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

                                   FORM 10-KSB
(Mark One)
[X]      Annual  report  pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934 For the Fiscal Year ended December 31, 2003 OR

[ ]      Transition  report  pursuant  to Section 13 or 15(d) of the  Securities
         Exchange Act of 1934 for the transition  period from ________to________

                        Commission File Number 001-13835

                          APPLIED NEUROSOLUTIONS, INC.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its Charter)

           Delaware                                       39-1661164
 -------------------------------                      -------------------
 (State or Other Jurisdiction of                        (IRS Employer
 Incorporation or Organization)                       Identification No.)

             50 Lakeview Parkway, Suite 111, Vernon Hills, IL 60061
             ------------------------------------------------------
              (Address of Principal Executive Offices and Zip Code)

                                 (847) 573-8000
              ----------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)

                                 HEMOXYMED, INC.
            ---------------------------------------------------------
            (Former name of Registrant, if changed since last report)

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

          Securities registered pursuant to Section 12 (g) of the Act:

                                (Title of Class)
                         Common Stock, $0.0025 par value


Check  whether the issuer (1) filed all reports  required to be filed by section
13 or 15(d) of the  Exchange  Act of 1934 during the past 12 months (or for such
shorter period that the  Registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.
         Yes  X    No
             ---     ---

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-K is not contained in this form, and no disclosure  will be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year:  $0

As of March 17, 2004, the aggregate market value of voting common equity held by
non-affiliates   of  the  Registrant   (57,891,285   shares)  was  approximately
$21,419,775. The aggregate market value was computed by reference to the "Close"
price of such common equity as of that date.

As of March 17,  2004,  the  Registrant  had  90,641,812  shares of Common Stock
issued and outstanding.


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<TABLE>
<CAPTION>
                                      INDEX

                                                                                                                PAGE
PART I
<S>      <C>                                                                                                       <C>
    Item 1.              Description of business....................................................................1.
    Item 2.              Description of property...................................................................18.
    Item 3.              Legal proceedings.........................................................................18.
    Item 4.              Submission of matters to a vote of security holders.......................................18.

PART II
    Item 5.              Market for common equity and related stockholder matters..................................18.
    Item 6.              Management's discussion and analysis or plan of operation.................................21.
    Item 7.              Financial statements......................................................................29.
    Item 8.              Changes in and disagreements with accountants on accounting and financial disclosure......50.
    Item 8a.             Controls and procedures...................................................................50.

PART III
    Item 9.              Directors, executive officers, promoters and control persons; compliance with
                         section 16(a) of the exchange act ........................................................50.
    Item 10.             Executive compensation....................................................................52.
    Item 11.             Security ownership of certain beneficial owners and management and related
                         stockholder matters.......................................................................55.
    Item 12.             Certain relationships and related transactions............................................55.
    Item 13.             Exhibits and reports on form 8-K..........................................................56.
    Item 14.             Principal accountant fees and services....................................................58.

SIGNATURES                                                                                                         60
CERTIFICATIONS                                                                                                     61
</TABLE>

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                                     PART I

         This Form 10-KSB contains forward-looking statements. For this purpose,
any  statements  contained  in this  Form  10-KSB  that  are not  statements  of
historical fact may be deemed to be forward-looking statements. You can identify
forward-looking   statements  by  those  that  are  not  historical  in  nature,
particularly  those  that  use  terminology  such as  "may,"  "will,"  "should,"
"expects,"  "anticipates,"  "contemplates,"  "estimates,"  "believes,"  "plans,"
"projected,"  "predicts,"  "potential,"  or  "continue" or the negative of these
similar  terms.  In  evaluating  these  forward-looking  statements,  you should
consider various  factors,  including those listed below under the heading "Item
1. Risk factors  related to our  business".  The  Company's  actual  results may
differ   significantly  from  the  results  projected  in  the   forward-looking
statements.   The  Company  assumes  no  obligation  to  update  forward-looking
statements.

         As used in this Form 10-KSB,  references to "APNS," the  "Company," the
"Registrant,"  "we," or "us" refer to Applied  NeuroSolutions,  Inc.  unless the
context otherwise indicates.

ITEM 1.  DESCRIPTION OF BUSINESS

         In October  2003,  the  Company's  shareholders  approved  amending the
Company's  Certificate  of  Incorporation  to  change  the  corporate  name from
Hemoxymed, Inc. to Applied NeuroSolutions, Inc. The name change became effective
on October  30,  2003.  Applied  NeuroSolutions,  Inc.  is a  development  stage
biopharmaceutical  company with two wholly-owned operating subsidiaries.  One of
the  wholly-owned  operating  subsidiaries is Molecular  Geriatrics  Corporation
("MGC"), a development stage biopharmaceutical  company incorporated in November
1991,  with  operations  commencing  in March 1992,  to develop  diagnostics  to
detect, and therapeutics to treat, Alzheimer's disease ("AD").

         The other wholly-owned operating subsidiary is Hemoxymed Europe, SAS, a
development  stage  biopharmaceutical  company  incorporated in February 1995 to
develop  therapies aimed at improving  tissue  oxygenation by increasing  oxygen
release from hemoglobin to provide  therapeutic  value to patients with serious,
although unmet or underserved,  medical needs (the "Hemoxygenation technology").
The Company is in the process of dissolving these two subsidiaries, and plans to
transfer all of their assets to APNS.

         On September 10, 2002,  the Company  established  a strategic  alliance
through the closing of its merger (the  "Merger")  with MGC.  Under the terms of
the Merger, the Company acquired all of MGC's outstanding common stock,  options
and  warrants  from MGC  holders in  exchange  for the  Company's  issuance  and
delivery to MGC shareholders,  optionholders and warrantholders of approximately
22,800,000 new,  unregistered  shares of the Company's common stock plus options
and warrants to purchase approximately  4,830,000 shares of the Company's common
stock.   Immediately  following  the  closing,  the  Company  had  approximately
47,700,000  shares of common  stock  issued and  outstanding  plus  options  and
warrants to purchase  approximately  7,400,000  shares of common stock, of which
former Company and former MGC holders each owned  approximately  50%, on a fully
diluted basis.  The Merger  Agreement  further provided that the management team
and Board of  Directors  of MGC took over  control  of the merged  company.  The
transaction was tax-free to the shareholders of both companies.

         This  transaction  has been  accounted  for as a  reverse  merger.  For
financial reporting purposes,  MGC is continuing as the primary operating entity
under the Company's name, and its historical  financial statements have replaced
those of the Company.  Thus, all financial  information prior to the Merger date
is the financial information of MGC only.

         Since the  merger,  the  Company  has  focused  most of its efforts and
resources  toward the  development  of its AD  technologies.  At this time,  the
Company  is  not  anticipating  committing  any  significant  resources  to  its
Hemoxygenation technology.

         The Company is subject to risks and  uncertainties  common to small cap
biotech companies, including competition from larger, well capitalized entities,
patent protection  issues,  availability of funding and government  regulations.
The Company raised $8,000,000  ($7,340,000 proceeds net of commissions and legal
fees) in  February  2004 to advance  its various  programs,  including  clinical
development of its most advanced programs (the "Offering").

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GENERAL

         Applied   NeuroSolutions,   Inc.,  in   partnership   with  a  team  of
distinguished  scientists at Albert  Einstein  College of Medicine  ("AECOM") is
primarily  engaged in the  research  and  development  of a  diagnostic  test to
detect,  and novel therapeutics to treat, AD in humans.  Alzheimer's  disease is
the most common cause of dementia among people age 65 and older. Dementia is the
loss of  memory,  reason,  judgment  and  language  to such  an  extent  that it
interferes with a person's daily life and activities.  Currently it is estimated
that four million people in the U.S. have AD and the national cost of caring for
people with AD is thought to be $100 billion annually.

         APNS is about to begin the final stage of clinical testing for its lead
product, a cerebrospinal fluid ("CSF") based diagnostic test to detect whether a
person has AD. The  Company has been  advised by its  consultant  in  diagnostic
clinical and regulatory  affairs that the completion of the final clinical study
and related  filing with the U.S.  Food and Drug  Administration  ("FDA") of the
premarket approval  application  ("PMA") should be completed within 12-15 months
of its  commencement.  The Company has been  further  advised  that FDA approval
could be received  within 3-6 months of the completion of the filing of the PMA.
It is anticipated that the PMA process, including the final clinical study, will
commence in April 2004.

         The Company is developing a second-generation,  serum-based  diagnostic
test to detect AD that will be easier to perform and less  expensive to use. The
Company believes the serum-based test, which is 10-12 months away from the start
of pivotal clinical trials, can be brought to market in the United States within
three years' time.

         The  Company is also  involved  in the  discovery  and  development  of
therapeutics to treat  Alzheimer's  disease based upon a unique theory developed
by Peter Davies,  Ph.D., the Company's  founding scientist and the Burton P. and
Judith Resnick  Professor of Alzheimer's  Disease Research at AECOM. As a result
of Dr. Davies' research,  the Company is involved in the development of a unique
therapeutic that may represent the first therapy able to stop the progression of
AD.

         APNS has also been  involved  in the  development  of a novel  platform
technology  for  increasing  the amount of oxygen  carried to the body's tissues
using either a patient's  own red blood cells or banked  blood.  The Company has
recently decided to suspend  development of this technology and may seek to sell
or license out this technology.

ALZHEIMER'S DISEASE BACKGROUND

         Alzheimer's  disease  is  an  intractable,  chronic  and  progressively
incapacitating  disease  characterized  by the degeneration and death of several
types of neurons in certain  regions  of the  brain.  Patients  affected  by the
disease  initially  suffer  loss  of  memory,  then a  decline  of  intellectual
abilities  severe enough to interfere  with work and activities of daily living,
followed  by severe  dementia  and,  finally,  death.  This  illness,  currently
affecting  an  estimated  four  million   people  in  the  United  States,   and
approximately ten million people  worldwide,  is a leading cause of death behind
cardiovascular  disease  and  cancer.  While the  disease is most  common in the
elderly, affecting nearly 10% of people age 65 and older and up to 50% of people
age 85 and older, it has been diagnosed in patients in their 40's and 50's.

         Alzheimer's disease was first described in 1907 by Dr. Alois Alzheimer,
a German  psychiatrist  who  discovered  large  numbers of  unusual  microscopic
deposits in the brain of a demented patient upon autopsy. These deposits, called
amyloid  plaques  and  neurofibrillary  tangles,  are highly  insoluble  protein
aggregates  that  form in the  brains  of AD  patients  in  particular  regions,
including those involved with memory and cognition. Generally, amyloid plaque is
deposited on the surface of neurons,  whereas neurofibrillary tangles are formed
within  neurons.  The plaques and tangles are associated with  degeneration  and
loss of neurons. The actual loss of neurons, as well as the impaired function of
surviving  neurons,  is  generally  believed  to be  the  key  neuropathological
contributors  to the memory loss and  dementia  that  characterizes  Alzheimer's
disease.

         APNS's core technology in the AD field is based on an exclusive license
with AECOM covering all diagnostic and therapeutic  applications in the field of
AD  discovered  in Dr. Peter  Davies'  laboratories.  Dr.  Davies'  research has
demonstrated   that  AD  is   caused   by  a  group   of   proteins;   primarily
hyperphosphorylated  tau, which are involved in the formation of neurofibrillary
tangles  within neurons (nerve  cells).  Excessive  phosphorylation  of tau (the
addition of one or more phosphate groups, which are comprised of phosphorous and
oxygen,  to a  molecule)  prevents  it from  stabilizing  microtubules,  thereby

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causing the  breakdown of the transit  system of the nerve cell.  This  internal
neuronal  damage leads to the  development of the paired  helical  filaments and
neurofibrillary  tangles which are contributing factors to the eventual death of
the  neurons   related  to   Alzheimer's   disease.   Tau  in  this   abnormally
phosphorylated  form is the building block for the paired helical  filaments and
the neurofibrillary  tangles (NFTs); one of the hallmark pathologies  associated
with AD. There is a high correlation  among the presence of  hyperphosphorylated
tau,  NFTs  and AD.  Thus,  it is  believed  that  the  hyperphosphorylated  tau
represents an early abnormality in the Alzheimer's disease process.

         Articles  published in the scientific  journals Nature  (co-authored by
Dr.  Peter  Davies) and  Proceedings  of the National  Academy of Sciences  have
described  research  showing  that a mutation  in the gene that codes for tau is
associated with dementia.  The research  described in the articles  demonstrates
that   abnormal  tau   represents   an   appropriate   target  for  research  on
neurodegenerative  diseases, such as Alzheimer's disease. Applied NeuroSolutions
scientists  and Dr.  Davies  have been  applying  their  expertise  in  research
directed  towards abnormal tau for many years and have developed a vast array of
proprietary  antibodies  which are being used in the development of a diagnostic
to detect, and therapeutics to treat, Alzheimer's disease.


DIAGNOSTIC PROGRAM

         Alzheimer's disease, at present, can be conclusively  diagnosed only by
histological  examination  of the brain by biopsy or autopsy.  The  diagnosis of
patients suspected of having AD is therefore typically made through a process of
elimination, by conducting neurological and psychiatric examinations,  extensive
laboratory  tests and a brain scan to rule out other conditions (such as stroke,
brain tumor, or depression) with similar symptoms.  The definitive AD predictive
accuracy of such exams is  generally  in the range of 75-80%,  however,  some AD
centers claim  accuracy of diagnosing AD in 85% of the cases they see.  Costs to
patients  for such  testing  currently  runs  anywhere  from $1,000 - $4,000.  A
simple, predictive, accurate and cost effective diagnostic assay would therefore
meet a tremendous medical need.

         APNS's   approach  to  meeting  this  need  revolves   around   several
approaches.  These approaches include:  i) the detection of  hyperphosphorylated
tau in cerebrospinal  fluid (CSF) and serum of AD patients and ii) the detection
of  autoantibodies to phosphorylated  tau in serum.  Competitive  diagnostics in
development include approaches to differentiate AD patients from normal patients
by attempting to measure:  i) normal tau, or total tau in CSF, ii) neural thread
protein in CSF and/or urine, or iii) glutamine synthetase in serum.

         The  Company  has  completed  the  development  of a  diagnostic  assay
utilizing CSF. To date, the Company has completed numerous studies comprising in
excess of 2,000 CSF samples utilizing this assay. These studies were designed to
test the  assay's  ability  to  differentiate  patients  diagnosed  with AD from
patients  diagnosed  with other  forms of  dementia  and  relevant  neurological
diseases, including major depression, as well as healthy controls. These studies
have shown the ability of the assay to correctly identify the patients diagnosed
with AD with an overall sensitivity and specificity in the 85% to 95% range. The
studies have been  published,  or have been submitted for  publication,  in peer
reviewed  scientific  journals  such  as  Neuroscience   Letters,   Archives  of
Neurology,  and  American  Journal  of  Psychiatry.  In  addition,  a study  was
completed  addressing  the  relationship  between  phosphotau  levels in CSF and
natural AD  progression.  The Company  has shown with its assay that  phosphotau
concentrations  in CSF declined  over time during the clinical  course of AD and
correlate well with the degree of cognitive impairment.  A synopsis of the study
has been published in Annals of Neurology.

         A recent  publication  (January 2004) in Archives of General Psychiatry
has shown that  phosphorylated  tau  ("ptau")  proteins  in CSF come  closest to
fulfilling the criteria of a biological marker for AD. This publication reported
that the  Company's  ptau test  exceeded  standards  for an AD  diagnostic  test
established  by the National  Institute of Aging and the Ronald and Nancy Reagan
Research Institute of the Alzheimer's Association in a 1998 published "Consensus
Report".  It was  determined by that group that a successful  biological  marker
would be one that had a sensitivity level and specificity level of at least 80%.


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         These data suggest that the phosphotau assay may represent an excellent
biochemical   marker   for  AD.  It   detects  a   characteristic   feature   of
pathophysiology,  may allow one to track  disease  progression,  and  accurately
discriminates  between AD patients  and  neurological  controls.  Pharmaceutical
companies  have  expressed  interest in utilizing the  Company's CSF  phosphotau
assay as a biomarker in the clinical development of therapeutics to treat AD. In
January 2003,  the Company  announced it entered into a Research  Agreement with
Pfizer  regarding  its CSF  diagnostic  test as a  biomarker  to detect  AD. The
Company entered into a second research agreement with Novartis in November 2003,
further validating its technology.

         APNS is about to begin  the final  stage of  clinical  testing  for its
cerebrospinal  fluid (CSF) based  diagnostic  test to detect AD. The Company has
been advised by its Consultant in Diagnostic  Clinical & Regulatory Affairs that
the completion of the final clinical study and related filing with the U.S. Food
and Drug Administration (FDA) of the premarket approval application (PMA) should
be  completed  within 12 - 15 months of its  commencement.  The Company has been
further  advised that FDA approval could be received  within 3 - 6 months of the
completion of the filing of the PMA. It is  anticipated  that the final clinical
study will commence in April 2004.

         The  Company   intends  to  secure  a  partner  for  the   manufacture,
distribution and marketing of its CSF-based diagnostic test. In order to address
this need,  the  Company  has had  preliminary  discussions  with one  potential
partner interested in world-wide rights to this AD test.

         The  Company's  second  approach to meeting the need for a  biochemical
marker to detect AD revolves around the detection in serum of  autoantibodies to
a protein  associated  with  Alzheimer's  disease.  The  Company  has  developed
prototype assays detecting these autoantibodies in serum, with a specificity and
sensitivity of  approximately  74%. The assay has the ability to distinguish the
presence of autoantibodies to the AD protein in individuals  diagnosed as having
AD from  non-demented  control  individuals.  The  Company is  currently  in the
process of refining the serum-based diagnostic prototype and expects to be ready
to begin the final phase of human clinical testing within 10 to 12 months.


THERAPEUTIC PROGRAM

         The  Company's  long-range  goal  is  to  discover  and  develop  novel
therapeutics to treat AD. Work is being  conducted  utilizing an in-vitro screen
Dr.  Davies  has  developed  that  could  lead  to the  discovery  of the  first
therapeutic to stop the progression of Alzheimer's  disease.  The basis for this
screen is the discovery of a pathway that is common to the  development  of both
the neurofibrillary tangles and amyloid plaques. The screen has been designed to
intervene in this common pathway,  potentially halting the progression of AD. To
date this new screen has been  utilized to examine a library of natural  product
extracts.  The  screening  activity has resulted in the discovery of a number of
extracts  that are active in the  screen.  These  extracts  represent  the first
"hits"  identified by the screen.  Based on the  completion of the next phase of
the discovery process,  it is anticipated that a lead compound can be chosen for
pre-clinical evaluation within one year.

         The  market  potential  for a drug  to  effectively  treat  Alzheimer's
disease is extremely large.  Currently there are only four drugs approved in the
U.S. to treat AD. All of these drugs are acetylcholinesterase inhibitors and are
only  beneficial  in treating  symptoms  associated  with AD in a minority of AD
patients. Despite the problems with the currently approved therapeutics,  market
research data indicate that these drugs sell over $1 billion annually.

         The FDA recently voted unanimously to approve the drug,  memantine,  to
treat  moderate  to severe  cases of AD. The FDA  approval  followed an advisory
panel  recommendation that noted that memantine was effective and safe, although
members of the panel said the drugs benefits appeared modest.  Analysts estimate
annual sales could exceed $500 million.


TRANSGENIC MICE MODEL

         To date, no accepted animal model for AD has been  developed.  However,
Dr.  Peter  Davies,  through  collaboration  with a  researcher  at Nathan Klein
Institute ("NKI"), has developed a transgenic mouse that develops paired helical
filaments,  the building blocks of the neurofibrillary  tangles, which are known
to be involved in the pathology of Alzheimer's  disease.  The pathology in these
mice is Alzheimer-like, with hyperphosphorylated tau accumulating in cell bodies

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and dendrites as  neurofibrillary  tangles.  In addition,  these transgenic mice
have exhibited  extensive  neuronal death which  accompanies  the tau pathology.
These new transgenic  mice could be used for testing the efficacy of therapeutic
compounds.  Several  pharmaceutical  and biotechnology  companies have expressed
interest  in  acquiring  access  to  these  transgenic  mice for  testing  their
therapeutics.  The Company and NKI recently announced plans to market these mice
to researchers.

CANCER THERAPEUTICS

         The Company has  identified an  opportunity  for the discovery of novel
anticancer  compounds,  and has access to various monoclonal antibodies which it
has licensed from AECOM,  that have been shown to be excellent  mitotic markers.
The Company has developed new screens in collaboration with Dr. Peter Davies and
investigators from the University of British Columbia ("UBC").  Due to a lack of
available  funds,  the Company has suspended  activity on this  program.  In the
event  that   sufficient   funds  are  raised,   the  Company  may  restart  its
collaborative  efforts to discover and develop new  antimitotic  agents to treat
cancer.

SALES AND MARKETING

         We  currently  have  no  sales  and  marketing  personnel  to sell on a
commercial  basis  any of our  proposed  products.  If and when we are  ready to
commercially  launch a product,  we will either  contract with or hire qualified
sales and  marketing  personnel or seek a joint  marketing  partner to assist us
with this function.

RESEARCH AND PRODUCT DEVELOPMENT

         We expect to spend a significant  amount of our financial  resources on
research  and  development  activities.   We  incurred  costs  of  approximately
$1,874,000 in 2003,  $1,780,000 in 2002,  and $1,265,000 in 2001 on research and
development  activities.  Since  we  are  not  yet  engaged  in  the  commercial
distribution  of any  products  and we have no  revenues  from  the  sale of our
products,  these  research  and  development  costs must be  financed  by us. We
estimate that we are currently spending  approximately  $130,000 to $150,000 per
month on  research  and  development  activities.  This  excludes  the effect of
variable  accounting  for equity  instruments  included  in the  annual  amounts
mentioned   above.   These   expenditures,    however,    may   fluctuate   from
quarter-to-quarter  and year-to-year  depending upon the resources available and
our  development  schedule.  Results of preclinical  studies,  clinical  trials,
regulatory  decisions and competitive  developments may significantly  influence
the amount of our research and development  expenditures.  In addition,  when we
begin the  clinical  development  of our  CSF-based  diagnostic  to  detect  AD,
research and development spending will significantly increase.

MANUFACTURING

         We currently do not have any facilities suitable for manufacturing on a
commercial  scale  basis  any of  our  proposed  products  nor  do we  have  any
experience in volume  manufacturing.  We will either find our own  manufacturing
facilities,  hire additional personnel with manufacturing  experience and comply
with the extensive Good Manufacturing Practices (GMP) regulations of the FDA and
other regulations applicable to such a facility or we will more likely rely upon
third-party  manufacturers  to manufacture  our proposed  products in accordance
with these regulations.

COMPETITION

         Companies in the pharmaceutical and biotechnology fields are subject to
intense  competition.  The Company  competes with numerous larger companies that
have  substantially  greater financial and other resources and longer experience
than that of the Company.  The principal  factors  affecting  the  biotechnology
market include scientific and technological  factors, the availability of patent
and other protection for technology and products, the ability and length of time
required to obtain governmental approval for testing,  manufacturing,  marketing
and physician  acceptance.  Companies  that  complete  clinical  trials,  obtain
regulatory  approvals and commence commercial sales of their products before the

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Company will achieve a  significant  competitive  advantage.  In addition,  such
companies  may succeed in developing  products that are more  effective and less
costly than  products  that may be  developed  by the  Company.  There can be no
assurance that developments by other biotechnology companies will not render our
products or technologies  obsolete or  noncompetitive or that we will be able to
keep pace with technological developments of our competitors.

         Significant  levels of research within the Company's fields of interest
occur at universities,  non-profit institutions,  and for-profit  organizations.
These entities compete with the Company in recruiting skilled scientific talent.

         The  Company  believes  that its ability to compete  successfully  will
depend  upon  its  ability  to  create  and  maintain   scientifically  advanced
technology,   develop  proprietary  products,   attract  and  retain  scientific
personnel, obtain patent or other protection for its products, develop corporate
alliances  to enhance the  likelihood  of success,  obtain  required  regulatory
approvals and manufacture and successfully market its products.


Diagnostics

         Based upon the fact that there is currently no FDA-approved biochemical
diagnostic  to  detect  Alzheimer's  disease  ("AD"),  the  Company's  CSF-based
diagnostic to detect AD, if  successfully  developed,  would compete against the
current  practice of  psychometric  testing and  imaging.  In the event that the
Company was able to market its diagnostic to detect AD, it would be much cheaper
for patients to utilize  (approximately $200 to $400) as compared to the current
practice of psychometric testing and imaging (approximately $2,000 to $10,000).

