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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2004



| ̈ | 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: 000-33023



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DUSKA THERAPEUTICS, INC.

(Name of small business issuer in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|NEVADA                                                         |  | 86-0982792                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|TWO BALA PLAZA SUITE 300 BALA CYNWYD, PA                       |  | 19004                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



Issuers
Telephone Number: 610-660-6690



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Securities registered pursuant to Section 12(b) of the Act: None



Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value



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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ̈



Check if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.    x



Issuers revenues for its most recent fiscal year: $ -0-



The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or
the average bid and asked price of such common equity, as of March 17, 2005 was approximately $15,716,00 based on the closing sales price reported by the OTC Bulletin Board on such date.



There were 19,627,801 shares of the Companys common stock outstanding on March 17, 2005.



Transitional Small Business Disclosure Format (check
one):    YES ̈NO  x



DOCUMENTS INCORPORATED BY REFERENCE: None.



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TABLE OF CONTENTS



|         |  |                                                                                                                   |  |   
|-------- |  | ----------------------------------------------------------------------------------------------------------------- |  | --
|PART I   |  |                                                                                                                  
|1.       |  | Description of Business                                                                                           |  | 1 
|2.       |  | Description of Property                                                                                           |  | 20
|3.       |  | Legal Proceedings                                                                                                 |  | 20
|4.       |  | Submission of Matters to a Vote of Security Holders                                                               |  | 21
|         | 
|PART II  |  |                                                                                                                  
|5.       |  | Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities |  | 21
|6.       |  | Managements Discussion and Analysis or Plan of Operation                                                         |  | 22
|7.       |  | Financial Statements                                                                                              |  | 39
|8.       |  | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure                              |  | 39
|8A.      |  | Controls and Procedures                                                                                           |  | 40
|         | 
|PART III |  |                                                                                                                  
|9.       |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act   |  | 40
|10.      |  | Executive Compensation                                                                                            |  | 44
|11.      |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                    |  | 49
|12.      |  | Certain Relationships and Related Transactions                                                                    |  | 50
|13.      |  | Exhibits and Reports on Form 8-K                                                                                  |  | 51
|14.      |  | Principal Accountant Fees and Services                                                                            |  | 52



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INTRODUCTORY COMMENT



Throughout this Annual Report on Form 10-KSB, the terms we, us, our, and our company refer
to Duska Therapeutics, Inc., a Nevada corporation formerly known as Shiprock, Inc., and, unless the context indicates otherwise, also includes our wholly-owned subsidiary, Duska Scientific Co., a Delaware corporation.



FORWARD-LOOKING STATEMENTS



The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. This document contains forward-looking statements, which reflect the views of our management with respect to future events and financial performance. These forward-looking statements are subject to a
number of uncertainties and other factors that could cause actual results to differ materially from such statements. Forward-looking statements are identified by words such as anticipates, believes, estimates,
expects, intends, plans, projects, targets and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on the information
available to management at this time and which speak only as of this date. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a discussion of some of
the factors that may cause actual results to differ materially from those suggested by the forward-looking statements, please read carefully the information under Risk Factors beginning on page 26.



The identification in this document of factors that may affect future
performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You may rely only on the
information contained in this document.



PART I



ITEM 1. DESCRIPTION OF BUSINESS.



BUSINESS



Duska Therapeutics, Inc. is an
emerging biopharmaceutical company that is focusing on the development of diagnostic and therapeutic products related to adenosine 5-triphosphate, or ATP, and ATP related receptors. Duska Therapeutics is a Nevada corporation based in Bala
Cynwyd, Pennsylvania that currently carries out all of its business operations through our wholly owned subsidiary, Duska Scientific Co., a Delaware corporation (Duska Scientific). ATP is a natural compound found in every cell of the
human body, where it constitutes the source of energy that fuels all bodily functions. ATP is released from many types of cells under normal and disease conditions. Extracellular ATP regulates the functions of different cell types in various tissues
and organs, including the heart, lung, intestine and kidney, by activating cell surface receptors called P2 receptors, or P2R. Many scientists have recognized in recent years that the pharmacological activation of P2R by specific compounds which
bind to these receptors, called agonists, and the inhibition of P2R by other compounds, called antagonists, could be harnessed for the potential development of new drugs for the diagnosis or treatment of various human disorders, including
cardiovascular, pulmonary, neural and renal diseases.



A
glossary of certain terms used in this Annual Report is contained on page 18 below.



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Overview of Our Current and Proposed Product Candidates Under Development



We own or have exclusive license rights to current or proposed product
candidates with the following diagnostic and therapeutic applications, which are in various stages of development:



| |  |  | ATPace. A liquid formulation of ATP for intravenous administration that is being clinically developed as a new diagnostic test for identification of an abnormally slow heart rate (bradycardia) as the cause of certain cases of
syncope, or fainting. ATPace potentially may also
identify certain symptomatic syncope patients who could benefit from cardiac pacemaker therapy. We have recently commenced a Phase II trial of ATPace, the patient enrollment of which began in March 2005.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ATPotent. A liquid formulation of ATP that is being developed as a new drug for the treatment of male infertility. We will attempt to demonstrate that a liquid or similar formulation of ATP, which we refer to as ATPotent, may improve the ability of malfunctioning sperm to
fertilize the egg in conjunction with intra-uterine insemination and/or in vitro fertilization procedures and thereby increase the rate of pregnancies.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Vagonixen. We are in the early stages of attempting to identify, with the potential assistance of third parties, a lead compound that could be developed to serve as a drug for the treatment of chronic obstructive pulmonary
disease (COPD) and chronic cough. We refer to this proposed drug as Vagonixen.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Primastrene. We are in the early stages of attempting to identify a lead compound that could be developed to serve as a drug for the treatment of asthma. We refer to this proposed drug as Primastrene.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Current and Proposed Product Candidate Portfolio Strategy



In addition to the two current and two proposed product candidates that are in various stages of development, we intend to
develop in the future diagnostic and therapeutic agents based on the modulation of the cellular mechanism through which P2 receptors regulate cellular function, referred to as P2R signal transduction. Additional potential applications for our
technology could include:



| |  |  | A second generation formulation of the ATPotent product candidate.
| | - |  | -------------------------------------------------------------------



| |  |  | A drug that induces airway spasms and cough that can be used as a clinical tool for the differential diagnosis between COPD and asthma, as well as monitoring the efficacy of a given
therapy in the management of patients with these diseases. We intend to commence development of this product candidate pending successful results from an additional proof of concept study with this drug, which we have named Aspirex, that we plan to conduct in the near future at a
leading academic medical center in Europe.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A diagnostic test for sick sinus syndrome, which may also be predictive of effective cardiac pacemaker therapy.
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | A diagnostic test for the identification of one of the most common types of heart rhythm disturbance manifested as rapid beating of the heart.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A new anti-cancer treatment.
| | - |  | ----------------------------



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We also may seek to acquire rights to additional relevant medical technologies, including those in the P2
receptor technology area, with the cardiovascular, respiratory and human reproduction areas being of particular interest to us.



Drug discovery based on modulations of P2R signal transduction pathways has, in the past two decades, almost exclusively focused on the adenosine
receptors, referred to as P1Rs. However, the cloning of P2Rs in recent years has created opportunities for the development of novel therapeutic and diagnostic modalities addressing significant medical needs that have not been fully met before.



ATP and related compounds exert pronounced effects on
different systems throughout the body, including the central nervous system, cardiovascular/renal system, intestine and lung. Modulation of these effects can be achieved by the manipulation of the P2R signal transduction pathways using biological
compounds or pharmacological agents acting as agonists, partial agonists, antagonists or allosteric modifiers (i.e., compounds that bind to the receptor and thereby alter its affinity to an agonist or an antagonist) of P2Rs, as well as agents that
target specific points in the signal transduction process.



We
are focused on the development of new drugs based on our P2R technology. Our Scientific Advisory Board consists of experts in the field of ATP and P2Rs as well as in clinical fields in which our current and proposed product candidates have specific
diagnostic and therapeutic targets. The latter are: (i) cardiovascular diseasesyncope, (ii) human reproductionmale infertility and (iii) obstructive airway diseaseschronic obstructive pulmonary disease (COPD), chronic cough and
asthma.



Background of Our Company



Prior to August 2004, our company was known as Shiprock, Inc. and had been
engaged in very limited activities in an unrelated business. On August 30, 2004, Shiprock completed a merger in which Shiprock, through its wholly-owned subsidiary formed specifically for this purpose, acquired in a merger all of the outstanding
shares of Duska Scientific in exchange for 17,727,801 shares of our common stock and warrants and options to purchase a total of 13,441,301 shares of our common stock upon cancellation of outstanding warrants and options to purchase shares of Duska
Scientific. As a result of the merger, Duska Scientific became a wholly-owned subsidiary of Shiprock. After the merger, Shiprock changed its name to Duska Therapeutics, Inc., replaced its officers and directors with those of Duska
Scientific, ceased its landscaping and irrigation business and moved its offices to Bala Cynwyd, Pennsylvania. We currently do not plan to conduct any business other than the business of developing new products for the diagnosis or treatment of
human diseases based upon ATP and P2 receptors as previously conducted by Duska Scientific.



Our operating subsidiary, Duska Scientific, was founded by Dr. Amir Pelleg as a Delaware corporation in 1996. In 1999, Duska Scientific commenced its operations by acquiring a patent covering ATPace and Vagonixen from Dr. Pelleg, the inventor, and the rights to a second patent covering
Primastrene from the co-inventors, Dr. Pelleg and
Dr. Edward Schulman. Dr. Pelleg was a Professor of Medicine and Pharmacology at the Drexel University College of Medicine in Philadelphia, Pennsylvania until September 2004. At that time he became our full-time employee in his capacity as President,
Chief Operating Officer and Chief Scientific Officer, having served as President and Chief Scientific Officer of Duska Scientific on a part-time basis before then. Dr. Pelleg is now an Adjunct Professor at the Drexel University College of Medicine.
Dr. Schulman is a Professor of Medicine at the Drexel University College of Medicine. We subsequently acquired an exclusive license to a patent covering ATPotent from the Italian scientists who were co-inventors of this technology, Dr. Francesco DiVirglio and Dr. Carlo Foresta.
Dr. Schulman and Dr. DiVirgilio, who is a Professor of Immunology at the University of Ferrara in Italy, are members of our Scientific Advisory Board.



In February 2005, we registered the public re-sale of up to 3,542,660 shares of our currently outstanding shares of common stock that are owned by some of
our stockholders, and 5,602,998 shares of our common stock issuable upon the exercise of common stock purchase warrants held by some of our warrantholders.



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Background of Our Technology



Technology



Adenosine 5-triphosphate, or ATP, is a natural substance that plays a critical role in intracellular metabolism and fueling bodily functions.
Intracellular ATP is the energy source of all functions of the human body, and each day the body produces and consumes about 40 kg of ATP. In 1929, Drs. Drury and Szent-Gyorgyi were the first to observe the pronounced cardiovascular effects of
extracellular adenosine, a byproduct of ATPs degradation; since then, numerous studies have documented various effects of ATP in different cells, tissues and organs mediated by specific cell-surface receptors called P2 receptors. ATP is
considered a local regulator that plays an important role under both normal and disease conditions.



Purinergic Signal Transductions



In the late 1970s, Dr. Geoffrey Burnstock, who is Chairman of our Scientific Advisory Board, hypothesized that specific cell surface receptors,
which he called purinoceptors, or P receptors, mediate the actions of adenosine and ATP. Dr. Burnstock classified these into P1 and P2 receptors, respectively. It is now well established that extracellular ATP and similar compounds exert their
effects by activating the P2 receptors, or P2R, and that the P1 receptors, or P1R, mediate the effects of extracellular adenosine. P2R are further sub-divided into two receptor families identified as P2X and P2Y. At least 16 different P2R have been
cloned up to this point.



The activation of the cell surface
P2R by a specific compound triggers a chain of events culminating with various effects, depending on the cell type expressing these receptors.



Sources of Extracellular ATP



There are several sources for extracellular ATP. ATP is stored in relatively large amounts in platelets and is released during their activation.
Similarly, ATP is stored in red blood cells from which it is released under conditions of imbalance between oxygen supply and oxygen demand. In addition, several biological substances as well as increased blood flow can induce the release of ATP
from cells that line blood vessels and smooth muscle cells. ATP is also released from nerve cells and from exercising skeletal muscles.



In the heart, ATP is released into the extracellular fluid under various conditions. Specifically, ATP release is evoked by sympathetic nerve stimulation
and by endogenous cardiac stimulants. In addition, ATP is released in the heart whenever the supply of oxygen to the heart does not meet the demand for oxygen and from cardiac muscle cells deprived of adequate oxygen supply in vitro.



The Product Candidates We are Currently Developing



ATPace



Background and Rationale



Syndrome: Syncope, or fainting, is one of the most common, yet one of the most challenging diagnostic problems in clinical practice. The
consequences of syncope may result in serious injury or even death. Syncope exerts a dramatic and deleterious effect on the quality of life of affected patients, in particular elderly patients.



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Epidemiology: It is estimated that in 1997 that 3% of adults in the U.S. suffered from recurrent
syncope. It is common in both young adults (12%-48%) and the elderly, in the latter patient population syncope is a more frequent symptom (6% incidence and 23% previous lifetime episodes). The sixth leading cause of death in the U.S. in people 65
years and older are accidents, many of which are related to syncope and falls. Falls occur in 20% of people 65 years and older, half of which are due to syncope.



Economic burden: In the U.S., syncope accounts for 3% of emergency room visits and 6% of hospital admissions.
Although syncope patients are subjected to a series of examinations and tests costing more than $800 million per year, a cause of syncope is found in only 40% of patients.



Cause of the Disease: Most common causes of syncope consist of disturbances in the function and/or structure of the
cardiovascular system. Other causes of syncope, including those arising from neurological, psychiatric or endocrine/metabolic disturbances, are relatively rare. In about half of the patients where a probable diagnosis has been established, the
syncope is due to transient periods of decreased heart rate (bradycardia) and blood pressure (hypotension), mediated by the autonomic nervous system (that portion of the nervous system regulating the function of the cardiovascular system and the
glands). Syncope of this origin is termed neurally-mediated. Neurally-mediated syncopes (NMS) are classified into three types based on their respective mechanism: bradycardic (syncope due to slow heart rate), hypotensive (syncope due to low blood
pressure) and mixed (i.e., combination of the above two mechanisms).



Currently, detailed history and physical examination, non-invasive cardiovascular studies, electrophysiological studies and head-up tilt table testing (HUT) provide a diagnosis of NMS in 60-70% of cases. However, establishing the cause of
syncope in a given patient may be very difficult because of its unpredictable nature and the absence of discerning diagnostic tools. Thus, there is increasing interest in diagnostic tests that evaluate the autonomic nervous system function for the
confirmation of a clinically suspected diagnosis of NMS or to uncover a diagnosis in previously unsuspected instances.



Several tests, including HUT, are commonly used in diagnosing NMS. Of these, however, only HUT has been substantially studied. When NMS is suspected, HUT
can be useful in confirming this clinical suspicion. Although the specificity (i.e., negative test outcome in a non-afflicted subjects) of HUT is similar to that of other dynamic clinical testing (i.e., 80% to 90%), the exact sensitivity (i.e.,
positive test outcome in afflicted subjects) of the test is unknown, because there is no gold standard against which to compare it. One study determined that the true sensitivity of HUT is only 61%. The American Heart
Association (AHA), American College of Cardiology (ACC) and the Heart Rhythm Society (formerly known as the North American Society for Pacing and Electrophysiology (NASPE)) have recommended the use of HUT for the indication of pacemaker therapy in
patients with syncope due to a slow heart rate. However, recent studies have failed to fully establish the utility of HUT as an accurate predictor of effective cardiac pacemaker therapy in symptomatic patients with recurrent NMS. Furthermore, of the
three relevant mechanisms of NMS (i.e., bradycardia, hypotension and mixture of the former two), HUT is estimated to be the least sensitive to bradycardia. Specifically, in a recent North American study of 100 consecutive patients with syncope of
unknown origin, HUT identified bradycardia as the relevant mechanism of the syncope in only seven, while another test, known as carotid sinus massage where pressure is applied to the side of the neck to artificially trigger a reflex involving the
vagus nerve, identified 37 such patients.



In the past few
years, Medtronic, Inc. has introduced into the clinical setting a new device, the Insertable Loop Recorder (ILR) (Reveal® and later Reveal® Plus), that correlates symptoms with cardiac rhythm abnormalities. Specifically, the ILR is an
FDA-approved device that monitors electrocardiograms (ECG) for up to 14 months and automatically records ECG rhythm data in patients who experience transient symptoms such as syncope that may suggest cardiac arrhythmias (i.e., disturbances in heart
beating rate) as the cause. Since the ILR is the only FDA approved diagnostic tool for the identification of bradycardic syncope, it may be considered a useful standard against which to compare new diagnostic tools. However, the ILR requires minor
surgeries for its insertion as well as its removal and its diagnostic potential is realized only if an event occurs during its limited functional period.



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Clinical target: Despite the intensive study of HUT, and other tests of autonomic nervous system
function, there is no test or combination of tests that permits detection of susceptibility to all types of NMS. Consequently, it is currently very difficult to identify a neurally-mediated cause of syncope, not to mention a specific mechanism, in
all patients in whom such cause is suspected based on their medical history. Therefore, there is a significant need for a diagnostic test that can identify the specific mechanism behind syncope.In particular, given recent multi-center
randomized trials suggesting cardiac pacing as an effective therapy in certain groups of syncopal patients, tests that unmask susceptibility to bradycardia are especially important.



Since ATP triggers a neural reflex involving the vagus nerve and a similar reflex plays a critical role in the mechanism of
NMS, it has been hypothesized that the response to ATP manifested in slowing of the heart rate (bradycardia) would be accentuated in patients with this syndrome. Clinical studies in Europe by Dr. Daniel Flammang (who subsequently became a member of
our Advisory Board) and his associates support this hypothesis. Specifically, studies by Dr. Flammang involving approximately 500 patients have demonstrated that one of the bradycardic effects of ATP manifested as transient AV nodal conduction block
is accentuated in a specific group of patients with syncope of unknown origin or suspected NMS. Furthermore, Dr. Flammang has suggested that ATP can be used as a diagnostic tool to identify patients in whom the mechanism of syncope is bradycardia,
and therefore could benefit from cardiac pacemaker therapy. An Italian clinical research group has studied the feasibility of using ATP as a diagnostic tool to determine the mechanism of bradycardia in symptomatic syncope patients. These
investigators, who used a different electrocardiographic criterion than that used by Dr. Flammang in determining the outcome of their studies, have demonstrated that ATP can identify bradycardia as the overall mechanism of syncope in symptomatic
patients. This group of investigators found a good correlation (at an approximately 70% rate) between the frequency of bradycardic syncope determined by an ILR versus that determined with ATP. It should be noted, however, that a study by an
unrelated group of French investigators in 13 patients did not show a correlation between the ILR and the ATP test.



Importantly, in patients with bradycardic NMS, HUT identified the relevant mechanism in 59% of patients, while the ATP test identified this mechanism
accurately in 86% of patients. Assuming that we receive marketing approval for ATPace from the FDA, we intend to conduct post-marketing studies to compare ATPace to HUT in identifying bradycardia when it is the dominant mechanism in patients with syncope of unknown origin or NMS as well as determining the
potential benefits of cardiac pacemaker therapy in these patients.



ATPace Test: ATPace, a liquid formulation of ATP, given as a rapid
intravenous injection, causes a short lasting (less than 60 seconds) bradycardic effect (i.e., slowing of the heart rate) that is much more pronounced in selected groups of patients with syncope of unknown origin or suspected NMS. ATPace thereby identifies patients with bradycardic syncope
who could benefit from cardiac pacemaker therapy. We anticipate that the test will be quick, safe, cost-effective and convenient when compared to other current diagnostic alternatives. Currently, the only approved diagnostic test that can determine
the potential benefits of cardiac pacemaker therapy in patients with recurrent syncope is the ILR. We will attempt to demonstrate that ATPace has the potential to benefit a significant number of patients whose syncope is often misdiagnosed and mistreated.



Product Development Plan



Although certain studies with ATP previously conducted in Europe are
encouraging, we are performing similar and additional clinical studies with the objective of filing with the FDA a New Drug Application (NDA) for ATPace. Following our completion of a Phase I trial for ATPace, we submitted



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to the FDA in December 2003 our proposed protocols for Phase II and Phase III trials, and in February 2004, we met with
the FDA to review these protocols. In April 2004, we sponsored in conjunction with Medtronic, Inc. a meeting of potential clinical trial investigators to discuss our ATPace Phase II clinical trial protocol design and other matters pertaining to this contemplated study. Based upon input
obtained during this meeting and previous discussions with the FDA, we finalized the ATPace Phase II clinical trial protocol which was subsequently submitted in final form to the FDA for its review in August 2004. We completed site selection for the ATPace Phase II clinical trial for approximately 18 medical
centers in November 2004, and have commenced the Phase II trial. Patient enrollment for this trial began in March 2005. Our goal is the completion of enrollment of patients by approximately the fourth quarter of 2005.



The design of these trials is subject to further revision based on any
additional input with the FDA, which may subsequently require us to perform additional or different studies from those currently contemplated.



|           |  |                                                                                                                                                                                                                                                                                                                                                                                    
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Phase II:  |  | The goal of our Phase II trial will be to define the diagnostic criteria of the ATPace test and confirm the minimum effective dose. The response to ATPace of control subjects compared to patients with syncope of unknown origin or NMS or patients with a history of loss of
consciousness due to a known cause (which is not NMS) will be determined in a multi-center study.
|           | 
|Phase III: |  | Our currently planned Phase III trial will compare the efficacy of ATPace to an FDA recognized standard. The trial will be a multi-center study in which the ATPace diagnostic test will be administered to patients who have an ILR or who are candidates
for an ILR.                                                                                                           



ATPotent



Background and Rationale



Syndrome: The diagnosis of male infertility is made when a man has
abnormal sperm parameters (i.e., low sperm count and/or abnormal sperm characteristics) and is unable to induce pregnancy after 12 to 18 months of regularly performed intercourse. In many cases, the reasons for the abnormal sperm parameters are
unknown. Nonetheless, various procedures and treatment regimens are currently used in the course of the clinical management of infertile couples due to the male factor. There is, however, a growing need for better diagnostic and treatment approaches
in the management of this syndrome.



Epidemiology: It
has been estimated that 6-8 million couples in the U.S. alone, who are involuntarily childless and require some assistance to conceive, sought medical treatment for infertility in 2001. Male infertility accounts for about 40% of these cases and
about 60% of the latter are patients with oligoastheno-zoospermia (i.e., low sperm count and low sperm motility). A recent study in the UK has found that the average normal sperm count fell by 29% from 1989 to 2002, reflecting an
on-going alarming trend in developed countries.



Economic
burden: According to the U.S. Department of Health and Human Services, Centers for Disease Control and Prevention (CDC), in 2001 there were more than 400 clinics in the U.S. dedicated to the diagnosis and treatment of sub-fertility and
infertility. Treatment options include surgical interventions, drug and hormonal therapies as well as complex and expensive procedures of Assisted Reproductive Technology, or ART. The latter include, among other technologies, in vitro
fertilization, or IVF, and intracytoplasmic sperm injection, or ICSI. According to a 2001 CDC study, approximately 107,000 ART procedures were performed in the U.S. in the approximately 380 clinics that reported. We believe that the fertility
industrys annual revenue from various treatments is in the range of $2.7 billion. We estimate the average cost of one



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round of IVF, with no guarantee of success, is $10,000, and the average amount spent to produce a baby is $58,000.
Approximately 40,000 live babies were born in the U.S. as a result of ART performed in 2001. We believe that for the foreseeable future the clinical laboratory will continue to play a pivotal role in improving the accuracy of diagnosing and efficacy
of treatment of male infertility.



Cause of the Disease:
The cause of male infertility is determined in only a minority of the cases. Most of the time, the causes of infertility are unknown mainly because of the inability to detect which sperm functions are defective. Factors known to contribute to male
infertility include: (a) gonadotrophin deficiency; (b) genital tract obstruction; (c) sperm autoimmunity; (d) coital dysfunctions; and (e) reversible effects of toxins, drugs or illnesses. The majority of the cases are secondary to the unknown cause
of low sperm count and low sperm motility. Despite the inability to determine the cause of the disorder, couples are treated with a variety of ART procedures, including IVF and ICSI.



Clinical target: A diagnosis of male infertility is based mainly on semen analysis, a rather inadequate means to
assess sperm fertilization potential. Furthermore, the majority (about 73%) of the ART procedures used are IVF. About 40% of IVF, performed for male infertility among infertile couples, will result in poor fertilization. Several pharmacological
agents have been used to enhance sperm in order to improve fertilization rates during standard IVF procedures, but to date the FDA has not approved a drug for treatment of male infertility. Moreover, conflicting results and lack of appropriately
designed and relevant clinical studies and no definitive indications have limited the use of sperm stimulant agents in clinical practice. Thus, there is a need for safe, effective and convenient techniques for improving sperm performance and thereby
improving the outcome of IVF and/or intrauterine insemination (IUI) procedures, with the goal of increasing the rate of pregnancies.



ATPotent for the treatment of male infertility: ATPotent is being developed as a new pharmacological formulation in which the active ingredient is ATP. Studies in a small number of patients by Italian
clinicians and scientists have shown that extracellular ATP rapidly and potently induces and increases the rate of the acrosome reaction, which is a precursor and requisite event for the sperms fusion with and penetration into the ovum (egg).
These effects of ATP were also demonstrated in bull sperm by scientists in Israel. Preliminary observations in 22 cases performed in Italy demonstrated that the fertilization rate of ATP-treated sperm was significantly higher (by 54%) than that of
non-treated sperm during IVF procedures. We are the exclusive licensee of a patented technology for ATP-based diagnosis of male infertility and treatment of human sperm as a means to improve the performance of human sperm during IUI and/or IVF
procedures with a view to increasing the rate of pregnancies. (ATPotent is not indicated for use in conjunction with ICSI, a specific in vitro fertilization procedure, which is employed in special male infertility cases.) Please see Intellectual Property.



Product Development Plan



We have completed the design of laboratory studies aimed at generating
safety and efficacy data for ATPotent. These
protocols have been reviewed and cleared by the FDA. Assuming the successful completion of these studies, we will consult with the FDA on the design of the clinical trials and matters pertaining to the preparation and submission of an NDA including
the specific clinical claims for this product candidate. The FDA may hold us to a more stringent requirement regarding the final clinical endpoint of efficacy than that outlined in our proposed protocols. In either such event, the action of the FDA
could significantly increase the timing and cost of the ATPotent research program.



