**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-KSB**





(Mark
      One)


**x ANNUAL
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE** **ACT
      OF 1934**





**For
      the Fiscal Year Ended December 31, 2007**





**o TRANSITION
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF**


**THE
      SECURITIES** **EXCHANGE
      ACT OF 1934**





**For
      the transition period from _________ to __________**





**Commission
      file number: 000-28347**





**ONCOVISTA
      INNOVATIVE THERAPIES, INC.**


(Exact
      name of registrant as specified in its charter)





**Nevada**
            **33-0881303**(State
                or other jurisdiction of
              incorporation
                or organization)
            (IRS
                Employer Identification No.)





**14785
      Omicron Drive**


**Suite
      104**


**San
      Antonio, Texas 78245**


(Address
      of principal executive offices)




**(210)
      677-6000**


(Registrant's
      telephone number, including area code)





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




Securities
      registered pursuant to Section 12(g) of the Exchange Act: Common
      Stock, $0.001 par value





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





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. o




Indicate
      by check mark whether the registrant is
      a
      shell company (as defined in Rule 12b-2 of the Exchange
      Act ).
      Yes
o     No x





State
      issuer’s revenues for its most recent fiscal year $1,821,040.





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity, as of a
      specified date within the past 60 days. As of February 29, 2008: $25,383,602
      (7,810,339 shares at $3.25 **** per
      share).





State
      the
      number of shares outstanding of each of the registrant's classes of common
      equity, as of the latest practicable date: As of February
      29, 2008, 20 ,166,475 shares
      of
      common stock were outstanding.





**ONCOVISTA
      INNOVATIVE THERAPIES, INC.**





**FORM
      10-KSB**


**FOR
      THE YEAR ENDED DECEMBER 31, 2007**


**TABLE
      OF CONTENTS**





PART
                I
            1ITEM
                1 - BUSINESS
            2ITEM
                1A - RISK FACTORS
            17ITEM
                2 - PROPERTIES
            26ITEM
                3 - LEGAL PROCEEDINGS
            26ITEM
                4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
            27PART
                II
            27ITEM
                5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS
            27ITEM
                6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION
            31ITEM
                7 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
            37ITEM
                8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                FINANCIAL DISCLOSURE
            37ITEM
                8A(T) - CONTROLS AND PROCEDURES
            39ITEM
                8B - OTHER INFORMATION
            40PART
                III
            40ITEM
                9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
            40ITEM
                10 - EXECUTIVE COMPENSATION
            44ITEM
                11- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                AND
                RELATED STOCKHOLDER MATTERS
            52ITEM
                12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
            54ITEM
                13 - EXHIBITS
            55ITEM
                14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
            58










**PART
      I**





***This
      Annual Report on Form 10-KSB (including the section regarding Management's
      Discussion and Analysis of Financial Condition and Results of Operations)
      contains forward-looking statements regarding our business, financial condition,
      results of operations and prospects. Words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or
      variations of such words are intended to identify forward-looking statements,
      but are not deemed to represent an all-inclusive means of identifying
      forward-looking statements as denoted in this Annual Report on Form 10-KSB.
      Additionally, statements concerning future matters are forward-looking
      statements.***





Although
      forward-looking statements in this Annual Report on Form 10-KSB reflect the
      good
      faith judgment of our management, such statements can only be based on facts
      and
      factors currently known by us. Consequently, forward-looking statements are
      inherently subject to risks and uncertainties and actual results and outcomes
      may differ materially from the results and outcomes discussed in or anticipated
      by the forward-looking statements. Factors that could cause or contribute to
      such differences in results and outcomes include, without limitation, those
      specifically addressed under the heading “ *Risks
      Related to Our Business* ”
below,
      as well as those discussed elsewhere in this Annual Report on Form 10-KSB.
      Readers are urged not to place undue reliance on these forward-looking
      statements, which speak only as of the date of this Annual Report on Form
      10-KSB. We file reports with the Securities and Exchange Commission (the
“ *SEC* ”
or
      “ *Commission* ”).
      We
      make available on our website under “Investor Information/SEC Filings,” free of
      charge, our annual reports on Form 10-KSB, quarterly reports on Form 10-QSB,
      current reports on Form 8-K and amendments to those reports as soon as
      reasonably practicable after we electronically file such materials with or
      furnish them to the SEC. Our website address is www.oncovista.com. You can
      also
      read and copy any materials we file with the SEC at the SEC's Public Reference
      Room at 450 Fifth Street, NW, Washington, DC 20549. You can obtain additional
      information about the operation of the Public Reference Room by calling the
      SEC
      at 1-800-SEC-0330. In addition, the SEC maintains an internet site (www.sec.gov)
      that contains reports, proxy and information statements, and other information
      regarding issuers that file electronically with the SEC, including
      us.





We
      undertake no obligation to revise or update any forward-looking statements
      in
      order to reflect any event or circumstance that may arise after the date of
      this
      Annual Report on Form 10-KSB. Readers are urged to carefully review and consider
      the various disclosures made throughout the entirety of this Annual Report,
      which attempt to advise interested parties of the risks and factors that may
      affect our business, financial condition, results of operations and
      prospects.





As
      used
      in this Annual Report, the terms “ *we* ”,
      “ *us* ”,
      “ *our* ”,
      and
“ *OncoVista* ”
mean
      OncoVista Innovative Therapies, Inc. and our subsidiaries, OncoVista, Inc.
      (“ *OncoVista-Sub* ”)
      and
      AdnaGen A.G. *(“AdnaGen”)*, unless otherwise indicated.





All
      dollar amounts refer to US dollars, unless otherwise indicated.





1





**ITEM
      1 - BUSINESS**





**Overview**





We
      are a
      biopharmaceutical company engaged in the development and commercialization
      of
      targeted cancer therapies both through the acquisition of rights to technologies
      and drugs from others and through the development of proprietary products.
      We
      intend to identify, develop, and rapidly commercialize innovative therapies
      for
      the safer and more efficacious treatment and cure of cancer. By commercializing
      our novel therapeutics, we plan to address a significant share of the U.S.
      market for cancer therapeutics that Frost and Sullivan currently estimates
      at
      $32 billion and expects to grow to $70 billion by 2010. In addition, our
      proprietary diagnostic technology facilitates stratification of clinical trial
      patients, as well as quantifies and predicts the response of patients to
      treatment. We believe that the development of targeted approaches to the
      administration of anticancer agents should lead to improved patient outcomes
      and/or reduced patient toxicity.




We
      expect
      to be a major participant in the oncology arena through the successful
      development and commercialization of innovative therapies which, as a result
      of
      their lower toxicity and/or greater efficiency, will increase patient survival
      rates and enhance patient quality of life. In targeting compounds for
      acquisition, we focus on candidates that have been previously tested in human
      clinical trials or animal models, as well as technologies that may improve
      the
      delivery or targeting of previously tested, and in some cases marketed,
      anticancer agents. Our senior management team and our panel of
      internationally-recognized clinical advisors have made significant contributions
      to the development of leading drugs currently used in cancer treatment.
      Management, in conjunction with our advisors, will evaluate in-licensing
      candidates based on several criteria, including development and registration
      strategies to be employed, commercialization opportunities and competitive
      technologies being developed elsewhere.




Our
      primary therapeutic strategy is based on targeting the patient’s tumor(s) with
      treatments that will deliver drugs selectively based upon specific biochemical
      characteristics of the cancer cells comprising the tumor. Through a combination
      of licensing agreements as well as mergers and acquisitions, we have acquired
      the rights to several technologies with the potential to more effectively treat
      cancers and significantly improve quality-of-life for patients.





We
      intend
      to initiate a Phase II clinical trial program for our lead compound, OVI-237,
      during 2008. OVI-237 is a liposomal formulation of a potent inhibitor of
      thymidylate synthase (TS). In the second quarter of 2008, we plan to launch
      the Phase I/II clinical trial for Cordycepin (OVI-123) and, following completion
      of the Phase I portion of the trial, collect initial Phase II efficacy data
      in a
      small cohort of refractory leukemia patients who express the marker, TdT. We
      intend to commence human clinical trials within the next twelve months on our
      L-nucleoside conjugate candidate drug (OVI-117) which takes advantage of cancer
      cell membrane changes to allow for selective, site specific targeting. Finally,
      we have a proprietary screening technology for designing novel anti-tubulin
      (or
      anti-mitotic) agents and discovering variants of existing anti-tubulin agents
      which have improved specificity for the tumor cells being targeted. We
      anticipate that these new anti-tubulin drugs will elicit an improved clinical
      response and be less toxic. We intend to develop our key candidates into novel,
      highly efficacious therapies to be marketed by means of corporate alliances.





During
      the last three fiscal years we spent approximately $7.9 million on research
      and
      development.





**Our
      Corporate Strategy**




We
      have
      implemented a comprehensive, multi-faceted approach to candidate identification
      and product development in the oncology treatment and diagnostic market
      segments. Our strategic plan consists of the following elements:




·
            *Focused,
                Robust In-licensing Candidate Selection and Acquisition
                Program*.
                We believe that the relationships and reputation of both our management
                and our clinical advisory board position us to be exposed to many
                acquisition and in-licensing opportunities that would not normally
                be
                available to a company of our size. In many instances, the acquisition
                of
                biopharmaceutical companies by larger companies has resulted in drug
                programs being delayed or discontinued, due to such factors as loss
                of
                internal sponsorship (not created at the acquiring company), a perceived
                lack of market size (the desire for $1 billion drugs) by the larger
                combined entity, or an overcrowded pipeline (too many product candidates
                to investigate, too many products to develop and a lack of sufficient
                resources). Indeed, the development of over 100 oncology compounds
                that
                had been on the development track have been delayed or discontinued.
                We
                view many of these product candidates, together with some of the
                400 plus
                compounds in the development pipeline, as potential candidates for
                in-licensing.




2






By
                leveraging the experience of our management and clinical advisory
                board in
                selecting, developing and obtaining approval for many important
                chemotherapeutics, we believe that we will be able to discern those
                opportunities that truly possess the potential to become approved
                drugs
                within a targeted three-to-five year horizon. We involve our clinical
                advisory board in all major acquisition and in-licensing decisions.
                Given
                the experience and the active network of our management team and
                clinical
                advisory board, we expect to uncover many other promising candidates.
                Coupled with this we generally structure our in-licensing deals so
                that if
                the in-licensed technology fails to perform as represented, we are
                able to
                recover any payments made by us in acquiring the
                technology. ·
            *A
              Practical, Rational Approach to Drug Development*.
              Our management is well versed in the nuances associated with successful
              execution of the drug development and registration process. Registration
              strategies will be designed to address those issues which are critical
              to
              achieving success with respect to both the acceptability of a specific
              plan in the eyes of the FDA and the achievability of that plan with
              respect to the designated end points for that phase of the clinical
              trial.
              Furthermore, wherever possible these strategies will be designed to
              take
              advantage of the FDA’s accelerated approval paths for certain drugs and/or
              orphan drug designation.




·
            *A
                Disciplined Internal Development Strategy for
                Therapeutics*.
                Besides opportunistically evaluating candidates for potential in-licensing
                or acquisition, we possess two proprietary technologies which we
                believe
                will produce candidates for potential out-licensing. Both technologies
                target aspects of cell biology specific to most cancer cells, but
                not
                found in healthy cells. We expect these technologies to produce an
                array
                of candidates. We believe that, in many instances, the potential
                candidates will address opportunities with unmet needs, such as cancers
                which are very resistant to therapy or have high recurrence rates.
                In
                other instances, we believe that the candidates will address opportunities
                where the effectiveness of existing chemotherapeutics is hampered
                by the
                toxic side effects which the drugs produce. In these circumstances,
                we
                believe that by using our products in combination with existing drug
                therapies administered at lower dosage levels will produce comparable
                or
                improved effectiveness with diminished side effects versus the single
                agent. therapy.




Our
      L-nucleoside conjugate technology selectively targets certain cancer cell
      characteristics which make those cancer cells vulnerable to the actions of
      the
      drug, but leaves the healthy cells unaffected. In effect a new drug is created
      by conjugating an L-nucleoside to an existing chemotherapeutic agent that would
      be too toxic if delivered systemically. As this new drug selectively penetrates
      the cancer cell membranes and then enzymatically releases the cytotoxic drug
      at
      the targeted site, the L-conjugate induces cell death only at the desired site.
      Several product candidates have been evaluated by us and one candidate (OVI-117)
      has been tested in two animal models.




Our
      other
      platform technology relates to a proprietary database of tubulin isotypes as
      potential candidates for targeting by certain chemotherapeutics. Microtubules
      or
      tubulins, which are instrumental in cell mitosis, have been proven as cancer
      targets by drugs such as the taxanes. We intend to screen our proprietary
      database for candidates to be targeted either by drugs to be developed by us,
      or
      by drugs already developed by other companies that are not aware of the
      potential for selective tubulin targeting of their products. During the second
      half of 2008, we expect to identify our first antimitotic tubulin compound
      to
      take forward into the clinic.




·
            *An
                Integrated Diagnostics Strategy*.
                AdnaGen’s proprietary diagnostics platform represents an opportunity to
                improve the probability of attaining FDA approval for our drugs.
                AdnaGen’s
                proprietary “combination-of-combinations” platform detects and analyzes
                circulating tumor cells for clinical diagnosis and staging. AdnaGen
                currently offers diagnostic products for colon and breast cancer
                diagnosis
                in the European market. AdnaGen’s platform is expandable to encode the
                markers for virtually all cancer types. These assays are highly specific
                and sensitive, with the ability to detect two circulating tumor cells
                per
                5ml of blood (which contains approximately 107normal nucleated cells) at a 95+% likelihood, thereby enabling the
                reproducible detection of low levels (better than 1 part per million)
                of
                circulating tumor cells in the blood. As part of our oncology drug
                development process, we expect to employ AdnaGen’s diagnostic technology
                to design clinical trial protocols to stratify the patient population
                to
                exclude patients least likely to respond based on expression of specific
                tumor associated biomarkers. In addition, these tests will provide
                insight
                into the state of the metastatic process thereby enabling the monitoring
                of disease progression as well as the effectiveness of treatment
                regimens.




3





**Merger
      and Private Placement**





On
      August
      16, 2007, OncoVista-Sub acquired from Torbjorn Lundqvist (“ *Lundqvist* ”)
      and a
      number of minority stockholders an aggregate of 10,963,851 shares of our common
      stock (or 16,160,430 shares of our common stock after giving effect to the
      forward split that went effective on October 22, 2007) constituting
      approximately 95.7% of our then issued and outstanding capital stock. In
      connection with OncoVista-Sub’s acquisition of our shares, the license agreement
      with Lundqvist granting us worldwide marketing rights for an electronic tire
      valve cap was terminated and all shares of Automotive Upgrade Technologies,
      Inc., formerly a wholly owned subsidiary of ours, were transferred to Lundqvist.
      As a result of the termination of this license, we ceased business
      operations.





On
      October 26, 2007, we entered into an Agreement and Plan of Merger (the
“ *Merger
      Agreement* ”)
      with
      OncoVista Acquisition Corp. (“ *NewSub* ”),
      our
      then wholly owned subsidiary, and OncoVista-Sub. On November 13, 2007, NewSub
      merged with and into OncoVista-Sub with OncoVista-Sub remaining as the surviving
      corporation (the “ *Merger* ”).
      As a
      result of the Merger, OncoVista-Sub became our wholly-owned subsidiary and
      OncoVista-Sub’s existing business operations became our sole line of business.
      On the closing date of the Merger, each outstanding share of common stock of
      OncoVista-Sub was exchanged for one share of our common stock such that
      OncoVista-Sub's shareholders became holders of approximately 96.3% of our then
      issued and outstanding capital stock. In addition, all our shares acquired
      by
      OncoVista-Sub on August 16, 2007 were cancelled and became authorized but
      unissued shares of our common stock.





The
      Merger was accounted for as a reverse acquisition and recapitalization of
      OncoVista-Sub for financial accounting purposes. Consequently, the assets and
      liabilities and the historical operations that are reflected in our financial
      statements for periods prior to the Merger are those of OncoVista-Sub and have
      been recorded at the historical cost basis of OncoVista-Sub, and our
      consolidated financial statements for periods after completion of the Merger
      include both our and OncoVista-Sub’s assets and liabilities, the historical
      operations of OncoVista-Sub and our operations from the closing date of the
      Merger.





In
      contemplation of the Merger, on August 15, 2007, OncoVista-Sub completed the
      closing of a private placement (the “ *2007
      Private Placement* ”)
      whereby it sold to accredited investors a total of 970,712 units at $7.00 per
      unit, each unit consisting of four shares of OncoVista-Sub common stock and
      a
      warrant to acquire one share of OncoVista-Sub common stock. The net proceeds
      of
      the private placement after payment of placement agent fees and other expenses
      was approximately $6.2 million. In connection with the private placement,
      OncoVista-Sub issued warrants to its placement agent, Maxim Group, LLC, to
      acquire 278,857 shares of OncoVista-Sub common stock. The warrants and placement
      agent warrants (collectively, the “ *Warrants* ”)
      are
      exercisable through August 15, 2012 at the exercise price of $2.50 per share,
      subject to adjustment for stock splits, stock dividends, distributions,
      reorganizations, reclassifications, consolidations and mergers. The Warrants
      may
      also be exercised on a cashless or net issuance basis if after August 15, 2008
      there is no effective registration statement covering the resale of the shares
      of common stock and shares underlying the warrants. The offering was exempt
      from
      registration under Section 4(2) of the Securities Act of 1933, as amended (the
      “ *Securities
      Act* ”)
      and
      Rule 506 of Regulation D as promulgated by the SEC.





As
      a
      result of the Merger, all shares issued in the 2007 Private Placement were
      exchanged for our shares of common stock and the Warrants became exercisable
      for
      shares of our common stock.




**Our
      Current Product and Product Candidate Pipeline**




Our
      current portfolio of compounds and technologies under development or planned
      development include:




·
            Liposomal
                TS Inhibitor;


·
            Cordycepin;


·
            L-Nucleoside
                Conjugates;


·
            Novel
                Tubulin Isotype-Specific Anti-Mitotics;
                and


·
            Monitoring
                of Drug Performance (AdnaGen Oncology
                Diagnostics).




4




The
      following table summarizes the status of our various pre-clinical and clinical
      development programs underway, including both chemotherapeutic agents and
      oncology diagnostic products:




**Program**
            
            **Indication**
            
            **Status**
            
            **Planned
                Activities**
            
            **Commercial
                Rights**Liposomal
                TS Inhibitor
              (OVI
                -237)
            
            Metastatic
                Solid Tumors
            
            Phase
                II Clinical Development
            
            Phase
                II Clinical Trial to be initiated in Second Half of 2008
            
            OncoVista-SubCordycepin
                (OVI-123)
            
            Refractory
                TdT Positive Leukemias
            
            In
                Phase I/II Clinical Development; Open IND; Orphan Drug Designation
                Received;
            
            Phase
                I/II Trial to be initiated in Second Quarter of 2008
            
            OncoVista-SubL-Nucleoside
                Conjugates (OVI-117)
            
            Colon
                Cancer
            
            Pre-Clinical
              Development;
                Initiated GLP animal safety studies
            
            Anticipated
                IND Filing in the Second Quarter of 2008 to Commence Phase I
                Trial
            
            OncoVista-SubTubulin
                Isotype-Specific
              Anti-Mitotics
            
            Solid
                Tumors Expressing Specific Tubulin Isotypes
            
            Pre-Clinical
              Development;
            
            Design
                and Testing of Candidate Compounds; Lead Selection by the end of
                2008
            
            OncoVista-SubAdnaGen
                Diagnostic
              Products
            
            Metastatic
                Solid Tumors
            
            Tests
              Commercialized
                in
              EU
                for Colon and
              Breast
                Cancer
            
            Seeking
                Approval of Breast Test in the United States
            
            Gen-Probe
              (bladder
                & prostate);
              AdnaGen
                (all other indications)




The
      following sections discuss various aspects of our portfolio of drug candidates
      and their respective therapeutic characteristics in more detail.





**Liposomal
      Thymidylate Synthase (TS) Inhibitor (OVI-237) (solid
      tumors)**





OVI-237
      is our most advanced clinical stage drug. It was obtained in November 2007
      as a
      result of an exclusive worldwide licensing agreement with OSI Pharmaceuticals
      (Melville, New York).




The
      drug
      was previously known as “OSI-7904L” and has been studied in a broad range of
      preclinical studies as well as several Phase I and Phase II human clinical
      trials.





OVI-237
      is a liposome encapsulated formulation of a potent thymidylate synthase
      inhibitor (TSI) with activity at picomolar concentrations. Salient features
      of
      OVI-237 include:





·
            Most
                potent TSI in its class;


·
            Liposome
                formulation enhances pharmacokinetics: long half life in
                plasma;


·
            Unique
                biodistribution profile; enhanced accumulation and tumor residence
                time;


·
            No
                requirement for polyglutamation for anti-tumor
                activity;


·
            Independent
                of dihydropyrimidine dehydrogenase (DPD)
                activity;


·
            No
                requirement for folate
                supplementation;


·
            No
                requirement for leukovorin;


·
            Manageable
                toxicity profile as a single agent and in combination with oxaliplatin
                and
                cisplatin;


·
            More
                convenient dosing schedule with a 30 minute IV infusion compared
                to 24-48
                hour 5-FU dosing schedules;




Approximately
      150 patients have been treated with the drug in various Phase I and Phase II
      trials and the results can be summarized as follows:




5





·
            In
                a Phase I trial (OVI-237 as a single agent), 11 out of 31 patients
                experienced stable disease (SD);


·
            In
                a Phase I trial (OVI-237 in combination with cisplatin), 3 patients
                (2
                breast and 1 gastric cancer; out of 27 patients total) experienced
                a
                partial response (PR) and 9 patients had
                SD;


·
            In
                a Phase I study (OVI-237 in combination with oxaliplatin), 14 patients
                with colorectal cancer were treated, 2 patients experienced a PR
                and 11
                had SD;


·
            In
                a Phase II study (OVI-237 as a single agent) in patients with locally
                advanced or metastatic adenocarcinoma of the stomach or gastroesophageal
                junction, 46 patients were treated and evaluable; there was 1 complete
                response (CR), 7 PRs and 21 SDs;


·
            In
                a randomized, open label, Phase II study of OVI-237 vs. 5-FU/LV as
                first-line treatment in patients with unrespectable, locally advanced
                or
                metastatic adenocarcinoma of the biliary tract, 11 patients were
                treated
                in each arm and no responses were seen in the OVI-237
                arm;


·
            In
                a Phase II trial (single agent) of OVI-237 in patients with locally
                advanced or metastatic squamous cell carcinoma of the head and neck
                who
                have failed first line therapy, 10 patients were treated and 4 SDs
                were
                seen.




From
      the
      responses seen in previous trials, we believe that the drug has intrinsic
      anti-tumor activity and that the key to successful clinical development leading
      to registration will depend upon increasing response rates among the clinical
      trial participants. To this end, we plan to utilize the AdnaGen technology
      for
      characterizing biomarkers in circulating tumor cells to identify patients most
      likely to respond to therapy and to monitor the effectiveness of
      treatment.





We
      plan
      to initiate a new Phase II clinical development plan during the second half
      of
      2008. Although it has yet to be finalized, we believe that the initial studies
      may be in metastatic breast cancer or gastrointestinal cancer.




**Cordycepin
      (OVI-123) (TdT-Positive Refractory Leukemias)**




The
      American Cancer Society estimated that 44,270 new leukemia cases would be
      diagnosed in 2008 in the U.S. While 200,000 individuals are living with, or
      are
      in remission from, leukemia in the U.S., the annual mortality rate is nearly
      22,000. The four broad classifications of leukemia are:





·
            Acute
                lymphocytic leukemia (“*ALL*”);


·
            Chronic
                lymphocytic leukemia (“*CLL*”);


·
            Acute
                myelogenous leukemia (“*AML*”);
                and


·
            Chronic
                myelogenous leukemia (“*CML*”).




Cordycepin,
      which was obtained through OncoVista-Sub’s acquisition of Aengus
      Pharmaceuticals, Inc., was our first clinical-stage development compound. We
      are
      developing Cordycepin as a treatment option for certain leukemia patients that
      are either refractory to currently-used chemotherapeutics or have experienced
      a
      relapse. Cordycepin depends upon the presence of a DNA polymerase, known as
      terminal deoxynucleotidyl transferase (TdT), for our therapeutic activity.
      Approximately 95% of ALL patients express TdT, and approximately 10% of the
      AML
      cases express TdT. The range of CML cases that express TdT has been estimated
      at
      between 0% and 55% in scientific literature with an average of 21% among the
      cited articles. Generally, the TdT-positive patients that would either be
      refractory or have experienced a relapse are older adults.





*Opportunity*





Leukemia
      is a malignant cancer of the bone marrow and blood. Leukemia is characterized
      by
      the uncontrolled accumulation of blood cells and is categorized as either
      lymphocytic or myelogenous, either of which type can be acute or chronic. The
      terms lymphocytic and myelogenous denote the type of blood cell affected
      (lymphocytic involving lymphocyte cells in bone marrow and myelogenous
      implicating other blood cells). Acute leukemia is a rapidly progressing disease
      that results in the accumulation of immature, functionless cells in the marrow
      and blood, thereby resulting in a condition whereby the marrow often can no
      longer produce enough normal red blood cells, white blood cells and platelets.
      Anemia, a deficiency of red cells, develops in virtually all leukemia patients,
      and the lack of normal white cells impairs the body’s ability to fight
      infections. A shortage of platelets results in bruising and easy bleeding.
      Chronic leukemia, on the other hand, progresses more slowly and allows greater
      numbers of more mature, functional cells to be made.




6




While
      AML
      and CML have been cancers primarily of adults, with prevalence rates of 94%
      for
      AML in adults over the age of 20 and 97% for CML in adults over 20, ALL is
      more
      evenly distributed between adults and children. Approximately 65% of new cases
      diagnosed with ALL are in children under the age of 20, and while the treatment
      outcomes for ALL in children have generally been favorable with a five-year
      survival rate of 86% for children under the age of 15, the treatment response
      rates for adults have resulted in a lower overall five-year survival rate of
      65%. Given the toxic profile of the treatment regimens for both adults and
      children, we believe that Cordycepin, as a TdT-dependent agent, could be used
      as
      part of a combination therapy regimen in order to minimize toxicities to both
      age groups while maintaining effectiveness.





*Market*




Currently,
      approximately 50 different drugs are being used to treat leukemia. In the past
      decade, several important new drugs and new uses for existing drugs have greatly
      improved cure rates or remission duration for some patients. Because of the
      likelihood of increased toxicity for standard- or lower-risk childhood ALL
      patients, most centers treat these patients with a less intense treatment
      regimen than the four- or five-dose treatment regimen used for higher risk
      patients This regimen generally results in a complete remission rate of 95%.
      For
      adult ALL patients, the treatment regimen is similar to the childhood treatment
      regimen; however, for the 60% to 80% demonstrating remission during induction,
      the median remission duration is approximately 15 months. Unfortunately, those
      patients experiencing a relapse can succumb within one year.




AML
      treatment should be sufficiently aggressive to achieve complete remission since
      partial remission offers no substantial survival benefit. Initial therapy
      typically results in 60% to 70% of adults attaining complete remission during
      the induction phase. However, with an overall five year survival rate of 20%,
      the long-term prognosis in general is not good for adult AML patients.
      Unfortunately, while AML is a cancer of older adults, because of the therapy’s
      toxicity (from myelosuppression and increased risk of infection), induction
      chemotherapy is not generally offered to the very elderly.




Gleevec ® ,
      the
      standard primary course of treatment in CML, inhibits an enzyme (bcr-abl
      tyrosine kinase) resulting from the defective gene translocation. By selectively
      inhibiting the activity of this enzyme, Gleevec ® offers
      dramatic advantages to patients, including decreased side effects, few adverse
      effects on normal tissues and a very high response rate. The effectiveness
      and
      tolerance of older patients and the projections from the first several years
      of
      clinical trials suggest that the drug will prolong the duration of hematological
      remission and extend the patient’s life, when compared to former
      therapies.




Similar
      to Gleevec ® ,
      our
      Cordycepin selectively targets cells expressing a specific enzyme involved
      in
      the disease’s pathway. In this case, Cordycepin is targeting cells expressing
      TdT. With an addressable patient population consisting primarily of 46,000
      individuals with CML, Gleevec ® has been
      projected to achieve over $2.7 billion in revenues by 2008 according to Merrill
      Lynch estimates. With an addressable patient population for Cordycepin in
      leukemia patients nearly half the addressable population of Gleevec ® ,
      we
      believe that our product possesses a significant upside potential.




*Clinical
      Development*




Cordycepin
      has been studied in a National Cancer Institute-sponsored Phase I clinical
      trial
      for treating TdT-positive ALL leukemia patients. The therapy depends upon the
      presence of TdT for our activity. TdT is a polymerase expressed in immature,
      pre-B, pre-T lymphoid cells, and acute lymphoblastic leukemia/lymphoma cells.
      TdT, and similar enzymes found in fungi and parasites, recognize Cordycepin
      and
      its analogues and add them onto growing nucleic acid chains thereby terminating
      synthesis of the nucleic acid and replication of the cell. Importantly, TdT
      expression in normal human tissue is limited to primitive lymphoid cells in
      the
      bone marrow and thymus, so most normal cells in the body are unaffected by
      the
      drug. In addition to effectively treating TdT-positive ALL and CML, Cordycepin
      can also be used to treat diffuse high-grade lymphoblastic lymphoma, which
      also
      expresses TdT.




In
      a
      biological system, Cordycepin is converted to 3’-deoxyinosine by the enzyme
      adenosine deaminase (“ *ADA* ”),
      so
      Cordycepin must be administered with an ADA inhibitor, such as deoxycoformycin
      (Nipent ® or
      pentostatin) to protect Cordycepin and allow it to maintain its antileukemia
      activity. If the Phase I/II trial of Cordycepin demonstrates adequate safety
      and
      efficacy, we intend to develop an ADA-resistant analog of Cordycepin in
      order to eliminate the need for co-administration of deoxycoformycin. In the
      meantime, we plan in the first quarter of 2008 to initiate a Phase I/II
      trial based on the "original" ADA-sensitive compound.




7




The
      initial Phase I clinical trial data for the combination therapy were obtained
      in
      an ALL study of fourteen patients between 1997 and 2000. No Cordycepin-related
      adverse events were noted. Biological activity in the last three patients of
      the
      escalating dosing study was noted by the transient clearing of peripheral blood
      blasts.




As
      of May
      2007, we have an open IND and in addition, in July 2007, our request for Orphan
      Drug designation for Cordycepin was granted. The clinical trial is expected
      to
      commence in the second quarter of 2008. The trial will take place at two centers
      (The Dana Farber Cancer Institute and the Cancer Therapy Research Center at
      the
      University of Texas Health Sciences Center at San Antonio) and will involve
      the
      enrollment of up to 24 patients in the first stage and up to 20 patients in
      the
      second stage. The primary objective of the 1 st phase of
      the study will be to determine the maximally tolerated dose (MTD) and the
      recommended dose (RD) of Cordycepin, given one hour following a fixed dose
      of
      the ADA inhibitor Pentostatin, in patients with refractory TdT-positive
      leukemia. The primary objectives of the 2 nd phase of
      the study will be to determine the single and multiple dose pharmacokinetics
      of
      Cordycepin given one hour following a fixed dose of Pentostatin and to measure
      and quantify any clinical responses following administration of
      Cordycepin/Pentostatin at the recommended dose in 20 subjects. Secondary
      objectives will include assessing the pharmacokinetics/pharmacodynamics,
      assessing efficacy and safety at the MTD. We anticipate a total time period
      of
      18 months for the trial during which patients will receive Cordycepin for three
      consecutive days repeated every 28 days. Patients will be eligible for
      re-treatment if all dose-related toxicities have been resolved by Day 28 and
      there is no evidence of disease progression. Subjects may receive treatment
      until disease progression and will be followed for at least 30 days after the
      last administration of study drug.




**L-Nucleoside
      Conjugate (OVI-117)**




Compounds
      evolving from our L-nucleoside conjugate technology take advantage of cell
      membrane changes that differentiate cancerous cells from healthy cells. This
      anomalous characteristic of cancer cell membranes presents a unique opportunity
      for targeting these cells with new products which are uniquely designed
      cytotoxic nucleosides that selectively enter cancerous cells. After entering
      the
      cancer cells, these compounds are enzymatically cleaved to release their
      cytotoxic agents causing the death of the cancer cell. The membranes of healthy
      cells deny the L-nucleoside entry, so that cancerous cells are preferentially
      killed. We believe that there should be reduced side effects which lead to
      toxicity. Its drug candidates using L-nucleoside conjugates have demonstrated
      efficacy in cell lines for colorectal, pancreas, melanoma, leukemia and prostate
      cancers. Although OVI-117 has shown anti-tumor activity in animal models of
      several human cancers (including breast, prostate and colon), our initial target
      indication is expected to be colorectal cancer.




The
      L-nucleoside conjugate technology was obtained through an exclusive, world-wide,
      royalty and milestone-bearing right and license to utilize the patents and
      technologies of Lipitek International, Inc. relating to L-Nucleosides and their
      conjugates. Alexander L. Weis, Ph.D., a member of the board of directors,
      Chief Executive Officer, President and Secretary is the ultimate beneficial
      owner of Lipitek International, Inc. and Lipitek Research LLC. Dr. Weis has
      agreed not to vote as a director in connection with any matter relating to
      Lipitek.





*Opportunity*




Colorectal
      cancer is the third most common form of cancer, and diagnosis of localized
      colon
      cancer is typically made by means of colonoscopy. Symptoms of colorectal cancer
      include:




·
            Change
                in bowel habits as seen by changes in frequency (due to either
                constipation or diarrhea), changes in stool caliber and changes in
                stool
                consistency;


·
            Blood
                in stools (melena, hematochezia);


·
            Bowel
                obstruction (rare) by the tumor;


·
            Anemia,
                with symptoms such as tiredness, malaise, pallor;
                and


·
            Unexplained
                weight loss.




The
      absence of discernable symptoms in the early stages of this disease is one
      reason why periodic screening with fecal occult blood testing and colonoscopy
      is
      so widely recommended.




8




For
      2008,
      in the United States, the American Cancer Society estimates there will be
      148,810 new colorectal cancer cases of which colon cancer accounted for 108,070
      cases. Colon cancer is a highly treatable and often curable disease when
      diagnosed early and localized to the bowel. When detected at its earliest stage
      (Dukes’ A) as an in situ tumor, the curative rate for colon cancer approaches
      90%, or 5 times the curative rate for colon cancers detected at a later stage.
      Unfortunately, 40% to 50% percent of patients have metastatic disease at the
      time of diagnosis after many of the above symptoms have been exhibited. Surgery
      is the primary form of treatment and is typically followed by a regimen of
      chemotherapy. Despite the fact that a majority of patients have the entire
      tumor
      removed by surgery, as many as 50% to 60% will ultimately die from either the
      metastatic colon cancer or from a recurrence. Deaths from colorectal cancer
      are
      estimated to be 49,960 in 2007 in the United States.




*Market*




Standard
      treatment for patients with colon cancer has been open surgical resection of
      the
      primary and regional lymph nodes for localized disease. Surgery alone is
      curative in 25% to 40% of highly selected patients who develop resectable
      metastases in the liver and lung.




For
      60%
      to 75% of the patients with colorectal cancer for whom surgery alone is
      insufficient to achieve a cure, adjuvant chemotherapy utilizing such extremely
      cytotoxic regimens as 5-FU based therapies, irinotecan or oxaliplatin are
      employed. However, due to the non-specific nature of these drugs (which attack
      both healthy and cancerous cells), the side effects profile includes severe
      diarrhea, neuropathy, nausea, neutropenia and fatigue. The median survival
      of
      these patients has improved from approximately 12 months in the mid-1990s to
      more than 20 months in 2003. The industry continues to research treatment
      methods that can improve upon both the length of survival and reduce the
      toxicity profiles.




*Clinical
      Development*




We
      have
      accumulated *in
      vitro* and *in
      vivo* data
      indicating that several of the L-nucleoside conjugates are effective against
      various types of cancer. One of our L-nucleoside conjugate candidates, OVI-117,
      is a conjugate of an L-nucleoside to the highly toxic compound
      5’-fluorodeoxyuridine monophosphate (FdUMP), a thymidylate synthase (TS)
      inhibitor. To date, OVI-117 has undergone two proof-of-concept studies in
      animals, as both a single agent and as a multi-agent combination therapy with
      oxaliplatin. OVI-117 is currently undergoing the GLP animal drug safety studies
      that are necessary prior to submission of an IND. Once the drug safety studies
      are completed, we can compile the IND for submission to the FDA, which is a
      key
      step to conducting human clinical trials.




