<PAGE>

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

              |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended March 31, 2005

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

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                        Commission File Number 000-32741

                         VYTERIS HOLDINGS (NEVADA), INC.
                   (formerly Treasure Mountain Holdings, Inc.)
        (Exact name of small business issuer as specified in its charter)

                  NEVADA                                     84-1394211
       (State or other jurisdiction                       (I.R.S. Employer
      of incorporation or organization)                  Identification No.)

           13-01 POLLITT DRIVE
           FAIR LAWN, NEW JERSEY                                07410
  (Address of principal executive office)                    (Zip Code)

                                 (201) 703-2299
                           (Issuer's telephone number)

Indicate by check mark ("X") whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
twelve 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 [ ]

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

               CLASS                               OUTSTANDING AT MAY 11, 2005
------------------------------------            -------------------------------
 Common stock, par value $.001 share                        19,293,858

================================================================================
Transitional Small Business Disclosure Format (Check one): __Yes  X  No

================================================================================

                                       1
<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.

                                   FORM 10-QSB

                                      INDEX

                                                                        PAGE NO.
PART I     FINANCIAL INFORMATION

 Item 1.   Financial Statements:

           Condensed Consolidated Balance Sheets as of March 31, 2005
             (Unaudited) and December 31, 2004..............................   3

           Unaudited Condensed Consolidated Statements of Operations for
             the Three Months ended March 31, 2005 and 2004.................   4

           Unaudited Condensed Consolidated Statements of Cash Flows for
             the Three Months ended March 31, 2005 and 2004.................   5

           Notes to Unaudited Condensed Consolidated Financial Statements...   7

 Item 2.   Management's Discussion and Analysis of Financial Condition
             and Results of Operations......................................  21

 Item 3.   Controls and Procedures..........................................  42

PART II    OTHER INFORMATION

 Item 1.   Legal Proceedings................................................  43

 Item 6.   Exhibits.........................................................  44

Signature  .................................................................  44


        Vyteris, Inc.(R) is our trademark. LidoSite(R) is a registered trademark
which we use under license from B. Braun Medical, Inc., or B. Braun, the
trademark's owner. All other trademarks, servicemarks or tradenames referred to
in this Quarterly Report on Form 10-QSB are the property of their respective
owners.


                                       2
<PAGE>

<TABLE>
<CAPTION>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                             VYTERIS HOLDINGS (NEVADA), INC.
                                          CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                                            MARCH 31,     DECEMBER 31,
                                                                                              2005            2004
                                                                                         -------------    ------------
ASSETS                                                                                    (Unaudited)
<S>                                                                                      <C>             <C>
Current assets:
    Cash and cash equivalents........................................................    $   1,669,180   $   6,438,737
    Accounts receivable..............................................................          550,395          71,792
    Inventory, net...................................................................        1,169,574              --
    Prepaid expenses and other current assets........................................          505,505         712,920
    Deferred financing costs.........................................................          637,500         956,250
                                                                                         -------------    ------------
      Total current assets...........................................................        4,532,154       8,179,699

Restricted cash......................................................................          425,000              --
Property and equipment, net..........................................................        3,513,607       3,015,448
Other assets.........................................................................           75,000          75,000
                                                                                         -------------    ------------
TOTAL ASSETS.........................................................................    $   8,545,761    $ 11,270,147
                                                                                         =============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
    Accounts payable.................................................................    $   1,590,098   $     953,459
    Accrued expenses and other liabilities...........................................        1,805,573       1,011,833
                                                                                         -------------    ------------
      Total current liabilities......................................................        3,395,671       1,965,292

Deferred revenue, less current portion...............................................          449,317         363,182
Capital lease obligation, less current portion.......................................            6,835          10,939

Vyteris Holdings preferred stock, 50,000,000 shares
      authorized, on March 31, 2005 and December 31,
      2004, respectively:
    Vyteris Holdings Series B convertible, mandatorily redeemable preferred stock;
      7,500,000 shares outstanding on March 31, 2005 and December 31, 2004;
      liquidation preference $7,800,000 and $7,650,000 at March 31, 2005 and
      December 31, 2004, respectively................................................        7,800,000       7,650,000

Stockholders' equity (deficit):
Common stock, par value $.001 per share; 100,000,000 shares authorized,
    19,293,858 shares outstanding at March 31, 2005 and December 31, 2004............           19,294          19,294
Additional paid-in capital...........................................................       57,271,242      57,435,387
Deferred compensation ...............................................................          (96,302)       (131,546)
Accumulated deficit..................................................................       (4,257,895)             --
Deficit accumulated in development stage.............................................      (56,042,401)    (56,042,401)
                                                                                         -------------    ------------
Total stockholders' equity (deficit).................................................       (3,106,062)      1,280,734
                                                                                         -------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT).................................    $   8,545,761    $ 11,270,147
                                                                                         =============    ============


            The accompanying notes are an integral part of these condensed consolidated financial statements.


                                                           3
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                             VYTERIS HOLDINGS (NEVADA), INC.
                     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                       (UNAUDITED)


                                                               THREE MONTHS ENDED
                                                                    MARCH 31,
                                                         ------------------------------
                                                             2005              2004
                                                         ------------      ------------
<S>                                                      <C>               <C>
Product sales.......................................     $    284,499      $         --
Feasibility studies and other revenue...............          233,653                --
                                                         ------------      ------------
  Total revenues....................................          518,152                --

Cost and expenses:
   Cost of sales....................................          584,050                --
   Research and development.........................        1,445,237         2,392,125
   General and administrative.......................        1,529,440           773,367
   Registration rights penalty......................          767,667                --
                                                         ------------      ------------
    Total cost and expenses.........................        4,326,394         3,165,492

Interest income.....................................          (19,818)           (1,096)
Interest expense to related parties.................          468,911           600,234
Interest expense....................................              560             1,252
                                                         ------------      ------------
   Net loss.........................................     $ (4,257,895)     $ (3,765,882)
                                                         ============      ============

Net loss per common share:
      Basic and diluted.............................     $      (0.22)     $      (4.35)

Weighted average number of common shares:
      Basic and diluted.............................       19,293,858           865,330


The accompanying notes are an integral part of these condensed consolidated financial statements.


                                            4
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                        VYTERIS HOLDINGS (NEVADA), INC.
                                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  (UNAUDITED)


                                                                                     THREE MONTHS ENDED
                                                                                          MARCH 31,
                                                                                 ----------------------------
                                                                                     2005            2004
                                                                                 ------------    ------------
<S>                                                                              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                         $ (4,257,895)   $ (3,765,882)
Adjustments to reconcile net loss to net cash used in operating
        activities:
  Depreciation and amortization...............................................        113,549          80,687
  Amortization of deferred compensation.......................................         49,873          16,700
  Amortization of financing costs.............................................        318,750              --
  Accrued liquidated damages to investors.....................................        767,667              --
Change in operating assets and liabilities:
  Accounts receivable.........................................................       (478,603)             --
  Inventory...................................................................     (1,169,574)             --
  Prepaid expenses and other current assets...................................        207,415         (43,674)
  Accounts payable............................................................        636,639           1,933
  Accrued expenses and other liabilities......................................        114,374         172,453
  Interest payable to related parties.........................................        150,000         600,234
                                                                                 ------------    ------------
Net cash used in operating activities.........................................     (3,547,805)     (2,937,549)
                                                                                 ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Restricted cash.............................................................       (425,000)             --
  Purchase of equipment.......................................................       (611,708)         (1,353)
                                                                                 ------------    ------------
Net cash used in investing activities.........................................     (1,036,708)         (1,353)
                                                                                 ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net disbursements from issuance of common stock.............................             --        (378,265)
  Disbursements related to private placement of common stock and warrants.....       (178,774)             --
  Proceeds from issuance of convertible promissory notes to related parties...             --       2,035,000
  Proceeds from issuance of promissory note to related party..................             --       1,000,000
  Repayment of capital lease obligations and other............................         (6,270)         (7,252)
                                                                                 ------------    ------------
Net cash (used in) provided by financing activities...........................       (185,044)      2,649,483
                                                                                 ------------    ------------

  Net (decrease) increase in cash and cash equivalents........................     (4,769,557)       (289,419)
  Cash and cash equivalents at beginning of the period........................      6,438,737       2,286,167
                                                                                 ------------    ------------
  Cash and cash equivalents at end of the period..............................   $  1,669,180    $  1,996,748
                                                                                 ============    ============


       The accompanying notes are an integral part of these condensed consolidated financial statements.


                                                       5
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                VYTERIS HOLDINGS (NEVADA), INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -(UNAUDITED)
                                          (CONTINUED)


                                                                    THREE MONTHS ENDED
                                                                         MARCH 31,
                                                           ----------------------------------
                                                                 2005               2004
                                                           ----------------   ---------------
<S>                                                        <C>                <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                                                           ================   ===============
Cancellation of warrants.................................  $             --   $      (566,220)
                                                           ================   ===============
Issuance of warrants in connection with issuance of
   convertible secured promissory notes payable...........               --           444,504
                                                           ================   ===============
Issuance of warrants to placement agent...................               --            54,945
                                                           ================   ===============
Interest paid............................................. $            560   $         1,203
                                                           ================   ===============
Recapitalization transaction:
    Exchanged:
       Interest payable to related parties................ $             --   $    (2,615,368)
       Convertible secured promissory notes payable to
         related parties...................................              --       (20,350,000)
       Warrants which were issued with convertible,
         secured promissory notes payable to related
         parties...........................................              --          (566,220)
       Secured promissory notes payable to related
         parties...........................................              --        (2,900,000)
       Convertible redeemable preferred stock..............              --        (2,917,640)
    For:
       Due to Spencer Trask Specialty Group, LLC...........              --                10
       Proceeds from issuance of convertible redeemable
         preferred stock...................................              --         7,500,000
       Common stock........................................              --             2,300
       Paid in capital.....................................              --        21,846,918
                                                           ----------------   ---------------
                                                           $             --   $            --
                                                           ================   ===============


The accompanying notes are an integral part of these condensed consolidated financial statements.


                                               6
</TABLE>

<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1.   ORGANIZATION AND BASIS OF PRESENTATION

     MERGER

     Vyteris Holdings (Nevada), Inc. (formerly Treasure Mountain Holdings, Inc.)
was organized in Utah as Treasure Mountain Mining Company in 1954 to engage in
the business of mining, milling, processing and marketing various minerals,
primarily tungsten. The corporation engaged in the mining business for a period
of time after inception and acquired various mineral leases, but became
relatively inactive for several years until approximately 1997. In 1997, the
corporation's name was changed to Treasure Mountain Holdings, Inc., it was
re-domiciled as a Nevada corporation and the Utah corporation was subsequently
dissolved. In May 2005 the corporation's name was changed to Vyteris Holdings
(Nevada), Inc. ("Vyteris Holdings").

     On September 29, 2004, Vyteris Holdings completed a business combination in
which Vyteris, Inc. ("Vyteris"), a Delaware corporation, merged with a
wholly-owned subsidiary of Vyteris Holdings (the "Merger"). As a result of the
Merger, Vyteris became Vyteris Holdings' wholly-owned subsidiary and the former
stockholders of Vyteris became stockholders of Vyteris Holdings. At the time of
that business combination, Vyteris Holdings had no active business. As a result,
Vyteris Holdings' principal business after that business combination became the
business in which Vyteris has been engaged since its formation in November 10,
2000. The terms "Treasure Mountain," "Vyteris Holdings" and the "Company" refer
to each of Vyteris Holdings (Nevada), Inc., Vyteris, Inc. and the combined
company.

     After the Merger, the former stockholders of Vyteris owned 98.2% of the
outstanding common stock and rights to receive common stock of Vyteris Holdings.
The former directors of Vyteris Holdings resigned immediately prior to the
Merger and the directors of Vyteris immediately prior to the Merger became the
sole directors of Vyteris Holdings. Similarly, the former officers of Vyteris
Holdings resigned immediately prior to the Merger and the executive officers of
Vyteris immediately prior to the Merger became the sole officers of Vyteris
Holdings.

     The accompanying condensed consolidated balance sheet as of March 31, 2005
and the condensed consolidated statements of operations for the period ended
March 31, 2005, consolidate the historical financial statements of Vyteris
Holdings with Vyteris after giving effect to the Merger where Vyteris is the
accounting acquiror by recording the transaction as the issuance of Vyteris
stock for the net monetary assets of Vyteris Holdings, accompanied by a
recapitalization with no goodwill or other intangibles recorded. As a result of
the Merger, although Vyteris Holdings is the parent company, the information
included in these financial statements relate to Vyteris as it is the accounting
acquiror.

     The Board of Directors and stockholders authorized a one for ten reverse
stock split effective May 2, 2005. All share information with respect to the
Company's common stock, options, and warrants have been adjusted to give
retroactive effect to the reverse stock split for all periods presented.

     The Vyteris/Vyteris Holdings Merger Agreement (the "Merger Agreement")
provided for the following:

     o    Each outstanding share of Vyteris common stock was automatically
          converted into the right to receive 0.419 shares of the Company's
          common stock. Immediately prior to the consummation of the Merger,
          there were 45,233,047 shares of Vyteris common stock outstanding.
          Accordingly, the shares of Vyteris common stock outstanding
          immediately prior to the consummation of the Merger have been
          converted into 18,952,647 shares of the Company's common stock.

                                               7
<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


     o    Each outstanding share of Vyteris Series C convertible redeemable
          preferred stock was automatically converted into the right to receive
          one share of the Company's Series B convertible redeemable preferred
          stock. Each share of the Company's Series B convertible redeemable
          preferred stock is convertible into a number of shares of the
          Company's common stock equal to (i) 0.419 multiplied by (ii) the
          number of shares of Vyteris common stock into which one share of
          Vyteris, Inc. Series C convertible redeemable preferred stock was
          convertible prior to the consummation of the Merger. The Company's
          Series B convertible redeemable preferred stock is convertible into
          0.10475 shares of the Company's common stock if converted at any time
          within 18 months of March 31, 2004, 0.13827 shares of the Company's
          common stock if converted at any time within the 18 months thereafter
          and 0.28073 shares of the Company's common stock if converted at any
          time thereafter. Immediately prior to the consummation of the Merger,
          there were 7,500,000 shares of Vyteris Series C convertible redeemable
          preferred stock outstanding. Accordingly, the shares of Vyteris Series
          C convertible redeemable preferred stock outstanding immediately prior
          to the consummation of the Merger have been converted into 7,500,000
          shares of the Company's Series B convertible redeemable preferred
          stock, which shares are currently convertible into the right to
          receive a total of 785,625 shares of the Company's common stock.

     o    Each outstanding option and warrant to purchase one or more shares of
          Vyteris common stock -- which the Company refers to as an existing
          option or an existing warrant - was automatically converted into an
          option or warrant to purchase shares of the Company's common stock --
          which the Company refers to as a new option or a new warrant. The
          number of shares of the Company's common stock covered by each new
          option or new warrant equals the number of shares of Vyteris common
          stock covered by the corresponding existing option or existing warrant
          multiplied by 0.419. The exercise price of each new option or new
          warrant equals the exercise price of the corresponding existing option
          or existing warrant divided by 0.419. Immediately prior to the
          consummation of the Merger, there were existing options outstanding
          covering 3,766,911 shares of Vyteris common stock and there were
          existing warrants outstanding covering 12,168,965 shares of Vyteris
          common stock. Accordingly, upon consummation of the Merger, the
          existing options were converted into new options to purchase a total
          of 1,578,336 shares of the Company's common stock and the existing
          warrants were converted into new warrants to purchase a total of
          5,098,796 shares of the Company's common stock.

     By virtue of the Merger, warrants covering an additional 150,000 shares of
the Company's common stock were granted to two former executive officers and
directors of the Company.