In
preparation for our potentially entering into an agreement to conduct the laboratory studies described above, we recently asked a U.S. scientist to conduct certain preliminary laboratory experiments at his medical center to observe the effects of
ATP on normal sperm of human donors. The experiments conducted by this scientist failed to show a significant effect by ATP. However, this scientist used a protocol that varied in certain respects from the protocol that was used by the Italian
scientists who first demonstrated in published



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studies the effects of ATP on human sperm and who licensed this ATP technology to us. We subsequently ran additional
pre-clinical experiments with ATP at another U.S. medical center that were supervised and monitored by these Italian scientists. Data obtained in these experiments have confirmed the corresponding published Italian data. Specifically, ATP
significantly increased the rate of the acrosome reaction in normal sperm obtained from human donors. Based on this confirmation, and subject to our confirming the equivalence in pharmacological activity of the ATP formulation used in these
experiments with the ATP formulation that we plan to use for our ATPotent studies and product candidate and subject to the consummation of a contractual arrangement with a U.S. medical center to perform our planned laboratory studies, we are targeting commencement of the pre-clinical studies
for the first half of 2005.



The research program described
below is subject to further revision based on our discussions with the FDA, which could require us to perform studies in addition to those described below, which might result in additional expenditures and delays in the presently estimated
timelines.



|                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Preclinical Research:      |  | Compare the pharmacological activity of the European ATP formulation with that of ATPotent and conduct pre-clinical laboratory studies with human, canine and rodent sperm and rodent eggs to characterize the effects of ATPotent on sperm characteristics as well as egg fertilization
and early embryonic development.                                                                                                                                     
|                           | 
|Phase I/II Clinical Study: |  | A proof of concept clinical laboratory study with sperms of patients with male infertility aimed at demonstrating the ability of ATPotent to significantly enhance the acrosome reaction in treated versus untreated sperm and
to increase the rate of pregnancy in infertile couples subjected to IUI and/or IVF procedures. The details of this study will be discussed with the FDA and the commencement of the study will be subject to prior FDA approval.
|                           | 
|Phase III Clinical Study:  |  | This is planned as a larger scale study using the Phase I/II protocol. The details of this study will be discussed with the FDA and the commencement of the study will be subject to prior FDA
approval.                                                                                                                                                                                                                                                        



VAGONIXEN/PRIMASTRENE



Background and Rationale



Chronic obstructive pulmonary disease (COPD) and asthma are widespread and
growing respiratory conditions worldwide. In the United States alone, it is estimated that there are over 17 million people with asthma. Of great public health concern is a surge in both morbidity and mortality from asthma over the past two decades.
The prevalence of COPD, which encompasses chronic obstructive bronchitis and emphysema, has been estimated as high as 30 to 35 million cases and is the fourth most common cause of death in the United States. Both asthma and COPD are characterized by
difficulty breathing, mucus hypersecretion in the lungs, and cough. Disappointingly, over the last 30 years, and attendant with these alarming trends, no significant new therapeutic modalities for the treatment of these disorders have been
introduced into the clinical setting.



Economic burden:
In North America, COPD is the fourth most common cause of death and approximately 16 million individuals have been diagnosed as symptomatic COPD patients. Recent studies indicate that COPD resulted in $32.1 billion direct and indirect costs in 2002,
which is a manifestation of the major impact on society of this disease. In 2005, the estimated number of persons who will die of COPD in North America is 130,000. In 1996, the utilization of health care resources for asthma and related allergic
disorders included 9.8 million physician office visits, 1.9 million emergency room visits, and a total of 12.8 million out-patient visits to ambulatory care facilities. With the increasing incidence of asthma, we believe these figures are likely to
be even higher at present.



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Cause of the Disease: The cause of asthma is complex. Chief among the contributors to asthma is
allergic disease. The human immune system produces certain antibodies to common inhalant allergens such as dust, pollen, and animal proteins. In the respiratory tract, these antibodies bind to certain cells in the body. In a patient who is
sensitized to it, the inhaled allergen elicits an acute response and causes release of histamine (as well as a host of other substances that play a role in the inflammatory processes in the body) that cause much of the cough, breathlessness and
wheezing characteristic of asthma. These mediators also set the stage for more chronic inflammation in the airways.



The risk factors for both forms of COPD include smoking, a familial predisposition, and occupational exposures. Smoking is by far the major cause of COPD.
The chronic obstructive bronchitis form of COPD is characterized by marked cough, excess sputum production and breathlessness. The emphysema form of COPD is characterized by destruction of normal lung tissue. Usually, both forms co-exist to produce
symptoms of cough, sputum hypersecretion and breathlessness.



Clinical targets: In the management of asthma, a major objective is to minimize the reactivity of human mast cells that occurs following allergen exposure. However, research efforts toward understanding the specific mechanisms
involved in the activation of human allergic responses have been stymied because of difficulties in isolating and purifying human respiratory mast cells. Current work predominantly uses mast cells and tumor cell lines derived from mice and rats.
Unfortunately, increasing evidence demonstrates that results achieved using these animal mast cells cannot be reliably extrapolated to human mast cells. In fact, such studies can be irrelevant and even misleading. By contrast, the design of
Primastrene is based on studies in human lung
mast cells.



In the emphysema form of COPD, the destruction of
lung tissue that occurs with cigarette smoking cannot be effectively inhibited or reversed by existing therapies. Currently, the most common therapy in COPD is a receptor blocker that interferes with the major bronchoconstricting neural pathway
(i.e., the neural activity in the vagus nerve that travels as an input to airway smooth muscle cells causing them to contract). In chronic bronchitis, which is often present either alone or in combination with emphysema, the potential therapeutic
targets are airway nerves, stimulation of which can cause cough and promote mucus hypersecretion thereby producing the constriction of airways.



Role of extracellular ATP in obstructive airway diseases: Basic research studies have shown that intravenous administration of ATP produces
remarkable airway spasm (bronchoconstriction) in the lungs of dogs. This ATP-triggered vagal reflex and the associated bronchoconstriction is mediated by a specific P2R on vagal sensory nerve terminals in the lungs.



Consistent with these observations, others have shown that aerosolized ATP
produced marked airway constriction in asthmatic humans at concentrations well below those of other agents, including among other substances, adenosine, used in the clinical laboratory to induce bronchoconstriction as a part of pulmonary function
evaluation. In addition, aerosolized ATP produced marked airway constriction in non-asthmatic healthy subjects.



Recent research work in human lung mast cells further supports a mechanistic role of extracellular ATP and P2R in chronic pulmonary disorders.
Specifically, it was shown that ATP is the most potent enhancer of allergic reactions in human lung mast cells studied to date, and it is significantly more active and, therefore, more important than adenosine in this regard. We have preliminary
data that suggests that a specific P2 receptor, named P2Y2, mediates the response of human lung mast cells to ATP. This and other data raise the possibility that extracellular ATP plays a modulatory role in the function of certain cells the
activation of which is commonly observed in asthma, and thereby plays a mechanistic role in both the early (i.e., acute) and late (i.e., chronic) phases of this disease.



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Critical role of the vagus nerve in COPD: Bronchoconstriction and excess mucous secretion are two
major causes of airflow limitation in COPD, both of which are directly regulated by the vagus nerve. In addition, vagal nerve endings mediate chronic cough associated with COPD. When these nerve endings are irritated, neural signals from the lungs
go to the brain (termed afferent neural traffic). The brain processes these signals and in response generates its own signals that are sent to the lungs and airways (termed efferent neural traffic), where they induce bronchoconstriction and cough.
Indeed, certain drugs that can block the effects in the lungs of some of these brain signals, traveling through the vagus nerve, are used in the treatment of COPD. Furthermore, the stimulation of these nerve endings leads to a local release of
substances which play an important role in inflammation. This action is known as an axon reflex distinct from the central reflexes outlined above. Thus, a drug that could inhibit these two types of reflexes (i.e., central and axon) could have
therapeutic value in the management of bronchoconstriction, cough and inflammation.



P2 receptor antagonist in COPD: Extracellular ATP activates a specific P2 receptor located on pulmonary vagal nerve endings, including major mediators of cough under normal and disease conditions and fibers
that play a facilitating role in this mechanism of cough. Thus, the stimulation of vagal nerve endings in the lungs exacerbates neurally-mediated (vagal) bronchoconstriction and cough, the hallmarks of chronic cough and COPD. Therefore,
pharmacological agents that block these receptor sites could eventually become a new therapeutic modality in the management of patients with these disorders. Such a therapy would constitute a novel approach in which the reduction of vagal nerve
input to the lungs (i.e., neural traffic from the brain termed efferent neural traffic) is obtained by the inhibition of sensory input to the brain originating in the lungs (termed afferent neural traffic).



Product Development Plan



Our product development plan is aimed at identifying, with the assistance of
prospective third parties, new pharmacological agents that selectively and potently block P2Rs in the lungs, thereby preventing the stimulation by extracellular ATP of pulmonary vagal nerve terminals. Such compounds would be developed as potential
new therapeutic agents for the treatment of COPD (Vagonixen) and asthma (Primastrene), respectively.



Two types of
P2Rs, referred to as P2XR and P2YR, are involved in ATP-induced neurogenic bronchoconstriction and enhancement of allergic activation of human lung mast cells, respectively. We believe that there is a strong rationale for the discovery and the
evaluation of novel pharmacological agents that act as antagonists at these two receptors as new therapeutic modalities for the treatment of obstructive lung diseases, although additional confirmatory work as to the role of the P2YR will be
required. We are planning to identify and develop compounds for Vagonixen, a P2XR antagonist that prevents the stimulation of vagal sensory nerve terminals in the lungs for the treatment of COPD, and Primastrene, a P2YR antagonist that prevent the stimulation of human lung mast cells for the treatment of asthma.



We are collaborating with the Imperial College of London, U.K., a leading
medical academic center specializing in pulmonary disorders, on clinical studies with patients with obstructive airway diseases aimed at validating our receptor targets, the pharmacological modulation of which may constitute a new therapeutic
modality in the management of these patients. Our objective is to demonstrate that patients with obstructive airway diseases are hypersensitive to ATP, and that ATP acts in these patients by activating its P2 receptor distinct from the adenosine
receptors. Indeed, data obtained in the recently completed first stage of the study has shown that aerosolized ATP is much more potent than aerosolized adenosine in inducing bronchoconstriction, cough, throat irritation and chest tightness in
non-smokers, smokers and patients with asthma or COPD. These data confirm previous results obtained in animal models demonstrating that the mechanistic role of ATP and P2 receptors in neurogenic bronchoconstriction and cough are independent of



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adenosine and its P1 receptor. Two abstracts reporting these results generated at the Imperial College of London, U.K.
were presented at the 13thAnnual Congress of the European Respiratory Society that was held in Vienna, Austria in
September 2003.



We have identified an existing compound that
had been developed by others for an unrelated disease application that could serve as a drug candidate for Vagonixen, and we have conducted some preliminary in-vitro testing of this compound that showed promising pharmacological activity. We also previously
contracted with a medicinal chemistry company to work on structural chemical design and synthesis of drug candidates that would emulate an available compound developed by others that had been shown to potently and selectively block our P2XR target.
The first two compounds delivered to us by this medicinal chemistry company were tested using an in vitro functional assay. Although one of these compounds manifested some pharmacological activity, we have determined that neither compound is
an appropriate candidate to serve as a lead compound. Additional compounds were proposed to be synthesized by this medicinal chemistry company and we are currently evaluating a proposal to perform this work.



An additional target we are investigating involves the modulation by ATP of
histamine release induced by the allergic reaction in human lung mast cells. Scientists have demonstrated that extracellular ATP is a potent enhancer of histamine release induced by allergic reaction in human lung mast cells. Since ATP is released
from different cell types in the human body, it could play an important role in exacerbating the asthmatic conditions, i.e., causing or worsening asthmatic attacks. Furthermore, these scientists have identified a P2YR that mediates this particular
action of ATP. Primastrene, if successfully
identified and developed for the treatment of asthma, would selectively block ATP receptors localized on human lung mast cells, thereby preventing their stimulation by extracellular ATP and reducing their release of inflammatory mediators.



We are seeking to identify a new small molecule compound that
acts as a potent and selective antagonist at our P2YR target and that could potentially serve as the Primastrene drug product candidate. We are evaluating a drug discovery research proposal received from a scientist and research institution to conduct high throughput screening of a specialized
library of compounds produced by this scientist using a novel method for drug discovery, in which a relatively small library of synthetic compounds is produced on the basis of the genetic code of the desired cellular target (which is known as
chemogenomics).



We hold the exclusive rights to the
proprietary methods to test novel compounds which act as antagonists at P2Rs on human lung mast cells, and thus have the unique ability to efficiently test appropriate compounds we may receive from third parties to characterize the pharmacology of
these proposed drug candidates in human lung mast cells. We are able to test new drug candidates that are potential selective antagonists at P2Rs by utilizing our proprietary human mast cell assay system.



Estimated Product Development Timelines



We have estimated certain product development timelines for our current
product candidates, ATPace and ATPotent. Our estimated timelines are based on a number of
assumptions, including the timely receipt of financing to fund clinical development work, FDA approvals of our protocols, and other factors. Accordingly, the actual timeframes to complete development of these product candidates and obtain FDA
marketing approval could be substantially longer than projected.



We have recently commenced the Phase II clinical trial for ATPace, patient enrollment of which began in March 2005 and is targeted to be completed by approximately the fourth quarter of 2005. Assuming successful completion of the Phase II trial, following the submission of a final
report for this Phase II study to the FDA, we expect to seek FDA clearance for the Phase III clinical trial for ATPace. In the event we successfully complete the Phase III clinical trial, we would expect to submit an NDA for ATPace to the FDA for approval, with that submission targeted for late 2007 or early 2008.



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Subject to our confirming the equivalence in pharmacological activity between the ATP formulation used in
prior experiments and our ATPotent formulation,
we are expecting to commence laboratory studies with ATPotent in the second quarter of 2005 and estimate that we will complete these studies by the second quarter of 2006. Subject to the outcomes of these studies and results of our meeting with the FDA, we expect to initiate the
clinical trials for ATPotent in the second half
of 2006.



Markets Targeted



With the exception of ATPace, we have to date not performed an analysis of the potential market for our product
candidates. However, we have reviewed some publicly available data produced by independent sources, including government agencies, relevant to the overall markets in which our product candidates are expected to compete. Our present strategy in the
development and marketing of ATPace and
ATPotent focuses on the U.S. market, which is the
largest single pharmaceutical market in the world. However, with respect to Vagonixen and Primastrene for the treatment of COPD and asthma and other potential product candidates, we will focus on the U.S. market as well as certain foreign markets. There can be no assurance, however, that the actual markets for our
product candidates will conform to the estimates provided below.



ATPace



Although syncope patients are subjected to a series of examinations and
tests (including echocardiography, Holter monitoring, magnetic resonance imaging (MRI) and computed tomography (CT), electroencephalogram (EEG) and similar tests) costing more than $800 million per year, a potential cause of syncope is found in only
40% of patients. We believe that ATPace could
address a portion of this diagnostic market.



ATPotent



According to the U. S. Department of Health and Human Services, Centers for
Disease Control and Prevention (CDC), in 2001 there were more than 400 clinics in the U.S. dedicated to the diagnosis and treatment of sub-fertility and infertility. The CDC reported that in 2001 approximately 107,000 Assisted Reproductive
Technology procedures were performed for the treatment of infertility in the approximately 380 clinics in the U.S. that submitted survey data. We expect the primary target market for ATPotent to be the IUI and IVF procedures which constitute a significant portion of the overall
ART procedures performed in the U.S.



Vagonixen/Primastrene



In North America, COPD is the fourth most common cause of death and approximately 16 million individuals have been diagnosed
as symptomatic COPD patients. Recent studies indicate that COPD resulted in $32.1 billion direct and indirect costs in 2002, which is a manifestation of the major impact on society of this disease. In 2005, the estimated number of persons who will
die of COPD in North America is 130,000. Direct costs of asthma are estimated at $11.5 billion and indirect costs at an additional $4.6 billion per year. It is expected that by 2020, COPD will become the third leading cause of death in the U.S. COPD
also is an increasing cause of morbidity and mortality worldwide.



We estimate the total COPD and asthma therapeutic market in the U.S. at $4.7 billion annually and believe that Vagonixen and Primastrene each could address a portion of that market.



Manufacturing



ATP powder, an inexpensive product, is manufactured by several leading manufacturers of pharmaceutical raw materials. The worlds largest
manufacturer of ATP supplies us with ATP powder, the specifications of which are recorded by the FDA in a Drug Master File. We have entered into contract



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manufacturing agreements with a U. S. subsidiary of Boehringer-Ingelheim and another U. S. specialty company approved by
the FDA to perform the manufacturing, analytical services, storage and packaging of ATPace in connection with our clinical development of our ATP-based product candidates. Manufacturing has been performed in accordance with FDA current Good Manufacturing Practices. In
addition, laboratory and quality assurance protocols have been established in compliance with FDA requirements. The drug is stored and distributed by a FDA approved facility.



We have received from our contract manufacturer sufficient quantities of the ATP investigational drug for the performance of
the clinical studies with ATPace that we believe
will be required. Stability data for the clinical product obtained to date indicate a shelf life of at least three years. Boehringer-Ingelheim also may provide various ATP formulations for clinical trials of our other ATP-based product candidates
upon our request. We currently intend to utilize Boehringer-Ingelheim for our commercial supplies of ATPace and ATPotent, but we have not yet formalized this arrangement.



Intellectual Property



Our technology and
current and proposed product candidates under development are currently covered by the following patents and corresponding pending patent applications described below:



| |  |  | A Process for Regulating Vagal Tone (US Patent #5,874,420 issued on February 23, 1999; Australian Patent #710,770 issued on January 20, 2000; European Patent #0906102B1 issued on
June 16, 2004 (Canadian and Japanese patent applications are pending). We are the owner of these patent properties. The granted United States and Australian patents cover a method of modulating vagal tone by administering a mediator of P2X-
purinoceptors on vagal afferent nerve terminals. The allowed European applications claims and pending Japanese application claims cover the use of an antagonist or allosteric modifier of P2X-purinoceptors on vagal afferent nerve terminals for
reducing vagal tone. The claims in all countries also cover the use of mediators of P2 purinoceptors for diagnosing abnormal vagal tone. The mediator of P2X purinoceptors is exemplified in our current product candidate, ATPace, and our proposed product candidate, Vagonixen.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Modulation of Human Mast Cell Activation (US Patent #6,372,724 issued on April 16, 2002; Australian Patent #741,713 issued on March 24, 1998; EPO, Canadian and Japanese are
pending.) We are the owner of these patent properties. Claims cover the use of inhibitors of ATP binding to P2 receptors on mast cells for treatment of disorders characterized by undesirable histamine release from lung mast cells. The treatment is
exemplified in our proposed product candidate Primastrene.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Method for Inducing the Acrosome Reaction in Human and Animal Spermatozoa (US Patent #5,474,890 issued on December 12, 1995; Australian Patent #666,011 issued on June 8, 1993). We
are the exclusive licensee of these patents. Claims cover the use of ATP- induced acrosome reaction in mammalian sperm as a diagnostic test as well as for treatment of malfunctioning sperm in the management of male infertility and the improvement of
cryopreserved sperm during IVF procedures.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Screening Method for Modulation of Human Mast Cell Activation (US Patent #6,465,441 B2 issued on October 15, 2002). We are the owner of this patent. Claims cover the use of human
lung mast cells in vitro for screening inhibitors of ATP binding to P2Y- purinoceptors, for use as histamine release inhibitors. Animal models have been determined to be of limited value since non-human mast cells differ significantly from human
mast cells regarding several critical aspects of allergic reaction-induced inflammatory mediators release.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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In the third quarter of 2004, we submitted two U.S. provisional patent applications: one covering our
recently acquired anti-cancer technology based on the activation of a specific P2 receptors in the presence of a biological compound that acts as an allosteric modifier of this receptor; and the other covering technology we own related to the
management of patients with obstructed airway diseases. There is no assurance that either patent will be allowed.



In addition to patents, we also license certain of our intellectual property.



Pursuant to a License and Assignment Agreement dated as of November 15, 1999, Dr. Amir Pelleg and Dr. Edward S. Schulman (i)
assigned to Duska Scientific their ownership of an invention and all related patents and intellectual property, including an issued U.S. patent, that are the basis for ATPace and Vagonixen and (ii) granted to Duska Scientific an exclusive worldwide license for their invention and all related patents and intellectual property, including a
pending U.S. patent application, that are the basis for Primastrene. In consideration for this assignment and license, Duska Scientific issued 240,000 shares of its common stock to Dr. Pelleg and 240,000 shares of its common stock to Dr. Schulman (a portion of which they each assigned
to the medical institution with which they were then associated). Duska Scientific also agreed to pay each of these individuals an amount equal to (i) 2% of the net sales of products by Duska Scientific based on the foregoing inventions and (ii) 2%
of the license fees and any royalties or other similar payments paid to Duska Scientific by any licensee that are based on the foregoing inventions (a portion of these royalties they each had assigned to the medical institution with which they were
then associated). On December 14, 2001, Drs. Pelleg and Schulman assigned to Duska Scientific their ownership of the invention, including the pending U.S. patent application, relating to Primastrene, and they continue to have the right to receive the payments from Duska Scientific as
described above with respect to Duskas net sales and license fees and royalties or other similar payments paid to Duska Scientific by any licensee that are based on this invention.



Pursuant to a License Agreement dated as of November 15, 1999, Dr. Francesco DiVirgilio and Dr. Carlo Foresta granted to
Duska Scientific an exclusive worldwide license for their invention and all related patents and intellectual property, including an issued U.S. patent, that are the basis for ATPotent In consideration for this license, Duska Scientific issued 115,200 shares of its
common stock to Dr. DiVirgilio and 115,200 shares of its common stock to Dr. Foresta. Duska Scientific also agreed to pay these individuals an aggregate amount equal to (i) 5% of the net sales of products by Duska Scientific based on the foregoing
invention and (ii) 5% of the license fees and any royalties or other similar payments paid to Duska Scientific by any licensee that are based on the foregoing invention.



Strategic Alliances



We have entered into a number of strategic alliances and collaborative arrangements including those with Medtronic, Inc., CooperSurgical, Inc. (a
subsidiary of Cooper Companies, Inc.) and Cato Research Ltd. These arrangements are summarized below.



Medtronic, Inc.



In April 2003, we entered into an agreement with Medtronic, Inc. pursuant to which Medtronic will provide, at no cost to us, support for our Phase II and
III clinical trials with ATPace. As part of this
support, Medtronic will provide a number of its cardiac pacing devices and insertable loop recorders (ILR) for use by patients in the trial if the use of this equipment is not covered by the patients medical insurance. Medtronic, together with
us, has approached qualified clinical investigators as potential principal investigators, and Medtronic will provide technical assistance in connection with the use of its medical devices utilized in the trial and comments on protocol design and
assistance, including reimbursement strategies. We intend to continue our collaboration with Medtronic following FDA approval of ATPace, including the implementation of additional post- marketing studies of ATPace. Under this agreement, Medtronic is not obtaining any rights to ATPace or other remuneration from us.



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CooperSurgical, Inc.



In April 2004, we entered into an agreement with CooperSurgical, Inc. (a subsidiary of Cooper Companies, Inc.), one of the
largest suppliers of assisted reproductive technology culture media in the U.S., under which CooperSurgical will provide technical and other assistance to us in specific areas relating to the development of ATPotent. Following our completion of the pre-clinical studies with ATPotent, CooperSurgical will have the right to acquire the
exclusive marketing rights for ATPotent. In the
event CooperSurgical exercises this right, it will be responsible for funding a substantial portion of the Phase II and Phase III trials with ATPotent (although we would be responsible for the cost of preparing and submitting the NDA to the FDA for this product candidate) and we and
CooperSurgical will enter into a marketing license agreement for ATPotent that will provide for an up-front license fee and royalty payments to us in amounts that will be negotiated by the parties. We will provide CooperSurgical with the manufactured supplies of ATPotent.



Cato Research Ltd.



In February 2004, we entered into an agreement with Cato Research Ltd., a
leading clinical contract research organization, under which Cato Research agreed to provide clinical research management and regulatory affairs support to us for our Phase II and Phase III clinical trials of ATPace. Cato Research previously had provided certain contracting services to us for
our Phase I clinical trial for ATPace. In
consideration for its Phase II services, we issued some of our securities to affiliates of Cato Research and may issue additional securities to it in consideration for services that it provides for our Phase III clinical trials of ATPace. Our obligation to use Cato Research for our Phase III
clinical trials of ATPace, and Cato
Researchs obligation to provide such additional services to us, is conditioned upon us raising approximately $1,000,000 of net proceeds from the sale of additional equity securities. Please see Certain Relationships and Related
Transactions.



In addition to Cato Research advising and
assisting us with clinical product development activities with ATPace, Cato Research may also be available to provide us with day-to-day clinical research management and regulatory affairs services for our other product candidates as we request and under terms that will be agreed to by
both parties. By gaining access to Cato Researchs management and its organization of nearly 300 scientists, physicians, statisticians, regulatory affairs professionals and other personnel, we intend to implement our clinical development
efforts without having to establish the costly clinical research and regulatory affairs infrastructure necessary to advance our product candidates through the regulatory approval process.



Competition



A number of the major pharmaceutical companies have on-going research programs directed at developing diagnostic and therapeutic agents based on the
modulation of P2 signal transduction, and we are aware of at least one medium-sized company (Inspire Pharmaceuticals, Inc.) that is devoting a substantial portion of its efforts to this field. These companies may develop products that could compete
with our current and proposed product candidates and may compete with us for the acquisition of new medical applications utilizing technology in this field.



Our current and proposed product candidates are expected to compete with a number of products and technologies that are being utilized and developed by
companies, academic medical centers and research institutions. Our competitive knowledge is derived from and limited to certain publicly available information, and the following descriptions of the status and capabilities of competitors
products may be incomplete due to information not being available to us that was either not publicly disclosed by those competitors or that was disclosed more recently than the information reviewed by us.



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ATPace



Currently, there is no other drug specifically approved by the FDA for the diagnosis of the cause of syncope in the U.S. Several other existing diagnostic
tools would compete with ATPaceTM. These would include the head-up tilt table test (HUT), which is not approved by
the FDA but nonetheless is widely used in clinical practice, and the Medtronic Reveal® Plus Insertable Loop Recorder (ILR), which is approved by the FDA.