         The  Company  is aware of other  companies  and  academic  institutions
pursuing the development of biochemical  markers to be utilized in the diagnosis
of AD. Potential  competitors include Nymox Pharmaceutical  Corp.,  Innogenetics
and Syn-X Pharmaceuticals,  all of which are developing diagnostic tests for AD.
Much of the Company's  knowledge of potential  competitors and their  diagnostic
tests comes from its review of published articles in scientific journals. Recent
articles  indicate that tests being  developed by these companies and others are
unable  to  distinguish  AD from  other  brain  disorders  or are in too early a
development  stage to be  evaluated.  At this time,  the  Company  believes  its
CSF-based  diagnostic  test to be  superior  to others  by virtue of its  unique
ability to  recognize  early  stage AD and to  distinguish  it from other  brain
disorders.


Therapeutics

         The only current strategy available for the  pharmaceutical  management
of  AD  in   the   U.S.   is   symptomatic   treatment   through   the   use  of
acetylcholinesterase  (AchE)  inhibitors,  of which  there  are  four  currently
marketed.  Despite  limited  clinical  effectiveness  and a poor safety and side
effect profile of one of them, sales in the U.S. in 2002 were estimated to be in
excess of $1 billion.

         An FDA advisory  panel  recently  backed Forest  Laboratories'  Namenda
(memantine)  for  treating  moderate  to severe AD.  The  advisory  panel  voted
unanimously that memantine was effective and safe, although members of the panel
said the drugs benefits appeared modest. Shortly after the recommendation of the
advisory panel, the FDA approved the marketing of memantine.

         According to BioPortfolio,  Ltd., a web-based biotechnology information
resource,  the U.S. AD therapeutic  market should approach $2.3 billion in 2003.
AchE  inhibitors  remain  the  largest  class of  drugs  within  the late  stage
development  pipeline.  However,  their apparent  limited efficacy would seem to
provide an opportunity for other promising compounds.  It is estimated that over
200 potential drugs are currently  being developed by both major  pharmaceutical
companies  as well as small  biotech  companies.  The lack of current  effective
pharmacological  therapy for an increasing AD population provides an opportunity
for  therapeutics  to be discovered  utilizing the Company's  novel  therapeutic
screens.

         The  principal  factors  affecting  the  biotechnology  market  include
scientific  and  technological  factors,  the  availability  of patent and other
protection for technology and products,  the ability and length of time required
to obtain  governmental  approval  for  testing,  manufacturing,  marketing  and
physician  acceptance.  Most  competitors  have  substantially  greater  capital
resources,  research and development  capabilities,  manufacturing and marketing

                                       6
<PAGE>

resources and experience than APNS.  These  companies may represent  significant
long-term competition for us. Our competitors may succeed in developing products
that are more  effective or less costly than any that may be developed by us, or
that gain regulatory approval prior to our products.

         There can be no  assurance  that  developments  by other  biotechnology
companies   will  not  render  our   products   or   technologies   obsolete  or
noncompetitive  or  that  we will  be  able  to  keep  pace  with  technological
developments of our competitors.  We believe that some of our competitors are in
the process of  developing  technologies  that are, or in the future may be, the
basis for  competitive  products.  Some of these  products  may have an entirely
different approach or means of accomplishing the desired therapeutic effect than
products being developed by us. These  competing  products may be more effective
and less costly than the products developed by us.

PATENTS, LICENSES, TRADE SECRETS AND PROPRIETARY RIGHTS

         Our success  depends and will  continue  to depend,  in part,  upon our
ability to maintain our exclusive  licenses,  to maintain patent  protection for
our  products  and  processes,  to preserve  our trade  secrets and  proprietary
information  and to operate without  infringing the proprietary  rights of third
parties.  We believe in securing and maintaining a strong  competitive  position
through  the filing and  prosecution  of patents  where  available,  and through
maintaining some of our science as trade secrets.

         Patent  applications  have been filed in the U.S.  for  composition  of
matter and use of compounds to treat AD, method of use, as well as  applications
covering aspects of the diagnostic assay technologies and methods for developing
novel therapeutic screens for the discovery of compounds useful in the treatment
of AD. Patent Cooperation Treaty (P.C.T.) applications have been filed abroad.

         In March 2004 we were  notified by email from  Innogenetics,  a Belgian
biopharmaceutical  company  involved in specialty  diagnostics  and  therapeutic
vaccines,  that it believes the CSF diagnostic test we have been developing uses
a monoclonal  antibody that is encompassed by the claims of two U.S.  patents it
owns. In that email, Innogenetics also referred to another U.S. patent which was
recently  granted  to  Innogenetics  and which is  directed  to a method for the
differential  diagnosis of Alzheimer's disease from other neurological diseases.
Innogenetics  believes this latter patent also claims the CSF diagnostic test we
are  developing.  Innogenetics  also  informed  us that it could be  amenable to
entering  into a  licensing  arrangement  or other  business  deal with  Applied
NeuroSolutions regarding its patents.

         We have reviewed the two  monoclonal  antibody  patents with our patent
counsel  on  several  occasions  in recent  years and prior to  receipt of their
email. Based on these reviews,  we believe that our CSF diagnostic test does not
infringe the claims of these two Innogenetics  patents. We only recently learned
of Innogenetic's  new third patent and are now reviewing it with patent counsel.
Similarly,  we do not currently  believe our  activities  have infringed or will
infringe the rights of Innogenetics  under this third patent,  and we would seek
either to negotiate a suitable  arrangement with them or vigorously  contest any
claim  of  infringement.  If we  were  unable  to  reach  a  mutually  agreeable
arrangement with  Innogenetics and were forced to litigate the issue, an adverse
decision could have a material impact on our Company.


ALZHEIMER'S DISEASE TECHNOLOGY LICENSE

         We have various  License and  Collaborative  Research  Agreements  (the
"Agreements")  with  Albert  Einstein  College  of  Medicine  ("AECOM").   These
Agreements  grant  us  the  exclusive  rights  to  AECOM's  Alzheimer's  disease
technology  for  diagnostic  and  therapeutic  applications  for as  long  as we
continue to fund the technology. These Agreements were amended in March 2002 and
again in September 2002 to reduce and  restructure  past and future amounts due.
As part of the  restructuring,  AECOM received  1,097,324 shares of common stock
(post-merger)  in  exchange  for  $500,000  of  various  past due  collaboration
payments.  The minimum  annual  payments to be made to AECOM,  which  consist of
payments due for support of research conducted in Dr. Davies' lab and for annual
license maintenance, are as follows:

                                       7
<PAGE>


                           Year                        Amount
                           ----                        ------
                           2004                       $325,000
                           2005                        375,000
                           2006                        425,000
                           2007                        475,000
                           2008                        500,000

         We are obligated to continue to pay AECOM  $500,000 for each year after
2008 in which the Agreements are still in effect. In addition,  we are obligated
to pay AECOM a  percentage  of all  revenues  we  receive  from  selling  and/or
licensing any aspects of the AD technology.

CONFIDENTIALITY AND ASSIGNMENT OF INVENTIONS AGREEMENTS

         We require our employees, consultants and advisors having access to our
confidential information to execute confidentiality agreements upon commencement
of their  employment  or  consulting  relationships  with us.  These  agreements
generally provide that all confidential  information we develop or make known to
the individual  during the course of the  individual's  employment or consulting
relationship  with  us  must  be kept  confidential  by the  individual  and not
disclosed  to any  third  parties.  We also  require  all of our  employees  and
consultants who perform  research and  development for us to execute  agreements
that generally  provide that all inventions  conceived by these individuals will
be our property.

GOVERNMENT REGULATION

         The research, development,  manufacture, and marketing of our potential
products  are  subject  to  substantial  regulation  by the  U.S.  Food and Drug
Administration  ("FDA") in the United  States and by comparable  authorities  in
other  countries.  These national  agencies and other federal,  state, and local
entities regulate,  among other things,  research and development activities and
the testing,  manufacture,  safety,  effectiveness,  labeling,  storage,  record
keeping, approval, advertising, and promotion of our potential products.

         As an  initial  step  in the  FDA  regulatory  approval  process  for a
prospective therapeutic product,  preclinical studies are typically conducted in
animals to identify  potential safety  problems.  For certain  diseases,  animal
models may exist which are  believed to be  predictive  of human  efficacy.  For
these  diseases,  a drug candidate is tested in an animal model.  The results of
the studies are  submitted to the FDA as a part of an  Investigational  New Drug
Application  (IND),  which is  filed to  comply  with FDA  regulations  prior to
beginning human clinical testing.

         Clinical  trials are typically  conducted in three  sequential  phases,
although the phases may  overlap.  In Phase I, the compound is tested in healthy
human  subjects for safety  (adverse  effects),  dosage  tolerance,  absorption,
biodistribution,  metabolism, excretion, clinical pharmacology and, if possible,
to gain early information on effectiveness.  Phase II typically involves studies
in a small sample of the intended  patient  population to assess the efficacy of
the drug for a specific indication,  to determine dose tolerance and the optimal
dose  range,  and to  gather  additional  information  relating  to  safety  and
potential  adverse  effects.  Phase III trials are comparative  clinical studies
undertaken  to further  evaluate  clinical  safety and  efficacy  in an expanded
patient population at geographically dispersed study sites in order to determine
the overall  risk-benefit ratio of the drug and to provide an adequate basis for
physician labeling. Each trial is conducted in accordance with certain standards
under  protocols that detail the  objectives of the study,  the parameters to be
used to monitor safety and efficacy criteria to be evaluated. Each protocol must
be submitted to the FDA as part of the IND. Further, each clinical study must be
evaluated by an independent  Institutional Review Board (IRB) at the institution
at which the study will be conducted. The IRB will consider, among other things,
ethical factors,  the safety of human subjects and the possible liability of the
institution.

         Data from preclinical  testing and clinical trials are submitted to the
FDA in a New Drug  Application  (NDA) for marketing  approval.  Preparing an NDA
involves considerable data collection,  verification,  analysis and expense, and
there can be no assurance  that any approval  will be granted on a timely basis,
if at all.  The approval  process is affected by a number of factors,  including
the severity of the disease, the availability of alternative  treatments and the
risks and benefits  demonstrated in clinical trials.  The FDA may deny an NDA if
applicable  regulatory  criteria are not satisfied or require additional testing
or information.  Among the conditions for marketing  approval is the requirement

                                       8
<PAGE>

that the prospective manufacturer's quality control and manufacturing procedures
conform to the FDA's good manufacturing practices (GMP) regulations,  which must
be  followed  at all  times.  In  complying  with  standards  set forth in these
regulations,  manufacturers  must continue to expend time,  monies and effort in
the area of production and quality control to ensure full technical  compliance.
Manufacturing   establishments  serving  the  U.S.  markets,  both  foreign  and
domestic,  are subject to inspections by, or under the authority of, the FDA and
by other federal, state or local agencies.

         The process of completing  clinical  testing and obtaining FDA approval
for a new drug is likely to take a number of years and require  the  expenditure
of substantial resources.  The Company will require significant additional funds
in the future to  finance  the  clinical  testing  process if the  Company is to
develop any therapeutic products on its own.

         In  vitro  diagnostic  products  have a  different  path  to  marketing
clearance,  i.e., the Premarket Approval  Application (PMA) process regulated by
the  Office of In Vitro  Diagnostic  Device and  Safety  (OIVD) of the FDA.  The
regulatory  process leading to a submission of an in vitro diagnostic device PMA
for FDA  approval  to market  involves a  multistage  process  including:  (1) a
Pre-Investigational Device Exemption program in which preliminary information is
submitted to the FDA for review and guidance  on, and  acceptance  of, the assay
protocol and proposed clinical trial to evaluate the safety and effectiveness of
an in vitro  diagnostic  product  followed  by,  (2) an  Investigational  Device
Exemption (IDE) submission for approval to allow the investigational  diagnostic
device  to be used in a  clinical  study  in  order to (3)  collect  safety  and
effectiveness data required to support a PMA to receive FDA approval to market a
device. The Company intends to submit preliminary information to the FDA (step 1
above) in April 2004. An IDE submission for approval (step 2 above) would follow
in the second quarter of 2004,  while the clinical study (step 3 above) would be
completed within eight to twelve months after the Pre-IDE stage.  Clinical trial
data is used to evaluate the clinical sensitivity, how often the test is correct
in recognizing diseased patients,  of an in vitro diagnostic test. Before actual
approval for general sale by the FDA,  under certain  conditions,  companies can
supply either "investigational use only" or "research use only" assay kits under
the  Clinical  Laboratory  Improvement  Amendment  (CLIA) of 1988.  Whether  the
Company will be able to market kits under these regulatory categories, or obtain
final  approval  for a kit for specific  claims,  is  uncertain  given  changing
regulatory environments in most major markets.

         Whether or not FDA clearance has been obtained,  clearance of a product
by regulatory  authorities  in foreign  countries  must be obtained prior to the
commencement  of  commercial  sales  of  the  product  in  such  countries.  The
requirements governing the conduct of clinical trials and product clearance vary
widely from  country to country,  and the time  required  for  clearance  may be
longer or shorter than that required for FDA clearance.  Although there are some
procedures for unified filings for certain European countries,  in general, each
country at this time has its own procedures and requirements.

ENVIRONMENTAL REGULATION

         In  connection  with  our  research  and  development  activities,  our
business is, and will in the future continue to be, subject to regulation  under
various state and federal  environmental laws. These laws and regulations govern
our use,  handling and disposal of various  biological  and chemical  substances
used in our  operations.  Although we believe that we have  complied  with these
laws and  regulations in all material  respects and we have not been required to
take any action to correct any noncompliance,  there can be no assurance that we
will not be required to incur significant costs to comply with health and safety
regulations in the future.

EMPLOYEES

       As of March 17, 2004,  we had ten full-time  employees,  six of whom have
advanced scientific  degrees.  None of our employees are covered by a collective
bargaining  agreement  and we  believe  all  relations  with our  employees  are
satisfactory.  In addition,  to complement our internal  expertise,  we contract
with University academic research  laboratories and scientific  consultants that
specialize in various aspects of drug  development.  In the future,  we may hire
additional   research  and  development   personnel  in  addition  to  utilizing
consultants.

                                       9
<PAGE>

RISK FACTORS RELATED TO OUR BUSINESS

         Factors that could cause or  contribute  to  differences  in our actual
results  include  those  discussed in the  following  section,  as well as those
discussed  in other  parts of this  Annual  Report on Form  10-KSB.  You  should
consider  carefully the following  risk factors,  together with all of the other
information  included in this Annual  Report on Form 10-KSB.  Each of these risk
factors could  adversely  affect our business,  operating  results and financial
condition, as well as adversely affect the value of our common stock.

We are a development stage company without any products in clinical trials

We are a development  stage company.  Our  development  of a diagnostic  product
which detects  Alzheimer's  disease  utilizing  cerebral  spinal fluid (CSF) has
completed the pre-clinical  stage. Our other potential products and technologies
are early in the research and development phase, and product revenues may not be
realized from the sale of any such products for at least the next several years,
if at all.  Many of our proposed  products will require  significant  additional
research  and  development  efforts  prior  to  any  commercial  use,  including
extensive  preclinical  and  clinical  testing  as  well as  lengthy  regulatory
approval.  There can be no assurances that our research and development  efforts
will be  successful,  that  our  potential  products  will  prove to be safe and
effective in clinical trials or that we will develop any commercially successful
products.


We have a history of operating losses and expect to sustain losses in the future

We have  experienced  significant  operating  losses since our inception.  As of
December 31, 2003, we had an accumulated  deficit of approximately  $36 million.
We expect to incur operating  losses over the next several years as our research
and  development   efforts  and  preclinical  and  clinical  testing  activities
continue. Our ability to achieve profitability depends in part upon our ability,
alone or with others, to successfully  commercialize our approved  products,  to
complete  development  of  our  other  proposed  products,  to  obtain  required
regulatory approvals and to manufacture and market our products.


We may not be able to obtain  financing  in the future or we may only be able to
obtain financing on unfavorable terms

Our  operations  to  date  have  consumed   substantial  amounts  of  cash.  The
development of our technologies and potential products will require a commitment
of  substantial  funds to  conduct  the  costly  and  time-consuming  activities
necessary to research, develop and optimize our technologies, and ultimately, to
establish   manufacturing  and  marketing   capabilities.   Our  future  capital
requirements will depend on many factors, including:

         o        continued  scientific progress in the research and development
                  of our technologies;
         o        our   ability  to   establish   and   maintain   collaborative
                  arrangements with others for product development;
         o        progress with preclinical and clinical trials;
         o        the time and costs involved in obtaining regulatory approvals;
         o        the  costs   involved  in  preparing,   filing,   prosecuting,
                  maintaining and enforcing patent claims;
         o        competing technological and market developments;
         o        changes in our existing research relationships; and
         o        effective    product    commercialization    activities    and
                  arrangements.


We face  extensive  governmental  regulation  and any  failure  to comply  could
prevent or delay  product  approval or cause the  disallowance  of our  products
after approval

The U.S.  Food and Drug  Administration,  and  comparable  agencies  in  foreign
countries,  impose  many  requirements  on the  introduction  of new  drugs  and
biologics  through lengthy and detailed clinical testing  procedures,  and other
costly  and  time  consuming  compliance  procedures  relating  to  manufacture,
distribution,  advertising,  pricing and marketing of  pharmaceutical  products.
These  requirements  make it difficult  to estimate  when any of our products in
development will be available commercially, if at all.

                                       10
<PAGE>

Diagnostic  products have a different path to marketing  clearance than that for
pharmaceutical products.  Diagnostic regulatory studies generally proceed in two
steps,  a proof of principle  clinical study and a validation  study.  Given the
rapidly changing regulatory environment, it is uncertain whether we will be able
to market our diagnostic  kits for  Alzheimer's  disease under these  regulatory
categories, or obtain final FDA approval for a kit for specific claims. Clinical
trials for  diagnostic  products,  including  the FDA  submission  and  approval
process, generally take 1 to 2 years to complete.

Even if we successfully enroll patients in clinical trials for our diagnostic or
therapeutic products, setbacks are a common occurrence in clinical trials. These
set backs often include:

         o        Failure  to comply  with the  regulations  applicable  to such
                  testing may delay, suspend or cancel our clinical trials,
         o        The FDA might not accept the test results,
         o        The  FDA,  or any  comparable  regulatory  agency  in  another
                  country,  may  suspend  clinical  trials  at  any  time  if it
                  concludes  that the trials expose  subjects  participating  in
                  such trials to unacceptable health risks
         o        Human  clinical  testing  may not show any  current  or future
                  product candidate to be safe and effective to the satisfaction
                  of the FDA or comparable regulatory agencies
         o        The data derived from clinical  trials may be  unsuitable  for
                  submission to the FDA or other regulatory agencies.

We cannot  predict  with  certainty  when we might  submit  any of our  proposed
products  currently under  development for regulatory  review.  Once we submit a
proposed product for review, the FDA or other regulatory  agencies may not issue
their  approvals  on a timely  basis,  if at all.  If we are  delayed or fail to
obtain such  approvals,  our business may be adversely  affected.  If we fail to
comply with  regulatory  requirements,  either prior to approval or in marketing
our  products  after  approval,  we could be subject to  regulatory  or judicial
enforcement actions. These actions could result in:

         o        product recalls or seizures;
         o        injunctions;
         o        criminal prosecution;
         o        refusals to approve new  products and  withdrawal  of existing
                  approvals; and
         o        enhanced exposure to product liabilities


We will need to find  collaborative  partners to assist in bringing our products
to market and in marketing our products

Our strategy for the development, clinical testing, manufacturing, marketing and
commercialization  of some of our products includes entering into collaborations
with corporate partners, licensors, licensees and others. Our success may depend
on  obtaining  such  partners.  We may  depend on our  partners'  expertise  and
dedication of  sufficient  resources to develop and  commercialize  our proposed
products. We cannot be sure that any present or future collaborative  agreements
will be  successful.  To the  extent  we  choose  not to,  or are not  able  to,
establish such arrangements, we would experience increased capital requirements.
In addition,  we may encounter  significant  delays in introducing  our products
currently under  development  into certain markets or find that the development,
manufacture,  or sale of those products is adversely  affected by the absence of
collaborative agreements.


Our  technologies  are subject to licenses and termination of the licenses would
seriously harm our business

We depend on licensing  arrangements  to maintain  rights to our products  under
development.   These  agreements   require  us  to  make  payments  and  satisfy
performance  obligations in order to maintain our rights.  The  agreements  also
generally require us to pay royalties on the sale of products developed from the
licensed technologies, fees on revenues from sublicensees, where applicable, and
the costs of filing and  prosecuting  patent  applications.  Some of our license

                                       11
<PAGE>

agreements  require  that we commit  certain  sums  annually  for  research  and
development of the licensed products. If we default on our obligations to any of
our licensors, our licenses could terminate, and we could lose the rights to our
proprietary  technologies.  Such a loss would have a material  adverse effect on
our operations and prospects.


The  demand for  diagnostic  products  for  Alzheimer's  disease  may be limited
because  there is currently no cure or effective  therapeutic  products to treat
the disease

Since it is not yet possible to stop the  progression  of, or cure,  Alzheimer's
disease,  the financial  incentives and  remuneration for producing a diagnostic
technology  capable of detecting  this disease  currently  may be limited.  As a
result,  even  if we  successfully  develop  a  safe  and  effective  diagnostic
technology for identifying this disease, its commercial value might be limited.


The value of our research  could  diminish if we cannot  protect,  enforce,  and
maintain our intellectual property rights adequately

The pharmaceutical  industry places considerable  importance on obtaining patent
and trade secret  protection for new technologies,  products and processes,  and
where possible,  we actively pursue both domestic and foreign patent  protection
for our proprietary  products and technologies.  Our success will depend in part
on our ability to obtain and maintain patent protection for our technologies and
to preserve our trade secrets.  It is our policy to file patent  applications in
the United  States and selected  foreign  jurisdictions.  We currently  hold and
maintain 13 issued United States patents and various related foreign patents. No
assurance  can be  given  that  our  issued  patents  will  provide  competitive
advantages for our  technologies  or will not be challenged or  circumvented  by
competitors.  With respect to already issued patents,  there can be no assurance
that any patents issued to us will not be challenged, invalidated,  circumvented
or that the patents  will  provide us  proprietary  protection  or a  commercial
advantage.  We also rely on trade secrets and proprietary know-how which we seek
to  protect,  in  part,  through  confidentiality   agreements  with  employees,
consultants,  collaborative  partners and others. There can be no assurance that
these agreements will not be breached.

The ability to develop  our  technologies  and to  commercialize  products  will
depend on avoiding  patents of others.  While we are aware of patents  issued to
competitors,  we are not aware of any claim of patent  infringement  against us,
except as described in the  following  two  paragraphs.  Any such future  claims
concerning  us  infringing  patents and  proprietary  technologies  could have a
material  adverse  effect on our business.  In addition,  litigation may also be
necessary to enforce any of our patents or to  determine  the scope and validity
of third-party  proprietary  rights.  There can be no assurance that our patents
would be held valid by a court of  competent  jurisdiction.  We may have to file
suit to protect our patents or to defend use of our patents against infringement
claims brought by others. Because we have limited cash resources,  we may not be
able to afford to pursue or defend  against  litigation  in order to protect our
patent rights.

In  March  2004  we  were  notified  by  email  from  Innogenetics,   a  Belgian
biopharmaceutical  company  involved in specialty  diagnostics  and  therapeutic
vaccines,  that it believes the CSF diagnostic test we have been developing uses
a monoclonal  antibody that is encompassed by the claims of two U.S.  patents it
owns. In that email, Innogenetics also referred to another U.S. patent which was
recently  granted  to  Innogenetics  and which is  directed  to a method for the
differential  diagnosis of Alzheimer's disease from other neurological diseases.
Innogenetics  believes this latter patent also claims the CSF diagnostic test we
are  developing.  Innogenetics  also  informed  us that it could be  amenable to
entering  into a  licensing  arrangement  or other  business  deal with  Applied
NeuroSolutions regarding its patents.

We have reviewed the two monoclonal  antibody patents with our patent counsel on
several occasions in recent years and prior to receipt of their email.  Based on
these  reviews,  we believe that our CSF  diagnostic  test does not infringe the
claims  of  these  two  Innogenetics   patents.  We  only  recently  learned  of
Innogenetic's  new third patent and are now  reviewing  it with patent  counsel.
Similarly,  we do not currently  believe our  activities  have infringed or will
infringe the rights of Innogenetics  under this third patent,  and we would seek
either to negotiate a suitable  arrangement with them or vigorously  contest any
claim  of  infringement.  If we  were  unable  to  reach  a  mutually  agreeable
arrangement with  Innogenetics and were forced to litigate the issue, an adverse
decision could have a material impact on our Company.

                                       12
<PAGE>

We face large competitors and our limited  financial and research  resources may
limit our ability to develop and market new products

The biotechnology and pharmaceutical  markets generally involve rapidly changing
technologies and evolving industry  standards.  Many companies,  both public and
private,  are developing products to diagnose and to treat Alzheimer's  disease.
Most of these  companies  have  substantially  greater  financial,  research and
development, manufacturing and marketing experience and resources than we do. As
a result, our competitors may more rapidly develop effective diagnostic products
as well as therapeutic  products that are more effective or less costly than any
product that we may develop.