We
      believe that OVI-117 should be ready to enter Phase I clinical trials in
      approximately 9 to 12 months. Additional pre-clinical work to be completed
      prior
      to IND submission includes formulation and stability studies, as well as
      preparation of clinical trial material (sterile filling).




**Tubulin
      Isotype-Specific Anti-mitotics**




We
      are
      currently evaluating several candidates as part of our research and development
      in this area. By the end of 2008, we expect to identify a lead compound in
      a
      family of novel chemotherapeutic compounds capable of distinguishing among
      the
      different forms (isotypes) of tubulin, a subunit protein of microtubules which
      play a critical role in the lives of cells. When a cell divides, microtubules
      constitute the mitotic spindle, and when a cell is not dividing, microtubules
      form a sub-cellular network that is responsible for various cellular activities
      such as respiration, protein synthesis, waste elimination, etc. Drugs that
      bind
      to tubulin are capable of interfering with microtubule dynamics and thereby
      preventing cells from dividing. Some of the most commercially successful
      anti-cancer drugs (the taxanes and Vinca alkaloids, for example) are members
      of
      this class of compounds.




One
      of
      our goals is to use rational drug design to create better drugs than the present
      ones. Using a proprietary database of 500 different tubulin structures, we
      are
      identifying, synthesizing and screening newly created drugs designed to be
      highly specific for isotypes that are prevalent in cancers and rare in normal
      cells. The database contains proprietary information regarding tubulin
      structures in human and other eukaryotic cells (i.e., cells with nuclei and
      organelles) that we believe were previously unknown to medical science. This
      combination of information regarding chemical structure and oncological activity
      opens the door to dramatic changes in drug design, through
      supercomputer-assisted screening procedures. We believe that access to this
      proprietary *in
      silico* technology will help us to develop new drugs more quickly, thereby improving
      time to market and saving millions of dollars in unfocused laboratory screening
      and optimization.




Our
      proprietary database also has significant value for use in repositioning
      existing compounds to develop new cancer treatments. The database was developed
      through large-scale computational modeling of cellular components, cancer
      processes and treatments. We believe that the resulting drugs should be more
      effective against tumors by targeting the microtubule isotypes which are
      preferentially expressed in cancers. Additionally, side effects should be
      limited as the targeted isotypes occur in very few healthy tissues, thereby
      allowing the use of high therapeutic doses with minimized associated
      toxicity.




9




The
      first
      series of compounds in a series of tubulin isotype-specific drugs has been
      designed and synthesized. These drugs are designed to not bind the type of
      tubulin which is associated with hematopoetic cells, and are thus intended
      to
      reduce myelosuppression. These candidates are currently undergoing *in
      vitro* evaluation for binding affinity. Computer-assisted *in
      silico* testing
      is also underway. By using our resources efficiently, we expect by the end
      of
      2008 to select a lead candidate which we will take into the lab for detailed
      study.




**AdnaGen
      Diagnostic Products**





We
      believe one of our key differentiators is our ability to detect and recognize
      the expression of markers in patients with metastatic cancer. In order to
      prescribe an optimal chemotherapy regimen, the oncologist must obtain pertinent
      diagnostic and staging information for the patient’s cancer. In addition to
      analyzing the cancer cells under a microscope to diagnose the cancer, the
      pathologist also determines the stage of the cancer by assessing the
      aggressiveness of the cancer cells (i.e., staging) and by using a variety of
      clinical measures such as size, how deeply the tumor has invaded tissues at
      the
      site of origin, and the extent of any invasion into surrounding organs, lymph
      nodes or distant sites. Patient history, physical signs, symptoms, and
      information obtained from existing tests are also evaluated and
      considered.




The
      administration of cytotoxic drugs (by means of chemotherapy) after surgery
      and/or radiation therapy aims to kill remaining cancer cells and to reduce
      recurrence risk. Since many more lives are claimed by metastatic cancers than
      by
      primary cancers, the early detection of metastatic tumor cells can mean the
      difference between life and death in certain instances. However, patients
      experience a wide range of side effects due to the long-term exposure to
      chemotherapy, including infection, pain in the mouth and throat, weight loss,
      fatigue, hair loss, cognitive impairment, cardiac tissue damage and infertility.
      The overall benefits of chemotherapy vary significantly across cancer
      populations and the benefits of treatment do not always justify the cost of
      the
      therapy or offset the physical and mental burden patients endure. In addition
      to
      the above considerations in assessing the benefits versus the costs of
      treatment, the oncologist needs specific grading and staging information to
      assess the likelihood of reoccurrence.




Balancing
      the need to kill as many cancer cells as possible against the patient’s
      tolerance of toxicities presents a major challenge. While the oncologist might
      need specific diagnostic and staging information to optimally treat the patient,
      many of the tools available to the radiologist or pathologist are constrained
      by
      their ability to determine that needed information. A test to detect metastatic
      tumor cells as early as possible could dramatically increase the probability
      of
      long-term survival. Unfortunately, because tumor pathology and staging are
      heavily dependent on visual assessment and human interpretation, many patients
      are misclassified as high risk when they are truly low risk for recurrence
      or
      low risk when they are high risk for recurrence, resulting in over-treatment
      for
      some and under-treatment for others.




An
      ability to detect meaningful serum tumor markers in a quantitative manner would
      significantly improve the treatment process on two fronts. First, early
      detection of circulating tumor cells would enable a diagnosis of relapse and
      enable the earlier commencement of treatment resulting in favorable outcomes.
      Second, the detection of certain tumor markers would facilitate stratification
      of patient populations into groups most likely to respond to a dosing regimen.
      For those patients who possess a genetic predisposition that precludes them
      from
      responding to cytotoxic drugs, initial determination would eliminate the
      unnecessary side effects associated with a treatment that will have no benefit
      to the patient.


In
        December 2005, OncoVista-Sub acquired a controlling (51%) interest in AdnaGen,
        a
        research and development company based in Langenhagen, Germany. AdnaGen focuses
        on the development of innovative tumor diagnostics by utilizing its proprietary
        technology for the detection and analysis of rare cells. In December 2007,
        OncoVista-Sub purchased from a now former shareholder of AdnaGen an additional
        34% equity interest in AdnaGen, for consideration of $599,241. As a result
        of
        the purchase, OncoVista-Sub now owns approximately 85% of AdnaGen. Effective
        April 1, 2008, Dr. Wolfram Rodatz became the Chief Executive Officer of
        AdnaGen.




10




AdnaGen’s
      proprietary assay technology has demonstrated the sensitivity and selectivity
      required to detect a low number of cancer cells circulating among healthy cells
      (at levels of roughly one part per million) early in the metastatic process,
      thereby improving the patient’s chances of survival. AdnaGen’s proprietary
“combination-of-combinations” approach led to the first commercial product that
      provided a complete solution for the detection and analysis of circulating
      tumor
      cells (CTCs) for clinical diagnosis. The technology also provides quantitative
      parameters for the prognosis of disease progression. AdnaGen currently markets
      AdnaGen kits for metastatic colon and metastatic breast cancer diagnosis in
      Europe. AdnaGen’s platform is expandable to encode the markers for virtually all
      cancer types. These assays have a specificity of greater than 95% at a
      sensitivity of two tumor cells per 5ml of blood, enabling the reproducible
      detection of low levels of circulating tumor cells in the blood.




The
      advantages of this diagnostic technology includes:




·
            Novel
                and highly sensitive detection of circulating tumor
                cells;





·
            Early
                detection of metastatic cancer;





·
            Monitoring
                of treatment efficacy; and





·
            Selection
                and stratification of clinical trial participants and
                patients.




AdnaGen’s
      technology could also be utilized in clinical trials to aid in determining
      the
      optimal patient population and in assessing the effectiveness of a drug in
      development. By utilizing tumor markers to determine patient exclusion standards
      in a trial’s protocol and thereby target the patients expected to demonstrate
      optimal response, the probability of attaining FDA approval could be enhanced.
      In addition, the detection of tumor markers could be used to gauge the
      effectiveness of a patient’s treatment. This ability to measure the effects of a
      chemotherapy regimen could be extended to the oncologist’s office.




AdnaGen
      and OncoVista-Sub submitted a package of data to the FDA in May 2007 as a
      prelude to discussing with the FDA its proposed development path for gaining
      approval to use the AdnaTest for breast cancer in the United States. In
      collaboration with Dr. H. Fritsche and Dr. M. Cristofanilli at MD Anderson
      Cancer Center in Houston, a study of more than 50 metastatic breast cancer
      patients generated strong data in support of our molecular test when compared
      to
      the currently approved immunochemical test.




We
      have
      exclusive, worldwide rights for the use of the AdnaGen technology in oncology
      drug development. Business development efforts have been initiated with several
      major pharmaceutical companies.




*Innogenetics
      Partnership*




In
      January 2007, AdnaGen entered into a distribution agreement with Innogenetics
      giving Innogenetics the exclusive right to commercialize the AdnaGen kits in
      the
      European market. In September 2007, AdnaGen entered into a license agreement
      with Innogenetics granting Innogenetics the right to use AdnaGen technology
      in
      adapting Innogenetics’ proprietary strip detection technology after successful
      feasibility studies. The new strip-based test is planned to be on the European
      market in 2009. AdnaGen is entitled to a royalty payment based on sales of
      the
      product.




*Gen-Probe
      Partnership*




In
      December, 2004, AdnaGen licensed their technology to Gen-Probe **,** Inc.
      with respect to quantitative detection of specific cells.




Under
      the
      terms of the agreement, Gen-Probe will gain exclusive access to AdnaGen
      technology for molecular diagnostic tests for prostate and bladder cancers.
      Gen-Probe paid AdnaGen a license fee in 2005. The agreement also includes
      additional milestone payments based on certain regulatory and commercial events.
      In addition, Gen-Probe will pay AdnaGen royalties on sales of any products
      developed using AdnaGen’s technology.




We
      are
      currently in discussion with Gen-Probe with respect to the future of these
      options. AdnaGen and Gen-Probe are in the final stages of establishing a
      research and development partnership for detection of circulating tumor cells
      in
      blood and urine.




11




**Drug
      Development Expertise and Capabilities**




The
      strength of our senior management team and our clinical advisory board is in
      the
      breadth and depth of their experience in developing chemotherapeutics. We
      believe that the quality of our senior management team and clinical advisory
      board rivals that of any other oncology-focused pharmaceutical company,
      regardless of size.




Drs.
      Weis, Levenson and Noel each bring over 20 years of extensive experience in
      the
      biotechnology and pharmaceutical industries to us. Dr. Weis, our Chief Executive
      Officer and founder of OncoVista-Sub, was a co-founder of ILEX Oncology. Dr.
      Levenson, our Chief Technical Officer, has previously held senior positions
      at
      ILEX Oncology, Roche Molecular Systems and Cetus Corporation. Dr. Noel, our
      Director of Regulatory Affairs, has held senior positions at Cetus, Alpha
      Therapeutics and Abbott Biologics.




The
      clinical advisory board includes industry opinion leaders and oncologists with
      practical, relevant regulatory expertise, who can map out the very efficient
      registration strategies. Many individuals on the clinical advisory board have
      been instrumental in the development of such primary chemotherapeutics as
      Taxol ® ,
      Taxotere ® ,
      Oxaliplatin, Hycamtin ® ,
      Paraplatin ® ,
      Campath ® and
      Tarceva ® .
      As can
      be seen from the biographies below, these individuals have experience very
      pertinent to our business.




Cancer
      drug development presents unique challenges in clinical development and
      registration. Obtaining marketing approval for a new drug depends upon the
      drug’s successful attainment of significant clinical endpoints such as increased
      overall survival and improvement in quality of life. According to the National
      Cancer Institute, less than 5% of cancer patients participate in clinical
      trials. This causes intense competition for trial participants, particularly
      in
      indications with the largest market potential (breast, lung, colon and prostate
      cancer). The failure rate for drugs in clinical development is high. Fewer
      than
      one in twelve of all drugs entering clinical trials eventually gains approval
      according to the FDA. Not surprisingly, the attrition rate for anti-cancer
      drugs
      is even higher with roughly only one in twenty eventually getting to market
      from
      the clinic. Thus, successful clinical development and registration of a new
      drug
      depends, in large part, upon judicious selection of the lead compound,
      designation of demonstrable clinical end points and the availability of a
      sufficient pool of patients with appropriate characteristics. Our clinical
      advisory board gives us a critical advantage in these essential areas.
      Furthermore, in order to formulate a successful clinical development plan,
      it is
      critical to know which drugs have already been approved and which drugs
      currently in clinical development are likely to be approved, since, ultimately,
      any newly approved drug will need to prove itself superior to, or at least
      equal
      to, previously-approved or about-to-be-proven therapies. Well constructed
      clinical development plans aimed at rapid marketing approval often take
      advantage of the FDA’s accelerated approval process which applies solely to
      diseases for which there is an unmet medical need. For cancers in which there
      are few treatment options and prognosis is poor, a new drug which shows even
      a
      small improvement in clinical endpoints may be approved based on Phase II
      clinical trial data. Taking advantage of this development path can save
      significant time and money in getting a drug to market. Our team is familiar
      with this path and plans to follow it as a part of our registration strategy
      when viable.




We
      believe that we will be able to bring the strength of our management and
      clinical advisory board experience to bear on our product pipeline by
      efficiently identifying candidates, performing due diligence, negotiating
      in-license agreements and developing innovative clinical development and
      registration plans for strong product candidates. Before either acquiring or
      in-licensing any candidate, our senior management reviews the opportunity
      thoroughly with the clinical advisory board to determine the
      likelihood of successful product registration.




**Collaborative
      Relationships and Partnerships**




We
      anticipate that we will enter into strategic relationships with respect to
      the
      research and development, testing, manufacture, and commercialization of our
      product candidates. There are significant expenses, capital expenditures and
      infrastructure involved in these activities. We believe that working together
      with strategic partners will expedite product formulation, production and
      approval.




We
      have
      relationships with the University of Texas Health Science Center at San Antonio
      (UTHSCSA), the Cancer Therapy and Research Center (CTRC), and the San Antonio
      Cancer Institute (SACI), one of the leading cancer research institutes in the
      nation. ILEX Oncology, Dr. Weis’ and Dr. Levenson’s former company, was formed
      as a commercial spin-off from CTRC and was acquired by Genzyme Corporation
      in
      2004.




12




**Intellectual
      Property**




As
      of
      February 29, 2008, we held rights to over twenty-two (22) issued US and
      Worldwide patents and several dozen patent applications. Our ability to protect
      and use our intellectual property in the continued development and
      commercialization of our technologies and products and to prevent others from
      infringing on our intellectual property is crucial to success. Our basic patent
      strategy is to augment our current portfolio by continually applying for patents
      on new developments and obtaining licenses to promissory product candidates
      and
      related technologies. We also maintain various trade secrets which we have
      chosen not to reveal by filing for patent protection. Our issued patents and
      patent applications provide protection for our core technologies. In addition
      to
      the foregoing patent activity, several continuations-in-part and international
      patents have been filed. Patent applications related to our proprietary tubulin
      database and anti-mitotic agents have been filed.




We
      also
      rely on trade secrets and unpatentable know-how that we seek to protect, in
      part, by confidentiality agreements. Our policy is to require our employees,
      consultants, contractors, manufacturers, outside scientific collaborators and
      sponsored researchers, board of directors, technical review board and other
      advisors to execute confidentiality agreements upon the commencement of
      employment or consulting relationships with us. These agreements provide that
      all confidential information developed or made known to the individual during
      the course of the individual’s relationship with us are to be kept confidential
      and not disclosed to third parties except in specific limited circumstances.
      We
      also require signed confidentiality or material transfer agreements from any
      company that is to receive our confidential information. In the case of
      employees, consultants and contractors, the agreements provide that all
      inventions conceived by the individual while rendering services to us shall
      be
      assigned to us as our exclusive property. There can be no assurance, however,
      that all persons who we desire to sign such agreements will sign, or if they
      do,
      that these agreements will not be breached, that we would have adequate remedies
      for any breach, or that our trade secrets or unpatentable know-how will not
      otherwise become known or be independently developed by competitors.




Our
      success will also depend in part on our ability to commercialize our technology
      without infringing the proprietary rights of others. Although we have conducted
      freedom of use patent searches no assurance can be given that patents do not
      exist or could not be filed which would have an adverse affect on our ability
      to
      market our technology or maintain our competitive position with respect to
      our
      technology. If our technology components, products, processes or other subject
      matter are claimed under other existing United States or foreign patents or
      are
      otherwise protected by third party proprietary rights, we may be subject to
      infringement actions. In such event, we may challenge the validity of such
      patents or other proprietary rights or we may be required to obtain licenses
      from such companies in order to develop, manufacture or market our technology.
      There can be no assurances that we would be able to obtain such licenses or
      that
      such licenses, if available, could be obtained on commercially reasonable terms.
      Furthermore, the failure to either develop a commercially viable alternative
      or
      obtain such licenses could result in delays in marketing our proposed technology
      or the inability to proceed with the development, manufacture or sale of
      products requiring such licenses, which could have a material adverse effect
      on
      our business, financial condition and results of operations. If we are required
      to defend ourselves against charges of patent infringement or to protect our
      proprietary rights against third parties, substantial costs will be incurred
      regardless of whether or not we are successful. Such proceedings are typically
      protracted with no certainty of success. An adverse outcome could subject us
      to
      significant liabilities to third parties and force us to curtail or cease our
      development and commercialization of our technology.




We
      aggressively seek U.S. and international patent protection for the chemical
      compounds, processes, and other commercially important technologies which we
      develop. While we own specific intellectual property, we also in-license related
      technologies determined to be of strategic importance to the commercialization
      of our products or to have commercial potential of their own. For example,
      to
      continue developing and commercializing our current products, we may license
      intellectual property from commercial or academic entities to obtain technology
      rights that are required for our research and development or commercialization
      activities.




We
      have
      applied for trademark registration in the U.S. for “ *OncoVista* ”
further
      aligning our intellectual property portfolio with product commercialization.
      Much of the proprietary software and related information used in our analytical
      databases is protected by copyrights or by rights that have been
      in-licensed.




**Government
      Regulation**




*The
      Drug and Therapeutic Product Development Process*




The
      FDA
      requires that pharmaceutical and certain other therapeutic products undergo
      significant clinical experimentation and clinical testing prior to their
      marketing or introduction to the general public. Clinical testing, known as *clinical
      trials* or *clinical
      studies* ,
      is
      either conducted internally by life science, pharmaceutical, or biotechnology
      companies or is conducted on behalf of these companies by contract research
      organizations.




13




The
      process of conducting clinical studies is highly regulated by the FDA, as well
      as by other governmental and professional bodies. Below is a description of
      the
      principal framework in which clinical studies are conducted, as well as a
      description of the number of the parties involved in these studies.




*Protocols.* Before
      commencing human clinical studies, the sponsor of a new drug or therapeutic
      product must submit an investigational new drug application, or IND, to the
      FDA.
      The application contains what is known in the industry as a *protocol* .
      A
      protocol is the blueprint for each drug study. The protocol sets forth, among
      other things, the following:




·
            who
                must be recruited as qualified
                participants;


·
            how
                often to administer the drug or
                product;


·
            what
                tests to perform on the participants;
                and


·
            what
                dosage of the drug or amount of the product to give to the
                participants.




*Institutional
      Review Board* .
      An
      institutional review board is an independent committee of professionals and
      lay
      persons which reviews clinical research studies involving human beings and
      is
      required to adhere to guidelines issued by the FDA. The institutional review
      board does not report to the FDA, but its records are audited by the FDA. Its
      members are not appointed by the FDA. All clinical studies must be approved
      by
      an institutional review board. The institutional review board’s role is to
      protect the rights of the participants in the clinical studies. It approves
      the
      protocols to be used, the advertisements which the company or contract research
      organization conducting the study proposes to use to recruit participants,
      and
      the form of consent which the participants will be required to sign prior to
      their participation in the clinical studies.




*Clinical
      Trials* .
      Human
      clinical studies or testing of a potential product are generally done in three
      stages known as phase I through phase III testing. The names of the phases
      are
      derived from the regulations of the FDA. Generally, there are multiple studies
      conducted in each phase.




*Phase
      I* .
      Phase I
      studies involve testing a drug or product on a limited number of healthy
      participants, typically 24 to 100 people at a time. Phase I studies determine
      a
      product’s basic safety and how the product is absorbed by, and eliminated from,
      the body. This phase lasts an average of six months to a year.




*Phase
      II* .
      Phase
      II trials involve testing up to 200 participants at a time who may suffer from
      the targeted disease or condition. Phase II testing typically lasts an average
      of one to two years. In phase II, the drug is tested to determine its safety
      and
      effectiveness for treating a specific illness or condition. Phase II testing
      also involves determining acceptable dosage levels of the drug. If phase II
      studies show that a new drug has an acceptable range of safety risks and
      probable effectiveness, a company will continue to review the substance in
      phase
      III studies.




*Phase
      III* .
      Phase
      III studies involve testing large numbers of participants, typically several
      hundred to several thousand persons. The purpose is to verify effectiveness
      and
      long-term safety on a large scale. These studies generally last two to three
      years. Phase III studies are conducted at multiple locations or sites. Like
      the
      other phases, phase III requires the site to keep detailed records of data
      collected and procedures performed.




*New
      Drug Approval.* The
      results of the clinical trials are submitted to the FDA as part of a new drug
      application (“ *NDA* ”). ** Following
      the completion of phase III studies, assuming, the sponsor of a potential
      product in the United States believes it has sufficient information to support
      the safety and effectiveness of a product, it submits an NDA to the FDA
      requesting that the product be approved for marketing. The application is a
      comprehensive, multi-volume filing that includes the results of all clinical
      studies, information about the drug’s composition, and the sponsor’s plans for
      producing, packaging and labeling the product. The FDA’s review of an
      application can take a few months to many years, with the average review lasting
      18 months. Once approved, drugs and other products may be marketed in the United
      States, subject to any conditions imposed by the FDA.




*Phase
      IV* .
      The FDA
      may require that the sponsor conduct additional clinical trials following new
      drug approval. The purpose of these trials, known as phase IV studies, is to
      monitor long-term risks and benefits, study different dosage levels or evaluate
      safety and effectiveness. In recent years, the FDA has increased its reliance
      on
      these trials. Phase IV studies usually involve thousands of participants. Phase
      IV studies also may be initiated by the company sponsoring the new drug to
      gain
      broader market value for an approved drug. For example, large-scale trials
      may
      also be used to prove effectiveness and safety of new forms of drug delivery
      for
      approved drugs. Examples may be using an inhalation spray versus taking tablets
      or a sustained-release form of medication versus capsules taken multiple times
      per day.




14




*Biologics
      License Application.* Once
      clinical trials are completed and the results tabulated and analyzed, a
      Biologics License Application (“ *BLA* ”)
      is
      submitted to the FDA. The application presents to FDA reviewers the entire
      history or the “whole story” of the drug product including animal studies/human
      studies, manufacturing, and labeling/medical claims. Before the FDA applies
      its
      scientific technical expertise to the review of the application, it will decide
      if the application gets a “priority review” or a “standard review”. This
      classification determines the review timeframe. A priority review is for a
      drug
      that appears to represent an advance over available therapy, whereas, a standard
      review is for a drug that appears to have therapeutic qualities similar to
      those
      of an already marketed product. Generally, an advisory committee (the Oncology
      Drug Advisory Committee, ODAC) will review the BLA and make a recommendation
      to
      the FDA. This outside advice is sought so that the FDA will have the benefit
      of
      wider expert input. The FDA usually agrees with the advisory committee decisions
      but they are not binding.




The
      FDA
      takes action on the BLA after their review is complete. There are three possible
      actions to be taken by the review team:




·
            Approved**-**This indicates to a company that it may now market in the
                U.S.;


·
            Not
                Approved -This tells a company that the product may not be marketed
                in the
                U.S. and is accompanied by a detailed explanation as to why; and


·
            Approvable
                - This indicates that the FDA is prepared to approve the application
                upon
                the satisfaction of certain conditions. These drug products may not
                be
                legally marketed until the deficiencies have been satisfied, as well
                as
                any other requirements that may be imposed by the
                FDA.





The
      drug
      approval process is time-consuming, involves substantial expenditures of
      resources, and depends upon a number of factors, including the severity of
      the
      illness in question, the availability of alternative treatments, and the risks
      and benefits demonstrated in the clinical trials.




*Orphan
      Drug Act.* The
      Orphan Drug Act provides incentives to develop and market drugs (“ *Orphan
      Drugs* ”)
      for
      rare disease conditions in the United States. A drug that receives Orphan Drug
      designation and is the first product to receive FDA marketing approval for
      its
      product claim is entitled to a seven-year exclusive marketing period in the
      United States for that product claim. A drug which is considered by the FDA
      to
      be different than such FDA-approved Orphan Drug is not barred from sale in
      the
      United States during such exclusive marketing period even if it receives
      approval for the same claim. We can provide no assurance that the Orphan Drug
      Act’s provisions will be the same at the time of the approval, if any, of our
      products.




*Other
      Regulations*




Various
      Federal and state laws, regulations, and recommendations relating to safe
      working conditions, laboratory practices, the experimental use of animals,
      and
      the purchase, storage, movements, import, export, use, and disposal of hazardous
      or potentially hazardous substances, including radioactive compounds and
      infectious disease agents, used in connection with our research are applicable
      to our activities. They include, among others, the United States Atomic Energy
      Act, the Clean Air Act, the Clean Water Act, the Occupational Safety and Health
      Act, the National Environmental Policy Act, the Toxic Substances Control Act,
      and Resources Conservation and Recovery Act, national restrictions on technology
      transfer, import, export, and customs regulations, and other present and
      possible future local, state, or federal regulation. The extent of governmental
      regulation which might result from future legislation or administrative action
      cannot be accurately predicted.





**Competition**




In
      addition to the specified therapies relative to each cancer discussed earlier,
      we generally face competition from pharmaceutical and biotechnology companies,
      academic institutions, governmental agencies, and private research organizations
      in recruiting and retaining highly qualified scientific personnel and
      consultants and in the development and acquisition of technologies. The
      pharmaceutical and biotechnology industries are very competitive and are
      characterized by rapid and continuous technological innovation. We believe
      there
      are a significant number of potential drugs in preclinical studies and clinical
      trials to treat cancer that may result in effective, commercially successful
      treatments. In addition to most of the large pharmaceutical companies having
      small molecule programs, we are aware of large biotechnology companies, such
      as
      Amgen, Inc., Genentech, Inc., Biogen Idec Inc., Millennium Pharmaceuticals,
      Inc,
      and OSI Pharmaceuticals, Inc., that are developing small molecule therapeutics
      as treatments for cancer. Other, smaller companies in this field include:
      Avalon, Kosan, Allos, EntreMed, Threshold Pharmaceuticals, Vion Pharmaceuticals,
      Cougar Biotechnology and Sunesis. In the area of genomic-based diagnostic
      testing, we are aware of several other companies that are offering or developing
      such tests including Abbott Diagnostic Laboratories, Aureon Laboratories, Celera
      Diagnostics, LLC, Correlogic Systems, Genomic Health, Monogram Biosciences,
      Myriad Genetics, Roche Diagnostics and Veridex LLC.




15




We
      recognize that most of our competitors have a broader range of capabilities
      and
      greater access to financial, technical, scientific, business development,
      recruiting and other resources. Additionally, third party-controlled technology,
      which may be advantageous to our business, could be acquired or licensed by
      our
      competitors, thereby preventing us from obtaining technology on commercially
      reasonable terms, if at all. Because part of our strategy is to target markets
      outside of the United States through collaborations with third parties, we
      will
      compete for the services of third parties that may have already developed or
      acquired internal biotechnology capabilities or made commercial arrangements
      with other biopharmaceutical companies to target the diseases on which we have
      focused.




**Employees**




We
      have
      been successful in retaining the experienced personnel involved in our research
      and development program. In addition, we believe we have successfully recruited
      clinical/regulatory, quality assurance and other personnel needed to advance
      our
      drug candidates through clinical studies or have engaged the services of experts
      in the field for these requirements. As of December 31, 2007, we
      employed eight (8) individuals and engaged the services of several
      consultants. Of our employees, three (3) are executives, four (4) are
      engaged in research and development work, and the remaining one (1) is
      in administration.




**Clinical
      Advisory Board**




We
      maintain a clinical advisory board consisting of internationally recognized
      scientists who advise us on scientific and technical aspects of our business.
      The clinical advisory board meets periodically to review specific projects
      and
      to assess the value of new technologies and developments to us. In addition,
      individual members of the scientific advisory board meet with us periodically
      to
      provide advice in particular areas of expertise. The clinical advisory board
      consists of the following members:




**Eric
      Rowinsky, M.D. - Chairman.** ****** Dr.
      Rowinsky is a talented scientific executive with 20-plus years of experience
      in
      molecular chemistry and drug development in the oncology area. He has authored
      over 700 technical articles, abstracts and textbook chapters. Dr. Rowinsky
      has
      led numerous clinical trials for oncology drugs and is a recognized leader
      in
      the field. His prior affiliations include the Johns Hopkins Hospital, the
      University of Texas Health Science Center at San Antonio and the Institute
      for
      Drug Development in San Antonio. He played a key role in the development of
      Taxol®, Hycamtin® and many other anticancer drugs. Dr. Rowinsky is currently
      Senior Vice President and Chief Medical Officer at ImClone Systems,
      Inc.




**Esteban
      Cvitkovic, M.D.** ****** Dr.
      Cvitkovic is a board-certified, medical oncologist who practices medicine in
      Paris, France. Dr. Cvitkovic has more than thirty years of international
      experience in oncology therapeutics including hands-on clinical research,
      clinical pharmacology, early single agent and combination regimens development,
      disease-oriented therapeutic impact assessment, evaluating new agents in
      pre-clinical development, and optimizing efficacy and combination development.
      Dr. Cvitkovic is author of more than 160 peer-reviewed articles and 450
      abstracts focusing on solid tumor oncology. He led the clinical development
      of
      cisplatin and its combinations as well as oxaliplatin, vindesine, bleomycin,
      navelbine, and ET-743. He played key consulting roles in registration strategy
      and post-registration development of recent products such as amifostine,
      docetaxel, CPT-11 and irofulven. Dr. Cvitkovic’s career includes staff and
      academic appointments at Memorial Sloan-Kettering Cancer Center, Columbia
      Presbyterian Medical Center, Institut Gustave Rooury (Villejuif, France),
      Hôpital Paul Brooure (Villejuif, France) and Hôpital St. Louis
      (Paris).




**Allan
      M. Green, M.D., Ph.D., J.D.** ****** Dr.
      Green
      is a senior advisor to industry in matters of oncology drug development and
      registration. He has authored over 50 articles and abstracts and holds 6
      patents. Dr. Green has 20-plus years of oncology experience, was formerly
      medical director of New England Nuclear/Dupont Medical Products and,
      subsequently, was founding CEO of Theseus Medical Imaging, Inc. He served as
      President of Neuroptix, Inc. He has been Board Certified in Internal Medicine
      and Nuclear Medicine, and is an attorney who has been ‘of counsel’ to major law
      firms.




16




**Randall
      K. Johnson, Ph.D.** ****** Dr.
      Johnson’s experience includes work on novel antimetabolites, DNA damaging agents
      and mitotic spindle poisons. He has authored over 200 scientific papers and
      holds 14 patents. His 20-plus years of research experience has been focused
      on
      cellular-based markers and cell regulation. His work has encompassed both
      antineoplastic targets and research to discover small molecule mimetics of
      hematopoietic growth factors. He has held senior positions in industry
      (GlaxoSmithKline) as well as the U.S. National Cancer Institute.




**Ronald
      P. McCaffrey, M.D.** ****** Dr.
      McCaffrey is a Lecturer in Medicine at the Harvard Medical School and a Clinical
      Associate in Medicine, Hematology-Oncology Division at Massachusetts General
      Hospital. He is also Senior Vice President, International Association for
      Comparative Research on Leukemia and Related Diseases, and a world leader in
      the
      area of hematologic oncology. Dr. McCaffrey has over 90 publications and has
      co-edited two books. In all, Dr. McCaffrey has 20-plus years of experience
      in
      his specialty.




**Pedro
      Santabárbara, M.D., Ph.D.** Dr.
      Santabárbara is currently Vice President of Strategic Development and Medical
      Affairs at PHARMA MAR S.A. He received his M.D. and Ph.D. degrees from the
      University of Barcelona. He has authored over 80 articles and abstracts in
      the
      field of oncology and has participated in a variety of hospital and academic
      activities as well. He has worked for Bristol Myers Squibb (Taxol® team),
      Rhône-Poulenc Rorer (Taxotere® team), ILEX Oncology (Campath® team), Gilead
      Pharmaceuticals and, most recently, OSI Pharmaceuticals (Tarceva® team). He is
      one of the most experienced developers of anticancer drugs.





**Corporate
      Information**





OncoVista
      Innovative Therapies, Inc. (formerly Aviation Upgrade Technologies, Inc.) was
      incorporated in Nevada on January  8, 1999. Our principal executive offices
      are located at 14785 Omicron Drive, Suite 104, San Antonio, Texas 78245 and
      our
      telephone number is (210) 677-6000.








**ITEM
      1A - RISK FACTORS**





***An
      investment in our common stock involves a high degree of risk. You should
      consider carefully the following information about these risks, together with
      the other information contained in this Annual Report on Form 10-KSB before
      buying shares of our common stock. Our business, prospects, financial condition,
      and results of operations may be materially and adversely affected as a result
      of any of the following risks. The trading of our common stock could decline
      as
      a result of any of these risks. You could lose all or part of your investment
      in
      our common stock. Some of the statements in “Risk Factors” are forward looking
      statements. See “Special Note Regarding Forward Looking Statements”.***





**Risks
      Related to our Business**





***There
      is substantial doubt as to our ability to continue as a going concern.***





Our
      accountants have raised doubts about our ability to continue as a going concern.
      If sufficient capital is not available, we would likely be required to scale
      back or terminate our research and development efforts. We estimate that our
      cash reserves will be sufficient to permit us to continue at our anticipated
      level of operations for at least six to nine months. We plan to increase
      research and development, product development, and administrative expenses
      relating to our business during 2008 and intend to use our cash reserves,
      as well as other sources of capital in the event that they shall be available
      on
      commercially reasonable terms, to fund these activities and other activities
      described herein, although we can provide no assurance that these additional
      funds will be available in the amounts or at the times we may require. See
      “ *Risk
      Factors -- We will need additional capital in order to satisfy our business
      objectives* ”
and
      “ *Report
      of Independent Registered Public Accounting Firm* ”.





***As
      we have a limited operating history, investors may not have a sufficient history
      on which to base an investment decision.***





Although
      OncoVista Innovative Therapies, Inc. (formerly Aviation Upgrade Technologies,
      Inc.) was incorporated in 1999, our recently acquired operating subsidiary,
      OncoVista, Inc. was incorporated in September 2004 and is still in early stages
      of development. Accordingly, we may be deemed to have a limited operating
      history upon which investors may evaluate our prospects for success. Investors
      must consider the risks and difficulties frequently encountered by early stage
      companies, particularly in rapidly evolving markets such as the life science
      industry. Such risks include, without limitation, the following:




17





·
            competition;





·
            need
                for acceptance of products;





·
            ability
                to anticipate and adapt to a competitive market and rapid technological
                developments;





·
            amount
                and timing of operating costs and capital expenditures relating to
                expansion of our business, operations, and infrastructure;
                and





·
            dependence
                upon key personnel.





We
      cannot
      be certain that our strategy will be successful or that we will successfully
      address these risks. In the event that we do not successfully address these
      risks, our business, prospects, financial condition, and results of operations
      could be materially and adversely affected.




***We
      have substantial debt, a portion of which is payable upon demand.***





At
      December 31, 2007, we had total notes and loans payable of $6,655,357. Of our
      notes and loans payable, the amount of $100,000, is convertible into shares
      of
      our common stock and is payable on demand. We have an aggregate of $1,468,243
      in
      accrued interest outstanding at December 31, 2007, which includes $1,114,746
      currently due and $353,497 due long-term. In the event that we should not have
      resources sufficient to satisfy these obligations in a timely manner, we would
      be required to seek alternative means of repayment, which may be on terms that
      are not advantageous or commercially reasonable, or we may be required to
      curtail or delay some or all of our development efforts, any of which could
      have
      a material adverse effect on our business, prospects, financial condition,
      and
      results of operations.