ATPotent



Currently, there are a number of drugs that are being utilized to some extent in clinical practice for the treatment of male infertility, although none of these drugs are approved by the FDA specifically for this use. Preliminary studies in
animals and human subjects with a diet supplement of L-carnitine, a biological compound found naturally in the human body, have been shown to increase semen quality, especially in groups with lower baseline sperm quality criteria. However, whether
L-carnitine supplementation can improve the ability of sperm of infertile males to increase the rate of fertilization remains to be determined. We are currently not aware of any other drug products under development that would potentially compete
directly with ATPotent. ICSI, a specific
in vitrofertilization procedure, can compete directly with ATPotent in certain cases.



Vagonixen



Vagonixen can be expected to compete directly with a number of available drugs and therapeutic
modalities, including, among others, Atrovent® (ipratropium bromide), an anti-cholinergic drug that is currently marketed. Drawbacks of Atrovent® include its relatively short duration of action and its inhibition of a specific receptor that
may actually enhance, rather than reduce, bronchoconstriction. Vagonixen will compete with available and new drugs in the research pipeline of a number of companies but, based on its new mechanism of action, may provide certain safety and efficacy advantages.



Primastrene



Currently, there are a number of drugs or combinations of drugs being used for the treatment of asthma. A number of new
drugs are under development by major pharmaceutical companies and other entities. Primastrene will compete with many of these existing and potential products, but will be based on a therapeutic mechanism and target that we believe may provide safety and efficacy advantages over
currently marketed competing products.



Government Regulation



In order to clinically test, manufacture, and market
products for therapeutic use, we will have to satisfy mandatory procedures and safety and effectiveness standards established by various regulatory bodies. In the United States, the Public Health Service Act and the Federal Food, Drug, and Cosmetic
Act, as amended, and the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the testing, manufacture, labeling, storage, record keeping, approval, advertising, and promotion of our
current and proposed product candidates. Product development and approval within this regulatory framework takes a number of years and involves the expenditure of substantial resources. After laboratory analysis and preclinical testing in animals,
an investigational new drug application is filed with the FDA to begin human testing. Typically, a three-phase clinical testing program is then undertaken. In Phase I, small clinical trials are conducted to determine the safety of the product. In
Phase II, clinical trials are conducted to assess safety and gain preliminary evidence of the efficacy of the product (i.e. proof of concept). In Phase III, clinical trials are conducted to provide sufficient



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data for the statistically significant proof of safety and efficacy. The time and expense required to perform this
clinical testing can vary and is substantial. No action can be taken to market any new drug or biologic product in the United States until an appropriate marketing application has been approved by the FDA. Even after initial FDA approval has been
obtained, further clinical trials may be required to provide additional data on safety and effectiveness and are required to gain clearance for the use of a product as a treatment for indications other than those initially approved. In addition,
side effects or adverse events that are reported during clinical trials can delay, impede or prevent marketing approval. Similarly, adverse events that are reported after marketing approval can result in additional limitations being placed on the
products use and, potentially, withdrawal of the product from the market. Any adverse event, either before or after marketing approval, can result in product liability claims against us.



In addition to regulating and auditing clinical trials, the FDA regulates and
inspects equipment, facilities, and processes used in the manufacturing and testing of such products prior to providing approval to market a product. If after receiving clearance from the FDA, a material change is made in manufacturing equipment,
location or process, additional regulatory review may be required. We will also have to adhere to current Good Manufacturing Practice and product -specific regulations enforced by the FDA through its facilities inspection program. The FDA also
conducts regular, periodic visits to re-inspect equipment, facilities, laboratories, and processes following the initial approval. If, as a result of these inspections, the FDA determines that any equipment, facilities, laboratories or processes do
not comply with applicable FDA regulations and conditions of product approval, the FDA may seek civil, criminal, or administrative sanctions and/or remedies against us, including the suspension of the manufacturing operations.



Employees



We currently employ two full-time employees and one part-time employee who are primarily engaged in our day to day
management. In addition, certain members of our Board of Directors and members of our Advisory Board provide us with research and development assistance on a part-time, limited basis. Our employees are not represented by a labor organization or
covered by a collective bargaining agreement. We have not experienced work stoppages and we believe that our relationship with our employees is good.



Glossary of Certain Terms



|                       |  |                                                                                                                                                                                                                                                                               
|---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|acrosome reaction      |  | an event in the process of fertilization that is a prerequisite for the sperms fusion with and crossing through the inner lining membranes of the ovum (egg), and penetration into the
ovum (egg)                                                                            
|                       | 
|agonist                |  | a compound that has a stimulating effect when it binds to a receptor                                                                                                                                                                                                          
|                       | 
|antagonist             |  | a compound that has an inhibitory effect when it binds to a receptor due to its inability to activate the receptor and preventing of the binding of an agonist                                                                                                                
|                       | 
|adenosine              |  | a biological compound found in every cell of the human body; released from cells when oxygen supply does not meet oxygen demand. Extracellular adenosine protects tissues from injury caused by
oxygen deprivation                                                            
|                       | 
|atrio-ventricular node |  | AV node: a group of cells in the heart that act as an electrical relay station between the atria (the upper) and the ventricles (the lower) chambers. Under normal conditions, it is the only
site where passage of electrical signals from the atria to the ventricles occurs



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|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ATP           |  | adenosine 5-triphosphate; a biological compound found in every cell of the human body where it plays a critical role in cellular metabolism and as a source of energy. ATP is released
from cells under normal (physiologic) and disease (pathophysiologic) conditions. Extracellular ATP acts as a local physiologic regulator                                                                                                                     
|              | 
|bradycardia   |  | slow heart rate                                                                                                                                                                                                                                                                                                                                                                                                                                      
|              | 
|COPD          |  | chronic obstructive pulmonary disease                                                                                                                                                                                                                                                                                                                                                                                                                
|              | 
|FDA           |  | United States Food and Drug Administration, which is the agency that oversees and regulates the development of new drugs in the United States                                                                                                                                                                                                                                                                                                        
|              | 
|HUT           |  | head-up tilt table test, which is a provocative test used to identify patients with neurally-mediated syncope. One of the most commonly used tests in the management of patients with
syncope                                                                                                                                                                                                                                                        
|              | 
|IND           |  | Investigational New Drug application, which is submitted to the FDA prior to the commencement of clinical trials in humans with a new drug                                                                                                                                                                                                                                                                                                           
|              | 
|in vitro      |  | in the test tube; outside of the human body (or other living organism), in an artificial environment                                                                                                                                                                                                                                                                                                                                                 
|              | 
|in vivo       |  | in the living human body or other organism                                                                                                                                                                                                                                                                                                                                                                                                           
|              | 
|lead compound |  | a compound that exerts the desired effects in vitro and in animal models in vivo                                                                                                                                                                                                                                                                                                                                                                     
|              | 
|ligand        |  | a biological compound or a pharmacological agent that binds to a receptor; a ligand can activate the receptor (as an agonist), block it (as an antagonist) or modify the affinity of the
receptor to agonists or antagonists (as an allosteric modifier)                                                                                                                                                                                             
|              | 
|mast cells    |  | inflammatory cells containing special cytoplasm granules which store mediators of inflammation, including histamine. Upon their activation through both immune and nonimmune mechanisms, mast
cells release these mediators into the extracellular space. Mast cell mediator release is most significant in either acute inflammation or in allergic responses. Under normal conditions, mature mast cells are not seen in the peripheral
circulation
|              | 
|NDA           |  | New Drug Application, which is submitted to the FDA upon completion of clinical trials to obtain government marketing approval                                                                                                                                                                                                                                                                                                                       



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|                     |  |                                                                                                                                                                                                                                                                                                                                      
|-------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|neurogenic           |  | derived from the activity of neural elements                                                                                                                                                                                                                                                                                         
|                     | 
|purinergic receptors |  | P receptors (PR): a family of cell-surface receptors that bind purine molecules                                                                                                                                                                                                                                                      
|                     | 
|P1 receptors (P1R)   |  | adenosine receptors, including four subtypes: A1, A2A, A2B, A3                                                                                                                                                                                                                                                                       
|                     | 
|P2 receptors (P2R)   |  | cell-surface receptors that are activated by ATP and other adenine nucleotide and which are divided into two families of receptors: P2X and P2Y                                                                                                                                                                                      
|                     | 
|receptor             |  | a protein on the cell surface or inside the cell that is the binding sites of ligands, including agonists and antagonists                                                                                                                                                                                                            
|                     | 
|signal transduction  |  | a cascade of molecular events inside the cell triggered by the binding of an agonist (a ligand) to a receptor and characterized by the activation of specific molecules (proteins; enzymes).
This is the mechanism through which physiologic regulators, as well as pharmacologic agents, exert their effects at the cellular level. 
|                     | 
|sperm                |  | the reproductive cells of men, produced in the testes                                                                                                                                                                                                                                                                                
|                     | 
|syncope              |  | fainting in which a temporary loss of consciousness and postural tone occurs suddenly                                                                                                                                                                                                                                                
|                     | 
|vagus nerve          |  | a major cranial nerve that carries sensory information from various organs including the lungs and heart, to the brain and signals from the brain to the lungs and heart that cause
bronchoconstriction and depressed cardiac functions (e.g., slowing of the heart rate and reduced force of heart muscle contraction), respectively



ITEM 2. DESCRIPTION OF PROPERTY.



We currently maintain our office space in Bala Cynwyd, Pennsylvania, a suburb of Philadelphia, which facilities we lease under an annual lease that expires on October 31, 2005. This lease will automatically renew for a one year term unless
we terminate the lease 60 days prior to the end of the current term. We currently pay rent of $2,500 per month under the lease for office space as well as certain additional communication costs.



ITEM 3. LEGAL PROCEEDINGS.



We
are not a party to any material legal proceedings. We may occasionally become subject to legal proceedings and claims that arise in the ordinary course of our business. It is impossible for us to predict with any certainty the outcome of pending
disputes, and we cannot predict whether any liability arising from pending claims and litigation will be material in relation to our consolidated financial position or results of operations.



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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.



No matters were submitted to a vote of our security holders during the quarter ended December 31, 2004.



PART II



ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.



Our common stock has been traded on the OTC Bulletin Board over-the-counter market since August 30, 2004 under the symbol DSKT. Prior to the
merger in which Duska Scientific became our wholly owned subsidiary on August 30, 2004, our common stock was listed on the OTC Bulletin Board over-the-counter market under the symbol SRKI.



There was little or no trading in our common stock prior to the merger on
August 30, 2004 and there has only been very limited trading since then. Prior to the merger, trading in our common stock was not necessarily based on our companys operations or prospects, and trading since the merger also may not be fully
reflective of those factors. The following price information for each quarter in 2003 and 2004 reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions:



|                   |  |      |      |     |   |     
|------------------ |  | ---- | ---- | --- | - | ----
|Quarter Ending     |  | High |      | Low
|Fiscal 2003        |  |      |      |     |   |     
|March 31, 2003     |  | $    | 1.50 |     | $ | 1.01
|June 30, 2003      |  | $    | 2.15 |     | $ | 1.01
|September 30, 2003 |  | $    | 2.15 |     | $ | 1.01
|December 31, 2003  |  | $    | 2.50 |     | $ | 1.01
|                   |  |     
|Fiscal 2004        |  |      |      |     |   |     
|March 31, 2004     |  | $    | 2.50 |     | $ | 2.45
|June 30, 2004      |  | $    | 2.45 |     | $ | 2.45
|September 30, 2004 |  | $    | 2.45 |     | $ | 1.90
|December 31, 2004  |  | $    | 3.00 |     | $ | 1.80



Holders



As of March 23, 2005, there were approximately 119 holders of record of our
common stock.



Dividends



We have not paid any dividends on our common stock to date and do not
anticipate that we will be paying dividends in the foreseeable future. Any payment of cash dividends on our common stock in the future will be dependent upon the amount of funds legally available, our earnings, if any, our financial condition, our
anticipated capital requirements and other factors that the Board of Directors may think are relevant. However, we currently intend for the foreseeable future to follow a policy of retaining all of our earnings, if any, to finance the development
and expansion of our business and, therefore, do not expect to pay any dividends on our common stock in the foreseeable future.



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Recent Sales of Unregistered Securities



On November 10, 2004, we issued 500,000 units to Cato Holding Company and six investors who are affiliated with Cato Holding
Company (as designees of Cato Research Ltd.) as consideration for clinical research management and regulatory affairs support services to be rendered by Cato Research to us for Phase II clinical trials of ATPace. The 500,000 units consisted of 500,000 shares of our common stock and warrants to
purchase 500,000 additional shares of our common stock at an exercise price of $2.50 per share. Under the terms of the agreement, the 500,000 units were held by us in escrow pending the receipt of such services. As of January 31, 2005, 133,046
shares of our common stock and warrants to purchase 133,046 shares of our common stock had been earned based on the billing schedules defined in the appendices to the master services agreement. As additional consideration to Cato Research, on
November 10, 2004 we issued additional warrants to purchase a total of 99,000 shares of our common stock to six investors who are affiliated with Cato Holding Company (as Cato Researchs designees). These additional warrants have an exercise
price of $1.04 per share and expire on the earlier of October 31, 2009 or a change of control of our company. The foregoing issuances were exempt from registration under the Act pursuant to Section 4(2) thereof.



Repurchase of Securities



We did not repurchase any shares of our common stock during the fourth
quarter of 2004.



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



Overview



On August 30,
2004, we completed a merger in which Duska Scientific Co. (Duska Scientific), through which we currently carry out all of our business operations, became our wholly-owned subsidiary. At the time of the merger, we had virtually no assets
or liabilities (prior to the merger we had engaged in very limited landscaping and irrigation operations). In connection with the merger, we changed our name to Duska Therapeutics, Inc., replaced our officers and directors with those of
Duska Scientific, ceased our landscaping business and moved our offices to Bala Cynwyd, Pennsylvania. We currently do not plan to conduct any business other than the business that Duska Scientific has conducted since its organization. Duska
Scientific is a development stage company that has at this time a portfolio of two current product candidates and two proposed product candidates that are in various early stages of development. We have not generated any revenues to date. We expect
to continue to incur significant research, development and administrative expenses before any of our current or proposed product candidates are approved for marketing, if ever, and generate any revenues.



Although we acquired Duska Scientific in the merger, for accounting purposes,
the merger was accounted for as a reverse merger since the stockholders of Duska Scientific acquired a majority of the issued and outstanding shares of our common stock, and the directors and executive officers of Duska Scientific became our
directors and executive officers. Accordingly, our financial statements contained in this Annual Report on Form 10-KSB, and the description of our results of operations and financial condition, reflect (i) the operations of Duska Scientific alone
prior to the merger, and (ii) the combined results of this company and Duska Scientific since the merger. No goodwill was recorded as a result of the merger.



Critical Accounting Policies



Managements discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management



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evaluates its estimates, including those related to impairment of long-lived assets, including finite lived intangible
assets, accrued liabilities and certain expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.



Our significant accounting policies are summarized in Note 2 to our audited
financial statements for the year ended December 31, 2004 beginning on page F-1. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial
statements:



Development Stage Enterprise



We are a development stage enterprise as defined by the Financial
Accounting Standards Boards (FASB) Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises. We are devoting substantially all of our present
efforts to research and development. All losses accumulated since inception have been considered as part of our development stage activities.



Patents



Our patent costs consist of the expenditures for purchasing the patents and related legal fees. We will amortize patents using the straight-line method
over the period of estimated benefit. There has been no amortization expense charged, as the patents have not yet produced revenue. It is anticipated that any of the patents will not start producing revenue until 2008 at the earliest, with
amortization of the patents to begin upon their producing revenue.



We periodically evaluate whether events or circumstances have occurred that may affect the estimated useful lives or the recoverability of the remaining balance of the patents. Impairment of the assets is triggered when the estimated future
undiscounted cash flows do not exceed the carrying amount of the intangible assets. If the events or circumstances indicate that the remaining balance of the assets may be permanently impaired, such potential impairment will be measured based upon
the difference between the carrying amount of the assets and the fair value of such assets, determined using the estimated future discounted cash flows generated.



Stock-Based Compensation



SFAS No. 123, Accounting for Stock-Based Compensation, establishes and encourages the use of the fair value based method of accounting for
stock-based compensation arrangements under which compensation cost is determined using the fair value of stock-based compensation determined as of the date of grant and is recognized over the periods in which the related services are rendered. The
statement also permits companies to elect to continue using the current intrinsic value accounting method specified in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, to account for
stock-based compensation. We have elected to use the intrinsic value based method and have disclosed the pro forma effect of using the fair value based method to account for our stock-based compensation. For non-employee stock based compensation, we
recognize an expense in accordance with SFAS No. 123 and value the equity securities based on the fair value of the security on the date of grant. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment.
Statement 123(R) requires that the compensation cost relating to a wide range of share-based payment transactions (including stock options) be recognized in financial statements. That cost will be measured based on the fair value of the equity
instruments issued. Statement 123(R) replaces FASB Statement No. 123 and supersedes APB Opinion No. 25. As a small business issuer, we will be required to apply Statement 123(R) to our first interim or annual reporting period that begins after
December 15, 2005.



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Results of Operations



For the year ended December 31, 2004, we reported a net loss of $1,560,835, as compared to a net loss of $798,514 for the year ended December 31, 2003.



Revenues



For the years ended December 31, 2004 and 2003, we generated no operating revenues. Interest income was $18,293 and $2,810
during the years ended December 31, 2004 and 2003, respectively. The variance generally reflects our fluctuating cash balances.



Expenses



General and administrative expenses were $915,579 and $471,876 for the years ended December 31, 2004 and 2003, respectively, and consisted principally of
officers salaries, legal and accounting fees and facilities costs. The increase from 2003 to 2004 is attributable to higher legal patent costs to support the filing of a provisional patent and other legal fees associated with the merger with
Duska Scientific.



Research and development expenses were
$465,580 and $281,045 for the years ended December 31, 2004 and 2003, respectively. Research and development expenses consisted principally of costs directly associated with our activities related to the development of ATPace, Vagonixen and ATPotent.



In February 2004, we entered into an agreement with Cato Research Ltd. (Cato) under which Cato agreed to provide clinical research management
and regulatory affairs support for the Phase II and Phase III clinical trials of ATPace (the Cato Agreement). Under the terms of the Cato Agreement, which was amended and restated in November 2004, we agreed with Cato that up to $500,000 of the compensation due to Cato for its
services would be paid by us issuing to Cato (or its designees) 500,000 units of our securities (the Cato Units). Each Cato Unit consists of one share of common stock and one warrant to purchase an additional share of common stock at an
exercise price of $2.50 per share. The warrants expire in August 2007. Pursuant to the Cato Agreement, the parties agreed that 40% of each Cato invoice will be paid with Cato Units, with the balance payable in cash. In November 2004, we issued all
500,000 Cato Units, which are being held in escrow by us and will be released as we receive invoices for services actually performed by Cato. As of December 31, 2004, we have accrued $274,048 that had been earned by Cato through that date pursuant
to the Cato Agreement, which is included in research and development expense. Of this amount, $109,619 will be paid through the release of Cato Units from escrow. In addition, as additional compensation for Cato, in November 2004 we issued to
Catos designees additional warrants to purchase a total of 99,000 shares of common stock. These additional warrants have an exercise price of $1.04 per share and expire in October 2009. These warrants were immediately exercisable and not held
in escrow; accordingly, we recognized expense of $43,683 for the warrants, based on the value as calculated in a Black-Scholes valuation model. Such expense is included in research and development expense.



Excluding the $274,048 accrual and $43,683 warrant expense pursuant to the
Cato Agreement discussed above, research and development expense was $147,849 in 2004 versus $281,045 in 2003. The decline in these expenses from 2003 to 2004 was due to the completion in 2003 of pre-clinical studies (related to the development of
Vagonixen) done on a contractual basis at the
Imperial College of London and a one time expense to cover the cost of a meeting with a clinical steering committee established to set the scope and design of the ATPace Phase II clinical trial. Subsequently in 2004, funds were used for a principal investigator meeting in preparation for
the Phase II clinical trial with ATPace and the
final payment for the Imperial College of London project. We expect our research and development expenditures to substantially increase in 2005 from prior periods, due primarily to our initiation of the Phase II trial for ATPace.



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Interest expense was $197,969 and $48,403 for the years ended December 31, 2004 and 2003, respectively,
and relates to the $500,000 of convertible subordinated notes that we previously issued. The notes were converted into common stock in March 2004 and, upon their conversion, the note holders received additional warrants to purchase common stock.
These additional warrants were valued at $190,846, which was treated as additional interest expense.



Liquidity and Capital Resources



At December 31, 2004, we had cash and cash equivalents of $2,422,775, compared to $88,162 at December 31, 2003. Working capital totaled $2,080,439 at December 31, 2004, compared to a deficit of $(747,766) at December 31, 2003. In August
2004, we closed a private placement of common stock and warrants, whereby we received $3,667,500 in gross cash proceeds in connection with our acquisition of Duska Scientific (before the payment of commissions and other offering costs). To date, we
have funded our operations, including our research and development activities, through funds derived from several private placements of an aggregate of approximately $6 million of equity securities.



We do not currently anticipate that we will derive any revenues from either
product sales or from governmental research grants during the next twelve months. Based on our current plan of operations, we believe that our current cash balances will be sufficient to fund our planned expenditures until approximately the end of
the third quarter of 2005. However, the estimated cost of completing the development of our current and proposed product candidates and of obtaining all required regulatory approvals to market our current and proposed product candidates is
substantially greater than the amount of funds we currently have available. As a result, we will have to obtain significant additional funds by the third quarter of 2005 in order to fund our operations after that period. We do not have any bank
credit lines and have financed all of our prior operations thought the sale of securities. We currently plan to attempt to obtain additional financing through the sale of additional equity, although we may also seek to obtain funding through
strategic alliances with larger pharmaceutical or biomedical companies. We have not yet identified or have any funding commitments from, and cannot be sure that we will be able to obtain any additional funding from either of these sources, or that
the terms under which we obtain such funding will be beneficial to us. If we are unsuccessful or only partly successful in our efforts to secure additional financing, we may find it necessary to suspend or terminate some or all of our product
development and other activities.



As of December 31, 2004, we
had no long-term debt obligations, no capital lease obligations, no operating lease obligations, no purchase obligations, or other similar long-term liabilities, except for those related to the Cato Agreement. The Company has the right to terminate
the Cato Agreement at any time, subject to a 90 day notice requirement and the payment to Cato of 20% of the estimated remaining unbilled amounts for the work orders covered by the agreement. At December 31, 2004, such obligations would have
amounted to $158,572.



We are not a party to any
off-balance sheet arrangements, and we do not engage in trading activities involving non-exchange traded contracts. In addition, we have no financial guarantees, debt or lease agreements or other arrangements that could trigger a requirement for an
early payment or that could change the value of our assets.



We
do not believe that inflation has had a material impact on our business or operations.



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RISK FACTORS



We face a number of substantial risks. Our business, financial condition or results of operations could be harmed by any of
these risks. The trading price of our common stock could decline due to any of these risks, and they should be considered in connection with the other information contained in this Annual Report on Form 10-KSB.



RISKS RELATED TO OUR BUSINESS



We are an early-stage company subject to all of the risks and uncertainties of a new
business, including the risk that we may never market any products or generate revenues.



We are a development-stage company that has not generated any revenues to date. There can be no assurance that we will be able to satisfactorily develop our technologies and to market our current or proposed product
candidates that will generate revenues or that any revenues generated will be sufficient for us to become profitable or thereafter maintain profitability. Further, we do not expect to generate any such revenues in the foreseeable future.



All of our current and proposed product candidates are in early stages of
development, have never generated any sales and require extensive testing before commercialization. We only have two full-time employees and limited resources and may not possess the ability to successfully overcome many of the risks and
uncertainties frequently encountered by early stage companies involved in the new and rapidly evolving field of biopharmaceuticals. You must consider that we may not be able to:



| |  |  | obtain additional financial resources necessary to develop, test, manufacture and market our product candidates;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | engage corporate partners to assist in developing, testing, manufacturing and marketing our product candidates;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | satisfy the requirements of clinical trial protocols, including timely patient enrollment;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | establish and demonstrate or satisfactorily complete the research to demonstrate the clinical efficacy and safety of our product candidates;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | obtain necessary regulatory approvals; and
| | - |  | ------------------------------------------



| |  |  | market our product candidates to achieve acceptance and use by the medical community and patients in general and produce revenues.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



We have a history of losses, expect future losses and cannot assure you that we will ever
become or remain profitable.



We have not generated any
revenues and have incurred operating losses since our inception and we expect to continue to incur operating losses for the foreseeable future. To date, we have dedicated most of our financial resources to research and development and general and
administrative expenses. We have funded all of our activities through sales of our securities. For the fiscal years ended December 31, 2004 and December 2003, we had net losses of $1,560,835 and $798,514, respectively. We expect to incur
losses for at least the next few years because we plan to spend substantial amounts on research and development of our current and proposed product candidates, including pre-clinical research and clinical trials. In the event that our operating
losses are greater than anticipated or continue for longer than anticipated, we will need to raise significant additional capital sooner, or in greater amounts, than otherwise anticipated in order to be able to continue development of our product
candidates and maintain our operations.



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We will need to obtain significant additional capital, which additional funding may dilute our existing stockholders.



We have used substantial funds to develop our
technologies and will require substantial funds to conduct further research and development. We have funded all of our activities to date through the sale of securities. As of December 31, 2004, we had working capital of approximately $2,080,000,
which we anticipate will only be sufficient to maintain our planned level of operations until approximately the end of the third quarter of 2005.



The proceeds of the private placement completed in August 2004 by Duska Scientific may be insufficient to accomplish the various clinical and laboratory
studies and other drug development work that we have contemplated doing with such proceeds due to a variety of factors, including those described in the Business section. Moreover, we will need significant funding in addition to the
proceeds from that offering to carry out most or all of our planned development work for our current product candidates, ATPace and ATPotent, and to expand the scope of our operations (including employing senior executives and additional support personnel on a full-time basis), to develop our technologies and two proposed
product candidates, Vagonixen and
Primastrene, and to acquire and develop any new
relevant technologies and product candidates that may become available to us. Our actual expenditures needed to complete the development of ATPace could substantially exceed our current expectations due to a variety of factors, many of which are difficult to predict or are outside of our control,
including revisions to our current development plan required by the FDA and higher than anticipated clinical research costs. We will also incur substantial costs to develop ATPotent, and our actual costs will be significantly higher than presently anticipated if
CooperSurgical does not elect under our agreement to assist with the funding of our Phase II and Phase III trials for ATPotent and acquire a marketing license for this product candidate. Our costs to commence even limited drug candidate discovery and pre-clinical work on our
proposed product candidates, Vagonixen and
Primastrene, will be significant and clinical
development expenses for each of these proposed product candidates will be very substantial and will require a strategic alliance with a larger pharmaceutical company that has expertise and sufficient resources to fund the clinical development
costs.



