**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**Form
      10-KSB**





(Mark
      One)





**x ANNUAL
      REPORT
      UNDER SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**




For
      the fiscal year ended December 31,
      2005




**o TRANSITION
      REPORT
      UNDER SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





For
      the
      transition period from ______________ to ______________





*Commission
      File Number 000-51613*


_______________________________________________





**Kanai
      Sciences, Inc.**





(Exact
      name of registrant as specified in its charter)


______________________________________________


Delaware
            20-3326980(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                No.)


c/o
                  Paramount BioCapital Investments, LLC,787
                Seventh Avenue, 48th FloorNew
                York, NY
            10019(Address
                of principal executive offices)
            (zip
                code)




Registrant’s
      telephone number, including area
      code:


(212)
        554-4300


_____________________________________________





Securities
      registered under Section 12(b) of the Exchange Act:





None.





Securities
      registered under Section 12(g) of the Exchange Act:





Common
      Stock, $0.001 par value per share





(Title
      of
      Class)










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





Check
      whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange
      Act). Yes x No
o.





Indicate
      by check mark if disclosure of delinquent filers in response to Item 405 of
      Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
      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. o


The
        Company’s revenue for fiscal year ended December 31, 2005 was
        $0.


Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Act).


Yes
o
      No x.





As
      of
      March 23, 2006, there were 125,000 shares of common stock outstanding.





**DOCUMENTS
      INCORPORATED BY REFERENCE:**





**None**








**FORWARD-LOOKING
      STATEMENTS**





Certain
      statements made in this Annual Report on Form 10-KSB are “forward-looking
      statements” (within the meaning of the Private Securities Litigation Reform Act
      of 1995) regarding the plans and objectives of management for future operations.
      Such statements involve known and unknown risks, uncertainties and other factors
      that may cause actual results, performance or achievements of Kanai Sciences,
      Inc. (the “Company”) to be materially different from any future results,
      performance or achievements expressed or implied by such forward-looking
      statements. The forward-looking statements included herein are based on current
      expectations that involve numerous risks and uncertainties. The Company's plans
      and objectives are based, in part, on assumptions involving the continued
      expansion of business. Assumptions relating to the foregoing involve judgments
      with respect to, among other things, future economic, competitive and market
      conditions and future business decisions, all of which are difficult or
      impossible to predict accurately and many of which are beyond the control of
      the
      Company. Although the Company believes its assumptions underlying the
      forward-looking statements are reasonable, any of the assumptions could prove
      inaccurate and, therefore, there can be no assurance the forward-looking
      statements included in this Report will prove to be accurate. In light of the
      significant uncertainties inherent in the forward-looking statements included
      herein, the inclusion of such information should not be regarded as a
      representation by the Company or any other person that the objectives and plans
      of the Company will be achieved.







**PART
      I**





**Item
      1. Business.**





**Introduction**





Kanai
      Sciences, Inc. (“we”, “us”, “our”, the “Company” or the “Registrant”) was
      incorporated in the State of Delaware on August 12, 2005 and maintains its
      principal executive offices at 787 Seventh Avenue, 48 th Floor,
      New York, New York 10019. Since inception, the Company has been engaged in
      organizational efforts and obtaining initial financing. The Company was formed
      as a vehicle to pursue a business combination and since the effectiveness of
      its
      registration statement on Form 10-SB has begun preliminary efforts to identify
      a
      possible business combination. However, the Company has not entered into a
      letter of intent concerning any target business. The business purpose of the
      Company is to seek the acquisition of, or merger with, an existing company.





The
      Company, based on proposed business activities, is a "blank check" company.
      The
      U.S. Securities and Exchange Commission (the “SEC”) defines those companies as
      "any development stage company that is issuing a penny stock, within the meaning
      of Section 3 (a)(51) of the Securities Exchange Act of 1934, as amended (the
      “Exchange Act”), and that has no specific business plan or purpose, or has
      indicated that its business plan is to merge with an unidentified company or
      companies." Many states have enacted statutes, rules and regulations limiting
      the sale of securities of "blank check" companies in their respective
      jurisdictions. The Company, as defined in Rule 12b-2 under the Exchange Act,
      also is a “shell company,” defined as a company with no or nominal assets (other
      than cash) and no or nominal operations. Management does not intend to undertake
      any efforts to cause a market to develop in our securities, either debt or
      equity, until we have successfully concluded a business combination. The Company
      intends to comply with the periodic reporting requirements of the Exchange
      Act
      for so long as we are subject to those requirements.





The
      Company was organized as a vehicle to investigate and, if such investigation
      warrants, acquire a target company or business seeking the perceived advantages
      of being a publicly held corporation. The Company’s principal business objective
      for the next 12 months and beyond such time will be to achieve long-term growth
      potential through a combination with a business rather than immediate,
      short-term earnings. The Company will not restrict its potential candidate
      target companies to any specific business, industry or geographical location
      and, thus, may acquire any type of business.





**Competition**





The
      Shell
      Market





Currently,
      with our primary goal the acquisition of a target company or business seeking
      the perceived advantages of being a publicly held corporation, the Company
      faces
      vast competition from other shell companies with the same objectives. The
      Company is in a highly competitive market for a small number of business
      opportunities which could reduce the likelihood of consummating a successful
      business combination. A large number of established and well-financed entities,
      including small public companies and venture capital firms, are active in
      mergers and acquisitions of companies that may be desirable target candidates
      for us. Nearly all these entities have significantly greater financial
      resources, technical expertise and managerial capabilities than we do;
      consequently, we will be at a competitive disadvantage in identifying possible
      business opportunities and successfully completing a business combination.
      These
      competitive factors may reduce the likelihood of our identifying and
      consummating a successful business combination.





1


**Employees**





The
      Company currently has no employees other than its two officers.





**RISK
      FACTORS**





An
      investment in our securities is highly speculative and subject to numerous
      and
      substantial risks. These risks include those set forth below and elsewhere
      in
      this Form 10-KSB. Readers are encouraged to review these risks carefully before
      making any investment decision.





