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

                                   FORM 10-KSB

|X|       ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
          OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

|_|       TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
          ACT OF 1934
                   FOR THE TRANSITION PERIOD FROM         TO

                        COMMISSION FILE NUMBER: 001-31925

                        VASO ACTIVE PHARMACEUTICALS, INC.
                 (Name of small business issuer in its charter)

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

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

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

       SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE


         SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
                     CLASS A COMMON STOCK, $0.0001 PAR VALUE

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

         Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of the registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |_|

         The revenues of the Registrant for the most recent fiscal year were:
$12,888

         The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant as of March 24, 2005 was $3,551,596
based on 5,728,380 shares of Class A Common Stock held by non-affiliates at an
average bid of $0.62 as of the same date as quoted in the Pink Sheets.

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

Common stock, Class A, $0.0001 par value            5,828,613 shares outstanding
                                                         on March 24, 2005
Common stock, Class B, $0.0001 par value            4,500,000 shares outstanding
                                                         on March 24, 2005



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                        VASO ACTIVE PHARMACEUTICALS, INC.
                                TABLE OF CONTENTS

                                                                            PAGE
                                     PART I

Item 1.    Description of Business.                                            2
Item 2.    Description of Property.                                           25
Item 3.    Legal Proceedings.                                                 25
Item 4.    Submission of Matters to a Vote of Security Holders.               27

                                     PART II

Item 5.    Market for Common Equity, Related Stockholder Matters and
           Small Business Issuer Purchases of Equity Securities               27
Item 6.    Management's Discussion and Analysis.                              29
Item 7.    Financial Statements.                                              38
Item 8.    Changes In and Disagreements With Accountants on Accounting and
           Financial Disclosure.                                              38
Item 8A.   Controls and Procedures.                                           38
Item 8B.   Other Information.                                                 Xx

                                    PART III

Item 9.    Directors, Executive Officers, Promoters and Control Persons;
           Compliance With Section 16(a) of the Exchange Act.                 38
Item 10.   Executive Compensation.                                            43
Item 11.   Security Ownership of Certain Beneficial Owners and Management
           and Related Stockholder Matters.                                   48
Item 12.   Certain Relationships and Related Transactions.                    50
Item 13.   Exhibits.                                                          53
Item 14.   Principal Accountant Fees and Services.                            54


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

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                                     PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

         This report contains both historical and forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The
forward-looking statements in this annual report are not based on historical
facts, but rather reflect the current expectations of our management concerning
future results and events. These forward-looking statements include, but are not
limited to, statements concerning our plans to continue the marketing,
commercialization and sale of our products and product candidates; address
certain markets; engage third-party manufacturers; evaluate additional product
candidates for subsequent commercial development; and the potential liability
from pending litigation matters. In some cases, these statements may be
identified by terminology such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential," or "continue," or
the negative of such terms and other comparable terminology. Although we believe
that the expectations reflected in the forward-looking statements contained
herein are reasonable, we cannot guarantee future results, the outcome of
pending litigation matters, levels of activity, performance or achievements.
These statements involve known and unknown risks and uncertainties that may
cause our or our industry's results, levels of activity, performance or
achievements to be materially different from those expressed or implied by
forward-looking statements. The following important factors could affect future
results, causing the results to differ materially from those expressed in the
forward-looking statements in this annual report:

         o        the timing, impact and other uncertainties related to pending
                  and future acquisitions by us;
         o        the impact of new technologies;
         o        changes in laws or rules or regulations of governmental
                  agencies.
         o        outcome in pending regulatory and litigation matters

         These factors are not necessarily all of the important factors that
could cause actual results to differ materially from those expressed in the
forward-looking statements in this annual report. Other unknown or unpredictable
factors also could have material adverse effects on our future results. The
forward-looking statements in this annual report are made only as of the date of
this annual report, and we do not have any obligation to publicly update any
forward-looking statements to reflect subsequent events or circumstances. We
cannot assure you that projected results will be achieved. Additional factors
that may cause or contribute to such differences include, among other things,
those discussed under the captions "Description of Business," "Risk Factors" and
"Management's Discussion and Analysis." Forward looking statements not
specifically described above also may be found in these and other sections of
this annual report.

ITEM 1.  DESCRIPTION OF BUSINESS

OVERVIEW

         We are an early-stage company established for the purpose of
commercializing, marketing and selling over-the-counter, or OTC, pharmaceutical
products that we believe incorporate topical and transdermal formulation
platforms. We began our operations in January 2001, as a division of BioChemics,
a biopharmaceutical company engaged in the development of transdermal and
topical drug delivery systems. BioChemics is based in Danvers, Massachusetts.
BioChemics was founded in 1989 by John J. Masiz and was incorporated in Delaware
in 1991. By virtue of his ownership of BioChemics and Vaso Active, Mr. Masiz
controls both BioChemics and Vaso Active. BioChemics began developing the VALE
technology in 1989 and has subsequently been issued 4 U.S. patents in connection
with this technology. We are also based in Danvers, Massachusetts. In January
2003, we incorporated in Delaware and became an independent subsidiary of
BioChemics, focused on the further commercialization of our existing OTC
products and the development of new OTC product candidates.

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         In the instance where a product is formulated to have a topical effect,
we will refer to the technology as PENtoCORE or the PENtoCORE technology. In the
instance where a product candidate is formulated to have a transdermal effect,
we will refer to it as VALE or VALE technology. There are patents covering the
VALE technology. These patents are held by BioChemics. While we consider the
PENtoCORE technology proprietary, it is not covered by patents. In February
2003, BioChemics granted us an exclusive, irrevocable, worldwide license to use
and practice the VALE patents and PENtoCORE technology in order to
commercialize, market and sell OTC pharmaceutical products. On December 31,
2004, BioChemics owned approximately 44% of our combined classes of issued and
outstanding common stock and approximately 70% of the voting power of our
combined classes of common stock. We continue to rely on BioChemics to provide
us with administrative support services, manufacturing and product development
services and VALE and PENtoCORE technology licenses.

         On December 15, 2003, we completed an initial public offering of
5,002,500 shares of our Class A common stock at a price of $1.67 per share,
raising approximately $6.4 million, net of issuance costs. Effective March 5,
2004, we effected a 3-for-1 stock split through the issuance of a 200% stock
dividend to holders of record of both our Class A and B common stock as of
February 23, 2004. Except where noted, all share and per share information
contained in this Annual Report on Form 10-KSB have been adjusted to reflect the
effects of this dividend.

TECHNOLOGY OVERVIEW

         Transdermal drug delivery is generally considered to be any process of
delivering drugs through the skin and into the bloodstream without the use of an
invasive instrument such as a needle. We believe that transdermal drug delivery
offers potential advantages over other commonly accepted modes of drug delivery
for the treatment of certain diseases and medical conditions. We believe that
these potential advantages include:

         o REDUCTION OF ROUTE-OF-ADMINISTRATION RELATED SIDE EFFECTS. Because
they are absorbed through the stomach, some orally administered medicines can
cause significant gastrointestinal side effects, sometimes leading to
discontinuation of the medication. There also may be side effects associated
with the delivery of some drugs through the nasal lining, the lungs, and the
skin using traditional methods. The goal of the VALE transdermal delivery system
is to provide effective therapy while minimizing side effects.

o        IMPROVED DRUG PERFORMANCE. Transdermal formulations may have the
         potential to improve the effectiveness of a drug by avoiding the
         stomach and the first-pass metabolism associated with oral delivery of
         drugs. Transdermal drug delivery also may have the potential to create
         a higher bioavailability index for drugs, allowing for the desired
         concentration of the drug molecule to reach the bloodstream from a
         smaller dose of drug applied to the patient.

         Bioavailability index is defined as the fraction of the drug amount
administered that reaches the central circulation. By definition,
bioavailability for a drug administered intravenously is 100% and drugs
administered by other methods will typically have bioavailability indices of
less than 100%, depending on the efficiency of drug transfer into the blood.

         There are many different technologies used to deliver drugs
transdermally. The most common technologies employed are: (i) patches that
adhere to the skin, holding a drug in place while it is administered over time;
(ii) liposome, or artificially prepared cell-like structures, which are applied
topically and absorbed; or (iii) an outside energy source producing electricity
(iontophoresis), or sound (sonophoresis), to help move the drug through the
various skin layers. We believe all three of these technologies have certain
drawbacks that may limit their utility.

         We believe that Vaso Active's formulation technologies can be applied
to a significant array of currently off-patent drugs for commercialization in
the OTC marketplace. The VALE technology is a transdermal formulation that we
believe may be able to introduce drugs through the skin and into the bloodstream
in an efficient and effective manner. The PENtoCORE technology is a topical
formulation that we believe allows for the formation of OTC products with
certain "use advantages" over similar products marketed by our competitors. "Use
advantages" include characteristics such as odor, residue, and feel.

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THE VALE TECHNOLOGY

         The goal behind the development of the VALE technology is to create an
active transdermal drug delivery system that efficiently and effectively
delivers drugs through the skin and into the blood supply without the need of a
patch. In order to accomplish this, a delivery system must be able to overcome
at least three barriers:

         o        the outer layers, or the stratum corneum and the epidermis;

         o        the second layer, or the dermis; and

         o        the walls of individual capillaries.

         The VALE technology is intended to be a patchless, lipid-based delivery
system which uses an active process to deliver drugs through the skin and into
the bloodstream. It is being developed around the unique concept of
incorporating chemical vasodilators into the drug delivery vehicle. These
chemical compounds are intended to act on the network of blood vessels located
near the surface of the skin to elicit the physiologic response of dilating or
relaxing the blood vessels in the immediate area. This, in turn, is designed to
have the effect of increasing the blood flow to the area. The theory behind the
VALE technology is that as blood flow increases and the blood vessels dilate,
the active drug molecules incorporated into the delivery system are transported
actively and efficiently into the bloodstream.

         We believe that the VALE technology has the potential to eliminate the
need for a patch and to allow for the effective delivery of many active
ingredients that may not otherwise be effectively delivered using existing drug
delivery technologies.

THE PENTOCORE TECHNOLOGY

         The PENtoCORE technology is a topical formulation, as opposed to the
VALE transdermal technology. Although the PENtoCORE technology does not achieve
its effect by delivering the drug through the skin and into the bloodstream, we
believe that this technology may enable the formulation of topical products that
are pleasant to use because they do not have the odor, greasy feel or residue
often associated with other topically-applied drug products. In addition, it may
be possible to use the PENtoCORE technology with certain active ingredients to
develop topical formulations that facilitate a longer-lasting effect.

CURRENT PRODUCT LINE

         We have completed the development and test marketing of our three
primary products. Each of these products uses PENtoCORE topical formulations
(see below). These products are:

         o        Osteon - an OTC external analgesic designed to provide
                  temporary relief from the muscular-skeletal pain associated
                  with arthritis;

         o        A-R Extreme - an OTC external analgesic designed to provide
                  temporary relief from the muscle and joint pain associated
                  with athletic activity (formerly branded as Athlete's Relief);
                  and

         o        Termin8 - an OTC antifungal lotion designed to effectively
                  treat athlete's foot (formerly branded under the name
                  deFEET(R)).

         We license the Osteon and PENtoCORE trademarks under our amended
license agreement with BioChemics (See item 12. Certain Relationships and
Related Transactions). We market each of our three current principal products
under the OTC Review Program, which is discussed in more detail under
"Government Regulation."

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PRODUCT CANDIDATES

         In addition to and separate from our A-R Extreme, Osteon and Termin8
products, we have identified and are currently developing, in collaboration with
BioChemics, six additional OTC product candidates that will utilize either the
VALE transdermal or PENtoCORE topical technology. Each of these product
candidates are in various stages of development and are not yet available for
sale. These product candidates are as follows:

         o        An analgesic utilizing ibuprofen;

         o        Toenail fungus treatment;

         o        Acne treatment;

         o        First aid treatments;

         o        Hand and body lotions; and

         o        Psoriasis treatment.

         With regard to these product candidates, in instances where the active
ingredient (e.g., ibuprofen), dosage form (e.g., VALE transdermal technology),
strength, route of administration, directions for use or indication (e.g.,
toenail fungus) of the product candidate is not covered by the OTC Review
Program or where the inactive ingredients used in the product candidate are not
recognized as safe and suitable for their intended OTC use, we cannot market the
product candidate without obtaining pre-market approval in the form of an
approved new drug application, or NDA or an abbreviated new drug application, or
ANDA. Conversely, where we believe the active ingredient, dosage form, strength,
route of administration, directions for use, and indication of the product
candidate are covered by the OTC Review Program and the inactive ingredients
used in the product candidate are safe and suitable for their intended OTC use,
the product candidate could be marketed without obtaining NDA or ANDA clearance,
provided it conforms to the applicable OTC Monograph and is not otherwise
adulterated or misbranded. You should refer to the information described under
the caption "Government Regulation" for further discussion surrounding NDA,
ANDA, OTC Review Program and OTC Monograph programs.

         We have finalized a formulation of our acne treatment utilizing our
PENtoCORE topical technology. We intend to market eventually the acne treatment
under the label RepiDerm(R). The product would contain 10% benzoyl peroxide, or
BPO, as an active ingredient. There is a final OTC Monograph for acne drug
products: however, the final Monograph does not currently include BPO as an
active ingredient.

         In its tentative final Monograph for OTC acne drug products, the Food
and Drug Administration, or FDA, proposed monograph status for BPO. However,
following this proposal, the agency became aware of a study that raised a safety
concern regarding BPO. FDA evaluated this study and other data submitted by a
drug manufacturer association and, in 1991, the agency concluded that it was
unable to state that BPO is generally recognized as safe. Accordingly, the FDA
published an amended tentative final monograph for OTC topical acne drug
products in which it reclassified BPO from Category I (generally recognized as
safe and effective and not misbranded) to Category III (available data are
insufficient to classify as safe and effective, and further testing is
required).

         In light of the Category III status, the FDA subsequently concluded
that the marketing under the OTC review program of BPO as an active ingredient
in topical OTC acne drug products would be allowed to be continued (under the
conditions set forth in the tentative final monograph, i.e. BPO at levels of 2.5
to 10 percent) while additional studies are conducted to answer the unresolved
safety questions. However, the agency also tentatively determined that consumers


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who choose to use products containing BPO need to be provided additional
information about the safe use of such products in the form of label warning
statements regarding concomitant sunscreen use. There are numerous OTC acne
treatment products containing 10% BPO that are currently being marketed under
the OTC Review Program.

         We believe that the active ingredients, dosage form, route of
administration, directions for use, and indications of our RepiDerm acne
treatment are covered by the OTC Review Program and, like similarly situated
products on the market, can at this time be marketed under the OTC Review
Program. We will begin marketing this product when we are confident that
RepiDerm is covered by the OTC Review Program and its marketing is consistent
with FDA's policies regarding products that are being reviewed under the
Program, specifically including BPO products. We expect to begin to market
RepiDerm by the end of the third quarter of 2005.

GENERAL STRATEGY

         Our general strategy is to commercialize, market and sell transdermal
and topical OTC drugs that we believe can be delivered in an efficient,
user-friendly, and reliable manner by utilizing both the VALE and PENtoCORE
technologies.

         In September 2004, we introduced our new marketing and sales strategy
and began shipping our products with revised labeling. In September 2004, we
determined to pursue our sales strategy in two phases: (1) the first phase of
the rollout strategy being market penetration through strategic alliances with
marketing partners, and (2) the second phase being to pursue opportunities to
launch our products into retail chains.

         In furtherance of the first phase of the strategy, during 2004, we
executed the following two strategic alliances. The first one with Ortho
Distribution Inc. or ODI, a wholly owned subsidiary of OrthoRehab, Inc. of
Tempe, Arizona. OrthoRehab has an extensive distribution network, across the
United States and in approximately 50 other countries. We have filled and
labeled approximately 5,000 four ounce bottles of our topical analgesic for ODI.
In accordance with the agreement with ODI, we anticipated launching this batch
through ODI's distribution network by the end of 2004. However, an unrelated
third-party purchaser acquired ODI's parent company, Ortho-Rehab, in January
2005. We are in ongoing discussions with the new ODI management and expect to
continue the relationship. However, there can be no assurance that the strategic
alliance will continue or that it will provide us with the results intended
under the original agreement with ODI. We have written off the ODI finished
goods inventory of approximately 5,000 bottles at December 31, 2004.

         Also, in March 2004,
we entered into an exclusive, direct to consumer media based, strategic alliance
with M2G Media of Irvine, California, a marketing and distribution company that
utilizes direct to consumer media and television as its primary form of
marketing medium. We anticipated M2G Media would market privately labeled
versions of our current products specifically targeting the over the counter
topical analgesic arthritis and pain relief markets. We expected M2G to commence
infomercial filming by the end of 2004 and to launch our arthritis and pain
relief products through its channels of distribution in the first quarter of
2005. However, we were unable to reach mutually agreed upon product minimums
with respect to the arthritis and pain relief markets and have since removed the
arthritis and pain relief products from the M2G strategic alliance. We are
currently negotiating with M2G Media with respect to launching a separate
marketing effort supporting our acne product.

         In December 2004, we commenced short form infomercial filming for our
own topical analgesic brand, Osteon. In January 2005, we began running those
Osteon ads in 60 and 120 second formats on television spots in several markets
throughout the United States, particularly, Tampa, Florida and Rochester, New
York metropolitan markets. The objective of the campaign was to acquaint
consumers with our product line and to establish the brand name recognition. We
expect to grow this TV campaign into a broad-based marketing campaign in other
metropolitan TV markets. We have just placed an initial nationwide order with a
major cable channel to run 60 and 120 second spots in the weeknight late night


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time slots for ten nights and plan to negotiate additional spots in various
designated market areas around the country including Rochester, New York,
Pittsburgh, Pennsylvania, and Chicago, Illinois. Our strategy is to secure a
deal to buy additional television spots via a pay per unit of sale deal, whereby
we pay for media based advertising on a per unit of sale basis rather than fixed
rate advertising throughout the United States. If we are able to successfully
close this deal and if we are successful in the initial stages, we anticipate
that the national rollout will be accelerated significantly. If we do not close
on the proposed per unit of sale advertising arrangement and instead must rely
on fixed rate advertising alone, we expect that we will need to raise additional
capital to reach our market penetration goals. There can be no assurance that we
will be able to raise additional capital or if do it will be on financial terms
beneficial to the company.

         Recent regulatory events and securities claims brought against us and
our management had placed strains on our management and capital resources. In
early 2004, we suspended the marketing and sale of our products until we were
reasonably sure that our product marketing was consistent with the requirements
and policies of the United States Food and Drug Administration, or FDA. In May
2004, together with outside FDA counsel, we revised our product labels and in
September 2004 began shipping our products on a limited basis. Although these
products are now on the market, we have not made significant shipments to date.
You should refer to "Legal Proceeding" for further discussion on this matter.

         In our second phase of our rollout strategy, we intend to pursue
opportunities to launch our products into retail market chains sometime during
late 2005. We believe that because retail sales efforts typically require large
economic outlays and long sales cycles, they produce less of an immediate impact
on operations than strategic alliances. Therefore, we have categorized this as
part of the second phase of our rollout strategy. In January 2004, we engaged
Commotion LLC, or Commotion, of Golden, Colorado, a strategic product marketing
company, to assist us in establishing direct brand recognition and strategic
retail rollout for our products. The agreement with Commotion is still in
effect. Since January 2004, Commotion has provided design input into our Company
logos, stationary, business cards, product information and displays as well as
for the revised labeling for our A-R Extreme, Osteon, Termin8, and RepiDerm
products. Although the agreement is still in effect, we do not require
additional design work at this time. Therefore in April 2005 we are suspending
our retainer payment to Commotion until further notice. Our plan is focused on
the systematic rollout of our current products into major retail and drug store
chains, select independent pharmacies and nontraditional channels, including
multilevel marketing, direct marketing, web-sites and catalogues. However, as a
result of the cessation of the marketing and sale of our products in early 2004
and changes in the timing for the retail rollout of our products, we do not
anticipate using any of our initial public offering proceeds to fund our
advertising, direct mail programs and related promotional activities. There can
be no assurance that any of the initial public offering proceeds will be used
for this purpose. You should refer to "Legal Proceedings" for further discussion
on our cessation of marketing and sales activities.

         Although we believe that our products, supported by sufficient
advertising, will earn retailers acceptance, there can be no assurance that this
will happen, or if it does, that it will continue to sustain our operations. We
believe that the systematic and multi-phased launch for each of our three
current products, as well as the commercialization of RepiDerm, as described
above, will allow us to maintain control over the required costs associated with
these launches and will maximize the return on investment for the advertising
and marketing expenditures. The success of our marketing and sales activities
will be dependent, among other things, on our ability to retain and attract
qualified marketing and sales personnel, enter into qualified strategic
partnerships, place our products into the market and on the consumer perception
of our products.

COMPETITION

         We are engaged in a rapidly evolving field. We compete primarily with
established pharmaceutical companies like Pfizer, Bristol-Myers Squibb,
Schering-Plough, Alza, and emerging biotechnology companies like Cygnus and
Elan, as well as research and academic institutions, among others. Competition
is intense and expected to increase.

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         The large and rapidly growing market for transdermal and topical drug
delivery systems is likely to attract new entrants. Numerous biotechnology and
biopharmaceutical companies are focused on developing new drug delivery systems
and most, if not all, of these companies have greater financial and other
resources and development capabilities than we do. Our competitors also have
greater collective experience in undertaking pre-clinical and clinical testing
of products, obtaining regulatory approvals and manufacturing and marketing OTC
and prescription pharmaceutical products. Accordingly, certain of these
competitors may succeed in obtaining approval for products more rapidly than us.
In addition to competing with universities and other research institutions in
the development of products, technologies and processes, we may compete with
other companies in acquiring rights to products or technologies from
universities. There can be no assurance that our products or product candidates
will be more effective or achieve greater market acceptance than competitive
products, or that these companies will not succeed in developing products and
technologies that are more effective than those being developed by us or that
would render our products and technologies less competitive or obsolete.

         Although we consider the PENtoCORE technology proprietary, the
PENtoCORE products, which represent all our current products, do not enjoy any
patent protection. This may allow our competitors to imitate or reverse engineer
our current products and use their greater manufacturing and marketing resources
to rapidly promulgate competing versions. It is our opinion that competing
topical and transdermal delivery technologies using patches, liposomes, and
equipment-assisted deliveries such as iontophoresis and sonophoresis have some
utility with a small group of select drugs. It is our opinion, however, in
general, that these drug delivery systems are not useful for most drugs. Our
success will depend on our ability to leverage the PENtoCORE and VALE
technologies to achieve market share at the expense of our existing and future
competitors who we believe cannot offer products utilizing a delivery system of
comparable performance characteristics.

         In addition to competing with newly developed drug delivery systems, we
will compete with existing products which address the same medical conditions as
our products and product candidates. For instance, Tinactin(R) and Lotrimin(R)
would compete with our Termin8 athlete's foot product, while Advil(R) and
Tylenol(R) would compete with our pain relief products and product candidates.
These and other brands are already offering different delivery systems. For
instance, Pfizer's Ben Gay(R) is now offered in a patch as well as a cream.
These products are manufactured, distributed and marketed by companies with
vastly greater resources than our own. There is no guarantee we will be able to
achieve widespread market acceptance for our products, or that our marketing
efforts will be successful in distinguishing our products from these established
market participants.

MANUFACTURING

         We do not currently, nor do we intend to, engage in the manufacturing
of any of our products or product candidates. Through BioChemics, we use an
unrelated, single contract manufacturer to manufacture all our products, which
manufacturer is responsible for procuring necessary product components and for
manufacturing the final products to our specifications. There is no agreement
between BioChemics and the contract manufacturer. We believe that the
relationship between BioChemics and this contract manufacturer is good. However,
if this manufacturer is unable or unwilling to meet our demands because of
production limitations, or fails to adhere to requirements under the Federal
Food, Drug, and Cosmetic Act, or FFDCA, relating to current Good Manufacturing
Practices, or cGMPs, this could cause an interruption or halt in the
availability of our products with a concomitant material adverse impact on our
business. Through our relationship with BioChemics, we are attempting to secure
other contract manufacturing facilities which have present capabilities to
manufacture our products in accordance with our specifications and the FDA's
cGMP requirements. In the event that BioChemics is unwilling or unable to meet
our manufacturing needs in accordance with the terms of its manufacturing and
development agreement with us, we have the right to retain outside third parties
to manufacture our products.

         In August 2003, we formalized a manufacturing and development agreement
with BioChemics with respect to the ongoing manufacturing and development of our
products and product candidates. The agreement has an initial term of five years
and is automatically renewed on each anniversary date of the agreement for an
additional period of 12 months so long as the agreement has not been terminated
in accordance with its terms and conditions. Under this agreement, BioChemics
has and will continue to research, develop and manufacture products for us
pursuant to specific purchase orders submitted by us from time to time.


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BioChemics will charge us a development and manufacturing fee at a rate of cost
plus 10%. The agreement permits BioChemics to use third party contractors to
manufacture the products that BioChemics provides to us. Currently, BioChemics
uses a privately owned third party company as its sole contract manufacturer. We
do not currently, nor do we intend to, engage in the manufacturing of, nor
conduct any research and development with respect to, any of our products or
product candidates. However, in the event that BioChemics is unwilling or unable
to meet our manufacturing needs in accordance with the terms of the agreement
with us, we have the right to retain outside third parties to manufacture our
products. Pursuant to this agreement, during the fiscal year ended December 31,
2004, we incurred research and development costs of $266,433 related principally
to the formulation of an analgesic utilizing the active ingredient ibuprofen.
Pre-clinical studies utilizing animals were conducted and billed as part of this
research.