We have not identified the sources for the additional
financing that we will require, and we do not have commitments from any third parties to provide this financing. Certain investors may be unwilling to invest in our securities since we are traded on the OTC Bulletin Board and not on a Nasdaq market,
particularly if there is only limited trading in our common stock on the OTC Bulletin Board at the time we seek financing. There can be no assurance that sufficient funding will be available to us at acceptable terms or at all. If we are unable to
obtain sufficient financing on a timely basis, the development of our current and proposed product candidates could be delayed and we could be forced to reduce the scope of our research and development projects or otherwise limit or terminate our
operations altogether. Any additional funding that we obtain is likely to reduce the percentage ownership of the company held by our existing securityholders. The amount of this dilution may be substantially increased if the trading price of our
common stock has declined at the time of any financing from its current levels.



Before we can market any of our current or proposed product candidates, we must obtain governmental approval for each of our current and proposed product candidates, the application and receipt of which is time-consuming, costly and
uncertain.



Each of the current and proposed product
candidates we are developing will require approval of the U.S. Food and Drug Administration, or FDA, before it can be marketed in the U.S. Although our focus at this time is primarily on the U.S. market, in the future similar approvals will need to
be obtained from



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foreign regulatory agencies before we can market our current and proposed product candidates in other countries. The
process for filing and obtaining FDA approval to market therapeutic or diagnostic products is both time-consuming and costly, with no certainty of a successful outcome. The historical failure rate for companies seeking to obtain FDA approval of
therapeutic or diagnostic products is high. This process includes conducting extensive pre-clinical research and clinical testing, which may take longer and cost more than we initially anticipate due to numerous factors, including without
limitation, difficulty in securing appropriate centers to conduct trials, difficulty in enrolling patients in conformity with required protocols in a timely manner, unexpected adverse reactions by patients in the trials to our product candidates and
changes in the FDAs requirements for our testing during the course of that testing.



Each of our two current product candidates is based on either a diagnostic or therapeutic indication for ATP. Although the FDA has approved two formulations of adenosine, the product of ATPs degradation in the
body, that are currently being sold by other companies as drugs for diagnostic and therapeutic indications, the FDA has not to date approved any ATP product for any indication. Thus, we may encounter unexpected safety, efficacy, manufacturing or
other FDA related issues as we seek to obtain marketing approval for our current ATP-based product candidates from the FDA, and there can be no assurance that we will be able to obtain approval from the FDA or any foreign governmental agency for
marketing of any of our product candidates.



The FDA has
advised us that we will need to seek approval for ATPotent as a drug rather than a medical device. The FDA approval process for a drug is often more time-consuming and expensive than that for a medical device. We currently plan to initiate and complete certain pre-clinical
studies for ATPotent. If the FDA does not accept
the data from our planned pre-clinical studies, the development of ATPotent may be delayed and the cost of development will increase beyond our currently anticipated costs. In addition, the FDA ultimately could require us to achieve an efficacy end point for ATPotent in its clinical trials that could be more difficult,
expensive and time-consuming than our planned end point.



Because all of our
current and proposed product candidates are at an early stage of development and have never been marketed, we do not know if any of our current and proposed product candidates will ever be approved for marketing, and any such approval will take at
least several years to obtain.



We have not yet commenced
clinical trials with any of our current or proposed product candidates other than ATPace, nor, with the exception of the Phase I safety trial of ATPace, have we confirmed any of the claims made by our licensors or assignees of any of our product candidates concerning the potential safety or efficacy of these product candidates. We may
be unable to confirm in our clinical trials with ATPace and our pre-clinical studies or clinical trials with ATPotent the favorable published clinical data obtained in limited studies by certain European investigators for similar formulations of these product candidates. Recent pre-clinical experiments
conducted by a U.S. scientist failed to show a significant effect by ATP on sperm of human donors, although this scientist used a protocol that varied in certain respects from the protocol that was used by the Italian scientists who first
demonstrated in published studies the effects of ATP on sperm of human donors. After consulting with these Italian scientists, we ran additional pre-clinical experiments with ATP at another U.S. medical center. Data obtained in these experiments
have confirmed the published Italian data. Specifically, ATP significantly increased the rate of acrosome reaction in sperm obtained from fertile donors. Although we believe that the inability to confirm the Italian data in the first set of
preliminary experiments in the U.S. resulted from lack of adherence to the original Italian protocol, we may encounter further similar difficulties in subsequent pre-clinical or clinical testing of ATPotent due to the nature or complexity of the protocol or for other unanticipated reasons,
and we may be unable to achieve the same results with the sperm of infertile donors that have been achieved with sperm of fertile donors. We plan to confirm the pharmacological activity equivalence of the ATP formulation used by the Italian
scientists with our ATP formulation that we intend to use for our ATPotent studies and product candidate. Should we be unable to confirm this equivalence, we may encounter significant delays and additional costs in the development of ATPotent. It will take at least several years to complete the clinical testing and apply for
marketing approval for ATPace and ATPotent, assuming that we can confirm the European data for
these two product candidates.



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Our pre-clinical and clinical development of any of our product candidates may be suspended or terminated
for a variety of reasons, including our determination that a particular product candidate is not viable either because it is not safe or because we will not be able to demonstrate that it is safe and effective. We have not yet identified and may be
unable to identify suitable candidate compounds to serve as our proposed product candidates, Vagonixen or Primastrene. Third parties may have proprietary rights to the most promising candidates, if any, for Vagonixen or Primastrene. In the case of Primastrene, we must still establish that the P2 receptor as to which we hold proprietary rights, is an appropriate target for the development of a drug aimed at the treatment of asthma. Significant
and very costly pre-clinical work will be necessary for both Vagonixen and Primastrene
even if we identify suitable candidates to serve as these proposed product candidates, and we will need to conclude agreements with third parties to continue the development of these proposed product candidates. There can be no assurance that we
will be able to successfully complete this work, which will take an extended period of time and will cause us to incur substantial expense. If we experience substantial delays, we may not have the financial resources to continue development of the
proposed product candidates or the development of any of our current product candidates. Delays in clinical trials could reduce the commercial viability of our current and proposed product candidates. Because of the early stage of development of
each of our current and proposed product candidates, we do not know if we will be able to generate data that will support the filing of investigational new drug applications, or INDs, or new drug applications, or NDAs, for these product candidates
or the FDAs approval thereof.



We may be unable to obtain U.S. or
foreign regulatory approval and, as a result, be unable to commercialize our current and proposed product candidates.



We have no experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA. We have
entered into an agreement with Cato Research Ltd., a clinical contract research service organization with expertise in the management of clinical trials, to assist us with the management of the ATPace clinical development work. The time required to obtain FDA and other approvals is
unpredictable but often can exceed five years following the commencement of clinical trials, depending upon the complexity of the product. Any analysis we perform of data from preclinical and clinical activities is subject to confirmation and
interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. We may also encounter unexpected delays or increased costs due to a variety of reasons, including new government regulations from future legislation
or administrative action, or from changes in FDA policy during the period of product development, clinical trials and FDA regulatory review.



Any delay or failure in obtaining required approvals would have a material adverse effect on our ability to generate revenues from the particular product.
Furthermore, any regulatory approval to market a product may be subject to limitations on the indicated uses for which we may market the product. These limitations may limit the size of the market for the product.



Because our current and proposed product candidates represent new approaches to the
diagnosis and treatment of disease, there are many uncertainties regarding the development, the market acceptance, third party reimbursement coverage and the commercial potential of our current and proposed product candidates.



There can be no assurance that the approaches offered by our current and
proposed product candidates will gain broad acceptance among doctors or patients or that governmental agencies or third party medical insurers will be willing to provide reimbursement coverage for our current and proposed product candidates.
Moreover, we do not have internal marketing data research resources, and, except in the case of



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ATPace, for which we used an independent firm to prepare a limited marketing potential analysis, we are not certain of and have not attempted to independently
verify the potential size of the commercial markets for any of our product candidates. Since our current and proposed product candidates will represent new approaches to diagnosing or treating various conditions, it may be difficult, in any event,
to accurately estimate the potential revenues from these product candidates. We may spend large amounts of money trying to obtain approval for these product candidates, and never succeed in doing so. In addition, these product candidates may not
demonstrate in large sets of patients the pharmacological properties ascribed to them in the laboratory studies or smaller groups of patients, and they may interact with human biological systems in unforeseen, ineffective or harmful ways either
before or after they are approved to be marketed. As a result, we may never succeed in developing a marketable product. If we do not successfully develop and commercialize products based upon our approach, we will not become profitable, which could
materially, adversely effect the value of our common stock.



Other factors that we believe will materially affect market acceptance of our current and proposed product candidates include:



| |  |  | the timing of our receipt of any marketing approvals, the terms of any approvals and the countries in which approvals are obtained;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | the safety, efficacy and ease of administration;
| | - |  | ------------------------------------------------



| |  |  | the availability of government and third-party payor reimbursement;
| | - |  | -------------------------------------------------------------------



| |  |  | the pricing of our current and proposed product candidates, particularly as compared to alternative treatments; and
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | the availability of alternative effective forms of diagnosis or treatments, at that time, for the diseases that the current and proposed product candidates we are developing are
intended to diagnose or treat.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As an early stage small
company that will be competing against numerous large, established companies that have substantially greater financial, technical, manufacturing, marketing, distribution and other resources than us, we will be at a competitive disadvantage.



The pharmaceutical and biopharmaceutical industry is
characterized by intense competition and rapid and significant technological changes and advancements. Many companies, research institutions and universities are doing research and development work in a number of areas similar to those that we focus
on that could lead to the development of new products which could compete with and be superior to our product candidates. Furthermore, many companies are engaged in the sale of existing medical devices or products that are or will be competitive
with our current and proposed product candidates.



Most of the
companies with which we compete have substantially greater financial, technical, manufacturing, marketing, distribution and other resources than those of ours. A number of these companies may have or may develop technologies for developing products
or diagnosing or treating various diseases that could prove to be superior to ours. We expect technological developments in the pharmaceutical and biopharmaceutical and related fields to occur at a rapid rate, and we believe competition will
intensify as advances in these fields are made. Accordingly, we will be required to continue to devote substantial resources and efforts to research and development activities in order to potentially achieve and maintain a competitive position in
this field. Products that we develop may become obsolete before we are able to market them or to recover all or any portion of our research and development expenses. We will be competing with respect to our products with companies that have
significantly more experience in undertaking preclinical testing and human clinical trials with new or improved therapeutic products and



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obtaining regulatory approvals of such products. A number of these companies already market and may be in advanced phases
of clinical testing of various drugs or medical devices that may compete with our current and proposed product candidates. Our competitors may develop or commercialize products more rapidly than we do or with significant advantages over any products
we develop. Our competitors may therefore be more successful in commercializing their products than we are, which could adversely affect our competitive position and business.



The head-up tilt table test, or HUT, and insertable loop recorder, or ILR, are established diagnostic tools that will, along
with other diagnostic procedures, compete with ATPace. Various existing treatment options for male infertility (such as surgical intervention, drug and hormonal therapies and assisted reproductive technology procedures, including intracytoplasmic sperm injection (ICSI))
will compete with ATPotent. There are a number of
drugs currently used for the treatment of asthma and chronic obstructive pulmonary disorder, or COPD and chronic cough; other drugs currently under development by pharmaceutical companies are expected to compete in this market by such time, if ever,
that Vagonixen and Primastrene are approved for marketing.



Colleges, universities, governmental agencies and other public and private
research organizations are becoming more active in seeking patent protection and licensing arrangements to collect royalties for use of technologies that they have developed, some of which may be directly competitive with our current and proposed
product candidates. In addition, these institutions, along with pharmaceutical and specialized biotechnology companies, can be expected to compete with us in recruiting qualified scientific personnel.



We will need to outsource and rely on third parties for the clinical development and
manufacture, sales and marketing of our current and proposed product candidates, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.



We do not have the required financial and human resources to carry out on
our own all the pre-clinical and clinical development for our current and proposed product candidates, and do not have the capability and resources to manufacture, market or sell our current and proposed product candidates. Our business model calls
for the outsourcing of the clinical and other development and manufacturing, sales and marketing of our current and proposed product candidates in order to reduce our capital and infrastructure costs as a means of potentially improving our financial
position and the profitability of our proposed product candidates. Accordingly, we must enter into agreements with other companies that can assist us and provide certain capabilities that we do not possess. We have entered into certain agreements
with Medtronic, Inc., Cato Research Ltd. and CooperSurgical, Inc., a subsidiary of Cooper Companies, Inc., but we may not be successful in entering into additional such alliances on favorable terms or at all. Even if we do succeed in securing
additional alliances, we may not be able to maintain them if, for example, development or approval of a product is delayed or sales of an approved product are disappointing. Furthermore, any delay in entering into agreements could delay the
development and commercialization of our products and reduce their competitiveness even if they reach the market. Any such delay related to our agreements could adversely affect our business.



We have entered into an agreement with Cato Research and may seek to enter
into additional strategic alliances with larger specialized companies to manage the day-to-day conduct of our clinical trials and to manufacture and market ATPace. Please see BusinessStrategic Alliances. We may also utilize contract manufacturers to produce
clinical or commercial supplies of our product candidates. We may contract with independent sales and marketing firms to use their pharmaceutical sales force on a contract basis (as we currently intend to do with respect to the manufacture and sale
of ATPace) and our agreement with CooperSurgical
will give that company the right to acquire the exclusive marketing rights for ATPotent. We have not yet entered into any strategic alliances or other licensing or contract arrangements covering the manufacture or marketing of any of our product candidates (except for the manufacture of our
clinical supplies of ATPace with a subsidiary of
Boehringer Ingelheim and the agreement with





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CooperSurgical which will give that company the right to acquire the exclusive marketing rights for ATPotent). There can be no assurance that CooperSurgical will
elect to market ATPotent or that we will
otherwise be able to enter into satisfactory arrangements for the manufacture or marketing of any of our product candidates. We will be required to expend substantial amounts (which in the case of Cato Research will include, in part and in lieu of
cash, equity in our company) to retain and continue to utilize the services of one or more clinical research management organizations without any assurance that the product candidates covered by the clinical trials conducted under their management
ultimately will generate any revenues for us.



If any party to which we have
outsourced certain functions fails to perform its obligations under agreements with us, the development and commercialization of our current and proposed product candidates could be delayed or terminated.



To the extent that we rely on other companies to manage the day-to-day
conduct of our clinical trials and to manufacture, sell or market our current and proposed product candidates, we will be dependent on the timeliness and effectiveness of their efforts. If a clinical research management organization that we utilize
is unable to allocate sufficient qualified personnel to our studies or if the work performed by it does not fully satisfy the rigorous requirements of the FDA, we may encounter substantial delays and increased costs in completing our clinical
trials. If a manufacturer of the raw material or finished product for our clinical trials is unable to meet our time schedules or cost parameters, the timing of our clinical trials and development of our current and proposed product candidates may
be adversely affected. Any manufacturer that we select may encounter difficulties in scaling-up the manufacture of new products in commercial quantities, including problems involving product yields, product stability or shelf life, quality control,
adequacy of control procedures and policies, compliance with FDA regulations and the need for further FDA approval of any new manufacturing processes and facilities. If any of these occur, the development and commercialization of our current and
proposed product candidates could be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue such development and commercialization on our own.



If we or our manufacturers or service providers fail to comply with regulatory laws and
regulations, we or they could be subject to enforcement actions, which could affect our ability to market and sell our current and proposed product candidates and may harm our reputation.



If we or our collaborators, manufacturers or service providers fail to
comply with applicable federal, state or foreign laws or regulations, we could be subject to enforcement actions, which could affect our ability to develop, market and sell our current and proposed product candidates under development successfully
and could harm our reputation and lead to reduced or non-acceptance of our current and proposed product candidates by the market.



Even if we obtain regulatory approvals, our products will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and foreign regulations,
we could lose our approvals to our products and our business would be seriously harmed.



Following any initial regulatory approval of any products we may develop, we will also be subject to continuing regulatory review, including the review of adverse drug experiences and clinical results that are
reported after our products are made commercially available. This would include results from any post-marketing tests or vigilance required as a condition of approval. The manufacturer and manufacturing facilities we use to make any of our products
will also be subject to periodic review and inspection by the FDA. The discovery of any previously unknown problems with the product, manufacturer or facility may result in restrictions on the product or manufacturer or facility, including
withdrawal of the product from the market. We do not have, and currently do not intend to develop, the ability to manufacture material for our clinical trials or on a commercial scale. Reliance on third-party manufacturers entails risks, including
the



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continuation of a contractual or other relationship with the third party manufacturer, and reliance on the third-party
manufacturer for regulatory compliance. Our product promotion and advertising is also subject to regulatory requirements and continuing FDA review.



The potential ramifications are far-reaching if there are areas identified as out of compliance by regulatory agencies including, but not limited to,
significant financial penalties, manufacturing and clinical trial consent decrees, commercialization restrictions or other restrictions and litigation.



Our patents may not protect the proprietorship of our products.



Our ability to compete successfully will depend significantly, on our ability to defend patents that have issued, obtain new patents, protect trade
secrets and operate without infringing the proprietary rights of others. We have no product patent protection for the compound ATP, as our patents and pending patent applications are for various methods and processes for treating or diagnosing
various medical conditions.



Even where we obtain patent
protection for our current and proposed product candidates, there is no guarantee that the coverage of these patents will be sufficiently broad to protect us from competitors or that we will be able to enforce our patents against potential
infringement by third parties or protect us against our infringement of the proprietary rights of third parties. Patent litigation is expensive, and we may not be able to afford the costs.



ATP has been previously marketed by various companies in other countries for
a number of uses, including in fields outside of our primary areas of diagnostic and therapeutic interest, and we are aware that at least one company has developed an oral formulation of ATP which is being marketed in the U.S. as a food supplement
without FDA approval. This may make it more difficult for us to obtain patent coverage for our current and proposed product candidates and easier for third parties to compete against us in those countries. In addition, third parties may hold or seek
patents for additional uses of ATP. These additional uses, whether patented or not, could limit the scope of our future operations because other ATP products, which would not infringe our patents, might become available. These products could compete
with our current and proposed product candidates, even though they are marketed for a different use. We may seek to use existing compounds to serve as candidates for Vagonixen or Primastrene. In the event that third parties own rights to these compounds, we may be required to obtain licenses to use these compounds, which could be costly or
impossible to obtain. We may not become aware on a timely basis that products we are developing or marketing infringe the rights of others, nor may we be able to detect unauthorized use or take appropriate and timely steps to enforce our own
intellectual property rights. Protecting our intellectual property rights may also consume significant management time and resources.



Nondisclosure agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.



In order to protect our proprietary technology and processes, we also rely
in part on nondisclosure agreements with our employees, licensing partners, consultants, agents and other organizations to which we disclose our proprietary information. These agreements may not effectively prevent disclosure of confidential
information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert
any trade secret rights against such party. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our
competitive business position. Since we rely on trade secrets and nondisclosure agreements, in addition to patents, to protect some of our intellectual property (such as our ATPace formulation), there is a risk that third parties may obtain and improperly utilize our
proprietary information to our competitive disadvantage. We may not be able to detect unauthorized use or take appropriate and timely steps to enforce our intellectual property rights.



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The manufacture, use or sale of our current and proposed product candidates may infringe on the patent rights of
others, and we may be forced to litigate if an intellectual property dispute arises.



If we infringe or are alleged to have infringed another partys patent rights, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent
litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, do not successfully defend an infringement action or are unable to have
infringed patents declared invalid, we may:



| |  |  | incur substantial monetary damages;
| | - |  | -----------------------------------



| |  |  | encounter significant delays in marketing our current and proposed product candidates;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | be unable to conduct or participate in the manufacture, use or sale of product candidates or methods of treatment requiring licenses;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | lose patent protection for our inventions and products; or
| | - |  | ----------------------------------------------------------



| |  |  | find our patents are unenforceable, invalid, or have a reduced scope of protection.
| | - |  | -----------------------------------------------------------------------------------



Parties making such claims may be able to obtain injunctive relief that could effectively block the companys ability
to further develop or commercialize our current and proposed product candidates in the United States and abroad and could result in the award of substantial damages. Defense of any lawsuit or failure to obtain any such license could substantially
harm the company. Litigation, regardless of outcome, could result in substantial cost to and a diversion of efforts by the company.



We will be dependent on our key personnel, and the loss of one or more of our key personnel would materially and adversely affect our business and prospects.



We are dependent on certain of our officers, directors
and advisors with scientific and managerial skills, including Dr. Manfred Mosk, Non-Executive Chairman of the Board, Dr. Amir Pelleg, President, Chief Operating Officer, Chief Scientific Officer and a director, Sanford J. Hillsberg, a director and
Secretary, Dr. John Kapoor, a director, Dr. Rudolph Nisi, the Vice Chairman and a director, Dr. David Benditt, a director and our consultant, and Dr. Pasquale Patrizio, one of our scientific advisors. However, these individuals, with the exception
of Dr. Pelleg, are not our employees and work for us on a part-time basis only. We currently have only two full-time employees, Dr. Pelleg and Marie Sciocchetti, our Vice President of Operations, and one part-time employee, Mark Reynolds, our Chief
Financial Officer. The loss of Dr. Pellegs services could have a material adverse effect on our operations. We are seeking to obtain key man life insurance on Dr. Pelleg, for our benefit, depending on its cost and availability, but we
currently do not have this insurance.



We believe we will be
able to manage our current business with our existing management team. However, we are in the process of expanding the scope of our operations, and therefore, we will need to obtain the full-time services of additional senior scientific and
management personnel. Competition for these personnel is intense, and there can be no assurance that we will be able to attract or retain qualified senior personnel an our failure to do so could have an adverse effect on our ability to implement our
business plan. As we retain full-time senior personnel, our overhead expenses for salaries and related items will increase substantially from current levels.



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The market success of our current and proposed product candidates will be dependent in part upon third-party
reimbursement policies that have not yet been established for our product candidates.



Our ability to successfully commercialize and penetrate the market for our current and proposed product candidates is likely to depend significantly on the availability of reimbursement for our current and proposed
product candidates from third-party payers, such as governmental agencies, private insurers and private health plans. Even if we are successful in bringing a current or proposed product candidate to the market, these product candidates may not be
considered cost-effective, and the amount reimbursed for our products may be insufficient to allow us to sell any of our products on a competitive basis. We cannot predict whether levels of reimbursement for our current and proposed product
candidates, if any, will be high enough to allow the price of our current and proposed product candidates to include a reasonable profit margin. Even with FDA approval, third-party payers may deny reimbursement if the payer determines that our
particular current and proposed product candidates are unnecessary, inappropriate or not cost effective. If patients are not entitled to receive reimbursements similar to reimbursements for competing products (such as the tilt table test, which
currently is reimbursable), they may be unwilling to use our current and proposed product candidates since they will have to pay for the unreimbursed amounts. The reimbursement status of newly-approved health care products is highly uncertain. If
levels of reimbursement are decreased in the future, the demand for our current and proposed product candidates could diminish or our ability to sell our products on a profitable basis could be adversely affected.



We believe that the efforts of governments and third-party payors to contain
or reduce the cost of healthcare will continue to affect the business and financial condition of pharmaceutical and biopharmaceutical companies. A number of legislative and regulatory proposals to change the healthcare system in the United States
and other major healthcare markets have been proposed in recent years. These proposals have included prescription drug benefit legislation recently enacted in the United States and healthcare reform legislation recently enacted by certain states.
Further federal and state legislative and regulatory developments are possible, and we expect ongoing initiatives in the United States to increase pressure on drug pricing. Such reforms could have an adverse effect on anticipated revenues from any
products that we may successfully develop.



We may be subject to product
liability claims that could have a material negative effect on our operations and on our financial condition.



The development and sale of medical products expose us to the risk of significant damages from product liability claims. Product liability claims could
delay or prevent completion of our clinical development programs. If we succeed in marketing our current and proposed products, such claims could result in an FDA investigation of the safety and effectiveness of our products or our marketing
programs, and potentially a recall of our products or more serious enforcement action, or limitations on the indications for which they may be used, or suspension or withdrawal of approval. We plan to obtain and maintain product liability insurance
for coverage of our clinical trial activities. Although we obtained clinical insurance for our Phase I ATPace clinical trial and are in the process of obtaining insurance for our Phase II ATPace clinical trial, there can be no assurance that we will be able to secure such insurance in the amounts we are seeking or at all for all subsequent
trials for that product candidate or any of our other current and proposed product candidates. We intend to obtain coverage for our products when they enter the marketplace (as well as requiring the manufacturers of our products to maintain
insurance), but we do not know if insurance will be available to us at acceptable costs or at all. The costs for many forms of liability insurance have risen substantially in recent years, and such costs may continue to increase in the future, which
could materially impact our costs for clinical or product liability insurance. If the cost is too high, we will have to self-insure, and we may have inadequate financial resources to pay the costs of any claims. A successful claim in excess of our
product liability coverage could have a material adverse effect on our business, financial condition and results of operations.



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We may encounter difficulties in the development of technologies or operations of any other businesses we may acquire.



We may, from time to time, acquire technologies or
businesses that are complimentary to our existing technologies or operations or that we otherwise believe offer an attractive opportunity for us in the future. We may encounter various types of unanticipated difficulties in connection with
developing these technologies or operating these businesses, with the risk of this occurring potentially being greater if these technologies or businesses are not directly related to any existing technology of operations. Any such difficulties could
have a material adverse effect on our financial performance and condition.



Changes in stock option accounting rules may adversely affect our reported operating results, our stock price, and our ability to attract and retain employees.



