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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-KSB
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 OR
 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: 000-51834
 SIRION HOLDINGS, INC.
  Delaware
    
    20-4142367(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 3110 Cherry Palm Drive, Suite 340
 Tampa, Florida 33619
  (813) 496-7325
  None
  None
 þ
 þ o
 þ
 o þ
    o þ
 DOCUMENTS INCORPORATED BY REFERENCE




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##### 



INDEX
 PagePART I
    
    
    3Item 1.
    
    Description of Business
    
    
    3Item 2.
    
    Description of Property
    
    
    10Item 3.
    
    Legal Proceedings.
    
    
    10Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    11PART II
    
    
    11Item 5.
    
    Market for Common Equity, Related Stockholders Matters and
Small Business Issuer Purchases of Equity Securities
    
    
    11Item 6.
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    12Item 7.
    
    Financial StatementsBalance Sheet as of December 31, 2006
    
    
    33Statement of Operations of the twelve months ended December 31, 2006 and December 31, 2005
    
    
    34Statement of
Stockholders Equity for the years
ended December 31, 2006 and December 31, 2005
    
    
    35Statement of Cash Flows for the twelve months ended December 31, 2006 and December 31, 2005
    
    
    36Notes to the Financial Statements
    
    
    38Item 8.
    
    Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    53Item8A.
    
    Controls and Procedures
    
    
    53Item 8B.
    
    Other Information
    
    
    54PART III
    
    
    54Item 9.
    
    Directors, Executive Officers, Promoters , Control Persons and Corporate Governance;
Compliance With Section 16(a) of the Exchange Act
    
    
    54Item 10.
    
    Executive Compensation
    
    
    57Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    58Item 12.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    61Item 13.
    
    Exhibits
    
    
    64Item 14.
    
    Principal Accountant Fees and Services
    
    
    67EX-10.49 LICENSE AGREEMENT THEA VIRGAN REDACTEDEX-21.1 LIST OF SUBSIDIARIESEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF SVP FINANCEEX-32 SECTION 906 CERTIFICATION CEO & SVP FINANCE
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FORWARD-LOOKING STATEMENTS
    EXPLANATORY
NOTE
  
 Part I
 
 Item 1. Description of Our Business
 Corporate Overview and History
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Overview of Our Business
  Biopharmaceutical
  
    
    ST-601.ST-601 is a potent ophthalmic steroid emulsion with indications
for steroid responsive inflammatory ophthalmic diseases. Ophthalmic steroids are widely
used to treat many ophthalmic diseases and to prevent inflammation following most
ophthalmic surgeries. ST-601 has been studied extensively in Japan, including clinical
trials in human subjects. We have filed an Investigational New Drug application with the
FDA and started a Phase III program in the first quarter of 2007.
    
    ST-602. Formerly designated SYT-101, ST-602 is a product aimed at
reducing the accumulation of toxic vitamin A derivatives, including A2E (lipofuscin) in
the eye by reducing the level of serum retinol. It is theorized that the accumulation of
these toxins in the eye is responsible for vision loss in such diseases as dry
age-related macular degeneration, or dry AMD, geographic atrophy and Stargardts
disease. We have commenced the enrollment process for patients in a Phase II clinical
study of this product in human subjects in the United States.
    
    ST-603.ST-603 is a compound, with the active ingredient cyclosporine-A,
which we are developing for use with the Sophisen ocular delivery system, a carrier of
ophthalmic drug products. We began a clinical program with this product in the first
quarter of 2007. We are evaluating options in a number of disease states, including dry
eye syndrome.
    
    ST-605.ST-605 is a topical gel with the active ingredient ganciclovir.
We expect to bring this product to the market as a treatment for ocular manifestations
of herpes virus. In January 2007, acquired the exclusive rights to develop,
manufacture, sell and distribute ST-605 in the U.S. and all U.S. territories and
possessions from Laboratoires Thea S.A., a leading French ophthalmic pharmaceutical
company.
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Contract Services
  Our Strategy
   Marketing and Sales
   Customers and Distribution
  Manufacturing
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Competition
   Intellectual Property and Licensing Arrangements
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Research and Product Development
   Government Regulation
 Biopharmaceutical
    
    
    preclinical studies;
    
    submission of an Investigational New Drug Application, or IND, for clinical trials;
    
    adequate and well-controlled human clinical trials to establish the safety and efficacy of the product;
    
    submission of a New Drug Application, or NDA, to obtain marketing approval;
    
    review of the NDA; and
    
    inspection of the facilities used in the manufacturing of the drug to assess
compliance with current Good Manufacturing Practice, or cGMP, regulations.
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Contract Services
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Additional Regulation
    Employees
  Company Information
 www.siriontherapeutics.com
 
 Item 2. Description of Property
   
 Item 3. Legal Proceedings
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Item 4. Submission of Matters to a Vote of Security Holders
  
    
    Amendment of our Certificate of Incorporation to change our corporate name to Sirion
Holdings, Inc.;
    
    Amendment of our Certificate of Incorporation to add a provision allowing for
mandatory compromises between the Company (or a receiver or trustee appointed for the
Company) and our future creditors, future stockholders or both under certain
circumstances; and
    
    Adoption of the Sirion Holdings, Inc. 2006 Stock Incentive Plan.
  