ENVIRONMENTAL REGULATION

         Our costs of compliance with environmental regulation as applied to
similar pharmaceutical companies are minimal since we do not currently, nor do
we intend to, engage in the manufacturing of any of our products or product
candidates. Through BioChemics, we use an unrelated, single contract
manufacturer to manufacture all our products and receive final products from
such manufacturer, without any involvement in the manufacturing process at any
stage of the process. Although we believe that our safety procedures for using,
handling, storing and disposing of our products comply with the environmental
standards required by state and federal laws and regulations, we cannot
completely eliminate the risk of accidental contamination or injury from these
materials. We do not carry a specific insurance policy to
mitigate this risk to us or to the environment. The Company contracts with an
independent lab pursuant to standard FDA protocol to test beginning, middle and
end samples, during batch manufacturing, to determine product compliance with
FDA regulations.


INTELLECTUAL PROPERTY

         BioChemics owns proprietary technology developed in connection with its
four U.S. patents:

         o        Patent No. 5,460,821, issued on October 24, 1995 and expiring
                  June 23, 2013
         o        Patent No. 5,645,854, issued on July 8, 1997 and expiring June
                  23, 2013
         o        Patent No. 5,853,751, issued on December 29, 1998 and expiring
                  June 23, 2013
         o        Patent No. 6,635,274, issued on October 21, 2003 and expiring
                  October 27, 2020.

         As discussed above, under the terms of the licensing agreement with
BioChemics, BioChemics granted us an exclusive, irrevocable, worldwide license
to use and practice the VALE patents and PENtoCORE technology in order to
commercialize, market and sell OTC pharmaceutical products. In addition
BioChemics has four other patents pending domestically. Internationally,
BioChemics has been issued foreign patents in 17 countries and patents pending
in 7 others. BioChemics has filed, and will continue to file as required, for
second-generation patents on a number of its products. BioChemics also owns 16
registered trademarks, including Osteon, RepiDerm PENtoCORE. We own the
U.S. trademark protection for the name "Termin8."

         Our licensing agreement with BioChemics allows us to commercialize,
market and sell our products and product candidates using BioChemics' patents,
proprietary information and trademarks in the OTC pharmaceutical market. The
term of this licensing agreement extends through the date of the last
BioChemics' patent to expire. With respect to the portions of the licensing
agreement that do not apply to a BioChemics patent or patent application, this
agreement extends though February 2013. The licensing agreement is automatically
renewed for successive two-year terms for the non-patent technology unless
otherwise terminated by us pursuant to the license agreement. We have the right
to terminate the license agreement for any reason and without cause upon 90 days
written notice of termination to BioChemics. BioChemics has no equivalent right
of termination.

                                       9


<PAGE>

         BioChemics owns proprietary technology developed in connection with its
four U.S. patents and licenses them to us. Our success and ability to compete
are substantially dependent on these patents, proprietary formulations and
trademarks. Both BioChemics and we believe that our products do not and will not
infringe on patents or violate proprietary rights of others. In the event that
our products infringe patents or proprietary rights of others, we may be
required to modify our products or obtain a license. There can be no assurance
that we will be able to do so in a timely manner upon acceptable terms and
conditions. Moreover, if our products infringe patents or proprietary rights of
others, we could, under certain circumstances, become liable for damages, which
could have a material adverse effect on earnings.

GOVERNMENT REGULATIONS

GENERAL

         The development, testing, manufacture, labeling, marketing, and
promotion of OTC drugs are subject to extensive regulation by the FDA under the
FFDCA and by the Federal Trade Commission, or FTC, under the Federal Trade
Commission Act ("FTC Act").

         The degree of regulation under the FFDCA is dependent, in part, upon
whether the OTC drug, as formulated, labeled, and promoted, is considered by
qualified experts, based on publicly available scientific data and information,
to be generally recognized as safe and effective ("GRASE"), for its recommended
conditions of use. If an OTC drug as formulated, labeled, and promoted is not
considered GRASE for its recommended conditions of use or, if so considered, if
it has not been used to a material extent or for material time, the drug is
regulated under the FFDCA as a "new drug" which requires pre-market approval in
the form of an NDA, before it can be commercially marketed.

         To determine which OTC drugs are GRASE, the FDA has undertaken a
rulemaking initiative in which it seeks to define by regulation which OTC drugs
can be considered to be GRASE and thus can be marketed without first obtaining
an approved NDA. This rulemaking initiative, referred to as the "OTC Review
Program," was initiated on May 11, 1972, and is ongoing. The OTC Review Program
sets forth in the form of an OTC Drug Monograph for specific categories of OTC
drugs (e.g., Topical Anti-Fungal OTC drugs) the conditions under which
recognized OTC active ingredients can be considered GRASE and not misbranded.
These conditions include the strength of the active ingredient, acceptable
dosage forms, the use of safe and suitable inactive ingredients, and the
recommended conditions of use, including indications, warnings, precautions, and
directions for use.

         If the active ingredient used in an OTC drug is not covered by the OTC
Review Program, or even if it is covered, if the conditions of use (e.g.,
strength, dosage form, indications) deviate from that eligible for GRASE status
under the OTC Review Program, the product is considered by the FDA to be a "new
drug" subject to the NDA pre-market approval requirements. For a full discussion
of these requirements see the discussion below in "NDA Review Process."

         Pending the issuance of a final and effective OTC Drug Monograph for
the category of OTC drug involved (e.g., external analgesic), the FDA has
adopted an enforcement policy of not proceeding against the continued marketing
of OTC drugs subject to the OTC Review Program. This enforcement discretion does
not, however, apply if: (a) the FDA considers the drug product involved as
falling outside of the scope of the OTC Review Program in that the active
ingredient or conditions of use deviate from those eligible for GRASE status
under the OTC Review Program; (b) the product presents a health hazard; or (c)
the active ingredient at the dosage level involved was not available OTC prior
to December 4, 1975. The FDA's willingness to defer enforcement action generally
terminates upon the effective date of the final OTC Drug Monograph covering the
applicable drug product.

         Other requirements or limitations for OTC drugs imposed under the FFDCA
include: (a) a requirement that the drug be manufactured in conformity with
cGMPs, a system of manufacturing that insures the quality, reproducibility, and
traceability of drug products intended for human use.; (b) a requirement that
the labeling for the product contain adequate directions for use and warnings;
(c) a requirement that the manufacturer of the drug product register with the


                                       10


<PAGE>

FDA; (d) a requirement that all drugs manufactured for commercial distribution
be listed with the FDA; and (e) a prohibition against making any false or
misleading misrepresentations in any particular in any labeling for the product.
As noted above, OTC products marketed in accordance with OTC Drug Monographs do
not require FDA premarket approval prior to marketing. If an OTC product
deviates from an OTC Drug Monograph requirement in active ingredient(s),
intended use, method of administration, dosage form, or labeling, among other
things, then the manufacturer or distributor must obtain pre-market approval in
the form of an NDA before commercial marketing.

         The failure to adhere to the requirements of the FFDCA can result in:
(a) seizure of violative products; (b) injunctions against continued violations
of the FFDCA, including active FDA supervision in instituting appropriate
corrective action and prohibition against continued marketing of the violative
products pending an affirmative determination by the FDA and the courts that the
violations have been adequately rectified; (c) civil penalties in the form of
liquidated damages and/or recovery of profits from illegal activities; and (d)
the imposition of criminal sanctions and penalties against responsible persons.

         The FTC, under the FTC Act, regulates print and broadcast media
advertisements for OTC drugs. The FTC Act requires that advertisements be
neither false nor misleading and that claims for products purportedly based on
scientific data be supported by adequate and well controlled studies and that a
reasonable basis exists in support of all other claims. Claims consistent with
the terms of an OTC Drug Monograph are usually accepted by the FTC as having
been adequately substantiated. The penalties for the failure of an advertised
claim to have adequate substantiation, or for claims that are false and
misleading, include: (a) the FTC initiating administrative action for consumer
redress; (b) FTC seeking a court injunction to prevent further false and
misleading advertising; (c) the imposition by a court of liquidated damages and
equitable relief to recover profits and provide consumer redress from illegal
activity; and (d) the placing of the company in receivership to assure that the
assets of the company are not dissipated pending resolution of FTC claims.

THE NDA REVIEW PROCESS

         The FDA has taken the position that insofar as our products or product
candidates use a transdermal technology, the products fall outside that eligible
for GRASE status under the OTC Review Program and thus the Company must obtain
NDA approval of the products before they can be commercially marketed. Under the
FDA's procedures it is generally less burdensome to obtain NDA approval of a
drug product which contains active ingredient(s): (a) considered GRASE in a
final OTC Drug Monograph, or (b) contained in a drug product eligible for an
abbreviated new drug application, or ANDA, approval, but which differs in
certain conditions of use (e.g., dosage form) from that covered by a final OTC
Drug Monograph or eligible for ANDA approval. However, once a product becomes
subject to the NDA requirements, the general provisions of which are set forth
below, there can be no assurance that a company can generate the additional data
and information necessary to support NDA approval of the proposed variant
product or that approval can be obtained without substantial expenditures and
delays.

         The steps ordinarily required before a new drug that is subject to NDA
approval may be marketed in the United States include preclinical laboratory
tests, animal tests and formulation studies, the submission to the FDA of an
investigational new drug application, or IND, which must become effective before
clinical testing may commence, and adequate and well-controlled clinical trials
on human subjects to establish the safety and effectiveness of the drug for each
indication for which FDA approval is sought. Satisfaction of FDA pre-market
approval requirements typically takes several years and the actual time required
may vary substantially based upon the type, complexity and novelty of the
product or the disease or condition for which the new drug is indicated.
Government regulation may delay or prevent marketing of potential products for a
considerable period of time and impose costly procedures upon a manufacturer's
activities. Success in early-stage clinical trials does not assure success in
later stage clinical trials. Data obtained from clinical activities is not
always conclusive and may be susceptible to varying interpretations that could
delay, limit, or prevent regulatory approval. Even if a product receives
regulatory approval, later discovery of previously unknown problems with a
product may result in restrictions on the product or even complete withdrawal of
the product from the market.

                                       11



<PAGE>

         Preclinical tests include laboratory evaluation of product chemistry
and formulation, as well as animal trials to assess the potential safety and
efficacy of the product. The conduct of the preclinical tests and formulation of
compounds for testing must comply with Federal regulations and requirements. The
results of preclinical testing are submitted to the FDA as part of an IND.

         A 30-day waiting period after the filing of each IND is required prior
to the commencement of clinical testing in humans. If the FDA has not commented
on or questioned the IND within this 30-day period, clinical trials may begin.
If the FDA has comments or questions, the questions must be answered to the
satisfaction of the FDA before initial clinical testing can begin. In addition,
the FDA may, at any time, impose a clinical hold on ongoing clinical trials. If
the FDA imposes a clinical hold, clinical trials cannot commence or recommence
without FDA authorization and then only under terms authorized by the FDA. In
some instances, the IND process can result in substantial delay and expense.

         Clinical trials typically involve the administration of the
investigational new drug to volunteers or patients under the supervision of a
qualified investigator. Clinical trials must be conducted in compliance with
Federal regulations and requirements, under protocols detailing the objectives
of the trial, the parameters to be used in monitoring safety and the
effectiveness criteria to be evaluated. Each protocol involving testing on U.S.
subjects must be submitted to the FDA as part of the IND. The study protocol and
informed consent information for patients in clinical trials must also be
approved by the institutional review board at each institution where the trials
will be conducted.

         Clinical trials to support NDAs for marketing approval are typically
conducted in three sequential phases, but the phases may overlap. In Phase I,
the initial introduction of the drug into healthy human subjects or patients,
the drug is tested to assess metabolism, pharmacokinetics and pharmacological
actions and safety, including side effects associated with increasing doses.
Phase II usually involves trials in limited patient populations, to determine
dosage tolerance and optimum dosage, identify possible adverse effects and
safety risks, and provide preliminary support for the efficacy of the drug in
the indication being studied.

         If a compound demonstrates evidence of effectiveness and an acceptable
safety profile in Phase II evaluations, Phase III trials are undertaken to
further evaluate clinical efficacy and to further test for safety within an
expanded patient population, typically at geographically dispersed clinical
trial sites it is possible that Phase I, Phase II, or Phase III testing of
product candidates may not be completed successfully within any specified time
period, if at all.

         After successful completion of the required clinical testing, generally
an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required
before marketing of the product may begin in the United States. The NDA must
include the results of extensive clinical and other testing and a compilation of
data relating to the product's pharmacology, chemistry, manufacture, and
controls. The cost of preparing and submitting an NDA is substantial. Under
federal law, the submission of NDAs are additionally subject to substantial
applications user fees, currently exceeding $500,000, and the manufacturer
and/or sponsor under an approved NDA are also subject to annual product and
establishment user fees, currently exceeding $30,000 per product and $200,000
per establishment. These fees are typically increased annually.

         The FDA has 60 days from its receipt of an NDA to determine whether the
application will be accepted for filing based on the agency's threshold
determination that the NDA is sufficiently complete to permit substantive
review. Once the submission is accepted for filing, the FDA begins an in-depth
review of the NDA. Under federal law, the FDA has agreed to certain performance
goals in the review of NDAs. Most applications for non-priority drug products
are reviewed within ten months. The review process is often significantly
extended by FDA requests for additional information or clarification of
information already provided in the submission. The FDA may also refer
applications for novel drug products or drug products which present difficult
questions of safety or efficacy to an advisory committee, typically a panel that
includes clinicians and other experts, for review, evaluation, and a
recommendation as to whether the application should be approved. The FDA is not
bound by the recommendation of an advisory committee.

                                       12


<PAGE>

         If FDA evaluations of the NDA and the manufacturing facilities and
procedures, which typically involves an FDA on-site inspection, are favorable,
the FDA may issue an approval letter, or, in some cases, an approvable letter
followed by an approval letter. An approvable letter generally contains a
statement of specific conditions that must be met in order to secure final
approval of the NDA. If and when those conditions have been met to the FDA's
satisfaction the FDA will typically issue an approval letter. An approval letter
authorizes commercial marketing of the drug with specific prescribing
information for specific indications. If the FDA's evaluation of the NDA
submission or manufacturing facilities is not favorable, the FDA may refuse to
approve the NDA or issue a not approvable letter. The not approvable letter
outlines the deficiencies in the submission and often requires additional
testing or information in order for the FDA to reconsider the application. Even
with submission of this additional information, the FDA ultimately may decide
that the application does not satisfy the regulatory criteria for approval. With
limited exceptions, FDA may withhold approval of an NDA regardless of prior
advice it may have provided or commitments it may have made to the sponsor. As a
condition of NDA approval, the FDA may require post-approval testing and
surveillance to monitor the drug's safety or efficacy and may impose other
conditions, including labeling restrictions. Such labeling restrictions can
materially impact the potential market and profitability of the drug. Once
granted, product approvals can still be withdrawn if compliance with regulatory
standards is not maintained or problems are identified following initial
marketing.

         Once the NDA is approved, a product will be subject to certain
post-approval requirements, including requirements for adverse event reporting
and submission of periodic reports. Persons responsible for manufacture or
distribution are subject to FDA inspections to assess compliance with applicable
statutory and regulatory requirements.

         Additionally, the FDA also strictly regulates the promotional claims
that may be made about drug products. The FDA requires substantiation of any
claims of superiority of one product over another including, in many cases,
requirements that such claims be proven by adequate and well controlled
head-to-head clinical trials. The FTC Substantiation Standards are very similar
for the advertising of OTC products. To the extent that market acceptance of
Vaso Active's products may depend on their superiority over existing therapies,
any restriction on Vaso Active's ability to advertise or otherwise promote
claims of superiority, or requirements to conduct additional expensive clinical
trials to provide proof of such claims, could negatively affect the sales of
Vaso Active's products and/or its costs.

TREATMENT OF OUR PRODUCTS AND PRODUCT CANDIDATES

         We believe that the active ingredients, dosage form and strengths of
our A-R Extreme, Osteon, Termin8 and RepiDerm products, each licensed from
BioChemics, are covered by the OTC Review Program and therefore are eligible for
marketing under the OTC Review Program. In addition, we believe the revised
labeling of our A-R Extreme, Osteon, and Termin8 products is consistent with FDA
laws and regulations. The labeling of our RepiDerm product is not yet finalized
however, we intend to design the labeling consistent with FDA laws and
regulations. We will not market RepiDerm until we are reasonable certain that
the final labeling is in accordance with FDA laws and regulations. In September
2004, we introduced A-R Extreme, Osteon and Termin8s, with the revised labeling,
to the market. Although these products are now on the market, there have not
been significant shipments to date.

         With regard to product candidates that use the VALE transdermal
technology or otherwise require new drug approval, we will seek to secure a
partnership with a larger marketing partner specifically for those products.
Further, it is expected that the actual development work will be done by
BioChemics which will be required to follow the more extensive regulations
imposed by the FDA, including the NDA requirements, and other regulatory
authorities in the United States and other countries regarding research and
development, pre-clinical studies and clinical trials and ultimately
manufacturing of drug products subject to "new drug" status.

                                       13



<PAGE>

         All of our OTC products and product candidates, whether subject to the
OTC Review Program or NDA requirements, are required to be labeled, promoted,
and manufactured to avoid the misbranding and adulteration provisions of the
FFDCA, including the prohibition against false and misleading representations
and manufacturing in violation of cGMPs.

RESEARCH AND DEVELOPMENT

         We do not currently, nor do we intend to directly conduct any research
and development on our own behalf with respect to any of our current products or
product candidates. In February 2003, we entered into a development and
manufacturing agreement with BioChemics with respect to the ongoing
manufacturing and development of our products and product candidates. Under this
agreement, BioChemics will research, develop and manufacture products for us
pursuant to specific purchase orders submitted by us from time to time.
BioChemics will charge us a development and manufacturing fee at a rate of cost
plus 10%. BioChemics uses a privately owned third party company as its sole
contract manufacturer. We currently are engaging Biochemics to undertake
development of a transdermal ibuprofen product. The research is in animal
testing stages. We have budgeted approximately $20,000 per month for this early
stage research and development. During the year ended December 31, 2004, we
incurred research and development costs paid by us to Biochemics of $266,433
related principally to ibuprofen development Prior to 2004 the Company did not
spend any amount on research and development. Prior to 2004, all such costs were
borne by Biochemics.

         Under this agreement, BioChemics has and will continue to research,
develop and manufacture products for us pursuant to specific purchase orders
submitted by us from time to time. BioChemics will charge us a development and
manufacturing fee at a rate of cost plus 10%. The agreement permits BioChemics
to use third party contractors to manufacture the products that BioChemics
provides to us. Currently, BioChemics uses a privately owned third party company
as its sole contract manufacturer. We do not currently, nor do we intend to,
engage in the manufacturing of, nor conduct any research and development with
respect to, any of our products or product candidates. However, in the event
that BioChemics is unwilling or unable to meet our manufacturing needs in
accordance with the terms of the agreement with us, we have the right to retain
outside third parties to manufacture our products. Pursuant to this agreement,
during the fiscal year ended December 31, 2004, we incurred research and
development costs of $266,433 related principally to the formulation of an
analgesic utilizing the active ingredient ibuprofen. Pre-clinical studies
utilizing animals were conducted and billed as part of this research.

EMPLOYEES

         At December 31, 2004, we employed ten persons. Four of the ten persons
are employed part time by us. One officer, our Vice President and Chief
Scientific Officer devotes 30% of his time to us and 70% to BioChemics, and our
former Chief Executive Officer devote approximately 70% of his time to us and
30% of his time to BioChemics. One other individual splits her time equally
between our company and BioChemics. In addition, we employed one administrative
person on a part-time basis. We do not have a collective bargaining agreement
with our employees; nor are any of our employees members of any labor union.

AVAILABLE INFORMATION

         We are subject to the informational requirements of the 1934 Act, which
requires that we file reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). The SEC maintains a website on
the Internet at http://www.sec.gov that contains reports, proxy and information
statements, and other information regarding issuers, including Vaso Active,
which file electronically with the SEC. In addition, our Exchange Act filings
may be inspected and copied at the SEC's Public Reference Room at 450 Fifth
Street, NW, Washington, D.C. 20549. We make available free of charge through our
Internet web site, http://www.vasoactive.us, our annual report on Form 10-KSB,
quarterly reports on Form 10-QSB, current reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the 1934
Act as soon as reasonably practicable after such material has been
electronically filed with, or furnished to, the SEC.

                                       14


<PAGE>

RISK FACTORS

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

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

         o        start-up costs relating to the commercialization, sale and
                  marketing of our products;

         o        market acceptance of our products and product candidates;

         o        costs of acquiring and developing new product candidates;

         o        ability to bring our products to market;

         o        general and administrative costs relating to our operations;

         o        increases in our research and development costs;

         o        charges related to purchases of technology or other assets;

         o        ability to raise additional capital; and

         o        the favorable resolution of our current litigation (see "Legal
                  Proceedings").

         At December 31, 2004, we had an accumulated deficit of approximately
$6.2 million. We expect to incur additional operating losses as we expand our
marketing, sales and development efforts. If we are unable to generate
sufficient revenue from our operations to pay expenses or we are unable to
obtain additional financing on commercially reasonable terms, our business,
financial condition and results of operations may be materially and adversely
affected.

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

         We are an early stage company focused on commercializing, marketing and
selling OTC pharmaceutical products. We began our operations as a division of
BioChemics, Inc. in January 2001. We have only operated as an entity independent
of BioChemics since January 2003. Our operating history is therefore limited.
Our Termin8, A-R Extreme and Osteon products, which we license from BioChemics,
are in the early stages of commercialization. Our product candidates are only in
the early stages of development. With the exception of the introduction of
deFEET to the marketplace by BioChemics while we were still a division of
BioChemics, we have not yet recognized significant revenue from product sales.
You should evaluate the likelihood of financial and operational success in light
of the uncertainties and complexities present in an early-stage company, many of
which are beyond our control, including:

         o        our potential inability to market, distribute, and sell our
                  products; and

         o        the significant investment of capital and other resources
                  necessary to achieve our commercialization, marketing and
                  sales objectives.

                                       15


<PAGE>

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

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

         Our recurring operating losses, liquidity issues and the uncertainties
raised as a result of our legal proceedings raise substantial doubt about our
ability to continue as a going concern. Our ability to continue as a going
concern and the appropriateness of using the going concern basis of accounting
depends upon, among other things on, the ability to generate sufficient cash
from operations and financing sources to meet obligations.

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

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

         o        fines;

         o        changes to advertising;

         o        failure to obtain necessary marketing approvals;

         o        revocation or suspension of regulatory approvals of products;

         o        product seizures or recall;

         o        delay, interruption or suspension of product manufacturing,
                  distribution, marketing and sale; or

         o        civil or criminal sanctions.

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

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

         o        incurring substantial expenses, including fines, penalties,
                  legal fees and costs to comply with FDA or FTC requirements;

         o        changing the methods of marketing and selling products;

         o        taking mandated corrective action, which may include placing
                  advertisements or sending letters to physicians and marketing
                  partners rescinding previous advertisements or promotions; or

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<PAGE>

         o        disrupting the distribution of products and causing the loss
                  of sales until compliance with the FDA's or FTC's position is
                  obtained.

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

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

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

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

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

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

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

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

                                       17


<PAGE>

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

         Our securities are currently quoted in the Pink Sheets under the
trading symbol "VAPH.PK". The market price of our common stock has experienced,
and may continue to experience, significant volatility. During 2004, the per
share closing price of our common stock ranged from $0.38 to $14.11. As a result
of the temporary suspension of trading in our securities on April 1, 2004, our
press release dated April 7, 2004 advising investors not to trade in our
securities until further disclosure, and our voluntary delisting of our
securities from The Nasdaq Stock Market on April 8, 2004, there is not currently
an organized market in our securities, and there can be no assurance that such a
market will develop. On March 24, 2005 the average bid for a share of our Class
A Common Stock as quoted by the OTC Pink Sheets was $0.62. The value of our
Class A Common Stock may decline regardless of our operating performance or
prospects. Factors affecting our market price include:

         o        the success or failure of our product development efforts,
                  especially those related to obtaining regulatory approvals;

         o        technological innovations developed by us or our competitors;

         o        variations in our operating results and the extent to which we
                  achieve our key business targets;

         o        differences between our reported results and those expected by
                  investors and securities analysts; and

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

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

WE ARE DEFENDANTS IN A NUMBER OF CLASS ACTION LAWSUITS THAT MAY ADVERSELY AFFECT
OUR BUSINESS.

         As discussed in greater detail under "Legal Proceedings," we and
certain of our officers are the defendants in a number of class action lawsuits
filed on behalf of purchasers of Vaso Active's Class A common stock during the
period December 11, 2003 to March 31, 2004, which allege that the defendants
violated the federal securities laws by allegedly failing to make accurate and
complete disclosures concerning Vaso Active, its business operations and future
prospects, the clinical trial and endorsement of our Termin8 anti-fungal product
(previously known as "deFEET") and the institutional demand for Vaso Active
securities. The complaints seek equitable and monetary relief, an unspecified
amount of damages, with interest, attorney's fees and costs.

         BioChemics, our directors and certain of our officers are also parties
to three shareholder derivative actions alleging a breach of the defendants'
fiduciary duties to the Company. The complaints seek equitable and monetary
relief, an unspecified amount of damages, and attorneys and other fees, costs
and expenses, ostensibly on behalf of the Company.

         The securities class action lawsuits, and others which may be filed,
could result in:

         o        potential liabilities;

         o        a material adverse financial statement impact

                                       18


<PAGE>

         o        substantial costs for defending these suits; and

         o        a diversion of management's attention and resources.

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

OUR INSURER NOTIFIED US THAT IT REJECTS ITS LIABILITY TO REIMBURSE US WITH
RESPECT TO ANY OF THE CLAIMS ASSERTED IN ANY OF THE CURRENT LEGAL PROCEEDINGS
AGAINST US, OUR OFFICERS OR DIRECTORS. IF THE INSURER PREVAILS REGARDING THIS
EVALUATION, IT MAY ADVERSELY AFFECT OUR BUSINESS.