In December 2004, the Financial Accounting Standards Board published new rules that will require companies in 2005 to record
all stock-based employee compensation as an expense. The new rules apply to stock options grants, as well as a wide range of other share-based compensation arrangements including restricted share plans, performance-based awards, share appreciation
rights, and employee share purchase plans. Large public companies will have to apply the new financial accounting rules to the first interim or annual reporting period that begins after June 15, 2005, while small business issuers such as this
company will have to apply the new rules in their first reporting period beginning after December 15, 2005. As a small company with limited financial resources, we have depended upon compensating our officers, directors, employees and consultants
with such stock based compensation awards in the past in order to limit our cash expenditures and to attract and retain officers, directors, employees and consultants. Accordingly, if we continue to grant stock options or other stock based
compensation awards to our officers, directors, employees, and consultants after the new rules apply to us, our future earnings, if any, will be reduced (or our future losses will be increased) by the expenses recorded for those grants. These
compensation expenses may be larger than the compensation expense that we would be required to record were we able to compensate these persons with cash in lieu of securities. Since we are a small company, the expenses we may have to record as a
result of future options grants may be significant and may materially negatively affect our reported financial results. The adverse effects that the new accounting rules may have on our future financial statements should we continue to rely heavily
on stock-based compensation may reduce our stock price and make it more difficult for us to attract new investors. In addition, reducing our use of stock plans to reward and incentivize our officers, directors and employees could result in a
competitive disadvantage to us in the employee marketplace.



RISKS RELATED
TO OUR COMMON STOCK



Our stock is thinly traded, so you may be unable
to sell your shares at or near the quoted bid prices if you need to sell your shares.



The shares of our common stock are thinly-traded on the OTC Bulletin Board, meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small
or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company engaged in a high risk business which is relatively unknown to stock analysts, stock brokers, institutional investors and others
in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven, early stage company such as ours or purchase or
recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned
issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common
shares will develop or be sustained. Due to these



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conditions, we can give you no assurance that you will be able to sell your shares at or near bid prices or at all if you
need money or otherwise desire to liquidate your shares. As a result, investors could lose all or part of their investment.



You may have difficulty selling our shares because they are deemed penny stocks.



Since our common stock is not listed on the Nasdaq Stock Market, if the trading price of our common stock remains below
$5.00 per share, trading in our common stock will be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), which require additional disclosure by broker-dealers
in connection with any trades involving a stock defined as a penny stock (generally, any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, prior to any
penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally defined as an investor with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with a spouse). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the purchasers written consent to the transaction prior to the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer
quotations for the penny stock and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealers presumed control over the market. Such information must be provided to the customer orally or
in writing before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The
additional burdens imposed upon broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market liquidity of the common stock and the ability of holders of
the common stock to sell their shares.



Anti-takeover provisions in our
articles of incorporation could affect the value of our stock.



Our Articles of Incorporation contains certain provisions that could be an impediment to a non-negotiated change in control. In particular, without stockholder approval we can issue up to 5,000,000 shares of preferred stock with rights and
preferences determined by our Board of Directors. These provisions could make a hostile takeover or other non-negotiated change in control difficult, so that stockholders would not be able to receive a premium for their common stock.



Potential issuance of additional common and preferred stock could dilute existing
stockholders.



We are authorized to issue up to 50,000,000
shares of common stock. To the extent of such authorization, our Board of Directors has the ability, without seeking stockholder approval, to issue additional shares of common stock in the future for such consideration as the Board of Directors may
consider sufficient. The issuance of additional common stock in the future will reduce the proportionate ownership and voting power of the common stock offered hereby. We are also authorized to issue up to 5,000,000 shares of preferred stock, the
rights and preferences of which may be designated in series by the Board of Directors. Such designation of new series of preferred stock may be made without stockholder approval, and could create additional securities which would have dividend and
liquidation preferences over the common stock offered hereby. Preferred stockholders could adversely affect the rights of holders of common stock by:



| |  |  | exercising voting, redemption and conversion rights to the detriment of the holders of common stock;
| | - |  | ----------------------------------------------------------------------------------------------------



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| |  |  | receiving preferences over the holders of common stock regarding or surplus funds in the event of our dissolution or liquidation;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | delaying, deferring or preventing a change in control of our company; and
| | - |  | -------------------------------------------------------------------------



| |  |  | discouraging bids for our common stock.
| | - |  | ---------------------------------------



Our existing directors, executive officers and principal stockholders hold a substantial amount of our common stock and may be able to prevent other stockholders from
influencing significant corporate decisions.



As of
December 31, 2004, our directors and executive officers and their affiliates beneficially own over 75.4% of our outstanding common stock, based on the most recent filings by such parties with the Securities and Exchange Commission as of that date.
These stockholders, if they act together, may be able to direct the outcome of matters requiring approval of the stockholders, including the election of our directors and other corporate actions such as:



| |  |  | our merger with or into another company;
| | - |  | ----------------------------------------



| |  |  | a sale of substantially all of our assets; and
| | - |  | ----------------------------------------------



| |  |  | amendments to our articles of incorporation.
| | - |  | --------------------------------------------



The decisions of these stockholders may conflict with our interests or those of our other stockholders.



Substantial sales of common stock could cause stock price to fall.



As of March 17, 2005, we had outstanding 19,627,801 shares of common stock
(including 366,954 shares issued to Cato Research Ltd. that we hold in escrow and that, therefore, cannot currently be transferred), of which approximately 15,505,141 shares were restricted securities (as that term is defined under Rule
144 promulgated under the Securities Act of 1933, as amended). The remaining 4,122,660 shares have been registered for public resale or are otherwise freely tradable shares. In February 2005, we registered the resale of 5,602,998 additional shares
of our common stock that are issuable upon the exercise of certain warrants owned by our stockholders. Accordingly, while a total of 4,122,660 of our shares are currently freely tradable shares, an additional 5,602,998 registered shares could be
issued and released onto the market at any time. The sudden release of 5,602,998 additional freely trading shares onto the market, or the perception that such shares will or could come onto the market, could have an adverse affect on the trading
price of the stock. In addition to the foregoing registered shares, an additional 15,680,665 shares of restricted stock will become eligible for public resale under Rule 144 commencing in August 2005. Although Rule 144 restricts the number of shares
that any one holder can sell during any three-month period under Rule 144, because more than one stockholder holds these restricted shares, a significant number of shares could legally be sold commencing in August 2005. No prediction can be made as
to the effect, if any, that sales of the registered warrant shares or the shares subject to Rule 144 sales commencing in August 2005 will have on the market prices prevailing from time to time. Nevertheless, the possibility that substantial amounts
of common stock may be sold in the public market may adversely affect prevailing market prices for our common stock and could impair our ability to raise capital through the sale of our equity securities.



The market price of our stock may be adversely affected by market volatility.



The market price of our common stock is likely to be
volatile and could fluctuate widely in response to many factors, including:



| |  |  | announcements of the results of clinical trials by us or our competitors;
| | - |  | -------------------------------------------------------------------------



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##### Table of Contents

| |  |  | developments with respect to patents or proprietary rights;
| | - |  | -----------------------------------------------------------



| |  |  | announcements of technological innovations by us or our competitors;
| | - |  | --------------------------------------------------------------------



| |  |  | announcements of new products or new contracts by us or our competitors;
| | - |  | ------------------------------------------------------------------------



| |  |  | actual or anticipated variations in our operating results due to the level of development expenses and other factors;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | changes in financial estimates by securities analysts and whether our earnings meet or exceed such estimates;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | conditions and trends in the pharmaceutical and other industries;
| | - |  | -----------------------------------------------------------------



| |  |  | new accounting standards;
| | - |  | -------------------------



| |  |  | general economic, political and market conditions and other factors; and
| | - |  | ------------------------------------------------------------------------



| |  |  | the occurrence of any of the risks described in this Annual Report.
| | - |  | -------------------------------------------------------------------



ITEM 7. FINANCIAL STATEMENTS.



The consolidated financial statements and the reports and notes, which are attached hereto, beginning at page F-1, are incorporated herein by reference.



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.



On September 1, 2004 our Audit Committee dismissed Beckstead and Watts, LLP (Beckstead) as our independent auditors. On September 1, 2004, the
Audit Committee of our Board of Directors also engaged Stonefield Josephson, Inc. (Stonefield) to serve as our independent public accountants and to audit our financial statements for the year ended December 31, 2004. Stonefield had
served as Duska Scientifics independent public accountants since June 2002.



During the two prior fiscal years and the period from January 1, 2004 through the date of its dismissal, there have been no disagreements with Beckstead on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Beckstead would have caused it to make reference thereto in its reports on the our financial statements. In addition, for the same
periods, there have been no reportable events (as defined in Regulation S-K Item 304(a)(1)(v)).



Becksteads reports on our financial statements for the years ended December 31, 2002 and 2003 did not contain any adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that the reports for both years indicated that there was a substantial doubt as to our ability to continue as a going concern and that the
financial statements did not include any adjustments that might result from the outcome of this uncertainty.



During the two fiscal years ended December 31, 2002 and December 31, 2003 and the interim period through the date of Becksteads dismissal, neither
this company nor Duska Scientific consulted with



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Stonefield regarding (i) the application of accounting principles to a specified transaction, either completed or
proposed or the type of audit opinion that might be rendered on our financial statements, and either a written report was provided to us or Duska Scientific or oral advice was provided that Stonefield concluded was an important factor considered by
us in reaching a decision as to an accounting, auditing or financial reporting issue or (ii) any matter that was either the subject of a disagreement (as defined in paragraph 304(a)(1)(iv) of Regulation S-K and the related instructions to this item)
or a reportable event (as described in paragraph 304(a)(1)(v) of Regulation S-K).



ITEM 8A. CONTROLS AND PROCEDURES



As of the end of the period covered by this report, our company conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of our disclosure controls and procedures
(as defined in Rules 13a-15(e) of the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our companys disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.



There has been no change in our internal controls over financial reporting
during the fiscal quarter ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.



PART III



ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.



Directors and Executive Officers



The following table sets forth the name, age and position held by each of our executive officers and directors as of March 24, 2005. Directors are elected
for a period of one year and thereafter serve until the next annual meeting at which their successors are duly elected by the stockholders.



|                         |  |     |  |                                                                          
|------------------------ |  | --- |  | -------------------------------------------------------------------------
|Name                     |  | Age |  | Position                                                                 
|Manfred Mosk, Ph.D.      |  | 68  |  | Non-Executive Chairman of the Board                                      
|Amir Pelleg, Ph.D.       |  | 60  |  | President, Chief Operating Officer, Chief Scientific Officer and Director
|Sanford J. Hillsberg(1)  |  | 56  |  | Secretary and Director                                                   
|Rudolph Nisi, M.D.(2)    |  | 72  |  | Director                                                                 
|John N. Kapoor, Ph.D(1)  |  | 60  |  | Director                                                                 
|David Benditt, M.D.(2)   |  | 57  |  | Director                                                                 
|Jane Kinsel, Ph.D(1) (2) |  | 48  |  | Director                                                                 
|Mark Reynolds            |  | 43  |  | Chief Financial Officer                                                  
|Marie Sciocchetti        |  | 48  |  | Vice President of Operations                                             

---

|(1) | Member of our Audit Committee.
|--- | ------------------------------

|(2) | Member of our Compensation Committee.
|--- | -------------------------------------



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Business Experience and Directorships



The following describes the backgrounds of current directors and the key members of our management team. All of our officers
and directors also currently hold the same offices with Duska Scientific.



Manfred Mosk, Ph.D. Dr. Mosk has served as our Non-Executive Chairman of the Board since the merger with Duska Scientific. He has served as the Chairman of Duska Scientific since 1999, including as the
non-executive Chairman of Duska Scientific since January 1, 2004 and as the part-time interim Chief Executive Officer of Duska Scientific during 2003, and as a member of Duska Scientifics Executive Committee of the Board of Directors during
2003. Dr. Mosk has been the President of Technomedics Management & Systems, Inc., a privately held healthcare economics consulting firm, since 1994. Dr. Mosk is a co-founder of Spectral Molecular Imaging, Inc. and has served as its Interim
President and a director since its inception in 2004. Dr. Mosk currently serves on the Board of Directors of SensaGenomics, Inc., UCLAs Jonsson Cancer Center Foundation, The University Kidney Disease Research Associates at USC, and on the
Executive Committee of the Board of Governors of Cedars-Sinai Medical Center. He previously served on the Board of Directors of Arbios Systems, Inc., the California State University (system-wide) Foundation, The College of Naturopathic Medicine; and
on the Board of Advisors of GeoVax, Inc. and Spectrum Laboratories, Inc. He is also a member of the Institutional Review Board (IRB) of Cedars Sinai Medical Center. Dr. Mosk was an Economic Counselor for the eastern European division of Pfizer, Inc.
Dr. Mosk was the co-founder, former President, Chief Executive Officer and director of Medco Research, Inc. from approximately 1983 to 1992, when he voluntarily retired from these positions. He rejoined the Board and served again as a director of
Medco from approximately 1995 to 1996. Medco was subsequently acquired by King Pharmaceuticals, Inc. Under Dr. Mosks leadership, Medco acquired licenses, raised funds, became a public company and developed the first-ever approved and marketed
adenosine-based drug in the U.S. Dr. Mosk holds B.S., M.S. and Ph.D. degrees in business administration from The California State University and The California Western University.



Amir Pelleg, Ph.D. Dr. Pelleg has served on a full-time basis as our President, Chief Operating Officer and Chief
Scientific Officer and a director since the merger with Duska Scientific. Dr. Pelleg served, on a part-time basis, as President, Chief Scientific Officer, and director of Duska Scientific since its inception in 1996 and as Duska Scientifics
Chief Operating Officer since January 2004. Dr. Pelleg also was a member of Duska Scientifics Executive Committee of the Board of Directors during 2003. Dr. Pelleg was a Professor of Medicine and Pharmacology at Drexel University College of
Medicine, Philadelphia, Pennsylvania from 1992 until 2004, and is currently an Adjunct Professor at that institution. He is an internationally recognized expert on the physiology and pharmacology of ATP and related compounds in general, and their
role in the cardiovascular system in particular. His research work has been supported by numerous grants from the National Institutes of Health, American Heart Association and pharmaceutical companies. Dr. Pelleg has published more than 100
peer-reviewed papers, and edited and co-authored three textbooks in this field. He is a member of the editorial boards of The American Journal of Therapeutics and acts as an ad-hoc reviewer for numerous other leading scientific journals. His
inventions, covered by patents and pending patent applications, constitute a significant part of our proprietary technology platform. Dr. Pelleg holds a B.Sc. degree in Biology from Tel-Aviv University, M.S. in Bioengineering from the Polytechnic
Institute of Brooklyn and a Ph.D. in Human Physiology from Louisiana State University. He was a NIH post-doctoral fellow at the University of Virginia.



Sanford J. Hillsberg. Mr. Hillsberg has served as a director and on a part-time basis as our Secretary since the merger and as a director and
Secretary of Duska Scientific since 1999, and served on a part-time basis as a Vice President of Duska Scientific from 1999 through 2003. Mr. Hillsberg was also a member of Duska Scientifics Executive Committee of the Board of Directors during
2003. He currently is Chairman of the Audit Committee of our Board of Directors. Mr. Hillsberg has been an attorney with Troy & Gould Professional Corporation, a law firm in Los Angeles specializing in corporate and securities laws,



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since 1976. Troy & Gould has served as our corporate legal counsel since the merger and corporate legal counsel to
Duska Scientific since 1999. Mr. Hillsberg is a director of Spectral Molecular Imaging, Inc., a medical optical imaging research and development company, SensaGenomics, Inc., a cancer immunotherapy research and development company, and Tempra
Technology Inc., a thermal research and development company, and previously served as a director and Vice President of Medco. Mr. Hillsberg has previously served as a Commissioner of the Quality and Productivity Commission of the City of Los
Angeles. Mr. Hillsberg holds a B.A. degree from the University of Pennsylvania and a J.D. degree from Harvard Law School.



Rudolph Nisi, M.D. Dr. Nisi has served as our Vice Chairman since the merger and as Duska Scientifics Vice Chairman since 2000 and is
Chairman of the Compensation Committee of our Board of Directors. Dr. Nisi is engaged in the private practice of cardiology since 1964, has been Chief of Cardiology at Westchester Square Medical Center for 20 years and a Clinical Professor of
Medicine at Cornell University Medical College for four years. Dr. Nisi is a Director of Tempra Technology Inc., and was the Chairman of the Board of Medco.



John N. Kapoor, Ph.D. Dr. Kapoor has served as a director since the merger and as a director of Duska Scientific since 2001. Dr. Kapoor is the
President of EJ Financial Enterprises, Inc., a venture capital and investment advisory firm headquartered in Lake Forest, Illinois, which he founded in 1990. EJ Financial manages a significant portfolio of securities in the biopharmaceutical and
health services industries. Dr. Kapoor has served as Chairman of the Board of Akron, Inc., manufacturer and marketer of diagnostic and therapeutic pharmaceuticals in specialty areas such as ophthalmology, rheumatology, anesthesia and antidotes,
among others, since 1995 and that companys Interim Chief Executive Officer from March 2001 to December 2002. He also serves as Chairman of the Board of Option Care, Inc. (an infusion services and supplies company), Introgen Therapeutics, Inc.
(a gene therapy company) and First Horizon Pharmaceutical Corporation (a distributor of pharmaceuticals) and is a director of NeoPharm, Inc. (a biopharmaceutical company) and a number of privately held companies. He holds a Ph.D. in medicinal
chemistry from the State University of New York at Buffalo. In April 2002, Akron, Inc. announced that the Securities and Exchange Commission had informed it that the Securities and Exchange Commission planned to bring an enforcement action against
Akron, Inc. On September 25, 2003, without admitting or denying the Securities and Exchange Commissions findings, Akron, Inc. consented to a cease and desist order to resolve this matter.



David Benditt, M.D. Dr. Benditt has served as a director since the
merger and as a director of Duska Scientific since 2003. Dr. Benditt has been a Professor of Medicine at the Cardiovascular Division, Department of Medicine, since 1991 and Director of Cardiac Electrophysiology Laboratory and Arrhythmia Service for
25 years, both at the University of Minnesota Medical School, Minneapolis, Minnesota. He is a recognized authority on syncope and cardiac pacing, and serves on the editorial board of several medical professional journals and the medical advisory
board of several leading American corporations. Dr. Benditt has published more than 200 peer-reviewed papers, editorials and book chapters and edited, co-edited and co-authored three books. He received his B.Sc. and M.D. degrees from the University
of Manitoba, Manitoba, Canada and did his post graduate training at the Department of Medicine, Duke University Medical Center, Durham, N.C.



Jane Kinsel, Ph.D. Dr. Kinsel has served as a director since the merger and as a director of Duska Scientific since 2002. Dr. Kinsel has been
Associate Director for Science Policy and Operations at the National Center for Complementary and Alternative Medicine (NCCAM), a component of the National Institutes of Health (NIH), since 2001 and has worked in various capacities with the NIH for
the past 25 years. Dr. Kinsel holds a Ph.D. in pharmaceutical chemistry from the University of Kansas and a M.B.A. from the Wharton School of Business of the University of Pennsylvania in Philadelphia.



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Mark Reynolds. Mr. Reynolds has served as our Chief Financial Officer since the merger and since
mid-2002 Mr. Reynolds has been a financial consultant to biopharmaceutical and biotechnology companies. From 1988 through mid-2002, Mr. Reynolds served as first Controller and later as Chief Financial Officer, Vice President, Finance and Corporate
Secretary for CytRx Corporation, a publicly-held biopharmaceutical company. He also has served as CFO/Controller for private companies in the vaccine research, pharmaceutical services and animal health industries. Mr. Reynolds began his career as an
auditor with a national auditing firm. He is a licensed certified public accountant and member of the American Society of Certified Public Accountants and is a graduate of the University of Georgia (MACC, BBA).



Marie Sciocchetti. Ms. Sciocchetti has served as our Vice President of
Operations since the merger. Since 2001 Ms. Sciocchetti has served first as Duska Scientifics Director of Operations and then as Duska Scientifics Vice President of Operations. From 1998 through 2000, she was Director of Services for the
Compliance Products Division of McKesson Corporation. Ms. Sciocchetti has extensive experience in operations, fiscal management and new product development in the healthcare field. She has also served as Director of Ambulatory Cardiac Services at
Hahnemann University Hospital in Philadelphia. She holds a M.B.A. from St. Josephs University in Philadelphia.



Other Key Personnel



Stephen P. Kutalek, M.D. Dr. Kutalek, age 50, has served as Duska Scientifics Medical Director on a part time basis since 2002. Dr. Kutalek
is a Professor of Medicine, Chief of the Cardiovascular Division and Director of the Clinical Cardiac Electrophysiology & Cardiac Pacing at Drexel University College of Medicine. Dr. Kutalek is a member of multiple professional societies,
including the American College of Cardiology, the American Heart Association, the North American Society of Pacing and Electrophysiology and the American Federation for Clinical Research. He serves on the editorial board of the Journal of Invasive
Cardiac Electrophysiology and acts as an ad hoc reviewer for leading professional journals. Dr. Kutalek has authored and co-authored more than 120 papers published in peer reviewed journals as well as numerous reviews and book chapters. Dr. Kutalek
has extensive experience in clinical trials and acts as a consultant for several device manufacturing companies. He holds a BA degree from the Johns Hopkins University and a Doctor of Medicine from New York University School of Medicine.



Duska Scientific also has established a Scientific Advisory Board to
assist management in the areas of expertise of the members of the Scientific Advisory Board. The following are the current members of the Scientific Advisory Board and their respective areas of expertise:



Geoffrey Burnstock, Ph.D., D.Sc., (Chairman of our Scientific
Advisory Board), Director, Autonomic Neuroscience Institute, Royal Free and University College Medical School, London, England. Area of expertisePurinergic receptors.



Peter Barnes, M.A., D.M., D.Sc., FRCP, Professor and Head of Thoracic Medicine, Imperial College of London (U.K.).
Area of expertisePulmonary diseases.



Francesco
DiVirgilio, M.D., Professor, Department of Experimental and Diagnostic Medicine, University of Ferrara, Italy. Area of expertiseP2 receptors in immunology.



Daniel Flammang, M.D., Head of Cardiology, Centre Hospitalier dAngouleme, France. Area of expertiseUses
of ATP in patients with syncope.



Pasquale Patrizio
M.D., Professor of Obstetrics and Gynecology, Director, Yale Fertility Center, Yale University, New Haven, Connecticut. Area of expertiseAndrology, human reproduction in general and male infertility in particular.



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Edward Schulman, M.D., Professor, Pulmonary and Critical Care Medicine, Drexel University College
of Medicine, Philadelphia, Pennsylvania. Area of expertisePulmonary disorders, biology of lung mast cells.



Kathryn Szabat, Ph.D., Associate Professor, La Salle University, Philadelphia, Pennsylvania. Area of expertiseStatistics.



Audit Committee



In August 2004, our Board of Directors established an Audit Committee. The Board of Directors has instructed the Audit
Committee to meet periodically with the companys management and independent accountants to, among other things, review the results of the annual audit and quarterly reviews and discuss the financial statements, recommend to the Board the
independent accountants to be retained, and receive and consider the accountants comments as to controls, adequacy of staff and management performance and procedures in connection with audit and financial controls. The Audit Committee is also
authorized to review related party transactions for potential conflicts of interest. The Audit Committee is composed of Mr. Hillsberg, Dr. Kapoor and Dr. Kinsel. Each of these individuals is a non-employee director. While each of the members of the
Audit Committee has significant knowledge of financial matters, none of the Audit Committee members has been designated as an audit committee financial expert as defined under Item 401(h)(2) of Regulation S-K of the Securities Exchange
Act of 1934, as amended.



Code of Ethics



The Board of Directors adopted a Code of Ethics which covers all of our
executive officers and key employees. The Code of Ethics requires that senior management avoid conflicts of interest; maintain the confidentiality of our confidential and proprietary information; engage in transactions in our common stock only in
compliance with applicable laws and regulations and the requirements set forth in the Code of Ethics; and comply with other requirements which are intended to ensure that our officers conduct business in an honest and ethical manner and otherwise
act with integrity and in the best interest of this company.



All of our executive officers are required to affirm in writing that they have reviewed and understand the Code of Ethics.



The code of ethics is filed as Exhibit 14.1 to this annual report on Form 10-KSB. A copy of our Code of Ethics will be furnished to any person upon
written request from any such person. Requests should be sent to: Secretary, Duska Therapeutics, Inc., Two Bala Plaza, Suite 300, Bala Cynwyd, Pennsylvania 19004.



Section 16(a) Beneficial Ownership Reporting Compliance



Our executive officers and directors and any person who owns more than 10% of our outstanding shares of common stock are
required by Section 16(a) of the Securities Exchange Act to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and to furnish us with copies of those reports. Based solely on our review of copies
of reports we have received and written representations from certain reporting persons, we believe that all Section 16(a) filing requirements applicable to our directors and executive officers and greater than 10% shareholders for 2004 were complied
with.



ITEM 10. EXECUTIVE COMPENSATION.



The following table sets forth the compensation for services paid in all capacities for the three fiscal years ended December 31, 2004 to Amir Pelleg, Ph.D. (the Named Executive Officer). Dr. Pelleg has been the President and
Chief Operating Officer and Chief Scientific Officer of both this company and Duska



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Scientific since the merger in August 2004, and held the same positions on a part-time basis with Duska Scientific from
January 2004 until the merger. Dr. Pelleg was the President and Chief Scientific Officer of Duska Scientific on a part-time basis during 2003 and 2002. The information set forth below includes all compensation paid to the Named Executive Officer by
Duska Scientific before the merger. No other executive officers of either this company, Shiprock or Duska Scientific received an annual salary and bonus that collectively exceeded $100,000 during the fiscal year ended December 31, 2004.



Summary Compensation Table



|                                                                                             |  |                     |  |                              |                     |     |       |    |               |                          |  |                                  |  |                
|-------------------------------------------------------------------------------------------- |  | ------------------- |  | ---------------------------- | ------------------- | --- | ----- | -- | ------------- | ------------------------ |  | -------------------------------- |  | ---------------
|                                                                                             |  | Annual Compensation |  | Long-TermCompensation Awards
|Name and Principal Position                                                                  |  | Year                |  | Salary                       |                     |     | Bonus |    |               | Other AnnualCompensation |  | SecuritiesUnderlying Options (1)
|Amir Pelleg, Ph.D. Part-time President, Chief Operating Officer and Chief Scientific Officer |  | 200420032002        |  | $$$                          | 115,00080,01678,971 | (3) |       | $$ | 20,00020,000 | (2)(3)                   |  |                               |  | 300,000225,000

---

|(1) | In February 2004, Duska Scientific issued an option to Dr. Pelleg to purchase 225,000 shares of Duska Scientific common stock at $1.00 per share as consideration for Dr. Pelleg
assigning to the company all of his ownership interest in an invention, including a U.S. provisional patent application (see, Item 12. Certain Relationships and Related Transactions). The remaining options to purchase 75,000 shares were
granted to Dr. Pelleg in his capacity as a director. Options issued to Dr. Pelleg by Duska Scientific were exchanged in the merger for options of this company having the same terms.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Dr. Pelleg was granted a bonus of $20,000 for services rendered during fiscal year 2004, which was awarded in February 2005 and paid in March 2005.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | $76,682 of Dr. Pellegs salary and 100% of his bonus was voluntarily deferred, with all of the deferred salary and a portion of the deferred bonus paid during fiscal year 2004.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the three years prior to the merger,
Tommy J. Gropp was the Chief Executive Officer, President, Chief Financial Officer and Secretary of Shiprock. During the last three years, Shiprock did not pay Mr. Gropp or any other executive officer any salary or bonus, and Mr. Gropp was not
granted any options. Accordingly, no information is provided regarding Mr. Gropp or any other former executive officer of Shiprock.