**There
      may be conflicts of interest between our management and our non-management
      stockholders.**





Conflicts
      of interest create the risk that management may have an incentive to act
      adversely to the interests of other investors. A conflict of interest may arise
      between our management's personal pecuniary interest and its fiduciary duty
      to
      our stockholders. Further, our management's own pecuniary interest may at some
      point compromise its fiduciary duty to our stockholders. In addition, our
      officers and directors are currently involved with other blank check companies
      and conflicts in the pursuit of business combinations with such other blank
      check companies with which they and other members of our management are, and
      may
      be the future be, affiliated with may arise. If we and the other blank check
      companies that our officers and directors are affiliated with desire to take
      advantage of the same opportunity, then those officers and directors that are
      affiliated with both companies would abstain from voting upon the opportunity.
      In the event of identical officers and directors, the officers and directors
      will arbitrarily determine the company that will be entitled to proceed with
      the
      proposed transaction.





Further,
      Paramount Biocapital, Inc. (“PBI”), a registered broker-dealer, may act as
      investment banker, placement agent or financial consultant to the Company or
      an
      acquisition candidate in connection with a potential business combination
      transaction. Dr. Rosenwald, our controlling shareholder, is the sole
      stockholder, Chairman and Chief Executive Officer of PBI. Mr. Knox, our
      Treasurer, and Dr. Weiser, our sole director, President and Secretary, are
      both
      employees of PBI and Paramount BioCapital Investments, LLC (“Paramount”). Also,
      as of January 1, 2006, the Company began paying Paramount BioSciences, LLC
      (“PBS”), a drug development firm and
      an
      affiliate of the Company, a monthly fee of $1,000 for certain
      management services. PBS was founded by Dr. Rosenwald, the Company’s controlling
      stockholder. Mr. Knox and Dr. Weiser are employees of PBS.




Additionally,
      we may, from time to time, take loans that pay reasonable interest from
      Paramount to run our operations. We cannot assure you that conflicts of interest
      among us, PBI, Paramount and our stockholders will not develop. Any finders
      fees, placement fee, interest or other fees paid to PBI or Paramount will be
      comparable with unaffiliated third party fees.





**Our
      business is difficult to evaluate because we have no operating
      history.**





As
      the
      Company has no operating history or revenue and only minimal assets, there
      is a
      risk that we will be unable to continue as a going concern and consummate a
      business combination. The Company has had no recent operating history nor any
      revenue or earnings from operations since inception. We have no significant
      assets or financial resources. We will, in all likelihood, sustain operating
      expenses without corresponding revenue, at least until the consummation of
      a
      business combination. This may result in our incurring a net operating loss
      that
      will increase continuously until we can consummate a business combination with
      a
      profitable business opportunity. We cannot assure you that we can identify
      a
      suitable business opportunity and consummate a business
      combination.




2




**There
      is competition for those private companies suitable for a merger transaction
      of
      the type contemplated by management.**





The
      Company is in a highly competitive market for a small number of business
      opportunities which could reduce the likelihood of consummating a successful
      business combination. We are and will continue to be an insignificant
      participant in the business of seeking mergers with, joint ventures with and
      acquisitions of small private and public entities. A large number of established
      and well-financed entities, including small public companies and venture capital
      firms, are active in mergers and acquisitions of companies that may be desirable
      target candidates for us. Nearly all these entities have significantly greater
      financial resources, technical expertise and managerial capabilities than we
      do;
      consequently, we will be at a competitive disadvantage in identifying possible
      business opportunities and successfully completing a business combination.
      These
      competitive factors may reduce the likelihood of our identifying and
      consummating a successful business combination.





**Future
      success is highly dependent on the ability of management to locate and attract
      a
      suitable acquisition.**





The
      nature of our operations is highly speculative and there is a consequent risk
      of
      loss of your investment. The success of our plan of operation will depend to
      a
      great extent on the operations, financial condition and management of the
      identified business opportunity. While management intends to seek business
      combination(s) with entities having established operating histories, we cannot
      assure you that we will be successful in locating candidates meeting that
      criterion. In the event we complete a business combination, the success of
      our
      operations may be dependent upon management of the successor firm or venture
      partner firm and numerous other factors beyond our control.





**The
      Company has no existing agreement for a business combination or other
      transaction.**





We
      have
      no arrangement, agreement or understanding with respect to engaging in a merger
      with, joint venture with or acquisition of, a private or public entity. No
      assurances can be given that we will successfully identify and evaluate suitable
      business opportunities or that we will conclude a business combination.
      Management has not identified any particular industry or specific business
      within an industry for evaluation. We cannot guarantee that we will be able
      to
      negotiate a business combination on favorable terms, and there is consequently
      a
      risk that funds allocated to the purchase of our shares will not be invested
      in
      a company with active business operations.





**Management
      intends to devote only a limited amount of time to seeking a target company
      which may adversely impact our ability to identify a suitable acquisition
      candidate.**




While
      seeking a business combination, management anticipates devoting no more than
      a
      few hours per week to the Company's affairs. Our officers have not entered
      into
      written employment agreements with us and are not expected to do so in the
      foreseeable future. This limited commitment may adversely impact our ability
      to
      identify and consummate a successful business combination.





**The
      time and cost of preparing a private company to become a public reporting
      company may preclude us from entering into a merger or acquisition with the
      most
      attractive private companies.**





Target
      companies that fail to comply with SEC reporting requirements may delay or
      preclude acquisition. Sections 13 and 15(d) of the Exchange Act require
      reporting companies to provide certain information about significant
      acquisitions, including certified financial statements for the company acquired,
      covering one, two, or three years, depending on the relative size of the
      acquisition. The time and additional costs that may be incurred by some target
      entities to prepare these statements may significantly delay or essentially
      preclude consummation of an acquisition. Otherwise suitable acquisition
      prospects that do not have or are unable to obtain the required audited
      statements may be inappropriate for acquisition so long as the reporting
      requirements of the Exchange Act are applicable.




