stock                                                                      --                   450,000
 Issuance of senior secured convertible notes                                                   2,500,000                 7,500,000
 Offering costs associated with the issuance of senior secured convertible notes                 (352,155)                       --
 Repayment of convertible notes                                                                        --                (7,500,000)
 Repayments of capital lease obligations                                                             (753)                       --
 Due to/from parent company - net                                                                  33,973                   (11,840)
                                                                                              -----------               -----------
  Net cash provided by financing activities                                                     2,181,065                   438,160
                                                                                              -----------               -----------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                                        (561,450)               (3,092,982)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                  2,175,388                 6,109,775
                                                                                              -----------               -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                                      $ 1,613,938               $ 3,016,793
                                                                                              ===========               ===========

SUPPLEMENTAL DISCLOSURES:
  Interest paid                                                                               $        --               $        --
  Income taxes paid                                                                                    --                        --

NONCASH DISCLOSURES:
  Fair value of warrants issued in conjunction with issuance of senior
    secured convertible notes                                                                 $   536,973               $        --
  Issuance of capital leases to purchase property and equipment                                    15,335                        --


                        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL STATEMENTS.


                                                                 5
</TABLE>



<PAGE>

                        VASO ACTIVE PHARMACEUTICALS, INC.
                NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

         THE COMPANY - Vaso Active Pharmaceuticals, Inc. (the "Company") is an
early-stage company focused on commercializing, marketing and selling
over-the-counter ("OTC") pharmaceutical products that incorporate a patented
vaso active lipid encapsulated ("VALE") technology and a proprietary PENtoCORE
technology. The Company is engaged in a single operating segment of the OTC
pharmaceutical industry.

         The Company licenses the VALE patents and PENtoCORE technology from
BioChemics, Inc. ("BioChemics"), a privately owned biopharmaceutical company.
The Company issued 4,500,000 shares of its Class B common stock to BioChemics in
consideration for the exclusive worldwide rights to commercialize, market and
sell OTC pharmaceutical products that incorporate the VALE technology. These
shares were issued pursuant to authorization by the Company's Board of Directors
on June 20, 2003. At September 30, 2005, these shares of Class B common stock
represented approximately 70% of the combined voting power of the Company's
common stock.

         RECENT REGULATORY ACTIONS TAKEN AGAINST THE COMPANY BY THE SEC - On
August 17, 2004, the U.S. Securities and Exchange Commission (the "SEC") filed a
civil complaint against the Company alleging violations of securities laws
stemming from allegedly misleading disclosures in the Company's initial public
offering registration statement, its 2003 annual report and a statement on its
website concerning the Food and Drug Administration's (the "FDA") approval or
qualification of the Company's products. The Company simultaneously agreed with
the SEC to settlement terms without the Company admitting or denying the
allegations of the civil complaint, pursuant to which the Company is permanently
enjoined from violating the anti-fraud provisions of the Securities Act of 1933,
as amended, and the antifraud and reporting provisions of the Securities
Exchange Act of 1934, as amended. The SEC action filed with the United States
District Court for the District of Columbia (the "Court") is styled SECURITIES
AND EXCHANGE COMMISSION V. VASO ACTIVE PHARMACEUTICALS, INC. Civil Action No. 04
CV 01395 (RJL) (D.D.C.).

         In addition, the SEC formally sued John J. Masiz, formerly the
Company's President and Chief Executive Officer, alleging the same violations.
Mr. Masiz agreed to settlement terms without admitting or denying the
allegations of the civil complaint, that likewise enjoin him from violating the
antifraud and reporting provisions, and prevent him from serving as an officer
or director of any public company, including the Company, for a period of five
years. Effective as of August 17, 2004, Mr. Masiz resigned as Chief Executive
Officer and a director of the Company. He is, however, permitted to remain an
active employee and/or consultant of the Company. In light of the foregoing, the
Company and Mr. Masiz agreed to terminate his employment agreement and enter
into a new agreement. Pursuant to that agreement, Mr. Masiz is providing
strategic consulting services regarding sales, marketing and business
development to the Company for an initial term through June 30, 2008 and reports
to the Chief Executive Officer of the Company. The Company's Chief Financial
Officer serves as the President and Acting Chief Executive Officer.

         On September 13, 2004, the Court for the District of Columbia entered
final judgments against the Company and Mr. Masiz, pursuant to the above
referenced settlement terms.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION - The accompanying unaudited condensed financial
statements have been prepared on the same basis as the annual financial
statements. In the opinion of management, all significant adjustments, which are
normal and recurring in nature and necessary for the fair presentation of the


                                       6



<PAGE>

Company's financial position, cash flows and results of operations, have been
consistently recorded. The operating results for the interim period presented
are not necessary indicative of expected performance for the entire year.

         GOING CONCERN - The Company has a limited operating history and has
incurred substantial net losses since its inception. The Company's principal
risks include its ability to successfully develop and market its products and
product candidates in the highly regulated environment that the Company
operates, competition from substitute products and larger companies, dependence
on key personnel and continued dependence on BioChemics for manufacturing and
product development.

         These unaudited condensed financial statements have been prepared on
the assumption that the Company will be able to realize its assets and discharge
its liabilities in the normal course of business. On August 16, 2005, the
Company sold $2,500,000 in aggregate principal amount of Senior Secured
Convertible Notes due May 1, 2007, (the "Notes") to independent institutional
investors (see Note 3). The Notes included rights ("Rights") to purchase up to
$1,875,000 in aggregate principal amount of additional Notes at any time through
the maturity date of the Notes.

         The Company intends to continue as a going concern. If no portions of
the Rights are exercised, management believes that, based on its current
operating plans and assumptions, current working capital will be sufficient to
satisfy cash requirements through May 31, 2006. If the note holders exercise the
Rights in full, management believes that the additional working capital provided
by the exercise will be sufficient to satisfy cash requirements through December
31, 2006. However, there can be no assurance that any of the Rights will be
exercised. Management continues to seek various fund-raising strategies to
pursue.

         USE OF ESTIMATES AND JUDGMENTS. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Significant estimates relied upon in preparing
these financial statements include revenue recognition, allowances for doubtful
accounts, product return reserves, expected future cash flows used to evaluate
the recoverability of long-lived assets and the determination of the useful
lives of property and equipment. Although the Company regularly assesses these
estimates, actual results could differ materially from these estimates. Changes
in estimates are recorded in the period in which they become known.

         CASH AND CASH EQUIVALENTS. All highly liquid investments with remaining
maturities of three months or less when purchased are considered to be cash
equivalents. The Company invests its excess cash in money market funds that
invest primarily in U.S. government securities, commercial paper and municipal
obligations, which are subject to minimal credit and market risk.

         INVENTORY. Inventory is valued at the lower of cost or market. Cost is
determined on a first-in, first-out basis. All inventory is in the form of
finished goods.

         DUE TO PARENT - Pursuant to a license agreement, a manufacturing
agreement, a registration rights agreement and as well as the allocation of
overhead and other administrative services, the Company's transactions are
processed through an inter-company account, due to/from parent, the balance of
which represents the net obligation from the Company to BioChemics, or
vice-versa.

         REVENUE RECOGNITION - The Company recognizes revenue from product sales
in accordance with accounting principles generally accepted in the United States
of America, including the guidance in Staff Accounting Bulletin, or SAB,
Bulletin No. 104 "Revenue Recognition and Statement of Financial Accounting
Standards, or SFAS, No. 48, "Revenue Recognition When Right of Return Exists."


                                       7



<PAGE>

         Revenue from product sales is recognized when there is persuasive
evidence of an arrangement, delivery has occurred, the price is fixed and
determinable, and collectibility is reasonably assured. However, because the
Company's products are sold with limited rights of return, revenue is recognized
when the price to the buyer is fixed, the buyer is obligated to pay, the
obligation to pay is not contingent on resale of the product, the buyer has
economic substance on its own, the Company has no obligation to bring about the
sale of the product and the amount of returns can be reasonably estimated.

         The Company records allowances for product returns, rebates and
discounts, and reports revenue net of such allowances. The Company makes
judgments and estimates in preparing the allowances, which could require
adjustments in the future. For instance, customers have the right to return any
product that is held past the labeled expiration date. The Company bases its
estimates on historic patterns of returns and on the expiration dates of product
currently being shipped.

         Revenue is not recognized unless collectibility is reasonably assured.
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of customers to make required payments. If a
customer's financial condition were to deteriorate and result in an impairment
of their ability to make payments, additional allowances may be required.

         STOCK-BASED COMPENSATION - The Company accounts for stock-based
employee compensation arrangements using the intrinsic value method in
accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees," and complies with the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." Under the intrinsic
value method, compensation associated with stock awards to employees and
non-employee directors is determined as the excess, if any, of the current fair
value of the underlying common stock on the date compensation is measured over
the price an employee or director must pay to exercise the award. The Company
accounts for stock options and awards to non-employees using the fair value
method.

         The Company has an employee stock incentive plan and a non-employee
director compensation plan, which are described more fully in Note 7 to the
Company's Annual Report on Form 10-KSB for the period ended December 31, 2004.

         In December 2004, the Financial Accounting Standards Board, or FASB,
issued a revision to SFAS No. 123R, "Share-Based Payment," requiring companies
to recognize as compensation expense the fair value of stock options and other
equity-based compensation issued to employees. This revised statement eliminates
the intrinsic value method provided under APB No. 25, which is the method the
Company currently uses to value stock options awarded to its employees. This
revised standard is effective as of the beginning of the first annual reporting
period beginning after December 15, 2005 and is expected to have a material
impact on the Company's results of operations. The Company is evaluating the two
methods of adoption allowed by SFAS 123R; the modified-prospective transition
method and the modified-retrospective transition method.

         The following table illustrates the effect on net loss and net loss per
share if the Company had applied the fair-value recognition provisions of SFAS
No. 123, as amended, to options granted under the stock option plans and rights
to acquire stock granted under the Company's stock option plans. For purposes of
this PRO-FORMA disclosure, the value of the options is estimated using a
Black-Scholes option pricing model and amortized ratably to expense over the
options' vesting periods. Because the estimated value is determined as of the
date of grant, the actual value ultimately realized by the employee may be
significantly different.