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Stock Option Grants



The following table contains information concerning grants of stock options during the fiscal year ended December 31, 2004 by us (including Duska
Scientific) to the Named Executive Officer. Shiprock did not grant any options. In the Reorganization, all of these options were assumed by Shiprock and now represent options to purchase shares of our common stock. We have not granted any stock
appreciation rights.



Option Grants in Fiscal Year
Ended December 31, 2004



|                   |  |                                           |     |  |                                                      |   |  |                |      |                            |    |   |                |        
|------------------ |  | ----------------------------------------- | --- |  | ---------------------------------------------------- | - |  | -------------- | ---- | -------------------------- | -- | - | -------------- | -------
|                   |  | Individual Grants                         |     |  |                                                      |   |  |                |      |                           
|Name               |  | Number of SharesUnderlying OptionsGranted |     |  | % of TotalOptions Granted toEmployees In Fiscal Year |   |  | Exercise Price |      | MarketPrice onDate ofGrant |    |   | ExpirationDate
|Amir Pelleg, Ph.D. |  | 300,000                                   | (1) |  | 29.8                                                 | % |  | $              | 1.00 |                            | (2 | ) |                | 2/10/11

---

|(1) | In February 2004, Duska Scientific issued an option to Dr. Pelleg to purchase 225,000 shares of Duska Scientific common stock at $1.00 per share as consideration for Dr. Pelleg
assigning to the company all of his ownership interest in an invention, including a U.S. provisional patent application (see, Item 12. Certain Relationships and Related Transactions). The remaining options to purchase 75,000 shares were
granted to Dr. Pelleg in his capacity as a director.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | On the date of grant, the common stock of Duska Scientific was not listed for trading on any securities market. Accordingly, there was no market price on the date of grant.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Aggregate Options



The following table sets forth the number and value of unexercised options
held by the Named Executive Officers as of December 31, 2004. The options listed below originally represented options to purchase shares of Duska Scientific, a non-public company whose shares were not traded on any market. In the August 2004 merger,
these options were exchanged for options to purchase our publicly traded common stock on the same terms as the options originally issued by Duska Scientific. Since the Duska Scientific options now represent options to purchase our shares, the value
of these options in the following table is based on the last reported sale for the period through December 31, 2004.



Aggregated Option/SAR Exercises in Fiscal Year Ended December 31, 2004

and
FY-End Option/SAR Values



|                   |  |                            |  |                |  |                                                                                              |  |                                                                                         |                   
|------------------ |  | -------------------------- |  | -------------- |  | -------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------- | ------------------
|Name               |  | SharesAcquired in Exercise |  | Value Realized |  | Number of SecuritiesUnderlying UnexercisedOption/SARs at FY-End(#) Exercisable/Unexercisable |  | Value of Unexercised In-the-Money Option/SARs at FY-End(#)
Exercisable/Unexercisable(1)
|Amir Pelleg, Ph.D. |  | 0                          |  |               |  | 1,182,000/150,000                                                                            |  | $                                                                                       | 2,027,220/$262,500

---

|(1) | Dollar amounts reflect the net values of outstanding stock options computed as the difference between $2.75 (the last reported sale for the period through December 31, 2004 on the
OTC Bulletin Board) and the exercise price of the options.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Employment Agreements



We have entered into an employment agreement with Dr. Amir Pelleg, effective as of September 1, 2004, pursuant to which Dr. Pelleg has agreed to serve as
President, Chief Operating Officer and Chief Scientific Officer. The term of the agreement runs until December 31, 2007. Under the employment agreement, Dr. Pelleg is to receive an annual salary of $115,000 until December 31, 2005 and an annual
salary of $175,000 thereafter until the end of the agreement. Under the agreement, Dr. Pelleg is to receive a bonus of at least $20,000 on December 31, 2004 and an annual bonus each year thereafter as determined by our Board of Directors and based
on the company meeting certain milestones for 2004 and subsequent years that will be established by our Board of Directors. Dr. Pelleg is eligible to receive stock options as determined by our Board of Directors. We agreed to maintain life insurance
for Dr. Pelleg and key man life insurance for our benefit. We agreed to indemnify Dr. Pelleg for all claims arising out of performance of Dr. Pellegs duties as President, Chief Operating Officer and Chief Scientific Officer, other than those
arising out of a breach of the agreement by Dr. Pelleg or Dr. Pellegs gross negligence or willful misconduct. Dr. Pelleg may terminate the agreement at any time on 30 days prior written notice. We have the ability to terminate the agreement in
the event of Dr. Pellegs disability and for cause, as defined in the agreement. We may also terminate the agreement without cause in the event we are unable to raise at least $3.5 million in net proceeds from any combination of
equity or debt financing or government grants by September 1, 2005, in which event all of Dr. Pellegs options to purchase shares of our common stock shall vest upon such termination. Although Dr. Pelleg is required to work full-time for us, he
may continue to serve as an Adjunct Professor at Drexel University College of Medicine, provided that his affiliation with Drexel does not interfere with his performance under the employment agreement.



On February 16, 2004, Duska Scientific entered into an employment agreement
with Mark Reynolds pursuant to which Mr. Reynolds agreed to serve as our Chief Financial Officer on a part time basis following completion of the Duska Scientific merger. The agreement may be terminated by us or by Mr. Reynolds on at least 30 days
written notice. Under the employment agreement, Mr. Reynolds is to receive an annual salary of $30,000. Mr. Reynolds may from time to time provide additional services to us for additional compensation based on the same rate as provided in his
employment agreement. Mr. Reynolds is eligible to receive an annual bonus each year as determined by our Board of Directors. In connection with his employment, Mr. Reynolds was awarded a stock option upon commencement of his employment to purchase
60,000 shares of common stock at an exercise price of $1.00 per share. The option vests and becomes exercisable at the rate of 5,000 shares per month.



Dr. Mosk currently receives a monthly retainer at the annualized rate of $70,000 as compensation for his services as our Non-Executive Chairman of the
Board of Directors. Dr. Mosks services are provided to us by Technomedics Management & Systems, Inc. of which Dr. Mosk is the controlling stockholder. He was elected by the Board of Directors to serve as the Non-Executive Chairman and
intends to continue in this position if re-elected by the Board of Directors at the next annual stockholders meeting. Dr. Mosks services for us may also include from time to time specific projects that he agrees to perform at the request of
the Board of Directors. Dr. Mosk may terminate his services at any time upon 30 days notice. In consideration for agreeing to provide the foregoing services, we agreed that, following the termination of his services for any reason other than for
cause, all of the options that Dr. Mosk currently owns will remain in effect and will continue to be exercisable until the original expiration date of those options. We have agreed that he may provide consulting or other services to other companies,
for compensation, and that such services will not be deemed to be a breach of any fiduciary duty or a taking of a corporate opportunity of ours if such activities do not directly involve products or potential products based on P2 receptors or ATP or
ATP analogues or derivatives We have agreed to indemnify Dr. Mosk for all claims arising out of his performance of his duties as Non-Executive Chairman, other than those arising out of Dr. Mosks willful misconduct.



Mr. Hillsberg currently receives a monthly retainer at the annualized rate of
$25,000 as compensation for his services as our corporate Secretary. He was elected by the Board of Directors to serve



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as the corporate Secretary and intends to continue in this position if re-elected by the Board of Directors at the next
regular annual stockholders meeting. In consideration for agreeing to provide the foregoing services, we agreed that, following the termination of his services for any reason other than for cause, all of the options that Mr. Hillsberg currently owns
will remain in effect and will continue to be exercisable until the original expiration date of those options. We have also agreed that Mr. Hillsberg may provide consulting or other services to other companies, for compensation, and that such
services will not be deemed to be a breach of any fiduciary duty or a taking of a corporate opportunity of ours if such activities do not directly involve products or potential products based on P2 receptors or ATP or ATP analogues or derivatives.
We have also agreed to indemnify Mr. Hillsberg for all claims arising out of his performance of his duties as corporate Secretary, other than those arising out of Mr. Hillsbergs willful misconduct.



Compensation of Board of Directors



During the fiscal year ended December 31, 2004, neither Shiprock nor Duska
Scientific paid its directors any cash compensation for serving on the Board of Directors. Duska Scientific did, however, grant each of its directors (except Dr. Benditt) options to purchase 75,000 shares of common stock in February 2004. Dr.
Benditt, who became a director in 2004, received options to purchase 105,000 shares of common stock. All of the foregoing options granted to the directors have a seven-year term and an exercise price of $1.00 per share. In February 2005 we also
compensated our directors by granting to each of the four non-officer directors five-year options to purchase 20,000 shares at an exercise price of $2.20 per share, and by granting to each of the three directors who also serves as an officer
(Messrs. Pelleg, Mosk and Hillsberg) five-year options to purchase 40,000 shares at an exercise price of $2.20 per share. In addition, the directors are reimbursed for travel expenses to attend the Board of Director meetings.



Stock Option Plan



We have adopted an equity incentive plan, the 2004 Equity Incentive Plan, pursuant to which we are authorized to grant
options, restricted stock and stock appreciation rights to purchase up to 6,000,000 shares of common stock to our key employees, officers, directors, consultants and other agents and advisors. The plan was adopted prior to the consummation of the
merger with Duska Scientific so as to enable us to issue in connection with the merger options to purchase our common stock in exchange for all of the stock options that were outstanding under Duska Scientifics option plan. Awards under the
plan may consist of stock options (both non- qualified options and options intended to qualify as Incentive Stock Options under Section 422 of the Internal Revenue Code of 1986, as amended), restricted stock awards and stock appreciation
rights.



The 2004 Equity Incentive Plan is administered by our
Board of Directors or a committee of the Board of Directors, which determines the persons to whom awards will be granted, the type of award to be granted, the number of awards to be granted and the specific terms of each grant, including the vesting
thereof, subject to the provisions of the plan.



The 2004
Equity Incentive Plan provides that the exercise price of each incentive stock option may not be less than the fair market value of our common stock on the date of grant (or 110% of the fair market value in the case of a grantee holding more than
10% of our outstanding common stock). Non-qualified stock options may be granted under the plan at an exercise price established by the administrator at the time of grant. The maximum number of options that may be granted in any fiscal year to any
participant is 400,000.



The plan also permits the committee to
grant freestanding stock appreciation rights or in tandem with option awards. The grant price of a stock appreciation right shall be no less than the fair market value of a share on the date of grant of the stock appreciation right. No stock
appreciation right shall be exercisable later than the tenth anniversary of its grant. Upon the exercise of a stock appreciation right, a participant shall be entitled to receive common stock at a fair market value equal to the benefit to be
received by the exercise (although we may agree to pay the benefit in cash or a combination of cash and stock).



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The plan also provides us with the ability to grant or sell shares of common stock that are subject to
certain transferability, forfeiture, repurchase or other restrictions. The type of restriction, the number of shares of restricted stock granted and other such provisions shall be determined by the committee.



Unless otherwise determined by the committee, awards granted under the 2004
Equity Incentive Plan are not transferable other than by will or by the laws of descent and distribution.



The 2004 Equity Incentive Plan provides that, except as set forth in an individual award agreement, upon the occurrence of a corporate transaction: (1)
the committee shall notify each participant at least thirty (30) days prior to the consummation of the corporate transaction or as soon as may be practicable and (2) all options and stock appreciation rights shall terminate and all restricted stock
shall be forfeited immediately prior to the consummation of such corporate transaction unless the committee determines otherwise in its sole discretion. A corporate transaction means (i) a liquidation or dissolution of the Company; (ii)
a merger or consolidation of the Company with or into another corporation or entity (other than a merger with a wholly-owned subsidiary); (iii) a sale of all or substantially all of the assets of the Company; or (iv) a purchase or other acquisition
of more than 50% of the outstanding stock of the Company by one person or by more than one person acting in concert.



The committee may alter, amend or terminate the plan in any respect at any time, but no alteration, amendment or termination will adversely affect in any
material way any award previously granted under the plan, without the written consent of the participant holding such award.



We currently have outstanding options under our 2004 Equity Incentive Plan to purchase approximately 5,015,000 shares of our common stock at a weighted-
average exercise price of approximately $1.04 per share.



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



The following table sets forth certain information regarding beneficial ownership of our common stock as of March 24, 2005 (a) by each person known by us
to own beneficially 5% or more of any class of our common stock, (b) by each of our Named Executive Officers and our directors and (c) by all executive officers and directors of this company as a group. As of March 24, 2005 there were 19,627,801
shares of our common stock issued and outstanding. Unless otherwise noted, we believe that all persons named in the table have sole voting and investment power with respect to all the shares beneficially owned by them.



|                                                            |  |                             |     |  |                    |  
|----------------------------------------------------------- |  | --------------------------- | --- |  | ------------------ | -
|Name and Address of Beneficial Owner (1)                    |  | SharesBeneficiallyOwned (2) |     |  | Percentageof Class |  
|Manfred Mosk, Ph.D.                                         |  | 4,708,036                   | (3) |  | 22.7               | %
|Amir Pelleg, Ph.D.                                          |  | 5,187,036                   | (4) |  | 24.9               | %
|Sanford J. Hillsberg                                        |  | 4,184,800                   | (5) |  | 20.7               | %
|John N. Kapoor, Ph.D.                                       |  | 5,623,864                   | (6) |  | 23.6               | %
|Rudolph Nisi, M.D.                                          |  | 526,836                     | (7) |  | 2.6                | %
|David Benditt, M.D.                                         |  | 105,000                     | (8) |  | *                  |  
|Jane Kinsel, Ph.D.                                          |  | 120,000                     | (8) |  | *                  |  
|All executive officers and directors as a group (9 persons) |  | 20,620,572                  | (9) |  | 74.7               | %

---

|* | Less than 1%.
|- | -------------



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|(1) | The address of each of the persons shown is c/o Duska Therapeutics, Inc., Two Bala Plaza, Suite 300, Bala Cynwyd, Pennsylvania 19004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

|(2) | Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to
securities. Shares of common stock subject to options, warrants and convertible securities currently exercisable or convertible, or exercisable or convertible within 60 days, are deemed outstanding, including for purposes of computing the percentage
ownership of the person holding such option, warrant or convertible security, but not for purposes of computing the percentage of any other holder.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes 85,836 shares, including 27,918 shares subject to warrants, owned of record by Technomedics Management & Systems, Inc., of which Dr. Mosk is the controlling
stockholder. Also includes an additional 1,107,000 shares subject to options.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 1,209,918 shares subject to warrants and options.
|--- | ----------------------------------------------------------

|(5) | Includes 49,200 shares owned of record by the Hillsberg Family Trust, of which Mr. Hillsberg is a co-trustee. Also includes 582,000 shares subject to options. Excludes 301,836
shares, including 267,918 shares subject to options and warrants, owned beneficially by Troy & Gould Professional Corporation, of which Mr. Hillsberg is a member and shareholder.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | With the exception of 120,000 shares subject to options held by Dr. Kapoor, all of the shares shown are held by Mr. Kapoors trust, of which Mr. Kapoor is trustee. Includes
4,095,815 shares subject to warrants.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Includes 444,918 shares subject to warrants and options.
|--- | --------------------------------------------------------

|(8) | All of the shares shown are subject to options.
|--- | -----------------------------------------------

|(9) | Includes 7,967,569 shares subject to warrants and options.
|--- | ----------------------------------------------------------



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.



Dr. Manfred Mosk is our non-executive Chairman of the Board. He is the controlling shareholder of Technomedics Management & Systems, Inc. Technomedics Management & Systems, Inc. has provided the consulting
services of Dr. Mosk to Duska Scientific since 1999. Dr. Mosk has served as the Chairman of Duska Scientific since 1999, as the part-time interim Chief Executive Officer of Duska Scientific during 2003, and as the non-executive Chairman of Duska
Scientific during 2004. During 2003, Technomedics Management & Systems, Inc., earned a salary and bonus of $175,000 (of which only $4,792 was paid in 2003 and $140,208 was paid in 2004) for the services Dr. Mosk rendered as our interim part-time
Chief Executive Officer. During 2004, Technomedics Management & Systems, Inc., earned and was paid $70,000 for the services Dr. Mosk rendered as Non-Executive Chairman of the Board. Currently, Technomedics Management & Systems, Inc. earns
$70,000 annual compensation for the services Dr. Mosk provides as Non-Executive Chairman of the Board. As of December 31, 2004, remaining amounts owed by us to Technomedics Management & Systems, Inc. during 2003 totaled $30,000.



Sanford J. Hillsberg is our corporate Secretary and one of our directors as
well as a member and shareholder of Troy & Gould Professional Corporation. Troy & Gould has been Duska Scientifics corporate law firm since 1999 and our corporate law firm since the merger. Troy & Gould Professional Corporation,
beneficially owns 301,836 shares of our common stock. Potential conflicts of interest could arise for either Mr. Hillsberg or Troy & Gould Professional Corporation in the performance of their services to us as a result of their ownership
interests in our securities or Mr. Hillsbergs positions as one of our officers and directors. During fiscal years 2003 and 2004, we paid Troy & Gould $33,472 and $153,893, respectively, for legal



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services rendered to us. Mr. Hillsberg served as a Vice President and Secretary of Duska Scientific during 2002 through
2004 and currently continues to serve as our corporate Secretary. During 2003, Mr. Hillsberg earned a salary and bonus of $60,000 (of which only $2,080 was paid in 2003 and $52,920 was paid in 2004) for the services he rendered as our Vice President
and corporate Secretary. During 2004, Mr. Hillsberg earned and was paid $25,000 for the services he rendered as our corporate Secretary. Currently, Mr. Hillsberg earns an annual salary of $25,000 for his services as corporate Secretary. As of
December 31, 2004, remaining amounts owed by us to Mr. Hillsberg during 2003 totaled $5,000.



Mr. Gropp served as our Chief Executive Officer, President, Chief Financial Officer and Secretary during the three years prior to the merger. Until the merger, Michael Artis was one of our principal stockholders. In
connection with the merger, we agreed to register the 820,000 shares of our common stock held by Tommy J. Gropp and Michael Artis.



Pursuant to a License and Assignment Agreement dated as of November 15, 1999, Dr. Amir Pelleg and Dr. Edward S. Schulman assigned and licensed certain
intellectual property that is the basis for ATPace, Vagonixen and
Primastrene. In consideration for this assignment
and license, Duska Scientific issued 240,000 shares of its common stock to Dr. Pelleg and 240,000 shares of its common stock to Dr. Schulman (a portion of which they each assigned to the medical institution with which they were then associated).
Duska Scientific also agreed to pay each of these individuals a percentage royalty of the net sales of products by Duska Scientific based on the intellectual property assigned and licensed. Please see BusinessIntellectual Property.
In February 2004, Duska Scientific issued a seven-year option to Dr. Pelleg under the companys 2000 Stock Option Plan to purchase 225,000 shares of Duska Scientific common stock at $1.00 per share pursuant to the terms of an Assignment
Agreement under which Dr. Pelleg assigned all of his ownership interest in an invention, including a U.S. provisional patent application, covering methods of modulating cough for therapeutic or diagnostic purposes. The option vested as to 75,000
shares upon grant, with the remaining options to vest upon the issuance of a U.S. patent with claims at least as broad as those specified in the Assignment Agreement.



Pursuant to a License Agreement dated as of November 15, 1999, Dr. Francesco DiVirgilio and Dr. Carlo Foresta licensed to
Duska Scientific certain intellectual property that is the basis for ATPotent In consideration for this license, Duska Scientific issued 115,200 shares of its common stock to Dr. DiVirgilio and 115,200 shares of its common stock to Dr. Foresta. Duska Scientific also agreed to pay each of these
individuals a percentage royalty of the net sales of products by Duska Scientific based on the licensed intellectual property. Please see BusinessIntellectual Property.



Dr. John Kapoor is a director of this company. In October 2002, the John N. Kapoor Trust purchased for $300,000 in a private
placement made by Duska Scientific to accredited investors (i) a $300,000 principal amount Duska Scientific three-year promissory note convertible into 288,000 shares of Duska Scientific common stock and (ii) a five-year warrant to purchase 576,000
shares of Duska Scientific common stock at $1.04 per share. In March 2004, the John N. Kapoor Trust converted the entire $300,000 note and $33,140 of accrued interest on the note into 319,815 shares of Duska Scientific common stock and, in
consideration of the early conversion of the note, received an additional five-year warrant to purchase 319,815 shares of Duska Scientific common stock at $1.00 per share. In August 2004, the John N. Kapoor Trust purchased $500,000 of units in a
private placement made to accredited investors by Duska Scientific, the units consisting of a total of 500,000 shares of Duska Scientific common stock and three-year warrants to purchase a total of 500,000 shares of Duska Scientific common stock at
$2.50 per share.



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.



|(a) | Exhibits
|--- | --------



See Exhibit Index attached to this Annual Report.



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|(b) | Reports on Form 8-K
|--- | -------------------



On October 29, 2004 the Company filed an Amended Current Report on Form 8-K/A which contained the financial statements and pro forma financial information
required to be filed in connection with the acquisition of Duska Scientific Co., previously reported on a Form 8-K filed on August 30, 2004.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



As stated in Item 8 above, Beckstead and Watts, LLP. audited the financial statements of our company during the fiscal years ended December 31, 2003 and 2002. On September 1, 2004, our board of directors replaced
Beckstead and Watts, LLP as this companys auditors and engaged Stonefield Josephson, Inc. as our independent accountants to audit our financial statements for the year ending December 31, 2004. See, Item 8. Changes In and Disagreements
With Accountants on Accounting and Financial Disclosure.



Audit Fees: The aggregate fees we paid Beckstead and Watts, LLP during the fiscal years ended December 31, 2004 and December 31, 2003 for professional services for the audit of our financial statements and the review of financial
statements included in our Forms 10-QSB were $-0- and $5,000, respectively. The aggregate fees we paid Stonefield Josephson, Inc. during the fiscal years ended December 31, 2004 and December 31, 2003 for professional services for the audit of the
financial statements of Duska Scientific Co. and the review of financial statements included in our Forms 10-QSB were $17,088 and $10,413, respectively.



Audit-Related Fees: Beckstead and Watts, LLP did not provide, and was not paid any fees for audit-related services in the fiscal years ended
December 31, 2004 and 2003. The aggregate fees we paid Stonefield Josephson, Inc. during the fiscal years ended December 31, 2004 and December 31, 2003 for audit-related services to us and to Duska Scientific Co. were $29,212 and $1,700,
respectively.



Tax Fees: Neither Beckstead and Watts,
LLP nor Stonefield Josephson, Inc. provided, billed or was paid any fees for, tax compliance, tax advice, and tax planning services for the fiscal years ended December 31, 2004 and December 31, 2003.



All Other Fees. Neither Beckstead and Watts, LLP nor Stonefield
Josephson, Inc. provided, billed or was paid any fees for, any other services in the fiscal years ended December 31, 2004 and 2003.



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SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.



|                     |  |                          |  |                            
|-------------------- |  | ------------------------ |  | ---------------------------
|                     |  | DUSKA THERAPEUTICS, INC.
|                     |  |                         
|Date: March 30, 2005 |  | By:                      |  | /s/ AMIR PELLEG, PH. D     
|                     |  |                          |  | Amir Pelleg, Ph.D President



Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                               |  |                                                                                  |  |               
|---------------------------------------------- |  | -------------------------------------------------------------------------------- |  | --------------
|Signature                                      |  | Title                                                                            |  | Date          
|/s/ AMIR PELLEG, PH. DAmir Pelleg, Ph.D        |  | President (principal executive officer) and Chief Operating Officer and Director |  | March 30, 2005
|                                               |  |                                                                                 
|/s/ MANFRED MOSK, PH.D.Manfred Mosk, Ph.D.     |  | Non-Executive Chairman of the Board                                              |  | March 30, 2005
|                                               |  |                                                                                 
|/s/ MARK REYNOLDSMark Reynolds                 |  | Chief Financial Officer (principal financial and accounting officer)             |  | March 30, 2005
|                                               |  |                                                                                 
|/s/ SANFORD J. HILLSBERGSanford J. Hillsberg   |  | Director                                                                         |  | March 30, 2005
|                                               |  |                                                                                 
|/s/ RUDOLPH NISI, M.D.Rudolph Nisi, M.D.       |  | Director                                                                         |  | March 30, 2005
|                                               |  |                                                                                 
|/s/ JOHN N. KAPOOR, PH.D.John N. Kapoor, Ph.D. |  | Director                                                                         |  | March 30, 2005
|                                               |  |                                                                                 
|/s/ DAVID BENDITT, M.D.David Benditt, M.D.     |  | Director                                                                         |  | March 30, 2005
|                                               |  |                                                                                 
|/s/ JANE KINSEL, PH.D.Jane Kinsel, Ph.D.       |  | Director                                                                         |  | March 30, 2005



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INDEX TO FINANCIAL STATEMENTS



INDEX TO
AUDITED

FINANCIAL STATEMENTS FOR

DUSKA THERAPEUTICS, INC.



|                                                        |  |    
|------------------------------------------------------- |  | ---
|Report of Independent Registered Public Accounting Firm |  | F-2
|                                                        | 
|Audited Financial Statements                            |  |    
|Consolidated Balance Sheet                              |  | F-3
|                                                        | 
|Consolidated Statements of Operations                   |  | F-4
|                                                        | 
|Consolidated Statements of Stockholders Equity         |  | F-5
|                                                        | 
|Consolidated Statements of Cash Flows                   |  | F-7
|                                                        | 
|Notes to Financial Statements                           |  | F-8



F-1



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors

Duska Therapeutics, Inc.

Bala
Cynwyd, Pennsylvania



We have audited the accompanying consolidated balance
sheet of Duska Therapeutics, Inc. and Subsidiary (a Nevada corporation in the development stage) as of December 31, 2004, and the related consolidated statements of operations, stockholders equity and cash flows for the two years then ended
and for the period from inception on February 9, 1996 to December 31, 2004. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.