 PART II
 
 Item 5.
    
    Market for Common Equity, Related Stockholders Matters and Small Business Issuer Purchases
of Equity Securities
 Market Information
  Holders
  Dividends
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Recent Sales of Unregistered Equity Securities.
   
 Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
     Company History
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Biopharmaceutical Business
   Contract Services Business
   Critical Accounting Policies
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Use of Estimates
  Revenue Recognition
    Fair Value of Financial Instruments
  Research and Development Expense
  Accounts Receivable/Allowance for Doubtful Accounts
  Impairment of Long-Lived Assets
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Stock-based Compensation
  Risk Factors
 Risks Related To Our Business and Our Industry
 If we do not receive regulatory approvals for our product candidates, we will not be able to
commercialize our products, which would substantially impair our ability to generate revenues and
materially harm our business and financial condition.
    
    
    FDA officials may not find a product candidate sufficiently safe or effective to merit an
approval;
    
    FDA officials may not find that the data from preclinical testing and clinical
trials justifies approval, or they may require additional studies that would make it
commercially unattractive to continue pursuit of approval;
    
    the FDA might not approve the processes or facilities of our contract
manufacturers or raw material suppliers or our manufacturing processes or facilities;
    
    the FDA may change its approval policies or adopt new regulations; and
    
    the FDA may approve a product candidate for indications that are narrow or under
conditions that place our product at a competitive disadvantage, which may limit our
sales and marketing activities or otherwise adversely impact the commercial potential of
a product.
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Compliance with the extensive government regulations to which we are subject is expensive and
time consuming, and may result in the delay, cessation or cancellation of product sales,
introductions or modifications.
     Failure to adequately comply with all applicable regulations may adversely affect our
business.
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Legislative actions, higher insurance costs and potential new accounting pronouncements are
likely to impact our future financial position and results of operations.
  If we have problems with our contract manufacturers, our product development and
commercialization efforts could be delayed or stopped.
  Our suppliers and manufacturers are subject to regulation by the FDA and other agencies, and
if they do not meet their commitments, we would have to find substitute suppliers or manufacturers,
which could delay or prevent the supply of our products to market.
  If our products do not gain market acceptance, we may not be able to fund future operations.
  
    
    the price of our products relative to other therapies for the same or similar treatments;
    
    the perception by patients, physicians and other members of the health care
community of the effectiveness and safety of our products for their prescribed
treatments;
    
    relative convenience and ease of administration of our products;
    
    the willingness of the target patient population to try new therapies and of
physicians to prescribe these therapies;
    
    publicity concerning our products or competing products or treatments;
    
    sufficient third party insurance coverage or reimbursement;
    
    our ability to fund our sales and marketing efforts; and
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
    
    the effectiveness of our sales and marketing efforts.
   The rising cost of healthcare and related pharmaceutical product pricing has led to
cost-containment pressures that could cause us to sell our products at lower prices, resulting in
less revenue to us.
  Our Contract Services business depends on the biopharmaceutical industry for its revenue,
making us vulnerable to economic factors and industry trends in that industry.
  The contracts in our Contract Services business may be delayed, terminated or reduced in scope
with little or no notice.
  The fixed price nature of many of the contracts in our Contract Services business could result
in financial losses.
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If we fail to properly manage our anticipated growth, our business could suffer.
  Our failure to acquire and develop additional product candidates or approved products will
impair our ability to grow.
  If we engage in acquisitions, we will incur a variety of costs, and the anticipated benefits
of the acquisitions may never be realized.
  
    
    assimilating employees, operations, technologies and products from the acquired
companies with our existing employees, operations, technologies and products;
    
    diverting our managements attention from day-to-day operation of our business;
    
    entering markets in which we have no or limited direct experience; and
    
    potentially losing key employees from the acquired companies.
  We will need to raise additional capital to fund research and development, sales and marketing
and operating expenses, and such capital may not be available or, if available, may not be on terms
favorable to the Company or our stockholders.
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Research and development costs relating to existing or future products resulting from our
Biopharmaceutical business are difficult to estimate and may change frequently prior to regulatory
approval.
   