                                       8



<PAGE>

<TABLE>
                                                                                  THREE-MONTH             THREE-MONTH
                                                                                  PERIOD ENDED            PERIOD ENDED
                                                                               SEPTEMBER 30, 2005      SEPTEMBER 30, 2004
                                                                               ------------------      ------------------
<S>                                                                            <C>                     <C>
Net loss, as reported                                                          $       (1,067,596)     $         (716,157)
Add: stock-based compensation included in the determination of net loss                    15,101                  15,101

Less: stock-based compensation had all options been recorded at fair value               (111,133)               (105,176)
                                                                               ------------------      ------------------

Adjusted net loss                                                              $       (1,163,628)     $         (806,232)
                                                                               ==================      ==================

Weighted average shares outstanding, basic and diluted                                 10,328,613              10,328,613
                                                                               ==================      ==================
Net loss per share, basic and diluted, as reported                             $            (0.10)     $            (0.07)
                                                                               ==================      ==================

Adjusted net loss per share, basic and diluted                                 $            (0.11)     $            (0.08)
                                                                               ==================      ==================


                                                                                   NINE-MONTH              NINE-MONTH
                                                                                  PERIOD ENDED            PERIOD ENDED
                                                                               SEPTEMBER 30, 2005      SEPTEMBER 30, 2004
                                                                               ------------------      ------------------
Net loss, as reported                                                          $       (3,361,274)     $       (3,663,711)
Add: stock-based compensation included in the determination of net loss                    45,303                 139,235

Less: stock-based compensation had all options been recorded at fair value               (323,264)               (737,219)
                                                                               ------------------      ------------------

Adjusted net loss                                                              $       (3,639,235)     $       (4,261,695)
                                                                               ==================      ==================

Weighted average shares outstanding, basic and diluted                                 10,328,613              10,286,077
                                                                               ==================      ==================
Net loss per share, basic and diluted, as reported                             $            (0.33)     $            (0.36)
                                                                               ==================      ==================
Adjusted net loss per share, basic and diluted                                 $            (0.35)     $            (0.41)
                                                                               ==================      ==================

</TABLE>

         NET LOSS PER SHARE - Basic net loss per share is computed by dividing
net loss by the weighted average number of common shares outstanding for the
period. Diluted net loss per share reflects, in addition to the weighted average
number of common shares, the potential dilution if stock options and warrants
outstanding were exercised and/or converted into common stock, unless the effect
of such equivalent shares was antidilutive.

         For the three-month and nine-month periods ended September 30, 2005 and
2004, the effect of stock options and other potentially dilutive shares were
excluded from the calculation of diluted net loss per common share as their
inclusion would have been antidilutive.

         RECLASSIFICATIONS - Certain reclassifications have been made to the
2004 amounts to conform to the 2005 presentation.

3. SENIOR SECURED CONVERTIBLE NOTES

         On August 16, 2005, the Company sold $2,500,000 in aggregate principal
amount of Senior Secured Convertible Notes due May 1, 2007, (the "Notes") to
independent institutional investors. The Notes are convertible at any time into
shares of the Company's Class A common stock at a price of $0.70 per share,
subject to adjustment under certain circumstances. The investors also received
five-year warrants (the "Warrants") to purchase a total of 1,298,701 shares of
the Company's Class A common stock at an exercise price of $0.77 per share. In
addition, the investors received rights ("Rights") to purchase up to $1,875,000
in aggregate principal amount of additional Notes at any time through the
maturity date of the Notes, together with additional Warrants to purchase a
total of 974,026 shares of Class A common stock. The additional Notes are
convertible and the additional Warrants are exercisable at the same respective
prices per share as the Notes and Warrants.


                                       9



<PAGE>

         The Notes bear interest, payable quarterly, at the six month LIBOR plus
6.0%, with a floor of 10.0% and a ceiling of 12.0%. As part of the agreement,
the Company has placed $437,000 into escrow for the purpose of funding
substantially all of the interest payments due under the Notes and such amount
is reflected as restricted cash on the balance sheet.

         The Notes are secured by substantially all of the Company's assets and
rank senior to all corporate indebtedness. The terms of the Notes permit the
Company to finance capital equipment purchases, provided the lender is given a
security interest only in the specific assets being financed. On conversion or
full payment, the senior security interests included in the Notes will
terminate.

         The Company incurred debt issuance costs of approximately $377,725 in
connection with this transaction. These costs include $25,570, which represents
the fair value of 64,935 warrants issued to third party financial advisors to
this transaction. The debt was issued with detachable warrants valued at
$511,403, which represents the fair value of the Warrants calculated using the
Black-Scholes valuation model. The key assumptions used in the Black-Scholes
valuation calculations were an expected life of two and one-half years, expected
volatility of 98%, a risk free rate of return of 4.04% and no expected
dividends.

         The debt issuance costs are deferred and included in other assets on
the balance sheets. The debt issuance costs are amortized over the term of the
related debt issuance. The amortization expense is included in interest expense
on the statement of operations.

         The value of the detachable warrants is accounted for as a discount on
the debt and is amortized over the life of the debt as interest expense.

4. COMMITMENTS AND CONTINGENCIES

         EMPLOYMENT AGREEMENTS - The Company has non-cancelable employment
agreements with the Acting Chief Executive Officer through February 28, 2006 and
the Chief Scientific Officer and the former Chief Executive Officer, through
June 30, 2008. The remaining payments due under these employment contracts are
as follows - $122,500 for 2005, $344,167 for 2006, $315,000 for 2007; and
$157,500 for 2008.

         LITIGATION - In April, May, and June 2004, the Company and certain of
its officers (the "Defendants") were sued in several securities class action
lawsuits filed in the United States District Court for the District of
Massachusetts. The complaints, which sought equitable and monetary relief, an
unspecified amount of damages, with interest, attorneys' fees and costs, were
filed on behalf of purchasers of the Company's Class A common stock during the
period December 9, 2003 to March 31, 2004. The complaints alleged that during
the period in question the Defendants violated the federal securities laws by
allegedly failing to make accurate and complete disclosures concerning the
Company, its financial condition, its business operations and future prospects,
the clinical trial and endorsement of the Company's Termin8 anti-fungal product
and the institutional demand for the Company's securities. The majority of these
complaints were consolidated in the United States District Court for the
District of Massachusetts, under the caption IN RE VASO ACTIVE PHARMACEUTICALS
SECURITIES LITIGATION, Civ. No. 04-10708 (RCL), (the "Consolidated Action").

         The Company was also named as a nominal defendant in three shareholder
derivative actions two of which were filed in the United States District Court
for the District of Massachusetts. The first, filed in April 2004 against the
Company's then directors and certain of its officers and against BioChemics,
Inc. is styled JOSEPH ROSENKRANTZ V. BIOCHEMICS, INC., ET AL., Civ. No. 04-10792
(RCL) (D. Mass.); the second, filed in June 2004, also against the Company's
then directors and certain of its officers and against BioChemics, Inc. is
styled WILLIAM POMEROY V. BIOCHEMICS INC., ET AL., Civ. No. 04-11399 (RCL) (D.
Mass.); and the third, filed in the Court of Chancery for the State of Delaware
in September 2004 against its then directors and certain of its officers is


                                       10



<PAGE>

entitled DOUGLAS WEYMOUTH V. VASO ACTIVE ET AL., Civ. No. 682-N (collectively,
the "Complaints"). The Complaints alleged, among other things, that the alleged
conduct challenged in the securities class action cases pending against the
Company in Massachusetts (described above) constitutes a breach of the
Defendants' fiduciary duties to the Company. The Complaints seek equitable and
monetary relief, an unspecified amount of damages, and attorneys and other fees,
costs and expenses, ostensibly on behalf of the Company. On October 29, 2004,
the Massachusetts Court approved a joint motion to consolidate the two
Massachusetts derivative actions. The Delaware court approved the parties'
stipulated stay of all proceedings in the Delaware derivative action, at least
until the resolution of any motion to dismiss the consolidated securities fraud
litigation.

         In September 2005, the Company and certain of its officers and
directors entered into agreements to settle all shareholder actions (the "Class
Actions") and derivative shareholder actions filed against it and certain named
officers and directors (the "Derivative Actions"). The appropriate papers have
been filed with the court seeking dismissal of these actions. The parties to the
agreements obtained the court's preliminary approval of the settlements on
October 4, 2005. Under the terms of the Class Action Agreement, the Company,
disclaiming any liability, has caused to be paid into escrow for the benefit of
the putative class $1,100,000 in cash. The Company's insurance carrier agreed to
pay and has paid such $1,100,000 cash payment in exchange for a release of its
liability under its insurance policy with the Company. The Company also will
issue $750,000 face amount of 2-year 5% subordinated callable notes convertible
at $1.75 per share (with full dilution protection) within ten business days of
(i) receipt of instructions from the Claims Administrator following its
calculation of the number of notes to be distributed to class members after its
processing of claims, and (ii) signing of the Class Distribution Order by the
court approving the Class Administrator's determinations concerning the
acceptance and/or rejection of the claims. Under the terms of the Derivative
Action Agreement, the Company, disclaiming any liability, agreed to pay to
plaintiffs' counsel a total of $25,000 in cash and $110,000 face amount of
2-year 5% subordinated callable notes convertible at $1.75 per share within
thirty business days of final court approval of the Derivative Action Agreement.
In addition, the terms of the Derivative Action Agreement require the Company to
institute or maintain certain corporate governance guidelines. In consideration
of these settlements, the parties agreed to fully and finally release and
discharge all claims against each other. Following fairness hearings on the
settlements, which have been scheduled for December 14, 2005, the Court still
must decide whether to give final approval of the settlements.

         For the nine-month periods ended September 30, 2005 and 2004, the
Company recorded approximately $2,031,000 and $1,022,000, respectively, in
expenses to defend itself in the private litigation matters discussed above and
the SEC matters described in Note 2, including legal, accounting and other
consulting fees. The September 30, 2005 amounts include the $885,000 charge in
connection with the Company's settlement of the consolidated securities class
action lawsuit and derivative suits. The Company will not record the $750,000
and $110,000 subordinated callable notes payable until final approval of the
settlement by the court, but the Company has recorded a charge for these
proposed settlement charges of $885,000 (which also includes $25,000 to be paid
in cash to plaintiff's counsel) and the liability is recorded as "Accrued legal
settlement" on the balance sheet at September 30, 2005. The execution of the
subordinated callable notes payable will result in a balance sheet
reclassification, and $860,000 of "Accrued legal settlement" will be
reclassified to subordinated callable notes payable.

5. SUBSEQUENT EVENTS

         As described in Note 3, in August 2005, the Company sold $2,500,000 in
aggregate principal amount Notes.

         Pursuant to the Purchase Agreement, the Company was required on or
before October 15, 2005 to file a registration statement with the Securities and
Exchange Commission relating to the resale of the shares of Class A Common Stock
underlying the Notes, the Warrants and the Additional Investment Rights. The
Company has obtained written extensions from the institutional investors until
December 15, 2005 to file this registration statement. By November 7, 2005, the
Company had received executed counterparts of the extension letter from all of
the institutional investors. However, the extension was granted effective as of
October 12, 2005.

         In exchange for receiving this extension, the Company has agreed to
issue five-year warrants to the institutional investors in the near future to
purchase a total of 100,000 shares of Class A Common Stock at an exercise price
of $1.00 per share. The other terms of these warrants (including anti-dilution
adjustments) are substantially the same as the Warrants issued to the investors
in the August 2005 financing.

         In addition, the Purchase Agreement provides that the Company must
increase the number of authorized shares of Class A Common Stock by amending its
Certificate of Incorporation in order to have a sufficient number of shares of
Class A Common Stock authorized to be issued in connection with the Additional
Investment Rights. In the extension letter, the institutional investors also
have deemed the Company to have satisfied this requirement as a result of the
fact that BioChemics, Inc., the Company's controlling stockholder, has agreed
not to exercise its right to convert its 4,500,000 shares of the Company's Class
B Common Stock, par value $0.0001, into an equal number of shares of Class A
Common Stock prior to December 31, 2005.