     ORGANIZATION

     Vyteris, formerly Drug Delivery Technologies, Inc., was incorporated on
July 19, 2000 in the State of Delaware. Vyteris had no operating activity prior
to November 10, 2000. The Company was a "development stage enterprise" (as
defined in Statement of Financial Accounting Standards ("SFAS") No. 7) until
January 1, 2005. The Company has developed and produced the first electronically
controlled transdermal drug delivery system that delivers drugs through the skin
comfortably, without needles. This platform technology can be used to administer
certain therapeutics either directly to the skin or into the bloodstream. The
Company holds over 60 U.S. patents relating to the delivery of drugs across the
skin using a mild electric current. The Company operates in one business
segment.

     Effective November 10, 2000, Vyteris, Becton Dickinson and Co. ("Becton
Dickinson") and Spencer Trask Specialty Group, LLC ("Spencer Trask") entered
into a stockholders' agreement (the "Stockholders' Agreement"), in conjunction
with a transaction agreement (the "Transaction Agreement") also effective on
November 10, 2000, whereby Becton Dickinson agreed to transfer to Vyteris
certain assets in exchange for common and preferred stock and Spencer Trask
agreed to contribute $9.0 million in cash in exchange for common and preferred
stock. Becton

                                       8
<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


Dickinson received 10% of the voting stock of the Company which was valued at
$1.0 million. The entire $1.0 million was allocated to manufacturing equipment.
The manufacturing equipment was carried at a net book value of greater than $1.0
million by Becton Dickinson on November 10, 2000.

     BASIS OF PRESENTATION

     The accompanying condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern; however, at
its current and planned rate of spending, the Company's cash and cash
equivalents and the proceeds expected to be provided by the Working Capital
Facility described in Note 7 are not sufficient to allow it to continue
operations beyond July 31, 2005. No assurance can be given that the Company will
be successful in arranging the additional planned financing needed to continue
the execution of its business plan, which includes the development of new
products. Failure to obtain such financing may require management to
substantially curtail operations, which may result in a material adverse effect
on the financial position or results of operations of the Company. The condensed
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that might occur if the Company is
unable to continue in business as a going concern.

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with U.S. generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements included in the Company's Annual Report on Form 10-KSB/A for the year
ended December 31, 2004. The condensed consolidated balance sheet as of December
31, 2004 has been derived from these audited consolidated financial statements.
Operating results for the three-month period ended March 31, 2005 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2005.

     Intercompany balances and transactions have been eliminated in
consolidation.

2.   SIGNIFICANT ACCOUNTING POLICIES

     CASH EQUIVALENTS

     The Company considers all highly liquid instruments with maturities of
three months or less at the date of purchase to be cash equivalents.

     RESTRICTED CASH

     Restricted cash that guarantees issued letters of credit that mature or
expire in more than one year are reported as long-term other assets in the
condensed consolidated balance sheet. Long-term restricted cash at March 31,
2005 was $0.4 million.

     INVENTORIES

     Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.

                                       9
<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


     PROPERTY AND EQUIPMENT, NET

     Property and equipment, net is stated at cost, except for certain equipment
acquired in connection with the Transaction Agreement, which is recorded at the
fair value of the equipment on the date of acquisition. Depreciation and
amortization of property and equipment is provided on a straight-line basis over
the asset's estimated useful life or related lease term as follows:

     Leasehold improvements....................................   2 - 10 years
     Furniture, machinery and equipment........................       5  years
     Computer software and hardware............................       3  years

     Equipment held under capital leases is recorded at the present value of the
minimum lease payments at the inception of the lease and is amortized on the
straight-line method over the shorter of the lease term or the estimated useful
life of the equipment. Amortization of equipment held under capital leases is
included in cost and expenses in the accompanying condensed consolidated
statements of operations. Leasehold improvements are amortized over the
estimated useful life or over the term of the lease, whichever is shorter.
Replacements, maintenance and repairs that do not improve or extend the life of
the respective asset are expensed as incurred.

     REVENUE

     PRODUCT REVENUE. The Company recognizes product revenue, net of allowances
for anticipated returns, provided that (1) persuasive evidence of an arrangement
exists, (2) delivery to the customer has occurred, (3) the selling price is
fixed or determinable and (4) collection is reasonably assured. Delivery is
considered to have occurred when title and risk of loss have transferred to the
customer. The price is considered fixed or determinable when it is not subject
to refund or adjustments.

     FEASIBILITY STUDIES. The Company conducts feasibility studies to
demonstrate the viability of its technology to interest potential partners to
enter into a development, marketing and supply partnership. Revenues on
feasibility studies are measured using the proportional performance method of
accounting. Such studies are typically completed within a one- to three-month
period. Revenue producing feasibility studies do not occur regularly, are priced
at what the Company anticipates the actual costs will be and are not expected to
produce material revenues or a profit. When applying the proportional
performance method, the Company relies on total expected input (contract) costs
in order to determine the amount of revenue earned to date. The Company follows
this method because reasonably dependable estimates of the revenue applicable to
various contract milestones can be made. The Company monitors estimates of total
contract revenues and cost on a routine basis throughout the contract period.
The cumulative impact of any change in estimates of the contract revenues or
costs is reflected in the period in which the changes become known. In the event
that a loss is anticipated on a particular contract, provision is made for the
estimated loss in the period in which the anticipated loss becomes known. The
Company issues invoices related to fixed price contracts based on either the
achievement of milestones during a project or other contractual terms.
Differences between the timing of billings and the recognition of revenue based
upon the proportional performance method of accounting are recorded as revenue
earned in excess of billings or deferred revenue.

     DEFERRED REVENUE. Non-refundable upfront fees are deferred and recognized
as revenue on a straight-line basis in accordance with the contract terms and
generally over the lives of the agreements.

     REVENUES FROM REIMBURSEMENT OF DEVELOPMENT COSTS. In accordance with
Emerging Issues Task Force, EITF, No. 01-14, Income Statement Characterization
of Reimbursements Received for "Out-of-Pocket" Expenses Incurred, the Company
recognizes revenues for the reimbursement of development costs when it bears all
the risk for selection of and payment to vendors and employees.

                                       10
<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


     STOCK-BASED COMPENSATION

     As permitted by SFAS No. 123, Accounting for Stock-Based Compensation
("SFAS No. 123"), the Company has elected to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"), and
related interpretations for its employee stock-based compensation. Under APB No.
25, no compensation expense is recognized at the time of option grant if the
exercise price of the employee stock option is fixed and equals or exceeds the
fair value of the underlying common stock on the date of grant and the number of
shares to be issued pursuant to the exercise of such option are known and fixed
at the date of grant. The Board of Directors determines the fair value of common
stock.

     The Company accounts for options issued to non-employees under SFAS No. 123
and EITF No. 96-18, Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Therefore, the fair value of options issued to non-employees is recorded as an
expense and periodically re-measured over the vesting terms.

     The following table illustrates the effect on net loss per common share as
if the Company had applied the fair value recognition provisions for stock-based
employee compensation of SFAS No. 123, as amended by SFAS No. 148, Accounting
for Stock-Based Compensation -- Transition and Disclosure.

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED
                                                                    MARCH 31,
                                                          ----------------------------
                                                               2005           2004
                                                          -------------  -------------
<S>                                                       <C>            <C>
     Net loss, as reported.............................   $  (4,257,895) $  (3,765,882)
     Add: stock-based employee compensation expense
       included in reported net loss...................          49,873         16,700
     Deduct: stock-based employee compensation expense
       determined under fair value based method for
       all awards......................................         (78,462)       (39,713)
                                                          -------------  -------------
     Pro forma net loss................................   $  (4,286,484) $  (3,788,895)
                                                          =============  =============

     Net loss per common share, as reported:
       Basic and diluted...............................   $       (0.22) $       (4.35)
       Basic and diluted, pro forma....................   $       (0.22) $       (4.38)
     Weighted average number of common shares:
       Basic and diluted...............................      19,293,858        865,330
</TABLE>

     For purposes of pro forma disclosures, the estimated fair value of the
options granted is amortized to expense over the option vesting periods. The
fair value of each option granted prior to the Merger was estimated using a
minimum value option-pricing model and subsequent to the Merger using a
Black-Scholes option-pricing model with the following weighted-average
assumptions:

                                                                     MARCH  31,
                                                             2005      2004
                                                          ---------- ---------
     Expected holding period (years)...................         -         6.0
     Risk-free interest rate ..........................         -        3.14%
     Dividend yield....................................         -           0%
     Fair value of options granted.....................         -    $   0.62

     The Company did not grant stock options in the three months ended March 31,
2005.

                                       11
<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


     In addition, the option valuation models require input of highly subjective
assumptions. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of employee
stock options. The pro forma net loss per common share may not be representative
of future disclosure since the estimated fair value of stock options is
amortized to expense over the vesting period and additional options may be
granted in future years.

     INCOME TAXES

     The Company records deferred tax assets and liabilities based on the
differences between the financial statement and tax bases of assets and
liabilities and on operating loss carryforwards using enacted tax rates in
effect for the year in which the differences are expected to reverse. A
valuation allowance is provided when it is more likely than not that some
portion or all of a deferred tax asset will not be realized.

     RESEARCH AND DEVELOPMENT

     Research and development costs are charged to expense as incurred.

     USE OF ESTIMATES

     The Company's condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles, which
require management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the condensed consolidated
financial statements and the revenues and expenses reported during the period.
These estimates and assumptions are based on management's judgment and available
information and, consequently, actual results could differ from these estimates.

     NET LOSS PER SHARE

     The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share. Under the provisions of SFAS No. 128, basic net loss per
common share, or Basic EPS, is computed by dividing net loss by the
weighted-average number of common shares outstanding. Diluted net loss per
common share, or Diluted EPS, is computing by dividing net loss by the weighted
average number of shares and dilutive common share equivalents then outstanding.
Common equivalent shares consist of the incremental common shares issuable upon
the exercise of stock options and warrants and the conversion of preferred
stock. Diluted EPS is identical to Basic EPS since common equivalent shares are
excluded from the calculation, as their effect is anti-dilutive. The Company has
calculated the weighted number of shares outstanding reflecting the 0.419:1
exchange ratio for all periods presented.

     LONG-LIVED ASSETS

     The Company reviews long-lived assets, including fixed assets, for
impairment whenever events or changes in business circumstances indicate that
the carrying amount of the assets may not be fully recoverable. An impairment
loss would be recognized when the estimated undiscounted future cash flows
expected to result from the use of the asset and its eventual disposition is
less than its carrying amount. Impairment, if any, is assessed using discounted
cash flows. There were no impairment indicators during the period ended March
31, 2005.

                                       12
<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


     FINANCIAL INSTRUMENTS

     Cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other current liabilities reported in the condensed consolidated
balance sheets equal or approximate their fair value due to their short term to
maturity.

     SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, specifies that instruments
within its scope embody obligations of the issuer and that the issuer must
classify them as liabilities. SFAS No. 150 requires issuers to classify as
liabilities the following three types of freestanding financial instruments: (1)
mandatorily redeemable financial instruments, (2) obligations to repurchase the
issuer's equity shares by transferring assets and (3) certain obligations to
issue a variable number of shares. SFAS No. 150 defines a "freestanding
financial instrument" as a financial instrument that (1) is entered into
separately and apart from any of the entity's other financial instruments or
equity transactions or (2) is entered into in conjunction with some other
transaction and can be legally detached and exercised on a separate basis.
Accordingly, the Company has classified the Vyteris Holdings Series B
convertible redeemable preferred stock as liabilities in the accompanying
condensed consolidated balance sheets.

     RISK AND UNCERTAINTIES

     Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company deposits its cash and cash equivalents with
major financial institutions. At March 31, 2005, the Company had a cash balance
in a financial institution that exceeded federal deposit insurance limits.
Management believes that credit risk related to this deposit is minimal. The
Company extends credit without collateral to companies that contract with it
under contract research arrangements.

     The Company relies on a single customer, B. Braun Medical, Inc., or B.
Braun, to generate product revenue. The Company granted B. Braun the right to be
its exclusive, worldwide sales and marketing distributor for its LidoSite
product. As a result, the Company is dependent on B. Braun and its ability to
effectively market the Company's only current product. If B. Braun is unable to
sell the LidoSite product effectively, the Company does not have the ability to
seek other customers for its LidoSite product at least until such time as
satisfactory arrangements are made with B. Braun.

     The Company also purchases raw materials and components from single-source
suppliers. Some of those materials or components are custom-made and are the
result of long periods of collaboration with suppliers. Although the Company has
not experienced significant supply delays attributable to supply changes, the
Company believes that, for integrated circuits and hydrogel in particular,
alternative sources of supply would be difficult to develop over a short period
of time. Because the Company has no direct control over its third-party
suppliers, interruptions or delays in the products and services provided by
these third parties may be difficult to remedy in a timely fashion. In addition,
if such suppliers are unable or unwilling to deliver the necessary parts or
products, the Company may be unable to redesign or adapt its technology to work
without such parts or find alternative suppliers or manufacturers. In such
events, the Company could experience interruptions, delays, increased costs, or
quality control problems.

     RECENTLY ISSUED ACCOUNTING STANDARDS

     As permitted by SFAS No. 123, the Company currently accounts for
share-based payments to employees using APB No. 25's intrinsic value method and,
as such, generally recognizes no compensation cost for employee stock options.
Accordingly, the adoption of Statement No. 123 (revised 2004), Share-Based
Payment, an Amendment of Financial Accounting Standards Board (the "FASB")
Statements No. 123 and 95, fair value method will have a significant impact on
the Company's result of operations, although it will have no impact on its
overall financial

                                       13
<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


position. The impact of adoption of Statement No. 123 (revised 2004) cannot be
predicted at this time because it will depend on levels of share-based payments
granted in the future. However, had the Company adopted Statement No. 123
(revised 2004) in prior periods, the impact of that standard would have
approximated the impact of Statement No. 123 as described in the disclosure of
pro forma net income and earnings per share to its condensed consolidated
financial statements. Statement No. 123 (revised 2004) also requires the
benefits of tax deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than as an operating cash flow as
required under current literature. This requirement will reduce net operating
cash flows and increase net financing cash flows in periods after adoption. The
Company cannot estimate what those amounts will be in the future because they
depend on, among other things, when employees exercise stock options. The
Company must adopt Statement No. 123 (revised 2004) as of the beginning of the
first interim period after December 15, 2005.


3.   INVENTORIES, NET

     Inventories consist of the following:

<TABLE>
<CAPTION>
                                                            MARCH 31,      DECEMBER 31,
                                                              2005             2004
                                                          -------------    ------------
                                                          (Unaudited)
<S>                                                       <C>              <C>
     Raw materials.....................................   $     530,147    $         --
     Work in process...................................         639,427              --
     Finished goods....................................              --              --
                                                          -------------    ------------
                                                          $   1,169,574    $         --
                                                          =============    ============
</TABLE>

     Inventories are stated at the lower of cost (first-in, first-out method) or
market. During the three-month period ended March 31, 2005, the Company recorded
in cost of sales a $0.4 million lower of cost or market adjustment in the
condensed consolidated statement of operations.

     In January 2005, the Company received approval from the United States Food
and Drug Administration ("FDA") for its manufacturing facility and processes for
LidoSite. All costs incurred in preparing for its commercial launch that must be
approved by the FDA before commercial sales could commence, were expensed as
incurred including raw materials costs, manufacturing labor and allocation of
overhead. Subsequent to the FDA's approval in January 2005, all such costs were
capitalized as inventory.

     The Company must increase its production capabilities significantly beyond
its present manufacturing capacity in order to manufacture its LidoSite product
cost-effectively. The Company is in the process of executing a manufacturing
capacity expansion plan through the leasing of additional manufacturing space
and the acquisition of a second manufacturing line that is expected to operate
at four to five times the capacity of its current equipment. The Company will
experience negative gross margins until it has completed its manufacturing
capacity expansion plan.