         We rely on our director and officer liability insurance policy to
provide us with sufficient coverage to reimburse us for the cost of defense and,
up to its coverage limit, to offset any unfavorable outcome which may result
from class action lawsuits or derivative actions filed against us or our
directors and officers. Our insurer has notified us that based on a coverage
evaluation, it intends to reject liability to reimburse us with respect to any
of the claims asserted in any of the litigation summarized under "Legal
Proceedings" for a substantial majority of the policy coverage and that it may
seek to rescind the policy with respect to the balance of the policy coverage.
The Company intends to vigorously contest the insurer's positions. If the
insurer prevails, it may adversely affect our capital resources and our business
and, if the insurer prevails, we will bear responsibility for legal fees.

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

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

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

         As of the date of this report, we are not generating any significant
revenues. We may not be able to generate significant revenues in the future. At
various times, we and BioChemics have marketed Osteon, Athlete's Relief and
deFEET on a "test basis" to experiment with consumer packaging and product
performance receptivity, packaging size, label design along with other criteria.
We consider this information important to deciding on an eventual roll out
strategy for the products. We call these programs "test marketing" because
neither Vaso Active nor its parent, BioChemics, was sufficiently capitalized to
engage in advertising campaigns. In some cases, we terminated test marketing
programs and in other cases, the retailer terminated test marketing programs. In
connection with the test marketing program with Walgreen's to sell deFEET in
mid-2003, we could not provide sufficient funding for an advertising program
that would be acceptable to Walgreen's. Our efforts were complicated by our need
to change the product name from deFEET to Termin8. Because of our inability to
undertake an acceptable advertising campaign, we and Walgreen's terminated this
test marketing program. Although management believes that our products,
supported by sufficient advertising, will earn retailers acceptance, there can
be no assurance that this will happen, or if it does, that it will continue.

                                       19


<PAGE>

         In order to reduce the risk of relying on a small number of customers
for the majority of our net revenue, we have, as discussed previously,
established two marketing and distribution alliances with ODI and M2G Media. If
these two strategic alliances are not successful and if other strategic
alliances or retail distribution agreements are not established, this could
result in a material adverse impact on our revenues.

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

         We do not possess product development capability. As a result, we
depend on collaborations with third parties, such as BioChemics, for development
of our product candidates. During the year ended December 31, 2004, we incurred
research and development costs of approximately $266,000 related to the
formulation of an analgesic utilizing the active ingredient ibuprofen as well as
finalization of RepiDerm product development. Pre-clinical studies utilizing
animals were conducted and billed as part of the ibuprofen research. These
services were incurred pursuant to a February 2003 manufacturing and development
agreement with BioChemics. In addition, we have no manufacturing capability. As
a result, we will depend on BioChemics, which in turn will rely upon third
parties to manufacture our products. Although our strategy is based on
leveraging BioChemics' ability to develop and manufacture our products for
commercialization in the OTC marketplace, we will be dependent on BioChemics'
collaborations with drug development and manufacturing collaborators. If we and
BioChemics are not able to maintain existing collaborative arrangements or
establish new arrangements on commercially acceptable terms, we would be
required to undertake product manufacturing and development activities at our
own expense. This would increase our capital requirements or require us to limit
the scope of our development activities. Moreover, we have limited or no
experience in conducting full scale bioequivalence or other clinical studies,
preparing and submitting regulatory applications, and manufacturing and
marketing drug products. There can be no assurance that we will be successful in
performing these activities and any failure to perform such activities could
have a material adverse effect on our business, financial condition and results
of our operations.

         If any of our developmental collaborators, especially BioChemics,
breach or terminate their agreements with us or otherwise fail to conduct their
collaborative activities in a timely manner, the preclinical and/or clinical
development and/or commercialization of our product candidates will be delayed,
and we would be required to devote additional resources to product development
and commercialization or terminate certain development programs. Also, these
relationships generally may be terminated at the discretion of our
collaborators, in some cases with only limited notice to us. The termination of
collaborative arrangements could have a material adverse effect on our business,
financial condition and results of operations. There also can be no assurance
that disputes will not arise with respect to the ownership of rights to any
technology developed with third parties. These and other possible disagreements
with collaborators could lead to delays in the development or commercialization
of our product candidates or could result in litigation or arbitration, which
could be time consuming and expensive and could have a material adverse effect
on our business, financial condition and results of operations.

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


                                       20


<PAGE>

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

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

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

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

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

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

                                       21


<PAGE>

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

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

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

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

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

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

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

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

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

         We were originally formed as a division of BioChemics and the viability
and financial strength of BioChemics is critical to our success. Throughout our
development, we have relied on services and financing provided to us by
BioChemics. When we became an independent operating entity, we entered into a
license agreement and, prior to the consummation of our initial public offering,
we entered into a manufacturing and development agreement, with BioChemics. We
presently maintain our executive offices on premises that we share with
BioChemics. We do not have a lease agreement with BioChemics. We believe that we
can obtain suitable alternative space without any material disruption of our
business and that such space will be available to us in the future on
commercially reasonable terms. Since, pursuant to the administrative support
agreement by and between the Company and BioChemics, BioChemics provides us with
administrative and managerial support, our results of operations include
allocations of certain BioChemics expenses, such as centralized accounting, data
processing, utilities, office space rental, supplies, telephone and other
BioChemics corporate services and infrastructure costs. These expenses have been
charged back to us as a management fee. We recorded approximately $46,000,
$122,000 and $136,000 in these related-party fees for the years ended December
31, 2004, 2003 and 2002, respectively. In addition during the year ended
December 31, 2003 BioChemics provided financing to us in the amount of
approximately $518,200 to fund our operating losses incurred during the period
of time up to the initial public offering as well as fund the up front costs of
a private placement closed in May 2003, see discussion at "Liquidity and Capital


                                       22


<PAGE>

Resources." This was reimbursed as a portion of the amount paid to BioChemics
upon the closing of our initial public offering in December 2003. The expense
allocations have been determined on the basis that we and BioChemics consider to
be reasonable reflections of the utilization of services provided for the
benefit received by us. The loss of the services provided by BioChemics or the
loss of the license of the VALE patents or the PENtoCORE technology under the
license agreement would have a material adverse effect on our business,
financial condition and results of operations.

         BioChemics has never been profitable and most likely will not achieve
profitability in the near future, if ever. Although BioChemics was founded in
1989, and incorporated in 1991, it is still a development stage company. It has
generated significant losses through December 31, 2004, has limited revenue, and
is likely to sustain operating losses in the foreseeable future. BioChemics'
operations are subject to all of the risks inherent in the establishment of a
business enterprise. Through December 31, 2004, BioChemics had an unaudited,
consolidated accumulated deficit of approximately $16.9 million, which includes
the operations of Vaso Active. In addition, as of December 31, 2004, BioChemics
was in default under debt obligations in the approximate amount of $10.2
million, which includes accrued interest, that it has issued to private
investors, of which approximately $6.9 million, inclusive of accrued interest,
is held by Mr. Masiz, members of his family and the Chairman of Biochemics.
Although BioChemics is attempting to restructure or refinance these obligations,
there can be no assurance that it will be able to do so on acceptable terms. If
BioChemics is not successful in maintaining its financial viability, our
business, financial condition and results of operations may be materially and
adversely affected. BioChemics anticipates that it will continue to incur net
losses and be unprofitable for the foreseeable future. There can be no assurance
that BioChemics will ever operate at a profit even if its or our products are
commercialized.

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

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

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

         Effective June 18, 2004, Kevin J. Seifert resigned as the Chief
Operating Officer and director of Vaso Active. Vaso Active is not currently
conducting a search for a new Chief Operating Officer. Our former Chief
Executive Officer has assumed Mr. Seifert's former responsibilities.

         Furthermore, several of our other key employees are devoting less than
all their time to the Company. For example, although our Chief Scientific
Officer, Dr. Stephen Carter devotes substantially all his time to our
activities, he is only required to devote approximately 30% under his agreement
with us. For us to pursue our product development, marketing and
commercialization plans, we will need to hire personnel with experience in
clinical testing, government regulation, manufacturing, marketing and finance.


                                       23


<PAGE>

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

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

         Our principal stockholder, BioChemics, owns 4,500,000 shares of our
Class B common stock, which at December 31, 2004 represented approximately 70%
of the combined voting power of our common stock. Mr. Masiz, as President, Chief
Executive Officer and Chairman of BioChemics and, as the principal stockholder
in BioChemics, will be able to control the outcome of stockholder votes,
including votes concerning the election of our directors, the adoption or
amendment to provisions in our certificate of incorporation or by-laws, the
approval of mergers and/or acquisitions, decisions affecting our capital
structure and other significant corporate transactions. This concentration of
ownership may delay, deter or prevent transactions that would result in a change
of control, which in turn could reduce the value of our common stock.

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

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

                                       24



<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY

         Currently, we share our principal corporate office space with
BioChemics in Danvers, Massachusetts. Our principal corporate offices
accommodate our operational, selling, marketing and administrative needs. The
lease for this approximately 2,500 square feet office space is held by
BioChemics and has recently been renewed and extended through March 2006. We do
not have a lease agreement with BioChemics. Although we do not have a formal
lease agreement with BioChemics, we pay approximately $3,700 per month in rent
to BioChemics for our office and warehouse space. During the year ended December
31, 2004, we recorded approximately $44,000 in facility rent expense. Prior to
2004, rent expense was a component of management fees and totaled approximately
$20,000 for the years ended December 31, 2003 and 2002. We anticipate that this
arrangement will continue at least through the end of 2005. We believe that our
existing facilities are adequate to support our existing operations and that, if
needed, we will be able to obtain suitable additional facilities on commercially
reasonable terms.

ITEM 3.  LEGAL PROCEEDINGS

SEC MATTERS

         On April 1, 2004, the SEC temporarily suspended trading of our
securities. In its announcement of the trading suspension, the SEC stated that
it temporarily suspended trading in our securities because of questions
regarding the accuracy of our assertions, and others', in press releases, the
2003 annual report, our registration statement and public statements to
investors concerning, among other things, the FDA approval of certain key
products and the regulatory consequences of the future application of our
primary product.

         In August 2004, the SEC formally approved the terms of a settlement
regarding alleged violations of securities laws stemming from allegedly
misleading disclosures in our initial public offering registration statement,
our 2003 annual report and a statement on our website concerning the FDA's
approval or qualification of our products. We agreed with the SEC to settlement
terms without us admitting or denying the allegations of the civil complaint,
pursuant to which the company is permanently enjoined from violating the
anti-fraud provisions of the 1933 Act and the antifraud and reporting provisions
of the 1934 Act. The SEC action filed with the United States District Court for
the District of Columbia (the "Court") on August 17, 2004 is styled SECURITIES
AND EXCHANGE COMMISSION V. VASO ACTIVE PHARMACEUTICALS, INC. Civil Action No. 04
CV 01395 (RJL) (D.D.C.).

         Also in August 2004, the SEC formally approved the terms of a
settlement with John J. Masiz, our former President and Chief Executive Officer,
without Mr. Masiz admitting or denying the allegations of the civil complaint,
that likewise enjoins him from violating the antifraud and reporting provisions,
and prevents him from serving as an officer or director of any public company,
including Vaso Active, for a period of five years. Effective as of August 17,
2004, Mr. Masiz resigned as an executive officer and a director of Vaso Active.
He is, however, permitted to remain an active employee and/or consultant of Vaso
Active. In light of the foregoing, Vaso Active and Mr. Masiz agreed to terminate
his employment agreement and enter into a new agreement. Pursuant to that
agreement, Mr. Masiz will provide strategic consulting services regarding sales,
marketing and business development to Vaso Active for an initial term through
June 30, 2008 and will report to our Chief Executive Officer. We have appointed
our Chief Financial Officer Joseph Frattaroli to serve as our Acting President
and Acting Chief Executive Officer while we conduct a search for a new Chief
Executive Officer. On September 13, 2004, the Court for the District of Columbia
entered final judgments against Vaso Active and Mr. Masiz, pursuant to the above
referenced settlement terms.

FDA MATTERS

         We are not aware whether the FDA is contemplating any action against
us. We believe that the active ingredients, dosage form and strengths of A-R
Extreme, Osteon and Termin8 are covered by the FDA's OTC Review Program and
therefore we believe these products are currently eligible for marketing under
the same program. In early 2004, we intended to distribute these products under
revised labeling once we were reasonably sure that the marketing of these
products was consistent with the FDA's requirements and policies. We submitted
new labels for our previously marketed products to the FDA in May 2004 and


                                       25


<PAGE>

requested comments by the FDA on these labels. There is no regulatory
requirement that the FDA review or comment on such materials and so far, the FDA
has not provided any comment relating to the new labels. Although we were not
provided any comment from the FDA, we are now reasonably sure that these new
labels are consistent with all FDA regulations and policies and as a result, we
resumed marketing and shipment of our products in September 2004.

NASDAQ DELISTING MATTERS

         In April 2004, the Listing Investigations staff of The Nasdaq Stock
Market, or Nasdaq, notified us that it had commenced an inquiry into our
compliance with Nasdaq's continued listing requirements and requested certain
information from us relating to the pending SEC regulatory matters. In light of
the substantial administrative and cash burdens of maintaining our Nasdaq
listing as well as the substantial legal costs anticipated with respect to the
pending SEC and FDA matters, we determined that it was in the best interests of
our shareholders for the company to cease voluntarily the listing of its
securities on Nasdaq. Effective April 8, 2004, upon our request, Vaso Active's
securities ceased to be listed on Nasdaq.

         Presently, our securities are being quoted in the OTC Pink Sheets under
the symbol "VAPH.PK." We intend to seek listing of our securities on an exchange
or other automated quotation system, although the timing of our application has
not yet been determined. However, there is no assurance that we will be
successful in securing such listing or quotation or, even if it is successful,
we will be able to maintain the listing or quotation of our securities on such
exchange or quotation system.

PRIVATE LITIGATION

         In April, May, and June 2004, the Company and certain of its officers
(the "Defendants") were sued in several securities class action lawsuits filed
in the United States District Court for the District of Massachusetts. The
complaints, which seek equitable and monetary relief, an unspecified amount of
damages, with interest, attorney's fees and costs, allegedly were filed on
behalf of purchasers of Vaso Active Class A common stock during the period
December 11, 2003 to March 31, 2004. The complaints allege that during the
period in question the Defendants violated the federal securities laws by
allegedly failing to make accurate and complete disclosures concerning the
Company, its financial condition, its business operations and future prospects,
the clinical trial and endorsement of the Company's Termin8 anti-fungal product
(previously known as "deFEET") and the institutional demand for Vaso Active's
securities. These complaints are captioned as follows: DENNIS E. SMITH V. VASO
ACTIVE PHARMACEUTICALS, INC., ET AL. , Civ. No. 04-10708 (RCL) (D. Mass.);
RICHARD SHAPIRO V. VASO ACTIVE PHARMACEUTICALS, INC., ET AL. , Civ. No. 04-10720
(RCL) (D. Mass.); CHRISTOPHER PEPIN V. VASO ACTIVE PHARMACEUTICALS, INC., ET AL.
, Civ. No. 04-10763 (RCL) (D. Mass.); MODHI GUDE, ET AL. V. VASO ACTIVE
PHARMACEUTICALS, INC., ET AL. , Civ. No. 04-10789 (RCL) (D. Mass.); KIM
BENEDETTO, ET AL. V. VASO ACTIVE PHARMACEUTICALS, INC., ET AL. , Civ. No.
04-10808 (RCL) (D. Mass.); DEAN DUMMER V. VASO ACTIVE PHARMACEUTICALS, INC., ET
AL. , Civ. No. 04-10819 (RCL) (D. Mass.); EDWARD TOVREA V. VASO ACTIVE
PHARMACEUTICALS, INC., ET AL. , Civ . No. 04-10851 (RCL); KOUROSH ALIPOR V. VASO
ACTIVE PHARMACEUTICALS, INC., ET AL. , Civ. No. 04-10877 (RCL); PAUL E. BOSTROM
V. VASO ACTIVE PHARMACEUTICALS, INC., ET AL. , Civ. No. 04-10948 (RCL); IRA A.
TURRET SEP-IRA DATED 01/24/02 V. VASO ACTIVE PHARMACEUTICALS, INC., ET AL., Civ.
No. 04-10980 (RCL); RICHARD PAGONA V. VASO ACTIVE PHARMACEUTICALS, INC., ET AL.
, Civ. No. 04-11100 (RCL); JAMES KARANFILIAN V. VASO ACTIVE PHARMACEUTICALS,
INC., ET AL. , Civ. No. 04-11101 (RCL); and CHARLES ROBINSON V. VASO ACTIVE
PHARMACEUTICALS, INC., et. al., Civ. No. 04-11221 (RCL). The Court has
consolidated the above-referenced cases, other than the TOVREA and KARANFILIA
complaints in the United States District Court for the District of
Massachusetts, under the caption IN RE VASO ACTIVE PHARMACEUTICALS SECURITIES
LITIGATION , Civ. No. 04-10708 (RCL), (the "Consolidated Action"). On November
4, 2004, the Court appointed Schiffrin & Barroway LLP as lead counsel for the
Consolidated Action and appointed Shapiro, Haber & Urmy LLP as local counsel.
The Court also appointed Edwin Choi, Richard Ching, and Joe H. Huback as interim
co-lead plaintiffs, pending a determination of whether the Consolidated Action
may proceed as a class action. The Court further ordered that co-lead plaintiffs
file a consolidated amended complaint in the Consolidated Action no later than
December 4, 2004. On December 3, 2004, plaintiffs filed the Consolidated Amended
Complaint, which added as defendants the Company's directors at the time of our
initial public offering and issuance of our 2003 Annual Report, and alleged that
during the period in question the Defendants made false and misleading
statements concerning FDA approval of its current products and related
misstatements and concerning the clinical trial of the anti-fungal product. On
January 20, 2005, the Defendants filed an Answer to the Complaint essentially
denying the allegations and liability.

                                       26


<PAGE>

         The Company has also been named as a nominal defendant in three
shareholder derivative actions. The first action was filed in the United States
District Court for the District of Massachusetts in April 2004 against the
Company's directors and certain of its officers and against BioChemics, Inc.
styled JOSEPH ROSENKRANTZ V. BIOCHEMICS, INC., ET AL., Civ. No. 04-10792 (RCL)
(D. Mass.); the second - filed in June 2004, also against the Company's
directors and certain of its officers and against BioChemics, Inc., styled
WILLIAM POMEROY V. BIOCHEMICS INC., ET AL., Civ. No. 04-11399 (RCL) (D. Mass.);
and the third - in the Court of Chancery for the State of Delaware in September
2004 against its directors and certain of its officers, entitled DOUGLAS
WEYMOUTH V. JOHN J. MASIZ, ET AL., Civ. No. 682-N (collectively, the
"Complaints"). The Complaints allege, among other things, that the alleged
conduct challenged in the securities cases pending against the Company in
Massachusetts (described above) constitutes, among other thinds, a breach of the
Defendants' fiduciary duties to Vaso Active. The Complaints seek equitable and
monetary relief, an unspecified amount of damages, and attorneys and other fees,
costs and expenses, ostensibly on behalf of Vaso Active. On October 29, 2004,
the Massachusetts Court approved a joint motion to consolidate the two
Massachusetts derivative actions. On November 19, 2004, the Court issued an
order consolidating the derivative actions in the United States District Court
for the District of Massachusetts and captioned the consolidated action In Re:
Vaso Active Pharmaceuticals, Inc. Derivative Litigation, Master Docket No.
04-10792-RCL. On January 12, 2005, the Court entered a Procedural Order of
Dismissal which dismissed the consolidated derivative action, without prejudice,
pending the occurrence of the earlier of (a) the entry of an order in connection
with a motion to dismiss filed in the securities class action lawsuit or (b) the
filing of an answer by all defendants in the securities class action. This order
also stated that the derivative litigation could be restored to the docket after
either of the triggering events mentioned above occurred and a motion was filed
by either party within 30 days after the o ccurrence of such an event. On
February 3, 2005, plaintiffs in the consolidated derivative action filed an
unopposed motion to restore the action to the docket, which was granted on
February 23, 2005. On March 7, 2005, plaintiffs filed an amended complaint in
this matter, and the defendants filed their answers on March 28, 2005.

         Although the Company has been defending and intends to continue to
vigorously defend against these cases, there can be no guarantee as to the
ultimate outcome of these matters. There is also no guarantee that these will be
the only lawsuits brought against the Company with respect to these matters.
There is also no assurance that these matters will be resolved in our favor. An
unfavorable outcome of these matters wouldhave a material adverse impact on our
business, results of operations, financial position or liquidity.

         Because of the uncertainty of estimating the potential financial
statement impact of any of these actions with any reasonable degree of accuracy,
at this time we have not reserved for any potential liability or costs that may
arise as a result of this litigation except for $200,000 recorded on March 31,
2004, which represents the insurance deductible that we cannot expect to
recover. While the cases are in preliminary stages and the outcomes are not
predictable, if a substantial amount is payable by us and is not reimbursed
through our director and officer liability insurance policy, this will have a
material adverse effect on our financial position and liquidity.

         On August 3, 2004, our insurer notified us that, based on its coverage
evaluation, it intends to reject liability to reimburse us with respect to any
of the claims asserted in any of the above-described litigation against Vaso
Active or its officers or directors for a substantial majority of the policy
coverage and that it may seek to rescind the policy with respect to the balance
of the policy coverage. We intend to vigorously contest the insurer's positions
regarding this matter.

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

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

         There were no matters submitted to a vote of the security holders in
the quarter ended December 31, 2004.

                                     PART II

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

         Our Class A common stock, $0.0001 par value, began trading on December
10, 2003 on the Nasdaq SmallCap Market under the symbol "VAPH." In light of the
substantial administrative and cash burdens of maintaining our Nasdaq listing as
well as the substantial legal costs anticipated with respect to the pending SEC
and FDA matters (as discussed in "Legal Proceedings" above), we determined that


                                       27


<PAGE>

it was in the best interests of our shareholders for the company to cease
voluntarily the listing of its securities on Nasdaq. Effective April 8, 2004,
upon our request, our securities ceased to be listed on Nasdaq. As of the date
of this report, our stock is quoted in the OTC Pink Sheets under the symbol
"VAPH.PK".

         The following sets forth the high and low bid price quotations (split
adjusted) for each calendar quarter in which trading occurred during the last
two fiscal years. Such quotations reflect inter-dealer prices, without retail
markup, markdown or commission, and may not represent actual transactions:


                                         HIGH                       LOW
          2004
            Fourth quarter              $ 0.72                    $ 0.38
            Third quarter                 1.53                      0.55
            Second quarter                7.59                      0.40
            First quarter                14.11                      1.97

          2003
            Fourth quarter                2.14                      1.73

         On March 24, 2005, the average bid for a share of our Class A Common
Stock as quoted by the OTC Pink Sheets was $0.62.

HOLDERS

         As of March 1, 2005, there were approximately 30 holders of record of
our Class A common stock and approximately 1,700 holders held shares in a
"nominee" or "street name." There is one holder, BioChemics, of our Class B
common stock.

DIVIDENDS

         On February 20, 2004, we announced a three-for-one stock split on all
classes of common equity in the form of a 200% stock dividend paid on March 5,
2004 to stockholders of record on February 23, 2004. We have not previously paid
any cash dividends on either class of our common stock and do not anticipate or
contemplate paying cash dividends on our Class A common stock in the foreseeable
future. It is the present intention of management to utilize all available funds
for future operations. The only restrictions that limit the ability to pay
dividends on the common stock are those imposed by corporate law. Under Delaware
corporate law, no dividends or other distributions may be made which would
render us insolvent or reduce assets to less than the sum of our liabilities
plus the amount needed to satisfy any liquidation preference. Our current policy
is to retain any earnings to finance our future development and growth. We may
reconsider this policy from time to time in light of conditions then existing,
including our earnings performance, financial condition and capital
requirements. Any future determination to pay cash dividends will be at the
discretion of our board of directors and will depend upon our financial
condition, operating results, capital requirements, general business conditions
and other factors that our board of directors deems relevant.


RECENT SALES OF UNREGISTERED SECURITIES

         Set forth below in chronological order is information regarding
securities issued by us that were not registered under the 1933 Act:

         In April 2003, we completed the private placement of $500,000, 10%
convertible subordinated pay-in-kind promissory notes. This amount was
subsequently reduced to $465,000 in December 2003 as we repurchased $35,000 from
an unrelated third party investor. Offering costs of approximately $98,000 were
incurred in connection with this private placement and netted against the gross
proceeds. The notes were sold to accredited investors under one or more of the
exemptions from registration provided for in Section 3(b), 4(2), 4(6) and
Regulation D of the 1933 Act. The investors in this private placement had
adequate access to information about us and represented to us their intention to
acquire our securities for investment purposes only and not with a view to or
for sale in connection with any distribution thereof. Appropriate legends were
affixed to the certificates representing the securities issued. The notes and
any accrued interest were convertible into Class A common stock either
voluntarily on or before the maturity date of the notes (March 31, 2005) or
mandatorily upon the consummation of a qualified public offering. The notes were
to convert at the lesser of 50% of the qualified public offering price or $0.83,
up to a maximum of 660,000 shares. On December 15, 2003, the Company completed
an initial public offering of 5,002,500 shares of its Class A common stock,
which caused the automatic conversion of the notes. The notes and their accrued
interest converted into 601,113 shares of Class A common stock.

         In March 2004, we entered into a private placement transaction with an
institutional investor in the amount of $7.5 million. The investment was in the
form of an 18 month 2% Convertible Note, or Note, convertible into shares of
Class A common stock at a conversion rate of $9.00 per share, at the option of
the investor. In addition, we issued to the investor warrants to purchase
166,667 shares of our Class A common stock at an exercise price of $8.75 per
share. Given the initiation and continuation of the April 1, 2004 trading
suspension by the SEC constituted a breach under the Note, on April 8, 2004, we
entered into a settlement agreement and release with the investor pursuant to
which we repaid the investor the sum of $7.5 million without penalty, interest,
redemption premium or any other premium or penalty, plus an expense
reimbursement in the amount of $15,000. In consideration of this repayment, the
investor surrendered the Note and warrants and terminated all other agreements
entered into in connection with the private placement transaction. In connection
with this transaction, we paid approximately $600,000 in fees to various third
parties. These fees were not refunded when the investor was repaid and,
accordingly, have been recorded as expense as of March 16, 2004 and are included
in the financial statements under the expense caption "selling, general and
administrative."