                                       11



<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

FORWARD-LOOKING INFORMATION

         This Quarterly Report on Form 10-QSB contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and section 21E of the Exchange Act of 1934, as amended, that are based
on management's exercise of business judgment as well as assumptions made by,
and information currently available to management. When used in this document,
the words "may," "will," "anticipate," "believe," "estimate," "intend," and
words of similar import, are intended to identify any forward-looking
statements. You should not place undue reliance on these forward-looking
statements. These statements reflect our current view of future events and are
subject to certain risks and uncertainties as noted below. Should one or more of
these risks and uncertainties materialize, or should underlying assumptions
prove incorrect, our actual results could differ materially from those
anticipated in these forward-looking statements. We undertake no obligation and
do not intend to update, revise or otherwise publicly release any revisions to
these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of any unanticipated events after the
date hereof or to reflect the occurrence of any unanticipated events. Although
we believe that our expectations are based on reasonable assumptions, we can
give no assurance that our expectations will materialize.

         Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read together with our condensed financial statements
and related notes included elsewhere in this Quarterly Report on Form 10-QSB.
This Quarterly Report on Form 10-QSB, including the following discussion,
contains trend analysis and other forward-looking statements within the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Any
statements in this Quarterly Report on Form 10-QSB that are not statements of
historical facts are forward-looking statements. These forward looking
statements made herein are based on our current expectations, involve a number
of risks and uncertainties and should not be considered as guarantees of future
performance.

Factors that could cause actual results to differ materially include without
limitation:

         o        interruptions or cancellation of existing contracts

         o        impact of competitive products and pricing

         o        product demand and market acceptance and risks

         o        the presence of competitors with greater financial resources

         o        product development and commercialization risks

         o        an inability to arrange additional debt or equity financing

         o        our ability to finance our business

         o        our ability to maintain our current pricing model and/or
                  decrease our cost of sales

         o        continued availability of supplies or materials used in
                  manufacturing at the current prices

         o        adverse regulatory developments in the United States

         o        entrance of competitive products in our markets

         o        the ability of management to execute plans and motivate
                  personnel in the execution of those plans

         o        no adverse publicity related to our products or the company
                  itself

         o        no adverse claims relating to our intellectual property

         o        the adoption of new, or changes in, accounting principles;
                  legal proceedings


                                       12



<PAGE>

         o        the costs inherent with complying with new statutes and
                  regulations applicable to public reporting companies, such as
                  the Sarbanes-Oxley Act of 2002

         o        other new lines of business that the Company may enter in the
                  future.

         o        our ability to repay our indebtedness, including repayment of
                  the Notes issued recently.

Actual results may differ materially from those set forth in such
forward-looking statements as a result of factors set forth elsewhere in this
Quarterly Report on Form 10-QSB, including under "Risk Factors." More
information about factors that potentially could affect the Company's financial
results is included in the Company's filings with the Securities and Exchange
Commission.

BUSINESS OVERVIEW
-----------------

         Vaso Active Pharmaceuticals, Inc., or "Vaso Active" or the "Company,"
is an early stage company, organized in January 2003, which focuses on
commercializing, marketing and selling over-the-counter pharmaceutical products
that incorporate a patented vaso active lipid encapsulated ("VALE") technology
and a proprietary PENtoCORE technology.

         The unique VALE technology is a patchless, lipid-based delivery system
which the Company's parent, Biochemics, is formulating into various applications
which the Company hopes to market in the future, subject to receipt of
appropriate Food and Drug Administration, or FDA, approvals. The technology uses
an active process, incorporating chemical vasodilators, to deliver drugs through
the skin and into the bloodstream.

         The PENtoCORE technology is a topical formulation, in contrast to the
VALE transdermal technology. The Company is currently marketing three products
that incorporate the proprietary PENtoCORE technology; the Company has one
additional product candidate currently undergoing package design and branding
and multiple additional product candidates at various stages of formulation and
development, none of which have yet been registered with the FDA.

         We began our operations in January 2001, as a division of BioChemics,
Inc., a privately-owned biopharmaceutical company engaged in the development of
transdermal and topical drug delivery systems. BioChemics is based in Danvers,
Massachusetts. BioChemics was founded in 1989 by John J. Masiz and was
incorporated in Delaware in 1991. BioChemics began developing the VALE
technology in 1989 and has subsequently been issued four U.S. patents in
connection with this technology. BioChemics has licensed the VALE patents and
the PENtoCORE technology to us.

         As an early stage company, we are subject to a number of risks typical
of early stage companies including, but not limited to, our need to obtain
additional financing and generate profitability and cash flows from operations.
As a company engaged in the pharmaceutical industry, we are subject to a number
of risks typical of biopharmaceutical companies including, but not limited to,
our need to adhere to strict governmental regulations, our ability to withstand
intense competition from larger companies with greater financial resources and
our ability to defend our intellectual property, as licensed from BioChemics.

         Our general business strategy was adversely affected beginning in April
2004 by regulatory action taken against us and our former President and private
securities actions taken against us and our management. At the same time, we
suspended the marketing and sale of our products until we were reasonably sure
that our product marketing was consistent with the FDA's requirements and
policies. We also voluntarily delisted our common stock from trading on NASDAQ.
As a result of our voluntary delisting and the continuation of the delisting of
our securities, the action taken by the Securities and Exchange Commission, or
SEC, against us, issues regarding the regulatory status of our products, and the
significant decline in the market value of our securities concurrent with and
subsequent to these matters, several shareholder actions were filed against Vaso
Active and its officers and directors.

         In August 2005 we completed a $2,500,000 convertible note financing as
described below.


                                       13

<PAGE>

         In September 2005, the Company and certain of its officers and
directors entered into agreements to settle (i) a consolidated securities class
action lawsuit that alleged that the Company and those individuals violated the
federal securities laws with respect to certain disclosures concerning the
Company; and (ii) derivative lawsuits based on the class action allegations. In
October 2005, the court granted preliminary approval to each of the litigation
settlements, following which joint notices of the settlements and claim forms
were sent to appropriate stockholders. A Final Hearing regarding the settlements
is scheduled to be held on December 14, 2005.Following this hearing, the court
will decide whether to give final approval of the settlements.

CRITICAL ACCOUNTING ESTIMATES

         GOING CONCERN ASSUMPTION - The financial statements do not include any
adjustments relating to the recoverability and classification of assets or the
amounts and classification of liabilities that might be necessary should we be
unable to continue as a going concern. If the financial statements were prepared
on a liquidation basis, the carrying value of our assets and liabilities would
be adjusted to net realizable amounts. In addition, the classification of the
assets and liabilities would be adjusted to reflect the liquidation basis of
accounting.

         REVENUE RECOGNITION - We recognize revenue from product sales in
accordance with generally accepted accounting principles in the United States,
including the guidance in Staff Accounting Bulletin, or SAB, No. 104, "Revenue
Recognition," which superseded SAB No. 101, "Revenue Recognition in Financial
Statements," and Statement of Financial Accounting Standards, or SFAS, No. 48,
"Revenue Recognition When Right of Return Exists."

         Revenue from product sales is recognized when there is persuasive
evidence of an arrangement, delivery has occurred, the price is fixed and
determinable, and collectibility is reasonably assured. However, because our
products are sold with limited rights of return, revenue is recognized when the
price to the buyer is fixed, the buyer is obligated to pay us and the obligation
to pay is not contingent on resale of the product, the buyer has economic
substance apart from the us, we have no obligation to bring about the sale of
the product and the amount of returns can be reasonably estimated.

         We record allowances for product returns, rebates and discounts, and
report revenue net of such allowances. We must make judgments and estimates in
preparing the allowances that could require adjustments in the future. For
instance, our customers have the right to return any product that is held past
the labeled expiration date. We base our estimates on historic patterns of
returns and on the expiration dates of product currently being shipped, or as a
result of an actual event that may give rise to a significant return amount such
as the discontinuance of a product.

         We do not recognize revenue unless collectibility is reasonably
assured. We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If the
financial condition of our customers were to deteriorate and result in an
impairment of their ability to make payments, additional allowances may be
required.


                                       14



<PAGE>

         EXPENSE ALLOCATIONS / MANAGEMENT FEES - BioChemics provides us with
certain administrative, marketing and management services, as well as our
facilities and general corporate infrastructure. Our statement of operations
includes allocations of these costs that BioChemics that we considered to be
reasonable. These costs are included in selling, general and administrative
expenses.

         INCOME TAXES - We account for income taxes and deferred tax assets and
liabilities in accordance with SFAS No. 109, "Accounting for Income Taxes."
Because we project future operating losses in the near term, we have provided a
full valuation allowance against the deferred tax assets created by these
losses.

         STOCK-BASED COMPENSATION - As part of our compensation programs offered
to our employees, we grant stock options. We grant stock options to employees
based on the fair value of the Class A common stock at the grant date. As
allowed under SFAS No. 123, "Accounting for Stock-Based Compensation," and SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"
we have adopted the disclosure-only requirements of these accounting standards.
Accordingly, we do not recognize stock-based compensation expense for stock
options granted to employees at their fair value. The fair value of options
granted to non-employees is expensed in accordance with SFAS 123 using the
Black-Scholes option-pricing model. See Note 4 to our condensed financial
statements for the impact on earnings had we fully adopted SFAS 123.

         In December 2004, the FASB issued a revision to SFAS No. 123,
"Share-Based Payment," requiring companies to recognize as compensation expense
the fair value of stock options and other equity-based compensation issued to
employees. This revised statement eliminates the intrinsic value method provided
under Accounting Principles Board, or APB, No. 25, "Accounting for Stock Issued
to Employees," which is the method we currently use to value stock options
awarded to our employees. This revised standard is effective as of the beginning
of the first annual reporting period beginning after December 15, 2005 and is
expected to have a material impact on our results of operations. We are
currently evaluating the two methods of adoption allowed by this revised
standard; the modified-prospective transition method and the
modified-retrospective transition method.

THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

         NET REVENUES - On April 8, 2004, we suspended the marketing and sale of
our products until we were reasonably sure that our product marketing was
consistent with the FDA's requirements and policies and that all outstanding
matters had been addressed to the satisfaction of the SEC. See discussion under
"Overview, Key Business Challenges and Risks." In May 2004, together with
outside FDA counsel, we revised our product labels and in September 2004 began
shipping our products on a limited basis. Although these products are now on the
market, we have not made significant shipments to date. Net revenues increased
$1,629 to $4,261 for the three month period ended September 30, 2005 as compared
to $2,632 in the prior comparable period. However, as a result of the limited
revenues during these periods, we believe net revenue comparisons are not
meaningful.

         COST OF SALES - Cost of sales increased $1,810 to $4,553 during the
three month period ended September 30, 2005 from $2,743 in the comparable period
in 2004. In general, our cost of sales is variable to our net revenues. However,
certain manufacturing events such as inventory adjustments may distort our cost
of sales, and therefore our gross profit, during any particular period. However,
as a result of the limited revenues during these periods, we do not believe cost
of sales comparisons are meaningful.

         GROSS PROFIT - Gross profit as a percentage of net revenues for both
the three month period ended September 30, 2005 and September 30, 2004 are
negative as a direct result of the initial production expenses causing erratic
results over a low level of revenue activity. We do not believe that any
comparison between periods is meaningful in our current stage of development.