    
    the number of patients required to participate in clinical trials to demonstrate
statistical significance for a drugs safety and efficacy and the number and
geographical location of clinical trial sites necessary to enroll such patients;
    
    the time required to enroll the targeted number of patients in clinical trials,
which may vary depending on the size and availability of the targeted patient population
and the perceived benefit to the clinical trial participants; and
    
    the number and type of required laboratory tests supporting clinical trials.
   
    
    data collected in preclinical or clinical trials may prompt significant changes,
delays or enhancements to an ongoing development program;
    
    the FDA, or other regulatory authorities, may direct the sponsor to change or
enhance its ongoing development program based on developments in the testing of similar
compounds or related compounds;
    
    unexpected regulatory requirements or interim reviews by regulatory agencies may
cause delays or changes to development programs; and
    
    anticipated manufacturing costs may change significantly due to required changes
in manufacturing processes, variances from anticipated manufacturing process yields or
changes in the cost and/or availability of starting materials, and other costs to ensure
the manufacturing facility is in compliance with cGMP requirements and is capable of
consistently producing the drug candidate in accordance with established specifications
submitted to the FDA.
  Our product development efforts may not result in commercial products.
  
    
    a failure to be safe or effective for the intended use (despite that it may have
demonstrated positive preclinical trial results);
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
    
    the existence of negative side effects;
    
    the failure to demonstrate stability data necessary for the launch of a commercial product;
    
    failure to obtain FDA or other regulatory approval for the intended use;
    
    the product candidate was not economical for us to manufacture and commercialize; and
    
    the failure to secure, perfect or protect rights to the product candidate.
  If we fail to reach milestones or otherwise breach our obligations under our license
agreements, our licensors may terminate our agreements with them.
  The departure of our Chief Executive Officer, Barry Butler, our Chief Medical Officer, Roger
Vogel, M.D., or other key personnel could compromise our ability to execute our strategic plan and
result in additional severance costs to us.
  We may be required to initiate or defend against legal proceedings related to intellectual
property rights, which may result in substantial expense, delay and cessation of our development
and commercialization of our products.
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We face intense competition and rapid technological change that could result in the
development of products by others that are superior to the products we are developing.
   We may be exposed to product liability claims, and insurance against these claims may not be
available to us on reasonable terms, or at all.
   Our business activities involve the use of hazardous materials, which require compliance with
environmental and occupational safety laws regulating the use of such materials. If we violate
these laws, we could be subject to significant fines, liabilities or other adverse consequences.
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We have concluded that our disclosure controls and procedures are not effective and our
internal controls over financial reporting suffer from material weaknesses.
  Risks
Related to Our Stock
 There
may be limited or no public information available about the Company and its stockholders
in the future.
  There is no public market for our common stock.
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If a public market does develop for our stock, our stock price may be subject to significant
volatility.
  
    
    the scope, outcome and timeliness of any governmental, court or other regulatory
action that may involve us, including, without limitation, the scope, outcome or
timeliness of any inspection or other action of the FDA;
    
    market acceptance and demand for our approved products;
    
    the availability to us, on commercially reasonable terms or at all, of
third-party sourced products and materials;
    
    timely and successful implementation of our strategic initiatives, including the
expansion of our commercial infrastructure to support the marketing, sale, and
distribution of our approved products;
    
    developments concerning proprietary rights, including the ability of third
parties to assert patents or other intellectual property rights against us which, among
other things, could cause a delay or disruption in the development, manufacture,
marketing or sale of our products;
    
    competitors publicity regarding actual or potential products under development
or new commercial products, and the impact of competitive products and pricing;
    
    period-to-period fluctuations in our financial results;
    
    public concern as to the safety of new technologies;
    
    future sales of debt or equity securities by us;
    
    sales of our securities by our directors, officers or significant shareholders;
    
    comments made by securities analysts; and
    
    economic and other external factors, including disasters and other crises.
  We may seek to raise additional funds, finance acquisitions or develop strategic relationships
by issuing capital stock.
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Concentration of ownership and contractual rights could delay or prevent a change in control
and could enable certain stockholders to exert control over us and our significant corporate
decisions.
    Provisions in our charter documents, and Delaware law may inhibit a takeover of us, which
could limit the price investors might be willing to pay in the future for our common stock, and
could entrench management.
  
    
    the ability of the board of directors to designate the terms of and issue new series of preferred stock;
    
    advance notice requirements for nominations for election to the board of directors;
    
    special voting requirements for the amendment of our charter and bylaws; and
    
    the right of the holders of our Series A Convertible Preferred Stock to approve
changes in control and assets sales unless such transactions are unanimously approved by
our Board of Directors or approved by a minimum number of independent directors.
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We have no current intention of declaring or paying any cash dividends on our common stock,
and even if we decided to declare a dividend, provisions in our charter restrict our ability to do
so.
   Results of Operations
 Year Ended December 31, 2006 Compared With Year Ended December 31, 2005
  Year Ended December 31,
    