We also face competition from colleges, universities,  governmental agencies and
other public and private research  institutions.  These competitors are becoming
more active in seeking patent  protection and licensing  arrangements to collect
royalties  for use of  technology  that  they  have  developed.  Some  of  these
technologies may compete  directly with the technologies  being developed by us.
Also, these institutions may also compete with us in recruiting highly qualified
scientific personnel.


We lack manufacturing  capability and we must rely on third party  manufacturers
to produce  our  products,  giving us limited  control  over the  quality of our
products and the volume of products produced

We do not currently have any  manufacturing  capability,  expertise or personnel
and expect to rely on outside  manufacturers  to produce material that will meet
applicable  standards for clinical  testing of our products and for larger scale
production if marketing approval is obtained.

We cannot assure that any outside  manufacturer we select will perform  suitably
or will remain in the contract  manufacturing  business,  in which  instances we
would need to find a replacement  manufacturer or develop our own  manufacturing
capabilities.  If we are  unable to do so,  our  ability  to  obtain  regulatory
approval  for our products  could be delayed or impaired.  Our ability to market
our  products  could  also  be  affected  by  the  failure  of our  third  party
manufacturers  or  suppliers  to comply  with the good  manufacturing  practices
required by the FDA and foreign regulatory authorities.


We lack marketing and sales staff to sell our products and we must rely on third
parties,  such as  large  pharmaceutical  companies,  to  sell  and  market  our
products, the cost of which may make our products less profitable for us

We do not have marketing and sales experience or personnel. If we do not develop
a marketing  and sales  force,  we will depend on  arrangements  with  corporate
partners or other entities for the marketing and sale of our proposed  products.
We may not succeed in entering into any  satisfactory  third-party  arrangements
for the  marketing and sale of our proposed  products,  or we may not be able to
obtain the resources to develop our own marketing  and sales  capabilities.  The
failure to develop those  capabilities,  either  externally or internally,  will
adversely affect future sales of our proposed products.


We are  dependent on our key employees and  consultants,  who cannot  readily be
replaced

We are highly  dependent  upon the  principal  members of our  management  team,
especially  Peter  Davies,  Ph.D.,  the  scientific  founder,  Bruce N.  Barron,
Chairman and Chief Executive Officer, John F. DeBernardis,  Ph.D., President and
Chief  Operating  Officer,  as well as our other  officers  and  directors.  Our
consulting  agreements  with Dr. Davies were renewed until February 1, 2006, and
employment  agreements  with Mr. Barron and Dr.  DeBernardis  were renewed until
March 31, 2006. We do not currently maintain key-man life insurance and the loss
of any of these  persons'  services,  and the  resulting  difficulty  in finding
sufficiently  qualified  replacements,  would  adversely  affect our  ability to
develop and market our products and obtain necessary regulatory approvals.

Our  success  also will  depend in part on the  continued  service  of other key
scientific and management personnel and our ability to identify, hire and retain
additional  staff.  We face intense  competition  for  qualified  employees  and
consultants.  Competitors who have greater resources and experience than we have
can  offer  superior   compensation  packages  to  attract  and  retain  skilled
personnel.

                                       13
<PAGE>

We expect  that our  potential  expansion  into areas and  activities  requiring
additional expertise, such as clinical trials, governmental approvals,  contract
and  internal  manufacturing  and sales and  marketing,  will  place  additional
requirements on our management. We expect these demands will require an increase
in  management  and  scientific  personnel  and the  development  of  additional
expertise by existing  management  personnel.  The failure to attract and retain
such personnel or to develop such expertise could  materially  adversely  affect
prospects for our success.

We  use  hazardous  materials  in  our  research  and  that  may  subject  us to
liabilities in excess of our resources

Our research and development involves the controlled use of hazardous materials.
Although we believe that our safety  procedures  for  handling and  disposing of
hazardous   materials  comply  in  all  material  respects  with  the  standards
prescribed by government  regulations,  the risk of accidental  contamination or
injury from these materials cannot be completely eliminated.  In the event of an
accident, we could be held liable for any damages that result.  Although we have
insurance  coverage for third-party  liabilities of this nature,  such liability
beyond this  insurance  coverage  could  exceed our  resources.  There can be no
assurance that current or future  environmental or  transportation  laws, rules,
regulations or policies will not have a material adverse effect on us.

Potential product liability claims against us could result in reduced demand for
our products or extensive damages in excess of insurance coverage

The use of our products in clinical trials or from commercial  sales will expose
us to potential  liability claims if such use, or even their misuse,  results in
injury,  disease  or  adverse  effects.  We intend to obtain  product  liability
insurance  coverage  before we  initiate  clinical  trials  for our  therapeutic
products. This insurance is expensive and insurance companies may not issue this
type of insurance when needed.  Any product  liability claim,  even one that was
not in  excess  of our  insurance  coverage  or one  that  is  meritless,  could
adversely  affect our cash  position and limit the  resources we could devote to
other activities such as research and development.

The healthcare reimbursement  environment is uncertain and our customers may not
get significant  insurance  reimbursement  for our products,  which could have a
materially adverse affect on our sales and our ability to sell our products

Recent  efforts  by  governmental  and  third-party  payors,  including  private
insurance  plans, to contain or reduce the costs of health care could affect the
levels  of  revenues  and  profitability  of  pharmaceutical  and  biotechnology
products  and  companies.  For  example,  in some  foreign  markets,  pricing or
profitability of prescription  pharmaceuticals is subject to government control.
In the United States, there have been a number of federal and state proposals to
implement  similar  government  control.  Pricing  constraints  on our potential
products could negatively impact revenues and profitability.

In the United States and elsewhere, successful commercialization of our products
will depend in part on the  availability of  reimbursement to the consumer using
our products from  third-party  health care payors.  Insufficient  reimbursement
levels  could  affect  our  ability  to  realize  an  appropriate  return on our
investment  in  product   development.   Third-party   health  care  payors  are
increasingly  challenging  the price and  examining  the  cost-effectiveness  of
medical products and services. If we succeed in bringing one or more products to
market,  and the  government  or  third-party  payors  fail to provide  adequate
coverage or reimbursement rates for those products,  it could reduce our product
revenues and profitability.

We must rely on third party  relationships  to  develop,  produce and market our
product without which we will fail

Our business strategy is to utilize the expertise and resources of third parties
in a number of areas including:


<PAGE>

         o        performing  various  activities  associated with  pre-clinical
                  studies and clinical trials
         o        preparing submissions seeking regulatory approvals
         o        manufacture of kits and solutions
         o        sales and marketing of our products


This  strategy of reliance on third party  relationships  creates risks to us by
placing critical  aspects of our business in the hands of third parties,  who we
may not be able to control as effectively  as our own personnel.  If these third
parties  do not  perform  in a timely  and  satisfactory  manner,  we may  incur
additional costs and lose time in our development and clinical  programs as well
as commercializing our products.

We do not  have the  ability  to  conduct  all  facets  of our  clinical  trials
independently.  We  intend to rely on  clinical  investigators  and  third-party
clinical  research  organizations  to  perform a  significant  portion  of these
functions.  There can be  problems  with using  third  party  clinical  research
organizations such as:

         o        we are not able to locate  acceptable  contractors to run this
                  portion of our clinical trials
         o        we can not enter into favorable agreements with them
         o        third parties may not successfully carry out their contractual
                  duties
         o        third parties may not meet expected deadlines

If any of these problems occur,  we will be unable to obtain required  approvals
and will be unable to commercialize our products on a timely basis, if at all.

We must enroll  sufficient  number of  participants  in our clinical  trials and
generate  clinical  data that shows our products are safe and effective in order
to obtain regulatory approval which is necessary to market our products

In order to sell our products, we must receive regulatory approval to market our
products.  Before obtaining  regulatory approvals for the commercial sale of any
of our products under  development,  we must  demonstrate  through  pre-clinical
studies and clinical  trials that the product is safe and  effective  for use in
each target indication. If our products fail in clinical trials, this may have a
significant negative impact on our company.

In addition, the results from pre-clinical testing and early clinical trials may
not be predictive of results obtained in later clinical trials.  There can be no
assurance  that our  clinical  trials  will  demonstrate  sufficient  safety and
effectiveness  to  obtain  regulatory  approvals.  The  completion  rate  of our
clinical  trials is dependent on, among other  factors,  the patient  enrollment
rate. Patient enrollment is a function of many factors including:

         o        patient population size
         o        the nature of the protocol to be used in the trial
         o        patient proximity to clinical sites
         o        eligibility criteria for the study

We believe  our planned  procedures  for  enrolling  patients  are  appropriate.
However,  delays in patient  enrollment  would increase costs and delay ultimate
sales, if any, of our products.

We may experience delays, limitations and other problems in obtaining regulatory
approval for our products

The  regulatory  process  takes  many  years and  requires  the  expenditure  of
substantial  resources.  Data obtained from pre-clinical and clinical activities
are  subject  to varying  interpretations  that  could  delay,  limit or prevent
regulatory agency approval.  We may also encounter delays or rejections based on
changes in regulatory  agency policies during the period in which we develop our
products and/or the period required for review of any application for regulatory
agency approval of a particular product.  Delays in obtaining  regulatory agency
approvals will make the projects more costly and adversely affect our business.

                                       15
<PAGE>

If the FDA grants  approval  for a drug or device,  such  approval may limit the
indicated  uses for which we may market the drug or device and this could  limit
the potential market for such drug or device. Furthermore, if we obtain approval
for any of our products,  the marketing and  manufacture of such products remain
subject to extensive regulatory  requirements.  Even if the FDA grants approval,
such  approval  would be subject to  continual  review,  and later  discovery of
unknown  problems  could  restrict  the  products  future  use  or  cause  their
withdrawal  from the  market.  Failure to comply  with  regulatory  requirements
could, among other things, result in:

        o        fines
        o        suspension of regulatory approvals
        o        operating restrictions and criminal prosecution.

In order to market our  products  outside of the United  States,  we must comply
with numerous and varying regulatory  requirements of other countries  regarding
safety and quality. The approval procedures vary among countries and can involve
additional product testing and administrative  review periods. The time required
to obtain  approval in other countries might differ from that required to obtain
FDA approval. The regulatory approval process in other countries includes all of
the risks associated with obtaining FDA approval detailed above. Approval by the
FDA does not ensure approval by the regulatory authorities of other countries.

In addition,  many countries  require  regulatory agency approval of pricing and
may also require  approval for the  marketing in such  countries of any drugs or
devices we  develop.  We cannot be certain  that we will  obtain any  regulatory
approvals  in other  countries  and the  failure to obtain  such  approvals  may
materially adversely affect our business.


Our stock price may  fluctuate  significantly  due to reasons  unrelated  to our
operations, our products or our financial results

Stock prices for many technology  companies  fluctuate  widely for reasons which
may  be  unrelated  to   operating   performance   or  new  product  or  service
announcements.  Broad market  fluctuations,  earnings and other announcements of
other  companies,  general  economic  conditions or other  matters  unrelated to
Applied  NeuroSolutions  and outside our  control  also could  affect the market
price of the Common Stock.


We have a limited market for our common stock and our common stock is subject to
penny  stock  regulations  that  make it  difficult  to sell  our  stock  in the
secondary market

Our common  stock  presently  trades in the  over-the-counter  market on the OTC
Bulletin Board. As a result, an investor may find it difficult to dispose of, or
to obtain accurate  quotations as to the price of our  securities.  In addition,
our common  stock is subject to the penny  stock  rules that  impose  additional
sales  practice  requirements  on  broker-dealers  who sell such  securities  to
persons other than  established  customers and accredited  investors  (generally
with assets of  $1,000,000,  or annual income  exceeding  $200,000,  or $300,000
together with their spouse).  For transactions  covered by the penny stock rule,
the  broker-dealer  must  make  a  special  suitability  determination  for  the
purchaser and have received the  purchaser's  written consent to the transaction
prior  to  the  sale.   Consequently,   the  rule  may  affect  the  ability  of
broker-dealers to sell our common stock and may affect the ability of purchasers
to sell their shares of our common stock in the secondary market.

Our share price may decline due to a large  number of shares of our common stock
eligible for future sale in the public  markets,  including the shares of common
stock of the selling stockholders

After  completion of our Offering in February 2004, the Company has  outstanding
90,641,812  shares of Common  Stock,  without  giving effect to shares of Common
Stock  issuable upon exercise of (i) warrants  issued in the Offering,  (ii) the
Placement  Agent's  warrants,  (iii) options  granted under the Company's  stock
option  plan and (iv) other  warrants  previously  issued.  Of such  outstanding
shares of Common stock,  all the shares sold by the Company in the Offering,  as

                                       16
<PAGE>

well as shares issued to convertible  promissory  note holders upon  conversion,
will be freely tradable without  restriction upon  registration,  except for any
shares held by  "affiliates"  of the Company within the meaning of the Act which
shares will be subject to the resale  limitations of Rule 144 promulgated  under
the Act. A  registration  statement  is expected to be  submitted,  representing
42,940,714 shares of common stock issued in February 2004, as well as 48,084,795
shares of common stock underlying certain warrants.

Approximately 23,000,000 shares, held by former Molecular Geriatrics Corporation
("MGC")  shareholders are deemed to be restricted  securities within the meaning
of Rule 144 promulgated  pursuant to the Securities Act and may be publicly sold
only if  registered  under the  Securities  Act or sold  pursuant to  exemptions
therefrom.  These  shares are eligible  for public sale in  accordance  with the
requirements of Rule 144, as amended,  subject to certain  restrictions  through
September 2004.


We have not paid any dividends  and do not  anticipate  paying  dividends in the
foreseeable future

A predecessor of Applied NeuroSolutions liquidated most of its assets and paid a
dividend to its  shareholders  prior to its merger with Applied  NeuroSolutions.
Neither  MGC or Applied  NeuroSolutions  has paid cash  dividends  on its Common
Stock, and the Company does not anticipate paying cash dividends on Common Stock
in the foreseeable future.


"Penny Stock" rules may make buying or selling our common stock difficult

The  regulations of the Securities and Exchange  Commission  (the  "Commission")
promulgated under the Exchange Act require additional disclosure relating to the
market for penny  stocks in  connection  with  trades in any stock  defined as a
penny  stock.  Commission  regulations  generally  define a penny stock to be an
equity that has a market price of less than $5.00 per share,  subject to certain
exceptions.  Unless an exception is  available,  those  regulations  require the
delivery,  prior to any  transaction  involving a penny  stock,  of a disclosure
schedule  explaining the penny stock market and the risks  associated  therewith
and impose various sales practice  requirements on broker-dealers who sell penny
stocks to persons  other than  established  customers and  accredited  investors
(generally  institutions).  In  addition,  the  broker-dealer  must  provide the
customer  with  current  bid and  offer  quotations  for the  penny  stock,  the
compensation  of the  broker-dealer  and its  salesperson in the transaction and
monthly account  statements showing the market value of each penny stock held in
the customer's account.  Moreover,  broker-dealers who recommend such securities
to persons other than established customers and accredited investors must make a
special  written  suitability  determination  for the  purchaser and receive the
purchaser's  written  agreement to  transactions  prior to sale.  Regulations on
penny stocks could limit the ability of  broker-dealers  to sell our  securities
and thus the ability of purchasers of our securities to sell their securities in
the secondary market.

There is a possible issuance of preferred stock

The Amended and Restated Certificate of Incorporation provides authority for the
issuance in the future,  without  stockholder  approval,  of different series of
preferred stock whose terms and conditions can be determined solely by the board
of directors.  The rights of the holders of our common stock will be subject to,
and may be  adversely  affected  by, the rights of the holders of any  preferred
stock that may be issued in the future.  The issuance of Preferred Stock,  while
providing  desirable  flexibility in connection with possible  acquisitions  and
other corporate purposes,  could have the effect of making it more difficult for
a third party to  acquire,  or  discouraging  a third  party from  acquiring,  a
majority of our outstanding voting common stock.

We have broad discretion to use the proceeds of the Offering

We will have broad discretion in spending the proceeds in the recently completed
Offering.  We  utilized  a portion  of the  proceeds  to  reimburse  members  of
management for salary deferrals and loans to the Company. We may also spend most
of the net  proceeds  from the  Offering  in ways  that  ultimately  prove to be
unsuccessful. Our failure to apply these funds effectively could have a material
and  adverse  effect  on our  business,  results  of  operations  and  financial
condition,   and  may  also  require   further   funding,   which  could  dilute
stockholders'  ownership  and cause a decline  in the share  price of our common
stock.


                                       17
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY

         We lease approximately 7,500 square feet of office and laboratory space
in Vernon Hills,  Illinois at an annual  rental of  approximately  $120,000.  We
believe that we can acquire additional space, if needed, on acceptable terms.

         We lease  approximately  2,000 square feet of laboratory space in Lyon,
France at an annual rental of 12,715 Euros, or approximately  $16,000. The lease
ended on December 31, 2003 and is currently  being extended month to month under
the same  terms.  We are in the  process of  exiting  this  laboratory  space in
France.


ITEM 3.  LEGAL PROCEEDINGS

         We are not currently involved in any legal proceedings.



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

         In October 2003, our stockholders  approved, by written consent in lieu
of a special meeting, an amendment to our Certificate of Incorporation to change
our corporate name from "Hemoxymed, Inc." to "Applied NeuroSolutions,  Inc." The
written consent was signed by stockholders holding a majority of the then issued
and  outstanding  47,701,098  shares of common  stock.  The name  change  became
effective on October 30, 2003.


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Our common stock is quoted on the OTC (Over-the-Counter) Bulletin Board
and traded under the symbol,  "APNS".  Prior to November  25,  2003,  our common
stock was traded on the OTC Bulletin Board under the symbol  "HMYD".  Our common
stock was  previously  traded on the OTC Bulletin  Board under the symbol "OPHD"
until February 5, 2002.

         The following table sets forth the range of high and low bid quotations
for our common stock, and our  predecessor's  common stock, from January 1, 2002
through  March 10,  2004,  and for each of the  quarterly  periods  indicated as
reported by the OTC Bulletin Board. Bid quotations  reflect  interdealer  prices
without retail  markup,  markdown,  or commission  and may not represent  actual
transactions.

                                                           HIGH         LOW
                                                           ----         ---
2002:
   First quarter.....................................   $   0.40     $   0.26
   Second quarter....................................       0.26         0.13
   Third quarter.....................................       0.25         0.13
   Fourth quarter....................................       0.40         0.11

2003:
   First quarter.....................................   $   0.30     $   0.10
   Second quarter....................................       0.25         0.10
   Third quarter.....................................       0.32         0.15
   Fourth quarter....................................       0.44         0.22

2004:
   First quarter (through March 17, 2004)............    $  0.59     $   0.30

                                       18
<PAGE>

         As of March 17, 2004, we had  approximately  600 record  holders of our
common  stock.  We  estimate  that as of such date  there  were more than  1,000
beneficial holders of our common stock.

         We do not intend to pay dividends for the foreseeable future.

         The  securities of APNS that were issued or sold by us, since March 15,
2001 and were not  registered  with the SEC are  described  below.  All of these
issuances  were made in reliance upon the exemption set forth in Section 4(2) of
the Securities Act of 1933.

         In April,  2001, our Board of Directors  granted 13,168  ten-year stock
options to a non-employee exercisable at $1.50 per share which vest monthly over
a twenty-four month period.

         In  November,  2001,  our  Board  of  Directors  granted  to  employees
2,050,898  ten-year  stock  options  exercisable  at $0.30 per share  which vest
one-fourth  immediately  and  one-fourth  per  year  beginning  November,  2002.
Non-employees  were granted  144,847 of these stock  options,  which were vested
immediately.

         In  November  2001,  we issued  4,474,649  shares of common  stock upon
conversion of $2,038,810 of convertible bridge loans and accrued interest.

         In November 2001, we issued 580,726 shares of common stock for $212,500
to investors in a private placement.

         In  June  2002,  we  issued  7,201,971  shares  of  common  stock  upon
conversion of $1,810,883 of convertible bridge loans and accrued interest.

         In June  2002,  we issued  156,859  shares of common  stock to  certain
warrant holders in exchange for conversion of 650,139 warrants.

         In June,  2002, our Board of Directors  granted 434,168  ten-year stock
options  exercisable at $0.15 per share which vest  one-fourth  immediately  and
one-fourth per year beginning in June, 2003. Our Board of Directors also granted
non-employees 33,430 of these stock options.

         In June, 2002, our Board of Directors  approved  adjusting the exercise
price of  4,399,052  stock  options to $0.15 per share.  The  adjustment  to the
exercise price of these options changed the accounting treatment for these stock
options to  variable  accounting  until they are  exercised.  For the year ended
December 31, 2003, we recorded  compensation  expense under variable  accounting
equal to $604,100 related to these modified options. For the year ended December
31, 2002 we did not record any  compensation  expense  related to these  options
with the  adjusted  exercise  price as our stock  price  was  below  $0.15 as of
December 31, 2002.

         Prior to the merger with Molecular  Geriatrics,  in September 2002, the
Company  issued to certain of its  shareholders,  in exchange for past services,
1,737,164 five-year warrants exercisable at $0.0001 to purchase shares of common
stock.

         Prior to the merger with Molecular  Geriatrics,  in September 2002, the
Company issued to an entity controlled by our two largest  shareholders prior to
the merger with Molecular Geriatrics, in lieu of compensation, 800,000 five year
warrants exercisable at $0.20 to purchase shares of common stock.

         In  September  2002,  in  connection  with our  merger  with  Molecular
Geriatrics,  each share of Molecular  Geriatrics stock was exchanged for .658394
shares of our  common  stock.  Each stock  option of  Molecular  Geriatrics  was
exchanged  for .658394  stock  options of the Company.  Each warrant to purchase
common stock of  Molecular  Geriatrics  was  exchanged  for .658394  warrants to
purchase common stock of the Company.

                                       19
<PAGE>

         In September,  2003, our Board of Directors granted 5,337,000  ten-year
stock options  exercisable at $0.15 per share which vest one-fourth  immediately
and  one-fourth  per year  beginning in September,  2004. Our Board of Directors
also granted to non-employees 752,000 of these stock options.

         In  September  2003,  we  issued  to  one  of  our  directors  and to a
non-employee,  in lieu of compensation  for fund raising  activities,  1,250,000
five-year warrants exercisable at $0.15 to purchase shares of Common Stock.

         In September 2003, we issued to two entities,  in lieu of compensation,
850,000  five-year  warrants  exercisable at $0.20 to purchase  shares of common
stock.

         In February 2004, we issued  32,000,000 shares of common stock and five
year  warrants to purchase an additional  32,000,000  shares of our common stock
for $0.30 per share for $8,000,000  ($7,340,000  proceeds net of commissions and
legal fees). Upon closing the private placement, the convertible investor bridge
loans, plus accrued  interest,  were converted to shares of our common stock. We
also issued upon  conversion of the convertible  debt  10,440,714  shares of our
common stock and 11,484,795  warrants to purchase  shares of our common stock at
$0.30  per  share.  In  connection  with this  transaction,  we also paid to the
placement  agent,  and  selected  dealers,  commissions  of $560,000 in cash and
issued to the  placement  agent,  and  selected  dealers,  warrants  to purchase
3,200,000 shares of our common stock at $0.30 per share.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         In October  2002,  the Board of Directors  approved a Stock Option Plan
(the "Plan") under which officers,  employees,  directors and consultants may be
granted  incentive or  non-qualified  stock options to acquire common stock. The
incentive  stock  options  granted  under  the  Plan  are  intended  to meet the
requirements  of Section 422 of the Internal  Revenue Code of 1986. The exercise
price of each option is no less than the market price of the Company's  stock on
the date of the  grant,  and an  option's  maximum  term is ten  years.  Options
typically  vest  over a four  year  period.  The Plan  calls  for a  maximum  of
12,000,000  options to purchase shares of Common Stock. The Plan was approved by
shareholders in 2003.

         The  following  table  summarizes  outstanding  options under our Stock
Option Plan as of December  31,  2003.  Options  granted in the future under the
Plan are within the  discretion  of our  Compensation  Committee  and  therefore
cannot be ascertained at this time.

<TABLE>
<CAPTION>
-------------------------------- -------------------------- ---------------------- ----------------------------
                                 (a)                        (b)                    (c)
                                                                                   Number of Securities
                                                                                   Remaining Available for
                                                                                   Future Issuance Under
                                 Number of Securities to    Weighted-Average       Equity Compensation
                                 be Issued Upon Exercise    Exercise Price of      Plans (excluding securities
Plan Category                    of Outstanding Options     Outstanding Options    Reflected in column (a))
-------------------------------- -------------------------- ---------------------- ----------------------------
<S>                                     <C>                           <C>                   <C>
Equity compensation plans
approved by security holders            9,919,636                     $0.19                 2,080,364
-------------------------------- -------------------------- ---------------------- ----------------------------
Equity compensation plans
not approved by security
holders                                       -0-                     N/A                         -0-
-------------------------------- -------------------------- ---------------------- ----------------------------
         Total                          9,919,636                     $0.19                 2,080,364
-------------------------------- -------------------------- ---------------------- ----------------------------
</TABLE>


         Our only equity compensation plan is the Applied  NeuroSolutions,  Inc.
2003 Stock Option Plan.