                                       15



<PAGE>

         MARKETING, ADVERTISING AND PROMOTION - Marketing, advertising and
promotion expenses decreased by $69,575 to $10,221 for the three-month period
ended September 30, 2005 from $79,796 during the three-month period ended
September 30, 2004. This decrease was due to our efforts to conserve working
capital pending future financing. We resumed the funding for broadcasting
television commercials from proceeds received from our August 16, 2005 sale of
Notes. You should refer to the discussion under "Outlook For Remainder of 2005."

         SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and
administrative expenses increased by $181,625 to $760,332 during the three-month
period ended September 30, 2005 as compared to $578,707 in the comparable period
in 2004. Salaries and wages paid to our employees, legal and professional costs
represent the largest costs recorded under selling, general and administrative
expense. During the three-months ended September 30, 2005, we incurred
significant legal and other professional costs in connection with the final
settlements of the consolidated class action lawsuit, the derivative suits,
review of documentation for the sale of Notes and preparation of proxy in
connection with the upcoming annual meeting. As a result, legal and professional
fees increased approximately $170,000 to $356,000 in 2005 as compared to
$186,000 in the prior comparable period.

         We are required to record stock-based compensation when we grant
options to purchase our common stock to non-employees in accordance with SFAS
123. The value of these options is calculated using the Black-Scholes
option-pricing model. Included in the salaries, wages and related personnel
costs in both periods is approximately $13,700 of stock-based compensation.

         RESEARCH AND DEVELOPMENT - Research and development expenses decreased
by $3,308 to $67,879 for the three-month period ended September 30, 2005 as
compared to $71,187 in the comparable prior period. Beginning in January 2004,
we engaged Biochemics to provide services pursuant to a February 2003
manufacturing and development agreement. These services related in part to the
formulation of a topical analgesic utilizing the active ingredient ibuprofen.
These charges have been consistent from period to period, with slight variations
due to the change in lab supplies. In August we suspended spending on research
and development of the ibuprofen product candidate pending the outcome of our
discussions relative to our license agreement with Biochemics. We are continuing
spending on development of new OTC product candidates and on use improvements to
our existing products.

         LEGAL SETTLEMENT - On September 21 and 22, 2005, respectively, the
Company and certain of its officers and directors entered into agreements to
settle the previously reported consolidated securities class action and
derivative lawsuits based on the class action allegations and filed appropriate
papers with the Court seeking dismissal of the actions. As a result of the
derivative settlement, we incurred a charge of $135,000 in the three month
period ended September 30, 2005. Charges incurred for the settlement of the
consolidated securities class action were expensed in previous periods.

NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

         NET REVENUES - Net revenues increased $9,416 to $20,057 for the nine
month period ended September 30, 2005 as compared to $10,641 in the prior
comparable period. However, as a result of the limited revenues during these
periods, we believe net revenue comparisons are not meaningful.

         COST OF SALES - Cost of Sales decreased $24,103 to $24,268 during the
nine month period ended September 30, 2005 from $48,371 in the comparable prior
period. In general, our cost of sales is variable to our net revenues. However,
certain manufacturing events such as inventory adjustments may distort our cost
of sales, and therefore our gross profit, during any particular period. In the
nine month period ended September 30, 2005 we wrote off $10,632 of unrecoverable
inventory which compared to $38,871 that was written off as unrecoverable in the
comparable prior period. However, as a result of the limited revenues during
these periods, we do not believe cost of sales comparisons are meaningful.


                                       16



<PAGE>

         GROSS PROFIT - Gross profit as a percentage of net revenues for both
the nine month period ended September 30, 2005 and September 30, 2004 are
negative as a direct result of the matters discussed under the Cost of Sales
discussion above related the write-off of unrecoverable inventory. We do not
believe that any comparison between periods is meaningful in our current stage
of development.

         MARKETING, ADVERTISING AND PROMOTION - Marketing, advertising and
promotion expenses increased $55,312 to $211,957 for the nine-month period ended
September 30, 2005 from $156,645 for the nine-month period ended September 30,
2004. The prior period included stock based compensation for the award of a
warrant to purchase 225,000 shares of common stock. As this warrant was
completely vested, we recorded a charge of approximately $96,000. Excluding this
non-recurring event, expenses were $151,312 higher than in the comparable prior
period. This increase was primarily attributable to $103,775 in costs we
incurred in connection with our launch of a series of 60 and 120 second
television commercials for the Osteon product throughout the United States.

         Costs for marketing, advertising and promotion were significantly less
in 2004 because on April 8, 2004 we committed not to market or sell our products
until we were reasonably sure that the marketing and sale of our products was
consistent with the FDA's requirements and policies. See discussion under
"Overview, Key Business Challenges and Risks"

         SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and
administrative expenses decreased by $1,358,828 to $1,905,424 during the
nine-month period ended September 30, 2005 as compared to $3,264,252 in the
comparable period in 2004. In the comparable prior year period, we incurred
significant non-recurring expenses, including financing fees, legal, accounting
and other expenses in connection with the private placement of convertible notes
in early 2004 and the subsequent unwinding of that transaction. We also incurred
the significant expenses in 2004 associated with the amending of our previously
filed annual report, legal fees associated with representing ourselves to the
SEC and FDA and to defend ourselves in the shareholder class action and
derivative law suits. See discussion under "Overview, Key Business Challenges
and Risks." We incurred approximately $433,000 in total combined legal fees and
approximately $259,700 in business, financial and other professional services
during the nine month period ended September 30, 2005, as compared to
approximately $1,040,000 in total combined legal fees, approximately $376,000 in
business, financial and other professional services and $615,000 in professional
and settlement fees we incurred in connection with our March 16, 2004 Private
Investment in Public Entity transaction during the nine-month period ended
September 30, 2004. These factors represent the majority of the decrease in
selling, general and administrative expenses.

         During the nine-months ended September 30, 2005, other selling, general
and administrative expenses we incurred were $581,400 in salaries, wages and
related personnel costs; approximately $176,000 for various insurance premiums
typical of a public company; approximately $142,300 for board of director
compensation, approximately $34,400 in management fees paid to BioChemics,
approximately $69,675 in registered accountant fees, approximately $33,000 in
computer consulting services, approximately $54,625 in travel and entertainment
and approximately $32,920 in rent expense. The remaining selling, general and
administrative expenses pertained to our general operations.

         We are required to record stock-based compensation when we grant
options to purchase our common stock to non-employees in accordance with SFAS
123. The value of these options is calculated using the Black-Scholes
option-pricing model. Included in the salaries, wages and related personnel
costs in both periods is approximately $41,184 of stock-based compensation.

         RESEARCH AND DEVELOPMENT - Research and development expenses increased
by $31,663 to $272,772 for the nine-month period ended September 30, 2005 as
compared to $241,109 in the comparable prior period. Beginning in January 2004,
we engaged Biochemics to provide services pursuant to a February 2003
manufacturing and development agreement. Expenses in this area have increased as
a direct result of utilizing more of Biochemics' research and development
resources during the nine month period ended September 30, 2005. These services


                                       17



<PAGE>

related in part to the formulation of a topical analgesic utilizing the active
ingredient ibuprofen. In August we suspended spending on research and
development of the ibuprofen product candidate pending the outcome of our
discussions relative to our license agreement with Biochemics. We are continuing
spending on development of new OTC product candidates and on use improvements to
our existing products.

         LEGAL SETTLEMENT - On September 21 and 22, 2005, respectively, the
Company and certain of its officers and directors entered into agreements to
settle the previously reported consolidated securities class action and
derivative lawsuits based on the class action allegations and filed appropriate
papers with the Court seeking dismissal of the actions. As a result of the
settlements, we incurred a charge of $885,000 in the nine month period ended
September 30, 2005.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has incurred substantial operating losses and negative cash
flows from operations since inception. In 2004 and 2005, operations were
financed from the proceeds of our December 2003 initial public offering. Net of
offering costs, we raised approximately $6.4 million. Prior to our receipt of
these proceeds, we relied on BioChemics, together with the proceeds from an
offering of convertible notes in early 2003, as the source of our working
capital. All of the funds raised from this initial public offering have been
exhausted to date.

         At November 1, 2005, we had unrestricted cash of approximately
$1,202,000 and working capital of approximately $756,000, excluding $437,000 of
restricted cash held in escrow to fund future interest payments on the Notes.
Our financial condition has been materially and adversely affected by recent
regulatory and shareholder actions taken against us. We expect to obtain final
court approval, in the fourth quarter, on the settlement agreements described
under "Legal Proceedings" in part II below. After obtaining final court
approval, we expect our expenditures for legal and professional fees to decrease
accordingly in the future.

         On August 16, 2005, under a Securities Purchase Agreement (the
"Purchase Agreement"), we issued a series of Senior Secured Convertible Notes
(the "Notes") due May 01, 2007 in the aggregate principal amount of $2,500,000.
The Company netted approximately $1,700,000 in cash proceeds from financing
after placement fees, legal expenses, other offering costs, and funding of an
escrow. Placement fees, legal expenses and other offering costs paid were
approximately $360,000 and approximately $440,000 was placed into escrow to fund
substantially all of the Company's interest payments on the Notes (assuming that
the Notes continue to accrue interest at the initial rate of 10% per annum).

         The Notes. The Notes have a term of 21 months and the principal of the
Notes is due and payable in a single payment on May 1, 2007. The Notes bear
interest at the six month LIBOR plus 6% with a floor of 10.0% and a ceiling of
12.0%. The Notes presently accrue interest at 10% per annum. Interest is payable
quarterly, in arrears, beginning October 31, 2005, on each July 31, October 31,
January 30 and April 30, until the earlier of the Notes' maturity or conversion
date. Pursuant to the Purchase Agreement the Company has deposited into an
escrow account the total amount of the interest to be paid under the Notes,
i.e., $437,000.

         Amounts scheduled to be paid by the Company under the Notes may be
accelerated upon the occurrence of certain events, including any default in the
payment of interest when due and payable; the default by the Company under other
notes, mortgage, or credit facility; the failure of the Company to perform
certain obligations to deliver certificates for Underlying Shares or to timely
register the Underlying Shares for resale as required under the Purchase
Agreement; and in the event of bankruptcy.

         The Notes are secured by all of the assets of the Company. The Notes
are convertible at any time into shares of the Company's Class A common stock at
a price of $0.70 per share (subject to adjustment under certain circumstances,
e.g., anti-dilution adjustments).


                                       18



<PAGE>

         The Warrants. The investors also received five-year warrants
("Warrants"), which entitle the investors to purchase a total of 1,298,701
shares of the Company's Class A common stock at an exercise price of $0.77 per
share. The number of shares which may be purchased upon exercise of the Warrants
and the exercise price per share of the Warrants are subject to adjustment under
certain circumstances, e.g., anti-dilution adjustments.

         The Additional Investment Rights (AIRs). In addition, the investors
received AIRs to purchase up to $1,875,000 in aggregate principal amount of
additional Notes at any time through the maturity date of the Notes, together
with additional five-year Warrants to purchase a total of 974,026 shares of
Class A common stock. The additional Notes are convertible and the additional
Warrants are exercisable at the same respective initial prices per share as the
Notes and Warrants issued on August 16, 2005.

         Under the Purchase Agreement, the Company is required to reserve for
issuance a total of 8,522,727 shares of Class A Common Stock, in connection with
the possible conversion of Notes (including the additional Notes) and the
possible exercise of the Warrants (including the additional Warrants).