REPURCHASES OF EQUITY SECURITIES OF THE ISSUER

     None.


                                       29

<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS

FORWARD-LOOKING INFORMATION

         THIS REPORT CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE EXCHANGE ACT OF 1934, AS AMENDED, THAT ARE BASED ON MANAGEMENT'S
EXERCISE OF BUSINESS JUDGMENT AS WELL AS ASSUMPTIONS MADE BY, AND INFORMATION
CURRENTLY AVAILABLE TO, MANAGEMENT. WHEN USED IN THIS DOCUMENT, THE WORDS "MAY",
"WILL", "ANTICIPATE", "BELIEVE", "ESTIMATE", "EXPECT", "INTEND", AND WORDS OF
SIMILAR IMPORT, ARE INTENDED TO IDENTIFY ANY FORWARD-LOOKING STATEMENTS. YOU
SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS REFLECT OUR CURRENT VIEW OF FUTURE EVENTS AND ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES AS NOTED BELOW. SHOULD ONE OR MORE OF THESE RISKS OR
UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS. WE UNDERTAKE NO OBLIGATION AND DO NOT INTEND TO
UPDATE, REVISE OR OTHERWISE PUBLICLY RELEASE ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE
HEREOF OR TO REFLECT THE OCCURRENCE OF ANY UNANTICIPATED EVENTS. ALTHOUGH WE
BELIEVE THAT OUR EXPECTATIONS ARE BASED ON REASONABLE ASSUMPTIONS, WE CAN GIVE
NO ASSURANCE THAT OUR EXPECTATIONS WILL MATERIALIZE.

         Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read together with our audited financial statements and
related notes included elsewhere in this Annual Report on Form 10-KSB. This
Annual Report on Form 10-KSB, including the following discussion, contains trend
analysis and other forward-looking statements within the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Any statements in this
Annual Report on Form 10-KSB that are not statements of historical facts are
forward-looking statements. These forward looking statements made herein are
based on our current expectations, involve a number of risks and uncertainties
and should not be considered as guarantees of future performance. The factors
that could cause actual results to differ materially include without limitation:

         o        interruptions or cancellation of existing contracts
         o        impact of competitive products and pricing
         o        product demand and market acceptance and risks
         o        the presence of competitors with greater financial resources
         o        product development and commercialization risks
         o        an inability to arrange additional debt or equity financing
         o        our ability to finance our business
         o        our ability to maintain our current pricing model and/or
                  decrease our cost of sales
         o        continued availability of supplies or materials used in
                  manufacturing at the current prices
         o        adverse regulatory developments in the United States
         o        entrance of competitive products in our markets
         o        the ability of management to execute plans and motivate
                  personnel in the execution of those plans
         o        no adverse publicity related to our products or the company
                  itself
         o        no adverse claims relating to our intellectual property
         o        the adoption of new, or changes in, accounting principles;
                  legal proceedings
         o        the costs inherent with complying with new statutes and
                  regulations applicable to public reporting companies, such as
                  the Sarbanes-Oxley Act of 2002
         o        other new lines of business that the Company may enter in the
                  future.

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

OVERVIEW, KEY BUSINESS CHALLENGES AND RISKS

         We are an early-stage company established for the purpose of
commercializing, marketing and selling over-the-counter, or OTC, pharmaceutical
products that incorporate topical and transdermal formulation platforms. We
began our operations in January 2001, as a division of BioChemics, a


                                       30


<PAGE>

biopharmaceutical company engaged in the development of transdermal and topical
drug delivery systems. BioChemics is based in Danvers, Massachusetts. BioChemics
was founded in 1989 by John J. Masiz and was incorporated in Delaware in 1991.
BioChemics began developing the VALE technology in 1989 and has subsequently
been issued 4 U.S. patents in connection with this technology. We are also based
in Danvers, Massachusetts. In January 2003, we incorporated in Delaware and
became an independent subsidiary of BioChemics, focused on the further
commercialization of our existing OTC products and the development of new OTC
product candidates.

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

         Our general business strategy was adversely affected by regulatory and
private securities actions taken against us and our management beginning in
April 2004. At the same time, we suspended the marketing and sale of our
products until we were reasonably sure that our product marketing was consistent
with the FDA's requirements and policies. As a result of our voluntary delisting
and continuation of delisting of our securities from the Nasdaq, the action
taken by the SEC against us, the issues raised by the FDA regarding the
regulatory status of our products, and the significant decline in the market
value of our securities subsequent to these matters, several shareholder actions
have been filed against the company and its officers and directors.

         Many of our resources, including our cash and management time, have
been diverted from our business strategy addressing these legal matters. We have
incurred significant costs in defending ourselves and expect to incur additional
costs to defend ourselves in the near future. We have primarily used the cash we
raised in our December 2003 initial public offering to pay for these costs. In
addition, we repaid approximately $7.5 million in cash in April 2004 that we
raised in the private placement during March 2004. We intended to use the
December 2003 offering proceeds to further our working capital and expand our
business and marketing plans.

         In August and September 2004, the company and its former Chief
Executive Officer, John Masiz, settled all SEC and U.S. District Court matters
regarding our alleged violations of securities laws stemming from allegedly
misleading disclosures in our initial public offering registration statement,
our 2003 annual report and a statement on our website concerning the FDA's
approval or qualification of our products. Both the company and Mr. Masiz agreed
with the SEC to settlement terms without admitting or denying the allegations of
their civil complaint, pursuant to which both parties are permanently enjoined
from violating the anti-fraud provisions of the 1933 Act, and the antifraud and
reporting provisions of the 1934 Act. Our former Chief Executive Officer was
also prohibited from serving as an officer or director of any public company,
including Vaso Active, for a period of five years. He is, however, permitted to
remain an active employee/consultant of Vaso Active. Since August 2004, Mr.
Masiz has been employed by the company to provide consulting services pursuant
to the terms of his employment agreement with the company. Also during 2004,
together with newly engaged outside FDA counsel, we revised our product labels
and in September began shipping our products on a limited basis. Although these
products are now on the market, we have not made significant shipments or
recorded significant revenues to date. You should refer to "Legal Proceedings,"
"Employment Agreements" and "Risk Factors" for additional discussions
surrounding these events.

         The success of our marketing and sales activities will be dependent,
among other things, on our ability to retain and attract qualified marketing and
sales personnel, enter into qualified strategic partnerships, place our products
into the market, the consumer perception of our products and the securing of
additional financing. Although we believe that our products, supported by
sufficient advertising, will earn retailers acceptance, there can be no
assurance that this will happen, or if it does, that it will continue.

                                       31


<PAGE>

COMPETITION

         We are engaged in a rapidly evolving field. Competition from numerous
pharmaceutical companies including Pfizer, Bristol-Myers Squibb,
Schering-Plough, and biotechnology companies including, Alza, Cygnus and Elan,
as well as research and academic institutions, is intense and expected to
increase. Such companies have substantially larger research & development,
marketing and promotion resources as well as histories of success in the
marketplace. The market for transdermal and topical drug delivery systems is
large and growing rapidly and is likely to attract new entrants. Numerous
biotechnology and biopharmaceutical companies have focused on developing new
drug delivery systems and most, if not all of these companies, have greater
financial and other resources and development capabilities than we do. They also
have greater collective experience in undertaking pre-clinical and the clinical
testing of products; obtaining regulatory approvals; and manufacturing and
marketing OTC and prescription pharmaceutical products. Accordingly, certain of
our competitors may succeed in obtaining approval for products more rapidly than
us. In addition to competing with universities and other research institutions
in the development of products, technologies and processes, we may compete with
other companies in acquiring rights to products or technologies from
universities.


DISTRIBUTION

         During 2004, we executed the following two strategic alliances:

         * Ortho Distribution Inc. or ODI, a wholly owned subsidiary of
OrthoRehab, Inc. of Tempe, Arizona. OrthoRehab has an extensive distribution
network, across the United States and in approximately 50 other countries. We
have filled and labeled approximately 5,000 four ounce bottles of our topical
analgesic for ODI. In accordance with the agreement with ODI, we anticipated
launching this batch through ODI's distribution network by the end of 2004.
However, an unrelated third-party purchaser acquired ODI's parent company,
Ortho-Rehab, in January 2005. We are in ongoing discussions with the new ODI
management and expect to continue the relationship. However, there can be no
assurance that the strategic alliance will continue or that it will provide us
with the results intended under the original agreement with ODI. We have written
off the ODI finished goods inventory of approximately 5,000 bottles at December
31, 2004.

         * M2G Media. In March 2004, we entered into an exclusive, direct to
consumer media based, strategic alliance with M2G Media of Irvine, California, a
marketing and distribution company that utilizes direct to consumer media and
television as its primary form of marketing medium. We anticipated M2G Media
would market privately labeled versions of our current products specifically
targeting the over the counter topical analgesic arthritis and pain relief
markets. We expected M2G to commence infomercial filming by the end of 2004 and
to launch our arthritis and pain relief products through its channels of
distribution in the first quarter of 2005. However, we were unable to reach
mutually agreed upon product minimums with respect to the arthritis and pain
relief markets and have since removed the arthritis and pain relief products
from the M2G strategic alliance. We are currently negotiating with M2G Media
with respect to launching our acne product.

         Recent regulatory events and securities claims brought against us and
our management had placed strains on our management and capital resources. In
early 2004, we suspended the marketing and sale of our products until we were
reasonably sure that our product marketing was consistent with the FDA's
requirements and policies. In May 2004, together with outside FDA counsel, we
revised our product labels and in September 2004 began shipping our products on
a limited basis. Although these products are now on the market, we have not made
significant shipments to date. You should refer to the discussions under the
caption "Legal Proceedings" for further discussion on this matter.

         We intend to pursue opportunities to launch our products into retail
market chains sometime during late 2005. We believe that because retail sales
efforts typically require large economic outlays and long sales cycles, they
produce less of an immediate impact on operations than strategic alliances.


                                       32


<PAGE>

Therefore, we have categorized this as part of the second phase of our rollout
strategy. In January 2004, we engaged Commotion LLC, or Commotion, of Golden,
Colorado, a strategic product marketing company, to assist us in establishing
direct brand recognition and strategic retail rollout for our products. The
agreement with Commotion is still in effect. Since January 2004, Commotion has
provided design input into our Company logos, stationary, business cards,
product information and displays as well as for the revised labeling for our A-R
Extreme, Osteon, Termin8, and RepiDerm products. Although the agreement is still
in effect, we do not require additional design work at this time. Therefore in
April 2005 we are suspending our retainer payment to Commotion until further
notice. Our plan is focused on the systematic rollout of our current products
into major retail and drug store chains, select independent pharmacies and
nontraditional channels, including multilevel marketing, direct marketing,
web-sites and catalogues. However, as a result of the cessation of the marketing
and sale of our products in early 2004 and changes in the timing for the retail
rollout of our products, we do not anticipate using any of our initial public
offering proceeds to fund our advertising, direct mail programs and related
promotional activities. There can be no assurance that any of the initial public
offering proceeds will be used for this purpose. You should refer to the
discussions under the caption "Legal Proceedings" for further discussion
on our cessation of marketing and sales activities.

CAPITAL AVAILABILITY

         At December 31, 2004, we had working capital of approximately $1.9
million. We anticipate, based on our current plans and assumptions relating to
our operations, that our current working capital together will be sufficient to
satisfy our cash requirements through September 30, 2005. Unless we can obtain
additional financing or generate profitability and cash flows from operations,
it is unlikely that we will continue as a going concern. There can be no
assurance that we will be able to obtain additional financing or that if we do
obtain additional financing that it will be on favorable terms. Further, there
can be no assurance that we will be able to generate profitability and cash
flows from operations with our existing working capital.

OUTLOOK FOR 2005

         During 2005, the Company plans to:

         o        raise additional capital in order to continue the direct to
                  consumer television campaign of its topical analgesic being
                  marketed under the label Osteon,
         o        expand retail distribution of its topical analgesic being
                  marketed under the label AR-Extreme,
         o        begin retail distribution of its topical anti-fungal under the
                  label Termin8, with its revised packaging,
         o        increase staffing, including outbound telemarketers and a
                  senior marketing person with a background in retail launches,
         o        introduce its new acne product under the label RepiDerm to the
                  marketplace.

         Our strategy for Osteon is to create, through telemarketing,
advertising and mailings a customer base of senior women and men suffering from
osteoarthritis. We expect re-order sales of Osteon to carry higher gross profit
margins than initial order sales of Osteon because re-order sales should not
require the same direct media advertising expenditures as do the initial order
sales. To achieve future growth, we plan to offer additional products, to be
determined, that fit the demographic of this customer base.

         Our strategy for AR-Extreme and Termin8 is to achieve market
penetration through wholesale distribution to chain pharmacies, chiropractors,
podiatrists, dermatologists, wellness and fitness centers. We are in the very
early stages of this launch, which is constrained by our limited resources. We
plan to allocate a portion of our planned future capital raise to hire
additional personnel to accelerate this area of planned growth.

         Our strategy for RepiDerm is to launch the product by the end of the
third quarter of 2005. We plan to package and market this product under several
labels. One label targeted to the teenage and young adult markets and another
label targeted to older adults. This product is formulated to treat acne based
upon regular usage and we expect to realize a re-order stream with any future
customers. We are currently in negotiations with M2G Media to launch the product


                                       33


<PAGE>

through either long or short form direct to consumer television media.
Negotiations are ongoing and the details are not yet determined. If we are
unable to reach a deal with M2G or with another strategic partner and if we are
unable to raise additional capital, our planned launch of RepiDerm for the end
of the third quarter of 2005 will be delayed.

CRITICAL ACCOUNTING ESTIMATES

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

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

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

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

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

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

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

         STOCK-BASED COMPENSATION - As part of our compensation programs offered
to our employees, we grant stock options. We grant stock options to employees
based on the fair value of the Class A common stock at the grant date. As
allowed under SFAS No. 123, "Accounting for Stock-Based Compensation," and SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"
we have adopted the disclosure-only requirements of these accounting standards.
Accordingly, we do not recognize stock-based compensation expense for stock
options granted to employees at their fair value. The fair value of options
granted to non-employees are expensed in accordance with SFAS 123 using the
Black-Scholes option-pricing model. See Note 2 to our financial statements for
the impact on earnings had we fully adopted SFAS 123.

                                       34


<PAGE>

         In December 2004, the FASB issued a revision to SFAS No. 123,
"Share-Based Payment," requiring companies to recognize as compensation expense
the fair value of stock options and other equity-based compensation issued to
employees. This revised statement eliminates the intrinsic value method provided
under Accounting Principles Board, or APB, No. 25, "Accounting for Stock Issued
to Employees," which is the method we currently use to value stock options
awarded to our employees. This revised standard is effective as of the beginning
of the first annual reporting period beginning after December 15, 2005 and is
expected to have a material impact on our results of operations. We have not yet
determined the impact that the revised statement will have on its financial
condition and results of operations.

2004 COMPARED TO 2003

         NET REVENUES - Net revenues for the year ended December 31, 2004
decreased by approximately 76% to $12,888 from $53,270 in the comparable period
in 2003. This decrease was primarily a result of the regulatory and private
securities actions taken against us beginning in April 2004 and our decision to
suspend the marketing and sale of our products until we were reasonably sure
that our product marketing was consistent with the FDA's requirements and
policies. In September 2004, we revised our product labels and began shipping
our products on a limited basis. Although these products are now on the market,
we have not made significant shipments or recorded significant revenues to date.

         COST OF SALES - In general, our cost of sales is variable to our net
revenues. However, certain manufacturing events such as inventory adjustments or
product returns may significantly affect the consistency of our cost of sales,
and therefore our gross profit, during any particular period. In 2004, we
experienced several one-time manufacturing events including $45,156 in charges
as a result of a write-off of expired inventory, $7,037 in one-time production
costs and $2,400 in disposal costs. Excluding these one-time items, cost of
sales was $9,282, which is a decrease of $31,662, or 71%, from the comparable
period in the prior year. This adjusted decrease is consistent with our overall
decrease in revenues between the two periods.

         MARKETING, ADVERTISING AND PROMOTION - Marketing, advertising and
promotion expenses increased approximately 112% to $246,784 for the year ended
December 31, 2004 from $116,642 for the comparable period in 2003. This increase
was primarily attributable to approximately $180,000 in professional marketing
and consulting fees we incurred as we initiated our product rollout strategy in
late 2004. We expect to incur larger marketing, advertising and promotion costs
in 2005 as we expand our marketing and sales strategy. The planned 2005
expansion in marketing includes the national rollout of our topical analgesic,
Osteon through direct to consumer television media, which is currently underway.
We expect the costs incurred in connection with this rollout will be largely
production of additional creative media and purchase of additional fixed rate
media buys. We expect to incur additional marketing advertising and promotion
costs with the planned rollout of our new acne product, RepiDerm and for the
planned marketing of AR-Extreme in or about the end of the third quarter of 2005
and during the second quarter of 2005, respectively

         MANAGEMENT FEE - Under our Administrative Support Services Agreement
with Biochemics, our management fee decreased approximately 62% to $45,847 for
the year ended December 31, 2004 from $122,073 for the comparable period in
2003. In prior periods, certain expenses that we currently pay directly on our
own behalf were paid by BioChemics. Since we became a stand alone entity, our
management fees have decreased. We expect that our management fees for 2005 will
not fluctuate significantly. However, if we are unable to execute our general
business strategy within our own resources, we may need to rely more heavily on
BioChemics, and therefore, the management fees charged by BioChemics to us may
increase significantly.

         SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and
administrative expenses increased by $2,824,659 to $3,750,504 during the year
ended December 31, 2004 as compared to $925,845 in the comparable period in
2003. This increase is due primarily to our increased operations and significant


                                       35


<PAGE>

legal and other professional expenses we incurred in connection with our recent
SEC, Nasdaq, and FDA matters and shareholder class action lawsuits. In 2004, we
incurred approximately $1,265,000 in legal and professional fees to amend our
previously filed public filings and to defend ourselves and our officers and
directors in the shareholder class action lawsuits. We recorded approximately
$956,000 in salaries, wages, fringe benefits and other related compensation
costs, approximately $392,000 in business, financial and other professional
services and approximately $161,000 for various insurance premiums typical of a
public company. In connection with the unwinding of our March 2004 private
placement transaction, we incurred approximately $600,000 in professional fees
and an additional $15,000 to unwind this transaction. The remaining selling,
general and administrative costs pertain to our general operations.

         RESEARCH AND DEVELOPMENT - Research and development expenses incurred
for the year ended December 31, 2004 were $266,433. Beginning in January 2004,
we engaged BioChemics to provide us with development services surrounding the
formulation of an analgesic utilizing the active ingredient ibuprofen under the
terms and conditions of our August 2003 agreement. Included in the 2004 cost was
pre-clinical studies performed on animals. We used the proceeds we raised from
our December initial public offering to fund this development. We did not incur
any research and development costs in 2003. Our ability to continue funding our
research and development for this new product candidate is dependent on our
working capital resources and our ability to obtain additional financing.

         STOCK-BASED COMPENSATION - We are required to record stock-based
compensation when we grant options or warrants to purchase our common stock to
non-employees in accordance with SFAS 123. The value of these options and
warrants is calculated using the Black-Scholes valuation model. Stock based
compensation for the year ended December 31, 2004 was $154,336. There were no
common stock options granted to non-employees prior to December 31, 2003,
accordingly, there was no stock-based compensation recorded in 2003.


2003 COMPARED TO 2002

         NET REVENUES - Net revenues decreased approximately 42% to $53,270 for
the year ended December 31, 2003 from $91,957 for the year ended December 31,
2002. This decrease was a direct result of our decision to rebrand our athlete's
foot product deFEET to Termin8. In response to this decision, in September 2003,
our largest customer returned most of the deFEET product that it had in its
possession. We recorded approximately $33,000 against our net revenues for 2003
as a result of the return of its deFEET products to us. Sales of deFEET
represented approximately 86% of our total 2003 net revenues.

         COST OF SALES - We outsource all manufacturing costs. As a result, cost
of sales is limited to those costs incurred and billed by outside contract
manufacturers. Cost of sales decreased approximately 23% to $31,622 in 2003 from
$40,811 in 2002. This decrease was primarily due to the decrease in overall net
revenue.

         MARKETING, ADVERTISING AND PROMOTION - Marketing, advertising and
promotion expenses increased $77,680 to $116,642 in 2003 from $38,962 in 2002.
This increase was primarily due to increased advertising, marketing and the
promotion of our products in 2003.

         OTHER OPERATING EXPENSES - Other operating expenses, which include
management fees and selling, general and administrative expenses, increased
$583,086 to $1,047,918 in 2003 from $464,832 in 2002. The increase was primarily
due to increased personnel related costs associated with the expansion of our
company. In addition, we incurred certain professional costs associated with our
initial public offering that could not be netted against the gross proceeds we
received from this offering.

         OTHER EXPENSES (NET) - Other expenses increased $542,346 to $536,560 in
2003 from a benefit of $5,786 in 2002. This increase was primarily due to a
$500,926 charge associated with the beneficial conversion of $465,000 10%
convertible subordinated pay-in-kind promissory notes in addition to the
interest that accrued on these notes from their inception to their conversion
into Class A shares of our common stock on December 15, 2003, the date we
completed our initial public offering.

                                       36


<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         The Company operates with net loss and has incurred substantial
operating losses and negative cash flows from operations since inception. In
2004, operations were financed from the proceeds of our December 2003 initial
public offering. Net of offering costs, we raised approximately $6.4 million.
Prior to our receipt of these proceeds, we relied on BioChemics as the source of
our working capital. In 2003, we also completed private placements of
$465,000 10% convertible subordinated pay-in-kind promissory
notes, the proceeds of which were used primarily to fund certain expenses
related to our initial public offering as well as general working capital needs.
These promissory notes were converted into shares of our Class A common stock in
December 2003 in connection with our initial public offering.

         At December 31, 2004, we had approximately $2.2 million in cash
remaining from the initial public offering and working capital of approximately
$1.9 million. Our financial condition has been materially and adversely affected
by recent regulatory and shareholder actions taken against us. We expect to use
portions of our working capital to continue defending ourselves in 2005.
However, we cannot reasonably estimate the total costs to defend ourselves at
this time. Further, we cannot provide any assurances that we will prevail in
defending ourselves from the shareholder actions taken against us.

         In March 2004, we entered into a private placement transaction with an
institutional investor in the amount of $7,500,000. The investment was in the
form of an 18 month 2% Convertible Note convertible into shares of Class A
common stock at a conversion rate of $9.00 per share, at the option of the
investor. Both principal and interest were payable in cash or in shares of Class
A common stock at our option. Given that the initiation and continuation of the
April 1, 2004 trading suspension by the SEC constituted a breach under the Note,
we and the investor agreed, pursuant to the terms of a settlement agreement
entered into on April 8, 2004, that we would immediately repay the investor the
sum of $7,500,000 in cash without penalty, interest, redemption premium or any
other premium or penalty, plus an expense reimbursement in connection with the
settlement agreement in the amount of $15,000 in cash. In consideration of this
repayment, the investor surrendered the Note and warrants and the parties
mutually terminated all other agreements entered into in connection with the
transaction. We intended to use these proceeds to further our working capital
and expand our business and marketing plans.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following sets forth the Company's contractual obligations and commitments
for the next five years, at December 31, 2004

<TABLE>
Description                              2005      2006 - 2007   2008 - 2009    Thereafter     Total
----------------------------------------------------------------------------------------------------
<S>       <C>
Long-term debt                              --          --            --             --           --
Capital lease obligations                   --          --            --             --           --
Operating leases                            --          --            --             --           --
Unconditional purchase obligations          --          --            --             --           --
Other - employment agreements *        460,833     659,167       630,000        315,000    1,890,000
Total contractual obligations          460,833     659,167       630,000        315,000    1,890,000
</TABLE>

* In February 2005 Mr. Frattaroli was appointed President while continuing to
serve as Chief Financial Officer and Acting Chief Executive Officer. The terms
and provisions of this appointment are being finalized in writing and will be
disclosed when the agreement is completed in a form approved by the Board of
Directors. This table is presented reflecting the authorized annual salary to
Mr. Frattaroli effective March 1, 2005 for one year. The written employment
agreements with Mr. Masiz and Dr. Carter terminate their initial terms on June
30, 2008 but are deemed automatically extended for successive periods of two
years under the terms of their respective written agreements. See "Employment
Agreements" for further disclosures. This table is presented reflecting the
effects of the deemed automatic extensions and it reflects $315,000 beyond 2009.
This amount, $315,000, will be the annual ongoing obligation of the Company if
the agreements for Mr. Masiz and Dr. Carter do in fact extend under the present
agreement.


GOING CONCERN

         Our independent auditors stated in their "Report of Independent
Registered Public Accounting Firm" on our financial statements as of and for the
years ended December 31, 2004, 2003 and 2002 that we may be unable to continue
as a going concern. We anticipate that we have enough working capital to
continue our current operations through September 2005. We will require
additional financing to continue as a going concern. We are currently
investigating financing options. We cannot provide any assurances that financing
will be available to us, or even if we do obtain such financing, on favorable
terms. We cannot provide any assurances that BioChemics will extend us
additional financing or incur costs on our behalf.

OWNERSHIP STRUCTURE

         Through our parent company, Biochemics, John J. Masiz controls
approximately 70% of the combined voting power of all classes of stock of the
Company and approximately 44% of the combined equity interest of the Company.
Biochemics owns 100% of the Class B Common Stock of the Company. For a further
discussion please refer to Item 11 of this Annual Report.

                                       37


<PAGE>

OFF-BALANCE SHEET ARRANGEMENTS

         We have no material off-balance sheet financing such as a facility
lease or other long-term commitments. We have employment agreements with three
key employees. The remaining payments due under these agreements are as follows
- $460,833 for 2005, $344,167 for 2006, $315,000 for 2007; and $157,500 for
2008. You should refer to Note 10 of our audited financial statements for a more
detailed discussion of our commitments and contingencies.