3




**The
      Company may be subject to further government regulation which would adversely
      affect our operations.**





Although
      we will be subject to the reporting requirements under the Exchange Act,
      management believes we will not be subject to regulation under the Investment
      Company Act of 1940, as amended (the “Investment Company Act”), since we will
      not be engaged in the business of investing or trading in securities. If we
      engage in business combinations which result in our holding passive investment
      interests in a number of entities, we could be subject to regulation under
      the
      Investment Company Act. If so, we would be required to register as an investment
      company and could be expected to incur significant registration and compliance
      costs. We have obtained no formal determination from the SEC as to our status
      under the Investment Company Act and, consequently, violation of the Investment
      Company Act could subject us to material adverse consequences.





**Any
      potential acquisition or merger with a foreign company may subject us to
      additional risks.**





If
      we
      enter into a business combination with a foreign concern, we will be subject
      to
      risks inherent in business operations outside of the United States. These risks
      include, for example, currency fluctuations, regulatory problems, punitive
      tariffs, unstable local tax policies, trade embargoes, risks related to shipment
      of raw materials and finished goods across national borders and cultural and
      language differences. Foreign economies may differ favorably or unfavorably
      from
      the United States economy in growth of gross national product, rate of
      inflation, market development, rate of savings, and capital investment, resource
      self-sufficiency and balance of payments positions, and in other
      respects.





**There
      is currently no trading market for our common stock.**





Outstanding
      shares of our common stock cannot be offered, sold, pledged or otherwise
      transferred unless subsequently registered pursuant to, or exempt from
      registration under, the Securities Act of 1933, as amended (the “Securities
      Act”) and any other applicable federal or state securities laws or regulations.
      These restrictions will limit the ability of our stockholders to liquidate
      their
      investment. Further, shares of our common stock cannot be sold under the
      exemptions from registration provided by Rule 144 under or Section 4(1) of
      the
      Securities Act, in
      accordance with the letter from Richard K. Wulff, Chief
      of
      the Office of Small Business Policy of the Securities and Exchange Commission’s
      Division of Corporation Finance ,
      to Ken
      Worm of NASD Regulation, Inc., dated January 21, 2000.





**Our
      business will have no revenue unless and until we merge with or acquire an
      operating business.**





We
      are a
      development stage company and have had no revenue from operations. We may not
      realize any revenue unless and until we successfully merge with or acquire
      an
      operating business.





**The
      Company intends to issue more shares in a merger or acquisition, which will
      result in substantial dilution.**





Our
      Certificate of Incorporation authorizes the issuance of a maximum of
      75,000,000 shares of common stock and a maximum of 10,000,000 shares of
      preferred stock. Any merger or acquisition effected by us may result in
      substantial dilution in the percentage of our common stock held by our then
      existing stockholders. Moreover, the common stock issued in any such merger
      or
      acquisition transaction may be valued on an arbitrary or non-arm’s-length basis
      by our management, resulting in an additional reduction in the percentage of
      common stock held by our then existing stockholders. To
      the
      extent that additional shares of common stock or preferred stock are issued
      in
      connection with a business combination or otherwise, dilution to the interests
      of our stockholders will occur and the rights of the holders of common stock
      might be materially adversely affected.




4


**Our
      principal stockholders may engage in a transaction to cause the Company to
      repurchase their shares of common stock.**





In
      order
      to provide an interest in the Company to a third party, our principal
      stockholders may choose to cause the Company to sell Company securities to
      third
      parties, with the proceeds of such sale being utilized by the Company to
      repurchase shares of common stock held by the stockholders. As a result of
      such
      transaction, our management, principal stockholders and Board of Directors
      may
      change.





**The
      Company has conducted no market research or identification of business
      opportunities, which may affect our ability to identify a business to merge
      with
      or acquire.**





The
      Company has neither conducted nor have others made available to us results
      of
      market research concerning prospective business opportunities. Therefore, we
      have no assurances that market demand exists for a merger or acquisition as
      contemplated by us. Our management has not identified any specific business
      combination or other transactions for formal evaluation by us, such that it
      may
      be expected that any such target business or transaction will present such
      a
      level of risk that conventional private or public offerings of securities or
      conventional bank financing will not be available. There is no assurance that
      we
      will be able to acquire a business opportunity on terms favorable to us.
      Decisions as to
      which
      business opportunity to participate in will be unilaterally made by our
      management, which may act without the consent, vote or approval of our
      stockholders.





**Because
      we may seek to complete a business combination through a “reverse merger”,
      following such a transaction we may not be able to attract the attention of
      major brokerage firms.**





Additional
      risks may exist since we will assist a privately held business to become public through
      a
“reverse merger.” Securities analysts of major brokerage firms may not provide
      coverage of our Company since there is no incentive to brokerage firms to
      recommend the purchase of our common stock. No assurance can be given that
      brokerage firms will want to conduct any secondary offerings on behalf of our
      post-merger company in the future.





**We
      cannot assure you that following a business combination with an operating
      business, our common stock will be listed on NASDAQ or any other securities
      exchange.**





Following
      a business combination, we may seek the listing of our common stock on NASDAQ
      or
      the American Stock Exchange. However, we cannot assure you that following such
      a
      transaction, we will be able to meet the initial listing standards of either
      of
      those or any other stock exchange, or that we will be able to maintain a listing
      of our common stock on either of those or any other stock exchange. After
      completing a business combination, until our common stock is listed on the
      NASDAQ or another stock exchange, we expect that our common stock would be
      eligible to trade on the OTC Bulletin Board, another over-the-counter quotation
      system, or on the “pink sheets,” where our stockholders may find it more
      difficult to dispose of shares or obtain accurate quotations as to the market
      value of our common stock. In addition, we would be subject to an SEC rule
      that,
      if it failed to meet the criteria set forth in such rule, imposes various
      practice requirements on broker-dealers who sell securities governed by the
      rule
      to persons other than established customers and accredited investors.
      Consequently, such rule may deter broker-dealers from recommending or selling
      our common stock, which may further affect its liquidity. This would also make
      it more difficult for us to raise additional capital following a business
      combination.