                                       20
<PAGE>

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

GENERAL

         We are a development  stage  biopharmaceutical  company  engaged in the
development of diagnostics to detect,  and  therapeutics  to treat,  Alzheimer's
disease. Our principal development programs, and plan of operation for each, are
as follows:

         o        CSF-Based  Diagnostic - APNS is about to begin the final stage
                  of clinical  testing  for its lead  product,  a  cerebrospinal
                  fluid ("CSF") based diagnostic test to detect whether a person
                  has AD. This diagnostic, based upon the detection of a certain
                  AD associated protein found in the cerebrospinal fluid ("CSF")
                  of AD  patients,  has  achieved  an  overall  sensitivity  and
                  specificity  in the  range  of 85% to 95%.  This is  based  on
                  extensive  testing  differentiating  AD patients from patients
                  with other neurological diseases, patients with other relevant
                  forms of dementia  and normal  controls.  The Company has been
                  advised,   by  its  consultant  in  diagnostic   clinical  and
                  regulatory affairs,  that the completion of the final clinical
                  study  and  related   filing  with  the  U.S.  Food  and  Drug
                  Administration  ("FDA") of the premarket approval  application
                  ("PMA")  should  be  completed  within  12-15  months  of  its
                  commencement.  The Company has been  further  advised that FDA
                  approval could be received within 3-6 months of the completion
                  of the  filing  of the  PMA.  It is  anticipated  that the PMA
                  process,  including the final clinical study, will commence in
                  April 2004.

         o        Serum-Based   Diagnostic   -  The  Company  is   developing  a
                  second-generation,  serum-based  diagnostic  test to detect AD
                  that will be easier to perform and less  expensive to use. The
                  Company  believes the serum-based  test, which is 10-12 months
                  away from the start of pivotal clinical trials, can be brought
                  to market in the United States  within three years' time.  The
                  potential U.S. market for the serum-based test, which could be
                  utilized as a general  screening  test for AD, is estimated to
                  be in excess of $1 billion.  This  diagnostic,  based upon the
                  detection  of an  immune  response  to the  development  of AD
                  associated  proteins  in the blood,  has  achieved  an overall
                  sensitivity and specificity in the mid-70% range.  The Company
                  believes  that because of the  convenience  of testing  blood,
                  this  diagnostic  has the potential to become a screening test
                  with very broad application.

         o        AD Therapeutic  Compound Screening Assay - The Company is also
                  involved in the discovery and  development of  therapeutics to
                  treat Alzheimer's disease based upon a unique theory developed
                  by Peter Davies,  Ph.D., the Company's  founding scientist and
                  the  Burton P. and Judith  Resnick  Professor  of  Alzheimer's
                  Disease  Research  at  Albert  Einstein  College  of  Medicine
                  ("AECOM"). As a result of Dr. Davies' research, the Company is
                  involved  in  the  discovery  and   development  of  a  unique
                  therapeutic  that may represent the first therapy able to stop
                  the   progression  of  AD.  This  screening  assay  targets  a
                  component  of  the  biological   pathway  that  leads  to  the
                  development    of   the   two   principal   AD    pathologies,
                  neurofibrillary tangles and amyloid plaques. More importantly,
                  the assay allows  high-throughput  testing of  compounds  that
                  inhibit this  disease-causing  pathway leading  potentially to
                  the  discovery of the first drugs to stop the  progression  of
                  Alzheimer's  disease.  Initial  results  using this  screening
                  assay have identified active compounds that are the subject of
                  further  development.  We hope to select a lead  compound  for
                  pre-clinical testing within one year.

         o        Transgenic Mice - Through a collaboration  between Dr. Davies,
                  and a researcher at Nathan Kline Institute, a transgenic mouse
                  has  been   developed   that  models  the  tau   pathology  of
                  Alzheimer's  disease.  These  transgenic  mice  are the  first
                  animal  model  known  to  develop  paired  helical   filaments
                  (PHF's),  the building blocks of neurofibrillary  tangles, and
                  could  be  useful  in  testing  the  efficacy  of  therapeutic
                  compounds. We are currently exploring opportunities to license
                  the use of the transgenic mice to pharmaceutical companies.

         o        Cancer   Therapeutics   -  The  Company  has   identified   an
                  opportunity for the discovery of novel  anticancer  compounds,
                  and has access to various  monoclonal  antibodies which it has
                  licensed  from  AECOM,  that have been  shown to be  excellent
                  mitotic  markers.  The  Company has  developed  new screens in
                  collaboration  with Dr. Peter Davies and researchers  from the
                  University  of  British  Columbia  (UBC).  Due  to a  lack  of
                  available  funds,  the Company has suspended  activity on this
                  program.  In the event that sufficient  funds are raised,  the
                  Company may restart its collaborative  efforts to discover and
                  develop new antimitotic agents to treat cancer.


                                       21
<PAGE>

         As of December 31, 2003, we had cash and cash  equivalents  of $72,765.
In February 2004, we raised $8,000,000  ($7,340,000 proceeds, net of commissions
and legal fees) in a private  placement.  These funds  should be  sufficient  to
satisfy our cash  requirements  through December 2005. The proceeds will be used
for ongoing  research  and  development,  working  capital,  advancement  of the
CSF-based  diagnostic  through the FDA  regulatory  process,  general  corporate
purposes  and  possibly  for   acquisitions   of   complementary   companies  or
technologies.

         We do not  anticipate  the purchase,  lease or sale of any  significant
property and equipment during 2004. We do not anticipate any significant changes
in our employee count during 2004.

PLAN OF OPERATION

         Due to the successful completion of the financing in February 2004, the
strategic plan involves focusing Company resources, and establishing priorities,
to  maximize  the  return  to the  shareholders.  In  order to  accomplish  this
objective,  it is  expected  that the initial  priority  will be to focus on the
projects  in the  pipeline  that are  closest to  commercialization.  Thus,  our
initial  concentration  will be on advancing  the  commercialization  of the CSF
diagnostic to detect AD.

         Simultaneous with these efforts, we plan to commit additional resources
to furthering the completion of the development of the serum-based diagnostic to
detect  AD,  and  anticipate   identifying  the  right  time  to  enter  into  a
collaborative  or licensing  agreement with a partner for clinical  development,
approval and  marketing.  We also plan to continue to advance the  discovery and
preclinical  development  of the AD therapeutic  program  utilizing the in-vitro
screen,  directed  towards the  identification  of a novel lead compound.  It is
anticipated that we would  subsequently  license the lead compound and/or the AD
screen to a large pharmaceutical company.

         In  addition,  we may restart our program to discover  antimitotics  to
treat cancer.  In the event this program is  restarted,  we hope that we will be
able to  discover  some new  antimitotic  agents  to  address  cancer  through a
potential collaboration with the University of British Columbia (UBC). This will
allow us to pursue licensing opportunities with pharmaceutical companies. If the
development  of  these  cancer  treatments  is  successful,  we hope to  explore
potential partnering and licensing opportunities.

         We do not expect significant  revenues from our CSF-based diagnostic to
detect  AD or any  other of our  programs  in the  near  term.  There  can be no
assurance  that  adequate  funds on  acceptable  terms will be  available in the
future  when we need  them.  If at any time we are  unable to obtain  sufficient
additional  investment  capital,  we will be  required  to  delay,  restrict  or
eliminate some or all of our research or development programs, dispose of assets
or technology or cease operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The Company's  consolidated  financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  The preparation of these financial  statements  requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities and the disclosure of contingent  assets and liabilities at the date
of the financial  statements  and the reported  amounts of revenues and expenses
during the reporting period.

         On an on-going basis, management evaluates its estimates and judgments,
including  those related to tax valuation  and equity  compensation.  Management
bases its estimates and judgments on historical  experience and on various other
factors  that are  believed to be  reasonable  under the  circumstances.  Actual
results  may  differ  from  these  estimates  under  different   assumptions  or
conditions.  Management  believes the following  critical  accounting  policies,
among  others,  affect its more  significant  judgments  and  estimates  used in
preparation of its consolidated financial statements.

                                       22
<PAGE>

Net deferred tax asset valuation allowance

         The Company  records its net  deferred tax assets in the amount that it
expects to realize based on projected  future taxable  income.  In assessing the
appropriateness of its valuation, assumptions and estimates are required such as
the Company's  ability to generate future taxable income.  In the event that the
Company  were to  determine  that it would be able to realize its  deferred  tax
assets in the future in excess of its net recorded amount,  an adjustment to the
deferred tax asset would increase  income in the period such  determination  was
made. Since  inception,  the Company has concluded that the more likely than not
criteria of Statement of Financial  Accounting  Standard No. 109, Accounting for
Income  Taxes,  has not been met and  accordingly,  the Company  has  recorded a
valuation allowance for all its deferred income taxes for all periods presented.

Equity Compensation

         The Company  applies the  intrinsic  value-based  method of  accounting
prescribed by Accounting  Principles  Board Opinion No. 25 in accounting for its
fixed plan stock options awarded to employees. Accordingly, compensation expense
is recorded on the grant date only if the current market price of the underlying
stock exceeds the exercise price.

         The Company applies Statement of Financial  Accounting Standards (SFAS)
No. 123 and EITF 96-18  "Accounting  for Equity  Instruments  That are Issued to
Other Than Employees for Acquiring,  or in  Conjunction  with Selling,  Goods or
Services" for its options awarded to non-employee consultants. To determine fair
value,  management  is  required  to  make  assumptions  such  as  the  expected
volatility and expected life of the instruments.

RESULTS OF OPERATIONS

         On  September  10, 2002 the Company  established  a strategic  alliance
through the closing of its Merger with MGC. This  transaction has been accounted
for as a reverse merger. In order to comply with generally  accepted  accounting
principles (GAAP), for financial  reporting  purposes,  MGC is continuing as the
primary  operating  entity  under the APNS name,  and its  historical  financial
statements have replaced those of APNS. Thus, all financial information prior to
the Merger date is the financial information of MGC only.

         The  following  discussion  of the  financial  condition and results of
operations  should  be read  in  conjunction  with  the  consolidated  financial
statements and notes thereto included in Item 7.


Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

RESEARCH AND DEVELOPMENT

         Research and development  expenses consist primarily of compensation of
personnel and related benefits and taxes, funding of research related to license
agreements,  scientific consultant expenses,  patent costs,  laboratory supplies
and  overhead  costs.  Research  and  development  expenses  for the year  ended
December 31, 2003  increased 5% or $93,915  from  $1,779,689  for the year ended
December 31, 2002, to $1,873,604 for the year ended December 31, 2003.  Below is
a summary of our most significant research and development expenses:

<TABLE>
<CAPTION>
------------------------------------------------------------------ ------------- -------------- --------------
                                                                                                  Increase
                                Expense                                2003          2002        (Decrease)
------------------------------------------------------------------ ------------- -------------- --------------
<S>                                                                    <C>            <C>           <C>
Compensation, taxes and benefits                                       $600,879       $630,440      ($29,561)
Research funding and consulting                                         571,210        825,663      (254,453)
French subsidiary expense                                               178,608         20,736        157,872
Legal patent expense                                                     45,319         97,280       (51,961)
Rent, telephone and utilities                                           105,294        104,114          1,180
Variable accounting for stock options                                   270,455             --        270,455
Expense for stock options and other equity instruments issued            71,465         68,540          2,925
Other research and development expenses, net of reimbursements           30,374         32,916        (2,542)
------------------------------------------------------------------ ------------- -------------- --------------
Total Research and Development Expenses                              $1,873,604     $1,779,689        $93,915
------------------------------------------------------------------ ------------- -------------- --------------
</TABLE>

                                       23
<PAGE>

         The Company has certain  equity  instruments  that meet the criteria of
variable accounting whereby additional compensation expense is recognized if the
share price of the Company's  common stock  increases,  which may be reversed if
the price subsequently declines. Included in research and development expense in
2003, was non-cash  compensation expense of $270,455 for variable accounting for
stock options compared to no charge in 2002. The increase was also caused by the
inclusion of our French subsidiary's  operating expenses for a full year in 2003
following the merger of the Company and MGC in the third  quarter of 2002.  This
increase was offset by a decrease in costs related to ongoing  research with our
licensor  (AECOM)  in 2003.  The  agreements  with  AECOM  were  amended in 2002
resulting in additional collaborator funding in 2002. Patent costs were lower in
2003 due to a  decrease  in the  number  of  applications  in  2003.  Management
estimates  that it has been  expending  approximately  $130,000 to $150,000  per
month for  research  and  development  activities.  This  excludes the effect of
variable  accounting for its equity  instruments.  This amount is anticipated to
increase  substantially  in 2004 as our CSF-based  diagnostic  assay  progresses
through clinical trials towards regulatory  approval,  and the level of activity
in our other development  programs increases.  The amount of our actual research
and development expenditures, however, may fluctuate from quarter-to-quarter and
year-to-year  depending on: (1) the  resources  available;  (2) our  development
schedule; (3) results of studies,  clinical trials and regulatory decisions; and
(4) competitive developments.

GENERAL AND ADMINISTRATION

         General and  administrative  expenses consist primarily of compensation
of personnel and related benefits and taxes, legal and accounting expenses,  and
occupancy related  expenses.  General and  administrative  expenses for the year
ended December 31, 2003 increased 23% or $242,726,  from $1,076,401 for the year
ended  December  31, 2002 to  $1,319,127  for the year ended  December 31, 2003.
Below is a summary of our most significant general and administrative expenses:


<TABLE>
<CAPTION>
----------------------------------------------------------------- ------------- -------------- --------------
                                                                                                 Increase
----------------------------------------------------------------- ------------- -------------- --------------
                                Expense                               2003          2002        (Decrease)
----------------------------------------------------------------- ------------- -------------- --------------
<S>                                                                   <C>            <C>            <C>
Compensation, taxes and benefits                                      $444,759       $445,920       ($1,161)
Consulting and professional fees                                       154,164        107,105         47,059
Rent, telephone and utilities                                           43,502         46,175        (2,673)
Variable accounting for stock options                                  333,645             --        333,645
Expense for stock options and other equity instruments issued            9,509        202,019      (192,510)
Expense for warrants issued and converted to shares of stock           193,130        195,670        (2,540)
Amortization of deferred financing fee                                 104,542             --        104,542
Other general and administrative expenses                               35,876         79,512       (43,636)
----------------------------------------------------------------- ------------- -------------- --------------
Total General and Administrative Expenses                           $1,319,127     $1,076,401       $242,726
----------------------------------------------------------------- ------------- -------------- --------------
</TABLE>

         The Company has certain  equity  instruments  that meet the criteria of
variable accounting whereby additional compensation expense is recognized if the
share price of the Company's  common stock  increases,  which may be reversed if
the price subsequently declines.  Included in general and administrative expense
in 2003, was non-cash  compensation  expense of $333,645 for variable accounting
for stock  options  compared to no charge in 2002.  Financing  fees were paid in
2003 and are being amortized over the life of the related convertible debt. This
resulted  in  amortization  expense of $104,542 in 2003.  These  increases  were
partially  offset by the  decreased  expense for stock  options and other equity
instruments issued from $202,019 in 2002 to $9,509 in 2003. Management estimates
that it has been  expending  approximately  $60,000  to  $70,000  per  month for
general and  administrative  activities,  not  including the effects of variable
accounting for its equity  instruments and other non-cash equity expenses.  This
amount is  anticipated  to  increase in 2004,  due to an  increase in  potential
licensing and general corporate activities.


OTHER INCOME AND EXPENSE

         Interest expense for the year ended December 31, 2003 increased 388% or
$86,692,  from $22,349 for the year ended December 31, 2002, to $109,041 for the
year ended December 31, 2003.  The increase is primarily due to higher  interest
expense   associated  with  convertible   investor  bridge  loans.  The  average
outstanding  bridge  loan  balance  was  approximately  $1,750,000  in 2003  and
$565,000 in 2002.  Interest  income was  negligible  in 2003 and 2002.  Interest
expense is expected to be minimal in 2004, as all  convertible  investor  bridge
loans, including accrued interest, were converted to equity as of the closing of
the private placement in February 2004.

                                       24
<PAGE>

         APNS currently does not hedge foreign exchange  transaction  exposures.
The Company's  assets and  liabilities  denominated  in foreign  currencies  are
immaterial.


NET LOSS

         We incurred a net loss of  $3,301,420  for the year ended  December 31,
2003 compared to a net loss of $2,929,955  for the year ended December 31, 2002.
The primary  reason for the increase in the net loss in 2003 was the expense for
variable  accounting for stock options of $604,100 in 2003.  There was no charge
for variable  accounting for stock options in 2002. This was partially offset by
a  decrease  in  other  expenses  related  to stock  options  and  other  equity
instruments of $189,584,  from $270,559 in 2002 to $80,975 in 2003. In addition,
we incurred  additional  costs of $157,872  due to the  inclusion  of our French
subsidiary's  operating expenses for a full year in 2003 following the merger of
the Company and MGC in the third  quarter of 2002,  and we incurred  $104,542 of
deferred   financing  cost   amortization   related  to  costs  associated  with
convertible  investor  bridge  debt in 2003.  This  was  partially  offset  by a
decrease in expenses in 2003 of $254,453 related to our research at AECOM and at
UBC.


Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

RESEARCH AND DEVELOPMENT

         Research and development  expenses consist primarily of compensation of
personnel and related benefits and taxes, funding of research related to license
agreements,   scientific  consultant  expenses,  patent  costs,  and  laboratory
supplies. Research and development expenses for the year ended December 31, 2002
increased 41% or $514,391 from  $1,265,298 for the year ended December 31, 2001,
to $1,779,689 for the year ended December 31, 2002.  This increase was primarily
due to an increase in expenses  related to ongoing  research  with our  licensor
(AECOM) as well as additional collaboration expenses.

GENERAL AND ADMINISTRATION

         General and  administrative  expenses consist primarily of compensation
of personnel and related benefits and taxes, legal and accounting expenses,  and
occupancy related  expenses.  General and  administrative  expenses for the year
ended  December 31, 2002  increased 37% or $292,220,  from $784,181 for the year
ended  December 31, 2001 to $1,076,401 for the year ended December 31, 2002. The
increase was primarily due to an increase in non-cash  compensation  from equity
issuances to  employees,  non-employees  and board  members.  This  increase was
partially  offset by a decrease in corporate  legal expenses in 2002.  Corporate
legal  expenses  were  higher  in  2001  due to  work on a  number  of  proposed
transactions  that did not materialize.  In addition,  external  corporate legal
expenses in 2002 relating to the Merger were capitalized as costs of the Merger.

INTEREST EXPENSE

         Interest  expense for the year ended December 31, 2002 decreased 86% or
$139,593 from $161,942 for the year ended  December 31, 2001, to $22,349 for the
year ended  December 31, 2002.  The decrease is primarily due to lower  interest
expense associated with convertible investor bridge loans. In November 2001, all
outstanding bridge loans were converted to shares of common stock.

OTHER INCOME AND EXPENSE

         Interest  income was negligible in 2002 and 2001.  Other items of other
income and expense included a non-cash expense associated with additional shares
of common stock issued to bridge loan  holders as an  inducement  to convert the
investor  bridge loans to shares of common stock in November 2001 of $1,631,107;
recognition  of $44,273  in 2002 and  $229,799  in 2001 for a  non-cash  expense
associated with the beneficial  conversion of investor bridge loans to shares of
common stock in November  2001; and  amortization  of debt discount of $7,379 in
2002 and $82,823 in 2001.

                                       25
<PAGE>

NET LOSS

         We incurred a net loss of  $2,929,955  for the year ended  December 31,
2002 compared to a net loss of $4,146,913  for the year ended December 31, 2001.
The primary  reason for the  decrease  in the net loss in 2002 was the  non-cash
cost  associated  with the  inducement  to convert the investor  bridge loans in
November  2001.  This was  partially  offset by an  increase in expenses in 2002
related  to  our  research  at  AECOM  and  at  UBC,  an  increase  in  non-cash
compensation in the form of options and other non-cash equity transactions,  and
a decrease in interest expense.


CAPITAL RESOURCES AND LIQUIDITY

         To date,  we have raised  equity and  convertible  debt  financing  and
received research reimbursements and grant revenues to fund our operations,  and
we expect to  continue  this  practice  to fund our  ongoing  operations.  Since
inception, we have raised net proceeds of approximately $36 million from private
equity and  convertible  debt  financings.  We have also received  approximately
$1.17 million from research  agreements and grant  revenues.  As stated above in
our Plan of  operations,  we  raised  $8,000,000  ($7,340,000  proceeds,  net of
commissions and legal fees) in February 2004 through a private placement.

         Our cash and cash equivalents were $72,765 and $202,877 at December 31,
2003  and  2002,  respectively.  The  decrease  in our  cash  balance  is due to
additional convertible debt bridge funds received in December 2002 that were not
used until 2003. We had been  receiving  funds on an as needed basis  throughout
2002 and 2003 and had not  accumulated  significant  funds at any  point in time
during those years.

         We used cash in operating  activities of $1,672,297  for the year ended
December 31, 2003 versus cash used in operating activities of $1,585,281 for the
year ended December 31, 2002.  This increase  primarily  reflects the additional
costs  for our  French  subsidiary  for the  full  year in  2003.  Cash  used in
investing  activities  was  negligible  in 2003 and 2002.  Net cash  provided by
financing  activities was $1,550,557 for the year ended December 31, 2003 versus
net cash  provided by  financing  activities  of  $1,744,386  for the year ended
December 31, 2002. This decrease primarily  reflects  additional funds raised in
2002 through the issuance of promissory loans and common stock that were used in
2003.

         We used cash in operating  activities of $1,585,281  for the year ended
December 31, 2002 versus cash used in operating activities of $1,126,979 for the
year ended December 31, 2001.  This increase  primarily  reflects the additional
costs for research  with AECOM in 2002.  Cash used in investing  activities  was
negligible  in 2002 and 2001.  Net cash  provided by  financing  activities  was
$1,744,386  for the year ended  December  31, 2002  versus net cash  provided by
financing  activities  of $986,200 for the year ended  December  31, 2001.  This
increase primarily reflects additional funds raised in 2002 through the issuance
of common stock and borrowings under loans.

         We have  incurred  recurring  losses since our  inception and expect to
incur  substantial  additional  research and development costs prior to reaching
profitability.  We raised  $8,000,000  (net proceeds of  $7,340,000) in February
2004, which is expected to fund our operations through December 31, 2005.

         We  currently  do  not  have  sufficient   resources  to  complete  the
commercialization  of all of our proposed products.  Therefore,  we will need to
raise substantial  additional  capital prior to 2006 to fund our operations.  We
cannot be certain that any financing will be available  when needed.  If we fail
to raise  additional  financing as we need it, we may have to delay or terminate
our own product  development  programs or pass on opportunities to in-license or
otherwise  acquire  new  products  that  we  believe  may be  beneficial  to our
business. We expect to continue to spend capital on:

                  o        research and development programs;
                  o        pre-clinical studies and clinical trials; and
                  o        regulatory processes.

                                       26
<PAGE>

The amount of capital we may need will depend on many factors, including the:

                  o        progress,   timing   and   scope  of   research   and
                           development programs;
                  o        progress,   timing  and  scope  of  our  pre-clinical
                           studies and clinical trials;
                  o        time  and  cost   necessary   to  obtain   regulatory
                           approvals;
                  o        time  and  cost   necessary   to  seek  third   party
                           manufacturers to manufacture our products for us;
                  o        time and cost necessary to seek marketing partners to
                           market our products for us;
                  o        time and cost  necessary to respond to  technological
                           and market developments;
                  o        changes made to, or new developments in, our existing
                           collaborative,   licensing   and   other   commercial
                           relationships; and
                  o        new  collaborative,  licensing  and other  commercial
                           relationships that we may establish.


COMMITMENTS

         We have several financial commitments,  including those relating to our
license agreements with Albert Einstein College of Medicine ("AECOM").

         Under our license agreement with AECOM, we are required to:

                  o        pay semi-annual  maintenance  payments in January and
                           July each year, and pay quarterly funding payments in
                           February,  May, August and November each year as long
                           as the license agreement is in place; and
                  o        pay the costs of patent  prosecution  and maintenance
                           of the patents included in the agreement.

         Our  fixed  expenses,   such  as  rent,   license  payments  and  other
contractual commitments, may increase in the future, as we may:

                  o        enter into  additional  leases for new facilities and
                           capital equipment;
                  o        enter  into  additional  licenses  and  collaborative
                           agreements; and
                  o        incur  additional  expenses  associated  with being a
                           public company.

         In  addition  to the  commitments  to AECOM,  we also  have  consulting
agreements and minimum annual lease payments.