                                       14
<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


4.   PROPERTY AND EQUIPMENT, NET

Property and equipment, net consist of the following:

<TABLE>
<CAPTION>
                                                            MARCH 31,     DECEMBER 31,
                                                              2005            2004
                                                          ------------    ------------
                                                          (Unaudited)
<S>                                                       <C>             <C>
     Manufacturing and laboratory equipment............   $  1,561,835    $  1,557,083
     Furniture and fixtures............................         96,306          96,306
     Office equipment..................................        157,511         150,081
     Leasehold improvements............................        122,193         122,193
     Software..........................................        102,542         102,542
                                                          ------------    ------------
                                                             2,040,387       2,028,205
     Less: Accumulated depreciation and amortization...     (1,159,296)     (1,045,747)
                                                          ------------    ------------
                                                               881,091         982,458

     In-process equipment..............................      1,821,729       1,763,921
     Construction in progress..........................        810,787         269,069
                                                          ------------    ------------
                                                          $  3,513,607    $  3,015,448
                                                          ============    ============
</TABLE>

     Depreciation and amortization expense, included in cost and expenses in the
accompanying condensed consolidated statements of operations, was approximately
$113,500 and $80,700 for the three months ended March 31, 2005 and 2004,
respectively.

     At March 31, 2005 and December 31, 2004, equipment held under capital lease
included manufacturing and laboratory equipment and software of approximately
$81,000. At March 31, 2005 and December 31, 2004, in-process equipment included
advances of approximately $1.6 million for a continuous motion patch machine
that is being custom manufactured for the Company. Additionally, March 31, 2005
and December 31, 2004, in-process equipment included advances of approximately
$0.1 million for patch controller manufacturing equipment that is being custom
manufactured for the Company.

     Total open purchase commitments related to property and equipment were as
follows at March 31, 2005:

                                                             MARCH 31,
                                                               2005
                                                          -------------
       Continuous motion patch machine.................    $   173,400
       Laboratory equipment and other..................         54,110
                                                           -----------
                                                           $   227,510
                                                           ===========

5.   ACCRUED EXPENSES AND OTHER LIABILITIES

     Accrued expenses and other liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                    MARCH 31,    DECEMBER 31,
                                                                      2005           2004
                                                                  ------------   ------------
<S>                                                               <C>            <C>
     Compensation and benefits.................................   $    189,920   $    373,260
     Accrued liquidated damages to investors...................        767,667             --
     Accrued development billings in excess of amounts earned..        306,405             --
     Accrued accounting fees...................................        139,501        265,000
     Deferred license fee revenue, current portion.............         75,455         75,455
     Due to a related party....................................         71,587         71,587
     Current portion of capital lease obligation...............         18,042         18,609
     Other.....................................................        236,996        207,922
                                                                  ------------   ------------
                                                                  $  1,805,573   $  1,011,833
                                                                  ============   ============
</TABLE>

                                       15
<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


     The Company filed a registration statement with the SEC relating to the
resale of shares of its common stock. Since that registration statement was not
declared effective by the SEC by February 25, 2005, the Company is obligated to
pay to certain stockholders an amount equal to 1% of the purchase price paid by
such stockholders for the shares owned by such stockholders which are covered by
the registration statement, and for each month, or portion of a month, in which
such delay continues, an amount equal to 2% of such purchase price, until the
Company has cured the delay, with an overall cap on such registration rights
penalty, or liquidated damages, of 10% of the aggregate purchase price paid by
such stockholders for such shares. As of March 31, 2005, the Company was
obligated to pay a liquidated damages, of $0.8 million, which payment would
materially adversely affect the Company's financial condition. The registration
statement was declared effective on the May 12, 2005 resulting in an obligation
to pay liquidated damages of approximately $1.4 million.

6.   RECAPITALIZATION TRANSACTION

     On March 31, 2004 Spencer Trask and a related party consummated a
transaction with the Company wherein the Company issued to Spencer Trask and
such related party a total, after giving effect to the Merger, of 9.6 million
shares of common stock, 7.5 million shares of Vyteris Holdings Series B
convertible redeemable preferred stock, and other nominal consideration in
exchange for $20.3 million principal amount of convertible, secured promissory
notes payable to related parties and $2.9 million of secured promissory notes
payable to related parties (collectively, the "Spencer Trask Notes"), $2.6
million of accrued and unpaid interest on the Spencer Trask Notes, 3.0 million
shares of Vyteris. Inc. Series B convertible redeemable preferred stock and the
cancellation of warrants to purchase 2,035,000 shares of Vyteris, Inc. common
stock with a paid-in capital value of $0.6 million, (the "Recapitalization
Transaction").

     Each holder of Vyteris Holding's Series B convertible redeemable preferred
stock is entitled to receive dividends when, and if declared by the Board of
Directors as long as any shares of the Vyteris, Inc. Series A preferred stock
remained outstanding. Effective upon cancellation of all outstanding shares of
the Vyteris, Inc. Series A convertible redeemable preferred stock on September
29, 2004, the holders of the Vyteris Holding's Series B convertible redeemable
preferred stock are entitled to receive, ratably, an annual cash dividend of 8%
of the then applicable redemption price, as defined, out of funds legally
available, payable quarterly. Subject to the prior rights of the Vyteris, Inc.
Series A convertible redeemable preferred stock, the dividends on the Vyteris
Holding's Series B convertible redeemable preferred stock were cumulative,
whether or not earned or declared and were to be paid quarterly in arrears. In
the event of liquidation, holders of Vyteris Holding's Series B convertible
redeemable preferred stock are entitled to receive a liquidation preference of
$1.00 per share (adjusted for stock splits or combinations of such stock,
recapitalizations, or other similar transactions that have the effect of
increasing or decreasing the number of shares represented by each outstanding
share of such stock), plus an amount equal to all declared but unpaid dividends
on the Vyteris Holding's Series B convertible redeemable preferred stock.

     The Company accrued dividends of $0.15 million in the first quarter of 2005
on the Vyteris Holdings Series B convertible redeemable preferred stock by
recognizing $0.15 million of interest expense to related parties and increasing
the redemption value of the Series B convertible redeemable preferred stock by
$0.15 million.

     With respect to the distribution of assets, Vyteris Holdings Series B
convertible redeemable preferred stock ranks senior to the Company's common
stock. Each share of Vyteris Holdings Series B convertible redeemable preferred
stock is convertible at any time, at the option of the holder, into common stock
at a price per share if converted within 18 months from March 31, 2004, of
$9.50; if converted within the next 18 months, $7.20; or if converted any

                                       16
<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


time thereafter, $3.60. The holders of Vyteris Holdings Series B convertible
redeemable preferred stock (and the holders of any other series of preferred
stock with similar voting rights as the Vyteris Holdings Series B convertible
redeemable preferred stock) vote together with the holders of shares of common
stock as a single class in all matters to be voted on by shareholders of the
Company, except that the vote or consent of the holders of a majority of the
shares of Vyteris Holdings Series B convertible redeemable preferred stock is
necessary to authorize or issue an equity security having any preference over or
being on a parity with the Vyteris Holdings Series B convertible redeemable
preferred stock with respect to dividend or liquidation preference; increase the
number of authorized shares of Vyteris Holdings Series B convertible redeemable
preferred stock; or amend, alter or repeal any provision of the Company's
Certificate of Incorporation, Certificate of Designations or By-laws, if such
action would alter, in any material respect, the rights of the Vyteris Holdings
Series B convertible redeemable preferred stock. Mandatory redemption commences
on March 1 2006, the first anniversary date of the first commercial sale of
LidoSite, and continuing for one year thereafter, the Company is required to
redeem (on a quarterly basis) an amount of Vyteris Holdings Series B convertible
redeemable preferred stock equal to 5% of the gross profits derived from the
sale of LidoSite. During the following years, the Company is required to redeem
(on a quarterly basis) an amount of Vyteris Holdings Series B convertible
redeemable preferred stock equal to 10% of the gross profits derived from the
sale of LidoSite.

     In accordance with EITF Issue No. 00-27, Application of EITF Issue No.
98-5, Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios to Certain Convertible Instruments,
EITF No. 00-27, the Company utilized the most favorable conversion price that
would be in effect at the conversion date to determine if there would be a
beneficial conversion feature in connection with the Vyteris Holdings Series B
convertible redeemable preferred stock. The Vyteris Holdings Series B
convertible redeemable preferred stock did not have a beneficial conversion
feature at the commitment date since even though the conversion has three
different conversion prices depending upon how long the shares were held, the
most favorable conversion price was $3.60 per share, which was still in excess
of the fair value of a common share at the date of the issuance of the Vyteris
Holdings Series B convertible redeemable preferred stock of $2.20. If there had
been any intrinsic value at the commitment date, it would not be recognized
until and unless the triggering event occurred.

     Since these transactions were between the Company and its majority
shareholder, the transactions were treated as capital transactions and no gain
or loss has been reflected in the accompanying condensed consolidated financial
statements.

7.   WORKING CAPITAL FACILITY

     In September 2004, Spencer Trask agreed to provide the Company (or, at its
option, cause a related party to provide the Company) with up to $5.0 million in
working capital loans in the form of 11.5% secured demand promissory notes (the
"Working Capital Facility"). The amount available to be borrowed by the Company
is the sum of all accounts receivable less than 60 days past due and the cost of
inventory owned by the Company, inclusive of raw materials, work-in-process and
finished goods, as calculated in accordance with generally accepted accounting
principles. Pursuant to the current terms of the Working Capital Facility,
amounts drawn under the facility must be repaid on or before November 15, 2005.
As consideration for the commitment of the Working Capital Facility, the Company
issued a total of 419,000 shares of common stock to Spencer Trask and recorded
the fair value of these shares as deferred financing costs of $1.3 million. Each
time funds are loaned to the Company under the Working Capital Facility, the
Company shall issue to the lender a common stock purchase warrant to purchase
such number of shares equal to the quotient obtained by dividing (i) 40% of the
amount loaned by (ii) 3.58. The warrants are exercisable for five years from the
date of issuance and have an initial exercise price of $3.58 per share. The
Working Capital Facility, when used, will be secured by a first priority lien on
all of the Company's assets. Management estimates that it will borrow funds
under this Working Capital Facility in the second quarter of 2005. As of March
31, 2005 no amounts have been loaned to the Company under the Working Capital
Facility.

                                       17
<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


8.   RELATED PARTY TRANSACTIONS

     In addition to the Transaction Agreement described in Notes 1, the
Recapitalization Transaction described in Note 6 and the Working Capital
Facility described in Note 7, the Company had the following related party
transactions:

          o    At March 31, 2005 and December 31, 2004, approximately $61,000 is
               included accrued expenses and other liabilities in the
               accompanying condensed consolidated balance sheets for amounts
               owed to Spencer Trask and Spencer Trask Ventures, Inc. for
               certain expenses paid on behalf of the Company.

          o    During December 2001, $10,000 of Spencer Trask's funds were
               deposited in the Company's bank account in error by the Company's
               bank. Therefore, At March 31, 2005 and December 31, 2004, $10,000
               is included in accrued expenses and other liabilities in the
               accompanying condensed consolidated balance sheets.

          o    At March 31, 2005 and December 31, 2004, approximately $30,000 is
               included in accounts payable in the accompanying condensed
               consolidated balance sheets for amounts owed to a related party
               for operating facility expenses.

          o    During each of the three months ended March 31, 2005 and 2004,
               the Company made minimum lease payments of approximately $0.1
               under a non-cancelable operating sublease with Becton Dickinson
               for office and facility space.

     The Company is required to pay Becton Dickinson a royalty in respect of
sales of each iontophoresis product stemming from intellectual property received
by the Company from Becton Dickinson as part of the formation of the Company.
For each such product, on a country-by-country basis, that obligation continues
for the later of 10 years after the date of the first commercial sale of such
product in a country and the date of the original expiration of the
last-to-expire patent related to such product granted in such country. The
royalty, which is to be calculated semiannually, will be equal to the greater of
5% of all direct revenues, as defined below, or 20% of all royalty revenues,
with respect to the worldwide sales on a product-by-product basis. No royalties
will be earned by Becton Dickinson prior to November 10, 2005. "Direct revenues"
are the gross revenues actually received by the Company from the commercial sale
of any iontophoresis product, including upfront payments, less amounts paid for
taxes, duties, discounts, rebates, freight, shipping and handling charges or
certain other expenses. "Royalty revenues" are the gross revenues actually
received by the Company from any licensing or other fees directly relating to
the licensing of any iontophoresis product, including upfront payments, less
amounts paid for taxes, duties, discounts, rebates, freight, shipping and
handling charges and certain other expenses.

9.   COMMITMENTS AND CONTINGENCIES

     LEGAL

     In February 2005, the Company received correspondence from Dr. George
Nascaris, who the Company believes to be the principal of Greystone Healthcare
Group, Inc., and Dr. Nascaris' counsel, threatening to bring a lawsuit or
mediation proceeding against the Company in connection with a dispute over fees
which Greystone alleges should have been paid pursuant to an agreement between
the Company and Greystone with respect to an alternative financing transaction
which neither Vyteris nor Vyteris Holdings has consummated, nor is currently
pursuing. The Company believes that Greystone's claims are without merit and
that, if such a suit or proceeding is actually commenced, Vyteris Holdings and
Vyteris will have substantial defenses and counterclaims against Greystone. The
Company and Greystone have expressed their respective positions in several
subsequent letters. If such a suit or proceeding is actually commenced against
either Vyteris Holdings or Vyteris, Vyteris Holdings and Vyteris intend

                                       18
<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


to defend it vigorously. The Company does not believe that an adverse outcome of
this matter will be material to the Company's consolidated financial position,
results of operations or cash flows.

     The Company is involved in pending opposition proceedings involving its
patents. The ultimate outcome cannot be predicted at this time. Management does
not believe that the pending opposition proceedings will have a material adverse
effect on the financial position, results of operations or cash flows of the
Company.

10.  LOSS PER SHARE

     The following table sets forth the computation of basic and diluted net
loss attributable to common stockholders per share after giving effect to the
Merger.

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED
                                                                      MARCH 31,
                                                                      ---------
                                                                2005            2004
                                                           -------------   -------------
<S>                                                        <C>             <C>
     Numerator:
        Net loss.......................................    $  (4,257,895)  $  (3,765,882)
     Denominator:
        Weighted average shares........................       19,293,858         865,330
                                                           -------------   -------------
     Basic and diluted net loss per share..............    $       (0.22)  $       (4.35)
                                                           =============   =============
</TABLE>

     The following table shows dilutive common share equivalents outstanding,
which are not included in the above historical calculations, as the effect of
their inclusion is anti-dilutive during each period.

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED
                                                                      MARCH 31,
                                                                      ---------
                                                                2005            2004
                                                           -------------   -------------
<S>                                                            <C>             <C>
     Convertible preferred stock.......................          785,625         820,542
     Convertible debt..................................                -       1,533,540
     Warrants..........................................        5,210,000         703,082
     Options...........................................          710,900         190,628
     B. Braun purchase right...........................           38,797          38,797
                                                           -------------   -------------
        Total..........................................        6,745,322       3,286,589
                                                           =============   =============
</TABLE>

     In June 2004 the Company entered into a two-year employment contract with
its chief executive officer. The contract calls for the issuance of options to
purchase a total of 178,075 shares of the Company's common stock at a price of
$1.90 per share upon execution of the contract. Such options were issued in
September 2004. The contract also calls for the issuance of 833,308 shares of
common stock upon the closing of a financing or series of financings (including
the September Private Placement and the offering of the December Notes and the
related warrants) aggregating up to $27 million, such that the chief executive
officer's total potential ownership of the Company is equal to 4% of the shares
outstanding after such financing or series of financing.

                                       19
<PAGE>

                         VYTERIS HOLDINGS (NEVADA), INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                                   (UNAUDITED)


11.  SUBSEQUENT EVENTS

     On May 2, 2005, the Company amended its Articles of Incorporation to change
its name from Treasure Mountain Holdings, Inc. to Vyteris Holdings (Nevada),
Inc. The Company also filed amendments to its Articles of Incorporation which,
among other things, increased the number of shares of common stock that the
Company is authorized to issue to 100,000,000 shares, authorized the issuance of
7,500,000 shares of Series B Preferred Stock, authorized the issuance of an
additional 42,750,000 shares of preferred stock which may be issued, from time
to time, pursuant to terms established by the Company's Board of Directors and
authorized a one for ten reverse stock split effective May 2, 2005. All share
information with respect to the Company's common stock, options, and warrants
have been adjusted to give retroactive effect to the reverse stock split for all
periods presented.