         If the AIRs are exercised in full, we believe, based on our current
plans and assumptions relating to our operations, that the additional working
capital provided by the exercise will be sufficient to satisfy our cash
requirements through December 31, 2006. However, there can be no assurance that
any of the AIRs will be exercised. If no portion of the AIRs is exercised, we
believe that, based on such plans and assumptions our current working capital
will be sufficient to satisfy our cash requirements through May 31, 2006.

         There can be no assurance that we will be able to obtain any additional
financing or that, even if we do obtain additional financing, it will be on
terms favorable to us. Further, there can be no assurance that we will be able
to generate profitability and cash flows from operations with our existing
working capital.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

         The following table sets forth our contractual obligations and
commitments for the next five years, as of September 30, 2005.

<TABLE>
                                                       LESS THAN         1 - 3           3 - 5           5 - 7
                                          TOTAL          1 YEAR          YEARS           YEARS           YEARS

<S>                                    <C>            <C>            <C>            <C>            <C>
Long-term debt                         $2,500,000     $       --     $2,500,000     $       --     $       --
Capital lease obligations                  14,582          2,351          5,070          7,161             --
Operating lease obligations                    --             --             --             --             --
Unconditional purchase obligations             --             --             --             --             --
Employment agreements                   2,277,917        387,917        630,000        630,000        630,000
                                       ----------     ----------     ----------     ----------     ----------

Total                                  $4,792,499     $  390,268     $3,135,070     $  637,161     $  630,000
                                       ==========     ==========     ==========     ==========     ==========

</TABLE>

         In February 2005, we appointed our Chief Financial Officer, Mr. Joseph
Frattaroli, as our President. Mr. Frattaroli will continue to serve as Chief
Financial Officer and Acting Chief Executive Officer. This table is presented
reflecting the authorized annual salary to Mr. Frattaroli effective March 1,
2005 for one year. The written employment agreements with Mr. Masiz and Dr.
Carter terminate their initial terms on June 30, 2008, but are deemed
automatically extended for successive periods of two years under the terms of
their respective written agreements through 2012. This table is presented
assuming the automatic extensions are reflected.

         Mr. Masiz and Dr. Carter have agreed to waive, in writing, certain
termination payout clauses contained in their respective employment agreements
in the event that Vaso Active becomes insolvent. Mr. Frattaroli has agreed in
principle to a similar waiver, and will execute a similar waiver in writing when
his employment agreement is finalized and executed.


                                       19



<PAGE>

            In September 2005, Vaso Active and certain of its officers and
directors, entered into agreements to settle the previously reported
consolidated securities class action and derivative lawsuits. As a result of
these settlements, we recorded a charge of $885,000 payable $25,000 in cash and
$860,000 in the form of 2 year 5% convertible notes that is not reflected as an
obligation in this table. See a further discussion of the lawsuits in the
"OVERVIEW, KEY BUSINESS CHALLENGES AND RISKS" section of this quarterly report.

OFF-BALANCE SHEET ARRANGEMENTS

         We have no material off-balance sheet financing such as a facility
lease or other long-term commitments. We have employment agreements with three
key employees. Please refer to "Contractual Obligations and Commitments" for a
summary of the employment agreement obligations.

OWNERSHIP STRUCTURE

         Through our parent company, Biochemics, John J. Masiz controls
approximately 70% of the combined voting power of all classes of stock of the
Company and approximately 44% of the combined equity interest of the Company.
Biochemics owns 100% of the Class B Common Stock of the Company.


RISK FACTORS

WE ARE AN EARLY STAGE COMPANY WITH A BRIEF HISTORY OF LOSSES AND MAY NEVER
ACHIEVE OR SUSTAIN PROFITABILITY.

We do not have any continuing revenues and we have never been profitable and we
may not achieve profitability in the foreseeable future, if at all. Our ability
to generate profits in the future will depend on a number of factors, including:

         o        start-up costs relating to the commercialization, sale and
                  marketing of our products;
         o        market acceptance of our products and product candidates;
         o        costs of acquiring and developing new product candidates;
         o        ability to bring our products to market;
         o        general and administrative costs relating to our operations;
         o        increases in our research and development costs;
         o        charges related to purchases of technology or other assets;
         o        ability to raise additional capital; and
         o        the favorable resolution of our current litigation (see "Legal
                  Proceedings").

         At September 30, 2005, we had an accumulated deficit of approximately
$9.5 million. We expect to incur additional operating losses as we expand our
marketing, sales and development efforts. If we are unable to generate
sufficient revenue from our operations to pay expenses or we are unable to
obtain additional financing on commercially reasonable terms, our business,
financial condition and results of operations may be materially and adversely
affected.

WE ARE AN EARLY STAGE COMPANY THAT HAS A LIMITED OPERATING HISTORY.

         We are an early stage company focused on commercializing, marketing and
selling OTC pharmaceutical products. We began our operations as a division of
BioChemics, Inc. in January 2001. We have only operated as an entity independent
of BioChemics since January 2003. Our operating history is therefore limited.
Our Termin8, A-R Extreme and Osteon products, which we license from BioChemics,


                                       20



<PAGE>

are in the early stages of commercialization. Our product candidates are only in
the early stages of development. With the exception of the introduction of
deFEET to the marketplace by BioChemics while we were still a division of
BioChemics, we have not yet recognized significant revenue from product sales.
You should evaluate the likelihood of financial and operational success in light
of the uncertainties and complexities present in an early-stage company, many of
which are beyond our control, including:

         o        our potential inability to market, distribute, and sell our
                  products; and
         o        the significant investment of capital and other resources
                  necessary to achieve our commercialization, marketing and
                  sales objectives.

     Our operations have been limited to organizing and staffing our company,
acquiring our license, developing and testing our revenue distribution models
and test marketing our products. These operations provide a limited basis for
you to assess our ability to commercialize our products and product candidates
and the advisability of investing in us.

OUR INDEBTEDNESS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION

         In August 2005, we completed a private placement of $2,500,000 in
aggregate principal amount Notes due May 1, 2007
(the "Notes"). Principal is to be paid in a single payment on May 1, 2007
(interest will be paid from proceeds of the private placement which were placed
in escrow at closing). In addition, the purchasers of the Notes received rights
to purchase up to $1,875,000 in aggregate principal amount of additional Notes
at any time through the maturity date of the Notes. We also anticipate that we
will incur substantial indebtedness (subordinated to the Notes) in connection
with a settlement of various class actions and derivative actions involving us.
Our indebtedness could have important consequences for investors. For example,
it could:

         o        require the dedication of a substantial portion of our cash
                  flows from operations to the payment of principal of and
                  interest on our indebtedness, thereby reducing the
                  availability of capital to fund our operations, working
                  capital, capital expenditures, acquisitions and other general
                  corporate purposes;
         o        increase our vulnerability to general adverse economic and
                  industry conditions;
         o        place us at a competitive disadvantage relative to our
                  competitors;
         o        limit our ability to obtain additional financing;
         o        limit our flexibility in planning for, or reacting to, changes
                  in our business and the industry; and
         o        influence our customers and potential customers in doing
                  business with us.

     Although we have no present plans to do so, except as described above, we
may incur substantial additional debt in the future. While the terms of private
placement of the Notes impose certain limits in our ability to incur additional
debt, we are permitted to incur additional debt subject to compliance with the
terms and conditions set forth in the private placement. If a significant amount
of new debt is added to our current levels, the related risks described above
could intensify.

WE MAY HAVE INSUFFICIENT CASH FLOW TO MEET OUR DEBT OBLIGATIONS WHICH COULD
NEGATIVELY AFFECT OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS.


                                       21



<PAGE>

         We will be required to generate sufficient cash to pay the principal
amount due in the Notes and to conduct our business operations. The notes
require a $2,500,000 (or up to 4,375,000 if additional investment rights are
exercised in full) payment of principal due in May 2007. Our cash and cash
equivalents, totaled approximately $2,051,000 as of September 30, 2005. Assuming
our cash and cash equivalents remain at or below our September 30, 2005
levels, we will need to generate a minimum of approximately $600,000 of net cash
flow through any combination of normal operations of our company, raising of
debt and equity capital or assets sales by May 2007 to meet our principal
payment under the Notes. In addition, as noted above, we also anticipate that we
will incur substantial indebtedness (subordinated to the Notes) in connection
with a settlement of various class actions and derivative actions involving us.
We have incurred net losses in the past, and we may not be able to cover our
anticipated debt obligations. This may materially hinder our ability to make
principal payments on the Notes. Concern about our ability to meet our debt
obligations could negatively affect our ability to attract and retain customers.
Our ability to meet our future debt obligations will be dependent upon our
future performance, which will be subject to financial, business and other
factors affecting our operations, many of which are beyond our control.

THERE ARE SIGNIFICANT UNCERTAINTIES ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN.

         Our recurring operating losses, liquidity issues and the uncertainties
raised as a result of our legal proceedings raise substantial doubt about our
ability to continue as a going concern. Our ability to continue as a going
concern and the appropriateness of using the going concern basis of accounting
depends upon, among other things on, the ability to generate sufficient cash
from operations and financing sources to meet obligations. On August 16, 2005,
we issued the Notes in the aggregate principal amount of $2,500,000. We netted
approximately $1,700,000 in cash proceeds from this financing, after taking into
consideration placement fees, legal expenses, other offering costs, and funding
of an escrow. Placement fees, legal expenses and other offering costs paid were
approximately $360,000 and approximately $440,000 was placed into escrow to fund
all of our interest payments on the Notes (assuming the Notes continue to accrue
interest at the initial rate of 10% per annum.)

         Under the Purchase Agreement, the Note holders may exercise additional
Rights to purchase up to a total of an additional $1,875,000 in principal amount
of Senior Secured Convertible Notes due May 1, 2007 under substantially the same
terms and conditions as the Notes. Net of placement fees, legal expenses, other
offering costs and escrow deposit, we believe that we would to net approximately
$1,300,000 if the additional Rights are exercised in full. If exercised in full,
we anticipate, based on our current plans and assumptions relating to our
operations, that the additional working capital provided by the exercise will be
sufficient to satisfy our cash requirements through December 31, 2006.

         There can be no assurance that any of the additional Rights will be
exercised. There can be no assurance that we will be able to obtain any
additional financing or that, even if we do obtain additional financing, it will
be on terms favorable to us. Further, there can be no assurance that we will be
able to generate profitability and cash flows from operations with our existing
working capital.

         We intend to continue as a going concern. However, unless we can
generate profitability and cash flows from operations or obtain additional
financing, we may not be able to continue as a going concern. There can be no
assurance that we will be able to generate profitability and cash flows from
operations with our existing working capital. Further, there can be no assurance
that we will be able to obtain such additional financing or that, even if we do
obtain additional financing, it will be on terms favorable to us.

OUR FAILURE TO COMPLY WITH EXTENSIVE GOVERNMENT REGULATION MAY SIGNIFICANTLY
AFFECT OUR OPERATING RESULTS.


                                       22



<PAGE>

         The worldwide marketing of our products and our product candidates are
subject to extensive requirements by foreign, national, state and local
governments. These regulations potentially impact many aspects of our
operations, including testing, research and development, manufacturing,
pre-market labeling, storage, quality control, adverse event reporting, record
keeping, advertising and promotion. Failure to comply with applicable regulatory
requirements could, among other things, result in:

         o        fines;
         o        changes to advertising;
         o        failure to obtain necessary marketing approvals;
         o        revocation or suspension of regulatory approvals of products;
         o        product seizures or recall;
         o        delay, interruption or suspension of product manufacturing,
                  distribution, marketing and sale; or
         o        civil or criminal sanctions.