5


**There
      is no public market for our common stock, nor have we ever paid dividends on
      our
      common stock.**





There
      is
      no public trading market for our common
      stock and
      none
      is expected to develop in the foreseeable future unless and until the Company
      completes a business combination with an operating business and such business
      files a registration statement under the Securities Act. Additionally, we have
      never paid dividends on our common
      stock and
      do
      not presently intend to pay any dividends in the foreseeable future. We
      anticipate that any funds available for payment of dividends will be re-invested
      into the Company to further its business strategy.





**Shareholder
      control over management.**





As
      indicated elsewhere herein, n one
      of
      our officers and directors intends to devote more than a few hours a week to
      our
      affairs. They will spend the majority of their time devoted to their full time
      employment. Although
      management currently owns none of our common stock, 97% of all the issued and
      outstanding capital stock of the Company is owned by an individual who is the
      Chairman and Chief Executive Officer of PBI and Paramount, which employ both
      members of our management team on a full time basis. Consequently, our majority
      shareholder, Dr. Rosenwald, has the ability to influence control of the
      operations of the Company and will
      have
      the ability to influence or control substantially all matters submitted to
      stockholders for approval, including:





·
            Election
                of the board of directors;





·
            Removal
                of any directors;





·
            Amendment
                of the Company’s certificate of incorporation or bylaws;
                and





·
            Adoption
                of measures that could delay or prevent a change in control or impede
                a
                merger, takeover or other business
                combination.





This
        stockholder will thus have substantial influence over our management and
        affairs
        and future stockholders of the Company possess no practical ability to remove
        management or effect the operations of the business of the Company. Accordingly,
        this concentration of ownership by itself may have the effect of impeding
        a
        merger, consolidation, takeover or other business consolidation, or discouraging
        a potential acquirer from making a tender offer for the common stock. Moreover,
        as PBS is in the business of founding life science companies and PBI is in
        the
        business of financing companies, it is likely that most merger candidates
        will
        be substantially owned or controlled by Dr. Rosenwald and or his affiliates
        and
        PBS and or PBI employees.


**Item
      2. Property.**





The
      Company neither rents nor owns any properties. The Company currently has no
      policy with respect to investments or interests in real estate, real estate
      mortgages or securities of, or interests in, persons primarily engaged in real
      estate activities.





**Item
      3. Legal Proceedings.**




The
      Company is not party to any legal proceedings nor is it aware of any
      investigation, claim or demand made on the Company that may reasonably result
      in
      any legal proceedings.




6





**Item
      4. Submission of Matters to a Vote of Security Holders.**





None.




**PART
      II**





**Item
      5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases
      of
      Equity Securities.**





**Common
      Stock**





Our
      Certificate of Incorporation authorizes the issuance of up to 75,000,000 shares
      of common stock, par value $.001 per share (the “Common Stock”). The Common
      Stock is not listed on a publicly-traded market. As of March 23, there were
      22 holders of record of the Common Stock.





**Preferred
      Stock**





Our
      Certificate of Incorporation authorizes the issuance of up to 10,000,000 shares
      of preferred stock, par value $.001 per share (the “Preferred Stock”). The
      Company has not yet issued any of its preferred stock.





**Dividend
      Policy**





The
      Company has not declared or paid any cash dividends on its common stock and
      does
      not intend to declare or pay any cash dividend in the foreseeable future. The
      payment of dividends, if any, is within the discretion of the Board of Directors
      and will depend on the Company’s earnings, if any, its capital requirements and
      financial condition and such other factors as the Board of Directors may
      consider.





**Recent
      Sales of Unregistered Securities**





The
      Registrant issued 125,000 shares of Common Stock on August 14, 2005, to
      accredited investors, for aggregate cash consideration of $5,000. The Registrant
      sold these shares of Common Stock under the exemption from registration provided
      by Section 4(2) of the Securities Act.





All
      purchasers represented in writing that they acquired the securities for their
      own accounts. A legend was placed on the stock certificates stating that the
      securities have not been registered under the Securities Act and cannot be
      sold
      or otherwise transferred without an effective registration or an exemption
      therefrom, but may not be sold pursuant to the exemptions provided by Section
      4(1) of the Securities Act or Rule 144 under the Securities Act, in accordance
      with the letter from Richard K. Wulff, Chief
      of
      the Office of Small Business Policy of the Securities and Exchange Commission’s
      Division of Corporation Finance ,
      to Ken
      Worm of NASD Regulation, Inc., dated January 21, 2000.





7


**Item
      6. Management’s Discussion and Analysis or Plan of
      Operation.**





**Plan
      of Operation**





The
      Company has not realized any revenue from operations since inception, and its
      plan of operation for the next twelve months shall be to locate a suitable
      acquisition or merger candidate and consummate a business combination. The
      Company may need additional cash advances from stockholders to pay for operating
      expenses until the Company consummates the merger with a privately-held company.
      Although it is currently anticipated that the Company can satisfy its cash
      requirements with additional cash advances, if needed, for at least the next
      twelve months, the Company can provide no assurance that it can continue to
      satisfy its cash requirements for such period.





**Results
      of Operations**





The
      Company has not conducted any active operations since inception, except for
      its
      efforts to locate suitable acquisition or merger transactions. No revenue has
      been generated by the Company during such period, and it is unlikely the Company
      will have any revenue unless it is able to consummate or effect an acquisition
      of, or merger with, an operating company, of which there can be no
      assurance.