                                       20
<PAGE>

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

     THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE OTHER FINANCIAL INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND
RELATED NOTES APPEARING ELSEWHERE IN THIS FORM 10-QSB. THIS DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF A VARIETY OF FACTORS, INCLUDING THOSE DISCUSSED IN
"RISK FACTORS" AND ELSEWHERE IN THIS FORM 10-QSB.

MERGER

     On September 29, 2004, Vyteris Holdings (Nevada), Inc., or Vyteris
Holdings, formerly known as Treasure Mountain Holdings, Inc., completed a
business combination in which Vyteris, Inc. merged with a wholly-owned
subsidiary of Vyteris Holdings. As a result of the Merger, Vyteris, Inc. became
Vyteris Holdings' wholly-owned subsidiary and the former stockholders of
Vyteris, Inc. became stockholders of Vyteris Holdings. At the time of that
business combination, Vyteris Holdings had no active business. As a result,
Vyteris Holdings' principal business after that business combination became the
business in which Vyteris, Inc. has been engaged since its inception in November
10, 2000. The terms "Company," "Vyteris Holdings," "Treasure Mountain," "us,"
"we" or "our" refer to each of Vyteris Holdings (Nevada), Inc. and the combined
company.

     After the Merger, the former stockholders of Vyteris, Inc. owned 98.2% of
the outstanding common equity of Vyteris Holdings. The former directors of
Vyteris Holdings resigned immediately prior to the Merger and the directors of
Vyteris, Inc. immediately prior to the Merger became the sole directors of
Vyteris Holdings. Similarly, the former officers of Vyteris Holdings resigned
immediately prior to the Merger and the executive officers of Vyteris, Inc.
immediately prior to the Merger became the sole officers of Vyteris Holdings.

     The condensed consolidated balance sheet as of March 31, 2005 and December
31, 2004 and the condensed consolidated statements of operations for the periods
ended March 31, 2005 and 2004 consolidate the historical financial statements of
Vyteris Holdings with Vyteris, Inc. after giving effect to the Merger, with
Vyteris, Inc. as the accounting acquiror, by recording the transaction as the
issuance of Vyteris, Inc. stock for the net monetary assets of Vyteris Holdings,
accompanied by a recapitalization with no goodwill or other intangibles
recorded. Vyteris Holdings had been engaged in the development and operations of
mining properties until 1957, when the operations were abandoned and Vyteris
Holdings became inactive. Vyteris Holdings was a "development stage enterprise"
until January 1, 2005.

OVERVIEW

     On March 31, 2005 our cash position was $1.7 million. In addition, Spencer
Trask Specialty Group, LLC, or STSG, has agreed to provide us with up to $5.0
million in a Working Capital Facility. The borrowing base for the Working
Capital Facility is the lesser of $5.0 million or the sum of qualifying accounts
receivable and inventory balances. At March 31, 2005, the borrowing base was
$1.7 million. We expect to draw up to our borrowing base during the second
quarter of 2005. We expect that our cash position of $1.7 million, together with
the funds to be made available to us under the Working Capital Facility, will be
sufficient to finance our operations at least through July 2005. We need to
raise additional funds, however, in order to fund operating contingencies, to
develop new applications of our technologies, to respond to competitive
pressures and/or to acquire or invest in complementary businesses, technologies
or services. Additional funding may not be available on favorable terms or at
all.

     We have developed and produced an electronically controlled transdermal
drug delivery system that delivers drugs through the skin comfortably, without
needles. This platform technology can be used to administer certain therapeutics
either directly to the skin or into the bloodstream.

     Our current business model is to exploit our proprietary technology through
the development and commercial introduction of pharmaceutical products. We do
not have sufficient capital or the sales and distribution capabilities to
perform on our own all of the steps involved in the commercial introduction of a
pharmaceutical product and

                                       21
<PAGE>

therefore must partner with pharmaceutical companies that can provide the
necessary capital and the sales and distribution know-how and resources. Our
development and marketing agreement objective is to generate revenues from three
sources: manufacturing income from the supply of product to our partners,
royalties on product sales made by our partners and development fees and related
milestone payments during the product development and pre-commercialization
phase.

     The process of attracting development and marketing partners begins with
one or more feasibility studies in which we explore the ability of our
technology to deliver a candidate drug in a laboratory setting. Conducting
feasibility studies is a normal recurring part of our business. Our business
objective in conducting feasibility studies is to demonstrate the viability of
our technology for the development of the product and thereby interest potential
partners in entering into development, marketing and supply partnerships with
us. Certain feasibility studies are funded by our potential development
partners, while others are conducted at our own expense. We set the price for
revenue producing feasibility studies at what we anticipate our actual costs to
be. We do not expect to make a profit on such activities. Revenue generating
feasibility studies have been limited to date and do not occur regularly and are
not expected to produce significant revenues for us.

     The business decision making process for choosing a product for development
and partnering includes the evaluation of the size of the potential market for
the product, the current and expected competition for that product, the expected
selling price, the expected cost to manufacture, the sales and distribution
capabilities of our potential partner, the patent status of the drug compound,
the patent status of our technology with respect to the product, and the cost,
timing and degree of difficulty to commercialize the product.

     Our drug delivery technology is unproven in the market place; our LidoSite
product is the first such product to be approved for commercial sale by the FDA.
The unproven nature of our technology in the market place is the principal
challenge we face in attracting a development and marketing partner. In certain
instances we will perform feasibility studies on our own and use the data from
those studies to attract the interest of potential partners.

     In our development and marketing partnerships we will look to minimize our
cash contribution to the development, clinical trials and FDA approval processes
and maximize our revenues based on the commercial sales of the products. Each
potential product is different in terms of the costs and time to develop, the
clinical trials required, the FDA approval process, the projected manufacturing
costs and the projected product pricing and sales levels. Therefore, each
development and marketing partnership is expected to have materially different
economics for our partners and us.

     Developing pharmaceutical products is an inherently risky business. A
pharmaceutical product can fail at any point during the development cycle.
Pharmaceutical products can also fail after regulatory approval, as new safety
information on the product becomes known after widespread use or as competitive
products emerge.

     As we intend to be the manufacturer of each new product that we develop, we
will have to make significant investments in manufacturing equipment, test
materials and facilities for each new product. Certain of our manufacturing
lines require long lead times to construct. As a result, we may be required to
invest in equipment well before we are able to use that equipment.

     We currently conduct all of our product development, manufacturing and
administrative activities at one location in Fair Lawn, New Jersey. We have
recently entered into a lease for a second facility that is within walking
distance of our current facility.

     On May 6, 2004, we received approval from the FDA for the commercial sale
our first product, LidoSite. LidoSite is a topical delivery system indicated for
use on normal intact skin to provide local anesthesia prior to needle stick
procedures such as injections and intravenous therapies as well as superficial
dermatological procedures. Our clinical data indicates that LidoSite reduces the
pain associated with needle-stick procedures. In January 2005 we received
approval from the FDA for our manufacturing facility and processes for LidoSite.

                                       22
<PAGE>

     Our business model with respect to LidoSite was different than our current
model. With the LidoSite product we completed the entire development and FDA
approval process without a partner, seeking a partner for sales and distribution
only.

     In 2002, we entered into a license, development and distribution agreement
with B. Braun for our transdermal lidocaine delivery system, LidoSite. Upon
signing the agreement, B. Braun made an upfront, non-refundable license fee
payment of $0.3 million to us, and purchased $0.5 million of our common stock.
B. Braun has an option to invest another $0.5 million in equity upon
commencement of sales of LidoSite.

     The principal terms of the agreement provide that:

          o    B. Braun will be responsible for the cost of marketing and
               selling the LidoSite product.

          o    We will be responsible for the costs of manufacturing the
               LidoSite product.

          o    B. Braun has a minimum purchase requirement of 636,000 LidoSite
               patches from March 1, 2005 through February 28, 2006.

          o    B. Braun is obligated to pay us 60% of B. Braun's net selling
               price for the LidoSite product through February 28, 2006, and 50%
               of the net selling price thereafter. Such payments are to be made
               on a calendar quarterly basis and are to be made within 45 days
               following the close of each calendar quarter.

          o    We are obligated to sell the controller units to B. Braun at the
               lesser of $30.00 or at the price at which we purchase the
               controllers from a third party.

          o    B. Braun is obligated to provide us with a binding, quarterly
               purchase order for the LidoSite patch and LidoSite controller at
               least 60 days in advance of the commencement of the quarter,
               together with a rolling forecast of orders of the succeeding two
               quarters. B. Braun is obligated to purchase at least 75% of the
               quantity of products set forth in the rolling forecast for the
               succeeding quarter.

     The license, development and distribution agreement with B. Braun is
terminable upon a failure by the Company or B. Braun to comply with or perform
any material provisions of the agreement. Upon termination, B. Braun will have
the right to continue to purchase LidoSite patches and controllers for sale to
those customers to whom B. Braun had contractual commitments. If the contract is
terminated due to the failure of the Company to comply with contractual terms,
then the Company is obligated to transfer and assign its rights in the
regulatory approvals received from the FDA to B. Braun. B. Braun's license will
become perpetual and B. Braun will acquire the right to manufacture or have
manufactured the LidoSite patches and controllers.

     Commercial distribution of LidoSite began on March 1, 2005. Our projected
maximum production capacity is 2 million units per year on our current
equipment. At this production level we do not anticipate making the units
cost-effectively and expect to post a loss from the sale of LidoSite in the
first year. In order to manufacture the product cost-effectively we need to
increase our manufacturing efficiency. We are in the process of executing a
manufacturing capacity expansion plan, which we believe will result in increased
efficiency, through the leasing of additional manufacturing space and the
acquisition of a second manufacturing line that is expected to operate at four
to five times the capacity of our current equipment. This manufacturing
expansion plan is dependent on us raising sufficient capital and is expected to
be completed within 12 months of raising sufficient capital. Our manufacturing
expansion plan may be adversely impacted by unanticipated cost overruns and/or
shortages of supply over which we have no control.

     In November 2000, Becton Dickinson transferred to us certain assets in
exchange for common stock, preferred stock and a royalty agreement. Included in
the transferred assets were certain patents. The royalty agreement

                                       23
<PAGE>

requires us to pay a royalty to Becton Dickinson equal to the greater of 5% of
revenues earned by us from the LidoSite product after November 10, 2005 or 20%
of the royalties earned by us from the sale of products subsequent to November
10, 2005 that substantially use any of those certain patents.

     Since our inception in November 2000, we have conducted feasibility studies
on several potential products. These activities have resulted in a development
and marketing agreement and a supply agreement with Ferring Pharmaceuticals,
Inc., or Ferring, described below. We entered those agreements with Ferring
covering a product for female infertility in September 2004.

     The principal terms of the agreements provide that:

          o    We are responsible for all product development activities.
               Product development activities include all activities associated
               with the design, engineering and laboratory testing of the
               physical product and its manufacturing processes, including
               hardware, software, materials, components, specifications,
               procedures and manufacturing equipment.

          o    Ferring is obligated to reimburse us for 50% of our product
               development costs, provided such costs do not exceed 110% of the
               amount budgeted.

          o    Ferring is responsible for all regulatory filings.

          o    Ferring is responsible for the conduct of, and cost of, clinical
               trials. Clinical trials include experimental testing of the
               product on humans in a clinical environment according to FDA
               guidelines to demonstrate safety and efficacy and ultimately gain
               FDA approval. This includes all activities associated with design
               of the experimental trials, selecting the test centers, personnel
               costs associated with carrying out the trials, acquisition and
               analysis of data from the trials, and presentation or publication
               of the data in a format suitable for submission to the FDA.

          o    Ferring is obligated to pay up to $9 million on the occurrence of
               certain events during the term of the agreements.

CRITICAL ACCOUNTING POLICIES

     Our discussion and analysis of our financial position and results of
operations are based upon our condensed consolidated financial statements, which
have been prepared in accordance with U.S. generally accepted accounting
principles. Our significant accounting policies are described in Note 2 to the
condensed consolidated financial statements. The preparation of these condensed
consolidated financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the condensed consolidated
financial statements and the reported revenues and expenses during the period.

     We consider certain accounting policies related to revenue recognition,
accrued expenses and stock-based compensation to be critical to our business
operations and the understanding of our results of operations.

     REVENUE

     PRODUCT REVENUE. We recognize product revenue, net of allowances for
anticipated returns, provided that (1) persuasive evidence of an arrangement
exists, (2) delivery to the customer has occurred, (3) the selling price is
fixed or determinable and (4) collection is reasonably assured. Delivery is
considered to have occurred when title and risk of loss have transferred to the
customer. The price is considered fixed or determinable when it is not subject
to refund or adjustments.

                                       24
<PAGE>

     FEASIBILITY STUDIES. We conduct feasibility studies to demonstrate the
viability of our technology to interest potential partners to enter into a
development, marketing and supply partnership. Revenues on feasibility studies
are measured using the proportional performance method of accounting. Such
studies are typically completed within a one- to three-month period. Revenue
producing feasibility studies do not occur regularly, are priced at what we
anticipate the actual costs will be and are not expected to produce material
revenues or a profit. When applying the proportional performance method, we rely
on total expected input (contract) costs in order to determine the amount of
revenue earned to date. We follow this method because reasonably dependable
estimates of the revenue applicable to various contract milestones can be made.
We monitor estimates of total contract revenues and cost on a routine basis
throughout the contract period. The cumulative impact of any change in estimates
of the contract revenues or costs is reflected in the period in which the
changes become known. In the event that a loss is anticipated on a particular
contract, provision is made for the estimated loss in the period in which the
anticipated loss becomes known. We issue invoices related to fixed price
contracts based on either the achievement of milestones during a project or
other contractual terms. Differences between the timing of billings and the
recognition of revenue based upon the proportional performance method of
accounting are recorded as revenue earned in excess of billings or deferred
revenue.

     DEFERRED REVENUE. Non-refundable upfront fees are deferred and recognized
as revenue on a straight-line basis in accordance with the contract terms and
generally over the lives of the agreements.

     REVENUES FROM REIMBURSEMENT OF DEVELOPMENT COSTS. In accordance with
Emerging Issues Task Force Issue 01-14, Income Statement Characterization of
Reimbursements Received for "Out-of-Pocket" Expenses Incurred, we recognize
revenues for the reimbursement of development costs when we bear all the risk
for selection of and payment to vendors and employees.

     ACCRUED ESTIMATES

     As part of the process of preparing our condensed consolidated financial
statements, we are required to estimate certain expenses. This process involves
identifying services that have been performed on our behalf and estimating the
level of service performed and the associated cost incurred for such service as
of each balance sheet date in our financial statements. Examples of estimated
expenses for which we accrue include professional service fees, contract service
fees and fees paid to contract research organizations in connection with the
conducting of clinical trials. Our estimates are most affected by our
understanding of the status and timing of services provided relative to the
actual levels of services incurred by such service providers. In the event that
we do not identify certain costs which have begun to be incurred or we
under-estimate or over-estimate the level of services performed or the costs of
such services for a period, our reported expenses for such period would be too
low or too high. The date on which certain services commence, the level of
services performed on or before a given date and the cost of such services are
often estimated. We make these estimates based upon the facts and circumstances
known to us in accordance with generally accepted accounting principles. We must
adopt Statement No. 123 (revised 2004) as of the beginning of the first interim
period after December 15, 2005.