***We
      are an early stage company with a history of losses and can provide no assurance
      as to our future operating results.***





We
      are an
      early stage company with limited revenues from our principal business
      activities. We currently have limited product revenues, and may not succeed
      in
      developing or commercializing any products which will generate product or
      licensing revenues. Other than AdnaGen’s diagnostic products, we do not expect
      to have any products on the market for several years. In addition, development
      of our product candidates requires a process of pre-clinical and clinical
      testing, during which our products could fail. We may not be able to enter
      into
      agreements with one or more companies experienced in the manufacturing and
      marketing of pharmaceutical products and, to the extent that we are unable
      to do
      so, we will not be able to market our product candidates. Eventual profitability
      will depend on our success in developing, manufacturing, and marketing our
      product candidates. We have experienced net losses and negative cash flows
      from
      operating activities since inception and expect such losses and negative cash
      flows to continue in the foreseeable future. As of December 31, 2007 and 2006,
      we had a working capital deficiency of approximately $200,000 and $600,000,
      respectively, and stockholders’ deficit of approximately $4.0 million and $5.6
      million, respectively. See our consolidated financial statements and the related
      notes. For the period from OncoVista-Sub’s inception on September 22, 2004
      through December 31, 2007, we have incurred cumulative net losses of
      approximately $16 million. We may never achieve profitability.





***Our
      growth strategy is based in large part upon licensing and acquisition of
      technologies and products and is not yet proven.***





Our
      strategy involves growth through commercialization of products and technologies
      licensed or acquired by third parties, as well as developed internally, and
      is
      largely untested. Accordingly, we are subject to various risks associated with
      an acquisition growth strategy, including the risk that we will be unable to
      identify suitable acquisition or licensing candidates in the future, that we
      will fail to properly transfer acquired or licensed technologies and the related
      intelligence and know-how, or that we will fail to integrate properly the
      acquired or licensed technologies into our existing operations. Our growth
      is
      also largely dependent on our ability to utilize our internal institutional
      knowledge to further develop the acquired or licensed products or technologies.
      Any failure by us to properly execute upon our strategy or to utilize such
      knowledge could have a material adverse effect on our business, prospects,
      financial condition, and results of operations. Specifically we acquired
      non-operational intellectual property.




18




***Our
      success depends on the successful commercialization of our product candidates
      and technologies.***





The
      successful commercialization of our product candidates and our technologies
      is
      crucial for our success. Our proposed products and their potential applications
      are in an early stage of clinical development and face a variety of risks and
      uncertainties. Principally, these risks include the following:





·
            future
                clinical trial results may show that one or more of our product candidates
                are not well tolerated by recipients at their respective effective
                doses
                or is not efficacious as compared to a placebo or the accepted standard
                of
                care;





·
            future
                clinical trial results may be inconsistent with our preliminary testing
                results and data from our earlier studies may be inconsistent with
                clinical data;





·
            even
                if our product candidates are shown to be safe and effective for
                their
                intended purposes, we may face significant or unforeseen difficulties
                in
                obtaining or manufacturing sufficient quantities at reasonable prices;





·
            our
                ability to complete the development and commercialization of our
                products
                for their intended uses is significantly dependent upon our ability
                to
                obtain and maintain experienced and committed partners to assist
                us with
                obtaining clinical and regulatory approvals for, and the manufacturing,
                marketing and distribution of, our products on a worldwide
                basis;





·
            even
                if our products are successfully developed, commercially produced
                and
                receive all necessary regulatory approvals, there is no guarantee
                that
                there will be market acceptance of the products; and





·
            our
                competitors may develop therapeutics, treatments, and technologies
                which
                are superior or less costly than our own with the result that our
                products, even if they are successfully developed, manufactured and
                approved, may not generate significant
                revenues.





***If
      we are unsuccessful in dealing with any of these risks, or if we are unable
      to
      successfully commercialize our products for some other reason, this would
      likely seriously harm our business.*** **





We
      can
      provide no assurance of the successful and timely development of our products.
      Our product candidates are at various stages of research and development.
      Further development and extensive testing will be required to determine their
      technical feasibility and commercial viability. Our success will depend on
      our
      ability to achieve scientific and technological advances and to translate such
      advances into reliable, commercially competitive products on a timely basis.
      Products and technologies that we have developed or acquired and may in the
      future develop or acquire are not likely to be commercially available for some
      time. The proposed development schedules for our products may be affected by
      a
      variety of factors, including technological difficulties, proprietary technology
      of others, and changes in governmental regulation, many of which will not be
      within our control. Any delay in the development, introduction, or marketing
      of
      our products could result either in such products being marketed at a time
      when
      their cost and performance characteristics would not be competitive in the
      marketplace or in the shortening of their commercial lives. In light of the
      long-term nature of our projects, the nature of the technology involved, and
      the
      other factors, described elsewhere in “ *Risk
      Factors* ”,
      there
      can be no assurance that we will be able to complete successfully the
      development or marketing of any new products.





***We
      will need additional capital in order to satisfy our business objectives.***





To
      date,
      we have financed our operations principally through offerings of securities
      exempt from the registration requirements of the Securities Act. We believe
      that
      our available resources will be sufficient to meet our anticipated working
      capital needs for at least the next nine months. Notwithstanding the
      foregoing, we estimate that we will require substantial additional financing
      at
      various intervals in order to continue our in-licensing and research and
      development programs, including significant requirements for operating expenses
      including intellectual property protection and enforcement, for pursuit of
      regulatory approvals, and for commercialization of our products. We can provide
      no assurance that additional funding will be available on a timely basis, terms
      acceptable to us, or at all. In the event that we are unable to obtain such
      financing, we will not be able to fully develop and commercialize our technology
      or acquire or license promising product candidates or technologies. Our future
      capital requirements will depend upon many factors, including:




19





·
            continued
                scientific progress in our research and development
                programs;





·
            costs
                and timing of conducting clinical trials and seeking regulatory approvals
                and patent prosecutions;





·
            competing
                technological and market
                developments;





·
            our
                ability to establish additional collaborative relationships;
                and





·
            effects
                of commercialization activities and facility expansions if and as
                required.





If
      we
      cannot secure adequate financing when needed, we may be required to delay,
      scale
      back or eliminate one or more of our research and development or acquisition
      and
      in-licensing programs or to enter into license or other arrangements with third
      parties to commercialize products or technologies that we would otherwise seek
      to develop ourselves and commercialize ourselves. In such event, our business,
      prospects, financial condition, and results of operations may be adversely
      affected because we may be required to scale back, eliminate, or delay
      development or acquisition efforts or product introductions or enter into
      royalty, sales or other agreements with third parties in order to commercialize
      our products.





***In
      the future, we may rely upon collaborative agreements with large pharmaceutical
      companies.***





In
      the
      future, we may rely heavily on collaborative agreements with large
      pharmaceutical companies, governments, or other parties for our revenues. Our
      inability to obtain any one or more of these agreements, on commercially
      reasonable terms, or at all, or to circumvent the need for any such agreement,
      could cause significant delays and cost increases and materially affect our
      ability to develop and commercialize our product candidates. Some of our
      programs may require the use of multiple proprietary technologies, including
      technologies created by third parties, especially patented drugs or other
      substances. Obtaining licenses for these technologies or substances may require
      us to make cumulative royalty payments or other payments to several third
      parties, potentially reducing amounts paid to us or making the cost of our
      products commercially prohibitive. Manufacturing of drug products may also
      require licensing technologies and intellectual property from third
      parties.





***We
      rely upon patents to protect our technology. We may be unable to protect our
      intellectual property rights and we may be liable for infringing the
      intellectual property rights of others.***





Our
      ability to compete effectively will depend on our ability to maintain the
      proprietary nature of our intellectual property. We currently hold rights to
      twenty-two issued patents and several dozen pending patent applications in
      the
      United States and corresponding patents and patent applications filed in certain
      other countries covering proprietary compositions of matter and methods and
      their proposed use in cancer therapeutics. Further, we intend to rely on a
      combination of trade secrets and non-disclosure, and other contractual
      agreements and technical measures to protect our rights in our technology.
      We
      intend to depend upon confidentiality agreements with our officers, directors,
      employees, consultants, and subcontractors, as well as collaborative partners,
      to maintain the proprietary nature of our technology. These measures may not
      afford us sufficient or complete protection, and others may independently
      develop technology similar to ours, otherwise avoid our confidentiality
      agreements, or produce patents that would materially and adversely affect our
      business, prospects, financial condition, and results of operations. We believe
      that our technology is not subject to any infringement actions based upon the
      patents of any third parties; however, our technology may in the future be
      found
      to infringe upon the rights of others. Others may assert infringement claims
      against us, and if we should be found to infringe upon their patents, or
      otherwise impermissibly utilize their intellectual property, our ability to
      continue to use our technology or the licensed technology could be materially
      restricted or prohibited. If this event occurs, we may be required to obtain
      licenses from the holders of this intellectual property, enter into royalty
      agreements, or redesign our products so as not to utilize this intellectual
      property, each of which may prove to be uneconomical or otherwise impossible.
      Licenses or royalty agreements required in order for us to use this technology
      may not be available on terms acceptable to us, or at all. These claims could
      result in litigation, which could materially adversely affect our business,
      prospects, financial condition, and results of operations.




20





The
      patent position of biopharmaceutical and biotechnology firms is generally
      uncertain and involves complex legal and factual questions. We do not know
      whether any of our current or future patent applications will result in the
      issuance of any patents. Even issued patents may be challenged, invalidated
      or
      circumvented. Patents may not provide a competitive advantage or afford
      protection against competitors with similar technology. Competitors or potential
      competitors may have filed applications for, or may have received patents and
      may obtain additional and proprietary rights to compounds or processes used
      by
      or competitive with ours. In addition, laws of certain foreign countries do
      not
      protect intellectual property rights to the same extent as do the laws of the
      United States or Canada.





Patent
      litigation is becoming widespread in the biotechnology industry and we cannot
      predict how this will affect our efforts to form strategic alliances, conduct
      clinical testing or manufacture and market any products under development.
      If
      challenged, our patents may not be held to be valid. We could also become
      involved in interference proceedings in connection with one or more of our
      patents or patent applications to determine priority of invention. If we were
      to
      become involved in any litigation, interference or other administrative
      proceedings, we will likely incur substantial expenses and the efforts of our
      technical and management personnel will be significantly diverted. In addition,
      an adverse determination could subject us to significant liabilities or require
      us to seek licenses that may not be available on favorable terms, if at all.
      We
      may be restricted or prevented from manufacturing and selling our products
      in
      the event of an adverse determination in a judicial or administrative proceeding
      or if we fail to obtain necessary licenses. If any such litigation should
      involve products or technologies licensed or acquired by us from third parties,
      we would rely upon the indemnification provisions set forth in such agreements.
      Any failure by the relevant licensor or seller to honor such provisions could
      require us to protect our rights through further litigation, which could be
      expensive and time-consuming.




Our
      commercial success will also depend significantly on our ability to operate
      without infringing the patents and other proprietary rights of third parties.
      Patent applications are, in many cases, maintained in secrecy until patents
      are
      issued. The publication of discoveries in the scientific or patent literature
      frequently occurs substantially later than the date on which the underlying
      discoveries were made and patent applications are filed. In the event of
      infringement or violation of another party’s patent, we may be prevented from
      pursuing product development or commercialization. See “*Business -
      Intellectual Property*”.





***We
      can provide no assurance that our products will obtain regulatory approval
      or
      that the results of clinical studies will be favorable.***





The
      testing, marketing and manufacturing of our products will require the approval
      of the FDA. We cannot predict with any certainty the amount of time necessary
      to
      obtain such FDA approvals and whether any such approvals will ultimately be
      granted. In any event, review and approval by the FDA is anticipated to take
      a
      number of years. Preclinical and clinical trials may reveal that one or more
      of
      our products are ineffective or unsafe, in which event further development
      of
      such products could be seriously delayed or terminated. Moreover, obtaining
      approval for certain products may require the testing on human subjects of
      substances whose effects on humans are not fully understood or documented.
      Delays in obtaining FDA or any other necessary regulatory approvals of any
      proposed product and failure to receive such approvals would have an adverse
      effect on the product’s potential commercial success and on our business,
      prospects, financial condition, and results of operations. In addition, it
      is
      possible that a product may be found to be ineffective or unsafe due to
      conditions or facts which arise after development has been completed and
      regulatory approvals have been obtained. In this event we may be required to
      withdraw such product from the market. To the extent that our success will
      depend on any regulatory approvals from governmental authorities outside of
      the
      United States which perform roles similar to that of the FDA, uncertainties
      similar to those stated above will also exist. See “*Business -
      Governmental Regulation*”.





***If
      our products are commercialized, we may be subject to product liability claims.***





The
      testing, marketing, and sale of pharmaceutical products entail inherent risks.
      If we succeed in developing new pharmaceutical products, the sale of such
      products may expose us to potential liability resulting from the use of such
      products. Such liability might result from claims made directly by consumers
      or
      by pharmaceutical companies or others selling such products. While we may seek
      to obtain product liability insurance, there can be no assurance that we will
      be
      able to obtain such insurance or, if obtained, that such insurance can be
      acquired in amounts sufficient to protect us against such potential liability
      or
      at a reasonable cost. Other than for one of our products in development, we
      do
      not presently maintain product liability insurance.




21





***As
      we have no sales, marketing, and distribution capabilities other than our
      AdnaGen operations, we will be required to either develop such capabilities
      or
      to outsource these activities to third parties.***





We
      currently have no sales, marketing or distribution capabilities other than
      our
      AdnaGen operations. In order to succeed, we ultimately will be required to
      either develop such capabilities or to outsource these activities to third
      parties. We can provide no assurance that third parties will be interested
      in
      acting as our outsourced sales, marketing, and distribution arms on a timely
      basis, on commercially reasonable terms, or at all. If we are unable to
      establish sales, marketing, or distribution capabilities either by developing
      our own organization or by entering into agreements with others, we may be
      unable to successfully sell any products that we are able to begin to
      commercialize, which would have a material adverse effect upon our business,
      prospects, financial condition, and results of operations. Further, in the
      event
      that we are required to outsource these functions on disadvantageous terms,
      we
      may be required to pay a relatively large portion of our net revenue to these
      organizations, which would have a material adverse effect upon our business,
      prospects, financial condition, and results of operations.





***We
      have no experience manufacturing our products.***





We
      currently lack the resources to manufacture any of our product candidates on
      a
      large scale. Our ability to conduct clinical trials and commercialize our
      product candidates will depend, in part, on our ability to manufacture our
      products, either directly or, as currently intended, through contract
      manufacturers, at a competitive cost and in accordance with current Good
      Manufacturing Practices (“ *cGMP* ”)
      and
      other regulatory requirements. We anticipate that we will be required to depend
      on contract manufacturers or collaborative partners for the manufacturing of
      our
      product candidates for preclinical studies and clinical trials and intend to
      use
      contract manufacturers to produce any products we may eventually commercialize.
      If we are not able to obtain contract manufacturing on commercially reasonable
      terms, we may not be able to conduct or complete clinical trials or
      commercialize our product candidates. We have identified multiple suppliers
      for
      most if not all of the components of our drug product candidates, although
      we
      can provide no assurance that these components will be available when needed
      on
      commercially reasonable terms.





In
      order
      to succeed, we ultimately will be required to either develop such manufacturing
      capabilities or to outsource manufacturing on a long-term basis to third
      parties. We can provide no assurance that third parties will be interested
      in
      manufacturing our products on a timely basis, on commercially reasonable terms,
      or at all. If we are unable to establish manufacturing capabilities either
      by
      developing our own organization or by entering into agreements with others,
      we
      may be unable to commercialize our products, which would have a material adverse
      effect upon our business, prospects, financial condition, and results of
      operations. Further, in the event that we are required to outsource these
      functions on disadvantageous terms, we may be required to pay a relatively
      large
      portion of our net revenue to these organizations, which would have a material
      adverse effect upon our business, prospects, financial condition, and results
      of
      operations.





***We
      have limited experience in conducting clinical trials.***





Clinical
      trials must meet FDA and foreign regulatory requirements. We have limited
      experience in designing, conducting and managing the preclinical studies and
      clinical trials necessary to obtain regulatory approval for our product
      candidates in any country. We may encounter problems in clinical trials that
      may
      cause us or the FDA or foreign regulatory agencies to delay, suspend or
      terminate our clinical trials at any phase. These problems could include the
      possibility that we may not be able to conduct clinical trials at our preferred
      sites, enroll a sufficient number of patients for our clinical trials at one
      or
      more sites or begin or successfully complete clinical trials in a timely
      fashion, if at all. Furthermore, we, the FDA or foreign regulatory agencies
      may
      suspend clinical trials at any time if we or they believe the subjects
      participating in the trials are being exposed to unacceptable health risks
      or if
      we or they find deficiencies in the clinical trial process or conduct of the
      investigation. If clinical trials of any of the product candidates fail, we
      will
      not be able to market the product candidate which is the subject of the failed
      clinical trials. The FDA and foreign regulatory agencies could also require
      additional clinical trials, which would result in increased costs and
      significant development delays. Our failure to adequately demonstrate the safety
      and effectiveness of a pharmaceutical product candidate under development could
      delay or prevent regulatory approval of the product candidate and could have
      a
      material adverse effect on our business, prospects, financial condition, and
      results of operations.




***We
      are dependent upon third party suppliers of our raw materials.***





We
      are
      dependent on outside vendors for our supplies of raw materials. While we believe
      that there are numerous sources of supply available, if the third party
      suppliers were to cease production or otherwise fail to supply us with quality
      raw materials in sufficient quantities on a timely basis and we were unable
      to
      contract on acceptable terms for these services with alternative suppliers,
      our
      ability to produce our products and to conduct testing and clinical trials
      would
      be materially adversely affected.




22





***We
      have limited senior management resources; we may be unable to effectively manage
      growth with our limited resources.***





We
      expect
      the expansion of our business to place a significant strain on our limited
      managerial, operational, and financial resources. We will be required to expand
      our operational and financial systems significantly and to expand, train, and
      manage our work force in order to manage the expansion of our operations. Our
      failure to fully integrate our new employees into our operations could have
      a
      material adverse effect on our business, prospects, financial condition, and
      results of operations. Our ability to attract and retain highly skilled
      personnel is critical to our operations and expansion. We face competition
      for
      these types of personnel from other technology companies and more established
      organizations, many of which have significantly larger operations and greater
      financial, technical, human, and other resources than we have. We may not be
      successful in attracting and retaining qualified personnel on a timely basis,
      on
      competitive terms, or at all. If we are not successful in attracting and
      retaining these personnel, our business, prospects, financial condition, and
      results of operations will be materially adversely affected. See “ *Business -
      Our Strategy* ”
and
      “ *Business -
      Employees* ”.





***We
      depend upon our senior management and skilled personnel and their loss or
      unavailability could put us at a competitive
      disadvantage.*** **





We
      currently depend upon the efforts and abilities of our senior executives, as
      well as the services of several key consultants and other key personnel. The
      loss or unavailability of the services of any of these individuals for any
      significant period of time could have a material adverse effect on our business,
      prospects, financial condition, and results of operations. In addition,
      recruiting and retaining qualified scientific personnel to perform future
      research and development work will be critical to our success. There is
      currently a shortage of employees with expertise in our areas of research and
      clinical and regulatory affairs, and this shortage is likely to continue.
      Competition for skilled personnel is intense and turnover rates are high. Our
      ability to attract and retain qualified personnel may be limited. Our inability
      to attract and retain qualified skilled personnel would have a material adverse
      effect on our business, prospects, financial condition, and results of
      operations.





***Because
      we will not pay cash dividends, investors may have to sell shares in order
      to
      realize their investment.*** **





We
      have
      not paid any cash dividends on our common stock and do not intend to pay cash
      dividends in the foreseeable future. We intend to retain future earnings, if
      any, for reinvestment in the development and expansion of our business. Any
      credit agreements which we may enter into with institutional lenders or
      otherwise may restrict our ability to pay dividends. Whether we pay cash
      dividends in the future will be at the discretion of our board of directors
      and
      will be dependent upon our financial condition, results of operations, capital
      requirements, and any other factors that the board of directors decides is
      relevant.





**Risks
      Related to Our Industry**





***The
      biotechnology and biopharmaceutical industries are characterized by rapid
      technological developments and a high degree of competition. We may be unable
      to
      compete with more substantial enterprises.***





The
      biotechnology and biopharmaceutical industries are characterized by rapid
      technological developments and a high degree of competition. As a result, our
      actual or proposed products could become obsolete before we recover any portion
      of our related research and development and commercialization expenses. Our
      industries are highly competitive, and this competition comes from both
      biotechnology firms and major pharmaceutical and chemical companies. Many of
      these companies have substantially greater financial, marketing, and human
      resources than we do (including, in some cases, substantially greater experience
      in clinical testing, manufacturing, and marketing of pharmaceutical products).
      We also experience competition in the development of our products from
      universities and other research institutions and compete with others in
      acquiring technology from such universities and institutions. In addition,
      certain of our products may be subject to competition from products developed
      using other technologies. See “ *Business -
      Competition* ”.




23





***The
      government regulatory approval process is time consuming and expensive.***





To
      date,
      we have not submitted a marketing application for any product candidate to
      the
      FDA or any foreign regulatory agency, and none of our product candidates has
      been approved for commercialization in any country other than AdnaGen’s
      diagnostic products. Prior to commercialization, each product candidate will
      be
      subject to an extensive and lengthy governmental regulatory approval process
      in
      the United States and in other countries. We may not be able to obtain
      regulatory approval for any product candidate we develop or, even if approval
      is
      obtained, the labeling for such products may place restrictions on their use
      that could materially impact the marketability and profitability of the product
      subject to such restrictions. We have limited experience in designing,
      conducting and managing the clinical testing necessary to obtain such regulatory
      approval. Satisfaction of these regulatory requirements, which includes
      satisfying the FDA and foreign regulatory authorities that the product is both
      safe and effective for our intended therapeutic uses, typically takes several
      years depending upon the type, complexity and novelty of the product and
      requires the expenditure of substantial resources.





***Any
      manufacturer to produce our products will be required to comply with extensive
      government regulation.*** **





Before
      we
      can begin to commercially manufacture any of our product candidates, we must
      either secure manufacturing in an approved manufacturing facility or obtain
      regulatory approval of our own manufacturing facility and processes. In
      addition, the manufacturing of our product candidates must comply with cGMP
      and/or other requirements of the FDA and requirements by regulatory agencies
      in
      other countries. These requirements govern, among other things, quality control
      and documentation procedures. We or any third-party manufacturer of our product
      candidates, may not be able to comply with these requirements, which would
      prevent us from selling such products. Material changes to the manufacturing
      processes of our products after approvals have been granted are also subject
      to
      review and approval by the FDA or other regulatory agencies.





***The
      commercial success of any newly-introduced pharmaceutical product depends in
      part upon the ability of patients to obtain adequate reimbursement.***





If
      we
      succeed in bringing our product candidates to market, they may not be considered
      cost-effective, and coverage and adequate payments may not be available or
      may
      not be sufficient to allow us to sell our products on a competitive basis.
      In
      both the United States and elsewhere, sales of medical products, diagnostics,
      and therapeutics are dependent, in part, on the availability of reimbursement
      from third party payors, such as health maintenance organizations and other
      private insurance plans and governmental programs such as Medicare. Third party
      payors are increasingly challenging the prices charged for pharmaceutical
      products and services. We anticipate that our business will be affected by
      the
      efforts of government and third party payors to contain or reduce the cost
      of
      health care through various means. In the United States, there have been and
      will continue to be a number of federal and state proposals to implement
      government controls on pricing. Similar government pricing controls exist in
      varying degrees in other countries. In addition, the emphasis on managed care
      in
      the United States has increased and will continue to increase the pressure
      on
      the pricing of pharmaceutical products. We cannot predict whether any
      legislative or regulatory proposals will be adopted or the effect these
      proposals or managed care efforts may have on our business.





***We
      will incur increased costs as a result of being a public company, compared
      to
      the historical operations.***





As
      a
      public company, we will incur significant legal, accounting and other expenses
      that we did not incur in the past due to our more limited operations. In
      addition, the Sarbanes-Oxley Act of 2002, (the “ *Sarbanes-Oxley
      Act* ”),
      as
      well as rules implemented by the SEC, require changes in corporate governance
      practices of public companies. It may be time consuming, difficult and costly
      for us to develop and implement the additional internal controls, processes
      and
      reporting procedures required by the Sarbanes-Oxley Act and exchange compliance
      requirements. We may need to hire additional financial reporting, internal
      auditing and other finance staff in order to develop and implement appropriate
      additional internal controls, processes and reporting procedures. In addition,
      we will incur additional costs associated with our public company reporting
      requirements which will significantly increase as a result of our becoming
      an
      active operating public company with a larger group of stockholders. We also
      expect these rules and regulations to make it more difficult and more expensive
      for us to obtain director and officer liability insurance and we may be required
      to accept reduced policy limits and coverage or incur substantially higher
      costs
      to obtain the same or similar coverage. As a result, it may be difficult for
      us
      to attract and retain qualified persons to serve on our board or as executive
      officers.




24





**Risks
      Related to Our Common Stock**





***There
      is no assurance of an established and sustained public trading market of our
      securities.***





We
      are
      listed on the OTCBB under the symbol “OVIT” and on the Frankfurt Stock Exchange
      under the symbol "4IW." Trading of our shares began for the first time on
      the OTCBB on October 26, 2007 and on the Frankfurt Stock Exchange on March
      25,
      2008, and there can be no assurances that an active market for our common stock
      will be established and sustained.





***The
      market price of our common stock is likely to be highly volatile and subject
      to
      wide fluctuations.*** **





Assuming
      we are able to establish and maintain an active trading market for our common
      stock, the market price of our common stock is likely to be highly volatile
      and
      could be subject to wide fluctuations in response to a number of factors that
      are beyond our control, including:





·
            announcements
                of acquisitions or licensing by us or business initiatives by our
                competitors;


·
            quarterly
                variations in our revenues and operating
                expenses;


·
            dilution
                caused by our issuance of additional shares of common stock and other
                forms of equity securities, which we expect to make in connection
                with
                future capital financings to fund our operations and growth, to attract
                and retain valuable personnel and in connection with future strategic
                partnerships with other companies;


·
            changes
                in expectations as to our business, prospects, financial condition,
                and
                results of operations;


·
            significant
                sales of our common stock;


·
            changes
                in the accounting methods used in or otherwise affecting our industry;


·
            changes
                in the valuation of similarly situated companies, both in our industry
                and
                in other industries;


·
            fluctuations
                in interest rates and the availability of capital in the capital
                markets;


·
            departures
                of key personnel; and


·
            regulatory
                considerations.





These
      and
      other factors are largely beyond our control, and the impact of these risks,
      singly or in the aggregate, may result in material adverse changes to the market
      price of our common stock and our results of operations and financial
      condition.




***Our
      common stock is deemed to be a “penny stock,”
      which may make it
      more difficult for investors to sell their shares due to suitability
      requirements.***





The
      SEC
      has adopted regulations that generally define “penny stock” to be an equity
      security that has a market price of less than $5.00 per share, subject to
      specific exemptions. The market price of our common stock is currently less
      than $5.00 per share and therefore is a “penny stock” according to Commission
      rules. This designation requires any broker or dealer selling these securities
      to disclose certain information concerning the transaction, obtain a written
      agreement from the purchaser and determine that the purchaser is reasonably
      suitable to purchase the securities. These rules may restrict the ability of
      brokers or dealers to sell our common stock and may affect the ability of
      investors hereunder to sell their shares.





***Because
      OncoVista-Sub, our operating subsidiary, recently became public by means of
      a
      reverse merger, we may not be able to attract the attention of major brokerage
      firms.***





There
      may
      be risks associated with OncoVista-Sub becoming public through a “reverse
      merger”.  Securities analysts of major brokerage firms may not provide
      coverage of us because there is no incentive to brokerage firms to recommend
      the
      purchase of our common stock.  No assurance can be given that brokerage
      firms will, in the future, want to conduct any secondary offerings on our
      behalf.





***Future
      sales of common stock or the issuance of securities senior to the common stock
      or convertible into, or exchangeable or exercisable for, common stock could
      materially adversely affect the trading price of the common stock, and our
      ability to raise funds in new equity offerings.***





Future
      sales of substantial amounts of our common stock or other equity-related
      securities in the public market or privately, or the perception that such sales
      could occur, could adversely affect prevailing trading prices of our common
      stock and could impair our ability to raise capital through future offerings
      of
      equity or other equity-related securities. We can make no prediction as to
      the
      effect, if any, that future sales of shares of common stock or equity-related
      securities, or the availability of shares of common stock for future sale,
      will
      have on the trading price of our common stock.




25




***Future
      sales of common stock by our existing stockholders could adversely affect our
      stock price.***





The
      market price of our common stock could decline as a result of sales of a large
      number of shares of our common stock in the market or the perception that these
      sales could occur. These sales also might make it more difficult for us to
      sell
      equity securities in the future at a time and at a price that we deem
      appropriate. Assuming the exercise in full of all warrants, options and
      convertible notes outstanding, we will have, as of February 29, 2008, an
      aggregate of 24,376,566 shares
      of
      common stock outstanding. Of these shares, 5,732,418 shares will be freely
      tradable without restriction or further registration under the Securities Act,
      unless purchased by “affiliates” as that term is defined under Rule 144 of the
      Securities Act, who may sell only the volume of share described below and whose
      sales would be subject to additional restrictions. The
      remaining 18,644,148 shares
      of common stock will be held by our existing stockholders and will be deemed
      to
      be “restricted securities” under Rule 144. Restricted securities may only be
      sold in the public market pursuant to an effective registration statement under
      the Securities Act or pursuant to an exemption from registration under Rule
      144,
      Rule 701 or Rule 904 under the Securities Act.




***Our
      issuance of warrants and options to investors, employees and consultants and
      the
      registration rights for the underlying shares of common stock may have a
      negative effect on the trading prices of our common stock as well as a dilutive
      effect.***





We
      have
      issued and may continue to issue warrants and options at or below the current
      market price. As of  February 29, 2008, we had 4,161,712 outstanding
      warrants and options to investors, employees and consultants. In addition to
      the
      dilutive effect of a large number of shares and a low exercise price for the
      warrants and options, there is a potential that a large number of underlying
      shares may be sold in the open market at any given time, which could place
      downward pressure on the trading of our common stock.




**ITEM
      2 - PROPERTIES**




Our
      fully
      equipped research facilities are located in the Texas Research Park in San
      Antonio, Texas. We have a total of 10,000 square feet of office and research
      space. The labs are fully equipped for organic chemistry as well as analytical
      and biological activities. Pursuant to a Lease Agreement between Lipitek
      International and us, we lease laboratory space for approximately $15,000 per
      month from Lipitek International under a five-year Lease Agreement. Lipitek
      is
      an affiliate of Alexander L. Weis, Ph.D., our chairman of the board of directors
      and chief executive officer. Our AdnaGen facility in Langenhagen, Germany
      occupies approximately 7,500 square feet of laboratory and office space and
      houses eight (8) full-time employees. The German facility is leased on an annual
      basis expiring on December 31, 2008 for approximately $12,000 per month.





We
      believe that our existing facilities are suitable and adequate to meet our
      current business requirements.




**ITEM
      3 - LEGAL PROCEEDINGS**





Except
      as
      set forth below, we are not involved in any legal proceedings.




On
      December 17, 2007, an action was filed against our subsidiary,
      OncoVista *-*Sub ,
      in the
      Supreme Court of the State of New York, New York County, entitled Bridge
      Ventures, Inc. v. OncoVista, Inc. and Centrecourt Asset Management. The action
      seeks damages for the alleged breach of a consulting agreement and seeks an
      order directing the issuance of warrants to purchase OncoVista-Sub’s common
      stock. On January 25, 2008, OncoVista-Sub filed a motion to dismiss the action
      and on April 3, 2008 the motion was denied. OncoVista-Sub plans on filing its
      answer to the complaint in due course. Based on the allegations in the complaint
      and our understanding of the relevant facts and circumstances, we believe that
      the claims made in this lawsuit are without merit and OncoVista-Sub intends
      to
      vigorously defend against them.




26




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





Our
      shareholders owning 10,115,475 shares of our common stock, which constitutes
      a
      majority of our outstanding voting securities, acting by written consent dated
      as of December 3, 2007, approved our change of name from “Aviation Upgrade
      Technologies, Inc.” to “OncoVista Innovative Therapies, Inc.”. Proxies were not
      solicited for this approval.





On
      January 3, 2008, we filed a Certificate of Amendment to our Articles of
      Incorporation with the Secretary of State of the State of Nevada in order to
      change our name. The name change became effective on January 8,
      2008.




**PART
      II**




**ITEM
      5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**





**Market
      Information**





Effective
      as of October 22, 2007, we effected a
      1.4739739 -for-1
      forward split of our outstanding common stock. From December 21, 2005 until
      January 13, 2008, our common stock was quoted on the OTC Bulletin Board under
      the symbol “AVUG”.  From January 14, 2008, our common stock is quoted on
      the OTC Bulletin Board under the symbol “OVIT”.  Since March 25, 2008, our
      common stock is also traded on the Frankfurt Stock Exchange under the symbol
      “4IW”.




Until
      October 26, 2007, there was no trading of our common stock on the OTC Bulleting
      Board. The quarterly high and low reported sales prices for our common stock
      as
      quoted on the OTC Bulletin Board for the periods indicated are as follows:





**High**
            
            **Low****Year
                Ended December 31, 2007**Three
                Months Ended December 31, 2007
              (from
                October 26, 2007 to December 31, 2007)
            
            $
            2.75
            
            $
            2.50**Year
              Ending December 31,
              2008**Three
                Months Ended March 31, 2008
              (from
                January 1, 2008 to March 31, 2008)
            
            $
            3.50
            
            $
            1.25




The
      foregoing quotations were provided by Etrade and the quotations reflect
      inter-dealer prices, without retail mark-up, mark-down or commission and may
      not
      represent actual transactions.





The
      last
      reported sale price per share of common stock as quoted on the OTCBB was $2.80
      on March 26, 2008. As of such date, we had 20,116,475 shares of common stock
      outstanding. Based on information available from our registrar and transfer
      agent, we estimate that we had approximately 227 stockholders of record on
      February 29, 2008.





**Dividends**





We
      have
      not declared nor paid any cash dividend on our common stock, and we currently
      intend to retain future earnings, if any, to finance the expansion of our
      business, and do not expect to pay any cash dividends in the foreseeable future.
      The decision whether to pay cash dividends on our common stock will be made
      by
      the board of directors, in their discretion, and will depend on our financial
      condition, operating results, capital requirements and other factors that the
      board of directors considers significant.





**Recent
      Sales of Unregistered Securities**





**OncoVista
      Innovative Therapies, Inc.**




During
      the last three years, we issued unregistered securities to the persons, as
      described below. None of these transactions involved any underwriters,
      underwriting discounts or commissions, except as specified below, or any public
      offering, and we believe that each transaction was exempt from the registration
      requirements of the Securities Act by virtue of Section 4(2) thereof and/or
      Rule
      506 of Regulation D promulgated thereunder. All recipients had adequate access,
      through their relationships with us, to information about us.




27





On
      February 27, 2008, we issued to our former Chief Financial Officer 50,000
      shares of our common stock upon exercise of options at an exercise price of
      $0.10 per share.





On
      February 1, 2008, we issued to a consultant warrants to acquire an aggregate
      of
      540,000 shares of our common stock as follows: up to 180,000 shares at $2.50
      per
      share; 180,000 shares at $3.50 per share; and 180,000 shares at $4.50 per share,
      vesting in equal monthly installments over one year.





On
      January 28, 2008, we granted options to an employee to purchase 100,000 shares
      of our common stock at an exercise price of $1.75, vesting in equal installments
      over four years on the first, second, third and fourth anniversaries of the
      date
      of grant.





On
      January 9, 2008, we granted options to a consultant to purchase 20,000 shares
      of
      our common stock at an exercise price of $2.50, vesting in equal installments
      over two years on the first and second anniversaries of the date of
      grant.





On
      January 2, 2008, we granted options to our Chief Financial Officer to
      purchase 120,000 shares of our common stock at an exercise price of $1.75,
      vesting in equal installments over four years on the first, second, third and
      fourth anniversaries of the date of grant.





On
      November 27, 2007, we issued to an accredited investor in partial consideration
      for the grant of an exclusive license the following: (i) 500,000 shares of
      common stock, (ii) a warrant to acquire $5,000,000 worth of common stock at
      the
      national market exercise price (as such term is defined in the warrant), and
      (iii) a warrant to purchase 200,000 shares of common stock at $2.50 per
      share.