8


**Item
      7. Financial Statements.**




**KANAI
      SCIENCES, INC.**


**(A
      Development Stage Company)**




Page(s)Report
                of Independent Registered Public Accounting Firm
            F-2****Balance
                SheetDecember
                31, 2005
            F-3Statement
                of OperationsPeriod
                from August 12, 2005 (Inception) to December 31, 2005
            F-4Statement
                of Changes in Stockholders’ DeficiencyPeriod
                from August 12, 2005 (Inception) to December 31, 2005
            F-5Statement
                of Cash FlowsPeriod
                from August 12, 2005 (Inception) to December 31, 2005
            F-6Notes
                to Financial Statements
            F-7/9********
            ****





F-1


**Report
      of Independent Registered Public Accounting Firm**





The
      Board
      of Directors and Stockholders


Kanai
      Sciences, Inc.





We
      have
      audited the accompanying balance sheet of Kanai Sciences, Inc. (A Development
      Stage Company) as of December 31, 2005, and the related statements of
      operations, changes in stockholders’ deficiency and cash flows for the period
      from August 12, 2005 (Inception) to December 31, 2005. These financial
      statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). 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 audit provides a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Kanai Sciences, Inc. (A Development
      Stage Company) as of December 31, 2005, and its results of operations and cash
      flows for the period from August 12, 2005 (Inception) to December 31, 2005,
      in
      conformity with accounting principles generally accepted in the United States
      of
      America.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 1 to the financial
      statements, the Company will need additional equity or debt financing or will
      need to complete a business combination with a company that has such financing
      to be able to sustain its operations. These matters raise substantial doubt
      about the Company's ability to continue as a going concern. Management's plans
      regarding these matters are also described in Note 1. The accompanying financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.











/s/J.H.
      Cohn LLP





Roseland,
      New Jersey


March
      9,
      2006







F-2





**KANAI
      SCIENCES, INC.**


**(A
      Development Stage Company)**





**Balance
      Sheet**


**December 31,
      2005**





**ASSETS**Cash
            
            **$**
            **4,476****LIABILITIES
                AND STOCKHOLDERS’ DEFICIENCY**Current
                liabilities:Accrued
                expenses
            
            **$**
            **6,250**Noncurrent
                liabilities:Accrued
                interest - related party
            
            
            **324**Note
                payable -related party
            
            
            **24,331**Total
                liabilities
            
            
            **30,905**Commitments
                and contingenciesStockholders’
                deficiency:Preferred
                stock, $.001 par value; 10,000,000 shares authorized; none
                issued
            
            
            **-**Common
                stock, $.001 par value; 75,000,000 shares authorized; 125,000 shares
                issuedand
                outstanding
            
            
            **125**Additional
                paid-in capital
            
            
            **4,875**Deficit
                accumulated during the development stage
            
            
            **(31,429**
            **)**Total
                stockholders’ deficiency
            
            
            **(26,429**
            **)****$**
            **4,476**




*See
      notes to financial statements*




F-3


**KANAI
      SCIENCES, INC.**


**(A
      Development Stage Company)**





**Statement
      of Operations**


**Period
      from August 12, 2005 (Inception) to December 31, 2005**




**Operating
                expenses:**Legal
                fees
            
            **$**
            **25,511**Accounting
                fees
            
            
            **4,190**General
                and administrative
            
            
            **1,404****Loss
                from operations**
            
            
            **(31,105**
            **)****Interest
                expense**
            
            
            **324****Net
                loss**
            
            **$**
            **(31,429**
            **)****Basic
                net loss per common share**
            
            **$**
            **(0.25**
            **)****Weighted
                average common shares outstanding**
            
            
            **125,000**





*See
      notes to financial statements*




F-4


**KANAI
      SCIENCES, INC.**


**(A
      Development Stage Company)**





**Statement
      of Changes in Stockholders’ Deficiency**


**Period
      from August 12, 2005 (Inception) to December 31, 2005**




**Additional****Common
                Stock**
            
            **Paid-in**
            
            **Accumulated****Shares**
            
            **Amount**
            
            **Capital**
            
            **Deficit**
            
            **Total**Issuance
                of common stock tofounders
                in August 2005at
                $.04 per share
            
            
            125,000
            
            $
            125
            
            $
            4,875
            
            
            
            
            $
            5,000Net
                loss
            
            
            
            
            
            
            
            
            
            
            $
            (31,429
            )
            
            (31,429
            )**Balance
                - December 31, 2005**
            
            
            **125,000**
            
            **$**
            **125**
            
            **$**
            **4,875**
            
            **$**
            **(31,429**
            **)**
            **$**
            **(26,429**
            **)**













*See
      notes to financial statements*




F-5




**KANAI
      SCIENCES, INC.**


**(A
      Development Stage Company)**





**Statement
      of Cash Flows**


**Period
      from August 12, 2005 (Inception) to December 31, 2005**





**Cash
                flows from operating activities:**Net
                loss
            
            **$**
            **(31,429**
            **)**Adjustments
                to reconcile net loss to net cash used in operating
                activities:Accrued
                expenses
            
            
            **6,250**Expenses
                paid by related party satisfied through issuance of notes
            
            
            **24,331**Accrued
                interest - related party
            
            
            **324**Net
                cash used in operating activities
            
            
            **(524**
            **)****Cash
                flows from financing activities:**Proceeds
                from issuance of common stock
            