         The discovery of previously unknown problems with our initial and
future products may result in the interruption of marketing, including
withdrawal from the market. In addition, the FDA may revisit and change any
prior determination relating to the safety or efficacy of our products. If
circumstances change, we may be required to change our labeling or cease the
marketing and manufacturing of the product or products at issue. Even prior to
any formal regulatory action, we could voluntarily decide to cease the
distribution and sale or recall any of our future products if concerns about
their safety or efficacy develop.

         In their regulation of all our promotional materials, the FDA and the
Federal Trade Commission, or FTC, may take issue with some advertising or
promotional practices as being false, misleading or deceptive. The FDA or the
FTC may impose a wide array of sanctions on companies for such advertising
practices, which could result in any of the following:

         o        incurring substantial expenses, including fines, penalties,
                  legal fees and costs to comply with FDA or FTC requirements;
         o        changing the methods of marketing and selling products;
         o        taking mandated corrective action, which may include placing
                  advertisements or sending letters to physicians and marketing
                  partners rescinding previous advertisements or promotions; or
         o        disrupting the distribution of products and causing the loss
                  of sales until compliance with the FDA's or FTC's position is
                  obtained.

         If we become subject to any of the above requirements, it could be
damaging to our reputation, and our business condition could be adversely
affected.

WE CANNOT MARKET OUR PRODUCTS UNLESS THEY HAVE BEEN LISTED WITH THE FDA AND ARE
COVERED BY THE FDA'S OTC REVIEW PROGRAM AND ARE MARKETED IN CONFORMITY WITH THE
APPLICABLE OTC DRUG MONOGRAPH OR HAVE ATTAINED NDA OR ANDA APPROVAL.

         If our topical A-R Extreme, Osteon and Termin8 products are formulated
and promoted in accordance with the OTC Drug Monographs pursuant to the FDA's
OTC Review Program, FDA pre-market approval is not required prior to marketing.
If these or any of our product candidates deviate from an OTC Drug Monograph
requirement in active ingredients, intended use, method of administration,
dosage form, or labeling, among other things, then we or our marketing partners
must obtain New Drug Application, or NDA, pre-market approval from the FDA
before beginning commercial marketing. The FDA has taken the position that
insofar as our product candidates may use the VALE transdermal technology, they
fall outside of those eligible for generally recognized as safe and effective,
or GRASE, status under the OTC Review Program and thus we must obtain, or our
marketing partners must obtain, NDA approval of these product candidates before
they can be commercially marketed.


                                       23



<PAGE>

         Under the FDA's procedures, it is generally less burdensome to obtain
NDA approval of a drug product which contains the same active ingredient(s) as
those: (a) considered GRASE in a final OTC Drug Monograph, or (b) contained in a
drug product eligible for abbreviated new drug application, or ANDA, approval,
but which differs in certain conditions of use (e.g., dosage form) from that
covered by a final OTC Drug Monograph or eligible for ANDA approval. However,
once a product becomes subject to the NDA requirements there can be no assurance
that a company can generate the additional data and information necessary to
support NDA approval of the proposed variant product or that approval can be
obtained without substantial expenditures and delays.

CLINICAL TRIALS MAY FAIL TO DEMONSTRATE THE SAFETY AND EFFICACY OF OUR PRODUCT
CANDIDATES AND COULD PREVENT OR SIGNIFICANTLY DELAY REGULATORY APPROVAL.

         Prior to receiving NDA approval to commercialize any of our product
candidates, we must demonstrate with substantial evidence from well-controlled
clinical trials, and to the satisfaction of the FDA and other regulatory
authorities in the United States and abroad, that the product candidate is both
safe and effective. If these trials or future clinical trials are unsuccessful,
our business and reputation would be harmed and our stock price would be
adversely affected.

         All of our product candidates are prone to the risks of failure. The
results of early-stage clinical trials of our product candidates will not
necessarily predict the results of later-stage clinical trials. Product
candidates in later-stage clinical trials may fail to show desired safety and
efficacy traits despite having progressed through initial clinical testing. Even
if we believe the data collected from clinical trials of our product candidates
are promising, these data may not be sufficient to support approval by the FDA
or any other U.S. or foreign regulatory approval. Preclinical and clinical data
can be interpreted in different ways. Accordingly, FDA officials could interpret
such data in different ways than we do which could delay, limit or prevent
regulatory approval. The FDA, other regulatory authorities, or we may suspend or
terminate clinical trials at any time. Any failure or significant delay in
completing clinical trials for our product candidates, or in receiving
regulatory approval for the sale of any products resulting from our product
candidates, may severely harm our business and reputation.

         Because of these risks, the research and development efforts of our
collaborative partners may not result in any commercially viable products. If a
significant portion of these development efforts is not successfully completed,
required regulatory approvals are not obtained by our partners, or any approved
products are not commercially successful, we are not likely to generate
significant revenues or become profitable.

THERE IS NO ORGANIZED MARKET FOR OUR STOCK; OUR STOCK PRICE HAS BEEN VOLATILE
AND COULD EXPERIENCE SUBSTANTIAL DECLINES.

         Our securities are currently quoted in the Pink Sheets under the
trading symbol "VAPH.PK." The market price of our common stock has experienced,
and may continue to experience, significant volatility. Since the beginning of
2004, the per share closing price of our common stock has ranged from $0.38 to
$14.11. As a result of the temporary suspension of trading in our securities on
April 1, 2004, our press release dated April 7, 2004 advising investors not to
trade in our securities until further disclosure, and our voluntary delisting of
our securities from The Nasdaq Stock Market on April 8, 2004, there is not
currently an organized market in our securities, and there can be no assurance
that such a market will develop. On November 10, 2005 the average bid for a
share of our Class A Common Stock as quoted by the OTC Pink Sheets was $0.55 per
share. The value of our Class A Common Stock may decline regardless of our
operating performance or prospects. Factors affecting our market price include:

         o        the success or failure of our product development efforts,
                  especially those related to obtaining regulatory approvals;
         o        technological innovations developed by us or our competitors;
         o        variations in our operating results and the extent to which we
                  achieve our key business targets;
         o        differences between our reported results and those expected by
                  investors and securities analysts; and


                                       24



<PAGE>

         o        market reaction to any acquisitions or joint ventures
                  announced by us or our competitors.


         In addition, in recent years, the stock market in general, and the
market for pharmaceutical companies in particular, have experienced significant
price and volume fluctuations. This volatility has affected the market prices of
securities issued by many companies, often for reasons unrelated to their
operating performance, and it may adversely affect the price of our common
stock. In the past, securities class action litigation has often been instituted
following periods of volatility in the market price of a company's securities. A
number of securities class action lawsuits have been filed against us. See
"Legal Proceedings" for more information.

UNTIL FINAL COURT APPROVAL,WE ARE STILL DEFENDANTS IN A CONSOLIDATED CLASS
ACTION LAWSUIT THAT MAY ADVERSELY AFFECT OUR BUSINESS.

         As discussed in greater detail under "Legal Proceedings," we and
certain of our officers were the defendants in a number of class action
lawsuits, subsequently consolidated, filed on behalf of purchasers of Vaso
Active's Class A Common Stock during the period December 9, 2003 to March 31,
2004, which alleged that the defendants violated the federal securities laws by
allegedly failing to make accurate and complete disclosures concerning Vaso
Active, its business operations and future prospects, the regulatory status of
our products, the clinical trial and endorsement of our Termin8 anti-fungal
product (previously known as "deFEET") and the institutional demand for Vaso
Active securities. The complaints sought equitable and monetary relief, an
unspecified amount of damages, with interest, attorney's fees and costs.

         In September 2005, Vaso Active and certain of its officers and
directors entered into agreements to settle all shareholder actions (the "Class
Actions") and shareholder derivative actions filed against Vaso Active and
certain named officers and directors (the "Derivative Actions"). The appropriate
papers have been filed with the court seeking dismissal of these actions. The
parties to the agreements have obtained the court's preliminary approval of the
settlements. Under the terms of the Class Action Agreement, Vaso Active,
disclaiming any liability, has caused to be paid into escrow for the benefit of
the putative class $1,100,000 in cash and, at a future time after certain
conditions of the settlement agreement have been met, will issue $750,000 face
amount of 2-year 5% subordinated callable notes convertible at $1.75 per share
(with full dilution protection). Vaso Active's insurance carrier agreed to pay
the $1,100,000 cash payment in exchange for a release of its liability under its
insurance policy with Vaso Active. Under the terms of the Derivative Action
Agreement, Vaso Active, disclaiming any liability, agreed to pay to plaintiffs'
counsel a total of $25,000 in cash and $110,000 face amount of 2-year 5%
subordinated callable notes convertible at $1.75 per share within thirty
business days of final court approval of the Derivative Action Agreement. In
addition, the terms of the Derivative Action Agreement require Vaso Active to
institute or maintain certain corporate governance guidelines. In consideration
of these settlements, the parties agreed to fully and finally release and
discharge all claims against each other. You should refer to "Legal Proceedings"
for additional discussions surrounding these events.

         While a settlement has been agreed to by the parties, the court has not
yet approved the settlement. If there are adverse developments in the lawsuit
against us, or resolution of our settlement by the court takes longer than we
expect, our capital resources could be adversely affected. Should these actions
linger for a long period of time, whether ultimately resolved in our favor or
not, or further lawsuits be filed against us, our financial results will be
adversely affected by the need to pay the fees and costs incurred in defending
these suits. Additionally, we may not be able to conclude or settle such
litigation on terms that coincide with our ability to pay any judgment or
settlement. The size of payments for damages and other costs related to these
actions, individually or in the aggregate, could seriously impair our cash
reserves and financial condition. In addition, the continued defense of this
lawsuit also could result in continued diversion of our management's time and
attention away from business operations, which could cause our financial results
to decline. A failure to resolve definitively current or future material
litigation in which we are involved or in which we may become involved in the
future, regardless of the merits of the respective cases, could also cast doubt
as to our prospects in the eyes of our customers, potential customers and
investors, which could cause our revenues and stock price to further decline.


                                       25



<PAGE>

PROVISIONS IN OUR BYLAWS PROVIDE FOR INDEMNIFICATION OF OFFICERS AND DIRECTORS,
WHICH COULD REQUIRE US TO DIRECT FUNDS AWAY FROM OUR BUSINESS OPERATIONS.

         Our bylaws, as amended, provide for the indemnification of our officers
and directors. We may be required to advance costs incurred by an officer or
director and to pay judgments, fines and expenses incurred by an officer or
director, including reasonable attorneys' fees, as a result of actions or
proceedings in which our officers and directors are involved by reason of being
or having been an officer or director of Vaso Active. Funds paid in satisfaction
of judgments, fines and expenses may be funds we need for the operation of our
business, commercialization of our current products and the development of our
product candidates, thereby affecting our ability to attain profitability.

HISTORICALLY, WE HAVE DEPENDED ON A SMALL NUMBER OF CUSTOMERS FOR THE MAJORITY
OF OUR NET REVENUE.