INFLATION

         To date, inflation had no material impact on our operations.

ITEM 7.  FINANCIAL STATEMENTS

         Our audited financial statements and related notes, which are attached
to this Annual Report on Form 10-KSB beginning on page 56, are incorporated by
reference.

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

         None.

ITEM 8A. CONTROLS AND PROCEDURES

         As of the end of the period covered by this annual report, our Acting
Chief Executive Officer and Chief Financial Officer (the "Certifying Officer")
conducted evaluations of our disclosure controls and procedures. As defined
under Sections 13a-15(e) and 15d-15(e) of the 1934 Act, the term "disclosure
controls and procedures" means controls and other procedures of an issuer that
are designed to ensure that information required to be disclosed by the issuer
in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuer's management,
including the Certifying Officer, to allow timely decisions regarding required
disclosure. Based on this evaluation, the Certifying Officer has concluded that
our disclosure controls and procedures are effective to ensure that material
information is recorded, processed, summarized and reported by our management on
a timely basis in order to comply with our disclosure obligations under the 1934
Act, and the rules and regulations promulgated thereunder.

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

                                    PART III

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

DIRECTORS AND OFFICERS

         Set forth below is the name, age as of December 31, 2004, position and
a brief account of the business experience of each of our executive officers and
directors:

                                       38


<PAGE>

NAME                          AGE    POSITION
----                          ---    --------

Joseph Frattaroli              43    President, Acting Chief Executive Officer
                                     and Chief Financial Officer
Stephen Carter, Ph.D.          52    Vice President, Chief Scientific Officer,
                                     Director
William P. Adams, M.D.         59    Director (3), (4)
Robert E. Anderson             49    Director, Chairman of the Board (2)
Gary Fromm, Ph.D.              70    Director (4)
Ronald Guerriero               61    Director (3), (4)
D'Anne Hurd                    54    Director (2), (1), (4)
Steven Morrell                 49    Director (3), (1), (4)
Bruce A. Shear                 50    Director (4)
Brian J. Strasnick, Ph.D.      51    Director (4)
Henry Y.L. Toh                 47    Director (2), (1), (4)
__________
         (1)      Member of the Audit Committee of the Board of Directors
         (2)      Member of the Nominating and Corporate Governance Committee of
                  the Board of Directors
         (3)      Member of the Compensation Committee of the Board of Directors
         (4)      Independent Director

         JOSEPH FRATTAROLI - Mr Frattaroli has served as our President and
Acting Chief Executive Officer since August 17, 2004 and as our Chief Financial
Officer since June 2003. From January 2002 through April 2003, Mr. Frattaroli
served as an accounting and financial consultant to BioChemics. From April 2000
through December 2001, Mr. Frattaroli was Chief Financial Officer of Getov
Machine Incorporated. From January 1998 through April 2000, Mr. Frattaroli
served as managing principal for the EPI Consulting Group, a consulting firm
that provided per diem Chief Financial Officer services. He holds a Bachelor of
Science Degree in Business Administration from Salem State College and is a
certified public accountant licensed in New Hampshire.

         STEPHEN G. CARTER, PH.D. - Dr. Carter has served as our Chief
Scientific Officer since June 2003. He has served as a member of our Board of
Directors since June 2003. From September 1999 to the present, Dr. Carter has
also served as Chief Scientific Officer of BioChemics. From April 1998 to
September 1999, Dr. Carter was a self-employed consultant in the pharmaceuticals
industry. Dr. Carter received his Ph.D. from Iowa State University, Department
of Biochemistry & Biophysics.

         WILLIAM P. ADAMS, M.D., F.A.C.S. - Dr. Adams has been a member of our
Board of Directors since June 2003. Dr. Adams has served as the president and a
director of the Adams Center for Aesthetic Surgery, in Boston, Massachusetts
from July 19, 1979 to the present.. Dr. Adams is a graduate of Dartmouth College
and Harvard Medical School.

         ROBERT E. ANDERSON - Mr. Anderson has served as a member of our Board
of Directors since June 2003 and has been the Chairman of the Board since
September 17, 2004. From January 1998 to the present, Mr. Anderson has been a
self-employed consultant and investor. Mr. Anderson received his A.B. in
Economics from Brown University in 1978 and an MBA with Distinction from Harvard
Business School in 1982.

         GARY FROMM, PH.D. - Dr. Fromm has been a member of our Board of
Directors since June 2003. Dr. Fromm now serves as Chairman and has served as a
Director of IDC Financial Publishing, a leading analyst of government reporting
financial institutions, since 1984. He has served as a Director to Sky Capital
Enterprises, Inc. and Sky Capital Holdings Limited, financial services firms
since March 2003. He has served as Chairman of the Board of Sky Capital UK
Limited a financial services firm from July 2003 to October 2004. Dr. Fromm has
also served as a Director of Global Secure Holdings, Inc. since February of 2003
and as a director of Neoterik Health Technologies, Inc. since 1984. Dr. Fromm is
also founder and president of Investment Intelligence Systems Corporation and
its successor, Unisheet Limited, computer software companies, and co-founder of
Data Resources, a market data distribution company. He also has held teaching
and research positions with M.I.T., Harvard, the American University, the
Brookings Institution, National Bureau of Economic Research and Stanford
Research Institute. Dr. Fromm holds an A.M. and a Ph.D. in Economics from
Harvard University, an M.S. in Industrial Management from M.I.T. and a B.M.E. in
Mechanical Engineering from Cornell University.

         RONALD GUERRIERO - Mr. Guerriero was appointed to our Board of
Directors on September 17, 2004. From January 2004 to the present he has served
as Executive Director for Partners HealthCare System. From 1998 to 2004, he
served as President of Bridge Management Group, a company that specializes in
management of medium sized companies, where he served as Chief Executive Officer
for four companies. From 1996 to 1998, he served as Chief Executive Officer, for
BAS Development Company. From 1996 to 1998, he served as a Director of Emerging
Business Consulting for Arthur Anderson where he served as a temporary Chief
Executive Officer for NuMega TechnologiesHe holds a Bachelor of Science Degree
in Marketing from Boston College.

                                       39


<PAGE>

         D'ANNE HURD - Ms. Hurd was appointed to our Board of Directors on
September 17, 2004. Since June 2004, Ms. Hurd has served as an independent
business/legal consultant to several publicly traded companies. From 1997 to the
present she has served as a director and member of the audit committee for Data
Translation, Inc. From December 2002 to June 2004, Ms. Hurd was Chief Financial
Officer and General Counsel of StarBak Communications Inc. From May 1999 to
December 2002, Ms. Hurd was Chief Financial Officer and General Counsel of
Vividon, Inc. From May 1999 to March 2001, Ms. Hurd was Chief Financial Officer
and General Counsel of NaviNet, Inc. From February 1996 to May 1999, Ms. Hurd
was Chief Financial Officer and General Counsel of SmartRoute Systems, Inc. She
previously served as a business/legal consultant, specializing in young
pre-public businesses, initial public offerings and strategic alliances/joint
ventures. Ms. Hurd holds a Bachelor of Arts Degree in English Literature from
Mount Holyoke College (1972), a Juris Doctor Degree from Duke University (1985)
and a Masters in Business Administration Degree from University of Connecticut
(1979).

         STEVEN MORRELL - Mr. Morrell was appointed to our Board of Directors on
September 17, 2004. Since January 2001, Mr. Morrell has been a Partner at
Teknoinvest Management AS, a Norwegian venture capital firm investing in
Scandinavia and the United States in the life science and information technology
sectors with $150 million under management. From January 1999 to January 2001,
he was the Managing Director of a Teknoinvest portfolio company, and Aquasmart
International AS. From January 1998 to February 1999, he was the General
Director of Veropharm Co., Ltd., a Russian pharmaceutical company. Mr. Morrell
has held other numerous positions over the previous 14 years including: Managing
Director for a subsidiary of Merck & Co.; President of Hafslund Nycomed Pharma
AG in Austria; and management consultant in McKinsey & Co., Inc. Mr. Morrell
also served in the U.S. Air Force as an officer. Mr. Morrell currently serves as
a Member of the Board of AKVAsmart ASA in Norway, Marical, Inc., Optinel
Systems, Inc., CyVera Corporation, Isolagen Inc. and OAO Pharmacy Chain 36.6 in
Russia. Mr. Morrell holds an MBA from IMD, Switzerland and a Bachelor of Science
Degree in Mathematics and a minor in Aerospace Studies from Brigham Young
University.

         BRUCE A. SHEAR - Mr. Shear has served as a member of our Board of
Directors since June 2003. Mr. Shear is the co-founder, President and Chief
Executive Officer of PHC, Inc., a publicly traded nationally recognized
behavioral health company. Mr. Shear has served PHC since 1979. Prior to his
current position, Mr. Shear served as vice president of financial affairs. Mr.
Shear has served on the Board of Governors of the Federation of American Health
Systems for over 15 years. In addition, Mr. Shear previously served on the Board
of Trustees for the National Association of Psychiatric Health Systems, which
represents the nation's behavioral health hospitals and organizations. Mr. Shear
received an MBA from Suffolk University in 1980 and a B.S. in Accounting and
Finance from Marquette University in 1976.

         BRIAN J. STRASNICK, PH.D. - Dr. Strasnick has served as a member of our
Board of Directors since June 2003. Dr. Strasnick is the founder, Chairman,
President and Chief Executive Officer of Willow Laboratories, one of New
England's leading drug testing facilities. Dr. Strasnick has served that company
since September 1995. Dr. Strasnick has provided behavioral healthcare and
pharmacological services as a practitioner for over 18 years. Dr. Strasnick has
also served on the Board for the Drug and Alcohol Testing Industry Association,
or DATIA. Dr. Strasnick holds from Northeastern University, a BS in psychology
and pharmacology, an EdM, and a PhD in psychology.

         HENRY Y. L. TOH - Mr. Toh was appointed to our Board of Directors on
September 17, 2004. He is currently serving as a director with four other
publicly traded companies. Since January 2004, Mr. Toh has served as a director
for Isolagen Inc., a biotechnology firm. Since 2001, Mr. Toh has served as a
director of Teletouch Communications, Inc. Since 1992, Mr. Toh has served as an
officer and director of Acceris Communications, Inc., a publicly held Voice over
IP company. Since December 1998, Mr. Toh has served as a director of National
Auto Credit, Inc., a specialized finance and entertainment company. From April
2002 until February 2004, Mr. Toh served as a director of Bigmar, Inc., a Swiss
pharmaceuticals company. Since March 2004, Mr. Toh has served as a director of
Crown Financial Group, Inc., a registered broker-dealer. Since 1992, Mr. Toh has
served as an officer and director of Four M International, Inc., a privately
held offshore investment entity. Mr. Toh began his career with KPMG Peat,
Marwick from 1980 to 1992, where he specialized in international taxation and
mergers and acquisitions. Mr. Toh is a graduate of Rice University.

                                       40


<PAGE>

         There are no family relationships among any executive officers,
directors or persons chosen or nominated to become executive officers or
directors of Vaso Active. Each officer of the Company is appointed by the Board
of Directors and holds his office at the pleasure of the Board until his
resignation, termination or death.

         There are no material proceedings to which any director, director
nominee, executive officer or affiliate of the company, any owner of record or
beneficially of more than five percent of any class of voting securities of the
Company or any associate of any such director, officer, affiliate or security
holder is a party adverse to the company or has a material interest adverse to
the Company or any of its subsidiaries.

         To the best of our knowledge, no director, director nominee, officer or
affiliate of Vaso Active, owner of record or beneficially of more than five
percent of any class of our voting securities has, to our knowledge, during the
last five years: (1) been convicted of any criminal proceeding (excluding
traffic violations or similar misdemeanors); or (2) been a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was or is subject to a judgment, decree or final
order enjoining future violations of, or prohibiting or mandating activities
subject to, U.S. federal or state securities laws or finding any violations with
respect to such laws, except the following:

         On September 13, 2004, the United States District Court for the
District of Columbia entered final judgments against the Company and John J.
Masiz, the Company's former President and Chief Executive Officer, pursuant to
their settlements with the SEC filed with the Court. The SEC formally approved
the terms of a settlement with John J. Masiz, formerly Vaso Active's President
and Chief Executive Officer, without Mr. Masiz admitting or denying the
allegations of the civil complaint, that likewise enjoins him from violating the
antifraud and reporting provisions, and prevents him from serving as an officer
or director of any public company, including Vaso Active, for a period of five
years. Effective as of August 17, 2004, Mr. Masiz resigned as an executive
officer and a director of Vaso Active. He is, however, permitted to remain an
active employee and/or consultant of Vaso Active. In light of the foregoing,
Vaso Active and Mr. Masiz agreed to terminate his employment agreement and enter
into a new agreement. Pursuant to that agreement, Mr. Masiz will provide
strategic consulting services regarding sales, marketing and business
development to Vaso Active for an initial term through June 30, 2008 and will
report to the Chief Executive Officer of Vaso Active.

         Dr. Stephen G. Carter is also a director and executive officer of
BioChemics and Robert E. Anderson is a director of BioChemics. BioChemics has
one other director, Mr. John J. Masiz. Dr. Carter spends approximately 30% of
his business time on behalf of Vaso Active and the balance with BioChemics.

         On June 18, 2004, Mr. Kevin J. Seifert resigned as director and Chief
Operating Officer of Vaso Active. On August 17, 2004, Mr. John J. Masiz resigned
as director and Chief Executive Officer of Vaso Active in accordance with a
settlement agreement between Mr. Masiz and the SEC. Mr. Masiz is permitted to
remain as an employee/consultant with Vaso Active. We and Mr. Masiz agreed to
terminate his employment contract and enter into a new agreement. Pursuant to
this new agreement, Mr. Masiz provides us with strategic consulting services in
the areas of sales, marketing and business development through June 30, 2008.
Mr. Masiz reports to our Chief Executive Officer. Also on August 17, 2004, we
appointed Mr. Joseph Frattaroli, our Chief Financial Officer, and as our Acting
President and Acting Chief Executive Officer. In February 2005, Mr. Frattaroli
was appointed President. The terms and provisions of this appointment are being
finalized in writing and will be disclosed when his employment agreement is
completed and approved by the Board of Directors.

                                       41


<PAGE>

THE BOARD OF DIRECTORS

         The Board of Directors oversees the business affairs of the Company and
monitors the performance of management. The Board of Directors held 14 meetings
during the fiscal year ended December 31, 2004. During the 2004 fiscal year, all
Board members attended 75% or more of the Board meetings. The Board of Directors
has designated three standing committees: the Audit Committee, the Compensation
Committee and the Nominating and Corporate Governance Committee. On September
13, 2004 our Board of Directors appointed four new members, including Mr. Henry
Y.L. Toh, Mr. Steven Morrell, Mr. Ronald Guerriero and Ms. D'Anne Hurd.
Currently, the Board consists of ten members, including Dr. Stephen G. Carter,
Mr. Bruce A. Shear, Dr. Brian J. Strasnick, Mr. Robert E. Anderson, Dr. Gary
Fromm, Dr. William P. Adams, Mr. Henry Y.L. Toh, Mr. Steven Morrell, Mr. Ronald
Guerriero and Ms. D'Anne Hurd. Robert Anderson is the Chairman (non-executive
officer) of our Board of Directors. In addition, the Board appointed Mr.
Guerriero as the lead independent director, in accordance with the New York
Stock Exchange guidance.

COMMITTEES OF THE BOARD

         Audit Committee. The Audit Committee is responsible for making
recommendations to the Board of Directors concerning the selection and
engagement of independent accountants and for reviewing the scope of the annual
audit, audit fees, results of the audit and auditor independence. The Audit
Committee also reviews and discusses with management and the Board of Directors
such matters as accounting policies, internal accounting controls and procedures
for preparation of financial statements. Its membership is currently comprised
of Mr. Henry Y.L. Toh (Chairman), D'Anne Hurd and Steven Morrell. The Audit
Committee held 4 meetings during the last fiscal year. On January 19, 2005, the
Board of Directors amended and revised our Audit Committee Charter in order to
incorporate certain updates in light of the most recent regulatory developments,
including the Sarbanes-Oxley Act of 2002. A copy of the current Audit Committee
Charter was attached to our Current Report on Form 8-K dated January 19, 2005
and is incorporated by reference herein. The Audit Committee Charter is reviewed
annually.

         Compensation Committee. The Compensation Committee reviews and approves
the compensation for executive employees. Its membership is currently comprised
of Messrs. Ronald Guerriero (Chairman), Steven Morrell and William Adams. The
Compensation Committee held no meeting during the last fiscal year. A copy of
the current Compensation Committee Charter was attached to our Current Report on
Form 8-K dated January 19, 2005 and is incorporated by reference herein.

         Nominating and Corporate Governance Committee. The Board of Directors
established the Nominating and Corporation Governance Committee on December 17,
2004 for the purposes of identifying individuals qualified to become Board
members and to recommend that the Board select these individuals as nominees for
election to the Board at the next annual meeting of the Company's stockholders,
and developing and recommending to the Board a set of effective corporate
governance policies and procedures applicable to the Company. Its membership is
currently comprised of D'Anne Hurd (Chairwoman), Henry Y.L. Toh and Robert
Anderson. The Committee held no meeting during the last fiscal year. A copy of
the Nominating and Corporate Governance Committee Charter was attached to our
Current Report on Form 8-K dated January 19, 2005 and is incorporated by
reference herein.

AUDIT COMMITTEE FINANCIAL EXPERT

         The Board of Directors has determined that Mr. Henry Y.L. Toh is an
audit committee financial expert as defined by Item 401(h) of Regulation S-B
under the Securities Act and is independent within the meaning of Item
7(d)(3)(iv) of Schedule 14A under the Exchange Act.

                                       42


<PAGE>

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         Section 16(a) of the Exchange Act requires our officers and directors,
and persons who own more than ten percent of a registered class of our equity
securities, to file reports of ownership and changes in ownership of equity
securities of Vaso Active with the SEC. Officers, directors, and greater than
ten percent stockholders are required by the SEC regulation to furnish us with
copies of all Section 16(a) forms that they file.

         Based solely upon a review of Forms 3 and Forms 4 furnished to us
pursuant to Rule 16a-3 under the Exchange Act during our most recent fiscal
year, and Forms 5 with respect to our most recent fiscal year, we believe that
all such forms required to be filed pursuant to Section 16(a) were timely filed
as necessary, by the executive officers, directors and security holders required
to file same during the fiscal year ended December 31, 2004, with the following
exceptions: (i) Form 3s for newly appointed members to Vaso Active's Board of
Directors, Mr. Guerriero, Ms. Hurd, Mr. Morrell and Mr. Toh, and (ii) Form 4s
for Messrs. Anderson, Adams, Fromm, Shear, Guerriero, Strasnick and Ms. Hurd
were inadvertently filed late.

CODE OF ETHICS

         On January 25, 2005, we have adopted a Code of Ethics within the
meaning of Item 406(b) of Regulation S-B of the Securities Act. This Code of
Ethics applies to our directors and executive officers, such as our principal
executive officer, principal financial officer, controller, and persons
performing similar functions for us. We attached a copy of this code to a
notification filed on Form 8-K on January 25, 2005 with the SEC. You may obtain
a free copy of our Code by visiting our corporate website - www.vasoactive.us.
Alternatively, upon written request, we will mail you a free copy of our code.
Please mail your request to the following address - Vaso Active Pharmaceuticals,
Inc., Attention: Mr. Joseph Frattaroli, 99 Rosewood Drive, Suite 260, Danvers,
MA 01923.

ITEM 10.      EXECUTIVE COMPENSATION


         The following table sets forth the aggregate cash compensation paid for
services rendered during the last three years by each person serving as our
Chief Executive Officer and our five most highly compensated executive officers
serving as such at the end of the year ended December 31, 2004, whose
compensation was in excess of $100,000. Each person below is referred to as a
"Named Executive Officer". The reader should note that the Company commenced
operations in January 2003 and therefore did not pay any compensation to any
Named Executive Officers during the year ended December 31, 2002.

<TABLE>
                                                                         LONG TERM COMPENSATIONS
                                                                         -----------------------
                         ANNUAL COMPENSATION                             AWARDS                                            PAYOUTS
                         -------------------                             ------                                            -------

                                                                         RESTRICTED    SECURITIES                         ALL OTHER
  NAME AND PRINCIPAL                                      OTHER ANUAL      STOCK        UNDERLYING                      COMENSATIONS
        POSITION           YEAR  SALARY ($)  BONUS ($)  COMENSATIONS ($)  AWARDS ($)  OPTIONS/SARS(#)  LTIP PAYOUTS ($)     ($)
        --------           ----  ----------  ---------  ----------------  ----------  ---------------  ---------------- ------------
<S>                        <C>    <C>        <C>         <C>                   <C>        <C>                 <C>              <C>
Joseph Frattaroli
President, Acting Chief    2004   75,000 (1)    35,000         -               -             -                -                -
Executive Officer, and     2003    6,000 (1)     -             -               -           90,000             -                -
Chief Financial Officer    2002        - (4)     -             -               -             -                -                -

John J. Masiz (2)          2004  175,000         -           4,558             -             -                -                -
Former Chief Executive     2003   94,792         -             -               -          300,000             -                -
Officer                    2002        - (4)     -             -               -             -                -                -

Dr. Stephen G. Carter      2004  140,000         -             -               -             -                -                -
(3) Chief Scientific       2003   75,833         -             -               -          225,000             -                -
Officer                    2002        - (4)     -             -               -             -                -                -

</TABLE>

                                       43


<PAGE>

         (1)      Mr. Frattaroli began his employment with the Company in June
                  2003 as our Chief Financial Officer. During 2003 Mr.
                  Frattaroli's salary was $6,000 paid upon completion of the
                  IPO. On August 17, 2004, Mr. Frattaroli was appointed as
                  Acting President and Acting Chief Executive Officer of the
                  Company while continuing to serve as Chief Financial Officer.
                  During 2004 Mr. Frattaroli's annual salary was $75,000 until
                  September when it was increased with a $20,000 cash bonus a
                  monthly $5,000 bonus during the fourth quarter. In February
                  2005 Mr. Frattaroli was appointed President while continuing
                  to serve as Chief Financial Officer and Acting Chief Executive
                  Officer. The terms and provisions of this appointment are
                  being finalized in writing and will be disclosed when the
                  agreement is completed in a form approved by the Board of
                  Directors. Until March 2005, Mr Frattaroli's annual salary was
                  $75,000 per year plus a monthly bonuse of $5,000; in March
                  2005 his annual salary was increased to $115,000 plus a $5,000
                  per month bonus spread out weekly. The securities underlying
                  options in the amount of 90,000 shares were granted to Mr.
                  Frattaroli on December 15, 2003 under the Company's 2003 Stock
                  Incentive Plan at a strike price of $1.67. The options vested
                  1/3 on December 15, 2004 and are scheduled to vest 1/3
                  annually thereafter.

         (2)      Mr. Masiz began his employment with the Company in June 2003
                  as our President, Chief Executive Officer and as the Chairman
                  of the Board of Directors. During 2003 Mr. Masiz's salary was
                  $94,792 paid upon completion of the IPO. On August 17, 2004,
                  Mr. Masiz resigned as President, Chief Executive Officer and
                  as Chairman of the Board of Directors in accordance with the
                  terms of his settlement with the SEC. Mr. Masiz continues to
                  be employed as a strategic consultant to the Company. During
                  2004 Mr. Masiz's annual salary was $175,000, other annual
                  compensation in the amount of $4,558 representing a taxable
                  automobile allowance. During 2005 Mr. Masiz's annual salary is
                  $175,000 under the terms of his consulting agreement with the
                  Company. The securities underlying options in the amount of
                  300,000 shares were granted to Mr. Masiz on December 15, 2003
                  under the Company's 2003 Stock Incentive Plan at a strike
                  price of $1.83. The options vested 50% on December 15, 2003,
                  25% on December 15, 2004 and the remaining 25% are scheduled
                  to vest on December 15, 2005. See "Employment Agreements" for
                  additional disclosure.

         (3)      Dr. Carter began his employment with the Company in June 2003
                  as our Chief Scientific Officer. During 2003 Dr. Carters
                  salary was $75,833 paid upon completion of the IPO. During
                  2004 Dr. Carter's annual salary was $140,000 under an
                  employment agreement. The securities under options in the
                  amount of 225,000 shares were granted to Dr. Carter on
                  December 15, 2003 under the Company's 2003 Stock Incentive
                  Plan at a strike price of $1.67 per shares. The options vested
                  50% on December 15, 2003, 25% on December 15, 2004 and the
                  remaining 25% are scheduled to vest on December 15, 2005. See
                  "Employment Agreements" for additional disclosure.

         (4)      The Company commenced operations in January 2003. Accordingly,
                  there was no compensation paid during 2002.

                                       44


<PAGE>

OPTION/SAR GRANTS IN LAST FISCAL YEAR (2004)

         The following table sets forth certain information with respect to the
options granted during the year ended December 31, 2004, for the persons named
in the Summary Compensation Table (the "Named Executive Officers"):

<TABLE>
                     NUMBERS OF
                     SECURITIES         PERCENT OF TOTAL
                     UNDERLYING       OPTIONS/SARS GRANTED
                    OPTIONS/SARS         TO EMPLOYEES IN      EXERCISE OR    GRANT DATE    EXPATRIATION
      NAME           GRANTED (#)           FISCAL YEAR         BASE PRICE       VALUE           DATE
      ----           -----------           -----------         ----------       -----           ----
<S>                  <C>                  <C>                   <C>               <C>           <C>
   Joseph F.
   Frattaroli             -                     -                   -             -              -
 John J. Masiz            -                     -                   -             -              -
 Dr. Stephen G.
     Carter               -                     -                   -             -              -
</TABLE>


AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES

         The following table sets forth certain information with respect to
options exercised during 2004 by the Named Executive Officers and with respect
to unexercised options held by such persons at the end of 2004.