On
      November 26, 2007, we issued to a consultant warrants to acquire 50,000 shares
      of our common stock exercisable through November 24, 2012 exercisable at $2.50
      per share.




During
      the year ended December 31, 2006 and 2005, we issued no unregistered shares
      of
      our common stock.





**OncoVista-Sub**




During
      the last three years, OncoVista-Sub issued unregistered securities, as described
      below. None of these transactions involved any underwriters, underwriting
      discounts or commissions, except as specified below, or any public offering,
      and
      OncoVista-Sub believes that each transaction was exempt from the registration
      requirements of the Securities Act by virtue of Section 4(2) thereof and/or
      Rule
      506 of Regulation D promulgated thereunder. All recipients had adequate access,
      through their relationships with OncoVista-Sub-Sub, to information about
      OncoVista-Sub-Sub.




On
      November 1, 2007, OncoVista-Sub issued to (i) its Chief Executive Officer
      1,500,000 shares of restricted stock, vesting one third on each of January
      1,
      2009, January 1, 2010 and January 1, 2011, and (ii) its Chief Technology Officer
      500,000 shares of restricted stock, vesting one third on each of January 1,
      2009, January 1, 2010 and January 1, 2011.





On
      September 11, 2007, OncoVista-Sub granted to two members of its board of
      directors options to purchase a total of 100,000 shares of its common stock
      at
      an exercise price of $1.75, vesting in equal installments over four years on
      the
      first, second, third and fourth anniversaries of the date of grant.





On
      August
      31, 2007, OncoVista-Sub granted to a member of its board of directors an option
      to purchase 60,000 shares of its common stock at an exercise price of $1.75,
      vesting in equal installments over four years on the first, second, third and
      fourth anniversaries of the date of grant.





On
      August
      23, 2007, OncoVista-Sub issued to a consultant warrants to acquire 100,000
      shares of OncoVista-Sub common stock exercisable through August 31, 2012
      exercisable at $2.50 per share.





28




On
      August
      15, 2007, OncoVista-Sub completed the closing of a private placement whereby
      it
      sold to accredited investors a total of 970,712 units at $7.00 per unit, each
      unit consisting of four shares of OncoVista-Sub common stock and a warrant
      to
      acquire one share of OncoVista-Sub common stock. The net proceeds of the private
      placement were approximately $6.2 million after payment of placement agent
      fees
      and other expenses. In connection with the private placement, OncoVista-Sub
      issued warrants to its placement agent, Maxim Group, LLC, to acquire 278,857
      shares of OncoVista-Sub common stock. The warrants and placement agent warrants
      are exercisable through August 15, 2012 at the exercise price of $2.50 per
      share, subject to adjustment for stock splits, stock dividends, distributions,
      reorganizations, reclassifications, consolidations and mergers. The warrants
      and
      placement agent warrants may also be exercised on a cashless or net issuance
      basis if after August 15, 2008 there is no effective registration statement
      covering the resale of the shares of common stock and shares underlying the
      warrants.




On
      August
      8, 2007, OncoVista-Sub issued to a current stockholder warrants to acquire
      250,000 shares of OncoVista-Sub common stock exercisable at $2.50 per share
      in
      partial consideration for the waiver of anti-dilution rights.





On
      July
      1, 2007 OncoVista-Sub issued five year warrants to acquire an aggregate of
      257,143 shares of OncoVista-Sub common stock at an exercise price of $0.001
      per
      share to two accredited investors in consideration for advisory
      services.




In
      December 2006, OncoVista-Sub sold 80,000 shares of OncoVista-Sub common stock
      to
      an accredited investor for cash consideration of $200,000.





On
      April
      17, 2006, OncoVista-Sub granted to consultants options to purchase a total
      of
      200,000 shares of its common stock at an exercise price of $2.50, vesting in
      equal installments over four years on the first, second, third and fourth
      anniversaries of the date of grant.




On
      April
      1, 2006, OncoVista-Sub granted to two consultants options to purchase a total
      of
      80,000 shares of its common stock at an exercise price of $2.50, vesting in
      equal monthly installments over two years.




On
      March
      30, 2006, OncoVista-Sub issued warrants to acquire 85,000 shares of
      OncoVista-Sub common stock at an exercise price of $2.50 per share in
      consideration for releasing certain claims.




In
      March
      2006, OncoVista-Sub sold 1,127,579 shares of OncoVista-Sub common stock to
      fifteen accredited investors for cash consideration of $2,818,948.




In
      February 2006, OncoVista-Sub sold 136,000 shares of OncoVista-Sub common stock
      to twelve accredited investors for cash consideration of $340,000.




On
      February 15, 2006, OncoVista-Sub granted to an employee an option to purchase
      50,000 shares of its common stock at an exercise price of $0.10, vesting in
      equal installments over two years on the first and second anniversaries of
      the
      date of grant.




In
      January 2006, OncoVista-Sub sold to an accredited investor 100,000 shares of
      OncoVista-Sub common stock and a warrant to acquire 200,000 shares of
      OncoVista-Sub common stock as partial consideration for the acquisition by
      merger of Aengus Pharmaceuticals, Inc.




In
      January 2006, OncoVista-Sub sold 127,000 shares of common stock to sixteen
      accredited investors for cash consideration of $317,500.




In
      December 2005, OncoVista-Sub sold 561,000 shares of OncoVista-Sub common stock
      to twenty seven accredited investors for cash consideration of $1,402,500.




On
      October 13, 2005, OncoVista-Sub sold 20,000 shares of common stock to two
      accredited investors for cash consideration of $50,000.




On
      September 28, 2005, OncoVista-Sub sold 220,000 shares of common stock to three
      accredited investors for cash consideration of $550,000.




On
      August
      23, 2005, OncoVista-Sub sold 200,000 shares of common stock for cash
      consideration of $500,000.




On
      August
      9, 2005, OncoVista-Sub sold 2,000 shares of common stock in consideration for
      services rendered.




29




On
      July
      25, 2005, OncoVista-Sub sold 132,000 shares of common stock to an accredited
      investor for cash consideration of $330,000.





On
      May 1,
      2005, OncoVista-Sub granted to two employees options to purchase a total of
      200,000 shares of its common stock at an exercise price of $.010, vesting in
      equal installments over four years on the first, second, third and fourth
      anniversaries of the date of grant.





On
      February 1, 2005, OncoVista-Sub granted to an employee an option to purchase
      20,000 shares of its common stock at an exercise price of $0.10, vesting in
      equal installments over two years on the first and second anniversaries of
      the
      date of grant.




On
      January 24, 2005, OncoVista-Sub sold 50,000 shares of common stock to an
      accredited investor for cash consideration of $100,000.





On
      January 15, 2005, OncoVista-Sub granted to its board of directors and a
      consultant options to purchase a total of 150,000 shares of its common stock
      at
      an exercise price of $0.10, vesting in equal installments over two years on
      the
      first and second anniversaries of the date of grant.





On
      January 15, 2005, OncoVista-Sub granted to its Chief Technology Officer an
      option to purchase 250,000 shares of its common stock at an exercise price
      of
      $.001, vesting in equal installments over four years on the first, second,
      third
      and fourth anniversaries of the date of grant.





**Repurchases
      of Equity Securities by the Issuer and Affiliated Purchasers**





None.





**Use
      of Proceeds from Sales of Registered Securities**





We
      filed
      a Registration Statement on Form SB-2 (333-147360) with the United States
      Securities and Exchange Commission that was declared effective on January 11,
      2008 to register 5,132,417 shares of common stock for resale by the selling
      stockholders named therein, of which 3,882,848 shares were issued directly
      in
      the 2007 Private Placement and 1,249,569 shares are issuable upon the exercise
      of warrants issued in the 2007 Private Placement. We will not receive any
      proceeds from the resale of shares of common stock by the selling stockholders
      but we will receive funds from the exercise of the aforesaid warrants held
      by
      the selling stockholders, if exercised. As of February 29, 2008, no such
      warrants have been exercised.








30


**ITEM
      6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION**





***The
      following management’s discussion and analysis of financial condition contains
      forward-looking statements which involve risks and uncertainties. Our actual
      results could differ materially from those anticipated in these forward-looking
      statements as a result of certain factors, including those set forth under
“Risk
      Factors” and elsewhere in this Annual Report on Form 10-KSB. We assume no
      obligation to update forward-looking statements or the risk factors. You should
      read the following discussion in conjunction with our financial statements
      and
      related notes filed as an exhibit to the registration statement of which this
      Annual Report on Form 10-KSB forms a part.***





**Overview**





We
      are a
      biopharmaceutical company engaged in the development and commercialization
      of
      targeted cancer therapies both through the acquisition of rights to technologies
      and drugs from others and through the development of proprietary products.
      Our
      primary therapeutic strategy is based on targeting the patient’s tumor(s) with
      treatments that will deliver drugs selectively based upon specific biochemical
      characteristics of the cancer cells comprising the tumor. Through a combination
      of licensing agreements as well as mergers and acquisitions, we have acquired
      the rights to several technologies with the potential to more effectively treat
      cancers and significantly improve quality-of-life for patients. We believe
      that
      the use of biomarkers to 1) determine suitability of specific treatments as
      well
      as 2) provide an early indication of treatment success or failure will be key
      to
      bringing personalized targeted medicines to market.





In
      addition, our proprietary diagnostic technology facilitates stratification
      of
      clinical trial patients, as well as quantifies and predicts the response of
      patients to treatment. We believe that the development of targeted approaches
      to
      the administration of anticancer agents should lead to improved outcomes and/or
      reduced toxicity.




We
      expect
      to be a major participant in the oncology arena through the successful
      development and commercialization of innovative therapies which, as a result
      of
      their lower toxicity and/or greater efficiency, will increase patient survival
      rates and enhance patient quality of life. In targeting compounds for
      acquisition, we focus on candidates that have been previously tested in human
      clinical trials or animal models, as well as technologies that may improve
      the
      delivery or targeting of previously tested, and in some cases marketed,
      anticancer agents. Our senior management team and our panel of
      internationally-recognized clinical advisors have made significant contributions
      to the development of leading drugs currently used in cancer treatment.
      Management, in conjunction with our advisors, will evaluate in-licensing
      candidates based on several criteria, including development and registration
      strategies to be employed, commercialization opportunities and competitive
      technologies being developed elsewhere.





Our
      product pipeline is comprised of advanced (Phase II) and early (Phase I)
      clinical-stage compounds, late preclinical drug candidates and early preclinical
      leads. We are not committed to any single treatment modality or class of
      compound, but believe that successful treatment of cancer requires a tailored
      approach based upon individual patient disease characteristics.





The
      extensive experience of our management team and clinical advisory board in
      the
      area of oncology drug development allows us to design and execute clinical
      development and registration strategies that are intended to significantly
      reduce the time to market for our drug candidates. In addition, the utilization
      of proprietary technology for detection and characterization of biomarkers
      expressed by circulating tumor cells (CTCs) will be particularly useful in
      allowing us to select patients most likely to respond to our therapies, as
      well
      as providing early feedback concerning treatment efficacy.





**Development
      Program**





Our
      most
      advanced drug candidate is OVI-237, a liposomal formulation of a thymidylate
      synthase (TS) inhibitor which has been administered in over 150 patients so
      far
      in various Phase I and Phase II trials. The drug was in-licensed in
      November 2007 and we plan to continue the development of the drug by initiating
      a Phase II clinical trial in the second half of 2008.





Our
      next
      most advanced product candidate is Cordycepin (OVI-123) which is in Phase I/II
      clinical trials for refractory leukemia patients who express the enzyme terminal
      deoxynucleotidyl transferase (TdT). We have received orphan drug designation
      from the FDA for Cordycepin which affords us seven years of market exclusivity
      once the drug is approved for marketing. We expect to enroll the first patient
      on trial by the end of 2008.




31





Our
      lead
      drug candidate from the L-nucleoside conjugate program (OVI-117) is currently
      in
      GLP animal drug safety studies. Once the studies are completed, we will compile
      and submit an Investigational New Drug (IND) application to the FDA in order
      to
      obtain approval to conduct Phase I clinical trials in humans.





We
      are
      also marketing kits in Europe for the detection of CTCs in breast and colon
      cancer patients. The kits are manufactured by AdnaGen (which is 85% owned
      by us) and marketed through an agreement with Innogenetics. We are working
      towards obtaining approval to market the kits in the US.




***Other
      Research and Development Plans***





In
      addition to conducting Phase I and Phase II clinical trials, we plan to conduct
      pre-clinical research to accomplish the following:





·
            further
                deepen and broaden our understanding of the mechanism of action (MoA)
                of
                our products in cancer;





·
            develop
                alternative delivery systems and determine the optimal dosage for
                different patient groups;





·
            demonstrate
                proof of concept in animal models of human
                cancers;





·
            develop
                biomarker panels that complement our therapeutic products, based
                upon
                knowledge of the drugs MoA;





·
            develop
                successor products to our current
                products.




We
      also
      plan to pursue our interest in the application of nanotechnologies in cancer
      therapy through strategic alliances, partnerships and licensing
      agreements.





We
      have
      an on-going program in the discovery-stage that is seeking compounds that bind
      selectively to specific types of a protein known as tubulin. Microtubules are
      structures within cells that are required for cell replication and division.
      Many anti-cancer drugs target and bind to microtubules (including paclitaxel
      and
      Taxotere). Microtubules are formed by polymerization of tubulin proteins. There
      are many known variants, or isotypes, of tubulin. These isotypes occur in
      different proportions in different cell types. There is a body of evidence
      which
      strongly suggests that drugs that are bound by specific tubulin isotypes are
      active against certain drug-resistant tumors. We have licensed technologies
      from
      the University of Texas at San Antonio as well as the University of Alberta
      that
      will enable us to search for such tubulin-isotype specific drugs. We plan to
      put
      in place in our labs a high throughput screening assay to enable us to rapidly
      screen libraries of known compounds as well as evaluate new compounds designed
      and synthesized in-house. We hope that this program will eventually generate
      several promising lead candidates for preclinical development.





Our
      plan
      is to patent any successful inventions resulting from our future research
      activities and to exploit any other means that may exist to protect our future
      anti-cancer therapies in the commercial markets; although at this early stage
      there can be no assurance that there will be any successful inventions resulting
      from such research activities.





***Other
      Strategic Plans***





In
      addition to developing our existing anti-cancer drug portfolio, we plan to
      obtain rights to additional drug candidates through licensing, partnerships
      and
      mergers/acquisitions. Our efforts in this area will, of course, be guided by
      business considerations (cost of the opportunity, fit with existing portfolio,
      etc.) as well as input from our clinical advisory board regarding likelihood
      of
      successful clinical development and marketing approval. Our goal is to create
      a
      well-balanced product portfolio including lead molecules in different stages
      of
      development and addressing different medical needs.




32




**Critical
        Accounting Policies**
 
 We
        have
        identified the policies below as critical to our business operations and
        the
        understanding of our results of operations. The impact and any associated
        risks
        related to these policies on our business operations are disclosed throughout
        this section where such policies affect our reported and expected financial
        results. Our preparation of our financial statements requires us to make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities, disclosure of contingent assets and liabilities at the date
        of our
        financial statements, and the reported amounts of revenues and expenses during
        the reporting period. There can be no assurance that actual results will
        not
        differ from those estimates.
 
 *Revenue
        Recognition* .
        We
        recognize revenue in accordance with Securities and Exchange Commission,
        or SEC,
        Staff Accounting Bulletin, or SAB, No. 104, “ *Revenue
        Recognition* ”
that
        requires we recognize revenue when each of the following four criteria is
        met:
        1) a contract or sales arrangement exists; 2) products have been shipped
        or
        services have been rendered; 3) the price of the products or services is
        fixed
        or determinable; and 4) collectibility is reasonably assured. Our customers
        have
        no right of return for products sold. Revenues are considered earned upon
        shipment.
 
 *Share-Based
        Compensation.* We
        follow
        Statement of Financial Accounting Standards No. 123(R) (revised 2004),
“ *Share-Based
        Payment* ,”
        (“ *SFAS
        123(R)* ”)
        which
        requires the measurement and recognition of compensation expense for all
        share-based payment awards made to employees and directors including grants
        of
        employee stock options based on estimated fair values. We have used the
        Black-Scholes option pricing model to estimate grant date fair value for
        all
        option grants. The assumptions we use in calculating the fair value of
        share-based payment awards represent management’s best estimates, but these
        estimates involve inherent uncertainties and the application of management
        judgment. As such, as we use different assumptions based on a change in factors,
        our stock-based compensation expense could be materially different in the
        future.
 
 *Preclinical
        Study and Clinical Trial Accruals.*  Substantially
        all of our preclinical studies and clinical trials are being performed by
        third-party contract research organizations, or CROs, and other outside vendors.
        For preclinical studies, we use the percentage of work completed to date
        and
        contract milestones achieved to determine the accruals recorded. For clinical
        trial accruals, we use the number of patients enrolled, period of patient
        enrollment and percentage of work completed to date to estimate the accruals.
        We
        monitor patient enrollment levels and related activities to the extent possible
        through internal reviews, correspondence and status meetings with CROs and
        review of contractual terms. Our estimates are dependent on the timeliness
        and
        accuracy of data provided by our CROs and other vendors. If we have incomplete
        or inaccurate data, we may under-or overestimate activity levels associated
        with
        various studies or clinical trials at a given point in time. In this event,
        we
        could record adjustments to research and development expenses in future periods
        when the actual activity levels become known. No material adjustments to
        preclinical study and clinical trial expenses have been recognized to date.
  *Income
        Taxes.* Significant
        management judgment is required in developing the provision for income taxes,
        including the determination of foreign tax liabilities, deferred tax assets
        and
        liabilities and any valuation allowances that might be required against the
        deferred tax assets. Our management evaluates our ability to realize our
        deferred tax assets on a quarterly basis and adjusts our valuation allowance
        when we believe that we are more likely than not that the asset will not
        be
        realized. We follow Statement of Financial Accounting Standards No. 109,
        “ *Accounting
        for Income Taxes* ”
        (“*SFAS No. 109*”). Under SFAS No. 109, deferred tax assets and
        liabilities are recognized for the future tax consequences attributed to
        differences between the financial statement carrying amounts of existing
        assets
        and liabilities and their respective tax bases. Deferred tax assets and
        liabilities are measured using enacted tax rates expected to apply to taxable
        income in the years in which those temporary differences are expected to
        be
        recovered or settled. The effect on deferred tax assets and liabilities of
        a
        change in tax rates is recognized in income in the period that includes the
        enactment date. If it is more likely than not that some portion of a deferred
        tax asset will not be realized, a valuation allowance is recognized. In June
        2006, the FASB issued Interpretation No. 48, *“Accounting
        for Uncertainty in Income Taxes—an Interpretation of FASB Statement No.
        109”* (FIN
        48). FIN 48 addresses the accounting and disclosure of uncertain tax positions.
        FIN 48 prescribes a recognition threshold and measurement attribute for the
        financial statement recognition and measurement of a tax position taken or
        expected to be taken. We adopted FIN 48 on January 1, 2007, as required and
        determined that the adoption of FIN 48 did not have a material impact on
        our
        consolidated financial position and results of operations.
  33
 
 *Foreign
        Currency Translation.* The
        financial position and results of operations of our foreign subsidiary are
        measured using the local currency (Euros) as the functional currency. Assets
        and
        liabilities of the subsidiary have been translated at current exchange rates
        as
        of December 31, 2007 and 2006, and related revenue and expenses have been
        translated at an average exchange rate for the years ended December 31, 2007,
        2006 and 2005. All equity transactions have been translated at their historical
        rates when the transaction occurred. The aggregate effect of translation
        adjustments is included as a component of accumulated other comprehensive
        loss
        and as a component of stockholders’ deficit. Transaction gains and losses
        related to operating assets and liabilities are included in general and
        administrative expense.
 
 **Results
        of Operations**
 The
          following table sets forth, for the period indicated, certain line items
          from
          our consolidated statements of operations, expressed as a percentage of
          revenue:
 Year
                      EndedDecember
                      31,2007
                  
                  2006Revenues
                  
                  
                  100.0
                  %
                  
                  100.0
                  %Operating
                      expenses:Research
                      and development
                  
                  
                  233.2
                  
                  
                  157.2General
                      and administrative
                  
                  
                  177.9
                  
                  
                  133.9Total
                      operating expenses
                  
                  
                  411.1
                  
                  
                  299.1Income
                      (loss) from operations
                  
                  
                  (311.1
                  )
                  
                  (191.1
                  )Other
                      income (expense):Interest
                      income
                  
                  
                  6.5
                  
                  
                  4.6Interest
                      expense
                  
                  
                  (17.0
                  )
                  
                  (32.0
                  )Gain
                      on debt settlement
                  
                  
                  3.1
                  
                  
                  -Other
                  
                  
                  10.9
                  
                  
                  -Impairment
                      of goodwill and intangible asset
                  
                  
                  -
                  
                  
                  (231.2
                  )Net
                      income (loss)
                  
                  
                  (307.6
                  )
                  
                  (449.7
                  )
 **Years
        Ended December 31, 2007 and 2006**
 
 *Revenue* .
        Revenues were approximately $1.8 million for the year ended December 31,
        2007, a
        decrease of 5% as compared to approximately $1.9 million in 2006. Our revenues
        reflect royalties earned from the sale of diagnostic kits, licensing and
        research and development revenue. Revenues are summarized in the following
        table:
 
 2007
              
              2006Licensing
              
              $
              1,501,676
              
              $
              1,700,137Diagnostic
                  kits
              
              
              239,364
              
              
              187,319Research
                  and development, grant and other revenues
              
              
              80,000
              
              
              40,000Total
                  revenues
              
              $
              1,821,040
              
              $
              1,927,456
 
 Revenue
        in both 2007 and 2006 included milestone payments received as a result of
        agreements with third parties. The decline in revenue in the year ended December
        31, 2007 is primarily attributable to a decrease in milestone payments from
        development agreements, partially offset by an increase in sales from diagnostic
        kits.
  *Research
        and development.* Research
        and development
        expenses increased by approximately $1.2 million, or 40%, to approximately
        $4.2
        million for the year ended December 31, 2007, as compared to approximately
        $3.0
        million for the year ended December 31, 2006. The increase in 2007 is primarily
        a result of expense related to the license agreement entered into with OSI for
        a
        Phase II clinical drug candidate.
 
 *General
        and administrative.* General
        and administrative expenses increased by approximately $660,000 to approximately
        $3.2 million in the year ended December 31, 2007, or 25.5% compared to
        approximately $2.6 million in the year ended December 31, 2006. In 2007, the
        increase was due to professional services related to becoming a publicly
        traded
        company subsequent to the completion of the reverse acquisition and
        recapitalization.
  *Other
        Income (Expense)* .
        Other
        income (expense) increased 101% to approximately $63,000 in the year ended
        December 31, 2007 from approximately $(5.0) million in the year ended December
        31, 2006. In 2007, the decrease was due primarily to a $4.5 million charge
        in
        the prior year for the impairment of intangible assets and goodwill associated
        with the acquisition of our German subsidiary, partially offset by a decrease
        in
        interest expense.
 
 *Net
        Income (Loss).* As
        a
        result of the foregoing, our net loss decreased by approximately $3.1 million
        to
        approximately $5.6 million in the year ended December 31, 2007 from a net
        loss
        of approximately $8.7 million in the year ended December 31, 2006.
 
 **Liquidity
        and Capital Resources**
 
 To
        date,
        we have financed our operations principally through proceeds of offerings
        of
        securities exempt from the registration requirements of the Securities Act,
        including a private offering of securities. We believe that our available
        resources and cash flow will be sufficient to meet our anticipated operating
        cash needs for at least the next six to nine months. We can provide no
        assurance that additional funding will be available on terms acceptable to
        us,
        or at all. Accordingly, we may not be able to secure the funding which is
        required to expand research and development programs beyond their current
        levels
        or at levels that may be required in the future. If we cannot secure adequate
        financing, we may be required to delay, scale back or eliminate one or more
        of
        our research and development programs or to enter into license or other
        arrangements with third parties to commercialize products or technologies
        that
        we would otherwise seek to develop and commercialize itself. Our future capital
        requirements will depend upon many factors, including:
  34
 
 ·
              continued
                  scientific progress in our research and development
                  programs;
 ·
              costs
                  and timing of conducting clinical trials and seeking regulatory
                  approvals
                  and patent prosecutions;
 ·
              competing
                  technological and market
                  developments;
 ·
              our
                  ability to establish additional collaborative relationships;
                  and
 ·
              the
                  effect of commercialization activities and facility expansions
                  if and as
                  required.
  Accordingly,
        we will be required to issue equity or debt securities or enter into other
        financial arrangements, including relationships with corporate and other
        partners, in order to raise additional capital. Depending upon market
        conditions, we may not be successful in raising sufficient additional capital
        for our long-term requirements. In such event, our business, prospects,
        financial condition, and results of operations could be materially adversely
        affected.
  ***Operating
        Activities.*** For
        the
        year ended December 31, 2007, net cash used in operating activities was
        approximately $2.9 million unchanged as compared to approximately $2.9 million
        in December 31, 2006. Our net loss decreased by approximately $3.1 million
        for
        the year ended December 31, 2007 to approximately $5.6 million as compared
        to
        approximately $8.7 million for the year ended December 31, 2006. Additionally,
        we recorded a charge of approximately $4.5 million in the prior year for
        the
        impairment of intangible assets and goodwill associated with the acquisition
        of
        our German subsidiary and was included in operating activities. There was
        also
        an increase in the adjustment for common stock and warrants issued for licensing
        rights of intellectual property related to the OSI Phase II clinical drug
        candidate.
 
 ***Investing
        Activities.*** For
        the
        year ended December 31, 2007, net cash used in investing activities was
        approximately $800,000 as compared to approximately $29,000 for the year
        ended
        December 31, 2006. Cash used in investing activities increased primarily
        as a
        result of approximately $600,000 paid in 2007 to acquire an additional 34%
        interest in AdnaGen, increasing our ownership in AdnaGen to 85%.
 
 ***Financing
        Activities.*** Cash
        provided by financing activities was approximately $6 million for the year
        ended
        December 31, 2007 as compared to approximately $2.5 million for the year
        ended
        December 31, 2006. The increase was primarily due to the net proceeds of
        approximately $6.2 million from the 2007 Private Placement, partially offset
        by
        the repayment of a loan.
 
 Our
        outstanding material contractual obligations under lease and debt agreements
        as
        of December 31, 2007 are as follows:
  Payments
                    Due by PeriodWithin
                    One Year
                
                Two
                    to Three Years
                
                Four
                    to Five Years
                
                After
                    Five Years
                
                TotalLoans
                    and notes payable
                
                $
                2,973,107
                
                $
                3,682,250
                
                $
                −
                
                $
                −
                
                $
                6,655,357Operating
                    leases and other
                
                
                199,993
                
                
                208,328
                
                
                −
                
                
                −
                
                
                408,321$
                3,173,100
                
                $
                3,890,578
                
                $
                −
                
                $
                −
                
                $
                7,063,678
  The
          loans
          and notes payable have a contingent repayment plan. Under the plan, the
          obligation is repayable only from the profits of AdnaGen. In the event
          that
          AdnaGen does not have sufficient profits as of the scheduled maturity dates
          in
          2008 and 2010, the obligations will be extinguished without recourse from
          the
          lender.
 
 During
          2005, Biomed Solutions, LLC (“ *Biomed* ”)
          loaned
          OncoVista-Sub a total of $525,563 accruing interest at 8% per annum. In
          2006,
          OncoVista-Sub repaid $245,000 to Biomed. In October 2007, in full settlement
          of
          the remaining principal and interest of $356,428 due under the loan,
          OncoVista-Sub paid $300,000 to Biomed under the settlement terms. As a
          result,
          we recognized a gain on debt settlement of $56,428. Biomed is controlled
          by an
          affiliate company of one of our current directors, as well as one of
          OncoVista-Sub’s former directors.
 
 **Recent
          Accounting Pronouncements**
 
 In
          September 2006, the FASB issued SFAS No. 157, *“Fair
          Value Measurements”* ,
          which
          clarifies the principle that fair value should be based on the assumptions
          that
          market participants would use when pricing an asset or liability. It also
          defines fair value and established a hierarchy that prioritizes the information
          used to develop assumptions. SFAS No. 157 is effective for financial statements
          issued for fiscal years beginning after November 15, 2007. We do not expect
          SFAS
          No. 157 to have a material impact on our financial position, results of
          operations or cash flows.
  35
 
 On
          February 15, 2007, the Financial Accounting Standards Board (“ *FASB* ”)
          issued
          Statement of Financial Accounting Standards No. 159, “ *The
          Fair Value Option for Financial Assets and Financial Liabilities — Including an
          Amendment of FASB Statement No. 115* ”
          (“ *SFAS
          159* ”).
          This
          standard permits an entity to measure financial instruments and certain
          other
          items at estimated fair value. Most of the provisions of SFAS No. 159 are
          elective; however, the amendment to FASB No. 115, “ *Accounting
          for Certain Investments in Debt and Equity Securities* ,”
          applies to all entities that own trading and available-for-sale securities.
          The
          fair value option created by SFAS 159 permits an entity to measure eligible
          items at fair value as of specified election dates. The fair value option
          (a) may generally be applied instrument by instrument, (b) is
          irrevocable unless a new election date occurs, and (c) must be applied to
          the entire instrument and not to only a portion of the instrument. SFAS
          159 is
          effective as of the beginning of the first fiscal year that begins after
          November 15, 2007. Early adoption is permitted as of the beginning of the
          previous fiscal year provided that the entity (i) makes that choice in the
          first 120 days of that year, (ii) has not yet issued financial
          statements for any interim period of such year, and (iii) elects to apply
          the provisions of FASB 157. Management is currently evaluating the impact
          of
          SFAS 159, if any, on our financial statements. The adoption of SFAS No.
          159 is
          not expected to have a material effect on our financial position, results
          of
          operations or cash flows.
  In
          June
          2007, the Emerging Issues Task Force (“ *EITF* ”)
          issued
          EITF No. 07-01, *Accounting
          for Collaborative Arrangements,* (“ *EITF
          07-1* ”).
          EITF
          07-1 provides guidance for companies in the biotechnology or pharmaceutical
          industries that may enter into agreements with other companies to
          collaboratively develop, manufacture, and market a drug candidate (Collaboration
          Agreements) and is effective for fiscal years beginning after December
          15, 2007.
          We do not expect that EITF 07-01 will have an effect on our financial condition
          or results of operations.
  In
          June
          2007, the EITF issued EITF No. 07-3, *Accounting
          for Nonrefundable Advance Payments for Goods or Services to Be Used in
          Future
          Research and Development Activities* ,
          (“ *EITF
          07-3* ”).
          EITF
          07-3 provides guidance for upfront payments related to goods and services
          of
          research and development costs and is effective for fiscal years beginning
          after
          December 15, 2007. We are currently evaluating the impact of EITF 07-3
          on our
          financial statements.
  In
          December 2007, the FASB issued SFAS No. 160, “ *Noncontrolling
          Interests in Consolidated Financial Statements, an amendment of Accounting
          Research Bulletin No 51* ”
          (“ *SFAS
          160* ”).
          SFAS
          160 establishes accounting and reporting standards for ownership interests
          in
          subsidiaries held by parties other than the parent, changes in a parent’s
          ownership of a noncontrolling interest, calculation and disclosure of the
          consolidated net income attributable to the parent and the noncontrolling
          interest, changes in a parent’s ownership interest while the parent retains its
          controlling financial interest and fair value measurement of any retained
          noncontrolling equity investment. SFAS 160 is effective for financial statements
          issued for fiscal years beginning after December 15, 2008, and interim
          periods
          within those fiscal years. Early adoption is prohibited. The adoption of
          SFAS
          No. 160 is not expected to have a material effect on its financial position,
          results of operations or cash flows.
  In
          December 2007, the FASB issued SFAS 141R, “ *Business
          Combinations* ”
          (“ *SFAS
          141R* ”),
          which
          replaces FASB SFAS 141, “ *Business
          Combinations* ”. 
          This Statement retains the fundamental requirements in SFAS 141 that the
          acquisition method of accounting be used for all business combinations
          and for
          an acquirer to be identified for each business combination. SFAS 141R defines
          the acquirer as the entity that obtains control of one or more businesses
          in the
          business combination and establishes the acquisition date as the date that
          the
          acquirer achieves control.  SFAS 141R will require an entity to record
          separately from the business combination the direct costs, where previously
          these costs were included in the total allocated cost of the
          acquisition.  SFAS 141R will require an entity to recognize the assets
          acquired, liabilities assumed, and any non-controlling interest in the
          acquired
          at the acquisition date, at their fair values as of that date.  This
          compares to the cost allocation method previously required by SFAS No.
          141.  SFAS 141R will require an entity to recognize as an asset or
          liability at fair value for certain contingencies, either contractual or
          non-contractual, if certain criteria are met.  Finally, SFAS 141R will
          require an entity to recognize contingent consideration at the date of
          acquisition, based on the fair value at that date.  This Statement
          will be effective for business combinations completed on or after the first
          annual reporting period beginning on or after December 15,
          2008.  Early adoption of this standard is not permitted and the
          standards are to be applied prospectively only.  Upon adoption of this
          standard, there would be no impact to our results of operations and financial
          condition for acquisitions previously completed.  The adoption of SFAS
          No. 141R is not expected to have a material effect on our financial position,
          results of operations or cash flows.
  36
 
 Other
          accounting standards that have been issued or proposed by the FASB or other
          standards-setting bodies that do not require adoption until a future date
          and
          are not expected to have a material impact on the financial statements
          upon
          adoption.
 
 **Quantitative
          and Qualitative Disclosures about Market Risk**
 
 We
          believe that changes in interest rates shall not have a material effect
          on our
          liquidity, financial condition or results of operations.
 
 **Impact
          of Inflation**
 
 Management
          believes that results of operations are not dependent upon moderate changes
          in
          inflation rates as we expect to be able to pass along component price increases
          to our customers.
 
 **Seasonality**
 
 We
          have
          not experienced any material seasonality in operations or business.
 
 **ITEM
          7 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
  Our
          consolidated financial statements and notes thereto and the related report
          of
          OncoVista Innovative Therapies, Inc. and Subsidiaries are attached to this
          Annual Report beginning at Page F-1 and are incorporated herein by
          reference.
  **ITEM
          8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND** **FINANCIAL DISCLOSURE**
  The
          following disclosure relates to OncoVista Innovative Therapies, Inc. (formerly
          Aviation Upgrade Technologies, Inc.):
  Dismissal
          of Lesley Thomas Schwarz & Postma
  Effective
          January 6, 2006, we dismissed Lesley Thomas Schwarz & Postma (" *LTSP* ")
          which
          audited the our financial statements for the fiscal years ended December
          31,
          2003 and 2004, and engaged Armando C. Ibarra, CPA (“ *Ibarra* ”)
          to act
          as our independent auditor. The reports of LTSP for these fiscal years
          did not
          contain an adverse opinion, or disclaimer of opinion and were not qualified
          or
          modified as to audit scope or accounting principles except as described
          herein.
          The report of LTSP for these fiscal years was qualified with respect to
          uncertainty as to our ability to continue as a going concern. During our
          two most recent fiscal years and the period from the end of the most recently
          completed fiscal year through January 6, 2006, the date of dismissal, there
          were
          no disagreements with LTSP on any matter of accounting principles or practices,
          financial statement disclosure or auditing scope or procedures, which
          disagreements, if not resolved to the satisfaction of LTSP would have caused
          it
          to make reference to such disagreements in its reports.
  Our
          financial statements for the year ended December 31, 2005, were audited
          by
          Ibarra. LTSP was not involved in any way with the audit of the financial
          statements for the year ended December 31, 2005. We authorized LTSP to
          discuss
          any matter relating to us and our operations with Ibarra.
 
 The
          change in our auditors was recommended and approved by our board of
          directors since we did not then have an audit committee.
 
 During
          the two most recent fiscal years and subsequent interim period, we did
          not
          consult with Ibarra regarding the application of accounting principles
          to a
          specified transaction, either completed or proposed, or the type of audit
          opinion that might be rendered on our financial statements, or any matter
          that
          was the subject of a disagreement or a reportable event as defined in the
          regulations of the Commission.
  37
  Resignation
          of Armando C. Ibarra
 
 Effective
          November 16, 2006, our independent auditor, Ibarra declined to stand for
          reappointment and we engaged Chang G. Park, CPA (“ *Park* ”)
          to act
          as our independent auditor. The reports of Ibarra for these fiscal years
          did not
          contain an adverse opinion, or disclaimer of opinion and were not qualified
          or
          modified as to audit scope or accounting principles except as described
          herein.
          The report of Ibarra for these fiscal years was qualified with respect
          to
          uncertainty as to our ability to continue as a going concern. During our
          two
          most recent fiscal years and the period from the end of the most recently
          completed fiscal year through November 16, 2006, the date of resignation,
          there
          were no disagreements with Ibarra on any matter of accounting principles
          or
          practices, financial statement disclosure or auditing scope or procedures,
          which
          disagreements, if not resolved to the satisfaction of Ibarra would have
          caused
          it to make reference to such disagreements in its reports.
 