            
            **5,000****Net
                increase in cash**
            
            
            **4,476**Cash,
                beginning of the period
            
            
            **-****Cash,
                end of period**
            
            **$**
            **4,476**










*See
      notes to financial statements*




F-6


**KANAI
      SCIENCES, INC.**


**(A
      Development Stage Company)**





**Notes
      to the Financial Statements**


**December
      31, 2005**





**Note
      1 -**  **Organization,
      Business and Operations:**


Kanai
                Sciences, Inc. (the "Company") was incorporated in the State of Delaware
                on August 12, 2005. The objective of the Company is to acquire an
                operating business.The
                Company's primary activities since incorporation have been organizational
                activities relating to the Company’s formation and registration statement,
                which became effective in January 2006. The Company has not generated
                any
                revenues from these activities and, accordingly, it is in the development
                stage. The Company selected December 31 as its fiscal
                year-end.The
                Company, based on its proposed business activities, is a "blank check"
                company. The Securities and Exchange Commission defines those companies
                as
                "any development stage company that is issuing a “penny stock”, within the
                meaning of Section 3 (a)(51) of the Securities Exchange Act of 1934,
                as
                amended (the “Exchange Act”), and that has no specific business plan or
                purpose, or has indicated that its business plan is to merge with
                an
                unidentified company or companies." Many states have enacted statutes,
                rules and regulations limiting the sale of securities of "blank check"
                companies in their respective jurisdictions. Management does not
                intend to
                undertake any efforts to cause a market to develop in our securities,
                either debt or equity, until we have successfully concluded a business
                combination. The Company intends to comply with the periodic reporting
                requirements of the Exchange Act for so long as it is subject to
                those
                requirements.The
                Company was organized as a vehicle to investigate and, if such
                investigation warrants, acquire a target company or business seeking
                the
                perceived advantages of being a publicly-held corporation. The Company’s
                principal business objective for the 12 months subsequent to December
                31,
                2005 and beyond such time will be to achieve long-term growth potential
                through a combination with a business (“Business Combination”) rather than
                immediate, short-term earnings. The Company will not restrict its
                potential candidate target companies to any specific business, industry
                or
                geographical location and thus may acquire any type of business.
                The
                analysis of new business opportunities will be undertaken by, or
                under the
                supervision of, the officers and directors of the
                Company.The
                Company's financial statements have been prepared on a going concern
                basis
                which contemplates the realization of assets and the settlement of
                liabilities and commitments in the normal course of business. Management
                believes that the Company will continue to incur losses for the
                foreseeable future and will need additional equity or debt financing
                or
                will need to complete a Business Combination with a company that
                has such
                financing to be able to sustain its operations until it can achieve
                profitability and positive cash flows, if ever.




F-7


**KANAI
      SCIENCES, INC.**


**(A
      Development Stage Company)**





**Notes
      to the Financial Statements**


**December
      31, 2005**





**Note
      1 -**  **Organization,
      Business and Operations (concluded):**


Management
              plans to seek additional debt and/or equity financing for the Company
              through private or public offerings or through a Business Combination,
              but
              it cannot assure that such financing will be available on acceptable
              terms
              or at all. These matters raise substantial doubt about the Company's
              ability to continue as a going concern. The accompanying financial
              statements do not include any adjustments that might result from the
              outcome of this uncertainty.





**Note
      2 - Summary of Significant Accounting Policies:**




**Use
              of estimates:**The
                preparation of financial statements in conformity with accounting
                principles generally accepted in the United States of America requires
                management to make estimates and assumptions that affect the reported
                amounts of assets and liabilities and disclosure of contingent assets
                and
                liabilities at the date of the financial statements and reported
                amounts
                of revenue and expenses during the reporting period. Actual results
                could
                differ from those estimates.**Fair value of financial
              instruments:**Financial
                instruments consist of cash and a note payable. The carrying values
                of
                these financial instruments approximate their fair
                values.In
                accordance with Statement of Financial Accounting Standards No. 109,
                "Accounting for Income Taxes," deferred tax assets and liabilities
                are
                recognized based on temporary differences between the financial statement
                and the tax bases of assets and liabilities. Deferred tax assets
                and
                liabilities are measured using enacted tax rates expected to apply
                to
                taxable income in the years in which these assets and liabilities
                are
                expected to be recovered or settled. The Company provides a valuation
                allowance when it is more likely than not that some or all of its
                net
                deferred tax assets will not be realized. Potential income tax benefits,
                relating primarily to net operating losses, as of December 31, 2005
                and
                for the period from August 12, 2005 (inception) December 31, 2005
                approximate $13,000 and have been fully offset by a valuation allowance.
                Net operating loss carryforwards of approximately $31,000 expire
                through
                2025.**Loss per common
              share:**Basic
                earnings (loss) per common share excludes dilution and is computed
                by
                dividing net income (loss) by the weighted average number of common
                shares
                outstanding during the period. Diluted earnings per common share
                reflect
                the potential dilution that could occur if securities or other contracts
                to issue common stock were exercised or converted into common stock
                or
                resulted in the issuance of common stock that then shared in the
                earnings
                of the entity. There were no potentially dilutive securities outstanding
                as of December 31, 2005.




F-8




**KANAI
        SCIENCES, INC.**
 **(A
        Development Stage Company)**
 
 **Notes
        to the Financial Statements**
 **December
        31, 2005**
 
 **Note
        3 - Related Party Transactions:**


**Note
              payable:**On
                August 14, 2005, the Company issued a 5% promissory note payable
                to
                Paramount BioCapital Investments, LLC (“Paramount”), an affiliate of a
                significant stockholder of the Company. This note and all accrued
                interest
                matures on August 14, 2008 or earlier if certain events occur. The
                note
                payable was issued to Paramount for future expenses that it has since
                paid
                on behalf of the Company. As of December 31, 2005, the principal
                balance
                of this note is $24,331.**Office space and
              administrative services:**Effective
                  January 1, 2006, the Company began paying Paramount BioSciences,
                  LLC
                  (“PBS”), an affiliate of the Company, a monthly fee of $1,000 for certain
                  management services.




Note 4 -  **Stockholders’
      Equity:**


The
                Company is authorized to issue 10,000,000 shares of preferred stock
                with
                such designations, voting and other rights and preferences as may
                be
                determined from time to time by the Board of Directors. No shares
                have
                been issued as of December 31, 2005.The
                Company is authorized to issue 75,000,000 shares of common stock.
                On
                August 14, 2005, the Company issued 125,000
                shares.




F-9


**Item
      8. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure.**





None.