<TABLE>
               SHARES     VALUE      NUMBER OF SECURITIES UNDERLYING     VALUE OF UNEXERCISED IN THE
             ACQUIRED ON  REALIZED     UNEXERCISED OPTIONS/SARS AT      MONEY OPTIONS/SARS AT FY-END
NAME         EXERCISE (#)    ($)                FY-END (#)                          ($) *
----         ------------    ---                ----------                          -----
                                      EXERCISABLE     UNEXERCISABLE     EXERCISABLE     UNEXERCISABLE
                                      -----------     -------------     -----------     -------------
<S>              <C>         <C>        <C>              <C>                <C>               <C>
 Joseph F.
 Frattaroli       -           -          30,000           60,000             -                -
  John J.
   Masiz          -           -         225,000           75,000             -                -
Dr. Stephen
 G. Carter        -           -         168,750           56,250             -                -
</TABLE>

* The calculations of the values of unexercised options are based on the
difference between the closing bid price on the Pink Sheets of the common stock
on December 31, 2004, and the exercise price of each option, multiplied by the
number of shares covered by the option. Value ascribed to unexercised options at
December 31, 2004 was minimal as the exercise price exceeded the closing bid
price of each option

                                       45


<PAGE>

DIRECTOR COMPENSATION

         Each Director then serving receives cash renumeration in the amount of
$15,000 per year paid in quarterly installments of $3,750 at the beginning of
the quarter. In addition, each Board member receives cash renumeration in the
amount of $1,500 for each meeting attended and $750 for each telephonic meeting
attended. Any Board member who also serve on a committee of the Board receives
additional cash renumeration in the amount of $2,500 annually paid in quarterly
installments at the beginning of the quarter. Each Board member is reimbursed
for all reasonable expenses related to their attending the Board or committee
meetings. In accordance with the February 16, 2005 Board resolutions, the Board
members have an option, effective as of April 1, 2005, of receiving either Class
A common stock or stock options in lieu of cash compensation. The details of
this compensation arrangement are being determined and have not been finalized
as of the date of this report.

         Under the 2003 Non-Employee Director Compensation Plan, except as
otherwise determined by the Board as set forth in resolutions duly adopted by
the Board from time to time, each person who becomes a Non-Employee Director for
the first time after June 1, 2003 shall be granted incentive in the form of
Incentive Stock Options to purchase 60,000 shares of Common Stock at an exercise
price equal to the fair market value on the date of grant. At the consummation
of the initial public offering, Dr. Adams, Mr. Anderson, Dr. Fromm, Mr. Shear
and Dr. Strasnick each received an option to purchase 60,000 shares of our Class
A common stock at $1.67 per share. The options have terms of ten years with 25%
vested immediately at grant date and 25% on each subsequent anniversary of the
grant date. In December 2004, all our non-employee directors received an option
to purchase 30,000 shares of our Class A common stock at $0.50 per share. The
options have terms of ten years with one third vested immediately at grant date
and one third on each subsequent anniversary of the grant date. We did not
compensate any director for other services during the fiscal year ended December
31, 2004.


EMPLOYMENT AGREEMENTS

JOHN MASIZ EMPLOYMENT AGREEMENT

         We entered into an employment agreement with Mr. Masiz, effective as of
August 12, 2004, under which agreement he shall serve as a strategic consultant
to the Company regarding sales, marketing,business development and strategic
planning. through June 30, 2008. The agreement is automatically renewed for
successive two year terms thereafter unless terminated earlier by either party
in accordance with the terms and conditions of the employment agreement. The
agreement provides for an annual salary of $175,000 per year, subject to yearly
merit and performance-based bonuses to be granted in such amounts as may be
determined by the Board of Directors' Compensation Committee in its discretion.
If the Board terminates Mr. Masiz without cause, he is entitled to his base
salary through the end of the employment period plus a pro-rata portion of any
performance-based bonus assuming that 100% of the applicable performance targets
for the relevant fiscal year have been achieved. In the event of a termination
of Mr. Masiz's employment by Mr. Masiz for good reason within 12 months of a
change in control, we are obligated to pay him a lump sum equal to 200% of his
salary as in effect at the time of such termination plus a pro-rata portion of
any performance-based bonus, assuming that 100% of the applicable performance
targets for the relevant fiscal year had been achieved. For the purposes of this
agreement, a change of control occurs if one person or entity acquires control
of 30% or more of our voting common stock, there is a change of control in the
board, we sell all or substantially all of our assets, or we are the
non-surviving party in a merger. Mr. Masiz devote approximately 70% of his time
on behalf of Vaso Active.

         The foregoing agreement was entered into by the Company and Mr. Masiz
subsequent to the September 13, 2004 final judgment by the United States
District Court for the District of Columbia against the Company and John J.
Masiz, the Company's former President and Chief Executive Officer, pursuant to
their settlements with the SEC filed with the Court. The SEC formally approved
the terms of a settlement with John J. Masiz that enjoined him from violating


                                       46


<PAGE>

the antifraud and reporting provisions, and prevented him from serving as an
officer or director of any public company, including Vaso Active, for a period
of five years. Effective as of August 17, 2004, Mr. Masiz resigned as an
executive officer and a director of Vaso Active. He is, however, permitted to
remain an active employee and/or consultant of Vaso Active. In light of the
foregoing, Vaso Active and Mr. Masiz agreed to terminate his employment
agreement and enter into a new agreement. Pursuant to that agreement, Mr. Masiz
will provide strategic consulting services regarding sales, marketing and
business development to Vaso Active for an initial term through June 30, 2008
and will report to our Chief Executive Officer. On September 13, 2004, the Court
for the District of Columbia entered final judgments against Vaso Active and Mr.
Masiz.

STEPHEN CARTER EMPLOYMENT AGREEMENT

         We entered into an employment agreement with Dr. Carter, effective as
of June 16, 2003, which provides for his employment as Chief Scientific Officer
through June 30, 2008. The agreement is automatically renewed for successive two
year terms thereafter unless terminated earlier by either party in accordance
with the terms and conditions of the employment agreement. The agreement
provides for an annual salary of $140,000 per year, subject to yearly merit and
performance-based bonuses to be granted in such amounts as may be determined by
the Board of Director's Compensation Committee in its discretion. If we
terminate Dr. Carter without cause, he is entitled to his base salary for 12
months following the time of termination. In the event of a termination of Dr.
Carters's employment by Dr. Carter for good reason within 12 months of a change
in control, we are obligated to pay him a lump sum equal to 200% of his salary
as in effect at the time of such termination plus a pro-rata portion of any
performance-based bonus, assuming that all 100% of the applicable performance
targets for the relevant fiscal year had been achieved. For the purposes of his
agreement, a change of control occurs if one person or entity acquires control
of 30% or more of our voting common stock, there is a change of control in the
board, we sell all or substantially all of our assets, or we are the
non-surviving party in a merger. Mr. Carter devotes approximately 30% of his
time on behalf of Vaso Active.

APPOINTMENT OF JOSEPH FRATTAROLI

         In February, 2005, our Board of Directors finalized appointment of Mr.
Frattaroli as the Company's President, Acting Chief Executive Officer and Chief
Financial Officer, at a base salary of $115,000 plus a guaranteed one year bonus
of $5,000 per month spread out weekly, subject to adjustment pending execution
of an executive employment agreement by and between the company and Mr.
Frattaroli. As of the date of this Annual Report, we have not entered into such
agreement.

2003 STOCK INCENTIVE PLAN

         The 2003 Stock Incentive Plan was adopted in May 2003. The 2003 Stock
Incentive Plan has been established for present and future executives, and other
key employees, directors and consultants of the Company and its Subsidiaries, as
my be selected by the Committee. The plan is intended to advance the best
interests of the Company and its stockholders by providing those persons who
have a substantial responsibility for its management and growth with additional
incentives by allowing them to acquire an ownership interest in the Company and
thereby encouraging them to contribute to the success of the Company and to
remain in its employ.

         The 2003 Stock Incentive Plan provides for the grant of any one or a
combination of Restricted Stock Grants, Incentive Stock Options, Nonqualified
Stock Options and Stock Appreciation Rights to purchase up to 1,350,000 shares
of common stock (adjusted for the March 2003 stock dividend and subject to
adjustment in the future in the event of stock dividends, stock splits, and
other similar events). No incentive shall be granted under the 2003 Stock
Incentive Plan after July 2013, but the terms and exercise of Incentives granted
theretofore may extend beyond this date.

         At December 31, 2004, none of the options have been exercised;
and 972,000 options were outstanding under the 2003 Stock Incentive Plan. At
December 31, 2004, incentives to purchase up to 378,000 additional shares of
common stock remain available under this plan.

                                       47


<PAGE>

2003 NON-EMPLOYEE DIRECTOR COMPENSATION PLAN

         The 2003 Non-Employee Director Compensation Plan was adopted in August
2003. The 2003 Non-Employee Director Compensation Plan has been established for
present and future non-employee directors of the Company. This Plan is intended
to advance the best interest of the Company and its stockholders by improving
the Company's ability to attract and retain highly qualified individuals to
serve as directors of the Company by allowing them to acquire an ownership
interest in the Company and thereby encouraging them to contribute to the
success of the company and to build and strengthen the commonality of interest
between directors and stockholders.

         The 2003 Non-Employee Director Compensation Plan provides for the grant
of Incentive Stock Options, Nonqualified Stock Options, Restricted Stock Grants,
and Stock Appreciation Rights to purchase up to 900,000 shares of common stock
(adjusted for the March 2003 stock dividend and subject to future adjustment in
the event of stock dividends, stock splits, and other similar events). No
incentive shall be granted under the 2003 Non-Employee Director Compensation
Plan after August 22, 2013, but the term and exercise of Incentives granted
theretofore may extend beyond that date.

         Under the 2003 Non-Employee Director Compensation Plan, except as
otherwise determined by the Board as set forth in resolutions duly adopted by
the Board from time to time, each person who becomes a Non-Employee Director for
the first time after June 1, 2003 shall be granted incentive in the form of
Incentive Stock Options to purchase 60,000 shares of Common Stock at an exercise
price equal to the fair market value on the date of grant. At the consummation
of the initial public offering, Dr. Adams, Mr. Anderson, Dr. Fromm, Mr. Shear
and Dr. Strasnick each received an option to purchase 60,000 shares of our Class
A common stock at a strike price of $1.67 per share. The options have terms of
ten years with 25% vested immediately at grant date and 25% on each subsequent
anniversary of the grant date. In December 2004, all our nine of our
non-employee directors received an option to purchase 30,000 shares of our Class
A common stock at strike price of $0.50 per share. The options have terms of ten
years with one third vested immediately at grant date and one third on each
subsequent anniversary of the grant date. We did not compensate any director for
other services during the fiscal year ended December 31, 2004. At December 31,
2004, 570,000 Incentive Stock Options were issued and outstanding under the plan
leaving 330,000 available for future issuance under the plan.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

            The following table sets forth information on the beneficial
ownership of our Class A and Class B common stock as of March 18, 2005, for each
person or group of affiliated persons, whom management knows to beneficially own
more than 5% of either class of our common stock or control more than 5% of the
votes eligible to be cast at our Annual Meeting. The table also lists the same
information for our directors and Names Officers, individually and as a group.

            Beneficial ownership is determined in accordance with the rules of
the SEC. Options to purchase shares of common stock that are exercisable within
60 days of March 18, 2005 are deemed to be beneficially owned by the person
holding such options for the purpose of computing their ownership, but are not
treated as outstanding for the purpose of computing the ownership of any other
person. Applicable percentage of beneficial ownership is based on 5,828,613
shares of Class A common stock and 4,500,000 shares of Class B common stock
outstanding as of March 18, 2005. Unless otherwise indicated in the footnotes,
the address of each listed stockholder is: c/o Vaso Active Pharmaceuticals,
Inc., 99 Rosewood Drive, Suite 260, Danvers, MA 01923.

                                       48


<PAGE>
<TABLE>

CLASS A COMMON STOCK


                                                  NUMBER OF SHARES
NAME OF BENEFICIAL OWNER(1)                     BENEFICIALLY OWNED (1)  PERCENT OF CLASS
<S>        <C>                                           <C>                   <C>
John Masiz (2)(3)                                        4,725,000             44.8%
BioChemics (2)(4)                                        4,500,000             43.6%
Joseph Frattaroli (5)                                       30,000               *
Stephen G. Carter, Ph.D (6)                                168,750              2.8%
Brian Strasnick, Ph.D (7)                                  104,233              1.8%
Robert Anderson (8)                                         76,000              1.3%
Bruce A. Shear (9)                                          40,000               *
Gary Fromm, Ph.D(10)                                        40,000               *
William P. Adams, M.D. (11)                                 40,000               *
D'Anne Hurd (12)                                            10,000               *
Steven Morrell (13)                                         10,000               *
Henry Y. L. Toh (14)                                        10,000               *
Ronald Guerriero (15)                                       10,000               *

All directors and executive officers as group
(eleven persons)                                           538,983              8.5%

CLASS B COMMON STOCK

                                                NUMBER OF SHARES
                                                BENEFICIALLY OWNED     PERCENT OF CLASS
NAME OF BENEFICIAL OWNER(1)                     (2)                    OUTSTANDING
John Masiz (3)                                  4,500,000              100%
BioChemics (4)                                  4,500,000              100%

</TABLE>

---------------
* Less than 1% of the outstanding Class A common stock.

(1)      The persons listed in the tables are the owners of record of the shares
         of Vaso Active Class A common stock and Class B common stock listed
         opposite their respective names, and have sole voting and investment
         power with respect to such shares of common stock, unless otherwise
         indicated.

(2)      Includes 4,500,000 shares of Class B common stock which are convertible
         at any time into shares of Class A common stock on a share-for-share
         basis.

(3)      BioChemics is the holder of record of all of the 4,500,000 shares of
         Class B common stock deemed beneficially owned by Mr. Masiz. Mr. Masiz
         has sole voting and investment power with respect to approximately 83%
         of the issued and outstanding capital stock of BioChemics and has the
         voting power to elect all of its directors. Mr. Masiz disclaims
         beneficial ownership of all shares listed as beneficially owned by
         BioChemics except to the extent of his pecuniary interest therein. Of
         the aggregate 4,500,000 shares of Class B common stock deemed
         beneficially owned by Mr. Masiz, all of such shares are also deemed
         beneficially owned by BioChemics. As a result of the Class B common
         stock having three votes per share, as of March 18, 2005, Mr. Masiz
         beneficially owned shares representing approximately 70% of the
         combined voting power of the outstanding common stock of Vaso Active.

                                       49



<PAGE>

(4)      BioChemics has sole voting and investment power with respect to the
         4,500,000 shares of Class B common stock of which it is holder of
         record. All the aggregate 4,500,000 shares of Class B common stock held
         of record and beneficially owned by BioChemics are also deemed
         beneficially owned by Mr. Masiz. As a result of the Class B common
         stock having three votes per share, as of March 18, 2005, BioChemics
         beneficially owned shares representing approximately 70% of the
         combined voting power of the outstanding common stock of the Company.

(5)      Includes 30,000 Class A common stock options. Mr. Frattaroli
         beneficially owns 405,000 shares of BioChemics, (180,000 shares of
         which are owned by a corporation in which Mr. Frattaroli has a 50%
         interest), representing 7.3% ownership of BioChemics.

(6)      Includes 168,750 Class A common stock options. Mr. Carter also owns
         300,000 BioChemics' common stock options, representing 5.1% ownership
         of BioChemics.

(7)      Includes 40,000 Class A common stock options.

(8)      Includes 40,000 Class A common stock options. Mr. Anderson also
         beneficially owns 198,082 shares of BioChemics's common stock issuable
         upon conversion of three convertible promissory notes dated August 19,
         2000, September 18, 2000, and December 14, 2000, representing 3.4%
         ownership of BioChemics.

(9)      Includes 40,000 Class A common stock options.

(10)     Includes 40,000 Class A common stock options.

(11)     Includes 40,000 Class A common stock options.

(12)     Includes 10,000 Class A common stock options.

(13)     Includes 10,000 Class A common stock options.

(14)     Includes 10,000 Class A common stock options.

(15)     Includes 10,000 Class A common stock options.


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         The following sets forth information surrounding compensation plans in
which we have authorized the future issuance of our common stock:

<TABLE>
                                              Number of securities
                                               to be issued upon        Weighted average
                                                  exercise of          exercise price of     Number of securities
                                              outstanding options,    outstanding options,    remaining available
                                              warrants and rights     warrants and rights     for future issuance

          <S>                                      <C>                       <C>                    <C>
          Equity compensation plans
          approved by security holders             1,542,000                 $ 1.60                 708,000

</TABLE>


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

POLICY ON RELATED PARTY TRANSACTIONS

         We have a policy that any transactions between us and our officers,
directors, principal stockholders and affiliates be on terms no less favorable
to us than could reasonably be obtained in arms' length transactions with
independent third parties, and that any such transaction also be approved by a
majority of our outside independent directors disinterested in the transaction.
In addition, under our Code of Conduct, all related-party transactions must be
reviewed and approved by the Audit Committee of our Board of Directors.

                                       50


<PAGE>

RELATIONSHIP WITH BIOCHEMICS

         BioChemics, Inc. owns all issued and outstanding shares of Vaso
Active's Class B common stock. Because our Class B common stock has three votes
per share, BioChemics controls approximately 70% of the total votes outstanding.
Our former President, Chairman and Chief Executive Officer, John Masiz, is also
the Chief Executive Officer, President and controlling stockholder of
BioChemics. Mr. Masiz has sole voting and investment power with respect to
approximately 83% of the issued and outstanding capital stock of BioChemics.

PRIVATE PLACEMENT OF SECURITIES

         Through a private placement transaction that closed in April 2003, we
issued subordinated 10% convertible pay-in-kind promissory notes in the
aggregate principal amount of $500,000 to accredited investors. These notes
converted into our Class A common stock on the consummation of our initial
public offering at $0.83 per share. At consummation of our initial public
offering, we issued approximately 600,000 shares of our Class A common stock to
the holders of these notes. In this private placement transaction, we issued
notes in the principal amount of $50,000 to Dr. Strasnick, one of our directors.
As a result, we issued 64,233 shares of our Class A common stock
to Dr. Strasnick upon conversion of his notes.

LICENSE AGREEMENT

         Certain of the BioChemics' patents were issued initially in the name of
John Masiz. In March 2002, Mr. Masiz assigned these patents to BioChemics, free
and clear of any encumbrances. We have entered into a license agreement with
BioChemics, effective as of February 01, 2003, under which we have a worldwide,
exclusive right to use and practice these patents to sell, market and
commercialize all products that (i) utilize and incorporate the BioChemics'
patents and know-how; (ii) are classified by the FDA as "over-the-counter
products", and (iii) require less than $1.0 million of clinical development.
Specifically excluded from the license are certain diabetic products developed
by BioChemics which are the subject of a clinical study that was conducted in
Boston. In exchange for the granting of the license, we issued 4,500,000 shares
of our Class B common stock to BioChemics as a license fee with a deemed value
equal to the par value of such shares or $450. This is a one-time license fee
and there are no royalties payable to BioChemics under the license agreement.
Pursuant to the terms of the license agreement, BioChemics retains all rights to
use and practice the patents for all purposes with respect to non-OTC products,
including pharmaceuticals and pet products. Any improvements to the patents
remain the property of BioChemics, but to the extent that any such improvements
relate to products and product candidates, the improvements are licensed to us
on the same terms as the initial license under the license agreement.
Maintenance of the patent filings remains the responsibility of BioChemics,
although we maintain the right under the license agreement to make any required
filings at BioChemics' expense in the event that such filings are not made on a
timely basis by BioChemics.

         Pursuant to an amendment to the license agreement, dated July 2, 2003,
the trademarks Osteon and PENtoCORE, together with the goodwill associated with
each mark, were licensed to us by BioChemics. In addition,, the nature and
quality of all services rendered in connection with the Osteon and PENtoCORE
marks remain under the control of BioChemics. The amendment to the license
agreement has a term expiring on the expiration date of the last patent to
expire; with respect to the technology not protected by a patent, the term is 10
years from the date of the amendment. The agreement is set to renew
automatically for successive terms of 2 years with respect to the non-patent
technology unless terminated by the company upon a 90-day notice.

MANUFACTURING AND DEVELOPMENT AGREEMENT

         In August 2003, we formalized a manufacturing and development agreement
with BioChemics with respect to the ongoing manufacturing and development of our
products and product candidates. The agreement has an initial term of five years
and shall be automatically renewed on each anniversary date of the agreement for
an additional period of 12 months so long as the agreement has not been
terminated in accordance with its terms and conditions. Under this agreement,


                                       51


<PAGE>

BioChemics has and will continue to research, develop and manufacture products
for us pursuant to specific purchase orders submitted by us from time to time.
BioChemics will charge us a development and manufacturing fee at a rate of cost
plus 10%. The agreement permits BioChemics to use third party contractors to
manufacture the products that BioChemics provides to us. Currently, BioChemics
uses a privately owned third party company as its sole contract manufacturer. We
do not currently, nor do we intend to, engage in the manufacturing of, nor
conduct any research and development with respect to, any of our products or
product candidates. However, in the event that BioChemics is unwilling or unable
to meet our manufacturing needs in accordance with the terms of the agreement
with us, we have the right to retain outside third parties to manufacture our
products. Pre-clinical studies utilizing animals were
conducted and billed as part of this research. Research and development costs
incurred under this agreement were approximately $266,500 during 2004.

OFFICE SPACE, ADMINISTRATIVE SERVICES AND FINANCIAL SUPPORT

         We presently maintain our principal corporate offices on premises that
we share with BioChemics. We do not have a lease agreement with BioChemics.
During the years ended December 31, 2004, 2003 and 2002, we recorded
approximately $44,000, $20,000 and $20,000 in rent expense for this facility,
respectively. In addition, BioChemics provides us with back office support and
corporate management services. Allocations of BioChemic's expenses for
centralized accounting, data processing, utilities, office space rental,
supplies, telephone and other corporate services and infrastructure are charged
back to us as a management fee. These amounts approximated $45,847, $122,072 and
$135,600 for the years ended December 31, 2004, 2003 and 2002 respectively.

         Effective of September 1, 2003, we entered into an administrative
services agreement with BioChemics. Under this agreement, BioChemics provides to
us, at our request, administrative support services including secretarial
support, accounting and tax services, data processing services, utilities,
designated office space, designated warehouse and storage space, office
supplies, telephone and computer services and equipment and such other office
and corporate support services as we may reasonably require from time to time.
BioChemics will charge us an administrative services fee at a rate of cost plus
10%. This agreement will be in effect for an initial term of five years and will
be automatically renewable on each anniversary date for an additional period of
twelve months unless sooner terminated (i) for a material breach by us, not
cured within three months, and upon written notice (ii) upon 30 days written
notice by us, (iii) upon 45 days written notice by either party if BioChemics
ceases to own beneficially shares of our capital stock to which are attached at
least 49% of the votes that may be cast to elect our directors, or (iv) upon
written notice by either party in the event that we shall have disposed of all
or substantially all of our assets.

REGISTRATION RIGHTS AGREEMENT

         We have entered into a registration rights agreement with BioChemics
under which we have granted to BioChemics, or its permitted transferees, as
holders of shares of Class A common stock issuable upon conversion of the Class
B common stock held by BioChemics, rights with respect to registration of these
shares under the Securities Act of 1933. Subject to limitations set forth in the
registration rights agreement, holders of the securities may require us, at our
expense, to file one registration statement under the Securities Act with
respect to the public resale of the securities. With the exception of this
offering, if we propose to register any of our securities under the Securities
Act, either for our own account or for the account of other security holders,
BioChemics or its permitted transferees are entitled to notice of the
registration and are entitled, subject to certain conditions and limitations, to
include, at our expense, their shares in the registration. Notwithstanding the
foregoing, BioChemics has agreed, in writing, with Kashner Davidson Securities
Corp., on behalf of the underwriters of our initial public offering, not to
exercise its registration rights for a period of two years from the date of this
prospectus without the consent of Kashner Davidson Securities Corp. All
registration expenses, as specified in the registration rights agreement, must
be borne by us and all expenses relating to the sale of the securities
registered must be borne by BioChemics or the other holder of the securities
being registered.

                                       52


<PAGE>

OTHER TRANSACTIONS WITH BIOCHEMICS

         BioChemics made cash contributions to our capital in 2002 in the amount
of $446,862 and made advances in 2003 in the amount of $518,200 to cover our
deficits incurred during those years. The $518,200 advance has subsequently been
repaid to Biochemics.

ITEM 13. EXHIBITS

   EXHIBIT
   NUMBER                          DESCRIPTION OF EXHIBIT

         3.1      Amended and Restated Certificate of Incorporation(2)
         3.2      Amended and Restated By-laws(2)
         4.1      Specimen Certificate for Class A common stock(2)
         10.1     Employment Agreement, dated August 12, 2004, between Vaso
                  Active Pharmaceuticals, Inc. and John J. Masiz(4)*
         10.2     Employment Agreement, effective June 16, 2003, between Vaso
                  Active Pharmaceuticals, Inc. and Stephen G. Carter(2)*
         10.3    2003 Stock Incentive Plan(1)*
         10.4    Form of 2003 Non-Employee Director Compensation Plan(2)*
         10.5     Registration Rights Agreement by and between Vaso Active
                  Pharmaceuticals, Inc. and BioChemics, Inc.(2)
         10.6     License Agreement, dated February 1, 2003, between BioChemics,
                  Inc. and Vaso Active Pharmaceuticals, Inc., as amended by an
                  amendment agreement, dated July 2, 2003.(2)
         10.7     Manufacturing and Development Agreement, dated February 1,
                  2003, between Vaso Active Pharmaceuticals, Inc. and
                  BioChemics, Inc.(2)
         10.8     Administrative Services Agreement, dated September 1, 2003,
                  between BioChemics, Inc. and Vaso Active Pharmaceuticals,
                  Inc.(3)
         14       Code of Ethics(6)
         23.1     Consent of Stowe & Degon(5)
         31.1     Certification of Joseph Frattaroli, Acting Chief Executive
                  Officer and Chief Financial Officer, pursuant to Section 302
                  of the Sarbanes-Oxley Act of 2002(5)
         32.1     Certification of Joseph Frattaroli, Acting Chief Executive
                  Officer and Chief Financial Officer, pursuant to Section 906
                  of the Sarbanes-Oxley Act of 2002(5)

* Indicates a management contract or compensatory plan required to be filed as
an exhibit.