 Our
          financial statements for the period ended September 30, 2006 until February
          28,
          2007, were reviewed by Park. Ibarra was not involved in any way with the
          review
          of the financial statements for the period ended September 30, 2006. We
          authorized Park to discuss any matter relating to us and our operations
          with
          Ibarra.
 
 The
          change in our auditors was recommended and approved by our board of directors
          since we did not then have an audit committee.
 
 During
          the two most recent fiscal years and subsequent interim period, we did
          not
          consult with Park regarding the application of accounting principles to
          a
          specified transaction, either completed or proposed, or the type of audit
          opinion that might be rendered on our financial statements, or any matter
          that
          was the subject of a disagreement or a reportable event as defined in the
          regulations of the Commission.
  Dismissal
          of Chang G. Park
  Effective
          February 28, 2007, we dismissed our independent auditor, Park, as Park
          had been
          engaged to review its financial statements only for the period ended September
          30, 2006. Park had been our independent auditor from November 16, 2006
          to
          February 28, 2007.
 
 On
          February 28, 2007, we engaged Stan J.H. Lee, CPA (“ *SJHL* ”)
          to act
          as our independent auditor.
  Park
          provided no reports as to any fiscal year end, due to the short timeframe
          of its
          engagement, nor did Park give any adverse opinion, or disclaimer of opinion
          and
          had no reportable qualification or modification as to audit scope or accounting
          principles except as described herein. As of the date of that dismissal,
          during
          our two most recent fiscal years and the period from the end of the most
          recently completed fiscal year through February 28, 2007, the date of Park’s
          dismissal, there were no disagreements with Park on any matter of accounting
          principles or practices, financial statement disclosure or auditing scope
          or
          procedures, which disagreements, if not resolved to the satisfaction of
          Park
          would have caused it to make reference to such disagreements in its
          reports.
  Our
          financial statements for the year ended December 31, 2006, were audited
          by SJHL.
          Park was not involved in any way with the audit of the financial statements
          for
          the year ended December 31, 2006. We authorized Lee to discuss any matter
          relating to us and our operations with Park.
  The
          change in our auditors was recommended and approved by the board of directors
          since we did not then have an audit committee.
  During
          the two most recent fiscal years and subsequent interim period, we did
          not
          consult with SJHL regarding the application of accounting principles to
          a
          specified transaction, either completed or proposed, or the type of audit
          opinion that might be rendered on our financial statements, or any matter
          that was the subject of a disagreement or a reportable event as defined
          in the
          regulations of the Commission. ****
 
 Dismissal
          of Stan J. H. Lee
 
 As
          a result of the Merger, on January 11, 2008, we engaged Berman & Company,
          P.A. (“ *Berman* ”) as our
          independent auditors for our fiscal year ended December 31, 2007 to replace
          SJHL. The change in our auditors was recommended and approved by our board
          of
          directors since at the time we did not have an audit committee.
 
 The
          audit
          report of SJHL on our financial statements for the fiscal year ended December
          31, 2006 and other audit reports during our two most recent fiscal years
          were
          qualified with respect to uncertainty as to our ability to continue as
          a going
          concern. Such
          audit reports did not contain any other adverse opinion or disclaimer of
          opinion
          or qualification. During
          our two most recent fiscal years and the period from the end of the most
          recently completed fiscal year through January 11, 2008, there were no
          disagreements with SJHL or any other independent accountant on any matter
          of
          accounting principles or practices, financial statement disclosure or auditing
          scope or procedure, which, if not resolved to the satisfaction of SJHL,
          would
          have caused such entity to make reference to such disagreements in its
          reports.
  38
  During
          our two most recent fiscal years and the period from the end of the most
          recently completed fiscal year through January 11, 2008, Berman did not
          provide
          us with advice regarding the application of accounting principles to a
          specified
          transaction, either completed or proposed, or the type of audit opinion
          that
          might be rendered on our financial statements, that was an important factor
          considered by us in reaching a decision as to an accounting, auditing or
          financial reporting issue.
  **ITEM
          8A(T) - CONTROLS AND PROCEDURES**
  **Evaluation
          of disclosure controls and procedures.**
 
 An
          evaluation was performed under the supervision and with the participation
          of our
          management, including the Chief Executive Officer and the Chief Financial
          Officer, of the effectiveness of the design and operation of our disclosure controls and
          procedures. Based on management's evaluation as of the end of the period covered by this Annual Report, our Chief Executive
          Officer
          and Chief Financial Officer concluded that as of the end of the period
          covered
          by this report, our disclosure controls and procedures (as defined in Rules
          13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
          (the “ *Exchange
          Act* "))
          were effective in ensuring that the information required to be disclosed
          by us
          in the reports that we file under the Exchange Act is gathered, analyzed
          and
          disclosed with adequate timeliness, accuracy and completeness.
  **Management’s
          Annual Report on Internal Control over Financial Reporting**
  Our
          management is responsible for establishing and maintaining adequate internal
          control over financial reporting as defined in Exchange Act Rule 13a-15(f).
          Our
          internal control system is a process designed by, or under the supervision
          of,
          our principal executive and principal financial officers, or persons performing
          similar functions, and effected by our board of directors, management and
          other
          personnel, to provide reasonable assurance regarding the reliability of
          financial reporting and the preparation of financial statements for external
          purposes in accordance with U.S. generally accepted accounting principles
          (U.S.
          GAAP).
 
 Our
          internal control over financial reporting includes policies and procedures
          that
          pertain to the maintenance of records that, in reasonable detail, accurately
          and
          fairly reflect transactions and dispositions of assets; provide reasonable
          assurance that transactions are recorded as necessary to permit preparation
          of
          financial statements in accordance with U.S. GAAP, and that receipts and
          expenditures are being made only in accordance with the authorization of
          our
          management and directors; and provide reasonable assurance regarding prevention
          or timely detection of unauthorized acquisition, use or disposition of
          our
          assets that could have a material effect on our consolidated financial
          statements.
  Because
          of our inherent limitations, internal control over financial reporting
          may not
          prevent or detect misstatements. Also, projections of any evaluation of
          effectiveness to future periods are subject to risk that controls may become
          inadequate because of changes in conditions, or that the degree of compliance
          with the policies or procedures may deteriorate.
  Management
          assessed the effectiveness of our internal control over financial reporting
          as
          of December 31, 2007. As a result of its assessment, management identified
          a
          material weakness in our internal control over financial reporting. Based
          on the
          weakness described below, management concluded that our internal control
          over
          financial reporting was not effective as of December 31, 2007.
  A
          material weakness is a deficiency, or combination of deficiencies, in internal
          control over financial reporting, such that, there is a reasonable possibility
          that a material misstatement of the company’s annual or interim financial
          statements will not be prevented or detected on a timely basis. As a result
          of
          our assessment, management identified the following material weaknesses
          in
          internal control over financial reporting as of December 31, 2007:
 
 ·
                While
                    there were internal controls and procedures in place that relate
                    to
                    financial reporting and the prevention and detection of material
                    misstatements, these controls did not meet the required documentation
                    and
                    effectiveness requirements under the Sarbanes-Oxley Act (“*SOX*”)
                    and therefore, management could not certify that these controls
                    were
                    correctly implemented. As a result, it was management’s opinion that the
                    lack of documentation warranted a material weakness in the financial
                    reporting process.
  39
 
 This
          Annual Report on Form 10-KSB does not include an attestation report of
          our
          registered public accounting firm regarding internal control over financial
          reporting. Management’s report was not subject to attestation by our registered
          public accounting firm pursuant to temporary rules of the Securities and
          Exchange Commission that permit us to provide only management’s report in this
          Annual Report.
 
 /s/
          Alexander L. Weis
 Chief
          Executive Officer
  /s/
          J.
          Michael Edwards
 Chief
          Financial Officer
 
 **Remediation
          of Material Weakness**
  During
          2008, we will implement the following remediation activities to materially
          improve, or are reasonably likely to improve, our internal control over
          financial reporting:
 
 ·
                Utilize
                    external consultants to assist in the implementation and design
                    of
                    policies and procedures to meet the required documentation and
                    effectiveness requirements under the SOX and adequately address
                    the lack
                    of segregation of duties within the financial reporting
                    process.
 
 Even
          with
          these changes, due to the increasing number and complexity of pronouncements,
          emerging issues and releases, and reporting requirements and regulations,
          we
          expect there will continue to be some risk related to financial disclosures.
          However, the process of identifying risk areas and implementing financial
          disclosure controls and internal controls over financial reporting required
          under the Sarbanes-Oxley Act continues to be complex and subject to significant
          judgment and may result in the identification in the future of areas where
          we
          may need additional resources. Additionally, due to the complexity and
          judgment
          involved in this process, we cannot guarantee we may not find or have pointed
          out to us either by internal or external resources, or by our auditors
          following
          the implementation of the external auditor requirement for their independent
          assessment of our controls, additional areas needing improvement or resulting
          in
          a future assessment that our controls are or have become ineffective as
          a result
          of overlooked or newly created significant deficiencies or unmitigated
          risks.
 
 **Changes
          in internal controls.** ****
 
 There
          were no changes in our internal controls over financial reporting, that
          occurred
          during the last fiscal quarter that have materially affected, or are reasonably
          likely to materially affect, our internal control over financial reporting.
 
 **ITEM
          8B - OTHER INFORMATION** ****
  None.
  **PART
          III**
  **ITEM
          9 -** **DIRECTORS,
          EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
          16(A)
          OF THE EXCHANGE ACT**
 
 **Executive
          Officers, Directors, and Key Employees**
 
 Set
          forth
          below is certain information with respect to the individuals who are our
          directors, officers and key employees.
 
 **Name**
                
                **Age**
                
                **Position**Alexander
                    L. Weis, Ph.D.
                
                58
                
                Director,
                    Chief Executive Officer, President and SecretaryAlexander
                    Ruckdaeschel
                
                35
                
                Director,
                    Audit Committee Member, Compensation Committee MemberJames
                    Wemett
                
                59
                
                DirectorWilliam
                    J. Brock
                
                58
                
                Director,
                    Audit Committee Chairman, Compensation Committee
                    ChairmanCorey
                    Levenson, Ph.D.
                
                53
                
                Chief
                    Technical Officer and DirectorJ.
                    Michael Edwards
                
                41
                
                Chief
                    Financial OfficerJ.
                    Kay Noel, Ph.D.
                
                61
                
                Director
                    of Regulatory AffairsTamas
                    Bakos, Ph.D.
                
                44
                
                Director
                    of Preclinical ResearchMichael
                    Moloney
                
                49
                
                Director
                    of Program Management
 
 40
 
 Set
          forth
          below is biographical information with respect to each of the
          aforementioned individuals.
 
 **Alexander
          L. Weis, Ph.D.** Dr.
          Weis
          has served, since August 16, 2007, as a member of our board,
          Chief Executive Officer, President and Secretary.  Dr. Weis is
          the principal founder of OncoVista-Sub and has been its Chairman, Chief
          Executive Officer, and President since its inception in September 2004. 
Dr. Weis is a recognized leader and pioneer in the biotechnology and
          pharmaceutical industries and has led pharmaceutical companies through
          all
          stages from start up through public offerings and as a manager of a substantial
          public company. Prior to forming OncoVista-Sub, from 1989 to September
          2004, Dr.
          Weis served as President of Lipitek International, Inc., a specialty
          pharmaceutical company that Dr. Weis founded. Dr. Weis was a co-founder
          of ILEX
          Oncology, which became a publicly traded company in 1997 ( *NASDAQ:
          ILXO* )
          and was
          later acquired by Genzyme Corporation in a stock transaction valued at
          over $1
          billion. Dr. Weis served as ILEX’S Chief Scientific Officer and Executive Vice
          President from its founding in 1994 through 1998. Dr. Weis has worked for
          Vector
          Therapeutics, MykoBiologics, the Cancer Therapy and Research Center, Sterling
          Drugs, the Eastman Kodak Company and the Weizmann Institute of Science.
          Dr. Weis
          received his Ph.D. in Organic Chemistry from the Novo Sibrsk Institute
          of
          Organic Chemistry. Dr. Weis is a scientist and inventor, with over 60
          publications and 30 patents. He is a Chartered Chemist and Fellow of the
          Royal
          Society of Chemistry, and was selected as the South Texas Entrepreneur
          of the
          Year in 1996.
 
 **Alexander
          Ruckdaeschel.** Alexander
          Ruckdaeschel has served as a member of our board since December 2007, as a
          member of OncoVista-Sub's board since January 2005 and since March 2008, a
          member of our Audit Committee and Compensation Committee. Mr. Ruckdaeschel
          is a
          venture capitalist and since September, 2006 partner at Alphaplus-Advisors,
          a US
          based hedge fund. From January 2003 to September 2006 he was a Fund Advisor
          at
          DAC-FONDS, a European Investment company specializing in small-cap Biotech
          equities worldwide. From December 2003 to July 2006, he was an investment
          advisor to Nanostart AG, one of Europe’s leading venture investment firms in the
          area of nanotechnology. Mr. Ruckdaeschel has extensive experience in the
          European solar industry. He also serves on the Board of Directors for several
          private companies. Prior to 2003, he was a research analyst with Dunmore
          Management, a global hedge fund, and Thieme Associates, an investment advisor.
          From 1992 to 2000 Mr. Ruckdaeschel served in the German military, participating
          in United Nations missions in Somalia, Croatia and Bosnia.
 
 **James
          Wemett.** Mr.
          Wemett has served on our board since December 2007 and the board of
          OncoVista-Sub since May 2007. From May 2003 to June 2007, Mr. Wemett was an
          independent consultant to Victorian Times, Inc., and from March 2004 to
          March
          2007, was a consultant to ROC Central, Inc., both of which are privately
          owned
          firms. In 1975 Mr. Wemett founded ROC Communications, a retail distributor
          of
          electronics products which was sold in 2001. Mr. Wemett co-founded Technology
          Innovations LLC in 1999, a private company and one of our stockholders, and
          serves on Technology Innovations’ board. Mr. Wemett also serves on the board of
          directors of Natural Nano, Inc ( *OTCBB:
          NNAN* ).
          Mr. Wemett has been an active fundraiser for Camp Good Days, a non-profit
          summer camp for children with cancer.
 
 **William
          J. Brock.** Mr.
          Brock
          has served on our board since December 2007, the board of OncoVista-Sub
          since
          September 2007 and since March 2008, Chairman of our Audit Committee and
          Compensation Committee.  Since August 2007, Mr. Brock has served as the
          President of iPro One, a financial services firm. Prior to that, between
          July
          2004 and August 2007, Mr. Brock was a vice president for private client
          services
          at Bear Stearns. From November 2002 to July 2004, Mr. Brock was a director
          of
          Houlihan, Lokey, Howard and Zukin, an investment banking firm and from
          2001 to
          2002 Mr. Brock was Managing Director of Liberty Hampshire Corporation,
          New York,
          a diversifired financial institution. Mr. Brock holds a BA degree from
          Harvard
          College an M.B.A. from the Harvard Graduate School of Business
          Administration.
 
 **Corey
          Levenson, Ph.D.** Dr.
          Levenson has served on our board since December 2007 and served as our
          Chief Technology officer since November 2007. Dr. Levenson has been
          a director and Chief Technical Officer of OncoVista-Sub since January 2005.
          Prior to joining OncoVista, Dr. Levenson was employed at Ilex Oncology,
          Inc.
          ( *NASDAQ:
          ILXO* )
          from
          October 1996 to December 2004 first as Director of Scientific Affairs and
          afterwards as Senior Director, Licensing in which capacity he developed
          and
          implemented the strategy for in-licensing candidate compounds. From 1991
          until
          1996 Dr. Levenson was employed by Roche Molecular Systems as Senior Research
          Investigator and from 1981 to 1991 was employed by Cetus Corporation as
          Senior
          Scientist and Director of Nucleic Acid Chemistry. He has led technology
          assessment programs, coordinated evaluation of drug pipeline candidates
          and
          in-licensed drugs, including Clofarabine which was approved for marketing
          in the
          U.S. by the FDA in 2004. Dr. Levenson is experienced in managing internal
          research programs, as well as coordinating large inter-company research
          programs. He has led extramural research collaborations which resulted
          in
          licensing agreements. Dr. Levenson received his Ph.D. (Pharmaceutical Chemistry)
          from the University of California at San Francisco in 1981. He has over
          two
          dozen scientific publications and 16 issued U.S. patents.
  41
  **J.
          Michael Edwards.** Mr.
          Edwards joined us as our Chief Financial Officer in January 2008. Before
          joining
          us, he served as the Regional Director of Finance and Accounting for Fieldstone
          Homes, a residential home construction company, from September 2006 to
          December
          2007. Prior to joining Fieldstone, he worked in key finance and accounting
          roles
          at a number of biotechnology companies including Controller at BioNumerik
          Pharmaceuticals from June 2001 to September 2006 and Assistant Controller
          at
          ILEX Oncology from February 2000 to May 2001. From 1997 to 1999, Mr. Edwards
          was
          the Chief Accounting Officer for U.S. Global Investors, a publicly traded
          registered investment adviser. He held various financial management positions
          with Grant-Lydick Beverage Company from 1995 to 1997. Mr. Edwards was an
          auditor
          with PricewaterhouseCoopers from 1992 to 1995. Mr. Edwards has more than
          fifteen
          years of experience in accounting and financial management, including
          participation in several private placements, evaluation of strategic alliance
          agreements and preparation of filings for a potential initial public offering.
          Mr. Edwards is a member of the board of directors of Special Olympics Texas.
          Mr.
          Edwards holds a Bachelor of Business Administration degree in accounting
          from
          the University of Texas at San Antonio, and earned a Masters in Business
          Administration from the University of Texas. Mr. Edwards is a certified
          public
          accountant.
  **J.
          Kay Noel, Ph.D.** Dr.
          Noel
          has served as OncoVista-Sub's Director of Regulatory Affairs since July,
          2006.
          Since March 2007, she also serves as Chief Operating Officer of OncoEthnix
          SA, a
          cancer therapy development company. Dr. Noel has served as an independent
          consultant in drug development and regulatory strategy and evaluation of
          potential anti-cancer agents for J Kay Noel & Associates in excess of the
          past five years. Dr. Noel has more than twenty years of experience in technology
          assessment, drug development and implementation of regulatory strategies
          for
          expedited commercial development and strategic partnering. She has worked
          for
          Cetus Corporation, Alpha Therapeutics, and Abbott Biologics.
  **Tamas
          Bakos, Ph.D.** Dr.
          Bakos has served as our Director of Preclinical Research since January
          2005.
          Prior to joining us, Dr. Bakos was a Research Chemist at Lipitek International,
          Inc. from March 1995 to January 2005. Dr. Bakos received his doctorate
          degree at
          the University of Szeged (Hungary) and did his postdoctoral work at L’Institut
          de Chimie de Substances Naturelles in Paris.
  **Michael
          F. Moloney.** Mr.
          Moloney ** has
          served as our Director of Program Management since January 2008. Prior
          to
          joining us, Mr. Moloney was an independent consultant to the biopharmaceutical
          industry for the period January 2007 through December 2007. From November
          2001
          to December 2006, Mr. Moloney served as Vice President, Information Systems
          and
          Technologies and a member of the Executive Management team for BioNumerik
          Pharmaceuticals, Inc and from June 2000 to November 2001, served as Director
          of
          Systems and Operations Technologies for BioNumerik. Prior to that,
          Mr. Moloney held various technical positions at the CALGB, Clinical
          Research International, Family Health International and the North Carolina
          Hospital Association. Mr. Moloney received a B.S. in information systems
          from Alderson Broaddus College and an MBA from the University of Texas
          at San
          Antonio.
  **Board
          of Directors and Officers**
 
 Each
          director is elected until our next annual meeting and until his or her
          successor
          is duly elected and qualified. Officers are elected by, and serve at the
          discretion of, the board of directors. The board of directors may also
          appoint
          additional directors up to the maximum number permitted under our by-laws.
          A
          director so chosen or appointed will hold office until the next annual
          meeting
          of stockholders.
 
 Each
          executive officer serves at the discretion of the board of directors and
          holds
          office until his or her successor is elected or until his or her earlier
          resignation or removal in accordance with our articles of incorporation
          and
          by-laws.
 
 Messrs.
          Ruckdaeschel and Brock are considered independent directors under
          Rule 4200(a)(15) of the Nasdaq Marketplace Rules, even though such definition
          does not currently apply to us because we are not listed on
          Nasdaq.
  42
 
 **Meetings** **and
          Committees of the Board of Directors**
  During
          the year ended December 31, 2007, our board of directors held five (5)
          meetings and took actions by written consent on eight (8) occasions throughout
          the respective time periods.
  **Committees
          of the Board of Directors**
  On
          March
          15, 2008, we established an Audit Committee and a Compensation Committee.
          Messrs
          Brock and Ruckdaeschel serve on both committees with Mr. Brock serving
          as
          Chairman of both committees. Both Messrs Brock and Ruckdaeschel have no
          other
          affiliation with us and are independent as defined under Rule 4200(a)(15)
          of the
          Nasdaq Marketplace Rules, even though such definition does not currently
          apply
          to us because we are not listed on Nasdaq. Mr. Brock is deemed the “audit
          committee financial expert”.
  The
          committees are responsible, respectively, for the matters described
          below.
  **Audit
          Committee**
  The
          audit
          committee is responsible for, among other things, the following:
  ·
                reviewingthe
                    results of the audit engagement with the independent auditors;
 ·
                identifyingirregularities
                    in the management ofour
                    business in consultation with our independent accountants, and
                    suggesting
                    an appropriate course of
                    action;
 ·
                reviewingthe
                    adequacy, scope, and results of the internal accounting controls
                    and
                    procedures;
 ·
                reviewingthe
                    degree of independence of the auditors, as well as the nature
                    and scope of
                    our relationship with our independent
                    auditors;
 ·
                reviewingthe
                    auditors’ fees; and
 ·
                recommendingthe
                    engagement of auditors to the full board of
                    directors.
  A
          charter
          has been adopted to govern the Audit Committee. A copy of the charter can
          be
          found on our website at www.oncovista.com.
  **Compensation
          Committee**
  The
          compensation committee determines the salaries and incentive compensation
          of our
          officers and provide recommendations for the salaries and incentive compensation
          of our other employees and consultants.
 
 Our
          compensation programs to date are intended to enable the attraction, motivation,
          reward, and retention of the management talent required to achieve corporate
          objectives and thereby increase shareholder value. It has been our policy
          to
          provide incentives to our senior management to achieve both short-term
          and
          long-term objectives and to reward exceptional performance and contributions
          to
          the development of our business. To attain these objectives, the executive
          compensation program may include a competitive base salary, cash incentive
          bonuses, and stock-based compensation.
 
 A
          charter
          has been adopted to govern the Compensation Committee. A copy of the charter
          can
          be found on our website at www.oncovista.com.
 
 **Nominating
          Committee**
  Our
          board
          of directors does not expect to establish a nominating committee because
          we
          believe that it is unnecessary in light of our size. The board does not
          anticipate utilizing a nominating committee charter. In the event that
          vacancies
          on our board of directors arise, the board will consider potential candidates
          for director, which may come to the attention of the board through current
          directors, professional executive search firms, stockholders or other persons.
          Stockholders may submit the names and five year backgrounds for the board
          of
          directors’ consideration in our selection of nominees for directors in writing
          to the Secretary at our address set forth in thisAnnual
          Report on Form 10-KSB.
  43
 
 **Section
          16(a) Beneficial Ownership Reporting Compliance**
  Based
          solely upon a review of Forms 3, 4 and 5, and amendments thereto, furnished
          to
          us during fiscal year 2007, we believe that during fiscal year 2007 , our
          executive officers, directors and all persons who own more than ten percent
          of a
          registered class of our equity securities complied with all Section 16(a)
          filing
          requirements except with respect to the non-filing of a Form 4 by Dick
          Lindholm
          and William Rhodes and a late filing of Form 3 and Form 4 by William Brock
          and
          Torbjorn Lundqvist, respectively.
 
 **Code
          of Ethics**
  On
          March
          15, 2008, we adopted a Code of Ethics for our officers, directors and employees.
          A copy of the Code of Ethics is attached
          as an exhibit to this Annual Report on Form 10-KSB.
 
 **ITEM
          10 - EXECUTIVE COMPENSATION**
 
 **Executive** **Compensation**
  The following
          table sets forth the
          compensation earned during the years ended
          December 31 ,
          2007
          and 2006 by our
          former Chief Executive Officer and Chief Financial Officer, our current
          Chief
          Executive Officer, and Chief Technical Officer and our two most highly
          compensated non-executive officers. We refer to such individuals as “named
          executive officers”:
  **Position**
                  
                  **Year**
                    **(1)**
                  
                  **Salary**
                    **($)**
                  
                  
                  **Bonus**
                    **($)**
                  
                  **Stock**
                    **Awards**
                    **($)**
                  
                  **Option
                      Awards**
                    **($)(2)**
                  
                  **Non-**
                    **Equity
                      Incentive Plan Compen-**
                    **sation**
                    **($)**
                  
                  **Non-qualified
                      Deferred Compen-sation**
                    **($)**
                  
                  **All
                      Other Compen-sation**
                    **($)**
                  
                  
                  **Total**
                    ($)Torbjorn
                      B. Lundqvist
                    Former
                      Chairman andChief
                      Executive Officer(3)
                  
                  
                  2007
                  
                  
                  70,000
                  (4)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,840
                  (5)
                  
                  
                  71,8402006
                  
                  
                  140,000
                  (4)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  6,794
                  (5)
                  
                  
                  146,794Alexander
                      L. Weis, Ph.D.
                    Chief
                    Executive
                      Officer,President
                      and Secretary
                  
                  
                  2007
                  
                  
                  310,000
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  20,364
                  (5)
                  
                  
                  330,3642006
                  
                  
                  310,000
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  18,993
                  (5)
                  
                  
                  328,993Corey
                      Levenson, Ph.D.Chief
                      Technical Officer
                  
                  
                  2007
                  
                  
                  198,000
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  156,244
                  
                  
                  —
                  
                  
                  —
                  
                  
                  8,578
                  (5)
                  
                  
                  362,8222006
                  
                  
                  175,000
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  156,244
                  
                  
                  —
                  
                  
                  —
                  
                  
                  8,555
                  (5)
                  
                  
                  339,799Robert
                      B. PattersonFormer
                      Chief Financial
                    Officer(6)
                  
                  
                  2007
                  
                  
                  125,781
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  62,488
                  
                  
                  —
                  
                  
                  —
                  
                  
                  19,416
                  (5)
                  
                  
                  207,6852006
                  
                  
                  125,000
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  62,488
                  
                  
                  —
                  
                  
                  —
                  
                  
                  15,401
                  (5)
                  
                  
                  202,889Tamas
                      Bakos, Ph.D.,
                    Director
                      of PreclinicalResearch
                  
                  
                  2007
                  
                  
                  84,000
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  62,488
                  
                  
                  —
                  
                  
                  —
                  
                  
                  12,748
                  (5)
                  
                  
                  159,2722006
                  
                  
                  80,000
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  62,488
                  
                  
                  —
                  
                  
                  —
                  
                  
                  9,656
                  (5)
                  
                  
                  152,144Kay
                      Noel, Ph.D.,
                    Director
                      of Regulatory Affairs
                  
                  
                  2007
                  
                  
                  75,600
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  62,488
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  138,0882006
                  
                  
                  36,000
                  (7)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  36,000
  
 (1)
                The
                    information is provided for each fiscal year which begins on
                    January 1 and
                    ends on December 31. With respect to the information provided
                    for
                    Alexander L. Weis, Corey Levenson, Robert Patterson, Tamas Bakos
                    and Kay
                    Noel, the information relates to compensation received from OncoVista-Sub
                    whereas the information provided for Torbjorn Lundqvist relates
                    to
                    compensation from OncoVista Innovative Therapies, Inc. (formerly
                    Aviation
                    Upgrade Technologies, Inc.).(2)
                The
                    amounts reflect the compensation expense in accordance with FAS
                    123(R) of
                    these option awards. The assumptions used to determine the fair
                    value of
                    the option awards for fiscal years ended December 31, 2007 and
                    2006 are
                    set forth in Note 11 of our audited consolidated financial statements
                    included in thisAnnual
                    Report on Form 10-KSB.
                    Our named executive officers will not realize the value of these
                    awards in
                    cash unless and until these awards are exercised and the underlying
                    shares
                    subsequently sold.
  44
   (3)
                Mr.
                    Lundqvist resigned as our Chairman and Chief Executive Officer
                    on August
                    16, 2007. The amounts referenced for fiscal year 2007 reflect
                    the amount
                    of compensation earned by Mr. Lundquist from January 1 until
                    August 16,
                    2007.(4)
                Amount
                    represents salary accrued but unpaid. On August 16, 2007, all accrued
                    amounts owing to Mr. Lundqvist by us were forgiven.(5)
                See
                    “All Other Compensation” table below.(6)
                On
                    January 2, 2008, Robert Patterson resigned as our Chief Financial
                    Officer.
                    Mr. J. Michael Edwards was appointed our Chief Financial Officer
                    commencing January 2, 2008.(7)
                Dr.
                    Noel is entitled to a salary of $72,000 per annum. The amount
                    referenced
                    reflects the amount earned by Dr. Noel during fiscal year 2006
                    since her
                    commencement of employment on July 17, 2006.
  **All
          Other Compensation Table**
 
 All
          Other
          Compensation amounts in the Summary Compensation Table above consist of
          the
          following:
  **Name**
                
                **Year**
                
                **Automobile
                    Allowance**
                  **($)**
                
                **Medical**
                  **Premiums**
                  **($)**
                
                **Total**
                  **($)**Torbjorn
                    B. LundqvistFormer
                    Chairman and Chief
                
                
                2007
                
                
                —
                
                
                1,840
                
                
                1,840Executive
                    Officer
                
                
                2006
                
                
                —
                
                
                6,794
                
                
                6,794Alexander
                    L. Weis, Ph.D.Chief
                    Executive Officer, President
                
                
                2007
                
                
                12,000
                
                
                8,364
                
                
                20,364and
                    Secretary
                
                
                2006
                
                
                12,000
                
                
                6,993
                
                
                18,993Corey
                    Levenson, Ph.D.
                
                
                2007
                
                
                8,400
                
                
                178
                
                
                8,578Chief
                    Technical Officer
                
                
                2006
                
                
                8,400
                
                
                155
                
                
                8,555Robert
                    B. Patterson
                
                
                2007
                
                
                —
                
                
                19,416
                
                
                19,416Former
                    Chief Financial Officer
                
                
                2006
                
                
                —
                
                
                15,401
                
                
                15,401Tamas
                    Bakos, Ph.D.
                
                
                2007
                
                
                —
                
                
                12,784
                
                
                12,784Director
                    of Preclinical Research
                
                
                2006
                
                
                —
                
                
                9,656
                
                
                9,656
 
  45
  The
          following table sets forth information concerning stock options and stock
          awards
          held by the named executive officers as of December 31, 2007.
 
 Option
                    Awards
                
                Stock
                    AwardsName
                
                Number
                    of Securities Underlying Unexercised
                  Options
                  (#)
                  Exercisable
                
                
                
                Number
                    of Securities Underlying Unexercised Options
                  (#)
                  Unexercisable
                
                
                
                Equity
                    Incentive Plan Awards Number of Securities Underlying
                    Unexercised
                  Unearned
                    Options
                  (#)
                
                Option
                    Exercise
                  Price
                  ($)
                
                Option
                    Expiration Date
                
                Number
                    of Shares or Units of Stock Held That Have Not Vested
                  (#)
                
                
                
                Market
                    Value of Shares or Units of Stock Held
                  That
                    Have
                  Not
                    Vested
                  ($)
                
                
                
                Equity
                    Incentive Plan Awards: Number of Unearned
                  Shares,
                    Units or Other Rights That Have Not
                  Vested
                    (#)
                
                Equity
                    Incentive Plan Awards: Market
                  or
                  Payout
                    Value of Unearned Shares, Units or Other Rights
                  That
                  Have
                    Not Vested ($)Torbjorn
                    Lundqvist, Former Chairman and CEO
                
                
                —
                
                
                
                
                —
                
                
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                
                
                —
                
                
                
                
                —
                
                
                —Alexander
                    L. Weis, Ph.D. Director, CEO, President andSecretary
                
                
                —
                
                
                
                
                —
                
                
                
                
                —
                
                
                
                
                
                —
                
                
                1,500,000
                
                (9)
                
                
                3,750,000
                
                (10)
                
                
                —
                
                
                —Corey
                    Levenson, Ph.D.
                  Chief
                    TechnicalOfficer
                
                
                125,000
                
                (1)
                
                
                125,000
                
                (2)
                
                
                —
                
                
                0.001
                
                
                01/15/2015
                
                
                500,000
                
                (9)
                
                
                1,250,000
                
                (10)
                
                
                —
                
                
                —Robert
                    B. Patterson, Former Chief FinanicalOfficer
                
                
                50,000
                
                (3)
                
                
                50,000
                
                (4)
                
                
                —
                
                
                0.1
                
                
                05/01/2015
                
                
                —
                
                
                
                
                —
                
                
                
                
                —
                
                
                —Tamas
                    Bakos, Ph.D,
                  Director
                    of PreclinicalAffairs
                
                
                50,000
                
                (5)
                
                
                50,000
                
                (6)
                
                
                —
                
                
                0.1
                
                
                05/01/2015
                
                
                —
                
                
                
                
                —
                
                
                
                
                —
                
                
                —Kay
                    Noel, Ph.D., Director of RegulatoryAffairs
                
                
                50,000
                
                (7)
                
                
                25,000
                
                (8)
                
                
                —
                
                
                0.1
                
                
                02/15/2016
                
                
                —
                
                
                
                
                —
                
                
                
                
                —
                
                
                —







(1)
            Half
                these options vested on January 15, 2006 and the other half vested
                on
                January 15, 2007.(2)
            Half
                the options vested on January 15, 2008 and the other half vest on
                January
                15, 2009.(3)
            These
                options were subsequently exercised by Mr. Patterson on February
                27,
                2008.(4)
            These
                options expired upon Mr. Patterson’s resignation on January 2,
                2008.(5)
            Half
                these options vested on May 1, 2006 and the other half vested on
                May 1,
                2007.(6)
            Half
                these options vest on May 1, 2008 and the other half vest on May
                1,
                2009.(7)
            These
                options vested on February 15, 2007.(8)
            These
                options vested on February 15, 2008.(9)
            The
                referenced shares are a restricted stock award that vests one third
                on
                each of January 1, 2009, January 1, 2010 and January 1,
                2011.(10)
            Market
                value is based on the closing sales price of our common stock of
                $2.50 per
                share on December 31, 2007.




46




**Employment
      Agreements**




We
      are
      party to the following employment agreements with our named executive
      officers:




We
      are
      party to an employment agreement, dated October 1, 2004, with Alexander L.
      Weis,
      Ph.D., pursuant to which we have agreed to employ Dr. Weis as our Chief
      Executive Officer and Chairman of the Board for a four-year initial term, with
      one-year renewable terms, for base salary of $250,000 per year, subject to
      adjustment, plus a $1000 per month car allowance. Dr. Weis’ current base salary
      is $310,000 per annum. Dr. Weis is entitled to receive an annual cash bonus
      equal to 40% of his base salary, provided that we meet certain performance
      objectives established by the Board of Directors. Dr. Weis is also entitled
      to a
      bonus upon our satisfaction of certain specified milestones. If Dr. Weis’s
      employment is terminated as a result of his death or disability, he (or in
      the
      case of his death, his estate) is entitled to severance of one year’s base
      salary, one year’s health insurance coverage for his wife and dependent children
      and, in the case of termination as a result of disability, one year’s health
      insurance coverage for Dr. Weis. If Dr. Weis’s employment is terminated without
      cause, he is entitled to one year’s base salary and one year’s health and life
      insurance that was in effect prior to his termination. No severance is payable
      if Dr. Weis’s employment is terminated for cause or if Dr. Weis’s resigns,
      retires or otherwise terminates his employment voluntarily.