     STOCK-BASED COMPENSATION

     As permitted by Statement of Financial Accounting Standards ("SFAS") No.
123, Accounting for Stock-Based Compensation, we elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
No. 25") and related interpretations in accounting for our employee option
plans. Under APB No. 25, no compensation expense is recognized at the time of an
option grant if the exercise price of the employee stock option is fixed and
equals or exceeds the fair market value of the underlying common stock on the
date of the grant and the number of shares to be issued pursuant to the exercise
of such options are fixed on the date of the grant.

     We account for options issued to non-employees under SFAS No. 123 and
Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services. The fair value of options issued to non-employees is
recorded as an expense and we periodically re-measure the option value until the
option is exercised, expired or forfeited.

                                       25
<PAGE>

     Currently there is no active trading market for our common stock.
Additionally, prior to the Merger with Vyteris Holdings in September 2004,
Vyteris was a private company. Therefore determining the fair value of our
common stock involves significant estimates and judgments. In considering the
fair value of the underlying stock when we grant options, we consider several
factors, including third party valuations and the fair values established by
market transactions. Stock-based compensation includes estimates of when stock
options might be exercised and stock price volatility. The timing for exercise
of options is out of our control and will depend, among other things, upon a
variety of factors, including our market value and the financial objectives of
the holders of the options. We have limited historical data to determine
volatility in accordance with Black-Scholes modeling. In addition, future
volatility is inherently uncertain and the model has its limitations. These
estimates can have a material impact on stock-based compensation expense in our
condensed consolidated statement of operations but will have no impact on our
cash flows.

RECENTLY ISSUED ACCOUNTING STANDARDS

     As permitted by SFAS, No. 123, we currently account for share-based
payments to employees using APB No. 25's intrinsic value method and, as such,
generally recognize no compensation cost for employee stock options.
Accordingly, the adoption of Statement No. 123 (revised 2004), Share-Based
Payment, an Amendment of Financial Accounting Standards Board, or FASB,
Statements No. 123 and 95's, fair value method will have a significant impact on
our result of operations, although it will have no impact on our overall
financial position. The impact of adoption of Statement No. 123 (revised 2004)
cannot be predicted at this time because it will depend on levels of share-based
payments granted in the future. However, had we adopted Statement No. 123
(revised 2004) in prior periods, the impact of that standard would have
approximated the impact of Statement No. 123 as described in the disclosure of
pro forma net income and earnings per share to our consolidated financial
statements. Statement No. 123 (revised 2004) also requires the benefits of tax
deductions in excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as required under
current literature. This requirement will reduce net operating cash flows and
increase net financing cash flows in periods after adoption. We cannot estimate
what those amounts will be in the future because they depend on, among other
things, when employees exercise stock options.

CONSOLIDATED RESULTS OF OPERATIONS

     The following table sets forth the percentage increases or (decreases) in
certain line items on our condensed consolidated statement of operations for the
three months ended March 31, 2005 and 2004.

<TABLE>
<CAPTION>
                                                               THREE MONTHS
                                                                   ENDED
                                                              MARCH 31, 2005
                                                                  VERSUS
                                                              MARCH 31, 2004
                                                              --------------
<S>                                                                <C>
         Revenues.........................................         100.0%
         Cost of sales....................................         100.0%
         Research and development expense.................         (39.6)%
         General and administrative expense...............          97.8%
         Registration rights penalty......................         100.0%
         Interest (income) expense, net...................         (25.1)%
         Net loss.........................................          13.1%

</TABLE>


                                       26
<PAGE>

COMPARISON OF THE THREE MONTH PERIODS ENDED MARCH 31, 2005 AND 2004

     REVENUES

     Our revenues are derived primarily from research feasibility studies for
pharmaceutical companies, reimbursement of development costs, and beginning
March 2005, sales of our LidoSite product to B. Braun. Total revenues were $0.5
million in the three months ended March 31, 2005 compared to no revenues in the
three months ended March 31, 2004. The increase in revenues in the first quarter
of 2005 primarily relates to the commencement of sales of our LidoSite product
to B. Braun in March 2005 resulting in $0.3 million, reimbursement of
development costs of approximately $0.2 million and the recognition of
approximately $0.01 million of deferred non-refundable upfront fees. We expect
our revenues from product sales to increase in the second quarter of 2005.

     In November 2004, we entered into an agreement with Ferring for the
development, licensing and supply of a product for female infertility. Product
development activities and related revenues commenced during the fourth quarter
of 2004. We received a license fee payment of $0.15 million during 2004 and an
additional $0.1 million in the first quarter of 2005. Additionally, we could
receive up to an additional $8.7 million in payments upon the completion of
significant milestones during the implementation of the development plan. When
the product is commercially launched, we will receive revenue share payments
based upon a percentage of net sales; however, commercial launch is several
years away. In addition, a percentage of our product development activities will
be reimbursed. License fees revenues will be deferred and recognized over the
term of the agreement and reimbursement of product development activities will
be recognized as incurred. This agreement may be canceled on short notice and
may be terminated in the event that we do not maintain at least three months'
cash, as defined in the agreement, during the development period.

     COST OF SALES

     Cost of sales for the three months ended March 31, 2005 amounted to $0.6
million. There was no cost of sales for the comparable period in 2004, as the
commercial launch of the product, LidoSite, occurred in 2005. Certain costs
associated with the products sold during the March 2005 quarter were incurred
prior to January 2005; therefore, expensed as incurred. If the costs incurred
prior to January 2005 were not expensed as incurred, our cost of sales amount
would have been materially larger. We experienced a negative gross margin
(product sales, less cost of sales) during the March 2005 quarter of $0.3
million. We expect to continue to experience negative gross margins in the
foreseeable future periods until we have completed our manufacturing capacity
expansion plan. During the three-month period ended March 31, 2005, cost of
sales includes a $0.4 million inventory adjustment to value our inventory at
lower of cost or market.

     RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenses were $1.4 million in the three months
ended March 31, 2005, compared to $2.4 million in the three months ended March
31, 2004, a decrease of 39.6% or $0.9 million. This decrease is primarily due to
expensing as incurred during 2004 of all costs related to the development of,
and gaining regulatory approval of our LidoSite product, and all costs incurred
in preparing for its commercial launch, including raw materials costs,
manufacturing labor and allocation of overhead. Subsequent to the FDA's approval
to commence commercial sales of LidoSite in January 2005, all such costs were
capitalized as inventory or recorded in engineering, quality assurance and
regulatory costs. Our research and development expenses associated with LidoSite
were reduced in the first part of 2005 as a result of this accounting treatment;
however, we do not expect our total cash outlays to be less.

     GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses were $1.5 million in the three months
ended March 31, 2005, compared to $0.8 million in the three months ended March
31, 2004, an increase of 97.8% or $0.8 million. This increase of $0.8 million is
principally attributable to the $0.3 million in quality assurance and regulatory
costs, additional headcount and various general and administrative costs
required to operate as a public company. There were no quality assurance and
regulatory costs recognized in the comparable period in the prior year as all
costs incurred in preparing for the commercial launch of our LidoSite product,
including raw materials costs, manufacturing labor and allocation of overhead
incurred prior to the FDA's approval for our manufacturing facility and
processes in January 2005 was included in research and development expense.

     REGISTRATION RIGHTS PENALTY

     We have filed a registration statement with the SEC relating to the resale
of shares of Vyteris Holdings common stock. Since that registration statement
was not declared effective by the SEC by February 25, 2005, we are obligated to
pay a registration rights penalty to certain stockholders. As of March 31, 2005,
we accrued a registration rights penalty of approximately $0.8 million for the
delay in having our registration statement on Form SB-2 declared effective by
the SEC.

                                       27
<PAGE>

    GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses were $2.0 million in the three months
ended March 31, 2005, compared to $0.8 million in the three months ended March
31, 2004, an increase of 160.5% or $1.2 million. This increase of $1.2 million
is principally attributable to the $0.8 million accrued liquidated damages for
the delay in having our registration statement on Form SB-2 declared effective
by the SEC by February 25, 2005, additional headcount and various general and
administrative costs required to operate as a public company.

     INTEREST (INCOME) EXPENSE, NET

     During the three months ended March 31, 2005, we incurred interest (income)
expense, net of $0.5 million, as compared to $0.6 million for the comparable
period in 2004. In the three months ended March 31, 2005, interest (income)
expense, net consists primarily of amortization of deferred financing costs of
$0.3 million on the Working Capital Facility and accrued dividends on the
Vyteris Holdings Series B convertible redeemable preferred stock of $0.2
million. In the three months ended March 31, 2004, interest (income) expense,
net consists primarily of $0.5 million of interest expense and amortization of
notes discount on the convertible secured promissory notes to related parties
and $0.1 million of interest expense on the secured promissory notes payable
issued in February 2004.

LIQUIDITY AND CAPITAL RESOURCES

     The condensed consolidated financial statements have been prepared assuming
that we will continue as a going concern; however, at our current and planned
rate of spending, our cash and cash equivalents and the proceeds expected to be
provided by the Working Capital Facility are not sufficient to allow us to
continue operations beyond July 31, 2005. No assurance can be given that we will
be successful in arranging the additional planned financing needed to continue
the execution of our business plan, which includes the development of new
products. Failure to obtain such financing may require management to
substantially curtail operations, which may result in a material adverse effect
on our financial position or results of operations. The condensed consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that might occur if we are unable to continue
in business as a going concern.

     We used $3.5 million of net cash in operating activities in the three
months ended March 31, 2005 compared to $2.9 million in the same period last
year. Offsetting the increase in the net loss of $4.3 million in the current
period relative to the $3.8 million of net loss for the same period last year
was a $0.4 million increase in depreciation and amortization expense, $0.8
million in accrued liquidated damages and $0.2 million decrease in prepaid
expenses and other current assets partially offset by $1.2 million increase in
inventory and a $0.5 million increase in accounts receivable in the three months
ended March 31, 2005.

     Net cash used in investing activities was $1.0 million in the three months
ended March 31, 2005 compared to $0.01 million in the same period in fiscal
2004. We recently entered into a lease for a second facility to expand our
manufacturing capacity and have incurred approximately $0.3 million of capital
improvements as of March 31, 2005 preparing this facility for production. We
expect to continue to incur substantial expenses in preparing this facility for
production. In the first quarter of 2005, we issued to the landlord of this
facility a letter of credit secured by $0.4 million. We have classified this
amount as long-term other asset in the condensed consolidated balance sheet.

     Net cash (used in) provided by financing activities was ($0.2) million in
the three months ended March 31, 2005 compared to $2.6 million in the same
period in fiscal 2004. During February 2004, we issued secured promissory notes
payable (the "Promissory Notes") with principal of $1.0 million to Spencer Trask
and related parties. Each of the Promissory Notes matured 120 days from its
respective date of issuance and bore an annual interest rate of 12%, which was
payable on maturity, and were convertible into common stock, at the option of
the holders under certain circumstances at $1 per share.

     During March 2004, we issued $2.0 million of bridge notes, maturing
December 31, 2004 (our "December Notes" or our "Bridge Notes"). Spencer Trask
Ventures, Inc., an affiliate of our controlling stockholder, acted as placement
agent in that transaction and received a 10% placement fee, a 3% non-accountable
expense allowance and warrants to purchase shares of common stock as
compensation for acting as placement agent. We also issued warrants to the
investors to purchase shares of common stock. During September 2004, the
December Notes converted into shares of common stock

     On March 31, 2004, we consummated a transaction with STSG and a related
entity. We issued to STSG and such related party an aggregate of 9.6 million
shares of our common stock and 7.5 million shares of Vyteris Holdings Series B
convertible redeemable preferred stock in exchange for (i) the cancellation of
$20.4 million principal amount of convertible, secured promissory notes, $2.9
million principal amount of secured promissory notes and $2.6 million of accrued
and unpaid interest, (ii) the return of 3,000,000 shares of Vyteris Inc. Series
B convertible redeemable preferred stock and (iii) the cancellation of warrants
to purchase 2,035,000 shares of Vyteris,

                                       28
<PAGE>

Inc. common stock. This transaction reduced our debt by approximately $25.9
million, increased our preferred stock by approximately $4.6 million and
increased our common stock and paid-in capital by approximately $21.3 million.

     In September 2004, Spencer Trask agreed to provide us (or, at its option,
cause a related party to provide us) with up to $5.0 million in working capital
loans in the form of 11.5% secured demand promissory notes (the "Working Capital
Facility"). Pursuant to the terms of the Working Capital Facility, amounts drawn
under the facility must be repaid on or before November 15, 2005. As
consideration for the commitment of the Working Capital Facility, we issued
419,000 shares of Vyteris Holdings common stock to Spencer Trask and recorded
the fair value of these shares as deferred financing costs of $1.3 million. Each
time funds are loaned to us under the Working Capital Facility, we will be
required to issue to the lender a common stock purchase warrant to purchase such
number of shares equal to the quotient obtained by dividing (i) 40% of the
amount loaned by (ii) 3.58. The warrants are exercisable for five years from the
date of issuance and have an initial exercise price of $3.58 per share. The
Working Capital Facility enables us to borrow up to the lesser of $5.0 million
or the sum of qualifying accounts receivable and inventory. At March 31, 2005,
the borrowing base was $1.7 million. We expect to draw up to our borrowing base
during the second quarter of 2005. As of March 31, 2005, no amounts have been
loaned to us under the Working Capital Facility. The Working Capital Facility is
secured by a first priority lien on all of our assets.

CASH POSITION

     As of March 31, 2005, we had a cash balance of $1.7 million and working
capital of $1.1 million as compared with a cash balance of $6.4 million and
working capital of $6.2 million at December 31, 2004.

     We expect that our cash position of $1.7 million at March 31, 2005 together
with the funds to be made available to us under the Working Capital Facility
will be sufficient to finance our operations at least through July 2005. We will
need to raise additional funds, however, in order to fund operating
contingencies, to develop new applications of our technologies, to respond to
competitive pressures and/or to acquire or invest in complementary businesses,
technologies or services. Additional funding may not be available on favorable
terms or at all.

     Although the SEC extended the compliance deadline with Section 404 of the
Sarbanes-Oxley Act of 2002 for non-accelerated filers like the Company to its
first fiscal year ending on or after July 15, 2006, we are continuing to
implement our plan for compliance. We expect that the internal and external
costs of complying with the Sarbanes-Oxley Act of 2002 will be substantial.

     We expect to devote substantial resources to scale-up the manufacturing
process for our LidoSite product, to expand our manufacturing capacity for
LidoSite and to continue the development of our infertility product. Our funding
requirements will depend on numerous factors, including the following:

          o    manufacturing costs of LidoSite;

          o    LidoSite sales which commenced in the first quarter of 2005;

          o    the time and costs required for us to scale-up our manufacturing
               process;

          o    our ability to enter into development partnerships with
               pharmaceutical companies;

          o    the results of the development activities on our planned new
               products; and

          o    the cost involved in preparing, filing, prosecuting, defending,
               maintaining and enforcing patent claims and other patent related
               costs.

     We have filed a registration statement with the SEC relating to the resale
of shares of Vyteris Holdings common stock. Since that registration statement
was not declared effective by the SEC by February 25, 2005, we are obligated to
pay to certain stockholders an amount equal to 1% of the purchase price paid by
such stockholders for the shares owned by such stockholders which are covered by
the registration statement, and for each month, or portion of a month, in which
such delay continued, an amount equal to 2% of such purchase price, until we

                                       29
<PAGE>

have cured the delay, with an overall cap on such liquidated damages of 10% of
the aggregate purchase price paid by such stockholders for such shares. As of
March 31, 2005, we were obligated to pay liquidated damages of $0.8 million,
which payment would materially adversely affect our financial condition. The
registration statement was declared effective on May 12, 2005 resulting in an
obligation to pay liquidated damages of approximately $1.4 million.