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



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duska Therapeutics, Inc. and
Subsidiary (a Nevada corporation in the development stage) as of December 31, 2004, and the results of its operations and its cash flows for the two years then ended and from inception on February 9, 1996 to December 31, 2004, in conformity with
accounting principles generally accepted in the United States of America.



|                              
|------------------------------
|/s/ STONEFIELD JOSEPHSON, INC.
|CERTIFIED PUBLIC ACCOUNTANTS  
|                              
|Santa Monica, California      
|February 19, 2005             





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DUSKA THERAPEUTICS, INC. AND SUBSIDIARY

(A DEVELOPMENT-STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEET



|                                                                                                      |  |                  |            |  
|----------------------------------------------------------------------------------------------------- |  | ---------------- | ---------- | -
|                                                                                                      |  | December 31,2004 |           
|ASSETS                                                                                                |  |                  |            |  
|Current assets:                                                                                       |  |                  |            |  
|Cash and cash equivalents                                                                             |  | $                | 2,422,775  |  
|Prepaid expenses & other current assets                                                               |  |                  | 92,367     |  
|                                                                                                      |  |                  |            |  
|Total current assets                                                                                  |  |                  | 2,515,142  |  
|                                                                                                      | 
|Property and equipment, net                                                                           |  |                  | 2,799      |  
|                                                                                                      | 
|Other assets:                                                                                         |  |                  |            |  
|Patents                                                                                               |  |                  | 63,963     |  
|Deposits                                                                                              |  |                  | 3,150      |  
|                                                                                                      |  |                  |            |  
|Total other assets                                                                                    |  |                  | 67,113     |  
|                                                                                                      |  |                  |            |  
|Total assets                                                                                          |  | $                | 2,585,054  |  
|                                                                                                      |  |                  |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                  |  |                  |            |  
|Current liabilities:                                                                                  |  |                  |            |  
|Accounts payable and accrued expenses                                                                 |  | $                | 364,703    |  
|Accrued officers salaries                                                                            |  |                  | 70,000     |  
|                                                                                                      |  |                  |            |  
|Total current liabilities                                                                             |  |                  | 434,703    |  
|                                                                                                      | 
|Commitments                                                                                           |  |                  |            |  
|                                                                                                      | 
|Stockholders equity:                                                                                 |  |                  |            |  
|Preferred Stock, $.001 par value, 5,000,000 shares authorized, no shares issued and outstanding       |  |                  |           |  
|Common stock, $.001 par value, 50,000,000 shares authorized; 19,127,801 shares issued and outstanding |  |                  | 19,128     |  
|Additional paid-in capital                                                                            |  |                  | 5,796,290  |  
|Deficit accumulated during the development stage                                                      |  |                  | (3,665,067 | )
|                                                                                                      |  |                  |            |  
|Total stockholders equity                                                                            |  |                  | 2,150,351  |  
|                                                                                                      |  |                  |            |  
|Total liabilities and stockholders equity                                                            |  | $                | 2,585,054  |  
|                                                                                                      |  |                  |            |  



See accompanying notes.





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DUSKA THERAPEUTICS, INC. AND SUBSIDIARY

(A DEVELOPMENT-STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                           |  |                         |            |   |                                                       |   |            |   |  |   |            |  
|---------------------------------------------------------- |  | ----------------------- | ---------- | - | ----------------------------------------------------- | - | ---------- | - |  | - | ---------- | -
|                                                           |  | Year Ended December 31, |            |   | From Inception onFebruary 9, 1996to December 31, 2004 |  
|                                                           |  | 2004                    |            |   | 2003                                                  |   |           
|Revenues                                                   |  | $                       |           |   |                                                       | $ |           |   |  | $ |           |  
|                                                           |  |                         |           
|Operating expenses:                                        |  |                         |            |   |                                                       |   |            |   |  |   |            |  
|Research and development                                   |  |                         | 465,580    |   |                                                       |   | 281,045    |   |  |   | 1,503,989  |  
|General and administrative                                 |  |                         | 915,579    |   |                                                       |   | 471,876    |   |  |   | 1,941,469  |  
|                                                           |  |                         |            |   |                                                       |   |            |   |  |   |            |  
|                                                           |  |                         | 1,381,159  |   |                                                       |   | 752,921    |   |  |   | 3,445,458  |  
|                                                           |  |                         |            |   |                                                       |   |            |   |  |   |            |  
|Loss from operations                                       |  |                         | (1,381,159 | ) |                                                       |   | (752,921   | ) |  |   | (3,445,458 | )
|                                                           |  |                         |           
|Other income (expense)                                     |  |                         |            |   |                                                       |   |            |   |  |   |            |  
|Interest income                                            |  |                         | 18,293     |   |                                                       |   | 2,810      |   |  |   | 26,763     |  
|Interest expense                                           |  |                         | (197,969   | ) |                                                       |   | (48,403    | ) |  |   | (246,372   | )
|                                                           |  |                         |            |   |                                                       |   |            |   |  |   |            |  
|                                                           |  |                         | (179,676   | ) |                                                       |   | (45,593    | ) |  |   | (219,609   | )
|                                                           |  |                         |            |   |                                                       |   |            |   |  |   |            |  
|Net loss                                                   |  | $                       | (1,560,835 | ) |                                                       | $ | (798,514   | ) |  | $ | (3,665,067 | )
|                                                           |  |                         |            |   |                                                       |   |            |   |  |   |            |  
|Net loss per share (basic and diluted)                     |  | $                       | (0.10      | ) |                                                       | $ | (0.06      | ) |  | $ | (0.28      | )
|Weighted average of shares outstanding (basic and diluted) |  |                         | 15,647,802 |   |                                                       |   | 13,257,000 |   |  |   | 13,269,399 |  



See accompanying notes.





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##### Table of Contents

DUSKA THERAPEUTICS, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



|                                                                                                                                                                                 |  |              |  |                           |        |                                           |   |           |                           |   |            |   |  |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ |  | ------------------------- | ------ | ----------------------------------------- | - | --------- | ------------------------- | - | ---------- | - |  | - | --------- | -
|                                                                                                                                                                                 |  | Common Stock |  | AdditionalPaid-In Capital |        | DeficitAccumulatedDuringDevelopment Stage |   |           | TotalStockholders Equity |  
|                                                                                                                                                                                 |  | Shares       |  | Amount                    |        |                                           |  
|For the period from February 9, 1996 (inception) to January 1, 1999 (restated for 1,000:1 stock split and stock split up effected in the form
of a dividend and 3:1 stock split) |  |             |  | $                         |       |                                           | $ |          |                           | $ |           |   |  | $ |          |  
|Issuance of stock for services in October 1999                                                                                                                                   |  | 3,789,600    |  |                           | 3,790  |                                           |   | 26,892    |                           |   |           |   |  |   | 30,682    |  
|Issuance of stock for cash in October 1999                                                                                                                                       |  | 7,500,000    |  |                           | 7,500  |                                           |   | 17,500    |                           |   |           |   |  |   | 25,000    |  
|Issuance of common stock for patents and licenses in November 1999                                                                                                               |  | 230,400      |  |                           | 230    |                                           |   | 538       |                           |   |           |   |  |   | 768       |  
|Issuance of stock for patent assignments and licenses from related parties in November 1999                                                                                      |  | 480,000      |  |                           | 480    |                                           |   | 13,611    |                           |   |           |   |  |   | 14,091    |  
|Net loss for the year ended December 31, 1999                                                                                                                                    |  |             |  |                           |       |                                           |   |          |                           |   | (50,222    | ) |  |   | (50,222   | )
|                                                                                                                                                                                 |  |              |  |                           |        |                                           |   |           |                           |   |            |   |  |   |           |  
|Balance at December 31, 1999                                                                                                                                                     |  | 12,000,000   |  |                           | 12,000 |                                           |   | 58,541    |                           |   | (50,222    | ) |  |   | 20,319    |  
|Issuance of stock for cash in June 2000                                                                                                                                          |  | 168,000      |  |                           | 168    |                                           |   | 174,832   |                           |   |           |   |  |   | 175,000   |  
|Issuance of stock for cash in October 2000                                                                                                                                       |  | 105,000      |  |                           | 105    |                                           |   | 174,895   |                           |   |           |   |  |   | 175,000   |  
|Net loss for the year ended December 31, 2000                                                                                                                                    |  |             |  |                           |       |                                           |   |          |                           |   | (46,505    | ) |  |   | (46,505   | )
|                                                                                                                                                                                 |  |              |  |                           |        |                                           |   |           |                           |   |            |   |  |   |           |  
|Balance at December 31, 2000                                                                                                                                                     |  | 12,273,000   |  |                           | 12,273 |                                           |   | 408,268   |                           |   | (96,727    | ) |  |   | 323,814   |  
|Issuance of stock for cash in November 2001                                                                                                                                      |  | 984,000      |  |                           | 984    |                                           |   | 1,002,328 |                           |   |           |   |  |   | 1,003,312 |  
|Net loss for the year ended December 31, 2001                                                                                                                                    |  |             |  |                           |       |                                           |   |          |                           |   | (337,267   | ) |  |   | (337,267  | )
|                                                                                                                                                                                 |  |              |  |                           |        |                                           |   |           |                           |   |            |   |  |   |           |  
|Balance at December 31, 2001                                                                                                                                                     |  | 13,257,000   |  |                           | 13,257 |                                           |   | 1,410,596 |                           |   | (433,994   | ) |  |   | 989,859   |  
|Net loss for the year ended December 31, 2002                                                                                                                                    |  |             |  |                           |       |                                           |   |          |                           |   | (871,724   | ) |  |   | (871,724  | )
|                                                                                                                                                                                 |  |              |  |                           |        |                                           |   |           |                           |   |            |   |  |   |           |  
|Balance at December 31, 2002                                                                                                                                                     |  | 13,257,000   |  |                           | 13,257 |                                           |   | 1,410,596 |                           |   | (1,305,718 | ) |  |   | 118,135   |  
|Net loss for the year ended December 31, 2003                                                                                                                                    |  |             |  |                           |       |                                           |   |          |                           |   | (798,514   | ) |  |   | (798,514  | )
|                                                                                                                                                                                 |  |              |  |                           |        |                                           |   |           |                           |   |            |   |  |   |           |  
|Balance at December 31, 2003                                                                                                                                                     |  | 13,257,000   |  | $                         | 13,257 |                                           | $ | 1,410,596 |                           | $ | (2,104,232 | ) |  | $ | (680,379  | )





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##### Table of Contents

DUSKA THERAPEUTICS, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY

(continued)



|                                                                                               |  |              |  |                           |        |  |                                           |           |   |                           |   |            |   |  |   |            |  
|---------------------------------------------------------------------------------------------- |  | ------------ |  | ------------------------- | ------ |  | ----------------------------------------- | --------- | - | ------------------------- | - | ---------- | - |  | - | ---------- | -
|                                                                                               |  | Common Stock |  | AdditionalPaid-In Capital |        |  | DeficitAccumulatedDuringDevelopment Stage |           |   | TotalStockholders Equity |  
|                                                                                               |  | Shares       |  | Amount                    |        |  |                                          
|Balance at December 31, 2003                                                                   |  | 13,257,000   |  | $                         | 13,257 |  | $                                         | 1,410,596 |   |                           | $ | (2,104,232 | ) |  | $ | (680,379   | )
|Issuance of common stock for cash in in March and April 2004, net of offering costs of $31,850 |  | 270,000      |  |                           | 270    |  |                                           | 237,880   |   |                           |   |           |   |  |   | 238,150    |  
|Conversion of convertible notes payable and accrued interest in March 2004                     |  | 533,301      |  |                           | 533    |  |                                           | 554,993   |   |                           |   |           |   |  |   | 555,526    |  
|Warrant issuance costs associated with conversion of convertible notes payable                 |  |             |  |                           |       |  |                                           | 190,846   |   |                           |   |           |   |  |   | 190,846    |  
|Issuance of common stock for cash in in August 2004, net of offering costs of $304,140         |  | 3,667,500    |  |                           | 3,668  |  |                                           | 3,359,692 |   |                           |   |           |   |  |   | 3,363,360  |  
|Shares issued to Shiprock, Inc. in the reorganization on August 27, 2004                       |  | 1,400,000    |  |                           | 1,400  |  |                                           | (1,400    | ) |                           |   |           |   |  |   |           |  
|Issuance of warrants for services in November 2004                                             |  |              |  |                           |        |  |                                           | 43,683    |   |                           |   |           |   |  |   | 43,683     |  
|Net loss for the year ended December 31, 2004                                                  |  |             |  |                           |       |  |                                           |          |   |                           |   | (1,560,835 | ) |  |   | (1,560,835 | )
|                                                                                               |  |              |  |                           |        |  |                                           |           |   |                           |   |            |   |  |   |            |  
|Balance at December 31, 2004                                                                   |  | 19,127,801   |  | $                         | 19,128 |  | $                                         | 5,796,290 |   |                           | $ | (3,665,067 | ) |  | $ | 2,150,351  |  
|                                                                                               |  |              |  |                           |        |  |                                           |           |   |                           |   |            |   |  |   |            |  



See accompanying notes.



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##### Table of Contents

DUSKA THERAPEUTICS, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                               |  |                         |            |   |                                                         |   |          |   |  |   |            |  
|------------------------------------------------------------------------------ |  | ----------------------- | ---------- | - | ------------------------------------------------------- | - | -------- | - |  | - | ---------- | -
|                                                                               |  | Year Ended December 31, |            |   | From Inception on February 9, 1996 to December 31, 2004 |  
|                                                                               |  | 2004                    |            |   | 2003                                                    |   |         
|Cash flows from operating activities:                                          |  |                         |            |   |                                                         |   |          |   |  |   |            |  
|Net loss                                                                       |  | $                       | (1,560,835 | ) |                                                         | $ | (798,514 | ) |  | $ | (3,665,067 | )
|Adjustments to reconcile net loss to net cash used in operating activities     |  |                         |            |   |                                                         |   |          |   |  |   |            |  
|Depreciation                                                                   |  |                         | 915        |   |                                                         |   | 1,539    |   |  |   | 6,203      |  
|Issuance of common stock for services                                          |  |                         |           |   |                                                         |   |         |   |  |   | 30,682     |  
|Issuance of warrants for services                                              |  |                         | 43,683     |   |                                                         |   |         |   |  |   | 43,683     |  
|Warrant issuance costs associated with conversion of convertible notes payable |  |                         | 190,846    |   |                                                         |   |         |   |  |   | 190,846    |  
|Changes in assets and liabilities                                              |  |                         |            |   |                                                         |   |          |   |  |   |            |  
|Prepaid expense & other current assets                                         |  |                         | (87,911    | ) |                                                         |   | (3,456   | ) |  |   | (92,367    | )
|Deposits                                                                       |  |                         | (1,651     | ) |                                                         |   |         |   |  |   | (3,150     | )
|Accounts payable and accrued expenses                                          |  |                         | 307,534    |   |                                                         |   | 36,575   |   |  |   | 364,703    |  
|Accrued officers salaries                                                     |  |                         | (164,811   | ) |                                                         |   | 234,811  |   |  |   | 70,000     |  
|Accrued interest payable                                                       |  |                         | 7,123      |   |                                                         |   | 48,403   |   |  |   | 55,526     |  
|                                                                               |  |                         |            |   |                                                         |   |          |   |  |   |            |  
|Total adjustments                                                              |  |                         | 295,728    |   |                                                         |   | 317,872  |   |  |   | 666,126    |  
|                                                                               |  |                         |            |   |                                                         |   |          |   |  |   |            |  
|Net cash used in operating activities                                          |  |                         | (1,265,107 | ) |                                                         |   | (480,642 | ) |  |   | (2,998,941 | )
|                                                                               |  |                         |           
|Cash flows from investing activities:                                          |  |                         |            |   |                                                         |   |          |   |  |   |            |  
|Capital expenditures                                                           |  |                         | (1,790     | ) |                                                         |   |         |   |  |   | (9,002     | )
|Payments to develop patents                                                    |  |                         |           |   |                                                         |   |         |   |  |   | (49,104    | )
|                                                                               |  |                         |            |   |                                                         |   |          |   |  |   |            |  
|Net cash used in investing activities                                          |  |                         | (1,790     | ) |                                                         |   |         |   |  |   | (58,106    | )
|                                                                               |  |                         |           
|Cash flows from financing activities:                                          |  |                         |            |   |                                                         |   |          |   |  |   |            |  
|Net proceeds from sale of common stock                                         |  |                         | 3,601,510  |   |                                                         |   |         |   |  |   | 4,979,822  |  
|Proceeds from issuance of convertible notes                                    |  |                         |           |   |                                                         |   |         |   |  |   | 500,000    |  
|Proceeds from notes payable, related party                                     |  |                         |           |   |                                                         |   |         |   |  |   | 6,545      |  
|Payments on notes payable, related party                                       |  |                         |           |   |                                                         |   |         |   |  |   | (6,545     | )
|                                                                               |  |                         |            |   |                                                         |   |          |   |  |   |            |  
|Net cash provided by financing activities                                      |  |                         | 3,601,510  |   |                                                         |   |         |   |  |   | 5,479,822  |  
|                                                                               |  |                         |           
|Net increase (decrease) in cash and cash equivalents                           |  |                         | 2,334,613  |   |                                                         |   | (480,642 | ) |  |   | 2,422,775  |  
|Cash and cash equivalents at beginning of period                               |  |                         | 88,162     |   |                                                         |   | 568,804  |   |  |   |           |  
|                                                                               |  |                         |            |   |                                                         |   |          |   |  |   |            |  
|Cash and cash equivalents at end of period                                     |  | $                       | 2,422,775  |   |                                                         | $ | 88,162   |   |  | $ | 2,422,775  |  
|                                                                               |  |                         |            |   |                                                         |   |          |   |  |   |            |  
|Supplemental disclosure of cash flow information:                              |  |                         |            |   |                                                         |   |          |   |  |   |            |  
|Interest paid                                                                  |  | $                       |           |   |                                                         | $ |         |   |  | $ |           |  
|Income taxes paid                                                              |  | $                       | 624        |   |                                                         | $ | 1,825    |   |  | $ | 3911       |  
|                                                                               |  |                         |           
|Supplemental disclosure of non-cash investing and financing activities:        |  |                         |            |   |                                                         |   |          |   |  |   |            |  
|Issuance of common stock for services                                          |  | $                       |           |   |                                                         | $ |         |   |  | $ | 30,682     |  
|Issuance of common stock for patents and licenses                              |  | $                       |           |   |                                                         | $ |         |   |  | $ | 14,859     |  
|Issuance of warrants for services                                              |  | $                       | 43,683     |   |                                                         | $ |         |   |  | $ | 43,683     |  
|Conversion of convertible notes payable and accrued interest into common stock |  | $                       | 555,526    |   |                                                         | $ |         |   |  | $ | 555,526    |  



See accompanying notes.





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##### Table of Contents

DUSKA THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Years Ended December 31, 2004 and 2003, and Period

From Inception on February 9, 1996 to December 31, 2004



1. Description of Company and Nature of Business



Duska Therapeutics, Inc. (Duska Therapeutics) is an emerging biopharmaceutical company incorporated in Nevada and based in Bala
Cynwyd, Pennsylvania. Through its wholly owned subsidiary, Duska Scientific Co., a Delaware corporation (Duska Scientific), Duska Therapeutics focuses on the development of diagnostic and therapeutic products based upon its technology
related to adenosine 5-triphosphate, or ATP, and ATP related receptors. ATP is a biological compound found in every cell of the human body, where it constitutes the source of energy that helps to fuel all bodily functions. ATP is released from
many types of cells under normal and disease conditions. Extracellular ATP regulates the functions of different cell types in various tissues and organs, including the heart, lungs and kidney, by activating cell surface receptors called P2
receptors, or P2R. The pharmacological activation of P2R by so-called agonists, and the inhibition of P2R by so-called antagonists, have recently become recognized by a number of scientists as providing a possible rationale for the development of
new drugs for the diagnosis or treatment of human disorders, including cardiovascular, pulmonary, neural and renal diseases. Reference herein to the Company includes both Duska Therapeutics and Duska Scientific, unless the context
indicates otherwise.



Duska Therapeutics was originally incorporated under the
laws of Nevada as Shiprock, Inc. (Shiprock). Prior to August 2004, Shiprock was engaged in very limited landscaping and irrigation operations. On August 30, 2004, Shiprock completed the acquisition of Duska Scientific (the
Reorganization) through a reverse triangular merger in which Duska Scientific merged with Shiprock Subsidiary, Inc., a wholly owned subsidiary of Shiprock with no assets or liabilities formed solely for the purpose of facilitating the
merger. Duska Scientific was the surviving corporation in the merger and became a wholly owned subsidiary of Shiprock. For accounting purposes, Duska Scientific is deemed to be the acquiring corporation. In connection with the Reorganization,
Shiprock changed its name to Duska Therapeutics, Inc., replaced its officers and directors with those of Duska Scientific, ceased its landscaping and irrigation business, and moved its offices to Bala Cynwyd, Pennsylvania. Duska
Therapeutics currently does not plan to conduct any business other than Duska Scientifics business of developing new products for the diagnosis or treatment of human diseases.



2. Summary of Significant Accounting Policies



Development Stage Enterprise  The Company is a development stage enterprise as defined by Statement of Financial Accounting
Standards (SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises. The Company is devoting substantially all of its present efforts to research and development. All losses accumulated since inception have been
considered as part of the Companys development stage activities.



Use
of Estimates  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 period. Actual results could differ from those estimates.



Fair Value of Financial Instruments  Unless otherwise indicated,
the carrying value of financial instruments as reported in the balance sheet approximate their fair values.



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##### Table of Contents

Cash and Cash Equivalents  For purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less which are not securing any corporate obligations.



Cash Concentration  The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts.



Property and Equipment 
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to operations as incurred, while additions, renewals, and betterments are capitalized. Depreciation is being provided by use of the straight-line method
over the estimated useful lives of the assets, ranging from three to five years.



Patentsand Patent Application Costs  The Companys patent costs consist of the expenditures for purchasing the patents and related legal fees. The Company will amortize patents using the straight-line method over
the period of estimated benefit, starting when the patents first begin producing revenue. There has been no amortization expense charged, as the patents have not yet produced revenue. The Company periodically evaluates whether events or
circumstances have occurred that may affect the estimated useful lives or the recoverability of the remaining balance of the patents. Impairment of the assets is triggered when the estimated future undiscounted cash flows do not exceed the carrying
amount of the intangible assets. If the events or circumstances indicate that the remaining balance of the assets may be permanently impaired, such potential impairment will be measured based upon the difference between the carrying amount of the
assets and the fair value of such assets, determined using the estimated future discounted cash flows generated.



Research and Development  Research and development costs related to future and present products are charged to expense as incurred.



Comprehensive Loss  For the years ended December 31, 2004 and 2003, and for the
period from inception on February 9, 1996 to December 31, 2004, the Company has no items that represent other comprehensive loss and, therefore, has not included a Statement of Comprehensive Loss in the financial statements.



Restatement for Stock Split  All amounts in the accompanying financial
statements have been restated to give effect to the 3-for-1 stock split described in Note 5.



Net Loss Per Share  Basic and diluted loss per common share are computed based on the weighted average number of common shares outstanding. Common share equivalents (which may consist of options and
warrants) are excluded from the computation of diluted loss per share since the effect would be antidilutive. Common share equivalents which could potentially dilute basic earning per share in the future, and which were excluded from the computation
of diluted loss per share totaled approximately 21,987,551 and 7,722,000 shares at December 31, 2004 and 2003, respectively.



Income Taxes  Deferred income taxes are reported using the liability method. Deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of
enactment.



Stock-Based Compensation  SFAS No. 123,
Accounting for Stock-Based Compensation, establishes and encourages the use of the fair value based method of accounting for stock-based compensation arrangements under which compensation cost is determined using the fair value of
stock-based compensation determined as of the date of grant and is recognized over the periods in which the related services are rendered. The statement also permits companies to elect to continue using the current intrinsic value accounting method
specified in



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##### Table of Contents

Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, to account for stock-based compensation.
The Company has elected to use the intrinsic value based method and has disclosed the pro forma effect of using the fair value based method to account for its stock-based compensation. For non-employee stock based compensation the Company recognizes
an expense in accordance with SFAS No. 123 and values the equity securities based on the fair value of the security on the date of grant



If the Company had elected to recognize compensation cost for its stock options based on the fair value at the grant dates, in accordance with SFAS 123, net earnings and
earnings per share for years ended December 31, 2004 and 2003 would have been as follows:



|                                         |  |      |            |   |      |   |          |  
|---------------------------------------- |  | ---- | ---------- | - | ---- | - | -------- | -
|                                         |  | 2004 |            |   | 2003 |  
|Net loss, as reported                    |  | $    | (1,560,835 | ) |      | $ | (798,514 | )
|Compensation recognized under APB 25     |  |      |           |   |      |   |         |  
|Compensation recognized under SFAS 123   |  |      | (398,286   | ) |      |   | (27,479  | )
|                                         |  |      |            |   |      |   |          |  
|Pro forma net loss                       |  | $    | (1,959,121 | ) |      | $ | (825,993 | )
|                                         |  |      |            |   |      |   |          |  
|Basic and diluted loss per common share: |  |      |            |   |      |   |          |  
|As reported                              |  | $    | (0.10      | ) |      | $ | (0.06    | )
|Pro forma                                |  | $    | (0.13      | ) |      | $ | (0.06    | )



The fair value of each stock option is
estimated on the date of grant using the Black Scholes option-pricing model. The following weighted-average assumptions were used in the Black Scholes option-pricing model:



|                        |  |           |   |  |         |  
|----------------------- |  | --------- | - |  | ------- | -
|                        |  | 2004      |   |  | 2003    |  
|Dividend yield          |  | 0.0       | % |  | 0.0     | %
|Expected volatility     |  | 50.0      | % |  | 50.0    | %
|Risk-free interest rate |  | 4.7       | % |  | 5.0     | %
|Expected life of option |  | 6.8 years |   |  | 7 years |  



New Accounting Pronouncements
 In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. FIN 46 changes the criteria by which one company includes another entity in its consolidated financial statements. Previously,
the criteria were based on control through voting interest. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entitys activities
or entitled to receive a majority of the entitys residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable interest entity was established. During October 2003, the FASB deferred the effective date for applying the provisions of FIN 46 until the end of the first interim or annual
period ending after December 31, 2003, if the variable interest was created prior to February 1, 2003 and the entity has not issued financial statements reporting such variable interest entities in accordance with FIN 46.