We
      are a
      party to an employment agreement, dated January 15, 2005, with Corey Levenson,
      Ph.D. pursuant to which we have agreed to employ Dr. Levenson as our Chief
      Technical Officer for a four-year initial term, with one-year renewable terms,
      for a compensation of $150,000 per year, subject to adjustment, plus a $700
      per
      month car allowance. Dr. Levenson’s current base salary is $198,000 per annum.
      Dr. Levenson is entitled to receive an annual cash bonus equal to 30% of his
      base salary, provided that we meet certain performance objectives established
      by
      the Board of Directors. If Dr. Levenson’s employment is terminated as a result
      of his death or disability, he (or in the case of his death, his estate) is
      entitled to severance of one year’s base salary, one year’s health insurance
      coverage for his wife and dependent children and, in the case of termination
      as
      a result of disability, one year’s health insurance coverage for Dr. Levenson.
      If Dr. Levenson’s employment is terminated without cause, he is entitled to one
      year’s base salary and one year’s health and life insurance that was in effect
      prior to his termination. No severance is payable if Dr. Levenson’s employment
      is terminated for cause or if Dr. Levenson resigns, retires or otherwise
      terminates his employment voluntarily.




We
      are
      party to an employment agreement, dated January 1, 2008, with J. Michael
      Edwards, pursuant to which we have agreed to employ Mr. Edwards as a Chief
      Financial Officer, for a four-year initial term, renewable for successive
      one-year renewal terms, with a base salary of $140,000 per year.  Mr.
      Edwards is entitled to receive an annual cash bonus equal to 30% of his base
      salary, provided that we meet certain performance objectives established by
      the
      board of directors.  In addition, the agreement provides for the grant of
      options to acquire 120,000 shares of our common at $1.75 per share, vesting
      over
      four years. If Mr. Edwards’ employment is terminated as a result of his death or
      disability, he (or in the case of his death, his estate) is entitled to
      severance of one year’s base salary, one year’s health insurance coverage for
      his wife and dependent children and, in the case of termination as a result
      of
      disability, one year’s health insurance coverage for Mr. Edwards. If Mr.
      Edwards’ employment is terminated without cause, he is entitled to one year's
      base salary and one year's health and life insurance that was in effect prior
      to
      termination. No severance is payable if Mr. Edwards' employment is terminated
      for cause or if Mr. Edwards resigns, retires or otherwise terminates his
      employment voluntarily.




We
      are
      party to an employment agreement, dated January 1, 2005, with Tamas Bakos,
      Ph.D., pursuant to which we have agreed to employ Dr. Bakos as a Director of
      Pre-Clinical Development, for a one-year initial term, renewable for successive
      one-year renewal terms, with a base salary of $80,000 per year, subject to
      adjustment. Dr. Bakos’ current base salary is $88,200. If Dr. Bakos’ employment
      is terminated as a result of his death or disability, he (or in the case of
      his
      death, his estate) is entitled to severance of one year’s base salary, one
      year’s health insurance coverage for his wife and dependent children and, in the
      case of termination as a result of disability, one year’s health insurance
      coverage for Dr. Bakos. If Dr. Bakos’ employment is terminated without cause, he
      is entitled to two weeks base salary.




We
      are
      party to an employment agreement, dated July 3, 2006, with J. Kay Noel, Ph.D.,
      pursuant to which we have agreed to employ Dr. Noel as a Director of Regulatory
      Affairs for a one-year initial term, renewable for successive one-year renewal
      terms, with a base salary of $72,000 per year, subject to adjustment. Dr. Noel’s
      current base salary is $86,400. If Dr. Noel’s employment is terminated as a
      result of her death or disability, she (or in the case of her death, her estate)
      is entitled to severance of one year’s base salary, one year’s health insurance
      coverage for her husband and dependent children and, in the case of termination
      as a result of disability, one year’s health insurance coverage for Dr. Noel. If
      Dr. Noel’s employment is terminated without cause, she is entitled to two weeks
      base salary.







47





**Stock
      Option Plans**




We
      have
      adopted the following stock option plans:





**2007
      Stock Option Plan**




In
      June
      2007, OncoVista-Sub’s board of directors adopted the 2007 Stock Option Plan (the
“ *2007
      Plan* ”)
      subject to stockholder approval. The Plan authorizes the grant of ISOs,
      Non-Qualified Stock Options and stock purchase rights (“ *Rights* ”)
      with
      respect to up to an aggregate of 3,000,000 shares of our common stock to our
      employees and directors or our subsidiaries and individuals, including
      consultants, performing services for our benefit or for the benefit of a
      subsidiary. As a result of the Merger, the 2007 Plan was adopted by our board
      of
      directors and all options granted under the 2007 Plan were assumed by us. As
      of
      February 29, 2008, 370,000 options under the 2007 Plan were issued.




The
      2007
      Plan permits us to grant (i) both Incentive Stock Options and Non-Qualified
      Options and (ii) Stock Purchase Rights (“ *Rights* ”).




Unless
      earlier terminated by the board of directors, the Plan (but not outstanding
      options or Rights) terminates in May 2017, after which no further awards may
      be
      granted under the 2007 Plan. The 2007 Plan will be administered by the full
      board of directors or, at the board’s discretion, by a committee of the board
      consisting of at least two persons who are “ *disinterested
      persons* ”
defined
      under Rule 16b-2(c)(ii) under the Securities Exchange Act of 1934, as amended
      (the “ *Committee* ”).




*Options
      and Rights.* Recipients
      of options or Rights under the Plan (“ *Optionees* ”)
      are
      selected by the board or the Committee. The board or Committee determines the
      terms of each option or Right granted including (1) the purchase price of shares
      subject to options or Rights, (2) the dates on which options or Rights become
      exercisable and (3) the expiration date of each option or Right (which may
      not
      exceed ten years from the date of grant). The minimum per share purchase price
      of options granted under the 2007 Plan for Incentive Stock Options is the fair
      market value (as defined in the 2007 Plan) of one share of our common stock
      on
      the date the option is granted.




The
      Administrator may grant alone, in addition to or in tandem with options granted
      under the 2007 Plan, to eligible persons Rights to purchase options for such
      number of shares of our common stock at the price, within the period and subject
      to the conditions set forth in the award. The purchase is to be effected by
      execution of a Restricted Stock Purchase Agreement in the form determined by
      the
      Administrator which may at the Administrator’s option grant us the right to
      repurchase the shares acquired at the original price paid in the event of the
      voluntary or involuntary termination of the purchaser’s service for any reason.
      The agreement may provide that the repurchase option lapses in whole or
      installments as to a service provider other than an officer, director, or
      consultant, at a rate of at least 20% per annum over 5 years from the date
      of
      purchase.




Option
      and Rights holders will have no voting, dividend or other rights as stockholders
      with respect to shares of our common stock covered by options or Rights prior
      to
      becoming the holders of record of such shares. The purchase price upon the
      exercise of options or Rights may be paid as determined by the Administrator
      at
      the time of exercise in cash, by certified bank, cashier’s check or promissory
      note, by tendering stock held by the Option or Rights holders, as well as by
      cashless exercise either through the surrender of other shares subject to the
      option or through a broker. The total number of shares of our common stock
      available under the 2007 Plan and the number of shares and per share exercise
      price under outstanding options and Rights will be appropriately adjusted in
      the
      event of any stock dividend, reorganization, merger or recapitalization or
      a
      similar corporate event.




The
      board
      of directors may at any time terminate the 2007 Plan or from time to time make
      such modifications or amendments to the 2007 Plan as it may deem advisable
      and
      the board or Committee may adjust, reduce, cancel and re-grant an unexercised
      option if the fair market value declines below the exercise price except as
      may
      be required by any national stock exchange or national market association on
      which our common stock is then listed. In no event may the board, without the
      approval of stockholders, amend the 2007 Plan to increase the maximum number
      of
      shares of our common stock for which options or Rights may be granted under
      the
      2007 Plan or change the class of persons eligible to receive options or Rights
      under the 2007 Plan.





Subject
      to limitations set forth in the 2007 Plan, the terms of option and Rights
      agreements will be determined by the board or Committee but may not be longer
      than ten years, and need not be uniform.




48




**2007
      Independent Directors’ Plan**




In
      June
      2007, OncoVista-Sub’s board of directors adopted the 2007 Stock Option Plan for
      Independent and Non-Employee Directors (the “ *Directors
      Plan* ”)
      for
      the purpose of promoting our interests and those of our stockholders by
      increasing the proprietary and vested interest of such Directors in our growth
      and performance. As a result of the Merger, our board of directors assumed
      the
      Directors Plan and all options granted under the Directors Plan were assumed
      by
      us.




The
      Directors Plan relates to a maximum of 500,000 shares of our Common Stock for
      which options may be granted to Eligible Directors who are defined as
      Independent or Non-Employee Directors. An Independent Director is defined under
      the Directors Plan as a director meeting the requirements of Section 10A(m)
      under the Securities Exchange Act of 1934 and as defined by any exchange or
      market on which the Common Stock is traded or is listed. A Non-Employee Director
      is defined by reference to our definition in Rule 16b-3 under the Securities
      Exchange Act. As of February 29, 2008, 10,000 options were issued under the
      Directors Plan.




The
      Directors Plan is to be administered by the Board of Directors or the
      Compensation Committee of the Board of Directors, which is authorized to adopt,
      interpret and amend regulations under the Directors Plan. At this time, we
      do
      not have any standing committees and the Board of Directors will administer
      the
      Directors Plan in lieu of a Compensation Committee.




The
      Directors Plan specifies that each newly elected Independent or Non-Employee
      Director (“ *Eligible
      Director* ”)
      upon
      first election or appointment to the board will receive options to purchase
      10,000 shares and immediately following each Annual Meeting of Stockholders
      each
      director who has been an Eligible Director for more than 12 months immediately
      preceding and including such meeting and the Chairman of the board, if an
      Eligible Director, for the same period shall be granted an additional option
      to
      purchase 15,000 shares.




The
      exercise price of an option is to be the Fair Market Value, as defined in the
      Directors Plan. Payment shall be made in cash or unless otherwise determined
      by
      the board of directors, in shares of our common stock.




The
      option may be exercised in whole or in part during the period commencing on
      the
      first anniversary of the grant date and ending on the date of termination of
      the
      option, which is the earlier of a date one year from the date the optionee
      is no
      longer a Director or ten years from the date of grant.




The
      Directors Plan provides for adjustment in the exercise price and shares subject
      to the Directors Plan and outstanding options in the event of a stock split,
      stock dividend, subdivision or combination of the common stock or change in
      corporate structure.





**2004
      Stock Option Plan**




In
      October 2004, OncoVista-Sub’s board of directors adopted the 2004 Stock Option
      Plan (the “ *2004
      Plan* ”)
      subject to stockholder approval. As a result of the Merger, our board of
      directors assumed the 2004 Plan and all options granted under the 2004 Plan
      were
      assumed by us.





The
      2004
      Plan authorized the grant of options with respect to up to an aggregate of
      1,000,000 shares of our Common Stock to our employees, directors and consultants
      or to our affiliates. As of February 29, 2008, 900,000 non-qualified options
      were issued under the 2004 Plan.




The
      2004
      Plan permits us to grant both incentive stock options within the meaning of
      Section 422 of the Internal Revenue Code of 1986, as amended (“ *Incentive
      Stock Options”* or
      “ *ISOs”)* and
      options which do not qualify as incentive stock options (“ *Non-Qualified
      Options* ”).
      Unless earlier terminated by the shareholders, the 2004 Plan will terminate
      in
      October 2014.




*Financial
      Statement Treatment of Options.* We
      intend
      to expense the fair equity-based awards, such as stock options and warrants,
      granted in accordance with accounting principles generally accepted in the
      United States of America equal to the fair value of the vested portion of the
      options as Rights using the Black-Scholes option pricing method on each grant
      date. Modifications such as lowering the exercise prices or extending the
      expiration dates could also result in material additions to our non-cash
      expenses.




To
      the
      extent outstanding options or Rights are repriced, such repricing will result
      in
      charges to our earnings equal to the difference between (i) the fair value
      of
      the vested portion of the options or Rights granted, utilizing the Black-Scholes
      option pricing model on each grant date and (ii) the charges to earnings
      previously made as a result of the initial grants of the options or Rights
      being
      repriced, which will have a dilutive effect on the earnings per
      share.




49




*Federal
      Income Tax Consequences* .
      The
      following is a brief discussion of the Federal income tax consequences of
      transactions under the 2004 Plan and 2007 Plan. This discussion is not intended
      to be exhaustive and does not describe state or local tax
      consequences.




*Incentive
      Options* .
      No
      taxable income is realized by the optionee upon the grant or exercise of an
      ISO,
      except as noted below with respect to the alternative minimum tax provided
      no
      reduction in the exercise price has been made since the date of grant except
      as
      a result of an anti-dilution event. If common stock is issued to an
      optionee pursuant to the exercise of an ISO, and if no disqualifying disposition
      of such shares is made by such optionee within two years after the date of
      grant
      or within one year after the transfer of such shares to such optionee, then
      (i)
      upon sale of such shares, any amount realized in excess of the option price
      will
      be taxed to such optionee as a long-term capital gain and any loss sustained
      will be a long-term capital loss, and (ii) no deduction will be allowed to
      the
      optionee’s employer for Federal income tax purposes.




Except
      as
      noted below for corporate “ *insiders* ”,
      if our
      common stock acquired upon the exercise of an ISO is disposed of prior to the
      expiration of either holding period described above, generally (i) the optionee
      will realize ordinary income in the year of disposition in an amount equal
      to
      the excess (if any) of the fair market value of such shares at exercise (or,
      if
      less, the amount realized on the disposition of such shares) over the option
      price paid for such shares and (ii) the optionee’s employer will be entitled to
      deduct such amount for Federal income tax purposes if the amount represents
      an
      ordinary and necessary business expense. Any further gain (or loss) by the
      optionee will be taxed as short-term or long-term capital gain (or loss), as
      the
      case may be, and will not result in any deduction by the employer.




Subject
      to certain exceptions for disability or death, if an ISO is exercised more
      than
      three months following termination of employment, the exercise of the option
      will generally be taxed as the exercise of a Non-Qualified Option.





For
      purposes of determining whether an optionee is subject to any alternative
      minimum tax liability, an optionee who exercises an ISO generally would be
      required to increase his or her alternative minimum taxable income, and compute
      the tax basis in the stock so acquired, in the same manner as if the optionee
      had exercised a Non-Qualified Option. Each optionee is potentially subject
      to
      the alternative minimum tax. In substance, a taxpayer is required to pay the
      higher of his/her alternative minimum tax liability or his/her “ *regular* ”
income
      tax liability. As a result, a taxpayer has to determine his potential liability
      under the alternative minimum tax.




*Non-Qualified
      Options* .
      Except
      as noted below for corporate “ *insiders* ”,
      with
      respect to Non-Qualified Options: (i) no income is realized by the optionee
      at
      the time the option is granted; (ii) generally, at exercise, ordinary income
      is
      realized by the optionee in an amount equal to the difference between the option
      price paid for the shares and the fair market value of the shares, if
      unrestricted, on the date of exercise, and the optionee’s employer is generally
      entitled to a tax deduction in the same amount subject to applicable tax
      withholding requirements; and (iii) at sale, appreciation (or depreciation)
      after the date of exercise is treated as either short-term or long-term capital
      gain (or loss) depending on how long the shares have been held.




*Special
      Rules Applicable To Corporate Insiders* .
      As a
      result of the rules under Section 16(b) of the Exchange Act, “ *insiders* ”
(as
      defined in the Securities Exchange Act of 1934), depending upon the particular
      exemption from the provisions of Section 16(b) utilized, may not receive the
      same tax treatment as set forth above with respect to the grant and/or exercise
      of options. Generally, insiders will not be subject to taxation until the
      expiration of any period during which they are subject to the liability
      provisions of Section 16(b) with respect to any particular option. Insiders
      should check with their own tax advisers to ascertain the appropriate tax
      treatment for any particular option.




*Benefits* .
      Inasmuch as awards to all participants under the 2004 Plan and 2007 Plan will
      be
      granted at the sole discretion of the board or Committee, such benefits under
      the 2004 Plan and 2007 Plan, as applicable, are not determinable.




We
      believe that the 2004 Plan and 2007 Plan are important in attracting and
      retaining individuals with good ability to service us, motivating their efforts
      and serving our business interests, while reducing the cash payments which
      we
      would otherwise be required to make to accomplish such purposes.




50






**Director
        Compensation**
  Effective
        September 11, 2007, independent members of our board of directors are entitled
        to $10,000 as annual remuneration for service as a member of the board plus
        reimbursement for travel expenses.
  The
        following table sets forth director compensation for the year ended December
        31,
        2007.
 
 **Name
                  of Director**(1)
              
              **Fees
                  Earned or Paid in Cash**
                **($)**
              
              **Stock
                  Awards**
                **($)**
              
              **Option
                  Awards**
                **($)**
              
              **Non-Equity
                  Incentive Plan Compensation**
                **($)**
              
              **Nonqualified
                  Deferred Compensation**
                **($)**
              
              **All
                  Other Compensation**
                **($)**
              
              **Total**
                **($)**Torbjorn
                  Lundqvist(2)(3)
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Dick
                  Lindholm(2)
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —William
                  Rhodes(2)
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Alexander
                  L. Weis(3)
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Corey
                  Levenson(3)
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Alexander
                  Ruckdaeschel
              
              
              5,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              5,000James
                  Wemett
              
              
              5,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              5,000William
                  Brock
              
              
              5,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              5,000
 **_______________**
 (1)
              With
                  respect to the information provided for Alexander L. Weis, Corey
                  Levenson,
                  Alexander Ruckdaeschel, James Wemett and William Brock, the information
                  relates to compensation received from OncoVista-Sub whereas the
                  information provided for Torbjorn Lundqvist, Dick Lindholm and
                  William
                  Rhodes relates to compensation from OncoVista Innovative Therapies,
                  Inc.
                  (formerly Aviation Upgrade Technologies, Inc.).(2)
              The
                  referenced individual resigned as member of our board on August
                  16,
                  2007.(3)
              Please
                  refer to the summary compensation table for executive compensation
                  with
                  respect to the named individual.
 
  51
  **ITEM
        11- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
        STOCKHOLDER MATTERS**
  The
        following table sets forth certain information regarding beneficial ownership
        of
        our common stock as of February 29, 2008 (i) by each person who is known by
        us to own beneficially more than 5% of our common stock, (ii) by each of
        the Named Executive Officers and (iv) by all our directors and executive
        officers as a group. On such date, we had 20,166,475 shares of our common
        stock
        outstanding.
 
 As
        used
        in the table below and elsewhere in this Annual Report on Form 10-KSB, the
        term
“ *beneficial
        ownership* ”
with
        respect to a security consists of sole or shared voting power, including
        the
        power to vote or direct the vote and/or sole or shared investment power,
        including the power to dispose or direct the disposition, with respect to
        the
        security through any contract, arrangement, understanding, relationship,
        or
        otherwise, including a right to acquire such power(s) during the next 60
        days
        following February 29, 2008.
 
 Except
        as
        otherwise noted, the address of the referenced individual is c/o OncoVista,
        Inc., 14785 Omicron Drive, Suite 104, San Antonio, Texas 78245.
 
 **Name
                    and Address of Beneficial Owner**
              ****
              **Shares
                  of Common Stock**
                **Beneficially
                  Owned**
              
              **Percentage
                  of
                  Class**
                **Beneficially
                  Owned**Alexander
                  L.
              
              
              5,150,000(3
              )
              
              25.5
              %Weis,
                  Ph.D.(1)(2)Alexander
                  Ruckdaeschel(1)
              
              
              50,000(4
              )
              
              *123
                  East 83rd StreetApartment
                  3BNew
                  York, NY 10028James
                  Wemett(1)
              
              
              3,305,475(5
              )
              
              16.4
              %Technology
                  Innovations15
                  Schoen PlacePittsford,
                  NY 14534Corey
                  Levenson, Ph.D.(1)(2)
              
              
              687,500(6
              )
              
              3.4
              %William
                  J. Brock(1)
              
              
              −
              
              
              −J.
                  Michael Edwards(2)
              
              
              −
              
              
              −Tamas
                  Bakos, Ph.D.
              
              
              50,000(4
              )
              
              *Kay
                  Noel, Ph.D.
              
              
              50,000(4
              )
              
              *Technology
                  Innovations(7)
              
              
              1,880,475
              
              
              9.3
              %15
                  Schoen PlacePittsford,
                  NY 14534Biomed
                  Solutions, LLC(7)
              
              
              1,425,000
              
              
              7.1
              %15
                  Schoen PlacePittsford,
                  NY 14534Jack
                  A. Tuszynski
              
              
              1,400,000
              
              
              7.0
              %10220
                  133rdStreetEdmonton,
                  AlbertaCanada
                  T5N 1Z7OncoVentures,
                  LLC
              
              
              1,008,579(8
              )
              
              5.0
              %369
                  Franklin StreetBuffalo,
                  New York 14202CAMOFI
                  Master LDC
              
              
              2,229,234(9)(11
              )
              
              10.8
              %CAMHZN
                  Master LDCc/o
                  Centrecourt Asset Management LLC350
                  Madison Avenue, 8th FloorNew
                  York, New York 10017Wexford
                  Spectrum Trading Ltd.
              
              
              2,142,855(10
              )
              
              10.4
              %411
                  West Putnam AvenueGreenwich,
                  CT 06830All
                  Current Executive Officers and Directors as a
                group
                  (six persons)
              
              
              9,192,975(12
              )
              
              45.1
              %
 
 52
  
 (1)
              Indicates
                  director.(2)
              Indicates
                  officer.(3)
              Includes
                  the (i) beneficial ownership of 500,000 shares of common stock
                  of Lipitek
                  International, Inc. and (ii) 1,500,000 shares of restricted stock
                  vesting
                  one third on each of January 1, 2009, January 1, 2010 and January
                  2011.(4)
              Represents
                  shares of common stock issuable upon the exercise of stock options
                  within
                  the 60 days following February 29, 2008.(5)
              Includes
                  the beneficial ownership of Technology Innovations and Biomed Solutions,
                  LLC disclosed in the table above.(6)
              Includes
                  (i) 187,500 shares of common stock issuable upon exercise of stock
                  options
                  within 60 days following February 29, 2008, and (ii) 500,000 shares
                  of
                  restricted stock, vesting one third on each of January 1, 2009,
                  January 1,
                  2010, and January 1, 2011.(7)
              Technology
                  Innovations, LLC is the beneficial owner of a majority of the outstanding
                  membership interests of Biomed Solutions, LLC; it disclaims ownership
                  of
                  these shares except to the extent of its pecuniary interest in
                  Biomed
                  Solutions, LLC. James Wemett and Michael Weiner, a former director
                  of
                  OncoVista-Sub, are deemed to have voting and investment control
                  over these
                  shares; they disclaim ownership of these shares except to the extent
                  of
                  their pecuniary interest in Biomed Solutions LLC and Technology
                  Innovations LLC.(8)
              Includes
                  250,000 shares of common stock issuable upon exercise of warrants
                  within
                  60 days following February 29, 2008.(9)
              Represents
                  (i) 1,413,921 shares of common stock and 456,000 shares of common
                  stock
                  issuable upon the exercise of warrants within 60 days following
                  February
                  29, 2008 held by CAMOFI Master LDC, (ii) and 272,456 shares of
                  common
                  stock and 86,857 shares of common stock issuable upon the exercise
                  of
                  warrants within 60 days following February 29, 2008 held by CAMHZN
                  Master
                  LDC. Centrecourt Asset Management LLC (“*Centrecourt*’)
                  is the investment manager of CAMOFI Master LDC and CAMHZN Master
                  LDC.
                  Richard Smithline is director of CAMOFI Master LDC and CAMHZN Master
                  LDC.
                  Centrecourt and Mr. Smithline disclaim beneficial interest in such
                  securities. The foregoing is based on information supplied in a
                  Schedule
                  13G filed with the Commission on February 6, 2008.(10)
              Represents
                  1,714,284 shares of common stock and 428,571 shares of common stock
                  issuable upon the exercise of warrants within 60 days following
                  February
                  29, 2008 by Wexford Spectrum Trading Limited ("*WST*").
                  Wexford Capital LLC ("*Wexford*")
                  may, by reason of its status as Investment Sub-Advisor of WST,
                  be deemed
                  to own beneficially the interest in the shares of common stock
                  of which
                  WST possesses beneficial ownership. Each of Charles E. Davidson
                  ("*Davidson*")
                  and Joseph M. Jacobs ("*Jacobs*")
                  may, by reason of hisstatus
                  as a controlling person of Wexford Capital, be deemed to own beneficially
                  the interests in the shares of common stock of which WST possesses
                  beneficial ownership. Each of Davidson, Jacobs and Wexford Capital
                  shares
                  the power to vote and to dispose of the interests in the shares
                  of common
                  stock beneficially owned by WST. Each of Wexford, Davidson and
                  Jacobs
                  disclaims beneficial ownership of the shares of common stock owned
                  by WST
                  except, in the case of Davidson and Jacobs, to the extent of their
                  interests in each member of WST. The foregoing is based on information
                  supplied in a Schedule 13G filed with the Commission on November
                  21,
                  2007.(11)
              Notwithstanding
                  the inclusion of the warrants beneficially owned by the referenced
                  investors in the beneficial ownership calculation, the warrants
                  provide
                  that the holder of the warrants shall not have the right to exercise
                  any
                  portion of the warrants and that we shall not affect any exercise
                  of such
                  warrants to the extent that after giving effect to such issuance
                  after
                  exercise such holder of the warrants together with his, her or
                  its
                  affiliates, would beneficially own in excess of 4.99% of the number
                  of
                  shares of common stock outstanding immediately after giving effect
                  to such
                  issuance. Such 4.99% limitation may be waived by each holder upon
                  not less
                  than 61 days prior notice to change such limitation to 9.99% of
                  the number
                  of shares of common stock outstanding immediately after giving
                  effect to
                  such issuance.(12)
              Includes
                  237,500 shares of common stock issuable upon exercise of stock
                  options
                  within 60 days following February 29, 2008.*
              Less
                  than 1.0%.
 
 **Equity
        Compensation Plan Information**
 
 The
        following table sets forth information with respect to our 2004 Stock Option
        Plan (“ *2004
        Plan* ”),
        our
        2007 Stock Option Plan (the “ *2007
        Plan* ”)
        and
        2007 Stock Option Plan for Independent and Non-Employee Directors (the
“ *Directors
        Plan* ”)
        as of
        December 31, 2007:
 
 Plan
                  Category
              
              Number
                  of securities
                to
                  be issued upon
                exercise
                  of
                outstanding
                  options,
                warrants
                  and rights
              
              Weighted-average
                exercise
                  price of
                outstanding
                options,
                  warrants
                and
                  rights
              
              Number
                  of securities
                remaining
                  available for future issuance
                under
                  equity
                compensation
                  plans (excluding
                securities
                  reflected in column (a))(a)
              
              (b)
              
              (c)Equity
                  compensation plans approved by security holders
              
              
              —
              
              
              —
              
              
              —Equity
                  compensation plans not approved by security holders
              
              
              1,090,000(1
              )
              $
              0.91
              
              
              3,410,000(2
              )
  
 (1)
              Represents
                  950,000 shares granted under the 2004 Plan, 130,000 shares granted
                  under
                  the 2007 Plan and 10,000 shares granted under the Director Plan.(2)
              Represents
                  50,000 shares available for issuance under the 2004 Plan, 2,870,000
                  shares
                  available for issuance under the 2007 Plan and 490,000 shares available
                  for issuance under the Director
                  Plan.
 
 53
 
 **ITEM
        12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
  Except
        as otherwise indicated below, we have not been a party to any transaction,
        proposed transaction, or series of transactions required to be disclosed
        pursuant to Item 404 of Regulation S-B.
 
 **Transactions
        with Related Persons**
  O ur
        policy
        is to enter into transactions with related parties on terms that, on the
        whole,
        are no more favorable, or no less favorable, than those available from
        unaffiliated third parties. Based on our experience in the business sectors
        in
        which we operate and the terms of our transactions with unaffiliated third
        parties, we believe that all of the transactions described below met this
        policy
        standard at the time they occurred.
  **Biomed
        Loan**
 
 During
        2005, Biomed Solutions, LLC (“ *Biomed* ”)
        loaned
        us a total of $525,563 accruing interest of 8%. In 2006, we paid $245,000
        to
        Biomed and in October 2007, in full settlement of the remaining principal
        and
        interest of $356,428 due under the loan, we paid a further $300,000 to Biomed.
        As a result, we recognized a gain on debt settlement of $56,428. 
Biomed beneficially owns more than five percent of our capital stock. Biomed
        is
        a subsidiary of Technology Innovations, LLC (“ *Technology
        Innovations* ”).
        Technology Innovations beneficially owns more than five percent of our capital
        stock. Technology Innovations was co-founded by James Wemett, one of our
        directors and Michael Weiner, one of OncoVista-Sub's former directors. Mr.
        Wemett also serves on the board of directors of Technology
        Innovations.
 
 **OncoVista-Sub’s
        Purchase of Our Shares**
 
 On
        August
        16, 2007, we and Törbjorn B. Lundqvist (“ *Lundqvist* ”),
        our
        then principal stockholder and officer and director entered into and closed
        a
        Securities Purchase Agreement (the “ *Lundqvist
        Purchase Agreement* ”)
        with
        OncoVista-Sub whereby Lundqvist sold 9,562,728 (or 14,095,212 after giving
        effect to the forward split that became effective on October 22, 2007) shares
        (the “ *Lundqvist
        Shares* ”)
        of our
        common stock to OncoVista-Sub for cash consideration of US$667,000 (the
“ *Cash
        Consideration* ”).
        Simultaneous with the Lundqvist Agreement, OncoVista-Sub entered into Share
        Sale/Purchase Agreements with a number of our minority shareholders whereby
        such
        minority shareholders sold an aggregate of 1,401,123 (or 2,065,218 after
        giving
        effect to the forward split that became effective on October 22, 2007) of
        our
        shares (the “ *Minority
        Stockholder Shares* ”)
        of common stock to us. Payment for the Minority Stockholder Shares was paid
        out of the Cash Consideration.
 
 In
        connection with the Lundqvist Purchase Agreement, (i) we sold and transferred
        to
        Lundqvist all of the shares of capital stock of Automotive Upgrade Technologies,
        Inc. (“ *AUT* ”)
        a
        Nevada corporation and our former wholly owned subsidiary, (ii) Lundqvist
        forgave any related party debt owed by us to him, (iii) Lundqvist terminated
        the
        license agreement granting us worldwide marketing rights for an electronic
        tire
        valve cap without any further consideration from us and Lundqvist waived
        all
        amounts that would otherwise be due or payable, or become due or payable
        thereunder by us, and (iv) Lundqvist and AUT agreed to indemnify and hold
        harmless us, OncoVista-Sub and its control persons, among others, against
        liability arising out of AUT or our products, if any, prior to the closing
        of
        the Lundqvist Purchase Agreement.
 
 **Lipitek
        Agreements**
 
 We
        and
        Lipitek International Inc. (“ *Lipitek
        International* ”)
        entered into a License Agreement, dated October 13, 2004, pursuant to which
        Lipitek International has granted to us an exclusive, world-wide, royalty
        and
        milestone-bearing right and license to utilize the patents and technologies
        of
        Lipitek International relating to L-Nucleosides and their conjugates.
  54
 
 On
        November 17, 2005, we, Lipitek International, and Alexander Weis entered
        into a
        Purchase Agreement, dated as of November 17, 2005, pursuant to which Lipitek
        has
        granted us an option to purchase all membership interests in Lipitek Research
        LLC to us for a purchase price of $5,000,000, payable in installments. As
        of
        February 29, 2008, we have paid Lipitek International a total of $400,000.
        On or
        before July 28, 2012, we are required to pay the balance of the purchase
        price.
        Prior to the full payment of the purchase price, we have the option upon
        30
        day’s written notice to abandon the purchase of Lipitek Research LLC upon
        forfeiture of the amounts already paid. In addition, Lipitek International
        and
        Weis agreed to use reasonable efforts to ensure that we have the right of
        first
        negotiation with respect to any Lipitek International intellectual property
        related to anti-cancer, anti-fungal, anti-parasitic and anti-malarial activities
        (except that derived from South American plants and vegetation) and to
        intellectual property arising out of any current research or research contract
        of Lipitek Research LLC.
 
 Pursuant
        to a Lease Agreement between Lipitek International and us, we lease laboratory
        space for approximately $15,000 per month from Lipitek International under
        a
        five-year Lease Agreement.
  Alexander
        L. Weis, Ph.D., a member of our board, Chief Executive Officer, President,
        and
        Secretary as well as one of our significant beneficial owners, is the principal
        owner of Lipitek International. Dr. Weis has agreed not to vote as a director
        in
        connection with any matter relating to Lipitek.
 
 **Employment
        Agreements**
 
 For
        a
        description of employment agreements, please see “Executive Compensation -
        Employment Agreements”.
  **Promoters
        and Control Persons**
 
 Alexander
        L. Weis, Ph.D. was one of the founders of OncoVista-Sub. In connection with
        its
        organization in September 2004, Mr. Weis was issued 3,000,000 shares of
        OncoVista-Sub common stock and his four children were issued a total of 500,000
        shares of its common stock. In addition, in consideration for licenses granted
        shortly after our formation, Mr. Weis was issued 150,000 shares of OncoVista-Sub
        common stock and Lipitek International, Inc. was issued 500,000 shares of
        OncoVista-Sub common stock.
 
 Also,
        in
        connection with OncoVista-Sub’s organization, Technology Innovations, LLC
        was issued 1,400,000 shares of OncoVista-Sub common stock and Biomed
        Solutions, LLC was issued 1,425,000 shares of OncoVista-Sub common stock.
        In
        addition, in consideration for licenses granted shortly
        after OncoVista-Sub’s formation, Technology Innovations, LLC was
        issued a further 650,000 shares of OncoVista-Sub common stock.
 
 As
        a
        result of the Merger that closed on November 13, 2007, all OncoVista-Sub
        common stock held by the aforementioned was exchanged on a one-for-one
        basis for our common stock.
 
 ***ITEM
        13 - EXHIBITS*** ******
 
 ***Exhibits:***
 
 Exhibit
                  No.
              