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

     Our contractual obligations and commitments include obligations associated
with capital and operating leases, manufacturing equipment, and employee
agreements as set forth in the table below:

<TABLE>
<CAPTION>
                                                           PAYMENTS DUE BY PERIOD AS OF MARCH 31, 2005
                                                ----------------------------------------------------------------
                                                              LESS THAN                              MORE THAN 5
                                                   TOTAL        1 YEAR     1-3 YEARS    3-5 YEARS       YEARS
                                                -----------  -----------  -----------  -----------   -----------
<S>                                             <C>          <C>          <C>          <C>           <C>
     Operating lease obligations.............   $ 3,482,313  $   494,407  $   676,598  $   574,998   $ 1,736,310
     Manufacturing equipment.................       173,400      173,400           --           --            --
     Capital lease obligations...............        24,877       18,042        6,835           --            --
     Employee agreements.....................       424,583      424,583           --           --            --
                                                -----------  -----------  -----------  -----------   -----------
     Total...................................   $ 4,105,173  $ 1,110,432  $   683,433  $   574,998   $ 1,736,310
                                                ===========  ===========  ===========  ===========   ===========
</TABLE>

     Effective as of September 28, 2004 upon cancellation of all outstanding
shares of the Vyteris Series A convertible preferred stock, the holders of
Vyteris Holdings Series B convertible redeemable preferred stock were entitled
to receive an annual cash dividend of 8% of the then applicable redemption
price, as defined, out of funds legally available, payable quarterly. The
dividends with respect to Vyteris Holdings Series B convertible redeemable
preferred stock are cumulative (from the time that the Vyteris Series A
convertible redeemable preferred stock was retired), whether or not earned or
declared and shall be paid quarterly in arrears. All of the outstanding shares
of Vyteris Series A convertible redeemable preferred stock were cancelled on
September 28, 2004. We accrued dividends on the Vyteris Holdings Series B
convertible redeemable preferred stock of $0.15 million in the first quarter of
2005. We expect to accrue dividends of $0.6 million per year.

     Commencing on March 1, 2006 and continuing for one year thereafter, Vyteris
Holdings will be required to redeem on a quarterly basis an amount of Vyteris
Holdings Series B convertible redeemable preferred stock equal to 5% of the
gross profits derived from the sale of LidoSite. During the following years, we
will be required to redeem (on a quarterly basis) an amount of Vyteris Holdings
Series B convertible redeemable preferred stock equal to 10% of the gross
profits derived from the sale of LidoSite. The redemption price of the Vyteris
Holdings Series B convertible redeemable preferred stock is $1.00 per share
(adjusted for splits, etc.) plus any accrued but unpaid dividends.

SUBSEQUENT EVENTS

     On May 2, 2005, we amended our Articles of Incorporation to change our name
from Treasure Mountain Holdings, Inc. to Vyteris Holdings (Nevada), Inc. We also
filed amendments to our Articles of Incorporation which, among other things,
increased the number of shares of common stock that we are authorized to issue
to 100,000,000 shares, authorized the issuance of 7,500,000 shares of Series B
Preferred Stock, authorized the issuance of an additional 42,750,000 shares of
preferred stock which may be issued, from time to time, pursuant to terms
established by the our Board of Directors and authorized a one for ten reverse
stock split effective May 2, 2005. All share information with respect to the our
common stock, options, and warrants have been adjusted to give retroactive
effect to the reverse stock split for all periods presented.

FORWARD-LOOKING INFORMATION

     This Form 10-QSB contains forward-looking statements (within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended). When used in
this Form 10-QSB, the words "anticipate," "believe," "estimate," "will," "plan,"
"seeks," "intend," and "expect" and similar expressions identify forward-looking
statements. Although we believe that our plans, intentions, and expectations
reflected in any forward-looking

                                       30
<PAGE>

statements are reasonable, these plans, intentions, or expectations may not be
achieved. Our actual results, performance, or achievements could differ
materially from those contemplated, expressed, or implied, by the
forward-looking statements contained in this Form 10-QSB. Important factors that
could cause actual results to differ materially from our forward looking
statements are set forth in this Form 10-QSB, including under the heading "Risk
Factors." All forward-looking statements attributable to us or persons acting on
our behalf are expressly qualified in their entirety by the cautionary
statements set forth in this Form 10-QSB. Except as required by federal
securities laws, we are under no obligation to update any forward looking
statement, whether as a result of new information, future events, or otherwise.

RISK FACTORS

     YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW TOGETHER WITH ALL
OF THE OTHER INFORMATION INCLUDED IN THIS FORM 10-QSB WHEN EVALUATING THE
COMPANY AND ITS BUSINESS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR
BUSINESS, FINANCIAL CONDITION, OR RESULTS OF OPERATIONS COULD SUFFER. IN THAT
CASE, THE PRICE OF OUR COMMON STOCK COULD DECLINE AND OUR STOCKHOLDERS MAY LOSE
ALL OR PART OF THEIR INVESTMENT.

RISKS RELATED TO OUR BUSINESS

WE HAVE NEVER BEEN PROFITABLE, WE MAY NEVER BE PROFITABLE, AND, IF WE BECOME
PROFITABLE, WE MAY BE UNABLE TO SUSTAIN PROFITABILITY.

     From November 2000 through March 31, 2005, we incurred net losses in excess
of $60.3 million, as we have been engaged primarily in clinical testing and
development activities the first quarter of 2005. We have never been profitable,
we may never be profitable, and, if we become profitable, we may be unable to
sustain profitability. We expect to continue to incur significant losses for the
foreseeable future.

WE WILL BE REQUIRED TO RAISE ADDITIONAL CAPITAL, WHICH IF NOT AVAILABLE TO US ON
ACCEPTABLE TERMS, OR AT ALL, WILL MATERIALLY AND ADVERSELY HARM OUR BUSINESS AND
THREATEN OUR CAPACITY TO REMAIN IN BUSINESS.

     We anticipate that we have sufficient capital to finance operations only
through July 31, 2005. Given the working capital demands that we face in order
to ramp up production of our LidoSite product, we will be required to raise
additional capital in the near future. We cannot be certain that such capital
will be available to us or, if it is available to us, we cannot be certain that
such capital will be available on terms that are acceptable to us. Such
financing could be dilutive to existing stockholders and could result in
significant financial and operating covenants that would negatively impact our
business. If we are unable to raise sufficient additional capital on acceptable
terms, we will be forced to restrict new product development and may be unable
to continue our manufacturing and other business operations. If we do not have
sufficient capital to support the manufacture of our LidoSite product, we may be
unable to remain in business.

OUR RECENT AUDITED FINANCIAL STATEMENTS CONTAIN, AND OUR FUTURE AUDITED
FINANCIAL STATEMENTS ARE LIKELY TO CONTINUE TO CONTAIN, AN EXPLANATORY PARAGRAPH
EXPRESSING UNCERTAINTY REGARDING OUR ABILITY TO CONTINUE AS A GOING CONCERN. THE
INCLUSION OF THIS PARAGRAPH MAY MAKE IT MORE DIFFICULT FOR US TO RAISE
ADDITIONAL CAPITAL ON ACCEPTABLE TERMS.

     The report of independent registered public accounting firm accompanying
the audit of the Vyteris Holdings consolidated financial statements for the year
ended December 31, 2004 contains an explanatory paragraph expressing uncertainty
regarding our ability to continue as a going concern because of our operating
losses and our need for additional capital. Such explanatory paragraph could
make it more difficult for us to raise additional capital and may materially and
adversely affect the terms of any financing that we may obtain.

                                       31
<PAGE>

SINCE WE ARE A COMPANY WITH A LIMITED INDEPENDENT OPERATING HISTORY, IT IS
DIFFICULT TO PREDICT OUR FUTURE GROWTH AND OPERATING RESULTS, THEREBY MAKING
INVESTMENT DECISIONS DIFFICULT.

     Our limited operating history as an independent drug delivery business
makes predicting our future growth and operating results difficult. Vyteris,
Inc. was incorporated in Delaware in 2000, although a substantial portion of its
business was developed by Becton Dickinson from prior to 1990 until 2000.

AS A COMPANY WITH A LIMITED INDEPENDENT OPERATING HISTORY, WE HAVE NOT PROVEN
THAT WE ARE CAPABLE OF MEETING THE MANY CHALLENGES THAT WE ARE LIKELY TO FACE.

     You should consider the risks and uncertainties that a company with a
limited independent existence will face in the rapidly evolving market for drug
delivery technologies.

     In particular, you should consider that we have not proven that we can:

          o    raise significant capital in the public or private markets;

          o    obtain the regulatory approvals necessary to commence selling
               drug delivery systems that we may develop in the future,

          o    manufacture products, including our LidoSite product, in a manner
               that enables us to be profitable or meets regulatory, strategic
               partner or customer requirements;

          o    attract, retain and manage a large, diverse staff of engineers
               and scientists;

          o    develop the relationships with strategic partners and key vendors
               that are necessary to our ability to exploit the processes and
               technologies that we develop;

          o    develop new products and drug delivery processes and new
               applications for our drug delivery technology; or

          o    respond effectively to competitive pressures.

     If we cannot accomplish these goals, our business is not likely to succeed.

OUR DRUG DELIVERY BUSINESS MAY NOT GENERATE ANY MATERIAL REVENUES FROM SALES OF
THE ONE PRODUCT THAT WE ARE CURRENTLY PERMITTED TO SELL, IN WHICH CASE OUR
RESULTS OF OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY WILL BE MATERIALLY AND
ADVERSELY IMPACTED AND OUR OPPORTUNITIES TO DEVELOP, MARKET AND SELL OTHER
PRODUCTS MAY BE JEOPARDIZED SIGNIFICANTLY.

     To date, we have not generated material revenues from sales of our first
drug delivery product, LidoSite. As is common in our industry, we have spent
many years and substantial sums of money in developing LidoSite. To develop that
product to the point where we are able to commence commercial sales, it has been
necessary for us to prove our concepts, develop patent positions, engage in
substantial clinical trials, develop appropriate manufacturing processes, obtain
necessary regulatory approvals and establish a mutually beneficial marketing and
distribution agreement with B. Braun. With all of this work effort and the
attendant capital and operating expenditures, we still have not tested the
market in a manner that can assure us or our investors that we will derive
material revenues from LidoSite. If we are unable to derive material revenues
from the sale of our LidoSite product, our liquidity will be materially and
adversely impacted, we will require additional capital even sooner than we had
anticipated and we may find it more difficult to attract marketing partners for
subsequent products that we may develop.

WE CANNOT EXPECT THAT WE WILL BE ABLE TO DERIVE MATERIAL REVENUES FROM THE SALE
OF PRODUCTS OTHER THAN LIDOSITE IN THE NEAR FUTURE.

                                       32
<PAGE>

     While we have commenced development of other products and believe that our
technology can and should be pursued with respect to several applications that
could result in commercially viable products, the process of developing drug
delivery products to the point of commercial sales takes significant time and
requires a substantial commitment of financial and other resources that may not
be available to us. We cannot assure investors that we will have the financial
resources necessary to bring future products to market or that developments in
our industry will not preclude us from expanding our product line beyond
LidoSite. If we are unable to bring additional products to market, we will be
forced to rely on a single source of revenue and the future success of our
company would be dependent entirely upon the continued demand for a single
product. If we are forced to rely on a single product, our entire business would
be at risk in the event that market or competitive conditions threatened the
viability of that product, thereby increasing the risk of a dramatic decline in
the market value of our capital stock.

WE MAY NOT BE ABLE TO OBTAIN FDA OR FOREIGN REGULATORY APPROVAL FOR OUR PRODUCTS
IN A TIMELY MANNER, OR AT ALL, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
ABILITY TO SELL AND MARKET OUR PRODUCTS.

     Drug delivery systems that we may develop in the future cannot be sold in
the United States until the FDA approves such products for medical use. Similar
foreign regulatory approvals will be needed in order to sell any drug delivery
system, including our LidoSite product, outside of the U.S. We may not be able
to obtain FDA or foreign regulatory approval for our products in a timely
manner, or at all. Delays in obtaining FDA or foreign approvals for our products
could result in substantial additional costs to us, and, therefore, could
adversely affect our ability to compete with other drug delivery companies. If
we do not obtain such approvals at all, our revenues may be insufficient to
support continuing operations.

IF OUR LIDOSITE PRODUCT IS NOT COMMERCIALLY SUCCESSFUL, OUR BUSINESS, FINANCIAL
CONDITION, OPERATING RESULTS AND FUTURE PROSPECTS WOULD LIKELY SUFFER
SIGNIFICANTLY.

     Although we have other products in various stages of early development, our
primary focus at this time is the manufacture, sale and marketing in the United
States of our LidoSite product in collaboration with B. Braun. Currently, our
LidoSite product is our only product that could provide revenue for us. Our
ability to achieve profitability in the foreseeable future is principally
dependent on the manufacture and sale of our LidoSite product.

FOR THE FORESEEABLE FUTURE, WE WILL RELY ON A SINGLE CUSTOMER, B. BRAUN, TO
GENERATE PRODUCT REVENUE. IF B. BRAUN IS UNABLE TO SELL OUR LIDOSITE PRODUCT
EFFECTIVELY, IT WOULD MATERIALLY AND ADVERSELY AFFECT THE RESULTS OF OUR
OPERATIONS.

     We have granted B. Braun the right to be our exclusive, worldwide sales and
marketing distributor for LidoSite. As a result, we are dependent on B. Braun
and its ability to effectively market our only current product. If B. Braun is
unable to sell our LidoSite product effectively, we will not have the ability to
seek other customers for our LidoSite product at least until such time as
satisfactory arrangements are made with B. Braun.

WE RELY ON SINGLE SUPPLIERS FOR CERTAIN KEY MATERIALS AND COMPONENTS USED IN OUR
LIDOSITE PRODUCT, WHICH MAKES US DEPENDENT ON PERSONS THAT WE CANNOT CONTROL.

     Certain raw materials and components used in the manufacture of our
LidoSite product are available only from single suppliers. Some of those
materials or components are custom-made for us and are the result of long
periods of collaboration with our suppliers. The hydrogel that we use to hold
lidocaine in the patch and the electrodes that we use to carry current through
our lidocaine delivery system, for example, are both provided by single
suppliers. Any curtailment of the availability of such raw materials or
components could be accompanied by production or other delays and could result
in a material loss of sales, with resulting adverse effects on our business and
operating results. In addition, because raw material sources for pharmaceutical
products must generally be approved by regulatory authorities, changes in raw
material suppliers may eventually result in production delays, higher raw
material costs and loss of sales, customers and market share.

                                       33
<PAGE>

     We believe that, if necessary, alternative sources of raw materials and
components could be located, alternate raw materials and components can be
substituted for each single-sourced raw material or component, or we could
redesign products to avoid the need for single-sourced raw materials or
components. However, the development or identification of alternative sources,
or redesigning products, could be time-consuming and expensive. Although we have
not experienced difficulty acquiring raw materials and components on
commercially reasonable terms and in sufficient quantities to maintain required
production levels for our clinical testing, we cannot assure you that price
increases or interruptions in the supply of these materials will not occur in
the future or that we will not have to seek alternate suppliers or obtain
substitute raw materials or components, which may require additional product
validations and regulatory approvals. Further, our suppliers could experience
price increases or interruptions in the supply of materials from their
suppliers, or could fail to meet our or governmental manufacturing standards.

     Any significant price increase, interruption of supply, our inability to
secure an alternate source or our inability to qualify a substitute material
could have a material adverse effect on our ability to manufacture our LidoSite
product or maintain regulatory approval.

WE HAVE NO EXPERIENCE IN MANUFACTURING DRUG DELIVERY SYSTEMS FOR COMMERCIAL
RESALE AND MAY BE UNABLE TO MANUFACTURE OUR PRODUCTS FOR COMMERCIAL SALE ON A
PROFITABLE OR RELIABLE BASIS.

     Although some of our management personnel have manufacturing experience, as
an organization we do not have any experience in manufacturing drug delivery
systems for commercial sale. We must increase our production capabilities
significantly beyond our present manufacturing capacity, which has been focused
on producing small quantities of our LidoSite product for research and clinical
testing, and incur significant capital expense in order to be able to sell our
LidoSite product in commercial volumes in a cost effective manner. The equipment
and machinery that we use to manufacture the drug and patches for our LidoSite
product are expensive and custom-built, and have never been used in the
large-scale production of pre-filled drug delivery patches.