**Item
      8A. Controls and Procedures.**





The
      Company’s management is responsible for establishing and maintaining a system of
      disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
      under the Exchange Act) that is designed to ensure that information required
      to
      be disclosed by the Company in the reports that the Company files or submits
      under the Exchange Act is recorded, processed, summarized and reported, within
      the time periods specified in the Commission’s rules and forms. Disclosure
      controls and procedures include, without limitation, controls and procedures
      designed to ensure that information required to be disclosed by an issuer in
      the
      reports that it files or submits under the Exchange Act is accumulated and
      communicated to the issuer’s management, including its principal executive
      officer or officers and principal financial officer or officers, or persons
      performing similar functions, as appropriate to allow timely decisions regarding
      required disclosure.





In
      accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was
      completed under the supervision and with the participation of the Company’s
      management, including the Company’s principal executive officer and principal
      financial officer, of the effectiveness of the design and operation of the
      Company’s disclosure controls and procedures as of the end of the period covered
      by this Annual Report. Based on that evaluation, the Company’s management
      including the principal executive officer and principal financial officer,
      concluded that the Company’s disclosure controls and procedures are effective,
      to provide reasonable assurance that information required to be disclosed in
      the
      Company’s reports filed or submitted under the Exchange Act is recorded,
      processed, summarized, and reported within the time periods specified in the
      Commission’s rules and forms. There have been no changes in our internal
      controls or in other factors that could significantly affect these controls
      and
      procedures during the three months ended December 31, 2005.








**Item
      8B. Other Information.** None.





**Part
      III**





**Item
      9. Directors and Executive Officers of the Registrant.**





(a)
      Identification of Directors and Executive Officers. The following table sets
      forth certain information regarding the Company’s directors and executive
      officers for the fiscal year ended December 31, 2005:





**Name**
            **Age**
            **Position**
            **Term**Michael
                Weiser
            42
            President,
                Secretary, Director
            August
                14, 2005 thru PresentJohn
                Knox
            36
            Treasurer
            August
                14, 2005 thru Present





The
      Company’s officers and directors are elected annually for a one year term or
      until their respective successors are duly elected and qualified  or
      until
      their earlier resignation or removal.




9




**Michael
      Weiser, President, Secretary**  **and
      Director.** Since
      July 1998, Dr. Weiser has served as the director of research at Paramount
      BioCapital Asset Management, and is a registered representative of PBI. Prior
      to
      joining Paramount BioCapital Asset Management, Dr. Weiser was a medical student
      and later a resident at New York University School of Medicine and New York
      University Medical Center. Dr. Weiser is also a director of the following public
      companies:





§
            Hana
                Biosciences, Inc., an OTC Bulletin Board-listed biopharmaceutical
                company
                that aims to acquire, develop and commercialize innovative products
                for
                the treatment of important unmet medical needs in cancer and immunological
                diseases;





§
            Manhattan
                Pharmaceuticals, Inc., an OTC Bulletin Board-listed company developing
                and
                commercializing biomedical and pharmaceutical technologies;





§
            Chelsea
                Therapeutics International, Ltd., an OTC Bulletin Board-listed company
                developing and commercializing biomedical and pharmaceutical
                technologies;





§
            Emispshere
                Technologies, Inc. (NASDAQ:
                EMIS).





§
            VioQuest
                Pharmaceuticals, Inc., an OTC Bulletin Board-listed company that,
                through
                its subsidiaries, provides products and services to pharmaceutical
                and
                fine chemical companies; and




§
            Paramount
                Acquisition Corp., a publicly traded blank check company (ticker:
                PMQCU)
                of which he is also Executive Vice
                President.





Dr.
      Weiser also serves as President, Secretary and director of Kodiak Sciences,
      Inc.
      and Seward Sciences, Inc., both of which are blank check, publicly reporting
      and
      non-trading shell companies. Dr.
      Weiser received a B.A. from University of Vermont, a Ph.D. from Cornell
      University Graduate School of Medicine and a M.D. from New York University
      School of Medicine.





**John
      Knox, Treasurer.** Mr.
      Knox
      has served as Treasurer of the Company since its inception. In
      addition, Mr. Knox currently serves as the Chief Financial Officer of Paramount,
      PBS and PBI, positions he has held since February 2005. From March 1995
      through February 2005 Mr. Knox served as the Controller of Paramount and
      PBI. From
      October 1991 to February 1995, he was an auditor at Eisner LLP (f/k/a Richard
      A.
      Eisner & Company, LLP). Mr. Knox also serves as Treasurer of Bristol Bay
      Sciences, Inc., Chitina Sciences, Inc., Cordova Sciences, Inc., Denali Sciences,
      Inc., Arctic Acquisition Corp., Kodiak Sciences, Inc., Norton Sound Acquisition
      Corp., Seward Sciences, Inc. and Sitka Sciences, Inc., all of which are
      blank check, publicly reporting and non-trading shell companies. Mr. Knox
      received his B.A. degree in Accounting from Emory University in May 1991 and
      his
      New York C.P.A in 1994.





(b)
      Significant Employees. As of the date hereof, the Company has no significant
      employees.




(c)
      Family Relationships. None.





(d)
      Involvement in Certain Legal Proceedings. There have been no events under any
      bankruptcy act, no criminal proceedings and no judgments, injunctions, orders
      or
      decrees material to the evaluation of the ability and integrity of any director,
      executive officer, promoter or control person of Registrant during the past
      five
      years.




(e)
      The
      Board of Directors acts as the Audit Committee and the Board has no separate
      committees. The Company does not have a qualified financial expert at this
      time
      because it has not been able to hire a qualified candidate. Further, the Company
      believes that it has inadequate financial resources at this time to hire such
      an
      expert. The Company intends to continue to search for a qualified individual
      for
      hire.