         As of the date of this report, we are not generating any significant
revenues. We may not be able to generate significant revenues in the future. At
various times, we and BioChemics have marketed Osteon, Athlete's Relief and
deFEET on a "test basis" to experiment with consumer packaging and product
performance receptivity, packaging size, label design along with other criteria.
We consider this information important to deciding on an eventual roll out
strategy for the products. We call these programs "test marketing" because
neither Vaso Active nor its parent, BioChemics, was sufficiently capitalized to
engage in advertising campaigns. In some cases, we terminated test marketing
programs and in other cases, the retailer terminated test marketing programs.

WE DEPEND ON BIOCHEMICS AND THIRD PARTIES TO DEVELOP AND MANUFACTURE OUR
PRODUCTS AND PRODUCT CANDIDATES AND OUR COMMERCIALIZATION OF OUR PRODUCTS COULD
BE STOPPED, DELAYED OR MADE LESS PROFITABLE IF BIOCHEMICS OR THOSE THIRD PARTIES
FAIL TO PROVIDE US WITH SUFFICIENT QUANTITIES AT ACCEPTABLE PRICES.

         We do not possess product development capability. As a result, we
depend on collaborations with third parties, such as BioChemics, for development
of our product candidates. During the nine months ended September 30, 2005 and
2004, we incurred research and development costs of approximately $178,000 and
$143,000, respectively, related to the formulation of an analgesic utilizing the
active ingredient ibuprofen as well as finalization of RepiDerm product
development. These services were incurred pursuant to a February 2003
manufacturing and development agreement with BioChemics.

         In addition, we have no manufacturing capability. As a result, we will
depend on BioChemics, which in turn will rely upon third parties to manufacture
our products. Although our strategy is based on leveraging BioChemics' ability
to develop and manufacture our products for commercialization in the OTC
marketplace, we will be dependent on BioChemics' collaborations with drug
development and manufacturing collaborators. If we and BioChemics are not able
to maintain existing collaborative arrangements or establish new arrangements on
commercially acceptable terms, we would be required to undertake product
manufacturing and development activities at our own expense. This would increase
our capital requirements or require us to limit the scope of our development
activities. Moreover, we have limited or no experience in conducting full scale
bioequivalence or other clinical studies, preparing and submitting regulatory
applications, and manufacturing and marketing drug products. There can be no
assurance that we will be successful in performing these activities and any
failure to perform such activities could have a material adverse effect on our
business, financial condition and results of our operations.

         If any of our developmental collaborators, especially BioChemics,
breach or terminate their agreements with us or otherwise fail to conduct their
collaborative activities in a timely manner, the preclinical and/or clinical
development and/or commercialization of our product candidates will be delayed,
and we would be required to devote additional resources to product development
and commercialization or terminate certain development programs. Also, these


                                       26



<PAGE>

relationships generally may be terminated at the discretion of our
collaborators, in some cases with only limited notice to us. The termination of
collaborative arrangements could have a material adverse effect on our business,
financial condition and results of operations. There also can be no assurance
that disputes will not arise with respect to the ownership of rights to any
technology developed with third parties. These and other possible disagreements
with collaborators could lead to delays in the development or commercialization
of our product candidates or could result in litigation or arbitration, which
could be time consuming and expensive and could have a material adverse effect
on our business, financial condition and results of operations.

         Additionally, the failure of any of our contract manufacturers to
manufacture our products in conformity with current good manufacturing
practices, or cGMPs, could result in interruption or halt of the availability of
our products, pending demonstration to the FDA or a court of compliance with
cGMPs. Any such interruption in the availability of our products could have a
material adverse impact upon our financial position and results of operations.

IF WE OR BIOCHEMICS FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL
PROPERTY RIGHTS, WE MAY BE UNABLE TO OPERATE EFFECTIVELY.

         BioChemics owns proprietary technology developed in connection with its
four U.S. patents. In addition, foreign patents have been issued to BioChemics
in 17 foreign countries and are pending in seven others. The PENtoCORE
technology is not covered by patents but is considered proprietary. BioChemics
also owns sixteen registered trademarks, including Osteon, RepiDerm, Termin8,
and PENtoCORE. Our license agreement, as amended, with BioChemics permits us to
commercialize market and sell our products and product candidates using these
patents, proprietary formulations and the Osteon and PENtoCORE trademarks. Our
success and ability to compete are substantially dependent on these patents,
proprietary formulations and trademarks. Although both we and BioChemics believe
that the patents and associated trademarks and licenses are valid, there can be
no assurance that they will not be challenged and subsequently invalidated
and/or canceled. The invalidation or cancellation of any one or all of the
patents or trademarks would significantly damage our commercial prospects.
Further, BioChemics may find it necessary to legally challenge parties
infringing its patents or trademarks or licensed trademarks to enforce its
rights thereto. There can be no assurance that any of the patents would
ultimately be held valid or that efforts to defend any of the patents, trade
secrets, know-how or other intellectual property rights would be successful.

IF WE INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, OUR BUSINESS AND
PROFITABILITY MAY BE ADVERSELY AFFECTED.

         Our commercial success will also depend, in part, on us and BioChemics
not infringing on the patents or proprietary rights of others. There can be no
assurance that the technologies and products used or developed by BioChemics and
marketed and sold by Vaso Active will not infringe such rights. If such
infringement occurs and neither we nor BioChemics is able to obtain a license
from the relevant third party, we will not be able to continue the development,
manufacture, use, or sale of any such infringing technology or product. There
can be no assurance that necessary licenses to third-party technology will be
available at all, or on commercially reasonable terms. In some cases, litigation
or other proceedings may be necessary to defend against or assert claims of
infringement or to determine the scope and validity of the proprietary rights of
third parties. Any potential litigation could result in substantial costs to,
and diversion of, our resources and could have a material and adverse impact on
us. An adverse outcome in any such litigation or proceeding could subject us
and/or BioChemics to significant liabilities, require us to cease using the
subject technology or require us and/or BioChemics to license the subject
technology from the third party, all of which could have a material adverse
effect on our business.

WE OPERATE IN A COMPETITIVE ENVIRONMENT AND THERE CAN BE NO ASSURANCES THAT
COMPETING TECHNOLOGIES WOULD NOT HARM OUR BUSINESS DEVELOPMENT.


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<PAGE>

         We are engaged in a rapidly evolving field. Competition from numerous
pharmaceutical companies including Pfizer, Bristol-Myers Squibb,
Schering-Plough, Alza and emerging biotechnology companies like Cygnus and Elan,
as well as research and academic institutions, is intense and expected to
increase. Such companies have substantially larger research & development,
marketing and promotion resources as well as histories of success in the
marketplace. The market for transdermal and topical drug delivery systems is
large and growing rapidly and is likely to attract new entrants. Numerous
biotechnology and biopharmaceutical companies have focused on developing new
drug delivery systems and most, if not all of these companies; have greater
financial and other resources and development capabilities than we do. They also
have greater collective experience in undertaking pre-clinical and the clinical
testing of products; obtaining regulatory approvals; and manufacturing and
marketing OTC and prescription pharmaceutical products. Accordingly, certain of
our competitors may succeed in obtaining approval for products more rapidly than
us. In addition to competing with universities and other research institutions
in the development of products, technologies and processes, we may compete with
other companies in acquiring rights to products or technologies from
universities. There can be no assurance that our products, existing or to be
developed, will be more effective or achieve greater market acceptance than
competitive products, or that our competitors will not succeed in developing
products and technologies that are more effective than those being developed by
us or that would render our products and technologies less competitive or
obsolete.

TECHNOLOGICAL ADVANCEMENT BY OUR COMPETITORS COULD RESULT IN THE OBSOLESCENCE OF
SOME OR ALL OF OUR PRODUCTS AND MAY HARM BUSINESS DEVELOPMENT.

         The areas in which we are commercializing, distributing, and/or selling
products involve rapidly developing technology. There can be no assurance that
we will be able to establish ourselves in such fields, or, if established, that
we will be able to maintain our position. There can be no assurance that the
development by others of new or improved products will not make our products and
product candidates, if any, superfluous or our products and product candidates
obsolete.

SHOULD PRODUCT LIABILITY CLAIMS BE BROUGHT SUCCESSFULLY AGAINST US EXCEEDING THE
PRODUCT LIABILITY COVERAGE WE CURRENTLY HAVE IN PLACE, THERE CAN BE NO
ASSURANCES THAT SUCH EVENTS WOULD NOT MATERIALLY IMPACT OUR PERFORMANCE AND
VIABILITY.

         The sale of our products may expose us to potential liability resulting
from the sale and use of such products. Liability might result from claims made
directly by consumers or by pharmaceutical companies or by others selling such
items. We currently maintain $5 million of product liability insurance. There
can be no assurance that we will be able to renew our current insurance, renew
it at a rate comparable to what we now pay, or that the coverage will be
adequate to protect us against liability. If we were held liable for a claim or
claims exceeding the limits of our current or future insurance coverage, or if
coverage was discontinued for any reason, it could have a materially adverse
effect on our business and our financial condition.

OUR LIMITED SALES AND MARKETING EXPERIENCE MAY ADVERSELY IMPACT OUR ABILITY TO
SUCCESSFULLY COMMERCIALIZE AND SELL OUR PRODUCTS.

         We have limited sales and marketing experience, particularly with
respect to marketing and selling products in commercial quantities. If we are
unable to expand our sales and marketing capabilities we may not be able to
effectively commercialize our products and product candidates.

IF WE ARE UNABLE TO EFFECTIVELY PROMOTE OUR BRAND AND ESTABLISH A LEADING
POSITION IN THE MARKETPLACE, OUR BUSINESS MAY FAIL.


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<PAGE>

         Our brand names are new and unproven. If we are unable to effectively
promote our brands and establish a prominent position in the marketplace, our
operations will suffer. We believe that the importance of brand recognition will
increase over time. In order to gain brand recognition, we may increase our
marketing and advertising budgets to create and maintain brand loyalty. We do
not know whether these efforts will lead to greater recognition.

WE DEPEND ON BIOCHEMICS TO PROVIDE US WITH CERTAIN SUPPORT AND SERVICES. THE
LOSS OF SUCH SUPPORT AND SERVICES WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.

         We were originally formed as a division of BioChemics and the viability
and financial strength of BioChemics is critical to our success. Throughout our
development, we have relied on services and financing provided to us by
BioChemics. When we became an independent operating entity, we entered into a
license agreement and, prior to the consummation of our initial public offering,
we entered into a manufacturing and development agreement, with BioChemics. We
presently maintain our executive offices on premises that we share with
BioChemics. We do not have a lease agreement with BioChemics. We believe that we
can obtain suitable alternative space without any material disruption of our
business and that such space will be available to us in the future on
commercially reasonable terms. Since, pursuant to the administrative support
agreement by and between the Company and BioChemics, BioChemics provides us with
administrative and managerial support, our results of operations include
allocations of certain BioChemics expenses, such as centralized accounting, data
processing, utilities, supplies, telephone and other BioChemics corporate
services and infrastructure costs. These expenses have been charged back to us
as a management fee. We recorded approximately $23,000 and $16,000 in these
related-party fees during the nine-month periods ended September 30, 2005 and
2004, respectively. These costs are included in selling, general and
administrative expenses. The expense allocations have been determined on the
basis that we and BioChemics consider to be reasonable reflections of the
utilization of services provided for the benefit received by us. The loss of the
services provided by BioChemics or the loss of the license of the VALE patents
or the PENtoCORE technology under the license agreement would have a material
adverse effect on our business, financial condition and results of operations.