     We cannot assure investors that we can:

          o    successfully increase our manufacturing capabilities and develop
               large-scale manufacturing processes on a profitable basis;

          o    hire and retain skilled personnel to oversee our manufacturing
               operations;

          o    avoid design and manufacturing defects; or

          o    develop and maintain our manufacturing facility in compliance
               with governmental regulations, including the FDA's good
               manufacturing practices.

     We may not be able to manufacture our LidoSite product, or any future
products, in a manner that ensures that the systems provide reproducible dosages
of stable formulations of drugs for sufficient periods after manufacture. If we
cannot ensure that our products have sufficient post-production shelf-life, we
may be unable to produce our products in sufficient quantities to develop an
economical supply chain. Accordingly, we may not be able to successfully manage
our inventory.

OUR NEED TO EXPAND OUR FACILITIES WILL EXPOSE US TO ADDITIONAL EXPENSES THAT MAY
MATERIALLY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

     To date, all of our manufacturing, research and development and
administrative functions have been operated out of a single facility that we
sublease from Becton Dickinson. We recently entered into a lease for a second
facility to be utilized as we expand our manufacturing capacity. We expect to
incur substantial expenses in preparing this facility for production.

                                       34
<PAGE>

AT LEAST UNTIL WE OPERATE OUT OF MORE THAN ONE FACILITY, WE ARE SUBJECT TO
SUBSTANTIAL BUSINESS DISRUPTION RISKS.

     In the event that events outside of our control - such as a fire, adverse
weather conditions or acts of terrorism - preclude us from operating in our
existing facility, we will have no facility available to us for our
manufacturing processes until our second facility becomes operational. In the
interim, we would likely experience substantial delays in our ability to
manufacture products. In such instances, it could become necessary for us to
incur substantial expenditures to assure that our customers' orders are
fulfilled.

THE FAILURE OF ANY OF OUR PRODUCTS, INCLUDING OUR LIDOSITE PRODUCT, TO ACHIEVE
MARKET ACCEPTANCE COULD MATERIALLY AND ADVERSELY IMPACT OUR FUTURE SUCCESS.

          o    the safety and efficacy of our products;

          o    regulatory approval and product labeling;

          o    the availability, safety, efficacy and ease of use of alternative
               technologies;

          o    the price of our products relative to alternative technologies;
               and

          o    for future products, the availability of third-party
               reimbursement.

     Our LidoSite product is based upon a method of drug delivery through the
skin that, to date, has not gained widespread market acceptance. We cannot
assure you that LidoSite or any future product will ever gain broad market
acceptance.

     In addition, the adoption of new pharmaceutical products is greatly
influenced by health care administrators, inclusion in hospital formularies, and
reimbursement by third party payors. Because our existing and proposed drug
delivery systems encompass both a device and a drug and may be used by many
different departments within a hospital or health care facility, buying
decisions in these settings require more departmental approvals than are
required for either a stand-alone drug or a stand-alone device. As a result, it
may be more difficult and more time consuming to achieve market penetration with
our products. We cannot assure investors that health care administrators,
hospitals or third party payors will accept our products on a large scale or on
a timely basis, if at all, or that we will be able to obtain approvals for
additional indications and labeling for our products which facilitate or expand
their market acceptance or use. In addition, unanticipated side effects, patient
discomfort, defects or unfavorable publicity concerning any of our products, or
any other product incorporating technology similar to that used by our products,
could have a material adverse effect on our ability to commercialize our
products or achieve market acceptance.

WE MAY BE UNABLE TO SECURE STRATEGIC PARTNERING RELATIONSHIPS, WHICH COULD LIMIT
OUR ABILITY TO EFFECTIVELY MARKET, SELL OR DISTRIBUTE OUR PRODUCTS.

     In order for us to develop, market, sell and distribute future products, we
will be dependant on entering into satisfactory arrangements with strategic
partners. We cannot assure investors that we will be able to negotiate such
agreements on terms that are acceptable to us, or at all. In addition, we cannot
assure any investor that any strategic partner, including B. Braun, will not
also engage in independent development of competitive delivery technologies.

IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY AND PRESERVE OUR TRADE
SECRETS, WE WILL INCREASE OUR VULNERABILITY TO COMPETITORS WHICH COULD TAKE
ACTIONS THAT COULD MATERIALLY ADVERSELY IMPACT OUR ABILITY TO REMAIN IN
BUSINESS.

     Our ability to successfully commercialize our LidoSite product and any
other products that we develop will depend, in large measure, on our ability to
protect those products and our technology with United States and foreign
patents. We will also need to continue to preserve our trade secrets. The
issuance of a patent is not conclusive as to

                                       35
<PAGE>

its validity or as to the enforceable scope of the claims of the patent. The
patent positions of pharmaceutical, biotechnology and drug delivery companies,
including our company, are uncertain and involve complex legal and factual
issues.

     We cannot assure you that our patents will prevent other companies from
developing similar products or products which produce benefits substantially the
same as our products, or that other companies will not be issued patents that
may prevent the sale of our products or require us to pay significant licensing
fees in order to market our products. Accordingly, if our patent applications
are not approved or, even if approved, if such patents are circumvented or not
upheld in a court of law, our ability to competitively exploit our patented
products and technologies may be significantly reduced. Additionally, the
coverage claimed in a patent application can be significantly reduced before the
patent is issued.

     From time to time, we may need to obtain licenses to patents and other
proprietary rights held by third parties in order to develop, manufacture and
market our products. If we are unable to timely obtain these licenses on
commercially reasonable terms, our ability to commercially exploit such products
may be inhibited or prevented. Additionally, we cannot assure investors that any
of our products or technology will be patentable or that any future patents we
obtain will give us an exclusive position in the subject matter claimed by those
patents. Furthermore, we cannot assure investors that our pending patent
applications will result in issued patents, that patent protection will be
secured for any particular technology, or that our issued patents will be valid,
enforceable and provide us with meaningful protection.

IF WE ARE REQUIRED TO ENGAGE IN EXPENSIVE AND LENGTHY LITIGATION TO ENFORCE OUR
INTELLECTUAL PROPERTY RIGHTS, THE COSTS OF SUCH LITIGATION COULD BE MATERIAL TO
OUR RESULTS OF OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY AND, IF WE ARE
UNSUCCESSFUL, THE RESULTS OF SUCH LITIGATION COULD MATERIALLY ADVERSELY IMPACT
OUR ENTIRE BUSINESS.

     We may find it necessary to initiate litigation to enforce our patent
rights, to protect our trade secrets or know-how or to determine the scope and
validity of the proprietary rights of others. We plan to aggressively defend our
proprietary technology and any issued patents. Litigation concerning patents,
trademarks, copyrights and proprietary technologies can often be time-consuming
and expensive and, as with litigation generally, the outcome is inherently
uncertain.

     Although we have entered into invention assignment agreements with our
employees and with certain advisors, if those employees or advisors develop
inventions or processes independently which may relate to products or technology
under development by us, disputes may also arise about the ownership of those
inventions or processes. Time-consuming and costly litigation could be necessary
to enforce and determine the scope of our rights under these agreements.

     We also rely on confidentiality agreements with our strategic partners,
customers, suppliers, employees and consultants to protect our trade secrets and
proprietary know-how. We may be required to commence litigation to enforce such
agreements and it is certainly possible that we will not have adequate remedies
for breaches of our confidentiality agreements.


OTHER COMPANIES MAY CLAIM THAT OUR TECHNOLOGY INFRINGES ON THEIR INTELLECTUAL
PROPERTY OR PROPRIETARY RIGHTS AND COMMENCE LEGAL PROCEEDINGS AGAINST US WHICH
COULD BE TIME-CONSUMING AND EXPENSIVE AND COULD RESULT IN OUR BEING PROHIBITED
FROM DEVELOPING, MARKETING, SELLING OR DISTRIBUTING OUR PRODUCTS.

     Because of the complex and difficult legal and factual questions that
relate to patent positions in our industry, we cannot assure you that our
products or technology will not be found to infringe upon the intellectual
property or proprietary rights of others. Third parties may claim that our
products or technology infringe on their patents, copyrights, trademarks or
other proprietary rights and demand that we cease development or marketing of

                                       36
<PAGE>

those products or technology or pay license fees. We may not be able to avoid
costly patent infringement litigation, which will divert the attention of
management away from the development of new products and the operation of our
business. We cannot assure investors that we would prevail in any such
litigation. If we are found to have infringed on a third party's intellectual
property rights, we may be liable for money damages, encounter significant
delays in bringing products to market or be precluded from manufacturing
particular products or using particular technology.

     Other parties have challenged certain of our foreign patent applications.
If such parties are successful in opposing our foreign patent applications, we
may not gain the protection afforded by those patent applications in particular
jurisdictions and may face additional proceedings with respect to similar
patents in other jurisdictions, as well as related patents. The loss of patent
protection in one jurisdiction may influence our ability to maintain patent
protection for the same technology in another jurisdiction.

IF WE DO NOT ACCURATELY PREDICT DEMAND FOR OUR PRODUCTS WHEN DECIDING TO INVEST
IN NEW PRODUCTS, WE WILL LIKELY INCUR SUBSTANTIAL CAPITAL EXPENDITURES THAT WILL
NOT BENEFIT OUR BUSINESS.

     Research and development, clinical testing and obtaining regulatory
approvals for new drug delivery systems takes a significant amount of time and
requires significant investment in skilled engineering and scientific personnel
and in expensive equipment. Furthermore, manufacturing our lidocaine delivery
system requires expensive, custom-built machinery. We have made these
investments, and intend to continue to make such investments, for our LidoSite
product based on internal projections of the potential market for that system
and of our potential profit margins on sales of that system. If those
projections are inaccurate, we may not be able to obtain an acceptable return on
our investment in the development of our LidoSite product. If our projections of
the prospects of new products are inaccurate, we may make investments in the
development, testing and approval of those products that may result in
unsatisfactory returns.

WE MAY BE UNABLE TO HIRE AND RETAIN SKILLED ENGINEERS AND SCIENTISTS IN A TIGHT
LABOR MARKET, IN WHICH CASE WE WILL BE SEVERELY HAMPERED IN OUR PRODUCT
DEVELOPMENT EFFORTS AND IN OUR ABILITY TO ATTRACT MARKETING AND DISTRIBUTION
PARTNERS.

     Skilled employees in our industry are in great demand. We are competing for
employees against companies located near our headquarters that are more
established than we are and have the ability to pay more cash compensation than
we do. We require scientific and engineering personnel in many fields, some of
which are addressed by relatively few companies. As a result, we may continue to
experience difficulty in hiring and retaining highly skilled employees,
particularly engineers and scientists. If we are unable to hire and retain
skilled engineers and scientists, our business, financial condition, operating
results and future prospects could be materially adversely affected.

IF WE ARE UNABLE TO RETAIN OUR KEY MANAGEMENT PERSONNEL, OUR BUSINESS, FINANCIAL
CONDITION, OPERATING RESULTS AND FUTURE PROSPECTS COULD BE MATERIALLY ADVERSELY
AFFECTED.

     Our future success depends, to a significant degree, on the skills,
experience and efforts of our key management personnel, principally Vincent De
Caprio, Ph.D., our president and chief executive officer, Michael McGuinness,
our chief financial officer, and James Garrison, our vice president of business
development. If any of those individuals were unable or unwilling to continue in
their present positions, it would be necessary for us to identify and hire
replacements, which could be time-consuming and expensive and could divert our
focus from our business objectives. Furthermore, such replacements may not be as
successful in attracting and retaining marketing and distribution partners as
our current management may be. Mr. McGuinness is not bound by an employment
agreement with the Company. We do not maintain key person life insurance on any
of our management personnel.

IF WE ARE UNABLE TO DEVELOP PRODUCTS OR TECHNOLOGIES THAT WILL BE MARKETABLE, WE
WILL NOT BE ABLE TO REMAIN IN BUSINESS.

     We may not be able to develop drug delivery products or technologies that
will be marketable. Even if we are able to develop marketable drug delivery
products or technologies, we may not be able to develop them or obtain

                                       37
<PAGE>

patent protection, successful clinical trial results or regulatory approval for
them. Our research and development efforts may be hampered by a variety of
factors, many of which are outside of our control. Sustained development
failures could materially adversely impact our business.

WE FACE SUBSTANTIAL COMPETITION FOR OUR LIDOSITE PRODUCT AND ANY FUTURE PRODUCTS
THAT WE MAY DEVELOP, AS WELL AS FOR STRATEGIC PARTNERSHIP TRANSACTIONS. OUR
FAILURE TO ADEQUATELY COMPETE COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
ABILITY TO DEVELOP, MARKET AND SELL OUR PRODUCTS AND MEET OUR FINANCIAL
PROJECTIONS.

     There is substantial competition to develop alternative drug delivery
solutions from both drug delivery technology and pharmaceutical companies, most
of which are much larger and have far greater resources than we do. Further, the
drug delivery, pharmaceutical and biotechnology industries are highly
competitive and rapidly evolving. We expect that significant developments in
those industries will continue at a rapid pace. Our success will depend on our
ability to establish and maintain a strong competitive position for our LidoSite
product while developing new products that are effective and safe. We cannot
assure you that any of our products will have advantages over alternative
products and technologies that may be developed later and that may be
significant enough to cause health care providers to prefer those products or
technologies over ours.

     In our drug delivery segment, focused on the process of actively delivering
drugs through the skin, we are aware of several companies that are developing or
marketing products based on this process. We also face competition from
companies that are currently testing or already marketing delivery systems or
products for lidocaine or similar topical anesthetics. We face indirect
competition from companies that are actively involved in the development and
commercialization of modified drug delivery technologies, including oral,
pulmonary, bucal, nasal and needle-less injections, as well as companies working
on processes that passively deliver drugs through the skin. We also expect to
compete with other drug delivery companies and technologies in the establishment
of strategic partnering arrangements with large pharmaceutical companies to
assist in the development or marketing of products. Competition is expected to
intensify as more companies enter the field.

     Many of our competitors have substantially greater financial, technical,
research and other resources, are more experienced in research and development,
manufacturing, pre-clinical and clinical testing, and obtaining regulatory
approvals, and are larger, more established and have more collaborative partners
than we do. In addition, those other entities may offer broader product lines
and have greater name recognition than we do. Those other entities may succeed
in developing competing technologies and obtaining regulatory approvals and
market share more rapidly than we can. Some of those companies have competing
products that have already been approved by the FDA and foreign authorities, or
are further along in development than is our LidoSite product. We cannot assure
you that those competitors will not succeed in developing or marketing products
that are more effective or more commercially acceptable than our lidocaine
delivery system or any future product. We cannot assure you that we will have
the financial resources, technical or management expertise or manufacturing and
sales capability to compete in the future.

     Increased competition may result in price cuts, reduced gross margins and
loss of market share, any of which could have a material adverse effect on our
business, financial condition, results of operations and future prospects.


IF BECTON DICKINSON DEVELOPS COMPETING TECHNOLOGIES, OUR ABILITY TO MAINTAIN OUR
CURRENT MARKET POSITION WILL BE PARTICULARLY VULNERABLE.

     Becton Dickinson has substantial insight into the potential applications of
our drug delivery technologies, and our business model, as we were operated as a
division of Becton Dickinson for over ten years. Further, Becton Dickinson is in
the business of developing alternative drug delivery technologies and we may
compete in the future with alternative technologies developed or acquired by
Becton Dickinson. Becton Dickinson has developed drug delivery technology
employing "micro-needles", tiny needles that deliver compounds into the first
few hundred

                                       38
<PAGE>

microns of the skin. This technology, which has not yet been commercialized, may
compete directly with our current technology. Given its size, access to capital
and familiarity with our business, Becton Dickinson could make substantial
inroads into our business prospects if it decides to compete directly with us.