              Description
 2.1
              
              Agreement
                  and Plan of Merger, dated as of October 26, 2007, by and between
                  Aviation
                  Upgrade Technologies, Inc., OncoVista, Inc. and OncoVista Acquisition
                  Corp.(1)2.2
              
              Copy
                  of Certificate of Merger dated November 13, 2007.(2)3.1
              
              Certified
                  Copy of the Articles of Incorporation of the Registrant.(2)3.2
              
              Bylaws.(3)3.3
              
              Certificate
                  of Change of the Registrant.(4)3.4
              
              Certificate
                  of Amendment to Articles of Incorporation of the Registrant.(11)
  55
  10.1
              
              Executive
                  Employment Agreement dated as of October 1, 2004, by and between
                  OncoVista, Inc. and Alexander L. Weis, Ph.D.(2)10.2
              
              Executive
                  Employment Agreement dated as of January 15, 2005, by and between
                  OncoVista, Inc. and Corey Levenson, Ph.D.(2)10.3
              
              Employment
                  Agreement dated as of August 22, 2005, by and between OncoVista,
                  Inc. and
                  Robert Patterson.(2)10.4
              
              Employment
                  Agreement dated as of January 1, 2005, by and between OncoVista,
                  Inc. and
                  Tamos Bakos, Ph.D.(2)10.5
              
              Employment
                  Agreement dated as of July 3, 2006, by and between OncoVista, Inc.
                  and
                  Jeanne Kay Noel.(6)10.6
              
              Lease
                  Agreement between OncoVista, Inc. and Lipitek International, Inc.
                  dated
                  January 1, 2005.(2)10.7
              
              Investment
                  and Stock Purchase Agreement dated September 7, 2005 between AdnaGen
                  AG,
                  BioMed Venture GmbH, individual stockholders of AdnaGen AG and
                  OncoVista,
                  Inc.(9)10.8
              
              Stock
                  Purchase Option Agreement dated as of September 7, 2005 between
                  AdnaGen
                  AG, BioMed Venture GmbH, individual stockholders of AdnaGen AG
                  and
                  OncoVista, Inc.(9)10.9
              
              Agreement
                  and Plan of Merger between Aengus Pharmaceuticals, Inc., OncoVista-Aengus,
                  Inc. and OncoVista, Inc. dated as of November 7, 2005.(8)10.10
              
              License
                  Agreement dated as of December 30, 2004 between AdnaGen AG and
                  Gen-Probe
                  Inc.(6)10.11
              
              Amendment
                  to License Agreement between AdnaGen AG and Gen-Probe, Inc. effective
                  June
                  30, 2006.(6)10.12
              
              License
                  Agreement between Boston Medical Center Corporation and Aengus
                  Pharmaceuticals, Inc.(9)10.13
              
              Assumption
                  of Obligations of License Agreement and Consent to Transfer License
                  Agreement between Boston Medical Center Corporation and OncoVista-Aengus,
                  Inc.(6)10.14
              
              License
                  Agreement dated November 21, 2003 between Oxigene, Inc. and Aengus
                  Pharmaceuticals, Inc.(6)10.15
              
              Consent
                  and Agreement to Assign License Agreement between Oxigene Inc.
                  and
                  OncoVista Aengus Pharmacueticals, Inc. dated December ___,
                  2005.(6)10.16
              
              License
                  Agreement effective as of October 13, 2004 between Lipitek International,
                  Inc. and OncoVista, Inc.(6)10.17
              
              Patent
                  License effective May 1, 2005 between Technology Innovations, LLC
                  and
                  OncoVista, Inc.(6)10.18
              
              License
                  Agreement effective as of October 13, 2004 between Technology Innovations,
                  LLC. and OncoVista, Inc.(6)10.19
              
              License
                  Agreement between AdnaGen AG and Innogenetics N.V.(6)10.20
              
              Distribution
                  Agreement dated January 29, 2007 between Innogenetics and AdnaGen
                  AG.(6)10.21
              
              Purchase
                  Agreement dated as of November 17, 2005 between Lipitek International,
                  Inc. and OncoVista, Inc.(6)
  56
  10.22
              
              Securities
                  Purchase Agreement, dated as of August 16, 2007.(5)10.23
              
              Form
                  of Subscription Agreement between OncoVista, Inc. and purchasers
                  of units
                  in the OncoVista private placement that closed on August 15,
                  2007.(6)10.24
              
              Form
                  of Registration Rights Letter between OncoVista, Inc. and purchasers
                  of
                  units in the OncoVista private placement that closed on August
                  15,
                  2007.(6)10.25
              
              Form
                  of Warrant issued to purchasers of units in the OncoVista private
                  placement that closed in August 15, 2007.(6)10.26
              
              Form
                  of Lock-Up Agreement.(6)10.27
              
              Letter
                  Agreement dated July 11, 2007 between OncoVista, Inc. and Maxim
                  Group,
                  LLC.(6)10.28
              
              Warrant
                  dated August 15, 2007 issued to Maxim Group, LLC.(6)10.29
              
              Form
                  of Subscription Agreement.(6)10.30
              
              2004
                  Stock Option Plan.(6)10.31
              
              2007
                  Stock Option Plan.(6)10.32
              
              2007
                  Stock Option Plan for Independent and Non-Employee Directors.(6)10.33
              
              License
                  Agreement by and between OncoVista, Inc. and OSI Pharmaceuticals,
                  Inc.(7)10.34
              
              Subscription
                  Agreement, dated November 27, 2007, between OncoVista, Inc. and
                  OSI
                  Pharmaceuticals, Inc.(7)10.35
              
              Investors’
                  Rights Agreement, dated November 27, 2007, between OncoVista, Inc.
                  and OSI
                  Pharmaceuticals, Inc.(7)10.36
              
              Stockholders
                  Agreement, dated November 27, 2007, between OncoVista, Inc., OSI
                  Pharmaceuticals, Inc., and Alexander L. Weis.(7)10.37
              
              Stock
                  Purchase Warrant dated November 27, 2007.(7)10.38
              
              Stock
                  Purchase Warrant dated November 27, 2007.(7)10.39
              
              Share
                  Purchase Agreement between BioMed Venture GmbH and OncoVista,
                  Inc.(12)10.40
              
              Executive
                  Employment Agreement dated as of January 1, 2008 between Aviation
                  Upgrade
                  Technologies, Inc. and J. Michael Edwards.(10)14.1
              
              Code
                  of Ethics.*21.1
              
              List
                  of Subsidiaries.*31.1
              
              Certification
                  of Principal Executive Officer pursuant to Rule 13a-14 and Rule
                  15d-14(a),
                  promulgated under the Securities and Exchange Act of 1934, as
                  amended*31.2
              
              Certification
                  of Principal Financial Officer pursuant to Rule 13a-14 and Rule
                  15d 14(a),
                  promulgated under the Securities and Exchange Act of 1934, as
                  amended*32.1
              
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)*32.2
              
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)*
  57
  ________
 
 *
              Filed
                  herewith.(1)
              Filed
                  as an exhibit to the Current Report on Form 8-K filed on October
                  29, 2007
                  with the Commission and incorporated by reference
                  herein.(2)
              Filed
                  as an exhibit to the Current Report on Form 8-K filed on November
                  13, 2007
                  with the Commission and incorporated by reference
                  herein.(3)
              Filed
                  as an exhibit to Form 10-SB filed on December 7, 1999 with the
                  Commission
                  and incorporated by reference herein.(4)
              Filed
                  as an exhibit to the Current Report on Form 8-K filed on October
                  24, 2007
                  with the Commission and incorporated by reference
                  herein.(5)
              Filed
                  as an exhibit to the Current Report on Form 8-K filed August 22,
                  2007 with
                  the Commission and incorporated by reference
                  herein.
 
 (6)
              Filed
                  as an exhibit to Current Report on Form 8-K/A filed on November
                  19, 2007
                  with the Commission and incorporated by reference
                  herein.(7)
              Filed
                  as an exhibit to Current Report on Form 8-K on December 3, 2007,
                  with the
                  Commission and incorporated by reference herein.(8)
              We
                  will file the referenced exhibit by amendment to the Current Report
                  on
                  Form 8-K on November 13, 2007 with the Commission.(9)
              We
                  will file the referenced exhibit by amendment to the Current Report
                  on
                  Form 8-K filed on November 13, 2007 with the Commission and intend
                  to seek
                  confidential treatment with respect to portions of the referenced
                  exhibit.(10)
              Filed
                  as an exhibit to Current Report on Form 8-K filed on January 8,
                  2008 with
                  the Commission and incorporated by reference herein.(11)
              Filed
                  as an exhibit to Current Report on Form 8-K filed on January 9,
                  2008 with
                  the Commission and incorporated by reference
                  herein.(12)
              Filed
                  as an exhibit to Current Report on Form 8-K filed on January 17,
                  2008 with
                  the Commission and incorporated by reference
                  herein.
 
 **ITEM
        14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES**
 
 We
        incurred the following fees to Berman & Company, P.A., certified public
        accountants, for services rendered during the fiscal year ended December
        31,
        2007 and 2006:
 
 **Summary:**
              
              **2007**
              
              **2006**Audit
                  fees(1)
              
              $
              45,000
              
              $
              33,000Audit
                  related fees(2)
              
              
              60,000
              
              
              −Tax
                  fees(3)
              
              
              −
              
              
              −Other
                  fees
              
              
              −
              
              
              −Total
              
              $
              105,000
              
              $
              33,000
 _________
 
 (1)
              Amount
                  represents fees paid for professional services for the audit of
                  our
                  consolidated annual financial statements and review of our interim
                  consolidated financial statements included in quarterly reports
                  and
                  services that are normally provided by Berman & Company, P.A. in
                  connection with statutory and regulatory filings or
                  engagements.
 
 (2)
              Amount
                  represents fees paid for professional services for assurance and
                  related
                  services by Berman & Company, P.A. that are reasonably related to the
                  performance of the audit or review of our financial statements
                  and are not
                  reported under item 1.
 
 (3)
              Amount
                  represents fees paid for professional services for tax compliance
                  and tax
                  advice.




58




**SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15 (d) of the Securities Exchange Act
        of
        1934, the Registrant has duly caused this Report to be signed on its behalf
        by
        the undersigned, thereunto duly authorized.
 
 **ONCOVISTA
        INNOVATIVE THERAPIES, INC.**
 
 /s/
        ALEXANDER L. WEIS, PH.D.
 
 Alexander
        L. Weis, Ph.D.
 Chairman
        of the Board of Directors
 Chief
        Executive Officer
 (principal
        executive officer)
  /s/
        J. MICHAEL EDWARDS
 
 J.
        Michael Edwards
 Chief
        Financial Officer
 (principal
        accounting officer)
 
 Date:
        April 14, 2008
 
 Pursuant
        to the requirements of the Securities and Exchange Act of 1934, this report
        has
        been signed below by the following persons on behalf of the registrant in
        the
        capacities as on April 14, 2008.
  /s/
        ALEXANDER L. WEIS, PH.D.
 
 Alexander
        L. Weis, Ph.D.
 Chairman
        of the Board of Directors
  /s/
        WILLIAM J. BROCK
 
 William
        J. Brock
 Director
  /s/
        COREY LEVENSON, M.D.
 
 Corey
        Levenson, M.D.
 Director
  /s/
        JAMES WEMETT
 
 James
        Wemett
 Director






**ONCOVISTA
      INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**


**Consolidated
      Financial Statements**


**Years
      Ended December 31, 2007 and 2006**














**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**








PageReport
                of Independent Registered Public Accounting Firm
            F-1Consolidated
                Balance Sheets as of December 31, 2007 and 2006
            F-2Consolidated
                Statements of Operations for the Years EndedDecember
                31, 2007 and 2006
            F-3Consolidated
                Statement of Changes in Stockholders’ Deficit for the Years
                EndedDecember
                31, 2007 and 2006
            F-4Consolidated
                Statements of Cash Flows for the Years EndedDecember
                31, 2007 and 2006
            F-5Notes
                to Consolidated Financial Statements for the Years Ended December
                31, 2007
                and 2006
            F-6














**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors and Stockholders of


OncoVista
      Innovative Therapies, Inc.





We
      have
      audited the accompanying consolidated balance sheets of OncoVista Innovative
      Therapies, Inc. and Subsidiaries as of December 31, 2007 and 2006, and the
      related consolidated statements of operations, stockholders' deficit, and cash
      flows for the years ended December 31, 2007 and 2006. These consolidated
      financial statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





We
      conducted our audits in accordance with 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
      consolidated financial statements are free of material misstatement. The Company
      is not required to have, nor were we engaged to perform, an audit of its
      internal control over financial reporting.  Our audits included the
      consideration of internal control over financial reporting as a basis for
      designing audit procedures that are appropriate in the circumstances, but not
      for the purpose of expressing an opinion on the effectiveness of the Company’s
      internal control over financial reporting.  Accordingly, we express no such
      opinion. An audit includes examining, on a test basis, evidence supporting
      the
      amounts and disclosures in the consolidated financial statements. An audit
      also
      includes assessing the accounting principles used and significant estimates
      made
      by management, as well as evaluating the overall consolidated financial
      statement presentation. We believe that our audits provide a reasonable basis
      for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of OncoVista
      Innovative Therapies, Inc. and Subsidiaries as of December 31, 2007 and 2006,
      and the consolidated results of their operations, changes in stockholders’
deficit and cash flows for the years ended December 31, 2007 and 2006, in
      conformity with accounting principles generally accepted in the United States
      of
      America.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 3 to the
      consolidated financial statements, the Company has a net loss of $5,602,393
      and
      net cash used in operations of $2,879,573 for the year ended December 31, 2007,
      a working capital deficit of $208,085, an accumulated deficit of $16,092,923
      and
      a total stockholders’ deficit of $3,992,333 at December 31, 2007. These factors
      raise substantial doubt about the Company’s ability to continue as a going
      concern. Management’s plan in regards to these matters is also described in Note
      3. The consolidated financial statements do not include any adjustments that
      might result from the outcome of this uncertainty.





/s/
      Berman & Company, P.A.





Boca
      Raton, Florida


April
      7,
      2008











F-1





**ONCOVISTA
      INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**


**Consolidated
      Balance Sheets**




December
                31,2007
            
            2006**ASSETS**Current assets:Cash and cash equivalents
            
            $
            4,364,141
            
            $
            1,954,645Accounts and other receivables
            
            
            195,224
            
            
            46,804Inventory
            
            
            36,493
            
            
            34,075Prepaid and other current assets
            
            
            98,368
            
            
            49,602Total current assets
            
            
            4,694,226
            
            
            2,085,126Equipment, net
            
            
            199,621
            
            
            233,565Deposits and other assets
            
            
            56,102
            
            
            48,455Total assets
            
            $
            4,949,949
            
            $
            2,367,146**LIABILITIES AND STOCKHOLDERS’ DEFICIT**Current liabilities:Accounts payable
            
            $
            245,704
            
            $
            126,753Accrued expenses
            
            
            568,754
            
            
            423,746Loans payable
            
            
            2,136,657
            
            
            1,235,333Notes payable
            
            
            836,450
            
            
            380,563Accrued interest payable
            
            
            1,114,746
            
            
            532,688Total current liabilities
            
            
            4,902,311
            
            
            2,699,083Long-term liabilitiesLoans payable
            
            
            −
            
            
            679,955Notes payable
            
            
            3,682,250
            
            
            3,960,900Accrued interest payable
            
            
            353,497
            
            
            595,496Other
            
            
            4,224
            
            
            −Total long-term liabilities
            
            
            4,039,971
            
            
            5,236,351Total liabilities
            
            
            8,942,282
            
            
            7,935,434Commitments and contingencies (See Note 9)Stockholders’ deficit:Common stock, $.001 par value; 100,000,000 shares authorized, 20,116,475 and
              16,888,475 shares issued and 18,116,475 and 16,888,475
              shares outstanding at December 31, 2007 and 2006, respectively
            
            
            20,116
            
            
            16,888Additional paid-in capital
            
            
            13,604,591
            
            
            5,673,499Accumulated deficit
            
            
            (16,092,923
            )
            
            (10,490,530
            )Accumulated other comprehensive loss
            
            
            (1,524,117
            )
            
            (768,145
            )Total stockholders’ deficit
            
            
            (3,992,333
            )
            
            (5,568,288
            )Total liabilities and stockholders’ deficit
            
            $
            4,949,949
            
            $
            2,367,146




See
      accompanying notes to consolidated financial statements





F-2





**ONCOVISTA
      INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**


**Consolidated
      Statements of Operations**




Year
                Ended December 31,2007
            
            2006**Revenues:**Licensing
            
            $
            1,501,676
            
            $
            1,700,137Diagnostic kits
            
            
            239,364
            
            
            187,319Research and development revenue (including $0 and $40,000
              from related party in 2007 and 2006, respectively)
            
            
            80,000
            
            
            40,000**Total revenues**
            
            
            1,821,040
            
            
            1,927,456**Operating expenses:**Research and development
            
            
            4,247,401
            
            
            3,030,517General and administrative
            
            
            3,238,801
            
            
            2,580,692**Total operating expenses**
            
            
            7,486,202
            
            
            5,611,209**Loss from operations**
            
            
            (5,665,162
            )
            
            (3,683,753
            )**Other income (expense):**Interest income
            
            
            118,139
            
            
            88,498Interest expense
            
            
            (309,565
            )
            
            (616,932
            )Gain on debt settlement
            
            
            56,428
            
            
            −Other
            
            
            197,767
            
            
            −Impairment of goodwill and intangible asset
            
            
            −
            
            
            (4,456,035
            )**Total other income (expense), net**
            
            
            62,769
            
            
            (4,984,469
            )**Net loss**
            
            $
            (5,602,393
            )
            $
            (8,668,222
            )**Net loss per share - basic and diluted**
            
            $
            (0.33
            )
            $
            (0.51
            )**Weighted average number of shares outstanding during the year - basic and diluted**
            
            
            17,030,788
            
            
            16,888,475




See
      accompanying notes to consolidated financial statements





F-3





**ONCOVISTA
      INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**


**Consolidated
      Statements of Stockholders’ Deficit**


**For
      the Years Ended December 31, 2007 and 2006**




**Common
                  stock**
            
            **Additional
                paid-in**
            
            **Accumulated**
            
            **Accumulated
                other comprehensive****Shares**
            
            **Amount**
            
            **capital**
            
            **deficit**
            
            **loss**
            
            **Total****Balance December 31, 2005**
            
            
            16,888,475
            
            $
            16,888
            
            $
            1,008,542
            
            $
            (1,822,308
            )
            $
            (28,250
            )
            $
            (825,128
            )Net loss
            
            
            −
            
            
            −
            
            
            −
            
            
            (8,668,222
            )
            
            −
            
            
            (8,668,222
            )Other comprehensive loss:Foreign currency translation loss
            
            
            −
            
            
            −
            
            
            −
            
            
            −
            
            
            (739,895
            )
            
            (739,895
            )Total comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (9,408,117
            )Issuance of common stock, net of
              direct offering costs of $152,250
            
            
            −
            
            
            −
            
            
            3,357,750
            
            
            −
            
            
            −
            
            
            3,357,750Issuances of common stock and
              warrants for licensing rights
              and intellectual property
            
            
            −
            
            
            −
            
            
            738,620
            
            
            −
            
            
            −
            
            
            738,620Employee stock-based compensation
            
            
            −
            
            
            −
            
            
            431,189
            
            
            −
            
            
            −
            
            
            431,189Non-employee stock-based consulting
            
            
            −
            
            
            −
            
            
            137,398
            
            
            −
            
            
            −
            
            
            137,398**Balance December 31, 2006**
            
            
            16,888,475
            
            
            16,888
            
            
            5,673,499
            
            
            (10,490,530
            )
            
            (768,145
            )
            
            (5,568,288
            )Net loss
            
            
            −
            
            
            −
            
            
            −
            
            
            (5,602,393
            )
            
            −
            
            
            (5,602,393
            )Comprehensive loss:Foreign currency translation loss
            
            
            −
            
            
            −
            
            
            −
            
            
            −
            
            
            (755,972
            )
            
            (755,972
            )Total comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (6,358,365
            )Purchase of additional equity
              interest in subsidiary
            
            
            −
            
            
            −
            
            
            (599,241
            )
            
            −
            
            
            −
            
            
            (599,241
            )Issuance of common stock, net of
              direct offering costs of $570,500
            
            
            −
            
            
            −
            
            
            6,224,484
            
            
            −
            
            
            −
            
            
            6,224,484Cash paid for acquisition of shell
            
            
            
            
            
            
            
            
            (150,000
            )
            
            −
            
            
            −
            
            
            (150,000
            )Deemed issuance to shareholders
              of legal acquiror and recapitalization
            
            
            728,000
            
            
            728
            
            
            (728
            )
            
            −
            
            
            −
            
            
            −Issuance of unvested restricted common stock - related parties
            
            
            2,000,000
            
            
            2,000
            
            
            (2,000
            )
            
            −
            
            
            −
            
            
            −Issuances of common stock and
              warrants for licensing rights
              of intellectual property
            
            
            500,000
            
            
            500
            
            
            1,865,150
            
            
            −
            
            
            −
            
            
            1,865,650Employee stock-based compensation
            
            
            −
            
            
            −
            
            
            368,701
            
            
            −
            
            
            −
            
            
            368,701Non-employee stock-based consulting
            
            
            −
            
            
            −
            
            
            224,726
            
            
            −
            
            
            −
            
            
            224,726**Balance December 31, 2007**
            
            
            **20,116,475**
            
            **$**
            **20,116**
            ****
            **$**
            **13,604,591**
            ****
            **$**
            **(16,092,923**
            **)**
            **$**
            **(1,524,117**
            **)**
            **$**
            **(3,992,333**
            **)**




See
      accompanying notes to consolidated financial statements





F-4





**ONCOVISTA
      INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**


**Consolidated
      Statements of Cash Flows**




Year
                Ended December 31,2007
            
            2006**Cash flows from operating activities**Net loss
            
            $
            (5,602,393
            )
            $
            (8,668,222
            )Adjustments to reconcile net loss to net cashused in operating activities:Depreciation
            
            
            71,635
            
            
            105,320Gain on debt settlement
            
            
            (56,428
            )
            
            −Impairment of goodwill and intangible asset
            
            
            −
            
            
            4,456,035Employee stock-based compensation
            
            
            368,701
            
            
            431,189Non-employee stock-based consulting
            
            
            224,726
            
            
            137,398Common stock and warrants issued for licensing rights of
              intellectual property
            
            
            1,865,650
            
            
            738,620Changes in operating assets and liabilities:Accounts and other receivables
            
            
            (133,091
            )
            
            (24,517
            )Inventory
            
            
            1,416
            
            
            (16,737
            )Prepaid and other assets
            
            
            (45,060
            )
            
            (50,247
            )Accounts payable
            
            
            166,012
            
            
            (123,875
            )Accrued expenses
            
            
            60,223
            
            
            (106,296
            )Accrued interest payable
            
            
            199,036
            
            
            228,904**Net cash used in operating activities**
            
            
            (2,879,573
            )
            
            (2,892,428
            )**Cash flows from investing activities**Purchase of equipment
            
            
            (15,970
            )
            
            (29,391
            )Cash paid to acquire additional equity interest in subsidiary
            
            
            (599,241
            )
            
            −Cash paid for acquisition of shell
            
            
            (150,000
            )
            
            −**Net cash used in investing activities**
            
            
            (765,211
            )
            
            (29,391
            )**Cash flows from financing activities**Repayments of loans and notes payable
            
            
            (224,135
            )
            
            (861,739
            )Proceeds from sale of common stock
            
            
            6,794,984
            
            
            3,510,000Cash paid for direct offering costs
            
            
            (570,500
            )
            
            (152,250
            )**Net cash provided by financing activities**
            
            
            6,000,349
            
            
            2,496,011**Net increase (decrease) in cash and cash equivalents**
            
            
            2,355,565
            
            
            (425,808
            )Effect of exchange rates on cash
            
            
            53,931
            
            
            (31,758
            )Cash and cash equivalents at beginning of year
            
            
            1,954,645
            
            
            2,412,211**Cash and cash equivalents at end of year**
            
            $
            4,364,141
            
            $
            1,954,645**Supplemental disclosures of cash flow information:**Cash paid for interest
            
            $
            110,530
            
            $
            396,136Cash paid for taxes
            
            $
            −
            
            $
            −




See
      accompanying notes to consolidated financial statements








F-5





**ONCOVISTA
      INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 and 2006**







**Note
                1.**
            **BASIS
                OF PRESENTATION, ORGANIZATION AND NATURE OF
                OPERATIONS**





OncoVista
      Innovative Therapies, Inc. (“OVIT” or “the Company”), is a biopharmaceutical
      company engaged in the development and commercialization of targeted cancer
      therapies both through the acquisition of rights to technologies and drugs
      from
      others and through the development of its own proprietary products.





The
      Company, formerly known as Aviation Upgrade Technologies, Inc. (“AVUG”), was
      incorporated in Nevada in January 1999. In August 2007, OncoVista, Inc.
      (“OncoVista”) acquired 16,160,430 shares of common stock of AVUG constituting
      approximately 95.7% of AVUG’s issued and outstanding capital stock for cash
      consideration of $667,000, of which $150,000 was paid by the Company and the
      remaining $517,000, was paid by third parties. The acquisition resulted in
      a
      change of control of AVUG.




In
      October 2007, OncoVista entered into an Agreement and Plan of Merger (the
“Merger Agreement”) with AVUG. In November 2007, AVUG, a then shell corporation,
      merged with OncoVista and OncoVista became the surviving corporation. This
      transaction was accounted for as a reverse acquisition and recapitalization
      of
      OncoVista. AVUG did not have any operations and majority-voting control was
      transferred to OncoVista. Since OncoVista acquired a controlling voting
      interest, it was deemed the accounting acquiror, while AVUG was deemed the
      legal
      acquiror. The historical financial statements of the Company are those of
      OncoVista, and of the consolidated entities from the date of Merger and
      subsequent. Since the transaction is considered a reverse acquisition and
      recapitalization, the guidance in SFAS No. 141 does not apply for purposes
      of presenting pro-forma financial information.





OncoVista
      was incorporated on September 22, 2004 in the State of Delaware and the
      corporate offices are located in San Antonio, Texas.





In
      December 2005, OncoVista acquired a controlling (51%) interest in AdnaGen AG,
      a
      research and development company based in Langenhagen, Germany. AdnaGen AG
      focuses on the development of innovative tumor diagnostics by utilizing its
      proprietary technology for the detection and analysis of rare cells. For
      financial reporting purposes, the acquisition of AdnaGen AG was treated as
      a
      business combination pursuant to SFAS No. 141 (See Note 4). In December 2007,
      OncoVista, Inc. purchased from a now former shareholder of AdnaGen AG an
      additional 34% equity interest in AdnaGen AG, for consideration of $599,241.
      As
      a result of the purchase, OncoVista now owns approximately 85% of AdnaGen
      AG.




**Note
                2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**





***Principles
      of Consolidation***





The
      consolidated financial statements include the accounts of AVUG, OncoVista and
      AdnaGen AG (collectively, the “Company”). All intercompany balances have been
      eliminated.





***Use
      of Estimates***





The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from those estimates.





Significant
      estimates during 2007 and 2006 include the valuation of warrants and stock
      options granted for services or compensation pursuant to EITF No. 96-18 and
      SFAS
      No. 123R, respectively, estimates of the probability and potential magnitude
      of
      contingent liabilities, estimates regarding the fair value of goodwill and
      intangible assets subject to impairment, and the valuation allowance for
      deferred tax assets due to continuing operating losses.





F-6




**ONCOVISTA
        INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


***Cash
      and Cash Equivalents***





For
      the
      purpose of the Statements of Cash Flows, the Company considers all highly liquid
      investments with original maturities of three months or less at the time of
      purchase to be cash equivalents.





The
      Company minimizes its credit risk associated with cash by periodically
      evaluating the credit quality of its primary financial institution. The balance
      at times may exceed federally insured limits. At December 31, 2007, the balance
      exceeded the federally insured limit by approximately $3.6 million.





***Accounts
      and Other Receivables***




There
      has
      been no identifiable bad debt expense during the years ended December 31, 2007
      and 2006, respectively. Additionally, the Company has not recorded any allowance
      for doubtful accounts. The allowance is generally determined based on an
      account-by-account review. Accounts are charged off when collection efforts
      have
      failed and the account is deemed uncollectible. The Company does not charge
      interest on accounts receivable.





***Inventory***





Inventory
      is stated at the lower of cost or market, determined by the first-in, first-out
      (FIFO) method. Inventory consists of finished goods in the form of select and
      detect breast cancer and colon cancer kits. During the years ended December
      31,
      2007 and 2006, respectively, there were no write-downs to net realizable value
      due to obsolescence.





***Equipment***





Equipment
      is stated at cost, less accumulated depreciation. Costs greater than $500 are
      capitalized and depreciated on a straight-line basis over the estimated useful
      lives, which ranges from three to fourteen years.





***Long-Lived
      Assets***





Long-lived
      assets, other than Goodwill, are reviewed for impairment whenever events or
      changes in circumstances indicate that the carrying amount of an asset may
      not
      be recoverable. Recoverability of assets to be held and used is measured by
      a
      comparison of the carrying amount of an asset to future undiscounted net cash
      flows expected to be generated by the asset. If such assets are considered
      impaired, the impairment to be recognized is measured by the amount by which
      the
      carrying amount of the assets exceeds the fair value of the assets.





***Goodwill
      and Intangibles***





Goodwill
      represents the excess purchase price over the fair value of net assets acquired.
      The Company applies the provisions of Financial Accounting Standards Board
      (“FASB”) Statement No. 142, *“Goodwill
      and Other Intangible Assets”* (“SFAS
      142”), in accounting for goodwill. SFAS 142 requires that goodwill and other
      intangible assets that have indefinite lives not be amortized but instead be
      tested at least annually by the reporting unit for impairment or more frequently
      when events or changes in circumstances indicate that the asset might be
      impaired. For indefinite lived intangible assets, impairment is tested by
      comparing the carrying value of the asset to the fair value of the reporting
      unit to which they are assigned (See Note 4).





***Minority
      Interest***





Under
      generally accepted accounting principles, when losses applicable to the minority
      interest in a subsidiary exceed the minority interest in the equity capital
      of
      the subsidiary, the excess is not charged to the minority interest since there
      is no obligation of the minority interest to make good on such losses. The
      Company, therefore, has included losses applicable to the minority interest
      against its interest. If future earnings do materialize, the Company will be
      credited to the extent of such losses previously absorbed. For financial
      reporting purposes, minority interest will not be presented until the minority’s
      share of profit exceeds its previously recorded deficit.




F-7


**ONCOVISTA
        INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


***Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
      Stock***





The
      Company will account for free-standing warrants issued in conjunction with
      certain derivative instruments in accordance with EITF Issue No. 00-19, *“Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
      Stock”* (EITF
      00-19). EITF 00-19 requires that all contracts be initially measured at fair
      value and subsequently accounted for based on the current classification and
      the
      assumed or required settlement method. All contracts that are classified as
      assets or liabilities are measured at fair value with changes in fair value
      reported in earnings. The Company reevaluates the classification at each balance
      sheet date to determine if the warrants issued in connection with the debt
      instruments will continue to be recorded as a liability or as equity. At
      December 31, 2007 and 2006, respectively, the Company does not have any
      outstanding debt or equity instruments requiring bifurcation and related fair
      value accounting.





***Income
      Taxes***





The
      Company follows Statement of Financial Accounting Standards No. 109, *“Accounting
      for Income Taxes”* (“SFAS
      No. 109”). Under SFAS No. 109, deferred tax assets and liabilities are
      recognized for the future tax consequences attributed to differences between
      the
      financial statement carrying amounts of existing assets and liabilities and
      their respective tax bases. Deferred tax assets and liabilities are measured
      using enacted tax rates expected to apply to taxable income in the years in
      which those temporary differences are expected to be recovered or settled.
      The
      effect on deferred tax assets and liabilities of a change in tax rates is
      recognized in income in the period that includes the enactment date. If it
      is
      more likely than not that some portion of a deferred tax asset will not be
      realized, a valuation allowance is recognized.





In
      June
      2006, the FASB issued Interpretation No. 48, *“Accounting
      for Uncertainty in Income Taxes—an Interpretation of FASB Statement No.
      109”* (FIN
      48). FIN 48 addresses the accounting and disclosure of uncertain tax positions.
      FIN 48 clarifies the accounting for income taxes, by prescribing a minimum
      recognition threshold a tax position is required to meet before being recognized
      in the financial statements. FIN 48 also provides guidance on derecognition,
      measurement and classification of amounts relating to uncertain tax positions,
      accounting for and disclosure of interest and penalties, accounting in interim
      periods, disclosures and transition relating to the adoption of the new
      accounting standard. The Company adopted FIN 48 on January 1, 2007, as required
      and determined that the adoption of FIN 48 did not have a material impact on
      the
      Company's consolidated financial position and results of
      operations.





Significant
      management judgment is required in developing the provision for income taxes,
      including the determination of deferred tax assets and liabilities and any
      valuation allowances that might be required against the deferred tax assets.
      Management evaluates its ability to realize its deferred tax assets on a
      quarterly basis and adjusts its valuation allowance when it believes that it
      is
      more likely than not that the asset will not be realized.





***Comprehensive
      Income (Loss)***





The
      Company adopted SFAS No. 130, *“Reporting
      Comprehensive Income”* ,
      which
      establishes standards for the reporting and display of comprehensive loss and
      its components in the consolidated financial statements. Comprehensive income
      or
      loss is comprised of net earnings or loss and other comprehensive income or
      loss, which includes certain changes in equity, excluded from net earnings,
      primarily foreign currency translation adjustments.





***Revenue
      Recognition***





The
      Company recognizes revenue in accordance with Staff Accounting Bulletin No.
      101, *“Revenue
      Recognition in Financial Statements”* (SAB
      No.
      101), as amended by Staff Accounting Bulletin No. 104, *“Revenue
      Recognition”* (SAB No.
      104). The Company recognizes revenue when each of the following four criteria
      is
      met: 1) a contract or sales arrangement exists; 2) products have been shipped
      or
      services have been rendered; 3) the price of the products or services is fixed
      or determinable; and 4) collectibility is reasonably assured. The Company
      currently has two primary sources of revenue: Licensing and Diagnostic
      Kits.




F-8


**ONCOVISTA
        INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


*Licensing
      -* The
      Company has entered into various license agreements with third parties that
      generate nonrefundable upfront and milestone license payments. Upfront license
      payments are reported as deferred revenue until they are recognizable as
      revenue, generally on a straight line basis over the term of the respective
      license period beginning only after both the license period has begun and the
      technology has been delivered. At December 31, 2007 and 2006, there was no
      deferred revenue recognized from upfront license payments. Milestone payments
      from license agreements are recognized as revenue upon achievement of the
      milestone, provided the payment is nonrefundable.





*Diagnostic
      Kits -* The
      Company recognizes revenues from the sale of diagnostic kits by third parties
      upon shipment. The Company’s customers have no right of return for products
      sold.





***Research
      and Development Expenses***





The
      Company’s research and development consists of costs associated with discovery
      research and product development. Discovery research is comprised of employee
      costs, laboratory materials and supplies, research-related overhead allocations,
      consulting and stock-based compensation. Included in product development are
      clinical trial costs, including expenses associated with contract research
      organizations, contract manufacturing, employee costs and patents. These costs
      are expensed as incurred.





***Customer
      Concentration***





For
      the
      years ended December 31, 2007, and 2006 and the Company derived a substantial
      portion of its revenues from one and two customers accounting for 88% and 63%,
      respectively.





***Regulatory
      Matters***





Regulations
      imposed by federal, state and local authorities in the United States, as well
      as
      authorities in other countries, are a significant factor in the conduct of
      research, development, manufacturing and eventual marketing of the Company’s
      products. In the United States, drugs, biological products, and medical devices
      are regulated by the United States Food, Drug and Cosmetic Act, which is
      administered by the U.S. Food and Drug Administration. In Europe, sales of
      diagnostic products are regulated by Directorate General III of the European
      Commission, which allows the Company’s subsidiary to market its products under
      CE label as clinical diagnostics in the European Community.





***Foreign
      Country Risks***





The
      Company may be exposed to certain risks as a portion of its operations are
      being
      conducted in Germany. These include risks associated with, among others, the
      political, economic and legal environment, as well as foreign currency exchange
      risk. The Company’s results may be adversely affected by change in the political
      and social conditions in Germany due to governmental policies with respect
      to
      laws and regulations, anti-inflationary measures, currency conversions and
      remittances abroad, and rates and methods of taxation, among other things.
      The
      Company does not believe these risks to be significant, and no such losses
      have
      occurred in the current or prior years because of these factors. However, there
      can be no assurance those changes in political and other conditions will not
      result in any adverse impact in future periods.





***Net
      Loss per Share***





Basic
      earnings (loss) per share are computed by dividing the net income (loss) by
      the
      weighted average number of common shares outstanding. Diluted earnings per
      share
      is computed by dividing net income by the weighted average number of common
      shares outstanding including the effect of share equivalents. Common stock
      equivalents consist of shares issuable upon the exercise of certain common
      stock
      purchase warrants and stock options.





F-9




**ONCOVISTA
        INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


At
      December 31, 2007 and 2006, the following numbers of shares have been excluded
      since such inclusion in the computation would be anti-dilutive:





2007
            
            2006Stock options outstanding under our various stock option plans
            
            
            1,090,000
            
            
            950,000Warrants
            
            
            2,391,712
            
            
            285,000Total
            
            
            3,481,712
            
            
            1,235,000





During
      2007, the Company issued 2,000,000 shares of unvested restricted stock to two
      of
      its officers for services to be rendered in the future. These shares are not
      considered outstanding for purposes of computing loss per share since these
      shares have not yet vested pursuant to the terms of the stock award. (See Note
      11).





In
      connection with the reverse acquisition and recapitalization, the computation
      of
      loss per share assumes that all share and per share amounts have been
      retroactively restated to reflect the shares of the legal acquirer.





***Share-Based
      Compensation***




All
      share-based payments to employees since inception have been recorded and
      expensed in the statements of operations as applicable under SFAS No. 123R, *“Share-Based
      Payment”* (SFAS
      123R). SFAS 123(R) requires the measurement and recognition of compensation
      expense for all share-based payment awards made to employees and directors
      including grants of employee stock options based on estimated fair values.
      The
      Company has used the Black-Scholes option-pricing model to estimate grant date
      fair value for all option grants.





Share-based
      compensation expense is based on the value of the portion of share-based payment
      awards that is ultimately expected to vest during the year, less expected
      forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of
      grant and revised, if necessary in subsequent periods if actual forfeitures
      differ from those estimates.





Additionally,
      during 2007 and 2006, respectively, common stock and warrants were issued in
      connection with the acquisition of licensing rights of intellectual property
      and
      treated as direct offering costs. There was no effect on equity.