         The  following  table  summarizes  the timing of these future long term
contractual  obligations and commitments for the next five years ending December
31:

<TABLE>
<CAPTION>
---------------------------- -------------- -------------- ------------- ------------- --------------- --------------
                                 2004           2005           2006          2007           2008
  Contractual Obligations       Year 1         Year 2         Year 3        Year 4         Year 5          Total
---------------------------- -------------- -------------- ------------- ------------- --------------- --------------
<S>                              <C>           <C>            <C>            <C>           <C>          <C>
Operating Leases                 $97,275       $100,425       $102,000       $34,000             --      $333,700
---------------------------- -------------- -------------- ------------- ------------- --------------- --------------
Consulting Agreements            108,000        108,000          9,000            --             --       225,000
---------------------------- -------------- -------------- ------------- ------------- --------------- --------------
Commitments Under
License Agreement with
AECOM                            325,000        375,000        425,000       475,000        500,000      2,100,000
---------------------------- -------------- -------------- ------------- ------------- --------------- --------------
Total Contractual Cash
Obligations                     $530,275       $583,425       $536,000      $509,000       $500,000     $2,658,700
---------------------------- -------------- -------------- ------------- ------------- --------------- --------------
</TABLE>

         We are obligated to continue to pay AECOM  $500,000 for each year after
2008 in which the Agreements are still in effect. In addition,  we are obligated
to pay AECOM a  percentage  of all  revenues  we  receive  from  selling  and/or
licensing any aspects of the AD technology.


                                       27
<PAGE>

RECENTLY ISSUED ACCOUNTING STATEMENTS

         In November  2002,  the FASB issued  Interpretation  No. 45 ("FIN 45"),
Guarantor's  Accounting and Disclosure  Requirements  for Guarantees,  Including
Guarantees  of  Indebtedness  to  Others.   This   interpretation   expands  the
disclosures  to be made by a guarantor  in its  financial  statements  about its
obligations  under certain  guarantees and requires the guarantor to recognize a
liability  for the fair  value of an  obligation  assumed  under  guarantee.  In
general,  FIN  45  applies  to  contracts  or  indemnification  agreements  that
contingently  require that the guarantor make payments to the guaranteed  party.
The  disclosure  requirements  of FIN 45 were effective as of December 31, 2002,
and required  disclosure of the nature of the guarantee,  the maximum  potential
amount of future payments that the guarantor could be required to make under the
guarantee,  and the current amount of the liability, if any, for the guarantor's
obligations under the guarantee.  The recognition  requirements of FIN 45 are to
be applied  prospectively  to guarantees  issued or modified  after December 31,
2002.  The  Company  has  disclosed  all  guarantee   arrangements   within  the
accompanying  consolidated  financial statements and concluded that there are no
additional liability recognition requirements.

         In January 2003, the FASB issued  Interpretation No. 46,  Consolidation
of  Variable  Interest  Entities  to provide new  guidance  with  respect to the
consolidation of certain previously  unconsolidated entities,  including special
purpose  entities.  In October 2003, the FASB issued a Staff Position  deferring
the effective date of the Interpretation for all public entities until the first
interim or annual  period ending after  December 31, 2003.  The Company does not
believe that adoption of this  Interpretation will have a material effect on its
consolidated financial position or results of operations.

         In May 2003,  the FASB  issued  SFAS No.  150,  Accounting  for Certain
Financial  Instruments with Characteristics of both Liabilities and Equity. This
Statement  establishes  standards  for the  classification  and  measurement  of
certain  financial  instruments  with  characteristics  of both  liabilities and
equity.   The  Statement  also  includes  required   disclosures  for  financial
instruments  within its scope. For the Company,  the Statement was effective for
instruments  entered into or modified  after May 31, 2003 and otherwise  will be
effective as of January 1, 2004,  except for  mandatorily  redeemable  financial
instruments.  For certain  mandatorily  redeemable  financial  instruments,  the
Statement  will be effective  for the Company on January 1, 2005.  The effective
date has been  deferred  indefinitely  for certain  other  types of  mandatorily
redeemable  financial  instruments.  The  Company  currently  does  not have any
financial  instruments  that are within the scope of this Statement and does not
expect  the  adoption  of  the  remaining  provisions  of  SFAS  150  to  have a
significant impact on the Company's financial position or results of operations.

         In May 2003, the FASB finalized the terms of Emerging Issues Task Force
("EITF") Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, which
provides  criteria  governing how to identify whether goods or services that are
to be delivered  separately in a bundled sales  arrangement  should be accounted
for  separately.  Deliverables  are accounted for separately if they meet all of
the following: a) the delivered items have stand-alone value to the customer; b)
the fair value of any undelivered  items can be reliably  determined;  and c) if
the arrangement includes a general right of return,  delivery of the undelivered
items is probable and substantially controlled by the seller.  Deliverables that
do not meet these criteria are combined with one or more other deliverables. The
Company  adopted  EITF 00-21 as of June 15,  2003 and now  assesses  all revenue
arrangements  against the  criteria  set forth in EITF 00-21.  This  impacts the
timing of revenue recognition in the current and future periods and could have a
material impact on the consolidated financial statements in the future.

                                       28

<PAGE>



ITEM 7.   FINANCIAL STATEMENTS



                          APPLIED NEUROSOLUTIONS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                              FINANCIAL STATEMENTS



                                    CONTENTS

<TABLE>
<CAPTION>
                                                                                       Page
                                                                                       ----
<S>                                                                                      <C>
Report of Independent Auditors.......................................................    30.

Consolidated Balance Sheets as of December 31, 2003 and 2002.........................    31.

Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002,
and 2001 and for the Cumulative Period From March 14, 1992 (inception) to December
31, 2003.............................................................................    32.

Consolidated Statements of Stockholders' Equity/(Deficit) for the Years Ended
December 31, 2003, 2002, and 2001 and for the Cumulative Period From March 14, 1992
(inception) to December 31, 2003.....................................................    33.

Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002,
and 2001 and for the Cumulative Period From March 14, 1992 (inception) to December
31, 2003.............................................................................    35.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2003,
2002, and 2001 and for the Cumulative Period From March 14, 1992 (inception) to
December 31, 2003....................................................................    37.
</TABLE>

                                       29
<PAGE>



                          INDEPENDENT AUDITORS' REPORT



The Board of Directors
Applied NeuroSolutions, Inc.:


We  have  audited  the  accompanying  consolidated  balance  sheets  of  Applied
NeuroSolutions,  Inc. and subsidiaries (a company in the development stage) (the
"Company")  as of  December  31,  2003 and 2002,  and the  related  consolidated
statements of operations,  stockholders' equity / (deficit),  and cash flows for
each of the years in the three year period  ended  December 31, 2003 and for the
period from March 14, 1992 (date of inception)  through December 31, 2003. These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,   in  all  material   respects,   the  financial   position  of  Applied
NeuroSolutions, Inc. and subsidiaries (a company in the development stage) as of
December 31, 2003 and 2002,  and the results of their  operations and their cash
flows for each of the years in the three year period ended December 31, 2003 and
for the period  from March 14, 1992 (date of  inception)  through  December  31,
2003, in conformity with accounting  principles generally accepted in the United
States of America.





KPMG LLP
Chicago, Illinois

March 12, 2004



                                       30
<PAGE>


                          APPLIED NEUROSOLUTIONS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                                        -----------------------------
                                                                            2003             2002
                                                                        ------------     ------------
<S>                                                                     <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents .......................................    $     72,765     $    202,877
   Accounts receivable .............................................          50,730          205,245
   Prepaids and other current assets ...............................          52,709           45,093
                                                                        ------------     ------------
     Total current assets ..........................................         176,204          453,215
                                                                        ------------     ------------

Property and equipment:
   Equipment and leaseholds ........................................       2,084,143        2,064,005
   Accumulated depreciation ........................................      (2,063,247)      (2,054,641)
                                                                        ------------     ------------
     Net property and equipment ....................................          20,896            9,364
                                                                        ------------     ------------

Other assets:
   Deposits ........................................................          15,133           14,718
   Deferred financing costs ........................................           6,458               --
                                                                        ------------     ------------
     Total other assets ............................................          21,591           14,718
                                                                        ------------     ------------
        Total assets ...............................................    $    218,691     $    477,297
                                                                        ============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY / (DEFICIT)
Current liabilities:
   Accounts payable ................................................    $    301,308     $    254,283
   Loans payable ...................................................       2,673,991        1,010,000
   Capital lease payable, current portion ..........................           3,736               --
   Deferred research agreement revenues ............................         275,000          200,000
   Accrued wages ...................................................         293,310          293,310
   Accrued collaborator payments ...................................         253,667          124,026
   Accrued consultant fees .........................................         235,100          121,800
   Other accrued expenses ..........................................         330,313          203,993
                                                                        ------------     ------------
     Total current liabilities .....................................       4,366,425        2,207,412
                                                                        ------------     ------------

Long term liabilities:
   Capital lease payable, net of current portion ...................           5,596               --
                                                                        ------------     ------------
     Total long term liabilities ...................................           5,596               --
                                                                        ------------     ------------


Stockholders' equity / (deficit):
   Preferred stock, par value $0.0025: authorized shares, 5,000,000;
     none issued and outstanding in 2003 and 2002 ..................              --               --
   Common stock, par value $0.0025: authorized shares, 200,000,000
     and 50,000,000; issued shares, 47,724,392 and outstanding
     shares, 47,701,098 in 2003 and 2002 ...........................         119,253          119,253
   Treasury stock ..................................................         (10,614)         (10,614)
   Additional paid in capital ......................................      31,530,189       30,651,984
   Deficit accumulated during the development stage ................     (35,792,158)     (32,490,738)
                                                                        ------------     ------------
   Total stockholders' equity / (deficit) ..........................      (4,153,330)      (1,730,115)
                                                                        ------------     ------------
        Total liabilities and stockholders' equity / (deficit) .....    $    218,691     $    477,297
                                                                        ============     ============
</TABLE>


See accompanying notes to consolidated financial statements.



                                       31
<PAGE>


                          APPLIED NEUROSOLUTIONS, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                               PERIOD FROM
                                                                                             MARCH 14, 1992
                                                        YEAR ENDED DECEMBER 31,              (INCEPTION) TO
                                             --------------------------------------------     DECEMBER 31,
                                                 2003            2002            2001            2003
                                             ------------    ------------    ------------    ------------
<S>                                          <C>             <C>             <C>             <C>
Research agreement revenues ..............   $         --    $         --    $         --    $    500,000
Grant revenues ...........................             --              --              --         669,022
                                             ------------    ------------    ------------    ------------
      Total revenues .....................             --              --              --       1,169,022
                                             ------------    ------------    ------------    ------------
Operating expenses:
   Research and development ..............      1,873,604       1,779,689       1,265,298      23,922,322
   General and administrative ............      1,319,127       1,076,401         784,181       9,216,012
   Loss on impairment of intangible assets             --              --              --         411,016
   Net writedown of leasehold improvements             --              --              --       1,406,057
                                             ------------    ------------    ------------    ------------
      Total operating expenses ...........      3,192,731       2,856,090       2,049,479      34,955,407
                                             ------------    ------------    ------------    ------------
Operating loss ...........................     (3,192,731)     (2,856,090)     (2,049,479)    (33,786,385)
                                             ------------    ------------    ------------    ------------
Other (income) expense:
   Interest expense ......................        109,041          22,349         161,942         468,776
   Interest income .......................           (352)           (136)         (8,237)       (704,739)
   Amortization of debt discount .........             --           7,379          82,823         272,837
   Beneficial conversion of debt to equity             --          44,273         229,799         274,072
   Inducement of convertible debt ........             --              --       1,631,107       1,631,107
   Other (income) expense ................             --              --              --          63,720
                                             ------------    ------------    ------------    ------------
      Total other expense ................        108,689          73,865       2,097,434       2,005,773
                                             ------------    ------------    ------------    ------------

Net loss .................................     (3,301,420)     (2,929,955)     (4,146,913)    (35,792,158)

   Less: Fair value of induced preferred
     stock conversion ....................             --              --      (1,866,620)     (1,866,620)
                                             ------------    ------------    ------------    ------------
 Net loss attributable to common
     shareholders ........................   $ (3,301,420)   $ (2,929,955)   $ (6,013,533)   $(37,658,788)
                                             ============    ============    ============    ============
Basic:
   Net loss attributable to common
     shareholders per share ..............         $(0.07)         $(0.10)         $(0.53)         $(3.22)
   Weighted average shares ...............     47,701,098      28,047,014      11,247,599      11,695,033
</TABLE>


See accompanying notes to consolidated financial statements




                                       32
<PAGE>


                          APPLIED NEUROSOLUTIONS, INC.
                          (A DEVELOPMENT STAGE COMPANY)

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY / (DEFICIT)

       FOR THE PERIOD FROM MARCH 14, 1992 (INCEPTION) TO DECEMBER 31, 2003

<TABLE>
<CAPTION>
                                                                                                      DEFICIT
                                                                                                    ACCUMULATED         TOTAL
                                                                                     ADDITIONAL      DURING THE     STOCKHOLDERS'
                                                               COMMON     TREASURY     PAID IN      DEVELOPMENT        EQUITY
                                                SHARES         STOCK       STOCK       CAPITAL         STAGE          (DEFICIT)
                                             -----------    ----------    -------   ------------    ------------    ------------
<S>                                            <C>          <C>           <C>       <C>             <C>             <C>
Issuance of Common Stock ..................      372,682    $      932    $    --   $       (332)   $         --    $        600
Net loss ..................................           --            --         --             --        (922,746)       (922,746)
                                             -----------    ----------    -------   ------------    ------------    ------------
BALANCE AT DECEMBER 31, 1992 ..............      372,682           932         --           (332)       (922,746)       (922,146)
Issuance of Common Stock ..................      434,793         1,087         --           (387)             --             700
Issuance of Preferred Stock, subsequently
   converted to Common Stock ..............      165,936           415         --      1,201,750              --       1,202,165
Issuance of Preferred Stock, subsequently
   converted to Common Stock ..............      762,066         1,905         --      5,640,172              --       5,642,077
Issuance of Common Stock upon conversion of
   note and accrued interest ..............      368,322           921         --      2,964,005              --       2,964,926
Net loss ..................................           --            --         --             --      (4,875,845)     (4,875,845)
                                             -----------    ----------    -------   ------------    ------------    ------------
BALANCE AT DECEMBER 31, 1993 ..............    2,103,799         5,260         --      9,805,208      (5,798,591)      4,011,877
Issuance of Preferred Stock, subsequently
   converted to Common Stock ..............      533,020         1,333         --      4,006,404              --       4,007,737
Retirement of Common Stock ................       (1,887)           (5)        --        (13,663)             --         (13,668)
Net loss ..................................           --            --         --             --      (6,154,275)     (6,154,275)
                                             -----------    ----------    -------   ------------    ------------    ------------
BALANCE AT DECEMBER 31, 1994 ..............    2,634,932         6,588         --     13,797,949     (11,952,866)      1,851,671
Issuance of Preferred Stock, subsequently
   converted to Common Stock ..............      493,801         1,235         --        748,765              --         750,000
Issuance of Preferred Stock upon conversion
   of bridge loan and accrued interest,
   subsequently converted to Common Stock .      689,179         1,723         --      1,005,840              --       1,007,563
Net loss ..................................           --            --         --             --      (2,191,159)     (2,191,159)
                                             -----------    ----------    -------   ------------    ------------    ------------
BALANCE AT DECEMBER 31, 1995 ..............    3,817,912         9,546         --     15,552,554     (14,144,025)      1,418,075
Issuance of Preferred Stock, subsequently
   converted to Common Stock ..............    4,957,145        12,393         --      6,864,881              --       6,877,274
Issuance of Common Stock ..................       31,802            80         --         96,524              --          96,604
Net loss ..................................           --            --         --             --      (2,591,939)     (2,591,939)
                                             -----------    ----------    -------   ------------    ------------    ------------
BALANCE AT DECEMBER 31, 1996 ..............    8,806,859        22,019         --     22,513,959     (16,735,964)      5,800,014
Issuance of Common Stock in connection with
   acquisition of intangible assets .......      131,682           329         --        399,671              --         400,000
Net loss ..................................           --            --         --             --      (2,040,092)     (2,040,092)
                                             -----------    ----------    -------   ------------    ------------    ------------
BALANCE AT DECEMBER 31, 1997 ..............    8,938,541        22,348         --     22,913,630     (18,776,056)      4,159,922
Net loss ..................................           --            --         --             --      (2,549,920)     (2,549,920)
                                             -----------    ----------    -------   ------------    ------------    ------------
BALANCE AT DECEMBER 31, 1998 ..............    8,938,541        22,348         --     22,913,630     (21,325,976)      1,610,002
Net loss ..................................           --            --         --             --      (1,692,356)     (1,692,356)
                                             -----------    ----------    -------   ------------    ------------    ------------
BALANCE AT DECEMBER 31, 1999 ..............    8,938,541        22,348         --     22,913,630     (23,018,332)        (82,354)
Issuance of Preferred Stock, subsequently
   converted to Common Stock ..............    1,466,495         3,666         --        983,614              --         987,280
Issuance of warrants to purchase shares of
   Common Stock ...........................           --            --         --         83,406              --          83,406
</TABLE>



                                       33
<PAGE>


<TABLE>
<CAPTION>
                                                                                                        DEFICIT
                                                                                                      ACCUMULATED         TOTAL
                                                                                       ADDITIONAL      DURING THE     STOCKHOLDERS'
                                                               COMMON     TREASURY       PAID IN      DEVELOPMENT        EQUITY
                                                SHARES         STOCK       STOCK         CAPITAL         STAGE          (DEFICIT)
                                             -----------     ---------    ---------   ------------    ------------    ------------
<S>                                            <C>           <C>           <C>          <C>             <C>             <C>
Extension of warrants to purchase shares of
   Common Stock ...........................           --            --           --        154,685              --         154,685
Stock options granted to non-employees ....           --            --           --        315,976              --         315,976
Net loss ..................................           --            --           --             --      (2,395,538)     (2,395,538)
                                             -----------     ---------    ---------   ------------    ------------    ------------
BALANCE AT DECEMBER 31, 2000 ..............   10,405,036        26,014           --     24,451,311     (25,413,870)       (936,545)
Issuance of Common Stock upon conversion of
   bridge loans and accrued interest ......    4,474,649        11,185           --      2,027,696              --       2,038,881
Issuance of Common Stock ..................      580,726         1,452           --        211,048              --         212,500
Stock options granted to non-employees ....           --            --           --         77,344              --          77,344
Issuance of warrants to purchase shares of
   Common Stock ...........................           --            --           --         27,367              --          27,367
Stock options reissued to adjust exercise
   term ...................................           --            --           --         64,033              --          64,033
Beneficial conversion feature of
   convertible debt .......................           --            --           --        229,799              --         229,799
Induced conversion of convertible debt ....           --            --           --      1,631,107              --       1,631,107
Net loss ..................................           --            --           --             --      (4,146,913)     (4,146,913)
                                             -----------     ---------    ---------   ------------    ------------    ------------
BALANCE AT DECEMBER 31, 2001 ..............   15,460,411        38,651           --     28,719,705     (29,560,783)       (802,427)
Issuance of Common Stock upon conversion of
   bridge loans, accrued interest, other
   payables and as payment for services ...    7,201,971        18,005           --      1,792,878              --       1,810,883
Issuance of Common Stock upon conversion of
   warrants ...............................      156,859           392           --         35,536              --          35,928
Stock options granted to non-employees ....           --            --           --          6,136              --           6,136
Repurchase of Common Stock ................      (23,294)          (58)     (10,614)            58              --         (10,614)
Merger between the Company and Molecular
   Geriatrics Corporation .................   24,905,151        62,263           --        (62,263)             --              --
Issuance of warrants to purchase shares of
   Common Stock ...........................           --            --           --        159,934              --         159,934
Net loss ..................................           --            --           --             --      (2,929,955)     (2,929,955)
                                             -----------     ---------    ---------   ------------    ------------    ------------
BALANCE AT DECEMBER 31, 2002 ..............   47,701,098       119,253      (10,614)    30,651,984     (32,490,738)     (1,730,115)
Variable accounting for stock options .....           --            --           --        604,100              --         604,100
Stock options granted to non-employees ....           --            --           --         80,975              --          80,975
Issuance of warrants to purchase shares of
   common stock ...........................           --            --           --        193,130              --         193,130
Net loss ..................................           --            --           --             --      (3,301,420)     (3,301,420)
                                             -----------   -----------    ---------   ------------    ------------    ------------
BALANCE AT DECEMBER 31, 2003 ..............   47,701,098   $   119,253    $ (10,614)  $ 31,530,189    $(35,792,158)   $ (4,153,330)
                                             ===========   ===========    =========   ============    ============    ============
</TABLE>

See accompanying notes to consolidated financial statements




                                       34
<PAGE>


                          APPLIED NEUROSOLUTIONS, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                          PERIOD FROM
                                                                                                        MARCH 14, 1992
                                                                  YEAR ENDED DECEMBER 31,               (INCEPTION) TO
                                                     ----------------------------------------------      DECEMBER 31,
                                                         2002             2001             2003             2003
                                                     ------------     ------------     ------------     -------------
<S>                                                  <C>              <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss ......................................    $ (3,301,420)    $ (2,929,955)    $ (4,146,913)    $(35,792,158)
  Adjustments to reconcile net loss to net cash
       used in operating activities:
       Depreciation and amortization ............           8,606           18,648           42,737        2,548,340
       Non-cash expense for warrant and option
           issuance to non-employees ............         311,791          201,806          141,377        1,153,585
       Non-cash expense for equity compensation
           to employees and directors ...........         566,414          264,423               --          830,837
       Non-cash interest expense ................              --            7,379           82,823           90,202
       Amortization of deferred financing costs .         104,542               --               --          104,542
       Non-cash expense for beneficial conversion
           of debt ..............................              --           44,273          229,799          274,072
       Non cash expense for induced conversion
           of debt ..............................              --               --        1,631,107        1,631,107
       Amortization of intangible assets ........              --               --               --          328,812
       Loss on writedown of leasehold
           Improvements .........................              --               --               --        1,406,057
       Loss on impairment of intangible assets ..              --               --               --          411,016
       Gain on sale of equipment ................              --               --               --             (250)
       Issuance of common stock for services ....              --          635,000          156,454          791,454
  Changes in assets and liabilities:
       Accounts receivable ......................         154,515         (202,785)            (660)         152,560
       Prepaids and other assets ................          (8,031)         (45,093)         250,800          (53,124)
       Accounts payable .........................          47,025          (79,732)         243,388          397,912
       Deferred research reimbursement revenues .          75,000          200,000               --          275,000
       Accrued wages ............................              --           15,185          143,125          293,310
       Accrued collaborator payments ............         129,641          118,988            5,038          253,667
       Accrued consultant fees ..................         113,300          105,600           16,200          235,100
       Other accrued expenses ...................         126,320           60,982           77,746          361,120
                                                     ------------     ------------     ------------     ------------
Net cash used in operating activities ...........      (1,672,297)      (1,585,281)      (1,126,979)     (24,306,839)
                                                     ------------     ------------     ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
       Acquisition of investment securities .....              --               --               --       (9,138,407)
       Redemption of investment securities ......              --               --               --        9,138,407
       Acquisition of intangible assets .........              --               --               --         (339,829)
       Acquisition of equipment and
           leasehold improvements ...............          (8,372)              --           (1,508)      (3,961,156)
                                                     ------------     ------------     ------------     ------------
   Net cash used in investing activities ........          (8,372)              --           (1,508)      (4,300,985)
                                                     ------------     ------------     ------------     ------------
</TABLE>



                                       35
<PAGE>


<TABLE>
<CAPTION>
<S>                                                   <C>              <C>              <C>              <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Preferred Stock ........              --               --               --       12,193,559
Proceeds from issuance of Common Stock ...........              --          745,000          212,500       11,616,977
Deferred financing costs incurred ................        (111,000)              --               --         (111,000)
Advances from director and shareholders ..........         200,000               --               --          320,000
Repayments of capital lease payable ..............          (2,434)              --               --           (2,434)
Proceeds from issuance of promissory loans payable       1,463,991        1,010,000        1,024,500        4,438,491
Net proceeds of notes payable ....................              --               --         (250,800)              --
Payments to repurchase Common Stock ..............              --          (10,614)              --          (10,614)
Payments received on employee stock purchase notes
   receivable ....................................              --               --               --          235,610
                                                      ------------     ------------     ------------     ------------
Net cash provided by financing activities ........       1,550,557        1,744,386          986,200       28,680,589
                                                      ------------     ------------     ------------     ------------

Net increase (decrease) in cash ..................        (130,112)         159,105         (142,287)          72,765

Cash beginning of period .........................         202,877           43,772          186,059               --
                                                      ------------     ------------     ------------     ------------

Cash end of period ...............................    $     72,765     $    202,877     $     43,772     $     72,765
                                                      ============     ============     ============     ============

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ...........................    $      1,295     $      1,706     $      2,242     $     40,232

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
   FINANCING ACTIVITIES:

Issuance of stock for prior services .............    $         --     $    115,000     $     97,236     $  4,149,521
                                                      ============     ============     ============     ============
Intangible assets acquired in exchange for stock .    $         --     $         --     $         --     $    400,000
                                                      ============     ============     ============     ============
Equipment acquired under capital lease ...........    $     11,766     $         --     $         --     $     11,766
                                                      ============     ============     ============     ============
</TABLE>




See accompanying notes to consolidated financial statements.