(1)      Previously filed as an exhibit to our registration statement on Form
         SB-2 filed on July 3, 2003.
(2)      Previously filed as an exhibit to our registration statement on Form
         SB-2/A filed on September 12, 2003. Includes the July 2, 2003 Amendment
         to the License Agreement.
(3)      Previously filed as an exhibit to our annual report on Form 10-KSB
         filed March 26, 2004.
(4)      Previously filed as an exhibit to our quarterly report on Form 10-QSB
         for the period ended September 30, 2004 filed November 15, 2004.
(5)      Filed herewith.
(6)      Previously filed as an exhibit to a Current Report on Form 8-K dated
         January 19, 2005.

                                       53



<PAGE>

ITEM 14.      PRINCIPAL ACCOUNTANT FEES AND SERVICES

         The following table presents fees for professional audit services
rendered by Stowe & Degon for the fiscal years 2003 and 2004:

                                                  2003              2004

                        Audit                     $67,700           $73,675
                        Non-Audit                 0                 0
                        Tax                       0                 0
                        All Other                 0                 0

                        Total:                    $67,700           $73,675

AUDIT FEES

         Audit fees include the aggregate fees billed for the audit of the our
annual financial statements, reviews of our unaudited condensed quarterly
financial statements, the financial statements included in our Form SB-2, as
amended, and other registration statements.

NON-AUDIT RELATED FEES

         There were no non-audit related fees since the Company came into
existence in January 2003.

TAX FEES

         There have been no tax related fees since the Company came into
existence in January 2003.

ALL OTHER FEES

         No other fees were billed to us by Stowe & Degon.

         As set forth in its charter, our Audit Committee has the sole authority
to pre-approve all audit and non-audit services provided by our independent
auditor. All services performed by Stowe & Degon were pre-approved by our Audit
Committee. Having considered whether the provision of Stowe & Degon's services
other than for the annual audit and quarterly reviews is compatible with its
independence, the Audit Committee has concluded that it is.

                                       54


<PAGE>

                                   SIGNATURES

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

                                          VASO ACTIVE PHARMACEUTICALS, INC.

Date: March 30, 2005                      By: /S/ JOSEPH FRATTAROLI
                                              ----------------------------------
                                                 Joseph Frattaroli
                                                 Acting Chief Executive Officer
                                                 Chief Financial Officer

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

<TABLE>
<S>     <C>

NAME                                 TITLE                                     DATE


/S/ JOSEPH FRATTAROLI                Acting Chief Executive Officer         March 30, 2005
-------------------------            Chief Financial Officer

/S/ STEPHEN CARTER, PH.D.            Vice President, Chief Scientific       March 30, 2005
-------------------------            Officer, Director


/S/ WILLIAM P. ADAMS, M.D.           Director                               March 30, 2005
-------------------------


/S/ ROBERT E. ANDERSON               Director, Chairman                     March 30, 2005
-------------------------


/S/ GARY FROMM, PH.D.                Director                               March 30, 2005
-------------------------


/S/ RONALD GUERRIERO                 Director                               March 30, 2005
-------------------------


/S/ D'ANNE HURD                      Director                               March 30, 2005
-------------------------


/S/ STEVEN MORRELL                   Director                               March 30, 2005
-------------------------


/S/ BRUCE A. SHEAR                   Director                               March 30, 2005
-------------------------


/S/ BRIAN J. STRASNICK, PH.D.        Director                               March 30, 2005
-------------------------


/S/ HENRY Y.L. TOH                   Director                               March 30, 2005
-------------------------

</TABLE>

                                       55



<PAGE>


                        VASO ACTIVE PHARMACEUTICALS, INC.

                          INDEX TO FINANCIAL STATEMENTS

                                                                            PAGE
Report of Independent Registered Public Accounting Firm                       57

Balance Sheets as of December 31, 2004 and 2003                               58

Statements of Operations For The Years Ended December 31, 2004,
2003, and 2002                                                                59

Statements of Stockholders' Equity For The Years Ended December 31, 2004,
2003 and 2002                                                                 60

Statements of Cash Flows For The Years Ended December 31, 2004, 2003
and 2002                                                                      61

Notes to Financial Statements                                                 62

                                       56



<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Shareholders of Vaso Active Pharmaceuticals, Inc.:

         We have audited the accompanying balance sheets of Vaso Active
Pharmaceuticals, Inc. (the "Company") as of December 31, 2004 and 2003, and the
related statements of operations, stockholders' equity, and cash flows for each
of the three years ended December 31, 2004. 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 audits.

         We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the 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, such financial statements present fairly, in all
material respects, the financial position of Vaso Active Pharmaceuticals, Inc.
as of December 31, 2004 and 2003, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2004, in
conformity with accounting principles generally accepted in the United States of
America.

         As discussed in note 2, the accompanying financial statements have been
prepared on the going concern assumption that the Company will be able to
realize its assets and discharge its liabilities in the normal course of
business. However, certain conditions exist such as the Company's inability to
generate sufficient cash from operations, and obtain debt or equity financing to
meet its future obligations. In addition as discussed in note 10 to the
financial statements, the Company is a defendant in several purported securities
class action lawsuits alleging that the Company and certain of its officers made
false and misleading statements and failed to disclose material information
concerning the Company, its financial condition, its business operations and
future prospects, the clinical trial and endorsement of its Termin8 anti-fungal
product (previously known as "deFEET") and the institutional demand for its
securities. The Company is also a defendant in three purported
derivative complaints filed against BioChemics, Inc. and the Company's directors
and certain of its officers, alleging that the individual defendants breached
fiduciary duties owed to the Company and its shareholders by issuing misleading
statements to (and concealing material facts from) the market, "concerning
certain of the Company's key and primary products under review by the Food and
Drug Administration ("FDA"), between December 11, 2003 and March 31, 2004." The
complaints purport to assert derivative claims against all defendants for breach
of fiduciary duty, abuse of control, gross mismanagement, waste of corporate
assets and unjust enrichment. These matters, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plan to overcome
doubts about the Company's ability to continue as a going concern are contained
also in note 2. The accompanying financial statements do not include any
adjustments reflecting the possible future effects on the recoverability of
assets or the amount and classification of liabilities that may result from the
outcome of these conditions.


/S/ STOWE & DEGON
-----------------

Worcester, MA
March 1, 2005

                                       57



<PAGE>
<TABLE>

VASO ACTIVE PHARMACEUTICALS, INC.
BALANCE SHEETS


---------------------------------------------------------------------------------------------
DECEMBER 31                                                       2004              2003
---------------------------------------------------------------------------------------------

         ASSETS
CURRENT ASSETS:
<S>                                                            <C>               <C>
Cash and cash equivalents ...............................      $ 2,175,388       $ 6,109,775
Accounts receivable .....................................              888             1,357
Inventory ...............................................          140,296            60,826
Prepaid expenses ........................................           28,995           145,684
                                                               ------------      ------------

     TOTAL CURRENT ASSETS ...............................        2,345,567         6,317,642

Property and equipment - net ............................           37,551                --
                                                               ------------      ------------
                                                               $ 2,383,118       $ 6,317,642
                                                               ============      ============


                  LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................      $   474,369       $   125,029
Accrued compensation ....................................           43,805           278,438
Other accrued expenses ..................................          116,045           197,564
Due to parent company ...................................           10,780            89,507
                                                               ------------      ------------

   TOTAL CURRENT LIABILITIES ............................          644,999           690,538

Commitments and contingencies............................
                                                               ------------      ------------

                                                                   644,999           690,538
                                                               ------------      ------------
STOCKHOLDERS' EQUITY:
Preferred stock - $0.0001 par value; authorized
    10,000,000 shares; issued and outstanding, none .....               --                --
Common stock - $0.0001 par value; authorized
    30,000,000 shares; issued and outstanding,
    10,328,613 December 31, 2004; and 10,103,613
    December 31, 2003 ...................................            1,033             1,011
Additional paid-in capital ..............................        8,093,656         7,305,565
Deferred compensation ...................................         (183,777)               --
Accumulated deficit .....................................       (6,172,793)       (1,679,472)
                                                               ------------      ------------

   TOTAL STOCKHOLDERS' EQUITY ...........................        1,738,119         5,627,104
                                                               ------------      ------------
                                                               $ 2,383,118       $ 6,317,642
                                                               ============      ============
</TABLE>

                               See notes to the financial statements.

                                                 58



<PAGE>
<TABLE>

VASO ACTIVE  PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS


---------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31                                     2004              2003              2002
---------------------------------------------------------------------------------------------------------


<S>                                                  <C>                <C>                <C>
Net revenues ..................................      $     12,888       $     53,270       $     91,957
Cost of revenues ..............................            67,536             31,622             40,811
                                                     -------------      -------------      -------------
      GROSS PROFIT ............................           (54,648)            21,648             51,146
                                                     -------------      -------------      -------------

Costs and expenses:
     Marketing, advertising and promotion .....           246,784            116,642             38,962
     Management fee ...........................            45,847            122,073            135,600
     Selling, general and administrative ......         3,750,504            925,845            329,232
     Research and development .................           266,433                 --                 --
     Stock based compensation .................           154,336                 --                 --
                                                     -------------      -------------      -------------

       Loss from operations ...................        (4,518,552)        (1,142,912)          (452,648)
Other income (expense), net ...................            25,231           (536,560)             5,786
                                                     -------------      -------------      -------------

 NET LOSS .....................................      $ (4,493,321)      $ (1,679,472)      $   (446,862)
                                                     =============      =============      =============

 Net loss per share - basic and diluted .......      $      (0.44)      $      (0.62)      $         --
                                                     =============      =============      =============

Weighted average shares outstanding - basic and
diluted .......................................        10,296,805          2,714,180                 --
                                                     =============      =============      =============
</TABLE>

                                    See notes to the financial statements.

                                                      59


<PAGE>
<TABLE>

VASOACTIVE PHARMACEUTICALS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY

                                                     COMMON STOCK
                                               --------------------------  ADDITIONAL
                                                NUMBER OF     $0.0001        PAID-IN       DEFERRED      ACCUMULATED
                                                 SHARES       PAR VALUE      CAPITAL         COMP          DEFICIT          TOTAL
                                               ------------  ------------  ------------   ------------   ------------   ------------
<S>                                              <C>         <C>           <C>            <C>            <C>            <C>
BALANCE, JANUARY 1, 2002 ...................            --   $        --   $ 1,040,395    $        --    $(1,040,395)   $        --
    Loss from operations ...................            --            --            --       (446,862)      (446,862)
   Contributed by parent ...................            --            --       446,862             --             --        446,862
                                               ------------  ------------  ------------   ------------   ------------   ------------
BALANCE, DECEMBER 31, 2002 .................            --            --     1,487,257             --     (1,487,257)            --
    Effect of incorporation ................            --            --    (1,487,257)            --      1,487,257             --
    Issuance of Class B common
        stock to parent ....................     4,500,000           450            --             --             --            450
    Issuance of Class A common
        stock at $1.67 per share, net of
        $1,935,305 in issuance costs .......     5,002,500           501     6,401,694             --             --      6,402,195
   Conversion of 10% convertible
        promissory notes and
        and accrued interest ...............       601,113            60       903,871             --             --        903,931
   Loss from operations ....................            --            --            --             --     (1,679,472)    (1,679,472)
                                               ------------  ------------  ------------   ------------   ------------   ------------
BALANCE, DECEMBER 31, 2003 .................    10,103,613         1,011     7,305,565             --     (1,679,472)     5,627,104
  Issuance of Class A common stock at
        $2.00 per share ....................       225,000            22       449,978             --             --        450,000
  Stock options granted to non-employees ...            --            --       338,113       (338,113)            --             --
 Amortization of deferred compensation .....            --            --            --        154,336             --        154,336
  Loss from operations .....................            --            --            --             --     (4,493,321)    (4,493,321)
                                               ------------  ------------  ------------   ------------   ------------   ------------
BALANCE, DECEMBER 31, 2004 .................    10,328,613   $     1,033   $ 8,093,656    $  (183,777)   $(6,172,793)   $ 1,738,119
                                               ============  ============  ============   ============   ============   ============

                                              See notes to the financial statements.
</TABLE>
                                                                60


<PAGE>
<TABLE>

VASO ACTIVE PHARMACEUTICALS INC.
STATEMENTS OF CASH FLOWS

-------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31                                                                2004            2003           2002
-------------------------------------------------------------------------------- --------------- --------------- --------------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                             <C>             <C>             <C>
Net loss ...................................................................    $(4,493,321)    $(1,679,472)    $  (446,862)
Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization .........................................          3,328              --              --
     Beneficial conversion feature of 10% convertible promissory notes .....             --         500,926              --
     Accrued interest converted to Class A common stock ....................             --          35,907              --
     Stock based compensation ..............................................        154,336              --              --
     Write-off of prepaid offering costs ...................................         55,000              --              --
     Inventory write-off ...................................................         54,662              --              --
     Increase (decrease) in cash from change in:
         Accounts receivable ...............................................            469          52,080              --
         Inventory .........................................................       (134,132)        (46,324)          2,857
         Prepaid expenses ..................................................         61,689        (141,380)        (53,057)
         Accounts payable ..................................................        349,340          75,729          (1,820)
         Accrued interest ..................................................             --              --          26,660
         Accrued compensation ..............................................       (234,633)        277,834          (2,739)
         Other accrued expenses ............................................         81,519)        197,564              --
                                                                                ------------    ------------    ------------
                                   Net cash used in operating activities ...     (4,264,781)       (727,136)       (474,961)
                                                                                ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .........................................        (40,879)             --              --
                                                                                ------------    ------------    ------------
                                   Net cash used in investing activities ...        (40,879)             --              --
                                                                                ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Class A common stock ...........................................        450,000       6,402,195              --
Issuance of Class B common stock ...........................................             --             450              --
Issuance of convertible notes ..............................................      7,500,000              --              --
Repayment of convertible notes .............................................     (7,500,000)             --              --
Net proceeds from issuance of 10% convertible promissory notes .............             --         367,098              --
Due/to from parent company .................................................        (78,727)         67,168         474,961
                                                                                ------------    ------------    ------------
                                   Net cash provided by financing activities        371,273       6,836,911         474,961
                                                                                ------------    ------------    ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................     (3,934,387)      6,109,775              --

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .............................      6,109,775              --              --
                                                                                ------------    ------------    ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD ...................................    $ 2,175,388     $ 6,109,775     $        --
                                                                                ============    ============    ============

SUPPLEMENTAL DISCLOSURES
  Interest paid ............................................................    $        --     $        --     $        --
  Income taxes paid ........................................................             --              --              --
  Noncash financing activities:
        Fair value of warrants issued in connection with initial public
              offering .....................................................             --         185,000              --


                                              See notes to the financial statements.
</TABLE>
                                                                61


<PAGE>

        VASO ACTIVE PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND OPERATIONS

         THE COMPANY

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

         The Company licenses the VALE patents and PENtoCORE technology from
BioChemics, Inc. ("BioChemics"), a privately owned biopharmaceutical company. As
discussed in Notes 6 and 9, the Company issued 4,500,000 shares of its Class B
common stock to BioChemics in consideration for the exclusive worldwide rights
to commercialize, market and sell the VALE technology for OTC pharmaceutical
products. These shares were issued pursuant to authorization from the Company's
Board of Directors on June 20, 2003.

         INITIAL PUBLIC OFFERING

         On December 15, 2003, the Company completed an initial public offering
of 5,002,500 shares of Class A common stock at a price of $1.67 per share
raising approximately $6.4 million, net of issuance costs. See Note 6.

         STOCK SPLIT

         On February 20, 2004, the Company announced a three-for-one stock split
on all classes of common equity in the form of a 200% stock dividend paid on
March 5, 2004 to stockholders of record on February 23, 2004. All share and per
share information have been restated to give retroactive effect to this stock
split.

         SETTLEMENT OF SECURITIES AND EXCHANGE COMMISSION MATTERS

         On August 26, 2004, the U.S. Securities and Exchange Commission "SEC"
formally approved the terms of a settlement regarding alleged violations of
securities laws stemming from allegedly misleading disclosures in the Company's
initial public offering registration statement, its 2003 annual report and a
statement on its website concerning the Food and Drug Administration's "FDA"
approval or qualification of the Company's products. The Company has agreed with
the SEC to settlement terms pursuant to which the Company is permanently
enjoined from violating the anti-fraud provisions of the Securities Act of 1933,
as amended, and the antifraud and reporting provisions of the Securities
Exchange Act of 1934, as amended, without the Company admitting or denying the
allegations of the civil complaint, The SEC action filed with the United States
District Court for the District of Columbia (the "Court") is styled SECURITIES
AND EXCHANGE COMMISSION V. VASO ACTIVE PHARMACEUTICALS, INC. Civil Action No. 04
CV 01395 (RJL) (D.D.C.).

         In addition, the SEC formally approved the terms of a settlement with
John J. Masiz, formerly the Company's President and Chief Executive Officer,
without him admitting or denying the allegations of the civil complaint, that
likewise enjoins him from violating the antifraud and reporting provisions, and
prevents him from serving as an officer or director of any public company,
including the Company, for a period of five years. Effective as of August 17,
2004, Mr. Masiz resigned as an executive officer and a director of the Company.
He is, however, permitted to remain an active employee and/or consultant of the
Company. In light of the foregoing, the Company and Mr. Masiz agreed to
terminate his employment agreement and enter into a new agreement. Pursuant to


                                       62


<PAGE>

that agreement, Mr. Masiz will provide strategic consulting services regarding
sales, marketing and business development to the Company for an initial term
through June 30, 2008 and will report to the Chief Executive Officer of the
Company. The Company has appointed its Chief Financial Officer to serve as its
Acting President and Chief Executive Officer while the Company conducts a search
for a new Chief Executive Officer. On September 13, 2004, the Court for the
District of Columbia entered final judgments against the Company and Mr. Masiz,
pursuant to the above referenced settlement terms.

         FOOD AND DRUG ADMINISTRATION MATTERS

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

         EXCHANGE LISTING MATTERS

         In April 2004, the Listing Investigations staff of The Nasdaq Stock
Market, Inc. ("Nasdaq") notified the Company that it had commenced an inquiry
into the Company's compliance with Nasdaq's continued listing requirements and
requested certain information from the Company relating to the pending
regulatory matters. In light of the substantial administrative and cash burdens
being borne by the Company at the time as well as the substantial legal costs
anticipated with respect to the pending SEC and FDA matters, the Company
determined that it was in the best interest of its shareholders to voluntarily
cease listing of its securities. Therefore, upon the Company's request and
effective on April 8, 2004, the Company's securities ceased to be listed on
Nasdaq. Presently, the Company's securities are being quoted in the Over The
Counter Pink Sheets.

         The Company intends to seek listing of its securities on an exchange or
other automated quotation system. However, there is no assurance that the
Company will be successful in securing such listing or quotation or, even if it
is successful, that it will be able to maintain the listing or quotation of its
securities on such exchange or quotation system.

         HISTORICAL OPERATIONS

         The Company commenced operations in January 2001 as the OTC division of
BioChemics. In January 2003, the Company incorporated in the state of Delaware
and became a wholly-owned subsidiary of BioChemics.

         The 2002 statements operations, stockholders' equity and cash flows of
the Company reflect the historical results of operations and cash flows of the
OTC division of BioChemics during this period. Those financial statements have
been prepared using BioChemics' historical bases in the assets and liabilities
and historical results of operations of this division. BioChemics' net
investment in the Company is reflected as additional paid-in capital.
Transactions were processed through an inter-company account, the balance of
which represented the net obligation from the Company to BioChemics. The
financial information included herein for those financial statements may not
reflect the financial position, operating results, changes in stockholder's
equity and cash flows of the Company for years subsequent to 2002 or what they
would have been had the Company been a separate stand-alone entity during that
year. However, it is probable that the actual historic results would not be
significantly different from those presented.

                                       63


<PAGE>

          The 2004 and 2003 financial statements of the Company have been
prepared on a stand-alone basis. Additionally, the Company's financial
statements for all periods are included in the consolidated financial statements
of BioChemics.

         BioChemics provides the Company with certain management and
administrative services including accounting, corporate services, data
processing, telephone, office space and other occupancy and infrastructure
related costs. The financial statements of the Company include expense
allocations on bases that the Company and BioChemics consider to be reasonable
reflections of the utilization of services provided for the benefit received by
the Company. In addition, for 2003 and 2002 the Company's marketing, advertising
and promotion expenses include expenses related to the commercialization,
marketing and distribution of the BioChemics athlete's foot preparation product,
the revenues of which are realized by the Company through an assignment of
BioChemics' ownership interests in such revenues.

CARVED OUT PUBLIC REGISTRANT

         In accordance with accounting principles generally accepted in the
United States of America with respect to the allocation of corporate management
services, the financial statements of a carved out public registrant should
appropriately reflect these expenses to fairly present its operating results
with an offset to additional paid-in capital. In addition, it is required that
upon incorporation of a carved out division into a stand-alone entity, the
accumulated deficiency balance should be eliminated against additional paid-in
capital. Upon incorporation of the Company in January 2003, the existing
accumulated deficiency of $1,487,257 was eliminated using such treatment.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         This summary of significant accounting policies is presented to assist
in understanding the financial statements of the Company. The financial
statements and notes are representations of the Company's management, who are
responsible for their fair presentation, integrity and objectivity. The
accounting policies conform with accounting principles generally accepted in the
United States of America.

GOING CONCERN The Company has a limited operating history and has incurred
substantial net losses since its inception. The Company's principal risks are;
the possibility of a material adverse effect from the matters summarized in Note
10, its ability to successfully develop and market its products and product
candidates in the highly regulated environment within which the Company
operates, competition from substitute products and larger companies, dependence
on key personnel and continued dependence on BioChemics for manufacturing and
product development.

         These financial statements have been prepared on the assumption that
the Company will be able to realize its assets and discharge its liabilities in
the normal course of business. This assumption is presently in question and
contingent upon the Company's ability to raise additional funds and successfully
utilize these funds to commercialize products and avoid any material adverse
effect from the uncertainty that has arisen due to the matters summarized in
Note 10.

         Management is in the process of identifying various fund-raising
strategies it will pursue in the second quarter of 2005. These strategies could
include a Private Placement of the Company's common stock or a convertible
debenture. There are no assurances that Management will successfully execute
such strategies.

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, disclosure of contingent assets and
liabilities and the reported amounts of revenue and expenses. Actual results
could differ from those estimates.

                                       64


<PAGE>

CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, cash
deposited with banks and highly liquid debt securities with remaining maturities
of ninety days or less when purchased. In 2002, BioChemics managed the Company's
cash and cash equivalents. Cash receipts associated with the Company's business
were transferred to BioChemics on a periodic basis and BioChemics funded the
Company's disbursements. Beginning in 2003, the Company managed its own cash.

The Company maintains deposits in financial institutions, which occasionally
exceed federally insured limits. Senior management continually reviews the
financial stability of these institutions.

ACCOUNTS RECEIVABLE Accounts receivable consist primarily of trade receivables
from the sale of OTC pharmaceutical products. The allowance for doubtful
accounts is based on the Company's assessment of the collectibility of specific
customer accounts and an assessment of economic risk as well as the aging of the
accounts receivable. The Company's policy is to write-off uncollectible trade
receivables after significant measures have failed to result in their
collection. An allowance for doubtful accounts is established to represent the
estimated uncollectible trade receivables. The Company held little outstanding
trade receivables at December 31, 2004 and 2003 and therefore no allowance for
doubtful accounts provision has been established.

INVENTORY Inventory is valued at the lower of cost or market on a first-in,
first-out basis. The Company uses outside contract manufacturers for the
production of its products. Therefore, all inventory is in the form of finished
goods.

DUE TO PARENT Pursuant to a license agreement, a manufacturing agreement, a
registration rights agreement and as well as the allocation of overhead and
other administrative services, the Company's transactions are processed through
an inter-company account, due to/from parent, the balance of which represents
the net obligation from the Company to BioChemics, or vice-versa. BioChemics
funded the Company during the period of time that the Company was a division.
BioChemics contributed non-reimbursed amounts of $446,862 during the year ended
December 31, 2002.

         During 2003, when the Company became a stand-alone entity, BioChemics
paid $518,197 on behalf of the Company to third parties. This amount has since
been paid in full using proceeds from the initial public offering.

FAIR VALUES Unless otherwise noted, deposits, prepaid expenses, accounts
payable, accrued expenses and other liabilities have all been stated at values
that approximate fair value.

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

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

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

                                       65


<PAGE>

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

STOCK-BASED COMPENSATION The Company accounts for stock-based employee
compensation arrangements using the intrinsic value method in accordance with
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation."

         The Company has employee stock benefit plans, which are described more
fully in Note 7. As the exercise price of all options granted under these stock
option plans was equal to the market price of the underlying common stock on the
grant date, no stock-based compensation is recognized in the Company's financial
statements. The following table illustrates the effect on net loss and net loss
per share if the Company had applied the fair value recognition provisions of
SFAS No. 123, as amended, to options granted under the stock option plans and
rights to acquire stock granted under the Company's 2003 Stock Incentive Plan
and 2003 Non-Employee Director Compensation Plan. For purposes of this pro-forma
disclosure, the value of the options is estimated using a Black-Scholes option
pricing model and amortized ratably to expense over the options' vesting
periods. Because the estimated value is determined as of the date of grant, the
actual value ultimately realized by the employee may be significantly different.