         BioChemics has never been profitable and most likely will not achieve
profitability in the near future, if ever. Although BioChemics was founded in
1989, and incorporated in 1991, it is still a development stage company. It has
generated significant losses through March 31, 2005, has limited revenue, and is
likely to sustain operating losses in the foreseeable future. BioChemics'
operations are subject to all of the risks inherent in the establishment of a
business enterprise. Through December 31, 2004, BioChemics had an unaudited,
consolidated accumulated deficit of approximately $17.7 million, which includes
the operations of Vaso Active. In addition, as of December 31, 2004, BioChemics
was in default under debt obligations in the approximate amount of $10.2
million, which includes accrued interest, that it has issued to private
investors, of which approximately $6.9 million, inclusive of accrued interest,
is held by Mr. Masiz, members of his family and the Chairman of the Board of
Directors of the Company, Robert Anderson, who is also a member of the Board of
Directors of Biochemics. Although BioChemics is attempting to restructure or
refinance these obligations, there can be no assurance that it will be able to
do so on acceptable terms. If BioChemics is not successful in maintaining its
financial viability, our business, financial condition and results of operations
may be materially and adversely affected. BioChemics anticipates that it will
continue to incur net losses and be unprofitable for the foreseeable future.
There can be no assurance that BioChemics will ever operate at a profit even if
its or our products are commercialized.

         In addition, it is expected that BioChemics will encounter significant
marketing difficulties and will also face significant regulatory hurdles. The
likelihood of success of BioChemics must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered in
connection with any non-profitable business enterprise, including but not
limited to the identification and development of new products, difficulties with
corporate partners, vendors, and a very competitive environment. Additionally,
BioChemics itself requires additional capital and/or revenues to continue its
operations and there is no guarantee that it will be able to fund its own
operations or those of Vaso Active.


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<PAGE>

IF WE FAIL TO ATTRACT, TRAIN AND RETAIN ADDITIONAL HIGHLY QUALIFIED SENIOR
EXECUTIVES AND TECHNICAL AND MANAGERIAL PERSONNEL IN THE NEAR FUTURE, OUR
BUSINESS WILL SUFFER.

         Effective as of August 17, 2004 and in accordance with the terms of the
SEC settlement, Mr. John J. Masiz resigned as President and Chief Executive
Officer of Vaso Active. Vaso Active appointed its current Chief Financial
Officer, Joseph Frattaroli, to serve as President and Acting Chief Executive
Officer while it conducts a search for a new Chief Executive Officer. Due to a
high demand for highly trained executives in our industry, there is no assurance
that we will be able to attract or retain a suitable Chief Executive Officer now
or in the future, and this could have a material adverse effect on our business,
financial condition and results of operations.

         Furthermore, several of our other key employees are devoting less than
all their time to Vaso Active. For example, although our Chief Scientific
Officer, Dr. Stephen Carter devotes substantially all his time to our
activities, he also devotes a portion of his time to Biochemics. For us to
pursue our product development, marketing and commercialization plans, we will
need to hire personnel with experience in clinical testing, government
regulation, manufacturing, marketing and finance.

         We may not be able to attract and retain personnel on acceptable terms
given the intense competition for such personnel among high technology
enterprises, including biotechnology, pharmaceutical and healthcare companies,
universities and non-profit research institutions. If we lose any of these
persons, or are unable to attract and retain qualified personnel, our business,
financial condition and results of operations may be materially and adversely
affected.

MR. MASIZ IS MAJORITY STOCKHOLDER OF BIOCHEMICS, WHICH IS OUR PRINCIPAL
STOCKHOLDER. HE HAS SUBSTANTIAL ULTIMATE CONTROL OVER THE COMPANY, POSSIBLY TO
THE DETRIMENT OF OTHER HOLDERS OF OUR CLASS A COMMON STOCK.

         Our principal stockholder, BioChemics, owns 4,500,000 shares of our
Class B common stock, which at September 30, 2005 represented approximately 70%
of the combined voting power of our common stock. Mr. Masiz, as President, Chief
Executive Officer and Chairman of BioChemics and, as the principal stockholder
in BioChemics, will be able to control the outcome of many types of stockholder
votes, including votes concerning the election of our directors, the adoption or
amendment to provisions in our certificate of incorporation or by-laws, the
approval of mergers and/or acquisitions, decisions affecting our capital
structure and other significant corporate transactions. This concentration of
ownership may delay, deter or prevent transactions that would result in a change
of control, which in turn could reduce the value of our common stock.

IN THE EVENT OF A CONFLICT OF INTEREST BETWEEN BIOCHEMICS AND VASO ACTIVE, OUR
STOCKHOLDERS COULD BE NEGATIVELY AFFECTED.

         There are likely to be situations where our best interests and those of
BioChemics will be in conflict. For example, we are a party to a license
agreement, a manufacturing and development agreement and an administrative
services agreement with BioChemics, each of which is critical to our business
operations. To the extent that decisions are made by Mr. Masiz that could
enhance the value of BioChemics versus the value to us, our stockholders
interests could be negatively affected.

ITEM 3.  CONTROLS AND PROCEDURES

         As of the end of the period covered by this quarterly report, our
Acting Chief Executive Officer and Chief Financial Officer (the "Certifying
Officer") conducted evaluations of our disclosure controls and procedures. As
defined under Sections 13a-15(e) and 15d-15(e) of the 1934 Act, the term
"disclosure controls and procedures" means controls and other procedures of an


                                       30



<PAGE>

issuer that are designed to ensure that information required to be disclosed by
the issuer in the reports that it files or submits under the 1934 Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the issuer's
management, including the Certifying Officer, to allow timely decisions
regarding required disclosure. Based on this evaluation, the Certifying Officer
has concluded that our disclosure controls and procedures were effective to
ensure that material information is recorded, processed, summarized and reported
by our management on a timely basis in order to comply with our disclosure
obligations under the 1934 Act, and the rules and regulations promulgated there
under.

         Further, there were no changes in our internal control over financial
reporting during the quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.


                           PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS


PRIVATE LITIGATION

         In 2004, the Company and certain of its officers (the "Defendants")
were sued in several securities class action lawsuits filed in the United States
District Court for the District of Massachusetts. The complaint, which sought
equitable and monetary relief, an unspecified amount of damages, with interest,
attorneys' fees and costs, allegedly wasfiled on behalf of purchasers of Vaso
Active Class A common stock during the period December 9, 2003 to March 31,
2004.

         The Company was also named as a nominal defendant in three shareholder
derivative actions. The actions were filed against the Company's directors and
certain of its officers and against BioChemics, Inc. The Complaints allege,
among other things, that the alleged conduct challenged in the securities class
action case pending against the Company in Massachusetts (described above)
constitutes, among other things, a breach of the Defendants' fiduciary duties to
Vaso Active. The Complaints sought equitable and monetary relief, an unspecified
amount of damages, and attorneys and other fees, costs and expenses, ostensibly
on behalf of Vaso Active.

         In September 2005, Vaso Active and certain of its officers and
directors entered into agreements to settle the class action and shareholder
derivative actions filed against Vaso Active and its named officers and
directors (the "Derivative Actions"). The appropriate papers have been filed
with the court seeking dismissal of these actions. The parties to the agreements
obtained the court's preliminary approval of the settlements on October 4, 2005.
Under the terms of the Class Action Agreement, Vaso Active, disclaiming any
liability, has caused to be paid into escrow for the benefit of the putative
class $1,100,000 in cash and, at a future date, after certain conditions of the
settlement agreement have been met, will issue $750,000 face amount of 2-year 5%
subordinated callable notes convertible at $1.75 per share (with full dilution
protection). Vaso Active's insurance carrier agreed to pay and has paid the
$1,100,000 cash payment in exchange for a release of its liability under its
insurance policy with Vaso Active. Under the terms of the Derivative Action
Agreement, Vaso Active, disclaiming any liability, agreed to pay to plaintiffs'
counsel a total of $25,000 in cash and $110,000 face amount of 2-year 5%
subordinated callable notes convertible at $1.75 per share within thirty
business days of final court approval of the Derivative Action Agreement. In
addition, the terms of the Derivative Action Agreement require Vaso Active to
institute or maintain certain corporate governance guidelines. In consideration
of these settlements, the parties agreed to fully and finally release and
discharge all claims against each other.


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<PAGE>

         Although the parties have agreed on settlements, there can be no
guarantee that the court will approve the settlements. There is also no
guarantee that these will be the only lawsuits brought against the Company with
respect to these matters. There is also no assurance that these matters will be
resolved in our favor. An unfavorable outcome of these matters would have a
material adverse impact on our business, results of operations, financial
position or liquidity.

         For the nine-month periods ended September 30, 2005 and 2004, the
Company recorded approximately $2,031,000 and $1,022,000, respectively, in
expenses to defend itself in the SEC and private litigation matters discussed
above, including legal, accounting and other consulting fees and the $885,000
charge in connection with the Company's settlement with the consolidated
securities class action lawsuit.

FDA MATTERS

         We are not aware whether the FDA is contemplating any action against
us. We believe that the active ingredients, dosage form and strengths of A-R
Extreme, Osteon and Termin8 are covered by the FDA's OTC Review Program and
therefore we believe these products are currently eligible for marketing under
the same program. In early 2004, we intended to distribute these products under
revised labeling once we were reasonably sure that the marketing of these
products was consistent with the FDA's requirements and policies. We submitted
new labels for our previously marketed products to the FDA in May 2004 and
requested comments by the FDA on these labels. There is no regulatory
requirement that the FDA review or comment on such materials and so far, the FDA
has not provided any comment relating to the new labels. Although we were not
provided any comment from the FDA, we are now reasonably sure that these new
labels are consistent with all FDA regulations and policies and as a result, we
resumed marketing and shipment of our products in September 2004.

GENERAL

         Other than described above, we are not a party to any pending legal
proceedings or are aware of any pending legal proceedings against us that,
individually or in the aggregate, would have a material adverse affect on our
business, results of operations or financial condition.


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<PAGE>

ITEM 6 EXHIBITS

       EXHIBIT
        NUMBER    DESCRIPTION OF EXHIBIT
        ------    ----------------------

         31.1     Certification of Joseph Frattaroli, Acting Chief Executive
                  Officer and Chief Financial Officer, pursuant to Section 302
                  of the Sarbanes-Oxley Act of 2002.(1)

         32.1     Certification of Joseph Frattaroli, Acting Chief Executive
                  Officer and Chief Financial Officer, pursuant to Section 906
                  of the Sarbanes-Oxley Act of 2002.(1)

(1) Filed herewith.


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<PAGE>

                                    SIGNATURE

         In accordance with Section 13 and 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on November 14, 2005

                        VASO ACTIVE PHARMACEUTICALS, INC.

                        By: /s/ Joseph Frattaroli
                            ----------------------
                            Joseph Frattaroli
                            Acting President and Chief Executive Officer
                            Chief Financial Officer


                                       34