                                       36
<PAGE>


                          APPLIED NEUROSOLUTIONS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         (a)      Organization and Basis of Presentation

         In October  2003,  the  Company's  shareholders  approved  amending the
Company's  Certificate  of  Incorporation  to  change  the  corporate  name from
Hemoxymed, Inc. to Applied NeuroSolutions, Inc. The name change became effective
on October 30, 2003. Applied NeuroSolutions, Inc. ("APNS" or the "Company") is a
development  stage  biopharmaceutical  company with two  wholly-owned  operating
subsidiaries.  One of  the  wholly-owned  operating  subsidiaries  is  Molecular
Geriatrics  Corporation ("MGC"), a development stage  biopharmaceutical  company
incorporated  in November  1991,  with  operations  commencing in March 1992, to
develop  diagnostics to detect, and therapeutics to treat,  Alzheimer's  disease
("AD").

         The other wholly-owned operating subsidiary is Hemoxymed Europe, SAS, a
development  stage  biopharmaceutical  company  incorporated in February 1995 to
develop  therapies aimed at improving  tissue  oxygenation by increasing  oxygen
release from hemoglobin to provide  therapeutic  value to patients with serious,
although unmet or underserved,  medical needs (the "Hemoxygenation technology").
The Company is in the process of dissolving these two subsidiaries.

         On September 10, 2002,  the Company  established  a strategic  alliance
through the closing of its merger (the  "Merger")  with MGC.  Under the terms of
the Merger, the Company acquired all of MGC's outstanding common stock,  options
and  warrants  from MGC  holders in  exchange  for the  Company's  issuance  and
delivery  to  MGC   shareholders,   option   holders  and  warrant   holders  of
approximately  22,800,000 new, unregistered shares of the Company's common stock
plus  options and  warrants to purchase  approximately  4,830,000  shares of the
Company's  common  stock.  Immediately  following  the closing,  the Company had
approximately  47,700,000  shares of common  stock issued and  outstanding  plus
options and warrants to purchase approximately 7,400,000 shares of common stock,
of which former Company and former MGC holders each owned  approximately 50%, on
a fully diluted basis. The Merger Agreement further provided that the management
team and Board of Directors of MGC took over control of the merged company.  The
transaction was tax-free to the shareholders of both companies.

         This  transaction  has been  accounted  for as a  reverse  merger.  For
financial reporting purposes,  MGC is continuing as the primary operating entity
under the Company's name, and its historical  financial statements have replaced
those of the Company.  Thus, all financial  information prior to the Merger date
is the financial information of MGC only.

         The consolidated  financial statements have been prepared in accordance
with the provisions of Statement of Financial  Accounting Standards ("SFAS") No.
7, "Accounting and Reporting by Development Stage  Enterprises,"  which requires
development  stage  companies  to  employ  the  same  accounting  principles  as
operating companies.

         Since the  merger,  the  Company  has  focused  most of its efforts and
resources  toward the  development  of its AD  technologies.  At this time,  the
Company  is  not  anticipating  committing  any  significant  resources  to  its
Hemoxygenation technology.

         The Company is subject to risks and  uncertainties  common to small cap
biotech companies, including competition from larger, well capitalized entities,
patent protection  issues,  availability of funding and government  regulations.
The Company raised $8,000,000 ($7,340,000 proceeds, net of commissions and legal
fees) in  February  2004 to advance  its various  programs,  including  clinical
development of its most advanced programs (the "offering").



                                       37
<PAGE>


         (b)      Principles of Consolidation

         The  consolidated  financial  statements  include  the  accounts of the
Company and its  subsidiaries,  MGC and Hemoxymed  Europe,  SAS. All significant
intercompany balances and transactions have been eliminated.

         (c)      Liquidity

         The Company has  experienced  losses since inception and had a negative
working  capital  balance at December  31, 2003 in  addition to  incurring  cash
outflows  from  operating  activities  for the last three years as well as since
inception.  The Company  expects to incur  substantial  additional  research and
development  costs and future  losses  prior to  reaching  profitability.  These
matters have raised substantial doubt about the Company's ability to continue as
a going  concern  for a  reasonable  period of time.  The  Company's  ability to
continue as a going  concern is  dependent  on  obtaining  adequate  funding and
ultimately achieving profitable operations. As discussed in note 11, the Company
raised an additional  $8,000,000  ($7,340,000  proceeds,  net of commissions and
legal fees) in February 2004 as a result of an issuance of equity  securities in
a private placement. In the opinion of management, this funding appears adequate
to fund operations through December 31, 2005, and has alleviated the substantial
doubt about the Company's ability to continue as a going concern that existed at
APNS as of December 31, 2003.  However,  in the future,  the Company may have to
seek alternative sources of capital or reevaluate its operating plans, which may
include cessation of its operations, if it is unable to generate sufficient cash
flows from  operations.  There is no assurance that  additional  funding will be
available for the Company to finance its operations on acceptable  terms,  or at
all.

         (d)      Cash Equivalents

         The Company considers all highly liquid  investments  purchased with an
original  maturity of three months or less to be cash  equivalents.  The Company
maintains  cash at  financial  institutions  from  time to time in excess of the
Federal Depository Insurance Corporation (FDIC) insured limit.

         (e)      Revenue Recognition

         The Company generates revenues from research  agreements and grants and
recognizes these revenues when earned.  Grant revenues  represent funds received
from certain  government  agencies for costs expended to further research on the
subject of the grant. For arrangements that contain multiple  deliverables,  the
Company separates the deliverables  into separate  accounting units if they meet
all of the  following:  a) the  delivered  items have  stand-alone  value to the
customer; b) the fair value of any undelivered items can be reliably determined;
and c) if the  arrangement  includes a general right of return,  delivery of the
undelivered  items is  probable  and  substantially  controlled  by the  seller.
Deliverables that do not meet these criteria are combined with one or more other
deliverables  into one accounting  unit.  Revenue from each  accounting  unit is
recognized  based  on the  applicable  accounting  literature,  primarily  Staff
Accounting Bulletin No. 104 (SAB 104), "Revenue Recognition".

         (f)      Equipment and Leasehold Improvements

         Equipment and leasehold improvements are recorded at cost. Depreciation
of equipment is calculated  using  accelerated  methods over their useful lives,
approximating  five to seven years.  Amortization  of leasehold  improvements is
provided on the straight-line  method over the lesser of the assets's  remaining
useful life or the remaining lease term.

         (g)      Research and Development

         All research and development costs are expensed as incurred and include
salaries of, and expenses  related to,  employees  and  consultants  who conduct
research and development.  The Company has entered into arrangements whereby the
Company will obtain  research  reimbursements  in the form of funds  received to
partially reimburse the Company for costs expended. For the years ended December
31, 2003,  2002 and 2001, the Company has recorded  reimbursements  of $112,494,
$52,638 and $15,113 against research and development expense, respectively.



                                       38
<PAGE>


         (h)      Income Taxes

         Under the asset and liability  method of SFAS No. 109,  Accounting  for
Income Taxes,  the Company's  deferred tax assets and liabilities are recognized
for the future tax consequences  attributable to differences  between  financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective  tax  bases,  and  operating  loss and tax credit  carryforwards.  In
assessing the  realizability  of the deferred tax assets,  management  considers
whether it is more likely than not that some  portion or all of the deferred tax
assets will not be realized.  A valuation  allowance is recorded for the portion
of the  deferred  tax assets that are not  expected to be realized  based on the
levels of historical  taxable income and  projections  for future taxable income
over the periods in which the deferred tax assets are deductible.

         (i)      Stock Option Plan

         The Company  applies  the  intrinsic-value-based  method of  accounting
prescribed by Accounting  Principles Board (APB) Opinion No. 25,  Accounting for
Stock  Issued  to  Employees,   and  related   interpretations   including  FASB
Interpretation  No. 44,  Accounting  for Certain  Transactions  involving  Stock
Compensation,  an  interpretation  of APB  Opinion  No. 25, to  account  for its
fixed-plan stock options. Under this method, compensation expense is recorded on
the date of grant  only if the  current  market  price of the  underlying  stock
exceeded the exercise price. FASB Statement No. 123,  Accounting for Stock-Based
Compensation  (SFAS  No.  123)  and  FASB  Statement  No.  148,  Accounting  for
Stock-Based  Compensation  -  Transition  and  Disclosure,  an amendment of FASB
Statement No. 123,  established  accounting and disclosure  requirements using a
fair-value-based  method of accounting  for  stock-based  employee  compensation
plans. As permitted by existing accounting standards, the Company has elected to
continue  to apply  the  intrinsic-value-based  method of  accounting  described
above, and has adopted only the disclosure requirements of Statement No. 123, as
amended.  The  following  table  illustrates  the  effect  on net  income if the
fair-value-based  method had been applied to all outstanding and unvested awards
in each period.

<TABLE>
<CAPTION>
                                                                                  Year ended December 31,
                                                                        -------------------------------------------
                                                                            2003            2002            2001
                                                                        -----------     -----------     -----------
<S>                                                                     <C>             <C>             <C>
Net loss:
     Net loss attributable to common shareholders, as reported          $(3,301,420)    $(2,929,955)    $(6,013,533)
     Add stock-based employee compensation expense
        included in reported net loss, net of tax                           566,414         264,423              --
     Deduct total stock-based employee compensation
        expense determined under fair-value-based
        method for all awards, net of tax                                  (696,136)       (479,095)       (559,064)
                                                                        -----------     -----------     -----------
             Pro forma net loss attributable to common shareholders     $(3,431,142)    $(3,144,627)    $(6,572,597)
                                                                        ===========     ===========     ===========

Basic net loss attributable to common shareholders per common share:
     As reported                                                        $     (0.07)    $     (0.10)    $     (0.53)
     Pro forma                                                          $     (0.07)    $     (0.12)    $     (0.58)
</TABLE>

         The weighted  average  estimated  fair value of the options  granted in
2003,  2002 and 2001 was  $0.09,  $0.09 and  $0.17,  respectively,  based on the
Black-Scholes valuation model using the following assumptions:

                                               2003        2002 and 2001
                                              ------       -------------
         Risk-free interest rate               3.00%           3.75%
         Dividend yield                        0.00%           0.00%
         Expected volatility                  75.00%          75.00%
         Expected life in years, average          4               4



                                       39
<PAGE>


         From  time  to  time,   the  Company  has  issued   equity   awards  to
non-employees.  In these  instances,  the Company applies the provisions of 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"  which results in the  recognition of expense  related to these awards
over the  vesting or service  period of an amount  equal to the  estimated  fair
value of these awards at their respective measurement dates.

For its fixed awards with pro-rata vesting  provisions,  the Company  calculates
any compensation  expense recorded in the consolidated  financial  statements or
included in the pro-forma net loss required by the disclosure only provisions of
SFAS No. 123 on a straight-line basis.

         (j)  Use of Estimates

         Management   of  the  Company  has  made  a  number  of  estimates  and
assumptions  relating  to the  reporting  of  assets  and  liabilities  and  the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements,  and the  reported  amounts  of  revenues  and  expenses  during the
reporting  period,  to prepare these  financial  statements  in conformity  with
accounting principles generally accepted in the United States of America. Actual
results could differ from those estimates.

         (k)  Computation of Net Loss  Attributable  to Common  Shareholder  per
Share

         Net loss attributable to common shareholder per share is computed based
upon the weighted average number of common shares  outstanding during the period
as if the  exchange of common  shares in the merger  between the Company and MGC
was in effect at the beginning of all periods presented.

         For each period,  net loss attributable to common shareholder per share
is computed based on the weighted  average  number of common shares  outstanding
with  potential   equivalent  shares  from  all  stock  options,   warrants  and
convertible  investor bridge loans excluded from the  computation  because their
effect is  antidilutive.  The Company had 9,919,636  stock options and 4,858,109
warrants  outstanding  to issue common stock at December 31, 2003.  In addition,
the Company had  $2,595,331 of  convertible  investor  bridge  loans,  including
accrued  interest,  at December 31, 2003 that converted to 10,381,324  shares of
common  stock and  11,419,460  warrants  based on the February  2004  conversion
price.   The  Company  had  4,582,636  stock  options  and  2,758,109   warrants
outstanding to issue common stock at December 31, 2002. In addition, the Company
had $1,023,594 of convertible investor bridge loans, including accrued interest,
at December  31, 2002 that  converted  to  4,094,376  shares of common stock and
4,503,820  warrants based on the February 2004 conversion price. The Company had
4,174,628 stock options and 220,945  warrants  outstanding to issue common stock
at December 31, 2001.  The Company had no convertible  investor  bridge loans at
December 31, 2001 that could convert to shares of common  stock.  The year ended
December 31, 2003 also included a $1,866,620  impact from the induced  preferred
stock conversion.

         (l)      Fair Value of Financial Instruments

         The Company's financial instruments include cash equivalents,  accounts
receivable,  accounts payable,  loans payable,  and other accrued expenses.  The
carrying value of these financial instruments  approximate their fair values due
to the nature and short-term maturity of these instruments.

         (m)       Reclassifications

         Certain amounts from prior year consolidated  financial  statements and
related   notes  have  been   reclassified   to  conform  to  the  current  year
presentation.

         (n)      Recent Accounting Pronouncements

         In November  2002,  the FASB issued  Interpretation  No. 45 ("FIN 45"),
Guarantor's  Accounting and Disclosure  Requirements  for Guarantees,  Including
Guarantees  of  Indebtedness  to  Others.   This   interpretation   expands  the
disclosures  to be made by a guarantor  in its  financial  statements  about its
obligations  under certain  guarantees and requires the guarantor to recognize a
liability  for the fair  value of an  obligation  assumed  under  guarantee.  In
general,  FIN  45  applies  to  contracts  or  indemnification  agreements  that
contingently require that the



                                       40
<PAGE>


guarantor make payments to the guaranteed party. The disclosure  requirements of
FIN 45 were  effective as of December 31, 2002,  and required  disclosure of the
nature of the guarantee,  the maximum  potential  amount of future payments that
the  guarantor  could be required to make under the  guarantee,  and the current
amount of the  liability,  if any,  for the  guarantor's  obligations  under the
guarantee.   The   recognition   requirements  of  FIN  45  are  to  be  applied
prospectively  to guarantees  issued or modified  after  December 31, 2002.  The
Company  has  disclosed  all  guarantee  arrangements  within  the  accompanying
consolidated  financial  statements  and concluded  that there are no additional
liability recognition requirements.

         In January 2003, the FASB issued  Interpretation No. 46,  Consolidation
of  Variable  Interest  Entities  to provide new  guidance  with  respect to the
consolidation of certain previously  unconsolidated entities,  including special
purpose  entities.  In October 2003, the FASB issued a Staff Position  deferring
the effective date of the Interpretation for all public entities until the first
interim or annual  period ending after  December 31, 2003.  The Company does not
believe that adoption of this  Interpretation will have a material effect on its
consolidated financial position or results of operations.

         In May 2003,  the FASB  issued  SFAS No.  150,  Accounting  for Certain
Financial  Instruments with Characteristics of both Liabilities and Equity. This
Statement  establishes  standards  for the  classification  and  measurement  of
certain  financial  instruments  with  characteristics  of both  liabilities and
equity.   The  Statement  also  includes  required   disclosures  for  financial
instruments  within its scope. For the Company,  the Statement was effective for
instruments  entered into or modified  after May 31, 2003 and otherwise  will be
effective as of January 1, 2004,  except for  mandatorily  redeemable  financial
instruments.  For certain  mandatorily  redeemable  financial  instruments,  the
Statement  will be effective  for the Company on January 1, 2005.  The effective
date has been  deferred  indefinitely  for certain  other  types of  mandatorily
redeemable  financial  instruments.  The  Company  currently  does  not have any
financial  instruments  that are within the scope of this Statement and does not
expect  the  adoption  of  the  remaining  provisions  of  SFAS  150  to  have a
significant impact on the Company's financial position or results of operations.

         In May 2003,  the FASB  finalized  the terms of EITF  Issue No.  00-21,
Revenue  Arrangements  with  Multiple  Deliverables,   which  provides  criteria
governing  how to identify  whether  goods or services  that are to be delivered
separately in a bundled sales  arrangement  should be accounted for  separately.
Deliverables are accounted for separately if they meet all of the following:  a)
the delivered items have stand-alone value to the customer; b) the fair value of
any  undelivered  items can be reliably  determined;  and c) if the  arrangement
includes  a  general  right of  return,  delivery  of the  undelivered  items is
probable and  substantially  controlled by the seller.  Deliverables that do not
meet  these  criteria  are  combined  with one or more other  deliverables.  The
Company  adopted  EITF 00-21 as of June 15,  2003 and now  assesses  all revenue
arrangements  against the  criteria  set forth in EITF 00-21.  This  impacts the
timing of revenue recognition in the current and future periods and could have a
material impact on the consolidated financial statements in the future.

NOTE 2  -  PROPERTY AND EQUIPMENT

         Property and equipment consist of the following:

                                           December 31, 2003   December 31, 2002
                                           -----------------   -----------------
       Equipment                              $ 1,987,764         $ 1,979,392
       Equipment held under capital lease          11,766                  --
       Leasehold improvements                      84,613              84,613
                                                2,084,143           2,064,005
                                              -----------         -----------
       Less accumulated depreciation
          and amortization                     (2,063,247)         (2,054,641)
                                              -----------         -----------
                                                 $ 20,896             $ 9,364
                                                 ========             =======



                                       41
<PAGE>


         Depreciation and amortization expense amounted to $8,606,  $18,648, and
$42,737 for the years ended December 31, 2003, 2002, and 2001 respectively.


NOTE 3  -  WARRANTS

         The Company  issued  warrants to  investors in  conjunction  with funds
raised in December  1995.  These  warrants  had an original  expiration  date of
December  2000.  During 2000,  these warrants were extended until December 2001.
Compensation  expense  related to this  extension  was  $154,685 in 2000.  These
warrants expired, unexercised, in December 2001.

         The Company  issued  warrants to  investors in  conjunction  with funds
raised in August through  November  2000.  Compensation  expense  related to the
issuance of these warrants was $83,406 in 2000. These warrants were converted to
shares of Common Stock in the 2001 Recapitalization (see note 4).

         The Company  issued  warrants to  investors in  conjunction  with funds
raised in February  through December 2001.  Compensation  expense related to the
issuance of these  warrants was $27,367 in 2001.  The majority of these warrants
were converted to shares of Common Stock in the 2001  Recapitalization (see note
4). Total compensation expense of $351,811 was recognized upon the conversion of
all the warrants in 2002.  Of these  warrants,  220,945  remain  outstanding  at
December 31, 2003,  with an exercise  price of $0.15 per share.  These  warrants
expire in December 2006.

         The  Company,  in  September  2002  prior to the  Merger  date,  issued
1,737,164 warrants to previous investors in the Company.  These warrants have an
exercise price of $0.0001 per share, and expire in September 2007.

         The Company issued 800,000  warrants,  in September  2002, to an entity
controlled by the two largest  shareholders of Hemoxymed  (prior to the Merger),
in lieu of compensation.  Compensation  expense related to the issuance of these
warrants was $159,934 in 2002.  These  warrants have an exercise  price of $0.20
per share, and expire in September 2007.

         The Company issued 850,000  warrants to consultants in September  2003,
in lieu of compensation.  Compensation  expense related to the issuance of these
warrants was $74,077 in 2003. These warrants have an exercise price of $0.20 per
share, and expire in September 2008.

         The  Company  issued  1,250,000  warrants  to  a  board  member  and  a
non-employee  in  September  2003,  in lieu  of  compensation  for  fundraising.
Compensation  expense  related to the issuance of these warrants was $119,053 in
2003.  These warrants have an exercise  price of $0.15 per share,  and expire in
September 2008.

         As of December 31, 2003, the Company has reserved  4,858,109  shares of
Common Stock for the exercise and conversion of the warrants described above.


NOTE 4  -  STOCKHOLDERS' EQUITY

         The  stockholders'  equity  information  presented  in these  financial
statements  reflects the  retroactive  recognition  of the effects of the Merger
(see  Note  1),  and of the  two  recapitalizations  of  the  Company's  capital
structure,  the "1996  Recapitalization",  which became effective in March, 1996
and the "2001  Recapitalization",  which became effective in November, 2001. The
1996  Recapitalization  consisted  of  (i)  the  conversion  of  each  share  of
outstanding  Series A  Convertible  Preferred  Stock  and  Series B  Convertible
Preferred  Stock  of  the  Company  into  one  share  of  Common  Stock,  (ii) a
1.0-for-10.6  reverse split of the outstanding shares of Common Stock, and (iii)
a reduction in the number of  authorized  shares of Common  Stock and  Preferred
Stock from 50,000,000 to 20,000,000 and 35,000,000 to 15,000,000,  respectively.
The 2001  Recapitalization  consisted  of (i) the  conversion  of each  share of
outstanding Series C Convertible  Preferred Stock of the Company into two shares
of Common  Stock,  (ii) the  conversion  of each share of  outstanding  Series D
Convertible  Preferred  Stock of the Company into three and one-third  shares of
Common Stock,  (iii) the  conversion of convertible  debt plus accrued  interest
into five shares of



                                       42
<PAGE>


Common  Stock for each $1.50 of  convertible  debt,  and (iv) an increase in the
number of authorized shares of Common Stock from 20,000,000 to 50,000,000.

         Pursuant  to the terms of the General  Corporation  Law of the State of
Delaware,   the  Company's   Restated   Certificate  of  Incorporation  and  the
Certificates  of Designation of the Series C and Series D Convertible  Preferred
Stock,  the  increase  in  authorized  shares in the 2001  Recapitalization  was
approved  by the  consent of a majority  of the  aggregate  voting  power of the
holders  of  the  outstanding  Common  Stock  and  the  Series  C and  Series  D
Convertible  Preferred  Stock.  The  conversion  of the  Series  C and  Series D
Convertible Preferred Stock was approved by a majority of the respective holders
of such shares voting  separately as a class.  The conversion of the convertible
debt was approved by the individual debt holder.

         In conjunction with the Merger,  each  outstanding  share of MGC Common
Stock was exchanged for .658394 shares of APNS Common Stock and each outstanding
MGC warrant and stock  option was  exchanged  for .658394 APNS warrant and stock
option.

         In December  2002,  the Board of Directors  approved an increase in the
number of  authorized  shares from  50,000,000  to  205,000,000;  consisting  of
200,000,000 Common Shares and 5,000,000 Preferred Shares.  Shareholder  approval
for this increase was obtained in 2003.

         In the Consolidated Statements of Stockholders' Equity / (Deficit), the
Company  has elected to present  each  issuance of  Preferred  Stock,  which was
subsequently  converted to Common Stock,  as Common Stock as of the date of each
issuance of Preferred Stock.

         Original Issuances of Preferred Stock

         In  July  1993,  the  Company  issued  2,671,478  shares  of  Series  A
Convertible  Preferred  Stock  ("Series  A").  These  shares  were  subsequently
converted to 165,936 shares of Common Stock.

         In September  through  December  1993,  the Company  issued  12,269,000
shares of Series B Convertible  Preferred  Stock ("Series B"). These shares were
subsequently converted to 762,066 shares of Common Stock.

         In March  through May 1994,  the  Company  issued  8,581,400  shares of
Series B. These shares were  subsequently  converted to 533,020 shares of Common
Stock.

         In  December  1995,  the  Company  issued  375,000  shares  of Series C
Convertible  Preferred  Stock  ("Series  C").  These  shares  were  subsequently
converted to 493,801 shares of Common Stock.

         In December  1995, the Company issued 523,371 shares of Series C. These
shares were subsequently converted to 689,179 shares of Common Stock.

         In March  through July 1996,  the Company  issued  3,764,550  shares of
Series C. These shares were subsequently converted to 4,957,145 shares of Common
Stock.

         In January  through May 2000,  the  Company  issued  668,202  shares of
Series  D  Convertible   Preferred   Stock   ("Series  D").  These  shares  were
subsequently converted to 1,466,495 shares of Common Stock.

         Current Issuances of Common Stock

         In November 2001, as part of the 2001  Recapitalization,  $2,038,881 of
convertible debt, including accrued interest,  was converted to 4,474,649 shares
of Common Stock.

         In January  through June 2002, the Company issued  3,846,692  shares of
common stock through a private  placement,  and upon conversion of bridge loans,
plus accrued interest.

         In June 2002,  the Company issued  3,355,279  shares of Common Stock to
Company  officers,  consultants  and  vendors in  exchange  for a  reduction  of
$750,000 of amounts due.