<TABLE>
                                                            2004             2003
                                                       -------------    -------------
<S>                                                    <C>              <C>
Net loss as reported ..............................    $ (4,493,321)    $ (1,679,472)
Less: Stock based compensation had all
   Options been recorded at fair value ............        (596,580)        (114,356)
                                                       -------------    -------------
Adjusted net loss .................................    $ (5,089,901)    $ (1,793,828)
                                                       =============    =============

Weighted average shares outstanding,
    Basic and diluted .............................      10,296,805        2,714,180

Net loss per share, basic and diluted, as reported     $      (0.44)    $      (0.62)

Net loss per share, basic and diluted, as adjusted     $      (0.49)    $      (0.66)

</TABLE>

         The Black-Scholes option pricing model requires the Company to input
highly subjective assumptions, including the option's expected life and the
price volatility of the underlying stock. See Note 7 for a discussion of the
assumptions used in the option pricing model and estimated fair value of
employee stock options. The Company did not issue any stock options in 2002.

INCOME TAXES Prior to 2003, the Company was a division of BioChemics and was not
subject to federal or state income tax reporting requirements. In January 2003,
the Company incorporated and became a stand-alone entity. The Company accounts
for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes."
Deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amounts and tax bases of existing
assets and liabilities, using enacted tax rates. Valuation allowances are
established when necessary to reduce the deferred tax assets to those amounts
expected to be realized.

ADVERTISING COSTS Costs incurred to advertise and promote the Company are
expensed as incurred. Advertising costs were approximately $16,100, $74,000, and
$39,000 in 2004, 2003 and 2002, respectively.

SALES INCENTIVES Sales incentives are netted against revenues when incurred.
Sales incentives are primarily comprised of slotting fees, coupons and rebates.
Sales incentives of approximately $5,000, were netted against revenues in 2003
and 2002. No sales incentives were incurred during 2004.

                                       66


<PAGE>

RESEARCH AND DEVELOPMENT Research and development costs incurred were
approximately $266,500 during 2004. There were no research and development costs
during 2003 or 2002.

MANAGEMENT FEES BioChemics provides the Company with certain administrative,
marketing and management services, as well as the Company's facilities and
general corporate infrastructure. Management fees were approximately $45,900,
$122,000, and $136,000 in 2004, 2003, and 2002 respectively.

COMPREHENSIVE INCOME Comprehensive income (loss) was equal to net loss for each
year presented.

NET LOSS PER COMMON SHARE Basic net loss per common share is computed by
dividing net loss applicable to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted net loss per
common share reflects, in addition to the weighted average number of common
shares, the potential dilution if common stock options were exercised into
common stock, unless the effects of such exercises would have been antidilutive.

         Basic and diluted loss per common share are the same for 2004 and 2003
as potentially dilutive stock options and warrants totaling 1,827,000 in 2004
and 1,575,000 in 2003 have not been included in calculations of diluted net loss
per common share available to common stockholders, as their inclusion would have
been antidilutive.

HISTORICAL NET LOSS PER COMMON SHARE The historical capital structure of the
Company prior to the initial public offering is not representative of the
current capital structure. Accordingly, the historical net loss per share and
weighted average number of common shares outstanding are not shown for any
periods presented prior to January 1, 2003. See Note 12 for required pro-forma
calculations. Shares used in the computation of basic and diluted loss per share
represent the weighted average shares outstanding during the years presented.

RECLASSIFICATIONS Certain reclassifications have been made to the 2003 and 2002
amounts to conform to the 2004 presentation.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2004, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 123 (revised 2004), SHARE-BASED PAYMENT (SFAS 123R) which will be
effective in the fourth quarter of fiscal 2005. SFAS 123R will result in the
recognition of substantial compensation expense relating to our employee stock
option plan. The Company currently uses the intrinsic value method to measure
compensation expense for stock-based awards to its employees. Under this
standard, the Company generally does not recognize any compensation related to
stock option grants the Company issues under its stock option plans. Under the
new rules, the Company is required to adopt a fair-value-based method for
measuring the compensation expense related to employee stock options; this will
lead to substantial additional compensation expense and therefore will have a
material adverse effect on the Company's reported results of operations. The
paragraph entitled STOCK BASED COMPENSATION above provides the pro forma net
income and earnings per share as if the Company had used a fair-value-based
method similar to the methods required under SFAS 123R to measure the
compensation expense for employee stock awards during fiscal 2004 and 2003.

3. PRIVATE PLACEMENT

         In April 2003, the Company completed the private placement of $500,000,
10% convertible subordinated pay-in-kind promissory notes (the "notes") to
accredited investors. This amount was subsequently reduced to $465,000 in
December 2003 as the Company repurchased $35,000 from an unrelated third party
investor.

                                       67


<PAGE>

         The notes and any accrued interest were convertible into Class A common
stock either voluntarily on or before the maturity date of the notes (March 31,
2005) or mandatorily upon the consummation of a qualified public offering. The
notes were to convert at the lesser of 50% of the qualified public offering
price or $0.83, up to a maximum of 660,000 shares. On December 15, 2003, the
Company completed an initial public offering of 5,002,500 shares of its Class A
common stock, which caused the automatic conversion of the notes. The notes and
their accrued interest converted into 601,113 shares of Class A common stock.

         The Company accounted for this transaction in accordance with Emerging
Issues Task Force Abstract No, 98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios."
Because the fair value of the common stock sold by the Company in its initial
public offering was in excess of the conversion price of the notes and as the
notes were immediately converted into shares of Class A common stock, a $500,926
charge was recorded in connection with this beneficial conversion feature and
recorded in other expenses, net in 2003.

         A director of the Company purchased $50,000 in these notes in April
2003. The note and accrued interest thereon, were converted into approximately
64,233 shares of Class A common stock in December 2003.

4. ACCRUED EXPENSES

         Accrued expenses for 2004 consist of excise taxes of $4,600 and the
remaining amount $111,445 of legal fees not yet billed that we expect to incur
due to the $200,000 insurance deductible that has arisen as a result of our
class action (see 10 - Commitments and Contingencies under the caption
Litigation). Accrued expenses for 2003 consist of $90,00 in recruiting expenses,
approximately $78,000 in legal expenses, $14,600 in excise taxes and
approximately $15,400 in other general operating accruals.

5. INCOME TAXES

         The Company has federal and state tax net operating loss carry forwards
available for future periods of approximately $5,430,000. The federal and state
tax net operating loss carry forwards expire beginning in 2024. As a result of
the changes in the ownership of the Company, there may be limitations on the
amounts of net operating loss carry forwards that may be utilized in any one
year.

         The tax effect of significant items comprising the Company's
approximate net deferred tax assets at December 31, 2004, 2003, and 2002 are as
follows:

                                         2004           2003           2002
                                     ------------   ------------   ------------
Deferred tax assets: ..............                                 Pro forma
    Net operating loss carryfowards  $ 2,173,000    $   451,000    $   595,000
    Accrued compensation ..........           --        (43,000)            --
                                     ------------   ------------   ------------
                                       2,173,000        408,000        595,000

Valuation allowance ...............   (2,173,000)      (408,000)      (595,000)
                                     -----------    -----------    -----------

Net deferred tax assets ...........  $        --    $        --    $        --
                                     ===========    ===========    ===========

         The Company operated as a division of BioChemics from inception through
January 2003. Accordingly, during that period, the Company was not subject to
federal or state income taxes. Therefore, the components of the Company's
deferred tax asset at December 31, 2002 is presented on a pro forma basis as if
the Company had been a legal stand-alone entity for the period presented.

                                       68


<PAGE>

         The Company believes that uncertainty exists with respect to future
realization of the deferred tax assets and has established a valuation allowance
for the full amount as of December 31, 2004, 2003 and 2002.

         A reconciliation between the amount of income tax determined by
applying the applicable U.S. statutory tax rate to the pre-tax loss is as
follows:

<TABLE>
                                                               2004         2003         2002
                                                               ----         ----         ----
                                                                                         (PRO FORMA)
<S>                                                            <C>          <C>          <C>
Federal statutory rate.......................................  34%          34%          34%
State tax, net of federal impact.............................    6            6            6
Provision for valuation allowance on deferred tax assets.....  (40)         (40)         (40)
                                                               ----         ----         ----
Effective tax rate...........................................  -- %          -- %          -- %

</TABLE>

6. STOCKHOLDERS' EQUITY

INITIAL CAPITALIZATION The Company operated as a division of BioChemics from its
inception in January 2001 through January 2003 and maintained no classes of
common or preferred stock. In January 2003, the Company incorporated and, in
accordance with its Certificate of Incorporation, established two classes of
stock--common stock and preferred stock. Upon incorporation, no shares of either
class were issued or outstanding.

         On June 20, 2003, the Board of Directors of the Company authorized the
issuance of 4,500,000 shares of Class B common stock to BioChemics pursuant to
the license agreement between the Company and BioChemics (see Note 9).

PREFERRED STOCK At December 31, 2004, the Company had 10,000,000 authorized
shares of preferred stock, $0.0001 par value per share, of which no shares were
issued and outstanding.

COMMON STOCK The Company maintains two classes of common stock. The Company has
20,000,000 authorized shares of Class A common stock and 10,000,000 authorized
shares of Class B common stock. The par value for each of these classes of
common stock is $0.0001. Holders of Class A common stock are entitled to one
vote per share, while holders of Class B common stock are entitled to three
votes per share. At December 31, 2004, there were 5,828,613 shares of Class A
common stock issued and outstanding, and there were 4,500,000 shares of Class B
common stock issued and outstanding, all of which are held by BioChemics.

         On December 15, 2003, the Company completed an initial public offering
of 5,002,500 shares of Class A common stock at a price of $1.67 per share
pursuant to a registration statement filed with the Securities and Exchange
Commission. Concurrently with the completion of the initial public offering, the
10% convertible subordinated pay-in-kind promissory notes converted into 601,113
shares of Class A common stock. Net of underwriting discount and other expenses
of the offering, the Company received $6,402,195 for the Class A common shares
it issued and sold. Warrants with a fair value of approximately $185,000 were
issued to the underwriters of this initial public offering and have been netted
against the gross proceeds of this offering. The fair value of the warrants was
calculated using the Black-Scholes option pricing model. The Company used the
following assumptions in this model--a risk-free interest rate of 3.3%, an
expected life of one year, no dividends and a volatility of 98%.

                                       69


<PAGE>

7. STOCK OPTION PLANS

         In 2003, the Company established two stock option plans. The 2003 Stock
Incentive Plan provides for the issuance of up to 1,350,000 shares of Class A
common stock to employees, officers and consultants in the form of nonqualified
and incentive stock options, restricted stock grants or other stock-based
awards, including stock appreciation rights. The 2003 Non-Employee Director
Compensation Plan provides for the issuance of up to 900,000 shares of Class A
common stock to non-employee directors in the form of nonqualified and incentive
stock options, restricted stock grants or other stock-based awards, including
stock appreciation rights. The Company's shareholders approved each of the stock
option plans on August 26, 2003. As of December 31, 2004, there were 378,000 and
330,000 remaining options available under the 2003 Stock Incentive Plan and the
2003 Non-Employee Director Compensation Plan, respectively.

         Stock option activity was as follows:
<TABLE>
                                                            Weighted
                                              Number of     Average
                                               Options   Exercise Price  Fair Value
                                             ----------- -------------- -----------
<S>                                          <C>           <C>          <C>
Outstanding December 31, 2002 ..........            --
     Granted ...........................     1,140,000     $   1.71     $   1.15
     Exercised .........................            --           --
     Forfeited .........................            --           --
                                             ----------    ---------
Outstanding December 31, 2003 ..........     1,140,000     $   1.71
     Granted ...........................       627,000         1.42     $   0.90
     Exercised .........................            --          --
     Forfeited .........................      (225,000)        1.67
                                             ----------    ---------
Outstanding December 31, 2004 ..........     1,542,000     $   1.60
                                             ==========    =========

Exercisable at December 31, 2003 .......        75,000     $   1.67
                                             ==========    =========

Exercisable at December 31, 2004 .......       663,750     $   1.57
                                             ==========    =========
</TABLE>
<TABLE>

Options Outstanding                                             Options Exercisable
-------------------                                             -------------------
                                        Weighted Average
Number of       Range of                Remaining Life          Weighted Average         Number Currently
Options         Exercise Prices         (in years)              Exercise Price           Exercisable
-------         ---------------         ----------              --------------           -----------
<S>             <C>                       <C>                   <C>                      <C>
   615,000      $1.67                     9.0                   $1.67                    348,750
   300,000      $1.83                     9.0                   $1.83                    225,000
   357,000      $2.11                     9.0                   $2.11                          -
   270,000      $0.50                   10.0                    $0.50                     90,000
----------                                                                               --------
1,542,000                                                                                663,750
==========                                                                               ========

</TABLE>

         As discussed in Note 2, the Company accounts for stock options granted
to employees in accordance with APB No. 25. The Company granted 350,000 stock
options to non-employees in 2004. The Company is required to record stock-based
compensation when it grants options to purchase its common stock to
non-employees under SFAS 123. In general, the value of these options would be
calculated using the Black-Scholes option-pricing model. During 2004, the
Company recorded $57,836 in stock-based compensation related to stock options.
There were no options granted to non-employees prior to January 1, 2004.

                                       70


<PAGE>

         The fair value of options on their grant date was measured using the
Black-Scholes option-pricing model. Key assumptions used to apply this pricing
model for 2004 and 2003 are as follows:

Risk-free interest rate..............................................   3.3%
Expected life of option grants.......................................   4 years
Expected dividend yield..............................................   0.0%
Expected volatility of underlying stock..............................   98%

8. STOCK WARRANTS

         The Company, from time to time, issues stock warrants to vendors for
services performed. Under SFAS 123, the Company is required to record
stock-based compensation when it grants warrants under such circumstances. In
general, the value of these warrants would be calculated using the Black-Scholes
pricing model. The Company recorded $96,499 and $185,000 during 2004 and 2003
respectively in stock-based compensation related to stock warrants.

<TABLE>

Stock warrant activity was as follows:

                                                                 Weighted
                                              Number of          Average
                                               Warrants       Exercise Price  Fair Value
                                           -----------------  --------------  ----------
<S>                                               <C>           <C>           <C>
Outstanding December 31, 2002 .............            --
     Granted ..............................       435,000       $   2.58      $   1.28
     Exercised ............................            --             --
     Forfeited ............................            --             --
                                                ----------      ---------
Outstanding December 31, 2003 .............       435,000       $   2.58
     Granted ..............................       225,000           2.00      $   0.43
     Exercised ............................      (225,000)          2.00
     Forfeited ............................            --             --
                                                ----------      ---------
Outstanding December 31, 2004 .............       435,000       $   2.58
                                                ==========      =========

Exercisable at December 31, 2003 ..........            --             --
                                                ==========      =========

Exercisable at December 31, 2004 ..........       435,000       $   2.58
                                                ==========      =========
</TABLE>
<TABLE>

Warrants Outstanding                                            Warrants Exercisable
--------------------                                            --------------------
                                        Weighted Average
Number of       Range of                Remaining Life          Weighted Average         Number Currently
Warrants        Exercise Prices         (in years)              Exercise Price           Exercisable
--------        ---------------         ----------              --------------           -----------

<S>             <C>                          <C>                <C>                         <C>
  435,000       $     2.58                   3.0                $       2.58                435,000

</TABLE>

The fair value of warrants on their grant date was measured using the
Black-Scholes pricing model. Key assumptions used to apply this pricing model
for 2004 and 2003 are as follows:

                                       71


<PAGE>

Risk-free interest rate...............................................   3.3%
Expected life of warrant grants.......................................   4 years
Expected dividend yield...............................................   0.0%
Expected volatility of underlying stock...............................   98%

9. RELATED PARTY AGREEMENTS

         On February 1, 2003, the Company executed a license agreement with
BioChemics that allows it to commercialize, market and sell OTC pharmaceutical
products using BioChemics' patented VALE system and the PENtoCORE technology and
BioChemics-owned trademarks in the OTC pharmaceutical market. In consideration,
BioChemics was issued 4,500,000 shares of the Company's Class B common stock.
The term of this licensing agreement extends through the date of the last
BioChemics' patent to expire. With respect to the portions of the licensing
agreement that do not apply to a BioChemics patent or patent application, this
agreement extends though February 2013. The licensing agreement can be
automatically renewed for successive two-year terms for the non-patent
technology.

         On February 1, 2003, the Company executed a five-year agreement with
BioChemics with respect to ongoing manufacturing and development of the
Company's products and product candidates. In accordance with the terms and
conditions of this agreement, BioChemics will research, develop and manufacture
the Company's products on its behalf. In consideration, BioChemics will charge
the Company a development and manufacturing fee at a rate of cost plus 10%. This
agreement is automatically renewed for successive one-year terms. In the event
that (i) BioChemics materially fails to meet the Company's product orders for a
period of more than three (3) consecutive months; (ii) BioChemics commits an
anticipatory breach of the manufacturing and development agreement; (iii) a
force majeure event occurs which the Company reasonably believes will affect
BioChemics' ability to supply and meet its product requirements for a period of
at least three (3) months; or (iv) any of BioChemics' manufacturers are
non-compliant with the regulations required to manufacture the products and are
unable to cure such non-compliance, the Company may qualify and engage at its
discretion, other suppliers and manufacturers as it deems necessary to ensure
uninterrupted supply of the Company's products.

         Either party may terminate the agreement upon a
material breach by the other party by giving the breaching party three months to
cure the breach. In event of termination, transition will be conducted in such a
manner as to not cause inconvenience to either party. Termination by BioChemics
for any reason, except for non-payment, shall not be effective until the Company
has located and arranged for continuation of the manufacturing of its products
with another supplier on terms commercially reasonable to the Company, provided
however, that the Company shall have no longer than two years from the date of
the notice of termination from BioChemics to make such arrangements.

         Effective September 1, 2003, the Company entered into an administrative
services agreement with BioChemics. Under this agreement, BioChemics provides to
the Company, at the Company's request, administrative support services including
secretarial support, accounting and tax services, data processing services,
utilities, designated office space, designated warehouse and storage space,
office supplies, telephone and computer services and equipment and such other
office and corporate support services as the Company reasonably requires from
time to time. BioChemics charges the Company an administrative services fee at a
rate of cost plus 10%.

                                       72


<PAGE>

10. COMMITMENTS AND CONTINGENCIES

         EMPLOYMENT AGREEMENTS

         The Company has non-cancelable employment agreements with the Acting
Chief Executive Officer through February 28, 2006 and the Chief Scientific
Officer and the former Chief Executive Officer, June 30, 2008. The remaining
payments due under these employment contracts are as follows - $460,833 for
2005, $344,167 for 2006, $315,000 for 2007; and $157,500 for 2008.

         FACILITY LEASE

         The Company subleases its office space from BioChemics, however, it
does not have a formal lease agreement with BioChemics. Total rent expense for
this office space was approximately $44,000, $20,000, and $15,000 in 2004, 2003,
and 2002 respectively. The Company is not obligated to any significant long-term
lease commitments or other off-balance sheet financing arrangements.


         LITIGATION

         In April, May, and June 2004, the Company and certain of its officers
(the "Defendants") were sued in several securities class action lawsuits filed
in the United States District Court for the District of Massachusetts. The
complaints, which seek equitable and monetary relief, an unspecified amount of
damages, with interest, attorneys fees and costs, allegedly were filed on behalf
of purchasers of the Company's Class A common stock during the period December
11, 2003 to March 31, 2004. The complaints allege that during the period in
question the Defendants violated the federal securities laws by allegedly
failing to make accurate and complete disclosures concerning the Company, its
financial condition, its business operations and future prospects, the clinical
trial and endorsement of the Company's Termin8 anti-fungal product and the
institutional demand for the Company's securities. The majority of these
complaints were consolidated in the United States District Court for the
District of Massachusetts, under the caption IN RE VASO ACTIVE PHARMACEUTICALS
SECURITIES LITIGATION , Civ. No. 04-10708 (RCL), (the "Consolidated Action"). On
November 4, 2004, the Court appointed a lead counsel for the Consolidated
Action.

         The Company has also been named as a nominal defendant in three
shareholder derivative actions. The first action was filed in the United States
District Court for the District of Massachusetts in April 2004 against the
Company's directors and certain of its officers and against BioChemics, Inc.
styled JOSEPH ROSENKRANTZ V. BIOCHEMICS, INC., ET AL., Civ. No. 04-10792 (RCL)
(D. Mass.); the second - filed in June 2004, also against the Company's
directors and certain of its officers and against BioChemics, Inc. styled
WILLIAM POMEROY V. BIOCHEMICS INC., ET AL., Civ. No. 04-11399 (RCL) (D. Mass.);
and the third - in the Court of Chancery for the State of Delaware in September
2004 against its directors and certain of its officers entitled DOUGLAS WEYMOUTH
V. VASOACTIVE ET AL., Civ. No. 682-N (collectively, the "Complaints"). The
Complaints allege, among other things, that the alleged conduct challenged in
the securities cases pending against the Company in Massachusetts (described
above) constitutes a breach of the Defendants' fiduciary duties to the Company.
The Complaints seek equitable and monetary relief, an unspecified amount of
damages, and attorneys and other fees, costs and expenses, ostensibly on behalf
of the Company. On October 29, 2004, the Massachusetts Court approved a joint
motion to consolidate the two Massachusetts derivative actions. The Delaware
court has approved the parties' stipulated stay of all proceedings in the
Delaware derivative action, at least until the resolution of the motion to
dismiss the consolidated securities fraud litigation.

         Although the Company intends to vigorously defend against these cases,
there can be no guarantee as to the ultimate outcome of these matters. There is
also no guarantee that these will be the only lawsuits brought against the
Company with respect to these matters.

         Because of the uncertainty of estimating the potential financial
statement impact of any of these actions with any reasonable degree of accuracy,
at this time the Company has not reserved for any potential liability or costs
that may arise as a result of this litigation except for $200,000 recorded
during 2004, which represents the insurance deductible that the Company cannot
expect to recover. While the cases are in preliminary stages and the outcomes
are not predictable, if a substantial amount is payable by the Company and is
not reimbursed through its director and officer liability insurance policy, this
will have a material adverse effect on the Company's financial position and
liquidity.

                                       73


<PAGE>

         On August 3, 2004, the Company's insurer notified the Company that,
based on its coverage evaluation, it intends to reject liability to reimburse
the Company with respect to any of the claims asserted in any of the
above-described litigation against the Company or its officers or directors for
a substantial majority of the policy coverage and that it may seek to rescind
the policy with respect to the balance of the policy coverage. The Company
intends to vigorously contest the insurer's positions regarding this matter.

11. GEOGRAPHIC SALES INFORMATION AND MAJOR CUSTOMERS

         The Company is an early-stage company. To date all revenues are from
the sale of its products in North America. One customer accounted for
approximately 86% and 66% of the Company's 2003 and 2002 net revenues. There
were no significant customers during 2004.

12. REQUIRED PRO FORMA INFORMATION (UNAUDITED)

         Required pro forma information is identical in content to that
information presented on the financial statements with the exception of required
net loss per share data. As discussed in Note 6, the Company was not capitalized
until June 20, 2003. The pro forma loss per share calculations are presented as
if (i) the 4,500,000 shares of Class B common stock had been issued to
BioChemics on January 1, 2002, and (ii) the 10% convertible promissory notes had
been converted into 601,113 shares of Class A common stock on January 1, 2002.

                                                         PRO
                                                         FORMA       AS REPORTED
                                                         -----       -----------

2003 net loss per share--basic and diluted.........     $(0.31)        $(0.62)
2002 net loss per share--basic and diluted.........      (0.09)           --

13. UNWINDING OF PRIVATE INVESTMENT IN PUBLIC ENTITY

         On March 16, 2004, the Company entered into a private placement
transaction in the amount of $7,500,000 with an institutional investor. The
investment was in the form of an 18 month 2% Convertible Note (the "Note")
convertible into shares of the Company's Class A common stock at a conversion
rate of $9 per share, at the option of the investor. In addition, the Company
issued to the investor warrants to purchase 166,667 shares of Class A common
stock at an exercise price of $8.75 per share.

         Given that the initiation and continuation of the April 1, 2004 trading
suspension by the SEC (see Note 1) constituted a breach under the Note, the
Company and the investor agreed, pursuant to the terms of a settlement agreement
entered into on April 8, 2004, that the Company would immediately repay the
investor the sum of $7,500,000 in cash without penalty, interest, redemption
premium or any other premium or penalty, plus an expense reimbursement in
connection with the settlement agreement in the amount of $15,000 in cash. In
consideration of this repayment, the investor surrendered the Note and warrants
and the parties mutually terminated all other agreements entered into in
connection with the transaction.

         In connection with this transaction, the Company paid approximately
$600,000 in fees to various third parties. These fees were not refunded when the
Company repaid the investor. These fees were recorded as an expense during 2004.

                                       74




<PAGE>

                                  EXHIBIT 31.1

      OFFICER'S CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
                                   ACT OF 2002

I, Joseph Frattaroli, certify that:

1. I have reviewed this Annual Report of Form 10-KSB of Vaso Active
Pharmaceuticals, Inc. for the year ended December 31, 2004;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstance under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;

4. The small business issuer's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:

         (a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;

         (b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and

         (c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the small business issuer's fourth
fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and

5. The small business issuer's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
the small business issuer's board of directors (or persons performing the
equivalent functions):

         (a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information, and

         (b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal control over financial reporting.



                              MARCH 30, 2005
                              BY: /S/ JOSEPH FRATTAROLI
                                  -------------------------------------
                                  ACTING CHIEF EXECUTIVE OFFICER AND
                                  CHIEF FINANCIAL OFFICER (PRINCIPAL
                                  EXECUTIVE AND FINANCIAL OFFICER)





<PAGE>

                                  EXHIBIT 32.1

          CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
            PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Vaso Active Pharmaceuticals, Inc. (the
"Company") on Form 10-KSB for the year ended December 31, 2004, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Joseph Frattaroli, Acting Chief Executive Officer and Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted by Section
906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.




                              MARCH 30, 2005
                              BY: /S/ JOSEPH FRATTAROLI
                                  ----------------------------------
                                  ACTING CHIEF EXECUTIVE OFFICER AND
                                  CHIEF FINANCIAL OFFICER


This certification is made solely for the purpose of 18 U.S.C. Section 1350,
subject to the knowledge standard contained therein, and not for any other
purpose.