***Foreign
      Currency Translation***





The
      financial position and results of operations of the Company’s foreign subsidiary
      are measured using the local currency (Euros) as the functional currency. Assets
      and liabilities of the subsidiary have been translated at current exchange
      rates
      as of December 31, 2007 and 2006, and related revenue and expenses have been
      translated at average exchange rates for the years ended December 31, 2007
      and
      2006. All equity transactions have been translated at their historical rates
      when the transaction occurred. Those translation adjustments are included as
      a
      component of accumulated other comprehensive loss and as a component of
      stockholders’ deficit. Transaction gains and losses related to operating assets
      and liabilities are included in general and administrative expense.





***Fair
      Value of Financial Instruments***





The
      carrying amounts of the Company’s short-term financial instruments, including
      accounts and other receivables, inventory, prepaid and other current assets,
      accounts payable, accrued expenses, loans payable, notes payable, and other
      payables, approximate fair value due to the relatively short period to maturity
      for these instruments.





***Reclassifications***




Certain
      amounts in the year 2006 financial statements have been reclassified to conform
      to the year 2007 presentation. The results of these reclassifications did not
      materially affect the Company’s consolidated financial position, results of
      operations or cash flows.








F-10




**ONCOVISTA
        INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


***Recent
      Accounting Pronouncements***





In
      September 2006, the FASB issued SFAS No. 157, *“Fair
      Value Measurements”* ,
      which
      clarifies the principle that fair value should be based on the assumptions
      that
      market participants would use when pricing an asset or liability. It also
      defines fair value and established a hierarchy that prioritizes the information
      used to develop assumptions. SFAS No. 157 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007. The Company does
      not
      expect SFAS No. 157 to have a material impact on its financial position, results
      of operations or cash flows.





In
      February 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards No. 159, “*The Fair
      Value Option for Financial Assets and Financial Liabilities — Including an
      Amendment of FASB Statement No. 115*” (“SFAS 159”). This standard
      permits an entity to measure financial instruments and certain other items
      at
      estimated fair value. Most of the provisions of SFAS No. 159 are elective;
      however, the amendment to FASB No. 115, “*Accounting for Certain
      Investments in Debt and Equity Securities*,” applies to all entities that
      own trading and available-for-sale securities. The fair value option created
      by
      SFAS 159 permits an entity to measure eligible items at fair value as of
      specified election dates. The fair value option (a) may generally be
      applied instrument by instrument, (b) is irrevocable unless a new
      election date occurs, and (c) must be applied to the entire instrument and
      not to only a portion of the instrument. SFAS 159 is effective as of the
      beginning of the first fiscal year that begins after November 15, 2007.
      Early adoption is permitted as of the beginning of the previous fiscal year
      provided that the entity (i) makes that choice in the first 120 days
      of that year, (ii) has not yet issued financial statements for any interim
      period of such year, and (iii) elects to apply the provisions of FASB 157.
      Management is currently evaluating the impact of SFAS 159, if any, on the
      Company’s financial statements. The adoption of SFAS No. 159 is not expected to
      have a material effect on its financial position, results of operations or
      cash
      flows.





In
      June
      2007, the Emerging Issues Task Force (“EITF”) issued EITF No. 07-01,
“ *Accounting
      for Collaborative Arrangements,*” (“EITF
      07-1”). EITF 07-1 provides guidance for companies in the biotechnology or
      pharmaceutical industries that may enter into agreements with other companies
      to
      collaboratively develop, manufacture, and market a drug candidate (Collaboration
      Agreements) and is effective for fiscal years beginning after December 15,
      2007.
      The Company does not expect that EITF 07-01 will have an effect on its financial
      condition or results of operations.




In
      June
      2007, the EITF issued EITF No. 07-3, “ *Accounting
      for Nonrefundable Advance Payments for Goods or Services to Be Used in Future
      Research and Development**Activities* *,*”
      (“EITF 07-3”). EITF 07-3 provides guidance for upfront payments related to goods
      and services of research and development costs and is effective for fiscal
      years
      beginning after December 15, 2007. The Company is currently evaluating the
      impact of EITF 07-3 on its financial statements.




In
      December 2007, the FASB issued SFAS No. 160, “*Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of Accounting Research Bulletin
      No 51*” (SFAS 160). SFAS 160 establishes accounting and reporting standards
      for ownership interests in subsidiaries held by parties other than the parent,
      changes in a parent’s ownership of a noncontrolling interest, calculation and
      disclosure of the consolidated net income attributable to the parent and the
      noncontrolling interest, changes in a parent’s ownership interest while the
      parent retains its controlling financial interest and fair value measurement
      of
      any retained noncontrolling equity investment. SFAS 160 is effective for
      financial statements issued for fiscal years beginning after December 15, 2008,
      and interim periods within those fiscal years. Early adoption is prohibited.
      The
      adoption of SFAS No. 160 is not expected to have a material effect on its
      financial position, results of operations or cash flows.




In
      December 2007, the FASB issued SFAS 141R, “*Business Combinations*”
(“SFAS 141R”), which replaces FASB SFAS 141, “*Business
      Combinations*”.  This Statement retains the fundamental requirements in
      SFAS 141 that the acquisition method of accounting be used for all business
      combinations and for an acquirer to be identified for each business combination.
      SFAS 141R defines the acquirer as the entity that obtains control of one or
      more
      businesses in the business combination and establishes the acquisition date
      as
      the date that the acquirer achieves control.  SFAS 141R will require
      an entity to record separately from the business combination the direct costs,
      where previously these costs were included in the total allocated cost of the
      acquisition.  SFAS 141R will require an entity to recognize the assets
      acquired, liabilities assumed, and any non-controlling interest in the acquired
      at the acquisition date, at their fair values as of that date.  This
      compares to the cost allocation method previously required by SFAS No.
      141.  SFAS 141R will require an entity to recognize as an asset or
      liability at fair value for certain contingencies, either contractual or
      non-contractual, if certain criteria are met.  Finally, SFAS 141R will
      require an entity to recognize contingent consideration at the date of
      acquisition, based on the fair value at that date.  This Statement
      will be effective for business combinations completed on or after the first
      annual reporting period beginning on or after December 15,
      2008.  Early adoption of this standard is not permitted and the
      standards are to be applied prospectively only.  Upon adoption of this
      standard, there would be no impact to the Company’s results of operations and
      financial condition for acquisitions previously completed.  The
      adoption of SFAS No. 141R is not expected to have a material effect on its
      financial position, results of operations or cash flows.




F-11


**ONCOVISTA
        INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


Other
      accounting standards that have been issued or proposed by the FASB or other
      standards-setting bodies that do not require adoption until a future date and
      are not expected to have a material impact on the financial statements upon
      adoption.




**Note
                3.**
            **GOING
                CONCERN**





As
      reflected in the accompanying consolidated financial statements, the Company
      has
      a net loss of approximately $5.6 million and net cash used in operations of
      approximately $2.9 million for the year ended December 31, 2007, a working
      capital deficit of approximately $0.2 million, an accumulated deficit of
      approximately $16.1 million and a total stockholders’ deficit of approximately
      $4.0 million at December 31, 2007.





The
      ability of the Company to continue as a going concern is dependent on
      management’s ability to further implement its strategic plan, resolve its
      liquidity problems, principally by obtaining additional debt and/or equity
      financing, and generate additional revenues from collaborative agreements or
      sale of pharmaceutical products. The Company is also in default on certain
      loans, notes, and related accrued interest aggregating $119,638 at December
      31,
      2007 (See Note 7). The Company believes its current available cash along with
      anticipated revenues may be insufficient to meet its cash needs for the near
      future. There can be no assurance that financing will be available in amounts
      or
      terms acceptable to the Company, if at all.





The
      accompanying consolidated financial statements have been prepared on a going
      concern basis, which contemplates the realization of assets and the satisfaction
      of liabilities in the normal course of business. These financial statements
      do
      not include any adjustments relating to the recovery of the recorded assets
      or
      the classification of the liabilities that might be necessary should the Company
      be unable to continue as a going concern.




**Note
                4.**
            **ACQUISITION,
                GOODWILL AND IMPAIRMENT**





***Goodwill
      Impairment***





In
      December 2005, the Company acquired a 51% interest in AdnaGen AG, a German
      corporation, for a total purchase price of approximately $1,784,000. In December
      2006, the Company performed an impairment review of its goodwill. Because of
      the
      Company’s possible inability to continue as a going-concern and because of the
      continuing poor economic, financial, and operating results of AdnaGen AG since
      its acquisition, combined with its deficit in equity and projected negative
      cash
      flow and operating results in future periods, management determined it could
      not
      support the carrying value of the goodwill that exceeded its fair value.
      Accordingly, goodwill of $4,359,832 was considered fully impaired at December
      31, 2006.





***Other
      Impairment Loss***





During
      2006, the Company also recognized an impairment loss of $96,203 related to
      a
      patent that was no longer being used by AdnaGen AG for commercialization of
      drug
      therapies. The impairment loss represented the remaining unamortized net book
      value of the patent.




F-12


**ONCOVISTA
        INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


**Note
                5.**
            **EQUIPMENT**




Equipment
      balances at December 31, 2007 and 2006 are summarized below:





2007
            
            2006Equipment
            
            $
            522,254
            
            $
            889,293Computer
                and office equipment
            
            
            100,395
            
            
            229,393Furniture
                and fixtures
            
            
            5,554
            
            
            −628,203
            
            
            1,118,686Less:
                accumulated depreciation
            
            
            (428,582
            )
            
            (885,121
            )Equipment,
                net
            
            $
            199,621
            
            $
            233,565






**Note
                6.**
            **ACCRUED
                EXPENSES**





Accrued
      expenses at December 31, 2007 and 2006 are summarized below:





2007
            
            2006Legal and professional
            
            $
            199,428
            
            $
            145,539Clinical and other studies
            
            
            90,685
            
            
            −Compensation
            
            
            118,671
            
            
            168,848Other
            
            
            159,970
            
            
            109,359Total accrued expenses
            
            $
            568,754
            
            $
            423,746




**Note
                7.**
            **DEBT**





The
      Company had the following outstanding loans and notes payable at December 31,
      2007 and 2006:




**2007**
            
            **2006**Unsecured
                loans payable to third parties with interest at 10%
              and
                due on demand
            
            $
            2,136,657
            
            $
            1,915,288Unsecured
                convertible notes payable to a third party with
              interest
                at 8% and due on demand, currently in default
            
            
            100,000
            
            
            100,000Unsecured
                convertible notes payable to a related party with
              interest
                at 8% and due on demand, currently in default
            
            
            −
            
            
            280,563Unsecured
                note payable to a third party with interest at
              5.5%,
                maturing in June 2008
            
            
            736,450
            
            
            660,150Unsecured
                note payable to a third party with interest at
              5%,
                maturing in December 2010
            
            
            2,209,350
            
            
            1,980,450Unsecured
                note payable to a third party with interest at
              9%,
                maturing in December 2010
            
            
            1,472,900
            
            
            1,320,300Total
                loans and notes payable
            
            
            6,655,357
            
            
            6,256,751Less:
                current portion
            
            
            (2,973,107
            )
            
            (1,615,896
            )Total
                long-term debt
            
            $
            3,682,250
            
            $
            4,640,855





In
      the
      above summary of loans and notes payable, $3,682,250, representing all of the
      long-term debt principal, has a contingent repayment plan. Under the plan,
      the
      obligation is repayable only from the profits of AdnaGen AG. In the event that
      AdnaGen AG does not have sufficient profits as of the scheduled maturity dates
      in 2008 and 2010, the obligations will be extinguished without recourse.





F-13




**ONCOVISTA
        INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


The
      aggregate maturities of loans and notes payable at December 31, 2007 are as
      follows:





2008
            
            $
            2,973,1072009
            
            
            −2010
            
            
            3,682,250$
            6,655,357





***Convertible
      Notes Payable***





The
      Company had $100,000 and $380,563 of convertible notes payable outstanding
      at
      December 31, 2007 and 2006, respectively. The debt holders, at their option,
      may
      convert the first $100,000 of principal and any accrued interest into shares
      of
      common stock at prices of $2.00 or $2.50 per share. The remaining outstanding
      principal and accrued interest may be converted at $2.50 per share. The market
      price at the date of each advance was either equal to or less than the
      conversion price; accordingly, the Company did not record a beneficial
      conversion feature.





During
      2005, Biomed Solutions, LLC (“Biomed”) loaned OncoVista a total of $525,563
      accruing interest at 8%. In 2006, OncoVista repaid $245,000 to Biomed. In
      October 2007, in full settlement of the remaining principal and interest of
      $356,428 due under the loan, OncoVista paid $300,000 to Biomed under the
      settlement terms. As a result, the Company recognized a gain on debt settlement
      of $56,428. Biomed is controlled by an affiliate company of one of OncoVista’s
      current directors, as well as one of OncoVista’s former directors.




**Note
                8.**
            **COLLABORATION,
                LICENSE AND OTHER
                AGREEMENTS**





***OSI
      Pharmaceuticals***





In
      November 2007, the Company entered into a license agreement with OSI
      Pharmaceuticals, Inc. (“OSI”) for a Phase II clinical candidate, OSI-7904L (the
“License Agreement”). OSI granted the Company an exclusive, royalty-bearing,
      worldwide license, with the right to grant sublicenses, with respect to OSI’s
      rights to OSI-7904L.





Pursuant
      to the License Agreement, the Company paid OSI an upfront license fee of
      $500,000 and is required to make payments based upon the achievement of
      specified milestones or product sales. In addition, if the drug candidate is
      commercially sold, then the Company would be required to pay royalties based
      on
      net sales of the drug. The Company would also be required to pay OSI with
      respect to royalty and milestone payments payable to certain third parties.
      As
      additional consideration, the Company issued 500,000 shares of common stock
      and
      two warrants to OSI having a fair value of $1,743,580 (See Note 11).




**Note
                9.**
            **LEASES,
                COMMITMENTS AND
                CONTINGENCIES**





***Lease
      Obligations***





In
      January 2005, the Company entered a five-year non-cancelable lease with an
      affiliate of the CEO, Chairman of the Board and President for office and
      laboratory space (See Note 10). Future minimum lease payments at December 31
      are
      as follows:




2008
            
            $
            199,9932009
            
            
            208,328$
            408,321





Total
      rent expense for OncoVista amounted to $231,947 and 210,814 for the years ended
      December 31, 2007 and 2006, respectively. Additionally, AdnaGen maintains an
      annual operating lease for its office and laboratory space expiring on December
      31, 2008. Payments made for AdnaGen under this agreement were $202,667 and
      $194,234 for the years ended December 31, 2007 and 2006, respectively.




F-14


**ONCOVISTA
        INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


***Employment
      Contracts***





The
      Company has employee contracts with certain executive officers, which have
      a
      commitment period of four years, expiring in 2008, 2009 and 2012, respectively.
      Compensation ranges from $140,000 to $322,000 as well as bonuses equivalent
      to
      30% to 40% of base salary. Bonuses are based on performance milestones, which
      have not yet been met; therefore, bonuses have not been paid or accrued for
      the
      years ended December 31, 2007 and 2006, respectively. In the event of
      termination without cause, the contract provides for a severance of salary
      and
      benefits continue for twelve months.





***Legal
      Matters***





On
      December 17, 2007, an action was filed against the Company in the Supreme Court
      of the State of New York, New York County, entitled Bridge Ventures, Inc. v.
      OncoVista, Inc. and Centrecourt Asset Management. The action seeks damages
      for
      the alleged breach of a consulting agreement and seeks an order directing the
      issuance of warrants to purchase the Company’s common stock. The Company filed a
      motion to dismiss the action, and on April 3, 2008 the motion was denied. The
      Company plans on filing its answer and counterclaim to the complaint by April
      13, 2008. Based on the allegations in the complaint and the Company’s
      understanding of the relevant facts and circumstances, it believes that the
      claims made in this lawsuit are without merit and the Company intends to
      vigorously defend against them.





**Note
                10.**
            **RELATED
                PARTY TRANSACTIONS**





The
      Company’s CEO, Chairman of the Board, President and a significant shareholder,
      and is beneficial owner of Lipitek International, Inc. and Lipitek Research,
      LLC. The Company leases its laboratory space from Lipitek, Inc. under a
      five-year lease agreement (See Note 9). Rent is based on reasonable and
      customary rates as if the space were rented to a third party.





On
      November 17, 2005, the Company entered into a purchase agreement with Lipitek
      and the Company’s CEO, Chairman of the Board, and President, which Lipitek
      granted the Company an option to purchase all membership interests in Lipitek
      Research, LLC (Lipitek Research) for a purchase price of $5.0 milion, which
      shall be payable quarterly based upon revenues of Lipitek Research up to $50,000
      per quarter. Prior to the full payment of the purchase price, the Company has
      the option, upon 30 days written notice, to abandon the purchase of Lipitek
      Research upon forfeiture of the amounts already paid. In addition, all
      intellectual property developments by Lipitek Research through the term of
      the
      agreement or 2012, whichever is later, shall remain the Company’s property,
      irrespective of whether the option is exercised. In addition, the Company will
      receive 80% of the research and development revenue earned by Lipitek while
      the
      agreement is in place. During 2007 and 2006, the Company paid $200,000 toward
      the agreement and is included as a component of research and development. In
      2007 and 2006, the Company recognized revenues of $0 and 40,000, respectively
      from its share of Lipitek revenues.





For
      the
      potential acquisition of Lipitek, the Company determined that, under SEC
      Regulation S-X, Rule 11-01(d) and EITF No. 98-3, *“Determining
      Whether a Nonmonetary Transaction Involves the Receipt of Productive Assets
      or
      of a Business”* ,
      Lipitek
      was classified as a development stage company and thus was not considered a
      business. As a result, SFAS No. 141 purchase accounting rules did not apply.
      The
      Company also cannot with any certainty determine at this time if it will
      exercise the option to purchase Lipitek in the future.





**Note
                11.**
            **STOCKHOLDERS’
                DEFICIT**





***Common
      Stock Transactions of Accounting Acquirer Prior to Reverse
      Acquisition***





In
      August
      2007, OncoVista completed a private placement (the “2007 Private Placement”)
      whereby it sold to accredited investors 970,712 units at $7.00 per unit, each
      unit consisting of four shares of OncoVista common stock and a warrant to
      acquire one share of OncoVista common stock. The net proceeds of the private
      placement after payment of placement agent fees and other expenses were
      approximately $6.2 million. In connection with the private placement, the
      Company issued warrants to the third parties to acquire 886,000 shares of common
      stock. The warrants are exercisable through August 15, 2012 at exercise prices
      of $0.001 and $2.50 per share, subject to adjustment for stock splits, stock
      dividends, distributions, reorganizations, reclassifications, consolidations
      and
      mergers. These warrants were granted as compensation in connection with the
      private placement, the Company has treated these warrants as a direct offering
      cost. The result of the transaction has no net effect on equity. These warrants
      are fully vested and non-forfeitable.




F-15


**ONCOVISTA
        INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


During
      2006, the Company issued 1,404,000 shares of common stock at $2.50 per share
      for
      $3,510,000 in a private placement. In connection with raising these funds,
      the
      Company paid $152,250 in direct offering costs that were charged to additional
      paid-in capital. Also in 2006, the Company issued 66,579 shares of common stock
      as a direct offering cost in connection with a private placement. These shares
      were issued as compensation in connection with an equity offering; as such
      the
      Company has treated these shares as a direct offering cost. The result of the
      transaction has no net effect on equity.





***Common
      Stock***





The
      Company is authorized to issue up to 100,000,000 shares of common stock. At
      December 31, 2007, shares of common stock reserved for future issuance are
      as
      follows:





Stock
                options outstanding
            
            
            1,090,000Warrants
                outstanding
            
            
            2,391,712Stock
                options available for grant
            
            
            3,410,0006,891,712





***Restricted
      Stock***





In
      October 2007, OncoVista granted an aggregate of 2,000,000 shares of restricted
      stock to certain officers for $3.5 million based upon the quoted closing trading
      price on the date of issuance. These shares, subject to future service
      requirements, vest one third on each of January 1, 2009, January 1, 2010 and
      January 1, 2011. As of December 31, 2007, there was approximately $3.5 million
      of total unrecognized compensation cost related to unvested restricted stock.
      For the years ended December 31, 2007 and 2006, no compensation expense was
      recognized for vested restricted stock grants.





***Stock
      Option Plans***





In June
      2007, the Company’s board of directors adopted the 2007
      Stock Option Plan (“2007
      Plan”). The 2007 Plan provides for the grant of incentive stock options,
      non-statutory stock options and restricted stock awards to employees, directors
      and consultants who provide service to the Company. The Company has
      reserved 3,000,000 shares of common stock for issuance under the 2007
      Plan.





In June
      2007, the Board of Directors authorized the 2007 Stock Option Plan for
      Independent and Non-Employee
      Directors (the
      “Independent Directors Plan”). Options granted under the Director Plan shall be
      nonstatutory options and may be granted to nonemployee directors at an exercise
      price equal to the fair market value at the date of grant. The maximum term
      of
      options granted under the Director Plan is ten years. The term of the Director
      Plan is ten years. The Company has reserved 500,000 shares of common stock
      for
      issuance under the Director Plan.





The
      Company granted options to its officers and employees under its 2004
      Stock Incentive Plan (the
      “Plan”). The Plan is authorized to grant options for up to 1,000,000 shares of
      common stock to employees, directors, and consultants who provide service to
      the
      Company. Options granted have a vesting schedule with a term ranging from grant
      date to four years and become fully exercisable based on specific terms imposed
      at the date of grant. All awards pursuant to the Plan shall terminate upon
      the
      termination of the grantees employment for any reason.





All
      option grants are expensed in the appropriate period based upon each award’s
      vesting terms, in each case with an offsetting credit to additional paid in
      capital. Under SFAS No. 123R, in the event of termination, the Company will
      cease to recognize compensation expense. There is no deferred compensation
      recorded upon initial grant date, instead, the fair value of the share-based
      payment is recognized ratably over the stated vesting period. Vesting periods
      for the Company’s stock option awards during 2007 and 2006 included the
      following: one-half vesting on the first anniversary and one-half on the second
      anniversary, monthly over two years, and annually over four years. The Company
      granted 140,000 and 330,000 options for future services having fair values
      of
      $244,692 and $824,115 in 2007 and 2006, respectively.




F-16


**ONCOVISTA
        INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


The
      stock-based compensation expense recorded by the Company for the years ended
      December 31, 2007 and 2006, with respect to awards under the Plan is as
      follows:





2007
            
            2006Research and development
            
            $
            124,975
            
            $
            62,488General and administrative
            
            
            243,726
            
            
            368,701Total employee stock-based compensation
            
            $
            368,701
            
            $
            431,189





The
      Company recognized $224,726 and $137,398 as consulting expense and such amounts
      are included in general and administrative expense in the consolidated
      statements of operations for the years ended December 31, 2007 and 2006,
      respectively.





The
      Company has followed fair value accounting and the related provisions of SFAS
      No. 123R for all share based payment awards. The fair value of each option
      or
      warrant granted is estimated on the date of grant using the Black-Scholes
      option-pricing model.





The
      Black-Scholes assumptions used in the years ended December 31, 2007 and 2006
      are
      as follows:





2007
            
            2006Risk-free
                interest rate
            
            
            3.23-4.21%
            
            
            4.36-5.01%Expected
                dividend yield
            
            
            0%
            
            
            0%Expected
                volatility
            
            
            200%
            
            
            200%Expected
                life of option
            
            
            10
                years
            
            
            10
                yearsExpected
                forfeitures
            
            
            0%
            
            
            0%





The
      following is a summary of the Company’s stock option activity:





Shares
            
            Weighted
                Average Exercise Price
            
            Weighted
                Average
              Remaining
                Contractual Term
            
            Aggregate
              Intrinsic
                ValueOutstanding at December 31, 2005
            
            
            620,000
            
            $
            0.06Granted
            
            
            330,000
            
            
            2.30Exercised
            
            
            −
            
            
            −Forfeited
            
            
            −
            
            
            −Outstanding at December 31, 2006
            
            
            950,000
            
            $
            0.78Granted
            
            
            140,000
            
            
            1.75Exercised
            
            
            −
            
            
            −Forfeited
            
            
            −
            
            
            −Outstanding at December 31, 2007
            
            
            1,090,000
            
            $
            0.91
            
            
            8.06
            
            $
            2,024,190Options Exercisable at December 31, 2007
            
            
            540,000
            
            $
            0.61
            
            
            7.73
            
            $
            1,049,580











F-17




**ONCOVISTA
        INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**





The
      following table summarizes outstanding and exercisable options at December
      31,
      2007:





Options
                Outstanding
            
            Options
                ExercisableRange
                of Exercise Prices
            
            Number
                Outstanding
            
            Weighted
                Average Remaining Contractual Life
              (in
                years)
            
            Weighted
                Average Exercise Price
            
            Number
                Currently
              Exercisable
            
            Weighted
                Average Exercise Price$
                0.001
            
            
            250,000
            
            
            7.04
            
            $
            0.001
            
            
            125,000
            
            $
            0.0010.10
            
            
            420,000
            
            
            7.29
            
            
            0.10
            
            
            295,000
            
            
            0.101.75
            
            
            140,000
            
            
            9.69
            
            
            1.75
            
            
            −
            
            
            1.752.50
            
            
            280,000
            
            
            8.28
            
            
            2.50
            
            
            120,000
            
            
            2.501,090,000
            
            
            8.06
            
            $
            0.91
            
            
            540,000
            
            $
            0.61





The
      following summarizes the activity of the Company’s stock options that have not
      vested for the year ended December 31, 2007:




Shares
            
            Weighted
                Average Fair ValueNonvested
                at December 31, 2006
            
            
            647,500
            
            $
            2.50Granted
            
            
            140,000
            
            
            1.75Vested
            
            
            (237,500
            )
            
            2.50Cancelled
                or forfeited
            
            
            −
            
            
            −Outstanding
                at December 31, 2007
            
            
            550,000
            
            $
            2.31




***Stock
      and Warrants Issued for Licensing Rights of Intellectual
      Property***





During
      2007, the Company issued 500,000 shares of common stock and 200,000 stock
      warrants having a fair value of approximately $1.7 million to acquire the
      licensing rights for intellectual property held by OSI (See Note 8). The fair
      value of the common stock was approximately $1.3 million based upon the quoted
      closing trading price on the issuance date. The Company recorded fair value
      for
      the warrants of $493,580 based upon the use of a Black-Scholes option-pricing
      model.





During
      2006, the Company issued 100,000 shares of common stock and warrants to acquire
      200,000 shares of common stock having a fair value of $738,620. The fair
      value of the common stock was $250,000 based upon the recent cash-offering
      price
      in the Company’s then private placement at that time. The value of the warrants
      was $488,620 based upon the use of a Black-Scholes option-pricing model. See
      further discussion of warrants granted in the tables below.





***Warrants***





In
      2007,
      the Company issued warrants in connection with a license agreement with OSI
      (See
      Note 8). The first warrant is exercisable into the number of shares of the
      Company’s common stock equal to $5.0 million divided by the average closing
      price of the Company’s common stock on a national securities exchange registered
      with the Commission for the 20 consecutive trading days immediately following
      the listing of the Company’s common stock on such exchange; provided that the
      warrant shall be exercisable for 19.99% of the Company’s outstanding shares of
      common stock if the exercise of the warrant results in a number of shares
      exceeding 20% of outstanding shares of common stock. As the Company’s stock is
      currently traded on the Over-the-Counter Bulletin Board, this warrant has not
      been granted. The second warrant is exercisable, through September 2013, for
      200,000 shares of common stock at an exercise price of $2.50 per share. The
      warrants provide for an exercise on a “cashless” or “net issuance” basis and are
      subject to adjustment for events such as stock splits, stock dividends,
      distributions, reorganizations, consolidations and mergers affecting the
      Company’s common stock.








F-18




**ONCOVISTA
          INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2007 and 2006**


In
      2007,
      the Company also issued 50,000 warrants to a third party at an exercise price
      of
      $2.50 per share in return for professional and consulting services, exercisable
      through November 2012. The Company valued these warrants based on the
      Black-Scholes option pricing model and recorded $122,070 as a non-cash
      charge.




In
      2006,
      the Company issued 85,000 warrants to a third party in connection with a private
      placement. These warrants were considered a direct offering cost; as such there
      was no effect on equity.





The
      following is a summary of the Company’s warrant activity:




Shares
            
            Weighted
                Average Exercise PriceOutstanding at December 31, 2005
            
            
            −
            
            $
            −Granted
            
            
            285,000
            
            
            2.50Exercised
            
            
            −
            
            
            −Forfeited
            
            
            −
            
            
            −Outstanding at December 31, 2006
            
            
            285,000
            
            $
            2.50Granted
            
            
            2,106,712
            
            
            2.19Exercised
            
            
            −
            
            
            −Forfeited
            
            
            −
            
            
            −Outstanding at December 31, 2007
            
            
            2,391,712
            
            $
            2.23Exercisable at December 31, 2007
            
            
            2,391,712
            
            $
            2.23





The
      following table summarizes outstanding and exercisable warrants at December
      31,
      2007:





Warrants
                Outstanding
            
            Warrants
                ExercisableRange
                of Exercise Prices
            
            Number
                Outstanding
            
            Weighted
                Average Remaining Contractual Life
              (in
                years)
            
            Weighted
                Average Exercise Price
            
            Number
                Currently
              Exercisable
            
            Weighted
                Average Exercise Price$
                0.001
            
            
            257,143
            
            
            4.50
            
            $
            0.001
            
            
            257,143
            
            $
            0.001$2.50
            
            
            2,134,569
            
            
            4.55
            
            
            $2.50
            
            
            2,134,569
            
            
            $2.502,391,712
            
            
            4.54
            
            $
            2.23
            
            
            2,391,712
            
            $
            2.23








The
      Black-Scholes assumptions used for warrants for the years ended December 31,
      2007 and 2006 are as follows:





2007
            
            2006Risk-free
                interest rate
            
            
            3.5%
            
            
            4.86%Expected
                dividend yield
            
            
            0%
            
            
            0%Expected
                volatility
            
            
            200%
            
            
            200%Expected
                life
            
            
            5
                years
            
            
            10
                yearsExpected
                forfeitures
            
            
            0%
            
            
            0%







F-19







**ONCOVISTA
        INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**





**Note
                  12.**
              **INCOME
                TAXES**


The
      Company files separate tax returns for its parent and AdnaGen AG, its 85% owned
      German subsidiary. The parent company does not benefit from any losses or incur
      any tax liabilities with respect to its ownership of AdnaGen AG. Accordingly,
      the Company has not incurred any U.S. Federal or State tax expense since its
      inception.





Significant
      deferred tax assets at December 31, 2007 and 2006 are as follows:





2007
            
            2006Deferred tax assets:Net operating loss carryforwards, United States
            
            $
            3,238,000
            
            $
            1,580,000Adjustment to prior year net operating loss carryforward
            
            
            −
            
            
            (86,000
            )Impairment loss
            
            
            607,000
            
            
            607,000Share-based compensation and consulting
            
            
            459,000
            
            
            257,000Organization costs
            
            
            11,000
            
            
            12,000Total deferred tax assets
            
            
            4,315,000
            
            
            2,370,000Less: valuation allowance
            
            
            (4,315,000
            )
            
            (2,370,000
            )Net deferred tax assets
            
            $
            −
            
            $
            −





In
      assessing the realizability of deferred tax assets, management considers whether
      it is more likely than not that some portion or all of the deferred income
      tax
      assets will not be realized. The ultimate realization of deferred income tax
      assets is dependent upon the generation of future taxable income during the
      periods in which those temporary differences become deductible. Management
      considers the scheduled reversal of deferred income tax liabilities, projected
      future taxable income, and tax planning strategies in making this assessment.
      Based on consideration of these items, management has determined that enough
      uncertainty exists relative to the realization of the deferred income tax asset
      balances to warrant the application of a full valuation allowance as of December
      31, 2007 and 2006.





At
      December 31, 2007, OncoVista, Inc. had U.S. tax net operating loss carryforwards
      of approximately $9.5 million available to offset future taxable income which
      will expire at various dates through 2027. The utilization of tax net operating
      losses may be limited due to the change in ownership under Internal Revenue
      Code
      Section 382. AdnaGen AG tax attributes from its separately filed tax return
      in
      Germany is subject to the rules and regulations of that country.





During
      the year ended December 31, 2006, the Company recorded an estimate for its
      deferred tax assets, which included a net operating loss carryforward. In 2007,
      the Company reassessed its original position on the net operating loss
      carryforward and determined that the estimate for 2006 was materially different
      from the amount included in the corporate tax return. The above schedule
      reflects the adjusted balances at December 31, 2007 and 2006 balances, including
      the change in management’s estimate.





The
      actual tax benefit differs from the expected tax benefit for the years ended
      December 31, 2007 and 2006 (computed by applying the U.S. Federal Corporate
      tax
      rate of 34% to income before taxes) are as follows:





2007
            
            2006Expected
                tax expense (benefit)
            
            $
            (1,905,000
            )
            $
            (2,947,000
            )Permanent differences:Impairment charge in excess of tax basis
            
            
            −
            
            
            876,000Translation loss and other items
            
            
            4,000
            
            
            (97,000
            )Rate differential and impact of foreign subsidiary
            
            
            (44,000
            )
            
            316,000Change in valuation allowance
            
            
            1,945,000
            
            
            1,852,000Consolidated
                effective tax rate
            
            $
            −
            
            $
            −







F-20







**ONCOVISTA
        INNOVATIVE THERAPIES, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2007 and 2006**


**Note
                13.**
            **SEGMENT
              INFORMATION**




The
      Company follows SFAS No. 131, *“Disclosure
      about Segments of an Enterprise and Related Information”* ,
      with
      respect to its operating segments. The Company’s revenue is substantially
      derived from the operation in a single business segment, the development of
      innovative tumor diagnostics for detection, analysis, and treatment of rare
      (cancer) cells. Sales to customers outside the United States (in Europe) are
      made by AdnaGen AG, the Company’s German subsidiary.





A
      summary
      of the Company’s operations for the years end December 31, 2007 and 2006 is
      provided below:





2007OncoVista
            
            AdnaGen
            
            TotalRevenues
            
            $
            80,000
            
            $
            1,741,040
            
            $
            1,821,040Operating expenses
            
            
            5,945,696
            
            
            1,540,506
            
            
            7,486,202Income (loss) from operations
            
            
            (5,865,696
            )
            
            200,534
            
            
            (5,665,162
            )Other income (expense), net
            
            
            134,196
            
            
            (71,427
            )
            
            62,769Net income (loss)
            
            $
            (5,731,500
            )
            $
            129,107
            
            $
            (5,602,393
            )Total assets
            
            $
            3,807,730
            
            $
            1,142,219
            
            $
            4,949,949




2006OncoVista
            
            AdnaGen
            
            TotalRevenues
            
            $
            40,000
            
            $
            1,887,456
            
            $
            1,927,456Operating expenses
            
            
            3,437,972
            
            
            2,173,237
            
            
            5,611,209Loss from operations
            
            
            (3,397,972
            )
            
            (285,781
            )
            
            (3,683,753
            )Other expense
            
            
            (4,341,822
            )
            
            (642,647
            )
            
            (4,984,469
            )Net loss
            
            $
            (7,739,794
            )
            $
            (928,428
            )
            $
            (8,668,222
            )Total assets
            
            $
            1,637,694
            
            $
            729,452
            
            $
            2,367,146








**Note
                14.**
            **SUBSEQUENT
                EVENTS**





In
      January 2008, the Company granted options to certain employees and consultants
      to purchase 240,000 shares of common stock at exercise prices between $1.75
      and
      $2.50. Vesting periods for these awards included the following: one-half vesting
      on the first anniversary and one-half on the second anniversary, and annually
      over four years. The fair value of the options was $463,220 based upon the
      use
      of a Black-Scholes option-pricing model using the following
      assumptions:




Risk-free
                interest rate
            
            
            2.54-3.09%Expected
                dividend yield
            
            
            0%Expected
                volatility
            
            
            80.5%Expected
                life
            
            
            10
                yearsExpected
                forfeitures
            
            
            0%





In
      February 2008, the Company issued to a consultant warrants to acquire 540,000
      shares of our common stock as follows: up to 180,000 shares at $2.50 per share;
      180,000 shares at $3.50 per share; and 180,000 shares at $4.50 per share,
      vesting in equal monthly installments over one year. The value of the warrants
      was approximately $1.1 million based upon the use of a Black-Scholes
      option-pricing model using the following assumptions:





Risk-free
                interest rate
            
            
            2.13%Expected
                dividend yield
            
            
            0%Expected
                volatility
            
            
            80.5%Expected
                life
            
            
            5
                yearsExpected
                forfeitures
            
            
            0%





F-21