WE MAY NOT BE ABLE TO LICENSE COMPLEMENTARY DRUG DELIVERY TECHNOLOGIES OR DRUG
REFORMULATIONS TO EXPAND OUR PRODUCT OFFERINGS, IN WHICH CASE WE WILL BE
SIGNIFICANTLY LIMITED IN OUR PRODUCT OFFERINGS.

     In order to enhance our platform technology, strengthen our intellectual
property portfolio and expand our overall market opportunity beyond that for our
LidoSite product, we may seek to acquire or license rights to additional drug
delivery technologies or reformulations of FDA-approved drugs that compliment
our core drug delivery platform. We may not be able to acquire or license such
other technologies or drug reformulations on terms that are acceptable to us, if
at all. Further, efforts to identify such technologies and attempts to negotiate
the terms of such acquisitions or licenses may divert the attention of our
management away from the internal development of new applications for our
existing technology and from the operation of our business.

IF ANY OF OUR PRODUCTS INJURES A USER, WE COULD BE SUBJECT TO PRODUCT LIABILITY
EXPOSURE IN EXCESS OF AMOUNTS FOR WHICH WE ARE INSURED, WHICH COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND FUTURE PROSPECTS.

     Clinical trials and subsequent sales of our LidoSite product or any other
drug delivery system we may develop or manufacture in the future may result in
injuries to persons using those products as a result of mislabeling, misuse or
product failure. While we carry product liability insurance with respect to the
now-completed clinical trials and for the commercial sale of our LidoSite
product, there can be no assurance that our coverage will be adequate to protect
us against future liability claims. Furthermore, we cannot assure you that that
we can afford to maintain the insurance that we have obtained. Product liability
insurance is expensive and there can be no assurance that this insurance will be
available to us in the future for the commercial sale of our lidocaine delivery
system or for any new products, on terms satisfactory to us, if at all. A
successful product liability claim or series of claims brought against us in
excess of our insurance coverage could have a material adverse effect on our
business, financial condition, results of operations and future prospects.

IF WE DEFAULT UNDER OUR WORKING CAPITAL FACILITY, OUR LENDER WILL BE ABLE TO
ENFORCE ITS LIEN AND TAKE TITLE TO OUR ASSETS, WHICH COULD LIMIT OUR ABILITY TO
CONTINUE AS A GOING CONCERN.

     Our working capital facility, if used, will be secured by a first priority
lien on all of the assets of our operating subsidiary. In the past, we have
defaulted on promissory notes due to our lack of liquidity. If we borrow under
our working capital facility and are unable to raise sufficient capital to
timely repay our obligations under the working capital facility, the lender, an
affiliate of our principal stockholder -- will be entitled to enforce its lien
and take title to substantially all of our assets, which may be critical to our
continuing operations.


WE DO NOT INTEND TO PAY DIVIDENDS AND, CONSEQUENTLY, THE ONLY OPPORTUNITY FOR
INVESTORS TO ACHIEVE A RETURN ON THEIR INVESTMENT IS IF A TRADING MARKET
DEVELOPS AND INVESTORS ARE ABLE TO SELL THEIR SHARES AT A PROFIT OR IF OUR
BUSINESS IS SOLD AT A PRICE THAT ENABLES INVESTORS TO RECOGNIZE A PROFIT.

     We will need all of our cash resources to fund our operations, including
the development of future products. Accordingly, we do not expect to pay cash
dividends in the foreseeable future on our common stock. We cannot assure
investors any return on their investment other than in connection with a sale of
their shares or a sale of our business. At the present time there is no active
trading market for our shares and we have no intention of selling our business.
We cannot assure investors that an active trading market will develop or that
any third party would offer to purchase our business on acceptable terms and at
a price that would enable our investors to recognize a profit.

                                       39
<PAGE>

There is no established public trading market or market maker for our
securities. Therefore, if you purchase our securities, you may be unable to sell
them. Accordingly, you should be able to bear the financial risk of losing your
entire investment.

WE ARE REQUIRED TO MAKE LIQUIDATED DAMAGES PAYMENTS TO CERTAIN OF THE SELLING
STOCKHOLDERS, WHICH COULD MATERIALLY AFFECT OUR FINANCIAL CONDITION.

     We have filed a registration statement with the SEC relating to the resale
of shares of Vyteris Holdings common stock. Since the registration statement was
not declared effective by the SEC by February 25, 2005, we are obligated to pay
to certain stockholders an amount equal to 1% of the purchase price paid by such
stockholders for the shares owned by such stockholders which are covered by the
registration statement, and for each month, or portion of a month, in which such
delay continued, an amount equal to 2% of such purchase price, until we have
cured the delay, with an overall cap on such liquidated damages of 10% of the
aggregate purchase price paid by such stockholders for such shares. As of March
31, 2005, we were obligated to pay liquidated damages of $0.8 million, which
payment would materially adversely affect the our financial condition. The
registration statement was declared effective on the May 12, 2005 resulting in
an obligation to pay liquidated damages of approximately $1.4 million.

OUR COMPLIANCE WITH THE SARBANES-OXLEY ACT AND SEC RULES CONCERNING INTERNAL
CONTROLS MAY BE TIME CONSUMING, DIFFICULT AND COSTLY FOR US.

     Although individual members of our management have experience as officers
of publicly-traded companies, that experience came prior to the adoption of the
Sarbanes-Oxley Act of 2002. Vyteris had never operated as a publicly-traded
company. It may be time consuming, difficult and costly for us to develop and
implement the internal controls and reporting procedures required by the
Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal
controls and other finance staff in order to develop and implement appropriate
internal controls and reporting procedures. If we are unable to comply with the
internal controls requirements of the Sarbanes-Oxley Act, we may not be able to
obtain the independent accountant certifications that the Sarbanes-Oxley Act
requires publicly-traded companies to obtain.

OUR CONTROLLING STOCKHOLDER MAY TAKE ACTIONS THAT CONFLICT WITH YOUR INTERESTS.

     Kevin Kimberlin, through his ownership of Spencer Trask Specialty Group,
LLC, or STSG, and related parties is our controlling stockholder. Mr. Kimberlin
and related parties beneficially own over 60% of our voting stock. Accordingly,
Mr. Kimberlin controls us and has the power to elect our directors and to
generally approve all actions requiring the approval of the holders of our
voting stock, including adopting amendments to our articles of incorporation and
bylaws and approving mergers, certain acquisitions or sales of all or
substantially all of our assets, which could delay or prevent someone from
acquiring or merging with us or limiting the ability of our other stockholders
to approve transactions that they may deem to be in their best interest.


THERE HAS BEEN NO ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK, AND STOCKHOLDERS
MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE PURCHASE PRICE PAID BY
SUCH STOCKHOLDER, OR AT ALL.

     There is no current active public market for Vyteris Holdings common stock.
An active public market for our common stock may not develop or be sustained in
the future. The market price of our common stock may fluctuate significantly in
response to factors, some of which are beyond our control, such as: the
announcement of new products or product enhancements by us or our competitors;
developments concerning intellectual property rights and regulatory approvals;
quarterly variations in our competitors' results of operations; changes in
earnings estimates or recommendations by securities analysts; developments in
our industry; and general market conditions

                                       40
<PAGE>

and other factors, including factors unrelated to our own operating performance.
The stock market in general has recently experienced extreme price and volume
fluctuations. Continued market fluctuations could result in extreme volatility
in the price of our common stock, which could cause a decline in the value of
our common stock. Prospective investors should also be aware that price
volatility might be worse if the trading volume of our common stock is low.

WE MAY NOT BE ABLE TO ATTRACT THE ATTENTION OF MAJOR BROKERAGE FIRMS, WHICH
COULD HAVE A MATERIAL ADVERSE IMPACT ON THE MARKET VALUE OF OUR COMMON STOCK

     Security analysts of major brokerage firms may not provide coverage of our
common stock since there is no incentive to brokerage firms to recommend the
purchase of our common stock. The absence of such coverage limits the likelihood
that an active market will develop for our common stock. It also will likely
make it more difficult to attract new investors at times when we require
additional capital.

WE MAY BE UNABLE TO LIST OUR COMMON STOCK ON NASDAQ OR ANY OTHER SECURITIES
EXCHANGE, IN WHICH CASE AN INVESTOR MAY FIND IT MORE DIFFICULT TO DISPOSE OF
SHARES OR OBTAIN ACCURATE QUOTATIONS AS TO THE MARKET VALUE OF OUR COMMON STOCK.

     Although we may apply to list our common stock on Nasdaq or the American
Stock Exchange in the future, we cannot assure you that we will be able to meet
the initial listing standards, including the minimum per share price and minimum
capitalization requirements, of either of those or any other stock exchange, or
that we will be able to maintain a listing of our common stock on either of
those or any other stock exchange. If we are unable to list our common stock on
Nasdaq, the American Stock Exchange or another stock exchange, or to maintain
its listing, we expect that our common stock will trade on the OTC Bulletin
Board maintained by Nasdaq, another over-the-counter quotation system, or on the
"pink sheets," where an investor may find it more difficult to dispose of shares
or obtain accurate quotations as to the market value of our common stock. In
addition, we are subject to an SEC rule that, if we fail to meet the criteria
set forth in such rule, imposes various practice requirements on broker-dealers
who sell securities governed by the rule to persons other than established
customers and accredited investors. Consequently, such rule may deter
broker-dealers from recommending or selling our common stock, which may further
affect the liquidity of our common stock. It would also make it more difficult
for us to raise additional capital.

OUR COMMON STOCK MAY BE CONSIDERED A "PENNY STOCK" AND MAY BE DIFFICULT TO SELL.

     The SEC has adopted regulations which generally define a "penny stock" to
be an equity security that has a market price of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to specific exemptions.
Even though we have effected a one for ten reverse stock split, the market price
of our common stock, if a market develops, will initially be less than $5.00 per
share and therefore it may be designated as a "penny stock" according to SEC
rules. This designation requires any broker or dealer selling these securities
to disclose certain information concerning the transaction, obtain a written
agreement from the purchaser and determine that the purchaser is reasonably
suitable to purchase the securities. These rules may restrict the ability of
brokers or dealers to sell our common stock and may affect the ability of
investors to sell their shares.

SALES OF A SIGNIFICANT NUMBER OF SHARES OF OUR COMMON STOCK, WHICH WERE RECENTLY
REGISTERED BY US, COULD DEPRESS THE MARKET PRICE OF OUR STOCK.

     On May 11, 2005, the SEC declared effective our registration statement on
Form SB-2 covering 12,960,174 shares of our common stock. Those shares are held
by the shareholders named in the prospectus contained within that registration
statement, who may resell those shares subject to the requirements of applicable
law, which includes the requirement that the selling shareholder deliver a copy
of that prospectus to the purchaser of those shares. Sales of a significant
number of those shares in the public market, as well as the increase in the
supply of shares of our common stock available for sale as a result of the
registration of those 12,960,174 shares, could harm the market price of our
common stock.

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<PAGE>

ITEM 3. CONTROLS AND PROCEDURES

     We carried out an evaluation required by the Securities Exchange Act of
1934, under the supervision and with the participation of our chief executive
officer and chief financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, our chief executive officer
and chief financial officer have concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures were effective in
timely alerting them to material information required to be included in our
periodic Securities and Exchange Commission reports.

     During the most recent fiscal quarter, there has been no change in our
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.




                                       42
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     In January 1999, Alza Corporation filed an opposition in the European
Patent Office, or EPO, against European Patent No. 0 547 482, entitled
"Iontophoresis System Having Features for Reducing Skin Irritation". We refer to
this patent as the `482 patent. Becton Dickinson owned the `482 patent at the
time Alza filed the opposition and filed an answer challenging the opposition.
Becton Dickinson subsequently assigned the patent to Vyteris The EPO issued a
preliminary opinion on November 11, 2000 upholding the `482 patent. During an
oral hearing in the opposition on March 5, 2001, however, the EPO ruled that the
`482 patent's claims lacked an inventive step, and it therefore revoked the
patent. We appealed the EPO's decision. We requested oral arguments and
submitted written arguments to the EPO on March 26, 2004 for its consideration
of amended claims believed patentable over the prior art of record.

     In August 2000, Alza filed an opposition in the EPO against European Patent
No. 0 783 346, entitled "Improved Iontophoretic Drug Delivery Device". We refer
to this patent as the "'346 patent". Becton Dickinson then owned the '346
patent, and subsequently assigned the patent to us. In the opposition, Alza
alleged that the patent should be revoked because, among other things, each of
the claims lacks novelty or an inventive step over the prior art. We responded
to the opposition by amending the specification of the patent, canceling two of
the patent's claims, and submitting arguments that the remaining claims are
patentable over the prior art. Subsequently the opposition was heard at the EPO
on October 8, 2002 and the EPO panel ruled in favor of us. Alza has appealed the
EPO panel's decision and final oral arguments will be required prior to a
decision on the appeal.

     In September of 2004, Alza filed an opposition in the EPO against European
Patent No. 0 971 769, entitled, Circuit and Method for Automatically Turning Off
an Iontophoretic System, which we refer to as the "769 patent". In the
opposition, Alza has alleged that the `769 Patent should be revoked because each
of the claims lacks novelty or an inventive step over the prior art. The
deadline for our response has been set for May 2005.

     In February 2005, we received correspondence from Dr. George Nascaris, who
we believe to be the principal of Greystone Healthcare Group, Inc., and Dr.
Nascaris' counsel, threatening to bring a lawsuit or mediation proceeding
against us in connection with a dispute over fees which Greystone alleges should
have been paid pursuant to an agreement between us and Greystone with respect to
an alternative financing transaction which neither Vyteris nor Vyteris Holdings
has consummated, nor is currently pursuing. We believe that Greystone's claims
are without merit and that, if such a suit or proceeding is actually commenced,
Vyteris Holdings and Vyteris will have substantial defenses and counterclaims
against Greystone. Vyteris and Greystone have expressed their respective
positions in several subsequent letters. If such a suit or proceeding is
actually commenced against either Vyteris Holdings or Vyteris, Vyteris Holdings
and Vyteris intend to defend it vigorously. We do not believe that an adverse
outcome of this matter will be material to our consolidated financial position,
results of operations or cash flows.

     From time to time, we are involved in other lawsuits, claims,
investigations and proceedings, including pending opposition proceedings
involving patents, that arise in the ordinary course of business. There are no
matters pending that we expect to have a material adverse impact on our
business, results of operations, financial condition or cash flows.

                                       43
<PAGE>

ITEM 6. EXHIBITS

    ITEM 6(A)                            EXHIBITS

    31.1        Certification by the Chief Executive Officer pursuant to Rule
                13a-14(a) under the Securities Exchange Act of 1934

    31.2        Certification by the Chief Financial Officer pursuant to Rule
                13a-14(a) under the Securities Exchange Act of 1934

    32.1        Certification by the Chief Executive Officer pursuant to 18
                U.S.C. Section 1350

    32.2        Certification by the Chief Financial Officer pursuant to 18
                U.S.C. Section 1350


                                    SIGNATURE

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.

Date: May 16, 2005                       Vyteris Holdings (Nevada), Inc.

                                         /s/ Michael McGuinness
                                         ---------------------------------------
                                             Michael McGuinness
                                             Vice President and Chief Financial
                                             Officer, Assistant Secretary and
                                             Treasurer


                                       44
<PAGE>

                                  EXHIBIT INDEX


  EXHIBITS NO.                            DESCRIPTION

    31.1        Certification by the Chief Executive Officer pursuant to Rule
                13a-14(a) under the Securities Exchange Act of 1934

    31.2        Certification by the Chief Financial Officer pursuant to Rule
                13a-14(a) under the Securities Exchange Act of 1934

    32.1        Certification by the Chief Executive Officer pursuant to 18
                U.S.C. Section 1350

    32.2        Certification by the Chief Financial Officer pursuant to 18
                U.S.C. Section 1350





                                       45