10


**COMPLIANCE
      WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934**





Section 16(a)
      of the Exchange Act requires the Company’s directors and officers, and persons
      who beneficially own more than 10% of a registered class of the Company’s equity
      securities, to file reports of beneficial ownership and changes in beneficial
      ownership of the Company’s securities with the SEC of Forms 3, 4 and 5.
      Officers, directors and greater than 10% stockholders are required by SEC
      regulation to furnish the Company with copies of all Section 16(a) forms
      they file.




Based
      solely on the Company’s review of the copies of the forms received by it during
      the period from August 12, 2005 (inception) to December 31, 2005 and
      written representations that no other reports were required, the Company
      believes that no person who, at any time during such fiscal year, was a
      director, officer or beneficial owner of more than 10% of the Company’s common
      stock failed to comply with all Section 16(a) filing requirements during
      such fiscal years, except to the following delinquent filings: (a) Form 3 filed
      by Dr. Lindsay Rosenwald on January 31, 2006; (b) Form 3 filed by Michael Weiser
      on January 30, 2006; and (c) Form 3 filed by John Knox on February 7,
      2006.





**CODE
      OF ETHICS**





We
      have
      not adopted a Code of Business Conduct and Ethics that applies to our principal
      executive officer, principal financial officer, principal accounting officer
      or
      controller, or persons performing similar functions in that our sole officer
      and
      director serves in all the above capacities.





**Item
      10. Executive Compensation.**





The
      following table sets forth the cash compensation paid by the Company to its
      President and all other executive officers for services rendered during the
      fiscal year ended December 31, 2005.





Name
                and Position
            Year
            Other
                CompensationMichael
                Weiser, President, Secretary, Director
            2005
            NoneJohn
                Knox, Treasurer
            2005
            None





**Director
      Compensation**





We
      do not
      currently pay any cash fees to our directors, but we pay directors' expenses
      in
      attending board meetings. During the period from August 12, 2005 (inception)
      to
      December 31, 2005 no director expenses were reimbursed.





**Employment
      Agreements**





The
      Company is not a party to any employment agreements.





**Item
      11. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.**





The
      following tables set forth certain information as of March 23, 2006, regarding
      (i) each person known by the Company to be the beneficial owner of more than
      5%
      of the outstanding shares of Common Stock, (ii) each director, nominee and
      executive officer of the Company and (iii) all officers and directors as a
      group.





11


Name
                and Address
            Amount
                and Nature of Beneficial Ownership
            Percentage
              of
                ClassDr.
                Lindsay Rosenwald, M.D.
              c/o
                Paramount BioCapital Investments, LLC
              787
                Seventh Avenue, 48thFloor
              New
                York, NY 10036
            121,205
            97%Dr.
                Michael Weiser
              c/o
                Paramount BioCapital Investments, LLC
              787
                Seventh Avenue, 48thFloor
              New
                York, NY 10036
            0
            0%John
                Knox
              c/o
                Paramount BioCapital Investments, LLC
              787
                Seventh Avenue, 48thFloor
              New
                York, NY 10036
            0
            0%All
                Directors and Officers as a Group
              (2
                individuals)
            0
            0%





**Item
      12. Certain Relationships and Related Transactions.**





On
      August
      14, 2005, the Company issued a 5% promissory note to Paramount, an affiliate
      of
      Dr. Lindsay Rosenwald, a significant stockholder of the Company. This note
      and
      all accrued interest mature on August 14, 2008. The note payable was issued
      to
      the lender for an advance made for future expenses to be paid on behalf of
      the
      Company. As of December 31, 2005, the principal balance of the note equaled
      $24,331.




As
      of
      January 1, 2006, the Company began paying PBS a monthly fee of $1,000 for
      services including the preparation of the Company’s financial statements and
      quarterly and annual reports. PBS was founded by Dr. Rosenwald, the Company’s
      controlling stockholder. Mr. Knox, the Company’s Treasurer, and Dr. Weiser,
      the Company's President, Secretary and sole director, are both
      emploees of PBS.





The
      Company utilizes the office space and equipment of Paramount, an affiliate
      of
      Dr. Rosenwald, a significant stockholder, at no cost. Management estimates
      such
      amounts to be immaterial.





**Item
      13. Exhibits and Reports on Form 8-K.**





Index
      to
      Exhibits





Exhibit
            Description




*3.1
            Certificate
                of Incorporation





*3.2
            Amended
                and Restated Certificate of Incorporation





*3.3
            By-laws




12


31.1
            Certification
                of the Company’s Principal Executive Officer pursuant to Section 302 of
                the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Annual
                Report on Form 10-KSB for the year ended December 31, 2005





31.2
            Certification
                of the Company’s Principal Financial Officer pursuant to Section 302 of
                the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Annual
                Report on Form 10-KSB for the year ended December 31, 2005





32.1
            Certification
                of the Company’s Principal Executive Officer pursuant to 18 U.S.C.Section
                1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act
                of
                2002.




32.2
            Certification
                of the Company’s Principal Financial Officer pursuant to 18 U.S.C.Section
                1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act
                of2002.





*
            Filed
                as an exhibit to the Company's registration statement on Form 10-SB,
                as
                filedwith
                the Securities and Exchange Commission on November 14, 2005, and
                incorporatedherein
                by this reference.





(b)
            Reports
                on Form 8-K - None.







**Item
      14. Principal Accountant Fees and Services**





During
      the period from August 12, 2005 (inception) to December 31, 2005, we retained
      J.H. Cohn LLP to provide services as follows:




*2005
                Audit Fees
            AmountForm
                10-SB
            $4,000Form
                10-KSB
            $4,000All
                Other Fees
            -


*
      We were
      formed in August 2005, therefore there is no information to report for fiscal
      2004.




13





**SIGNATURES**





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







**KANAI
                SCIENCES, INC.**Dated:
                March 30, 2006
              By:
              /s/ Michael
                WeiserMichael WeiserPresident,
                Secretary


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








Title
            Date/s/
              John
              Knox
            Treasurer
            March 30, 2006John Knox






14