                                       43
<PAGE>


         In June 2002,  the Company  issued  156,859  shares of Common  Stock to
certain warrant holders in exchange for the conversion of 650,139 warrants.

         In September  2002,  the Company  repurchased  23,294  shares of Common
Stock.

         In September 2002, certain shareholders of a predecessor of the Company
were  issued,  in  exchange  for past  services,  1,737,164  five-year  warrants
exercisable at $0.0001 to purchase shares of Common Stock.

         In September 2002, an entity controlled by the two largest shareholders
of the Company prior to the merger were issued, in lieu of compensation, 800,000
five year  warrants  exercisable  at $0.20 to purchase  shares of Common  Stock.
Expense of $159,934 was included in general and  administrative  expense for the
issuance of these warrants.

         In  September  2003,  a director  of the  Company  and an advisor  were
issued, in lieu of compensation for fund raising activities, 1,250,000 five-year
warrants  exercisable  at $0.15 to purchase  shares of Common Stock.  Expense of
$119,053 was included in general and administrative expenses for the issuance of
these warrants.

         In September 2003, two entities were issued,  in lieu of  compensation,
850,000  five-year  warrants  exercisable at $0.20 to purchase  shares of Common
Stock.  Expense of $74,077 was included in general and  administrative  expenses
for the issuance of these warrants.

         In the  event of any  liquidation,  dissolution  or  winding  up of the
affairs  of the  Company,  either  voluntary  or  involuntary,  the  holders  of
Preferred Stock are entitled to receive a liquidation  preference,  adjusted for
combinations, consolidations, stock splits or certain issuances of Common Stock.
After  payment  has been  made to the  holders  of  Preferred  Stock of the full
amounts to which they shall be  entitled,  the holders of the Common Stock shall
be entitled to receive ratably,  on a per share basis, the remaining  assets. As
of  December  31,  2003,  no  Preferred  Stock is  outstanding.  The Company has
reserved 4,858,109 shares of Common Stock for the exercise and conversion of the
warrants  described  above.  Warrants were issued in connection with the initial
public  offering of APNS's  predecessor  in May 1998.  These  warrants  expired,
unexercised in May 2003.

         Approximately  23,000,000  shares held by former  Molecular  Geriatrics
Corporation ("MGC")  shareholders are deemed to be restricted  securities within
the meaning of Rule 144  promulgated  pursuant to the Securities Act, and may be
publicly sold only if registered  under the  Securities  Act or sold pursuant to
exemptions  therefrom.  These shares are eligible for public sale in  accordance
with the requirements of Rule 144, as amended,  subject to certain  restrictions
through September 2004.


NOTE 5  -  STOCK OPTION PLAN

         As of December 31, 2002, the Board of Directors approved the Hemoxymed,
Inc. (now called Applied  NeuroSolutions,  Inc.) Stock Option Plan. This plan is
identical to the MGC pre-merger plan (discussed below),  with an increase in the
number of options in the plan to 12,000,000.  Shareholder  approval was obtained
in 2003.

         In conjunction  with the Merger in September 2002, each outstanding MGC
stock option was exchanged for .658394 APNS stock options.

         In April, 2001,  management issued  non-qualifying stock options to two
former employees to replace the incentive stock options previously granted.  All
terms of these options  remained the same.  Compensation  expense of $64,033 was
recorded to reflect the fair value of these options.

         In April,  2001,  the Board of Directors  granted  13,168  options to a
non-employee   exercisable  at  $1.50  per  share  which  vest  monthly  over  a
twenty-four  month  period.  Compensation  expense of $24,170  was  recorded  to
reflect the fair value of these options.

         In July,  2001,  the Board of  Directors  granted  6,584  options to an
employee exercisable at $1.50 per share which vest one-fourth per year beginning
July, 2002. These options were forfeited during 2002.



                                       44
<PAGE>


         In November,  2001, the Board of Directors  granted  2,050,904  options
exercisable at $0.30 per share which vest one-fourth  immediately and one-fourth
per year beginning November,  2002.  Non-employees were granted 144,847 of these
options,  which were  vested  immediately.  Compensation  expense of $53,174 was
recorded to reflect the fair value of options issued to non-employees.

         In  June,  2002,  the  Board  of  Directors   granted  434,172  options
exercisable at $0.15 per share which vest one-fourth  immediately and one-fourth
per year  beginning in June,  2003.  Non-employees  were granted 33,430 of these
options.  Compensation  expense of $6,136 was recorded to reflect the fair value
of options issued to non-employees.

         In June, 2002, the Board of Directors  approved  adjusting the exercise
price of  4,399,052  options to $0.15 per share.  This  changed  the  accounting
treatment  for  these  stock  options  to  variable  accounting  until  they are
exercised.   For  the  year  ended  December  31,  2003,  the  Company  recorded
compensation  expense under  variable  accounting  equal to $604,100  related to
these modified  options.  For the year ended  December 31, 2002 no  compensation
expense had been  recorded  related to these  modified  options as the Company's
stock price was below $0.15 as of December 31, 2002.

         In September,  2003, the Board of Directors  granted  5,337,000 options
exercisable at $0.15 per share which vest one-fourth  immediately and one-fourth
per year beginning in September,  2004.  Non-employees  were granted  752,000 of
these options.  Compensation expense of $80,975 was recorded to reflect the fair
value of options issued to non-employees.

         As of December 31, 2003, 9,919,636 options were outstanding  (5,192,750
were fully  vested and  exercisable)  at prices  ranging from $0.15 to $5.30 per
share.

         A summary of the status of, and changes in, the Company's  stock option
plan as of and for the  years  ended  December  31,  2003,  2002  and  2001,  is
presented  below  for all  stock  options  issued to  employees,  directors  and
non-employees:

<TABLE>
<CAPTION>
                                2003                            2002                          2001
                      ---------------------------  -----------------------------  -----------------------------
                                     Weighted-                      Weighted-                     Weighted-
                                 Average-Exercise               Average Exercise               Average Exercise
                        Options       Price          Options         Price          Options         Price
                      ----------       -----       ----------        -----        ----------        -----
<S>                    <C>             <C>          <C>              <C>           <C>              <C>
Outstanding at
 beginning of
 year                  4,582,636       $0.24        4,174,628        $0.90         2,117,140        $1.48

Granted                5,337,000         .15          434,172          .15         2,070,656          .31

Reduction  in
 exercise price               --          --               --         (.59)               --           --

Exercised                     --          --               --           --                --           --

Forfeited                     --          --          (26,164)         .15           (13,168)        1.50
                      ----------       -----       ----------        -----        ----------        -----

Outstanding at
 end of year           9,919,636       $0.19        4,582,636        $0.24         4,174,628        $0.90
                      ==========       =====       ==========        =====        ==========        =====

Options
exercisable at
end of year            5,192,750                    2,995,720                      2,128,796
                       =========                    =========                      =========
</TABLE>



                                       45
<PAGE>

                                    December 31, 2003
           --------------------------------------------------------------------
                        Number              Weighted-Avg.        Number
           Exercise     Outstanding at      Remaining            Exercisable at
           Price        Dec. 31, 2003       Contractual Life     Dec. 31, 2003
           --------     --------------      ----------------     --------------
            $0.15         9,736,052            8.3 years           5,009,166
             1.00            72,661            2.1 years              72,661
             1.50            19,752            7.1 years              19,752
             2.00            41,479            3.9 years              41,479
             5.30            49,692            2.1 years              49,692
                        --------------                           --------------
                          9,919,636                                5,192,750
                        ==============                           ==============

NOTE 6  -  LOANS PAYABLE

         Loans payable consist of the following:

                                     December 31, 2003    December, 31, 2002
                                     -----------------    ------------------
       Convertible Investor
           Bridge Loans                 $2,473,991            $1,010,000
       Advances from Shareholders          200,000                    --
                                        ----------            ----------
                                        $2,673,991            $1,010,000
                                        ==========            ==========

         The  convertible  investor  bridge  loans,  plus  any  unpaid,  accrued
interest,  are  automatically  converted  into  Common  Stock  when a minimum of
$3,000,000  is  raised by the  Company  in a  private  placement  (see Note 11 -
Subsequent  Events).  Accrued  interest on these loans at December  31, 2003 and
2002 was $121,340 and $13,594, respectively.

         The advances from shareholders at December 31, 2003 were repaid in cash
from the proceeds of the February 2004 private placement.


NOTE 7  -  EMPLOYEE SAVINGS PLAN

         The Company sponsors a defined  contribution benefit plan (the "Savings
Plan") which  qualifies  under Section 401(k) of the Internal  Revenue Code. The
Savings Plan covers all  eligible  employees  who are eighteen  years of age and
have completed six months of service with the Company. Employee contributions to
the  Savings  Plan are based on  percentages  of  employee  compensation  plus a
discretionary  matching  contribution  by the Company.  Vesting in the Company's
contributions is based on length of service over a five-year period. The Company
amended the Savings  Plan,  effective  January 1, 2001,  to increase the Company
match  from 50% to 100% of the first 5% of an  employee's  deferral,  subject to
certain  limitations.  Contributions by the Company for the years ended December
31,  2003,  2002 and 2001 were  $42,725,  $39,552,  and  $38,022,  respectively.
Contributions of $82,277 were accrued as of December 31, 2003.

NOTE 8  -  INCOME TAXES

         No  Federal  or  state  income  taxes  have  been  provided  for in the
accompanying  consolidated  financial statements because of net operating losses
incurred to date and the  establishment  of a valuation  allowance  equal to the
amount of the Company's  deferred tax assets.  At December 31, 2003, the Company
has net operating loss and



                                       46
<PAGE>


research and development credit carryforwards for Federal income tax purposes of
approximately $30,000,000 and $770,000, respectively. These carryforwards expire
between  2007 and 2023.  Changes in the  Company's  ownership  may cause  annual
limitations on the amount of loss and credit  carryforwards that can be utilized
to offset income in the future.

         The net  deferred  tax  assets  as of  December  31,  2003 and 2002 are
summarized as follows:

                                           December 31, 2003   December 31, 2002
                                           -----------------   -----------------
    Deferred tax assets:
        Depreciation                         $    250,000        $    279,000
        Net operating loss carryforwards       12,150,000          11,150,000
        Tax credit carryforwards                  770,000             700,000
                                             ------------        ------------
                                               13,170,000          12,129,000
    Valuation allowance                       (13,170,000)        (12,129,000)
                                             ------------        ------------
           Net deferred income taxes         $         --        $         --
                                             ============        ============

         The net change in the valuation  allowance  during 2003,  2002 and 2001
was an increase of $1,041,000, $1,019,000, and $820,000, respectively.


NOTE 9  -  COMMITMENTS AND CONTINGENCIES

         Operating Lease
         ---------------
         The Company  operates out of a laboratory and office facility in Vernon
Hills,  Illinois. The original lease term was for sixty-three months through May
14, 2002 and included a renewal option for two additional five year periods.  In
May, 2002, the lease was extended for a five year period.

         Future  minimum lease  payments as of December 31, 2003 under the terms
of the  operating  lease for the  facility  in  Vernon  Hills,  Illinois  are as
follows:

                 Year ending December 31,              Amount
                 ------------------------             --------
                           2004                       $ 97,275
                           2005                        100,425
                           2006                        102,000
                           2007                         34,000

         Rental expense,  including  allocated  operating  costs and taxes,  was
$120,627,  $124,955 and $119,249 for the years ended December 31, 2003, 2002 and
2001, respectively.

         Capital Lease
         -------------
         The Company  purchased a telephone  system under the terms of a capital
lease in March 2003.  The lease  calls for thirty six  monthly  payments of $414
through March 2006.

         Collaboration, Consulting and Licensing Agreements
         --------------------------------------------------
         Under  the  terms  of  various  license  and   collaborative   research
agreements  with Albert  Einstein  College of Medicine  ("AECOM") the Company is
obligated  to make  semi  annual  maintenance  payments  and  quarterly  funding
payments.  In  addition,  the  agreements  call for royalty and revenue  sharing
agreements  upon the sale and/or  license of products or  technology.  In March,
2002, the Company renegotiated various terms of the AECOM agreements.



                                       47
<PAGE>


AECOM  received  1,097,324  (post merger) shares of Common Stock in exchange for
relief of $500,000 of various collaboration  payments due. In addition,  the new
agreement reduced and restructured future maintenance and funding payments.

         The Company had a collaborative  research agreement with the University
of British  Columbia  ("UBC")  through June 2003.  The Company  agreed to fund a
project at UBC for $233,140, of which $51,470 was funded by a Foundation with no
affiliation  to the  Company.  Additionally,  the Company was  obligated to fund
patent  costs  arising  from the  project.  The  Company  has the  rights to the
technology  developed  through this research  agreement and would be responsible
for certain milestone payments to UBC upon advancement of the technology through
the various stages of the FDA approval  process.  This agreement can be extended
by mutual  agreement.  As of  December  31,  2003,  the  agreement  has not been
extended.  Amounts due to UBC,  including  patent costs, as of December 31, 2003
are $210,086,  which are included in accrued collaborator payments. In addition,
the Company has an ongoing option agreement on a license agreement with UBC that
obligates  the  Company  to  cover  certain  patent  costs  associated  with the
technology  covered by the license  agreement,  which are  recognized as expense
when incurred.

         Total expense for these  outside  research,  collaboration  and license
agreements,  included  in  research  and  development  expenses,  was  $433,810,
$696,063  and $150,939  for the years ended  December  31, 2003,  2002 and 2001,
respectively.

         The Company has consulting  agreements  with its founding  scientist at
AECOM,  which have terms through  January,  2006, but in some instances,  may be
terminated at an earlier date by the Company.  The Company also has a consulting
agreement with a European  researcher with financial  commitments  through March
2003.  Expense  for  the  consulting   agreements,   included  in  research  and
development  expenses,  was $113,400,  $129,600 and $124,200 for the years ended
December 31, 2003, 2002 and 2001, respectively.

         The Company entered into a licensing  agreement in November,  1999 with
AECOM. The license agreement allows the Company to sell and sublicense specified
antibodies for cancer  applications.  Proceeds from any sales and/or sublicenses
will be  divided  among  the  parties  based  on  conditions  set  forth  in the
agreement.

         Future  minimum  payments,  as of December  31,  2003,  under the above
agreements are as follows:

               Year ending December 31,   Collaborations    Consulting
               ------------------------   --------------    ----------
                        2004                  $325,000        108,000
                        2005                   375,000        108,000
                        2006                   425,000          9,000
                        2007                   475,000             --
                        2008                   500,000             --
                                          --------------    ----------
                        Total               $2,100,000       $225,000
                                          ==============    ==========

         The Company is  obligated  to pay AECOM  $500,000  each year after 2008
that the Agreements are still in effect.  In addition,  the Company is obligated
to pay AECOM a percentage of all revenues received from selling and/or licensing
any aspects of the AD technology. The Company can terminate the Agreement at any
time with sixty days written  notice,  but would be required to reimburse  AECOM
for any salary obligations undertaken by AECOM for the research projects covered
by the Agreements for up to one year from the termination date.

         The Company is potentially  obligated  under a consulting  agreement to
issue 100,000 shares of common stock in lieu of  compensation  if the consultant
performs  under certain  provisions of the  agreement.  As of December 31, 2003,
these shares of common stock have not been issued.

         Contingencies
         -------------
         The Company  does not  maintain  any product  liability  insurance  for
products in  development.  The Company  believes that even if product  liability
insurance  were obtained,  there is no assurance  that such  insurance  would be
sufficient to cover any claims.  The Company is unaware of any product liability
claims.



                                       48
<PAGE>


         The ability to develop our technologies  and to commercialize  products
will depend on avoiding patents of others.  While we are aware of patents issued
to competitors, as of December 31, 2003, we are not aware of any claim of patent
infringement against us (see Note 11 - Subsequent Events).


NOTE 10 - SEGMENTS

         The Company operates in one business segment, biopharmaceutical product
research and  development,  primarily in the fields of  Alzheimer's  disease and
tissue oxygenation.  Prior to the Merger, the Company operated in one geographic
segment, the Midwest region of the United States.  Subsequent to the Merger, the
Company also operated in France.  A summary of  operations  for 2003 and 2002 by
geographic segment is set forth below.

                                               2003                 2002
             Operating loss:                   ----                 ----
                      United States        ($3,014,123)         ($2,721,497)
                      France                  (178,608)            (134,593)
                                           -----------          -----------
                                           ($3,192,731)         ($2,856,090)
                                           ===========          ===========
             Identifiable assets:
                      United States         $  218,691           $  477,297
                      France                        --                   --
                                           -----------          -----------
                                            $  218,691           $  477,297
                                           ===========          ===========

NOTE 11  -  SUBSEQUENT EVENTS

         Financing
         ---------
         In February 2004, the Company raised $8,000,000  ($7,340,000  proceeds,
net of commissions and legal fees) in a private  placement.  As a result of this
private  placement,  the Company  issued  32,000,000  shares of common stock and
warrants to purchase an additional  32,000,000  shares of Common Stock for $0.30
per share. Upon closing the private placement,  the convertible  investor bridge
loans,  plus accrued  interest,  were converted to shares of Common Stock.  Upon
conversion  of the  convertible  debt,  10,440,714  shares of  Common  Stock and
11,484,785  warrants to purchase  shares of common stock at $0.30 per share were
issued.  The  placement  agent and  selected  dealers  received  commissions  of
$560,000 in cash and  warrants to purchase  3,200,000  shares of common stock at
$0.30 per share.

         Contingencies
         -------------
         In March 2004 the Company was  notified by email from  Innogenetics,  a
Belgian   biopharmaceutical   company  involved  in  specialty  diagnostics  and
therapeutic  vaccines,  that it believes the CSF diagnostic test the Company has
been developing uses a monoclonal  antibody that is encompassed by the claims of
two U.S. patents it owns. In that email,  Innogenetics  also referred to another
U.S. patent which was recently  granted to Innogenetics and which is directed to
a method  for the  differential  diagnosis  of  Alzheimer's  disease  from other
neurological diseases.  Innogenetics believes this latter patent also claims the
CSF diagnostic  test the Company is developing.  Innogenetics  also informed the
Company that it could be amenable to entering  into a licensing  arrangement  or
other business deal with Applied NeuroSolutions regarding its patents.

         The Company has reviewed the two monoclonal  antibody  patents with its
patent  counsel on  several  occasions  in recent  years and prior to receipt of
their  email.  Based  on  these  reviews,  the  Company  believes  that  its CSF
diagnostic test does not infringe the claims of these two Innogenetics  patents.
The Company only recently learned of  Innogenetic's  new third patent and is now
reviewing it with patent  counsel.  Similarly,  the Company  does not  currently
believe  its   activities   have  infringed  or  will  infringe  the  rights  of
Innogenetics  under this third  patent,  and would seek  either to  negotiate  a
suitable arrangement with them or vigorously contest any claim of infringement.



                                       49
<PAGE>


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

         None.

ITEM 8A.    CONTROLS AND PROCEDURES

        (a)  Disclosure  Controls  and  Procedures.  Our  management,  with  the
participation of our Chief Executive  Officer and Chief Financial  Officer,  has
evaluated the effectiveness of the Company's  disclosure controls and procedures
(as such term is defined in Rules  13a-15(e) and 15d-15(e)  under the Securities
Exchange  Act of 1934,  as amended  (the  "Exchange  Act")) as of the end of the
period covered by this report.  Based on such  evaluation,  our Chief  Executive
Officer and Chief  Financial  Officer have concluded that, as of the end of such
period, the Company's disclosure controls and procedures are effective.

        (b) Internal Controls Over Financial Reporting.  There have not been any
changes in the Company's  internal  controls over  financial  reporting (as such
term is defined in Rules  13a-15(f) and 15d-15(f) under the Exchange Act) during
our most recent fiscal quarter that have materially affected,  or are reasonably
likely to materially  affect,  the Company's  internal  controls over  financial
reporting.

                                    PART III

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

         Our executive officers and directors as of December 31, 2003, and their
ages as of February 28, 2004, are as follows:

        Barron, Bruce N.      49   Chairman, Chief Executive Officer & Director
        DeBernardis, John F.  56   President, Chief Operating Officer & Director
        Kerkman, Daniel J.    52   Vice President, R & D
        Ellison, David        42   Chief Financial Officer & Secretary
        Stone, Richard        59   Director
        Tsao, Preston         56   Director

All of the  following  individuals  were  appointed  to the above  positions  of
Hemoxymed,  Inc. (now called Applied  NeuroSolutions,  Inc.) as of September 10,
2002.

Bruce N. Barron,  has been Chairman of the Board since August,  1999,  and Chief
Executive  Officer of the Company  since April,  1995.  Previously,  he had been
President  of the Company  from April,  1995 to August,  1999.  He had also been
Chief  Financial  Officer of the Company  from  September 1, 1993 on a part-time
basis and on a full-time  basis from April 1, 1994 to April,  1995.  He has also
been a director of the Company since June, 1994. From 1989 until June, 1994, Mr.
Barron  was a  director  and  Vice  Chairman  and  Chief  Executive  Officer  of
Xtramedics,  Inc.  and from 1988 to 1989, a Vice  President  of Finance,  in all
instances on a part-time basis.  Xtramedics was merged into Athena Medical Corp.
in June,  1994.  From 1985 to August,  1993,  Mr. Barron was a director and Vice
President of Finance and Chief Financial Officer of Gynex Pharmaceuticals,  Inc.
in addition to serving in various other capacities, including Vice Chairman from
1988 to 1989,  in all  instances  on a part-time  basis.  Gynex was  acquired by
BioTechnology General Corp. (now Savient  Pharmaceuticals) in August, 1993. From
1985 to 1992,  Mr.  Barron also  served as a director  and  part-time  executive
officer of Pharmatec,  Inc. (now Pharmos Corp.) in various capacities  including
President, Chief Executive Officer, Chief Financial Officer, and Vice President.
Mr.  Barron  was a member  of the  Board of  Directors  of  Trimedyne,  Inc.,  a
publicly-traded  manufacturer of lasers for use in various medical  applications
from 1985 until February, 2001.


John F.  DeBernardis,  Ph.D., has been President and Chief Operating  Officer of
the  Company  since  August,  1999.  He joined the Company in August,  1993,  as
Director of  Chemistry  and  Pharmacology,  was  promoted to Vice  President  of
Discovery, and Senior Vice President, Research and Development. He was Secretary
of the Company



                                       50
<PAGE>


from April, 1995 to August, 1999, and was appointed a director of the Company in
November,  1995.  Prior to joining the Company,  Dr.  DeBernardis  spent sixteen
years at Abbott  Laboratories,  where he began his career as a research  chemist
and  progressively  earned several  promotions,  ending with his position as the
Area Head of Cardiovascular Research within the Pharmaceutical Products Division
supervising  an 85 person staff.  During his tenure,  a number of IND candidates
were identified.  Dr. DeBernardis  received his Ph.D. degree from the University
of Pittsburgh in 1974 and worked two years as an NIH postdoctoral  fellow in the
Department  of Chemistry at MIT. He is co-author on 70  scientific  publications
and holds 35 U.S. patents.

Daniel J. Kerkman,  Ph.D., joined the Company in August, 1993 as Group Leader of
Chemistry  and now  serves  in his role of Vice  President,  Research.  Prior to
joining the Company,  Dr. Kerkman spent  thirteen  years at Abbott  Laboratories
where he began his career as a research chemist initially in the  cardiovascular
area  followed  by  several   positions  within  both  the   immunoscience   and
neuroscience  areas.  A series of  promotions  ended  with his  position  as the
Project  Leader  in  Adrenergic  research  within  the  Pharmaceutical  Products
Division  supervising  a 35 person  staff.  During his  tenure,  a number of IND
candidates were identified.  Dr. Kerkman  received his Ph.D.  degree from MIT in
1979 and worked one year as a postdoctoral fellow in the Department of Chemistry
at MIT. He is co-author  on more than 40  scientific  publications  and holds 16
U.S. patents.

David Ellison,  CPA, has been Chief Financial  Officer of the Company since May,
1996 and Secretary since August,  1999. He had been Chief Financial Officer of a
long-term care facility  specializing  in Alzheimer's  care and prior to that he
was a senior manager in a local public accounting firm.

Richard B. Stone, was appointed a director of the Company in December, 1994. Mr.
Stone has been a Professor  of Tax Law at Columbia  University  since 1974 where
his  responsibilities  include  teaching  Federal  Income  Tax,  Corporate  Tax,
Partnership  Tax, Real Estate Tax, and Business  Planning.  During that time Mr.
Stone spent two years as Tax Counsel to Cleary,  Gottlieb,  Steen and  Hamilton.
Previous  positions  have  included  four years as  Assistant  to the  Solicitor
General of the United States, Department of Justice. Mr. Stone holds a J.D. from
Harvard Law School.  Mr. Stone is also a Managing Director of Sunrise Securities
Corporation.

Preston Tsao, was appointed a director of the Company in May, 1996. Mr. Tsao has
been Managing  Director of SCO Securities LLC since September 2001. From January
1995 until September 2001, Mr. Tsao was Managing Director of Sunrise  Securities
Corporation.  Mr.  Tsao has been the  principal  investment  banker on  numerous
public and private transactions.