In December 2003, the FASB issued Interpretation No. 46 (Revised December 2003),
Consolidation of Variable Interest Entities, (FIN-46R), primarily to clarify the required accounting for interests in variable interest entities. FIN-46R replaces FIN 46 that was issued in January 2003. FIN-46R exempts
certain entities from its requirements and provides for special effective dates for entities that have fully or partially applied FIN 46 as of December 24, 2003. In certain situations, entities have the option of applying or continuing to apply FIN
46 for a short period of time before applying FIN-46R. While FIN-46R modifies or clarifies various provisions of FIN 46, it also incorporates many FASB Staff Positions previously issued by the FASB. The adoption of FIN-46R did not have a material
impact to the Companys financial position or results of operations as the Company has not engaged in such transactions.



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##### Table of Contents

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003. In addition, except as stated below, all provisions of this Statement should
be applied prospectively. The provisions of this Statement that relate to Statement 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their
respective effective dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts
entered into after June 30, 2003. The adoption of this Statement did not have a material impact to the Companys financial position or results of operations as the Company has not engaged in such transactions.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity, effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. This
Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a freestanding financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of this Statement are consistent with the current definition of liabilities in FASB Concepts Statement
No. 6, Elements of Financial Statements. The Company has implemented this pronouncement and has concluded that the adoption has no material impact to the financial statements.



In December 2003, the FASB issued a revised SFAS No. 132, Employers Disclosures about Pensions and Other Postretirement
Benefits, which replaces the previously issued SFAS No. 132. The revised SFAS No. 132 increases the existing disclosures for defined benefit pension plans and other defined benefit postretirement plans. However, it does not change the
measurement or recognition of those plans as required under SFAS No. 87, Employers Accounting for Pensions, SFAS No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. Specifically, the revised SFAS No. 132 requires companies to provide additional disclosures about pension plan
assets, benefit obligations, cash flows, and benefit costs of defined benefit pension plans and other defined benefit postretirement plans. Also, companies are required to provide a breakdown of plan assets by category, such as debt, equity and real
estate, and to provide certain expected rates of return and target allocation percentages for these asset categories. The Company has implemented this pronouncement and has concluded that the adoption has no material impact to the financial
statements.



In November 2004, the FASB issued SFAS No. 151, Inventory
Costs, an amendment of ARB No. 43, Chapter 4. The amendments made by Statement 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current period charges
and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during fiscal years beginning after November 23, 2004. The Company has evaluated the impact of the adoption of SFAS 151, and does not believe the impact will be significant to the Companys
overall results of operations or financial position.



In December 2004, the
FASB issued SFAS No.152, Accounting for Real Estate Time-Sharing Transactions, an amendment of FASB Statements No. 66 and 67 (SFAS 152). The amendments made by Statement 152 amend FASB Statement No. 66, Accounting for Sales of Real
Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also
amends FASB



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##### Table of Contents

Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and
(b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005, with earlier application encouraged. The Company has evaluated the impact of the adoption of SFAS 152, and does not believe the impact will be significant to the Companys overall results of
operations or financial position.



In December 2004, the FASB issued SFAS
No.153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions. The amendments made by Statement 153 are based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not
have commercial substance. Previously, Opinion 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded
amount of the asset relinquished. Opinion 29 provided an exception to its basic measurement principle (fair value) for exchanges of similar productive assets. The Statement is effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance. The provisions of this Statement shall be applied prospectively. The Company has
evaluated the impact of the adoption of SFAS 153, and does not believe the impact will be significant to the Companys overall results of operations or financial position.



In December 2004, the FASB issued SFAS No.123 (revised 2004), Share-Based Payment. Statement 123(R) will provide investors and
other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on
the fair value of the equity or liability instruments issued. Statement 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. Statement 123, as originally issued in 1995,
established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes
to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. Public entities (other than those filing as small business issuers) will be required to apply Statement 123(R) as of the first
interim or annual reporting period that begins after June 15, 2005. Small business issuers will be required to apply Statement 123(R) as of the first interim or annual reporting period that begins after December 15, 2005. The Company is a small
business issuer and will therefore apply Statement 123(R) effective January 1, 2005. The Company has not yet evaluated the impact of the adoption of SFAS 123(R), or whether the impact will be significant to the Companys overall results of
operations or financial position.



In December 2004 the Financial Accounting
Standards Board issued two FASB Staff PositionsFSP FAS 109-1, Application of FASB Statement 109 Accounting for Income Taxes to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004,
and FSP FAS 109-2 Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. Neither of these affected the Company as it does not participate in the related activities.



3. Property and Equipment



Property and equipment at December 31 consist of the following:



|                              |  |      |        |   |      |   |        |  
|----------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                              |  | 2004 |        |   | 2003 |  
|Computer equipment            |  | $    | 6,607  |   |      | $ | 4,817  |  
|Furniture and equipment       |  |      | 2,395  |   |      |   | 2,395  |  
|                              |  |      |        |   |      |   |        |  
|                              |  |      | 9,002  |   |      |   | 7,212  |  
|Less accumulated depreciation |  |      | (6,203 | ) |      |   | (5,288 | )
|                              |  |      |        |   |      |   |        |  
|                              |  | $    | 2,799  |   |      | $ | 1,924  |  
|                              |  |      |        |   |      |   |        |  



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##### Table of Contents

Depreciation expense amounted to $915 and $1,539 for the years ended December 31, 2004 and 2003, respectively.
Depreciation expense for the period from inception on February 9, 1996 to December 31, 2004 amounted to $6,203.



4. Convertible Notes Payable



In October and November 2002, Duska Scientific issued convertible subordinated notes for total offering proceeds of $500,000 in cash. The notes were convertible, at the
option of the holders of the notes, into 480,000 shares of the Companys common stock at $1.04 per share at any time prior to the maturity date and were payable, including interest at 8% per annum, 18 months after issuance. The notes also
included warrants to purchase 960,000 shares of the Companys common stock at $1.04 per share. No value was separately assigned to the warrants, as the amounts calculated per a Black Scholes valuation model were immaterial.



On March 5, 2004, the convertible note payable holders converted $500,000 in convertible
notes payable and $55,526 in accrued interest into 533,301 shares of the Companys common stock and warrants to purchase 533,301 shares of the Companys common stock at $1.00 per share. The warrants expire in March 2009, and can be
exercised at any time. In connection with the issuance of the warrants, the Company recognized interest expense amounting to $190,846.



5. Stockholders Equity



The information included in this Note 5 is with respect to equity transactions by Duska Scientific prior to the Reorganization and is with respect to the Company
commencing with the Reorganization.



Preferred Stock



The Company has 5,000,000 shares of preferred stock authorized. There are no shares of
preferred stock issued or outstanding.



Common Stock  Restatement for
Stock Splits, Dividends and Recapitalization



All amounts in the
Companys financial statements and footnotes have been retroactively restated to give effect to the following:



| |  |  | a 1000:1 stock split in June 2000
| | - |  | ---------------------------------



| |  |  | a 300% stock split up effected in the form of a dividend in October 2001
| | - |  | ------------------------------------------------------------------------



| |  |  | a 3:1 stock split in August 2004
| | - |  | --------------------------------



| |  |  | a recapitalization in August 2004, resulting in the par value of common stock changing from $.01 per share to $.001 per share
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



Common Stock Transactions



In October 1999, the Company issued 3,789,600 shares of its common stock for services valued
at $30,682.



In October 1999, the Company issued 7,500,000 shares of its common
stock for $25,000 in cash.



In November 1999, the Company issued 710,400 shares
of its common stock for $14,859 in patents and licenses.



In June 2000, the
Company issued 168,000 shares of its common stock for $175,000 in cash.



In
October 2000, the Company issued 105,000 shares of its common stock for $175,000 in cash.



In November 2001, the Company issued 984,000 shares of its common stock and warrants to purchase 2,700,000 shares of common stock at exercise prices ranging from $1.04 to $2.00 per share in exchange for $1,003,312 in
cash. The warrants expire in October 2006.



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##### Table of Contents

In March 2004, the Company issued 533,301 shares of its common stock and warrants to purchase 53,301 shares of common
stock in exchange for cancellation of outstanding convertible notes payable. The warrants expire in March 2009 and have an exercise price of $1.00 per share (See Note 4).



In March and April 2004, the Company sold 270,000 units at $1.00 per unit, with each unit consisting of one share of the Companys
common stock and one warrant to purchase an additional two shares of common stock at $2.50 per share. The warrants expire in March 2009.



During May, June and July 2004, the Company received subscriptions for 3,667,500 units at $1.00 per unit, with each unit consisting of one share of the Companys
common stock and one warrant to purchase an additional share of common stock at $2.50 per share. The units were issued in August 2004 prior to the Reorganization.



In August 2004, in connection with the Reorganization (see Note 1), the Company issued 17,727,801 shares of its common stock to the holders
of Duska Scientifics capital stock in exchange for all of the 17,727,801 shares of Duska Scientific common stock outstanding on the date of the Reorganization. In addition, outstanding common stock purchase warrants and stock options to
purchase a total of 13,441,301 shares of Duska Scientifics common stock were cancelled in exchange for warrants and stock options to purchase the same number of shares of the Companys common stock at the same exercise prices and
otherwise on the same terms as the Duska Scientific stock options and warrants that were cancelled.



As more fully described in Note 7, in November 2004 the Company issued to designees of Cato Research Ltd. (Cato) 500,000 shares of its common stock and warrants to purchase 500,000 shares of its common
stock at $2.50 per share pursuant to an agreement whereby Cato is providing certain services. The warrants expire in August 2007. As of December 31, 2004, all of such shares and warrants were held in escrow by the Company pending receipt of invoices
for services performed by Cato (see Note 7) and such shares are not included in the financial statements as outstanding as of December 31, 2004. In addition, as additional compensation for Cato, in November 2004 the Company issued to Catos
designees additional warrants to purchase a total of 99,000 shares of its common stock. These additional warrants have an exercise price of $1.04 per share and expire in October 2009. These warrants were immediately exercisable and not held in
escrow; the Company recorded an expense of $43,683 in 2004 associated with the issuance of these warrants.



Stock Option Plan



In 2000, the Board
of Directors of the Company adopted the 2000 Stock Option Plan for the grant of qualified incentive stock options (ISO) and non-qualified stock options. The exercise price for any option granted may not be less than fair value (110% of fair value
for ISOs granted to certain employees). Under the Stock Option Plan, 6,000,000 shares are reserved for issuance.



A summary of the Companys stock option activity and related information for the years ended December 31, 2004 and 2003 is shown below.



|                                                               |  |                   |           |                                |      |   |           |  |      |      |  |   |     
|-------------------------------------------------------------- |  | ----------------- | --------- | ------------------------------ | ---- | - | --------- |  | ---- | ---- |  | - | ----
|                                                               |  | Number of Options |           | Weighted AverageExercise Price
|                                                               |  | 2004              |           |                                | 2003 |   | 2004      |  | 2003
|Outstanding  beginning of year                                |  |                   | 4,062,000 |                                |      |   | 3,972,000 |  | $    | 1.04 |  | $ | 1.04
|Granted                                                        |  |                   | 1,055,000 |                                |      |   | 90,000    |  |      | 1.02 |  |   | 1.04
|Exercised                                                      |  |                   |          |                                |      |   |          |  |      |     |  |   |    
|Cancelled                                                      |  |                   | (102,000  | )                              |      |   |          |  |      | 1.04 |  |   |    
|Expired                                                        |  |                   |          |                                |      |   |          |  |      |     |  |   |    
|                                                               |  |                   |           |                                |      |   |           |  |      |      |  |   |     
|Outstanding  end of year                                      |  |                   | 5,015,000 |                                |      |   | 4,062,000 |  | $    | 1.04 |  | $ | 1.04
|                                                               |  |                   |           |                                |      |   |           |  |      |      |  |   |     
|Exercisable  end of year                                      |  |                   | 4,825,000 |                                |      |   | 4,039,500 |  | $    | 1.04 |  | $ | 1.04
|                                                               |  |                   |           |                               
|Weighted average fair value of options granted during the year |  | $                 | 0.40      |                                |      | $ | 0.92      |  |      |      |  |   |     



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##### Table of Contents

The following table summarizes additional information concerning the Companys stock options outstanding and
exercisable as of December 31, 2004:



|                         |  |                     |  |                                        |  |                                |      |        |           |                                 |   |     
|------------------------ |  | ------------------- |  | -------------------------------------- |  | ------------------------------ | ---- | ------ | --------- | ------------------------------- | - | ----
|Options Outstanding      |  | Options Exercisable
|Range of Exercise Prices |  | Number              |  | Weighted AverageRemaining Life (years) |  | Weighted AverageExercise Price |      | Number |           | Weighted Average Exercise Price
|$1.00  2.00             |  | 5,015,000           |  | 4.1                                    |  | $                              | 1.04 |        | 4,825,000 |                                 | $ | 1.04



Warrants Outstanding



As of December 31, 2004, warrants to purchase 9,250,551 shares of common
stock at prices ranging from $1.00 to $2.50 were outstanding. As of December 31, 2004, 8,750,551 of such warrants were exercisable and expire at various dates through 2009.



6 Income Taxes



For income tax purposes, the Company and its subsidiary have an aggregate of $3,644,045 of net operating loss carryforwards available to offset against future federal
taxable income, subject to certain limitations. Such losses begin to expire in 2019. State income tax loss carryforwards start to expire in the year 2009.



Deferred income taxes reflect the net effect of temporary differences between the financial reporting and income tax carrying amounts of assets and liabilities. The
components of the Companys deferred tax assets and liabilities are as follows:



|                                |  |              |            |   |      |   |          |  
|------------------------------- |  | ------------ | ---------- | - | ---- | - | -------- | -
|                                |  | December 31, |           
|                                |  | 2004         |            |   | 2003 |  
|Deferred tax assets:            |  |              |            |   |      |   |          |  
|Net operating loss carryforward |  | $            | 1,456,104  |   |      | $ | 809,255  |  
|Depreciation and other          |  |              | 28,217     |   |      |   |         |  
|                                |  |              |            |   |      |   |          |  
|Total deferred tax assets       |  |              | 1,484,321  |   |      |   | 809,255  |  
|                                |  |             
|Deferred tax liabilities:       |  |              |            |   |      |   |          |  
|Prepaid expenses                |  |              | 35,515     |   |      |   |         |  
|                                |  |              |            |   |      |   |          |  
|Total deferred tax liabilities  |  |              | 35,515     |   |      |   |         |  
|                                |  |              |            |   |      |   |          |  
|Net deferred tax assets         |  |              | 1,448,806  |   |      |   | 809,255  |  
|Valuation allowance             |  |              | (1,448,806 | ) |      |   | (809,255 | )
|                                |  |              |            |   |      |   |          |  
|                                |  | $            |           |   |      | $ |         |  
|                                |  |              |            |   |      |   |          |  



The Companys net deferred tax
asset is fully offset by a valuation allowance. Management will continue to assess the valuation allowance and to the extent it is determined that such allowance is no longer required, the tax benefit of the remaining net deferred tax assets will be
recognized in the future.



The reconciliation of the effective income tax rate
to the Federal statutory rate is as follows:



|                          |  |       |  
|------------------------- |  | ----- | -
|Federal income tax rate   |  | 34.0  | %
|Current year losses       |  | (34.0 | )
|                          |  |       |  
|Effective income tax rate |  | 0.0   | %
|                          |  |       |  





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##### Table of Contents

7. Commitments



Leases  The Company leases the office used for its operations under a lease agreement on a month-to-month basis. As of December 31, 2004, monthly rent
expense amounted to $2,200. Rent expense amounted to $16,109, $12,000 and $42,012 for the years ended December 31, 2004 and 2003, and for the period from inception on February 9, 1996 to December 31, 2004, respectively.



Clinical Research Agreement  In February 2004, the Company entered into an
agreement with Cato Research Ltd. (Cato) under which Cato agreed to provide clinical research management and regulatory affairs support for the Phase II and Phase III clinical trials of ATPace (the Cato Agreement). Under the terms of the Cato Agreement, which was
amended and restated in November 2004, the Company and Cato agreed that up to $500,000 of the compensation due to Cato for its services would be paid by the Company issuing to Cato (or its designees) 500,000 units of the Companys securities
(the Cato Units). Each Cato Unit consists of one share of common stock and one warrant to purchase an additional share of common stock at an exercise price of $2.50 per share. The warrants expire in August 2007.



Pursuant to the Cato Agreement, the Company and Cato agreed that 40% of each Cato invoice for
the Phase II clinical trial of ATPace will be
paid with Cato Units, with the balance payable in cash. In November 2004, the Company issued all 500,000 Cato Units, which are being held in escrow by the Company and will be released as the Company receives invoices for services performed by Cato.
As of December 31, 2004, the Company had not received any invoices from Cato, but estimates that $274,048 had been earned by Cato pursuant to the Cato Agreement, of which $109,619 is expected to be paid through the release of 109,619 Cato Units from
escrow.



In addition, as additional compensation for Cato, in November 2004 the
Company issued, to Catos designees, additional warrants to purchase a total of 99,000 shares of common stock. These additional warrants have an exercise price of $1.04 per share and expire in October 2009. These warrants were immediately
exercisable and not held in escrow; accordingly, the Company recognized expense of $43,683 for the warrants, based on the value as calculated in a Black-Scholes valuation model.



8. Related Party Transactions



Sanford J. Hillsberg is the Companys corporate Secretary and a member of its Board of Directors as well as a member and shareholder of Troy & Gould Professional
Corporation. Troy & Gould is the Companys corporate law firm. During 2004 and 2003, the Company paid Troy & Gould $153,893 and $33,472, respectively, for legal services. Mr. Hillsberg served as a Vice President and Secretary of the
Company during 2002 through 2004 and currently continues to serve as its corporate Secretary. During 2003, Mr. Hillsberg earned a salary and bonus of $60,000 (of which only $2,080 was paid in 2003 and $52,920 was paid in 2004) for the services he
rendered as the Companys Vice President and corporate Secretary. During 2004, Mr. Hillsberg earned and was paid $25,000 for the services he rendered as corporate Secretary. Currently, Mr. Hillsberg earns an annual salary of $25,000 for his
services as corporate Secretary. As of December 31, 2004, remaining amounts owed to Mr. Hillsberg for services rendered during 2003 totaled $5,000.



Dr. Manfred Mosk is the Companys non-executive Chairman of the Board as well as the controlling shareholder of Technomedics Management & Systems, Inc.
Technomedics Management & Systems, Inc. provides the consulting services of Dr. Mosk to the Company. Dr. Mosk has served as the Chairman of the Company since 1999, as the part-time interim Chief Executive Officer during 2003, and as the
non-executive Chairman during 2004. During 2003, Technomedics Management & Systems, Inc., earned a salary and bonus of $175,000 (of which only $4,792 was paid in 2003 and $140,208 was paid in 2004) for the services Dr. Mosk rendered as interim
part-time Chief Executive Officer. During 2004, Technomedics Management & Systems, Inc., earned and was paid $70,000 for the services Dr. Mosk rendered as non-executive Chairman of the Board. Currently, Technomedics Management & Systems,
Inc. earns $70,000 annual compensation for the services Dr. Mosk provides as non-executive Chairman of the Board. As of December 31, 2004, remaining amounts owed to Technomedics Management & Systems, Inc. for services rendered during 2003
totaled $30,000.



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##### Table of Contents

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                   
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                       
|2.1           |  | Agreement and Plan of Reorganization, dated as of February 2, 2003, by and among Shiprock, Inc., Shiprock Subsidiary, Inc., Tommy J. Gropp and Duska Scientific Co. (1)                                                                           
|              | 
|2.2           |  | Amendment to Agreement and Plan of Reorganization, dated as of June 30, 2004, by and among Shiprock, Inc., Shiprock Subsidiary, Inc., Tommy J. Gropp, Michael Artis and Duska Scientific Co.
(1)                                                  
|              | 
|3.1           |  | Articles of Incorporation (2)                                                                                                                                                                                                                     
|              | 
|3.2           |  | Certificate of Amendment to the Articles of Incorporation (3)                                                                                                                                                                                     
|              | 
|3.3           |  | Amended and Restated Bylaws (4)                                                                                                                                                                                                                   
|              | 
|4.1           |  | Form of Common Stock certificate (5)                                                                                                                                                                                                              
|              | 
|10.1          |  | Form of Warrant, dated August 30, 2004, for the purchase of common stock issued to the purchasers of the units in Duska Scientifics August 2004 private placement exchanged for warrants
of Duska Therapeutics (4)                               
|              | 
|10.2          |  | Form of Warrant, dated August 30, 2004 for the purchase of common stock issued to the purchasers of the units in Duska Scientifics April 2004 private placement exchanged for warrants of
Duska Therapeutics (5)                                 
|              | 
|10.3          |  | Amended and Restated Strategic Master Services Agreement effective February 10, 2004 between Duska Scientific Co. and Cato Research Ltd., and letter amendment effective February 10, 2004
between Duska Scientific Co. and Cato Research Ltd. (5)
|              | 
|10.4          |  | Agreement, dated April 30, 2004, between Duska Scientific Co. and CooperSurgical Inc. (5)                                                                                                                                                         
|              | 
|10.5          |  | Collaboration Agreement, dated April 22, 2003, between Duska Scientific Co. and Medtronic, Inc. (5)                                                                                                                                               
|              | 
|10.6          |  | 2004 Equity Incentive Plan (5)                                                                                                                                                                                                                    
|              | 
|10.7          |  | Agreement, dated September 1, 2004, between Duska Therapeutics, Inc. and Amir Pelleg, Ph.D.(5)                                                                                                                                                    
|              | 
|10.8          |  | Agreement, dated February 16, 2004, between Duska Scientific Co. and Mark Reynolds (5)                                                                                                                                                            
|              | 
|10.9          |  | Lease and Service Agreement, dated November 27, 2001, between Duska Scientific Co. and American Executive Centers, Inc. and extensions thereof. (5)                                                                                               
|              | 
|10.10         |  | License and Assignment Agreement, dated November 15, 1999, among Duska Scientific Co., Dr. Amir Pelleg and Dr. Edward S. Schulman (5)                                                                                                             
|              | 
|10.11         |  | License Agreement dated as of November 15, 1999, among Duska Scientific Co., Dr. Francesco DiVirgilio and Dr. Carlo Foresta (5)                                                                                                                   
|              | 
|10.12         |  | Development and Assignment Agreement, dated as of August 23, 2003 among Duska Scientific Co., Dr. Francesco DiVirgilio, Dr. Davide Ferrari and Dr. Roberto Baricodi (5)                                                                           
|              | 
|10.13         |  | Assignment Agreement, dated as of December 18, 2003, between Duska Scientific Co. and Dr. Amir Pelleg (5)                                                                                                                                         
|              | 
|10.14         |  | Assignment, dated as of December 14, 2001, among Duska Scientific Co., Dr. Amir Pelleg and Dr. Edward S. Schulman (5)                                                                                                                             
|              | 
|10.15         |  | A Warrant to purchase common stock issued to the John N. Kapoor Trust (5)                                                                                                                                                                       



- 54 -



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##### Table of Contents

|      |  |                                                                                                                                                                                      
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16 |  | B Warrant to purchase common issued to the John N. Kapoor Trust (5)                                                                                                                
|      | 
|10.17 |  | Option issued to Triax Capital Management, Inc. on August 23, 2004 (5)                                                                                                               
|      | 
|10.18 |  | Form of Registration Rights Agreement (5)                                                                                                                                            
|      | 
|10.19 |  | Form of Warrant for the purchase of common stock issued to the purchasers of the units in Duska Scientifics 2002 private placement exchanged for warrants of Duska Therapeutics
(5) 
|      | 
|10.20 |  | Form of Warrant for the purchase of common stock issued to the placement agents for Duska Scientifics bridge financing exchanged for warrants of Duska Therapeutics (5)             
|      | 
|10.21 |  | Form of Warrant for the purchase of common stock issued to the placement agents for Duska Scientifics August 2004 private placement exchanged for warrants of Duska Therapeutics
(5)
|      | 
|10.22 |  | Form of Warrant for the purchase of common stock issued to affiliates of Cato Holding Company (5)                                                                                    
|      | 
|10.23 |  | Form of Warrant for the purchase of common stock issued to Cato Holding Company and affiliates (5)                                                                                   
|      | 
|10.24 |  | Form of Warrant for the purchase of common stock issued in Duska Scientifics 2004 note conversion exchanged for warrants of Duska Therapeutics (5)                                  
|      | 
|10.25 |  | Form of Agreement entered into between Duska Scientific Co. and Sanford J. Hillsberg effective September 1, 2004 (6)                                                                 
|      | 
|10.26 |  | Form of Agreement entered into between Duska Scientific Co. and Technomedics Management & Systems, Inc. effective September 1, 2004 (6)                                              
|      | 
|10.27 |  | Form of Incentive Stock Option Agreement under 2004 Equity Incentive Plan (6)                                                                                                        
|      | 
|10.28 |  | Form of Non-Qualified Stock Option Agreement under 2004 Equity Incentive Plan (6)                                                                                                    
|      | 
|14.1  |  | Code of Ethics (5)                                                                                                                                                                   
|      | 
|16.1  |  | Letter on Change in Certifying Accountant (4)                                                                                                                                        
|      | 
|21.1  |  | List of Subsidiaries (5)                                                                                                                                                             
|      | 
|24.1  |  | Power of Attorney (5)                                                                                                                                                                
|      | 
|31.1  |  | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                               
|      | 
|31.2  |  | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                               
|      | 
|32.1  |  | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350                                                                                                      
|      | 
|32.2  |  | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350                                                                                                      

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|(1) | Incorporated by reference to the Companys definitive Information Statement on Schedule 14-C filed with the Securities and Exchange Commission on July 28, 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Previously filed as an exhibit to the Companys Report on Form 10-SB on July 26, 2001, which exhibit is hereby incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Previously filed as an exhibit to the Companys Current Report on Form 8-K on August 26, 2004, which exhibit is hereby incorporated herein by reference.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Previously filed as an exhibit to the Companys Current Report on Form 8-K on September 3, 2004, which exhibit is hereby incorporated herein by reference.
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##### Table of Contents

|(5) | Previously filed as an exhibit to the Companys to its Registration Statement on Form SB-2 on November 19, 2004, which exhibit is hereby incorporated herein by reference.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Previously filed as an exhibit to the Companys Amendment No. 1 to its Registration Statement on Form SB-2 on February 10, 2005, which exhibit is hereby incorporated herein by
reference.
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