BOARD OF DIRECTORS COMMITTEES AND OTHER INFORMATION

         The  Company's  directors  serve three year terms and hold office until
the third annual meeting of stockholders of the Company following their election
to the Board and until  their  respective  successors  have been  qualified  and
elected.  Officers are elected by, and serve at the  discretion of, the Board of
Directors.

SECTION 16(a) BENEFICIAL REPORTING COMPLIANCE

         The  Company's   executive   officers,   directors   and   shareholders
beneficially  owning more than 10% of the  Company's  Common  Stock are required
under the  Exchange  Act to file  reports of  ownership  of Common  Stock of the
Company with the  Securities  and Exchange  Commission.  Copies of those reports
must also be  furnished  to the Company.  The Company  believes  that during the
preceding  year  all  filing  requirements  applicable  to  executive  officers,
directors and  shareholders  beneficially  owning more than 10% of the Company's
Common Stock have been complied with.

COMMITTEES

         In October 2002, the Board of Directors  appointed Richard B. Stone and
Preston Tsao to the Audit Committee.  The Audit Committee  reviews the scope and
results  of the  Company's  financial  statements  conducted  by  the  Company's
independent  auditors.  The Committee  also reviews the scope of other  services
provided  by  the  Company's  independent  auditors,  proposed  changes  in  the
Company's financial and accounting  standards and principles,  and the Company's
policies and procedures  with respect to its internal  accounting,  and auditing
and



                                       51
<PAGE>


financial  controls.  The  Committee  makes  recommendations  to  the  Board  of
Directors  on the  engagement  of the  independent  auditors,  as well as  other
matters which may come before it or as directed by the Board of  Directors.  Our
Board of Directors has determined  that Richard B. Stone is an "audit  committee
financial  expert"  within  the  applicable  definition  of the  Securities  and
Exchange  Commission.  Each of Mr.  Stone and Mr.  Tsao  qualify as  independent
directors for purposes of Section  10A(m)(3) of the  Securities  Exchange Act of
1934.

         In October 2002, the Board of Directors  appointed Richard B. Stone and
Preston Tsao to the Compensation  Committee.  The  Compensation  Committee makes
decisions  concerning  matters  of  executive   compensation;   administers  the
Company's executive incentive plans;  reviews  compensation plans,  programs and
policies;  and monitors the performance and compensation of executive  officers.
The goal of our Board of Directors  executive  compensation  policy is to ensure
that an appropriate  relationship exists between executive  compensation and the
creation of stockholder value, while at the same time attracting, motivating and
retaining senior management.

CODE OF ETHICS

         Our Board of  Directors  has not yet adopted a written Code of Business
Conduct and Ethics. In our February 2004 private  placement,  we agreed to apply
for and maintain  the listing of our common  stock on either the American  Stock
Exchange or the Nasdaq.  As part of the  listing  process,  we expect to adopt a
written Code of Business Conduct and Ethics.

ITEM 10.  EXECUTIVE COMPENSATION


EXECUTIVE COMPENSATION

         The following table sets forth all compensation  awarded to, earned by,
or paid for services in all capacities  during 2003,  2002 and 2001 by our Chief
Executive Officer, President and Chief Operating Officer,  Vice-President of R &
D, and Chief Financial Officer.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                Annual Compensation                    Long Term Compensation
-------------------------------------------------------------------------------------------------------------
Name and                                                   Other       Restricted   Securities       All
Principal Position                                        Annual         Stock      Underlying      Other
                       Year     Salary       Bonus     Compensation      Awards     Options (1)  Compensation
-------------------------------------------------------------------------------------------------------------
<S>                    <C>    <C>          <C>           <C>               <C>      <C>            <C>
Bruce N. Barron        2003   $ 228,600    $       0     $      0          0        1,700,000      $      0
CEO (2)                2002   $ 225,000    $       0     $      0          0          151,493      $      0
                       2001   $ 225,000    $  40,000     $      0          0          539,883      $      0
-------------------------------------------------------------------------------------------------------------
John F. DeBernardis    2003   $ 217,600    $       0     $      0          0        1,500,000      $      0
Pres. & COO (3)        2002   $ 214,000    $       0     $      0          0          120,402      $      0
                       2001   $ 214,000    $  35,000     $      0          0          427,956      $      0
-------------------------------------------------------------------------------------------------------------
Daniel Kerkman         2003   $ 151,600    $       0     $      0          0          400,000      $      0
V.P. of R & D (4)      2002   $ 148,000    $       0     $      0          0           52,737      $      0
                       2001   $ 148,000    $  20,000     $      0          0          181,058      $      0
-------------------------------------------------------------------------------------------------------------
David Ellison          2003   $ 103,600    $       0     $      0          0          500,000      $      0
CFO (5)                2002   $ 100,000    $       0     $      0          0           35,656      $      0
                       2001   $ 100,000    $  20,000     $      0          0          164,599      $      0
-------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  The  number of  options  listed are post  merger  options.  Each MGC option
     granted pre-merger (in 2001 and 2002) was exchanged for .658394 options.

(2)  Salary and bonus totaling $23,438 in 2002 and $86,875 in 2001 was deferred.
     Of the total  amount  deferred,  $25,000 was  converted to shares of common
     stock in 2002.  The remaining  balance had not been paid as of December 31,
     2003, however, it was paid in February 2004.



                                       52
<PAGE>


(3)  Salary and bonus totaling $22,292 in 2002 and $79,583 in 2001 was deferred.
     Of the total  amount  deferred,  $23,185 was  converted to shares of common
     stock in 2002.  The remaining  balance had not been paid as of December 31,
     2003, however, it was paid in February 2004.

(4)  Salary and bonus totaling $15,417 in 2002 and $50,833 in 2001 was deferred.
     Of the total  amount  deferred,  $18,600 was  converted to shares of common
     stock in 2002.  The remaining  balance had not yet been paid as of December
     31, 2003, however, it was paid in February 2004.

(5)  Salary and bonus totaling $10,417 in 2002 and $40,833 in 2001 was deferred.
     Of the total  amount  deferred,  $28,600 was  converted to shares of common
     stock in 2002.  The remaining  balance had not been paid as of December 31,
     2003, however, it was paid in February 2004.


EMPLOYMENT AGREEMENTS

         Bruce N. Barron, the Chief Executive  Officer,  is employed pursuant to
an agreement through March 31, 2006, which provides for a minimum base salary of
$225,000 per year.

         John F. DeBernardis,  Ph.D., the President and Chief Operating Officer,
is employed pursuant to an agreement through March 31, 2006 which provides for a
minimum base salary of $214,000 per year.

         The agreements  provide for severance pay, if the officer is terminated
without cause, of the greater of i)one-year compensation, or ii)compensation for
the remaining term of the agreement.

COMPENSATION OF DIRECTORS

         Directors do not currently  receive any  compensation for their service
as members of the board of directors.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

         Our Board of Directors is comprised of two non-employee directors,  our
Chief  Executive  Officer,  who also serves as Chairman,  and our  President and
Chief Operating  Officer.  The non-employee  directors comprise the Compensation
Committee. It is their responsibility to:

          -    Make decisions concerning matters of executive compensation;

          -    Administer the Company's executive incentive plans;

          -    Review compensation plans, programs and policies; and

          -    Monitor the performance and compensation of executive officers.

         The goal of our Board of Directors executive  compensation policy is to
ensure that an appropriate  relationship  exists between executive  compensation
and the  creation  of  stockholder  value,  while at the same  time  attracting,
motivating  and retaining  senior  management.  The Board of Directors  informal
executive  compensation  philosophy  (which applies generally to all management)
considers a number of factors, which may include:

          -    Providing levels of compensation  competitive with companies at a
               comparable stage of development and in our geographic area;

          -    Integrating  management's  compensation  with the  achievement of
               performance goals;

          -    Maintaining  an  appropriate  balance  between  base  salary  and
               performance-based  compensation,  with  a  higher  proportion  of
               compensation being performance-based.

         The  compensation  structure of our executive  officers,  including our
Chief Executive Officer and President and Chief Operating  Officer,  is based on
competitive,  market-based pay practices,  performance evaluations and generally
includes a combination of base salary,  discretionary  bonuses and stock options
or warrants.  In setting  compensation  levels, the Board of Directors considers
data regarding compensation practices



                                       53
<PAGE>


from a group of biotechnology and pharmaceutical  companies that are believed to
be generally comparable to the Company.

         Base salary is not targeted at any particular level within the group of
companies considered.  Instead, total salary is determined based on a subjective
assessment of the executive's performance and the Company's needs.

         The  Compensation  Committee  authorized  and the  Board  of  Directors
approved the granting of 5,337,000  stock  options in 2003;  of which 752,000 of
these options were granted to non-employees.

         Consistent with its belief that equity  ownership by senior  management
is beneficial in aligning the interests of senior  management  with those of the
stockholders,   we   provide   potentially   significant   long-term   incentive
opportunities to our senior  management  through  discretionary  grants of stock
options or warrants,  thereby  emphasizing  the potential  creation of long-term
stockholder  value. The Board of Directors  considers stock options and warrants
effective long-term incentives because an executive can profit only if the value
of the Common Stock  increases.  In making these grants,  the Board of Directors
considers its subjective assessment of our past financial performance and future
prospects,  an  executive  officer's  current  level of  ownership of the Common
Stock,  the period during which an executive  officer has been in a key position
with us, individual performance and competitive practices within the comparative
group of companies.  The Board of Directors views management's  ability to raise
investment capital as a significant asset to the Company. The Board of Directors
intends  on  compensating   executive   management  with  equity  ownership  for
successfully obtaining investment capital for the Company.

By the Compensation Committee:
Richard Stone
Preston Tsao

STOCK PRICE PERFORMANCE PRESENTATION

         As stated in the notes to the consolidated  financial statements and in
management's  discussion  and  analysis of  financial  condition  and results of
operations  contained in this annual report on Form 10-KSB,  a subsidiary of the
Company  merged with MGC on September 10, 2002. For  accounting  purposes,  this
transaction  is  being  treated  as if  MGC  acquired  the  Company,  thus,  the
historical  operating  results  contained  in this annual  report on Form 10-KSB
prior to September 10, 2002 are those of MGC. The historical  stock  performance
presented  in Item 5, prior to the fourth  quarter  2002,  represents  the stock
performance  of  Hemoxymed,  prior to the  Merger,  and a  predecessor's  of the
Company.

STOCK OPTION PLANS

         As of December 31, 2002, our Board of Directors approved the Hemoxymed,
Inc. (now called Applied  NeuroSolutions,  Inc.) Stock Option Plan. This plan is
identical  to the MGC  pre-merger  stock  option  plan,  with an increase in the
number of options in the plan to 12,000,000.  Shareholder  approval was obtained
in 2003.

         On January 31, 1996 our Board of  Directors  approved an  amendment  to
increase the number of options available under the Plan to 1,500,000. On October
7, 1996, our Board of Directors  approved an amendment to increase the number of
options in the Plan to  2,000,000.  On November  16, 2000 our Board of Directors
approved  an  amendment  to  increase  the  number  of  options  in the  Plan to
4,000,000.  On October 22, 2001 our Board of Directors  approved an amendment to
increase the number of options in the Plan to 7,000,000.

         In  conjunction  with the merger  between  the  Company  and  Molecular
Geriatrics,  each  outstanding MGC stock option was exchanged for .658394 of the
Company's  stock  options.  As of December  31,  2003,  9,919,636  options  were
outstanding (5,192,750 were fully vested and exercisable) at prices ranging from
$0.15 to $5.30 per share.



                                       54
<PAGE>


OPTION GRANTS

         The Company made 4,250,000 options grants to employees and directors in
2003. The Company pre-merger made no option grants to executives or directors in
the years ended December 31, 2002 or 2001. MGC pre-merger  made option grants to
executives and directors of 360,288 in 2002 and 1,741,452 in 2001.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table  sets  forth  the  beneficial  ownership  of  our
securities  as of February  28,  2004,  by (a) each person known by us to be the
beneficial  owner  of  more  than 5% of any  class  of our  securities,  (b) our
directors,  (c) our  executive  officers,  and (d) all  directors  and executive
officers  as  a  group.  The  address  of  all  owners  listed  is  C/O  Applied
NeuroSolutions,  Inc.., 50 Lakeview Parkway,  Suite 111, Vernon Hills,  Illinois
60061.  As of February  28,  2004,  a total of  90,641,812  shares of our common
stock, all of which are voting shares,  9,919,636  options to purchase shares of
our Common Stock, and 52,142,894  Common Stock Purchase Warrants were issued and
outstanding.

<TABLE>
<CAPTION>
                                              COMMON STOCK              STOCK OPTIONS            WARRANTS
                                              ----------------------    ---------------------    ----------------------
                                              Number of   Percent of    Number of  Percent of    Number of   Percent of
Name                                          Shares      Class         Shares     Class         Shares      Class
----                                          ---------   ----------    ---------  ----------    ---------   ----------
<S>                                           <C>           <C>         <C>          <C>         <C>           <C>
Bruce N. Barron  (1)                            877,403     1.0%        2,970,394    29.9%              --      0.0%
John F. DeBernardis, Ph.D. (1)                  353,050     0.4%        2,509,672    25.3%              --      0.0%
Richard Stone (2)                             5,399,691     6.0%          547,710     5.5%       1,205,201      2.3%
Preston Tsao (2)                                 67,935     0.1%          194,848     2.0%              --      0.0%
Daniel J. Kerkman, Ph.D. (3)                    175,785     0.2%          842,249     8.5%              --      0.0%
David Ellison (3)                               205,537     0.2%          799,015     8.1%              --      0.0%
David Stone (4)                               4,640,672     5.1%               --     0.0%       2,397,434      4.6%
Judson Cooper (5)                             5,248,670     5.8%               --     0.0%       1,224,550      2.3%
Joshua Schein (6)                             5,254,840     5.8%               --     0.0%       1,237,920      2.4%
Special Situations Private Equity Fund, LP    6,000,000     6.6%               --     0.0%       6,000,000     11.5%
Benjamin Family Trusts                        4,526,944     5.0%               --     0.0%       2,937,818      5.6%
All Directors and Officers as a group
      (6 persons)                             7,079,401     7.8%        7,863,888    79.3%       1,205,201      2.3%
</TABLE>

(1)  Director and officer.
(2)  Director.
(3)  Officer.
(4)  Includes  1,326,523  shares of common stock and 1,459,176  warrants held by
     entities  that the investor has voting and/or  investment  control over the
     shares held by it.
(5)  Includes  800,000  warrants  held by an entity that the investor has voting
     and/or investment  control over the shares held by it.
(6)  Includes  800,000  warrants  held by an entity that the investor has voting
     and/or investment control over the shares held by it.


ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         During 2003,  2002 and 2001, due to cash  constraints,  officers of the
Company deferred  compensation,  loaned funds to the Company and personally paid
for some Company  expenses.  In June, 2002,  $215,000 of the amount due to these
officers was converted to shares of common stock at the merger  adjusted  market
price of $0.228 per share.  The balance due to these officers was $313,583 as of
December 31, 2003. These amounts were paid in February 2004.

         We believe that each of the  transactions  set forth above were entered
into on (i) terms as fair as those that could be obtained from independent third
parties,  and (ii) were  ratified  by a  majority  (but no less than two) of our
independent  directors who did not have an interest in the  transaction  and who
had access to our counsel at our



                                       55
<PAGE>


expense.  All future transactions with the Company in which a director,  officer
or 5% shareholder has a direct or indirect interest must (i) be on terms no less
favorable to us than could be obtained from unaffiliated third parties, and (ii)
be approved by a majority of directors  who have no direct or indirect  interest
in the  transaction  and who  have  access  at our  expense  to our  counsel  or
independent counsel.


ITEM 13.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as a part of this report.

1. List of Financial Statements.

                  The  following  consolidated  financial  statements of Applied
         NeuroSolutions,  Inc. and Report of KPMG LLP, Independent Auditors, are
         included in this report:

          o    Report of KPMG LLP, Independent Auditors.

          o    Consolidated Balance Sheets at December 31, 2003 and 2002

          o    Consolidated   Statements  of  Operations  for  the  years  ended
               December  31,  2003,  2002 and 2001 and for the period from March
               14, 1992 (inception) to December 31, 2003

          o    Consolidated Statements of Stockholders' Equity/(Deficit) for the
               period from March 14, 1992 (inception) to December 31, 2003

          o    Consolidated  Statements  of  Cash  Flows  for  the  years  ended
               December  31,  2003,  2002 and 2001 and for the period from March
               14, 1992 (inception) to December 31, 2003

          o    Notes to  Consolidated  Financial  Statements for the years ended
               December  31,  2003,  2002 and 2001 and for the period from March
               14, 1992 (inception) to December 31, 2003

         2. List of all Financial Statement Schedules.

                  All schedules are omitted  because they are not  applicable or
         the required  information is shown in the financial statements or notes
         thereto.

         3. Exhibits  required  by  Item  601  of  Regulation S-K. The following
            exhibits  are  filed  as  a  part  of, or  incorporated by reference
            into, this Report:

         Number   Description
         ------   -----------

         3.1      Certificate  of  Incorporation,  filed  as  Exhibit  C to  the
                  Company  Proxy  Statement,  filed on  February  23,  1999 (the
                  "Proxy Statement"), and hereby incorporated by reference.

         3.1.1    Certificate  of Amendment  of  Certificate  of  Incorporation,
                  filed as Exhibit A to the Company's Proxy Statement,  filed on
                  June 29, 1999, and hereby incorporated by reference.

         3.1.2    Certificate  of Amendment  of  Certificate  of  Incorporation,
                  filed as Exhibit 3.1.2 to our  Registration  Statement on Form
                  SB-2  dated  March  15,  2002  and  hereby   incorporated   by
                  reference.

         3.2      Company Bylaws,  filed as Exhibit D to the Proxy Statement and
                  hereby incorporated by reference.

         4.1      Specimen Common Stock Certificate, filed as Exhibit 4.1 to the
                  Company's  Registration  Statement  on Form S-1,  as  amended,
                  effective  May 7, 1998,  Registration  Number  333-33219  (the
                  "Registration   Statement"),   and  hereby   incorporated   by
                  reference.

         4.1.1    Specimen  Common Stock  Certificate,  identifying  the Company
                  name change from Ophidian Pharmaceuticals,  Inc. to Hemoxymed,
                  Inc., filed as Exhibit 4.1.1 to our Registration  Statement on
                  Form SB-2  dated  March 15,  2002 and hereby  incorporated  by
                  reference.

         4.2      Specimen  Warrant  Certificate,  filed as  Exhibit  4.2 to the
                  Registration Statement, and hereby incorporated by reference.



                                       56
<PAGE>


         4.3      Form of Representatives' Warrant Agreement, including Specimen
                  Representatives'   Warrant,  filed  as  Exhibit  4.3,  to  the
                  Registration Statement, and hereby incorporated by reference.


         Number   Description
         ------   -----------

         4.4      Form of  Warrant  Agreement,  filed  as  Exhibit  4.4,  to the
                  Registration Statement and hereby incorporated by reference.

         4.5      Specimen  Unit  Certificate,  filed  as  Exhibit  4.5  to  the
                  Registration Statement, and hereby incorporated by reference.

        10.1      Agreement and Plan of Merger made as of April 16, 2001, by and
                  among the  Company,  Ophidian  Holdings,  Inc., a wholly owned
                  subsidiary  of the  Company,  and  Hemoxymed,  Inc.,  filed as
                  Exhibit A to the Company's Information Statement on Form 14f-1
                  filed on August 8, 2001, and hereby incorporated by reference.

        10.2      Agreement and Plan of Merger made as of September 10, 2002, by
                  and among the Company, Molecular Geriatrics Acquisition, Inc.,
                  a  wholly  owned  subsidiary  of the  Company,  and  Molecular
                  Geriatrics Corporation,  filed as Exhibit 2.1 to the Company's
                  8-K filed on September 23, 2002,  and hereby  incorporated  by
                  reference.

        10.3      License and Collaborative Research Agreement, dated October 1,
                  1992  between  Molecular  Geriatrics  Corporation  and  Albert
                  Einstein College of Medicine,  including  Amendment  Agreement
                  dated July 1, 1993, and hereby incorporated by reference.

        10.4      License and Collaborative  Research Agreement,  dated February
                  1, 1994 between  Molecular  Geriatrics  Corporation and Albert
                  Einstein  College  of  Medicine,  and hereby  incorporated  by
                  reference.

        10.5      Amendment  Agreement,  dated March 21, 2002 between  Molecular
                  Geriatrics   Corporation  and  Albert   Einstein   College  of
                  Medicine, and hereby incorporated by reference.

        10.6      Second Amendment  Agreement,  dated September 21, 2002 between
                  Molecular  Geriatrics  Corporation and Albert Einstein College
                  of Medicine, and hereby incorporated by reference.

        10.7      Consulting Agreements with Dr. Peter Davies, dated October 13,
                  1992,  October 13,  1992,  and January  31,  1994,  and hereby
                  incorporated by reference.

        10.8      Employment  Agreement,  dated April 1, 2000 between  Molecular
                  Geriatrics   Corporation  and  Bruce  N.  Barron,  and  hereby
                  incorporated by reference.

        10.9      Employment  Agreement,  dated April 1, 2000 between  Molecular
                  Geriatrics  Corporation  and John F.  DeBernardis,  and hereby
                  incorporated by reference.

        10.10     Lease  Agreement,  dated  November 22, 1996,  along with First
                  Amendment to Lease,  dated May 2, 1997,  and Lease  Extension,
                  dated March 18, 2002 between Molecular Geriatrics  Corporation
                  and  Arthur  J.  Rogers  &  Co,  and  hereby  incorporated  by
                  reference.

        10.11     Consulting  Agreement with Prism Ventures LLC, dated September
                  10, 2002, and hereby incorporated by reference.

        10.12     Consulting  Agreement with Equity  Communications,  LLC, dated
                  June 20, 2003, along with amendment dated December 15, 2003. *

        21        Subsidiaries of the Company.  *


*   Exhibit filed herewith.



                                       57
<PAGE>


(b) Reports on Form 8-K filed by the Company during the last quarter  covered by
    this Report.

     None for the last quarter covered by this Report.  A report on Form 8-K was
     filed in February 2004 concerning the completion of a private placement.

         Number   Description
         ------   -----------

         4.1      Purchase  Agreement,  dated as of  January  28,  2004,  by and
                  between the Registrant and Special  Situations  Private Equity
                  Fund L.P., and hereby incorporated by reference.

         4.2      Form of Unit Purchase  Agreement,  and hereby  incorporated by
                  reference.

         4.3      Bridge  Loan  Holder  Consent,   and  hereby  incorporated  by
                  reference.

         4.4      Form of Registration rights Agreement, and hereby incorporated
                  by reference.

         4.5      Form of Warrant, and hereby incorporated by reference.

         4.6      Placement Agent Warrant, and hereby incorporated by reference.


ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

         The  following  is a summary  of the fees  billed to us by KPMG LLP for
professional  services rendered for the fiscal years ended December 31, 2003 and
2002:

                                       Fiscal 2003       Fiscal 2002
         Fee Category                      Fees              Fees
         ------------------            -----------       -----------
         Audit Fees                     $  51,000         $  49,000
         Audit Related Fees                    --             2,120
         Tax Fees                              --                --
         All Other Fees                        --                --
                                        ---------         ---------
         Total Fees                     $  51,000         $  51,120
                                        =========         =========

Audit Fees.  Consists of fees billed for professional  services rendered for the
audit  of  our   consolidated   financial   statements  and  review  of  interim
consolidated  financial  statements  included in quarterly  reports and services
that  are  normally  provided  by KPMG  LLP in  connection  with  statutory  and
regulatory filings or engagements.

Audit Related Fees.  Consists of fees billed for assurance and related  services
that are  reasonably  related to the  performance  of the audit or review of our
consolidated financial statements and are not reported under "Audit Fees".

Tax Fees. Consists of fees billed for professional  services for tax compliance,
tax advice and tax planning.  These services include  preparation of federal and
state income tax returns.

All Other  Fees.  Consists  of fees for  product  and  services  other  than the
services reported above.

POLICY  ON AUDIT  COMMITTEE  PRE-APPROVAL  OF AUDIT  AND  PERMISSIBLE  NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS

         The  Audit   Committee's   policy  is  to  pre-approve  all  audit  and
permissible  non-audit  services  provided by the  independent  auditors.  These
services may include audit services,  audit related services,  tax services, and
other services.  Pre-approval is generally  provided for up to one year, and any
pre-approval  is detailed as to the  particular  service or category of services
and is generally  subject to a specific  budget.  The  independent  auditors and
management are required to periodically  report to the Audit Committee regarding
the extent of services  provided by the independent  auditors in accordance with
this  pre-approval  and the fees for the services  performed to date.  The Audit
Committee may also pre-approve particular services on a case-by-case basis.



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