    Year to Year Change(000s)
    
    2006
    
    2005
    
    Dollars
    
    %Operating revenue
    
    $
    3,473
    
    
    
    1,400
    
    
    
    2,073
    
    
    
    148
    %Operating expenseSales, general & admin expense
    
    
    12,078
    
    
    
    2,508
    
    
    
    9,570
    
    
    
    382
    %Research and development
    
    
    3,320
    
    
    
    2,476
    
    
    
    844
    
    
    
    34
    %Total operating expense
    
    
    15,398
    
    
    
    4,984
    
    
    
    10,414
    
    
    
    209
    %Loss from operations
    
    
    (11,925
    )
    
    
    (3,584
    )
    
    
    (8,341
    )
    
    
    233
    %Other income (expense) (1)
    
    
    (2,850
    )
    
    
    (808
    )
    
    
    (2,042
    )
    
    
    253
    %Corporate Income Tax Expense
    
    
    (3,460
    )
    
    
    0
    
    
    
    (3,460
    )
    
    
    100
    %Net Loss
    
    $
    (11,315
    )
    
    
    (4,392
    )
    
    
    (6,923
    )
    
    
    158
    %
 
 (1)
    
    For purposes of this table and Managements Discussion and Analysis, interest expense and
other income and expense has been included within the caption Other expense. Interest expense for
2006 was approximately $321,000, while interest expense for 2005 was approximately $768,200. Other
income in 2006 was approximately $310,000.  Service Revenues
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Reimbursable Out-of-Pocket Revenues
  Operating Expenses
      Other Income
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Net Income (Loss)
  Liquidity and Capital Resources
  Operating Activities
  Investing Activities
  Financing Activities
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
    
    the success of the commercialization of our products;
    
    the progress of the development and commercialization of our current products in
relation to milestones set forth in our license agreements and other agreements regarding
such products;
    
    sales and marketing activities, and expansion of our commercial infrastructure, related
to our approved products and product candidates;
    
    the results of our clinical trials and requirements to conduct additional clinical trials;
    
    the rate of progress of our research and development programs;
    
    the time and expense necessary to obtain regulatory approvals;
    
    activities and payments in connection with potential acquisitions of companies, products or technology;
    
    competitive, technological, market and other developments;
    
    our ability to establish and maintain collaborative relationships; and
    Options and Warrants
  ApproximateNumber of
    
    
    ApproximateShares
    
    
    ProceedsOptions
    
    
    457,829
    
    
    $
    2,518,060Warrants
    
    
    
    
    
    
    Total
    
    
    457,829
    
    
    $
    2,518,060
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Contractual Commitments.
  2007
    
    
    710,4002008
    
    
    672,5002009
    
    
    587,9002010
    
    
    203,400Thereafter
    
    
    96,000$
    2,270,200
 Obligations Related to the Acquisition of Our Current Products in Development
 License Agreements for ST-601 ST-603 and ST-605.
 Contingent Consideration in the Acquisition of Sytera Related to ST-602.
    During fiscal 2007:
    
    $2.6 million or more (in the aggregate)During fiscal 2008:
    
    $7 million or more (in the aggregate)Total through fiscal 2008:
    
    $13 million or more (in the aggregate)
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RXDR Acquisition Agreement
  Contract Services Agreements
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Item 7. Financial Statements
 Report of Independent Registered Public Accounting Firm
 
    
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CONSOLIDATED BALANCE SHEET OF
SIRION HOLDINGS, INC.

AS OF DECEMBER 31, 2006
 AssetsCurrent assets:Cash and cash equivalents
    
    $
    10,778,062Certificates of deposit
    
    
    84,600Accounts receivable, net of allowance of $45,644
    
    
    495,145Other current assets
    
    
    284,720Total current assets
    
    
    11,642,527Property and equipment, net of accumulated depreciation
    
    
    1,330,434Goodwill
    
    
    19,886,384Intangible assets
    
    
    16,557,640Other assets
    
    
    5,720Total long-term assets
    
    
    37,780,178Total assets
    
    $
    49,422,705Liabilities and stockholders equityLiabilitiesCurrent liabilities:Accounts payable and other current liabilities
    
    $
    1,020,294Accrued Payroll
    
    
    1,171,726Capital lease obligations, current portion
    
    
    9,561Customer deposits
    
    
    196,955Total current liabilities
    
    
    2,398,536Capital lease obligations, net of current portion
    
    
    14,064Derivative liabilities
    
    
    2,840,000Total long-term liabilities
    
    
    2,854,064Total liabilities
    
    
    5,252,600Stockholders equity:Convertible series A preferred stock; .0001 par value;
10,000,000 shares authorized; 4,797,036 shares
issued and outstanding
    
    
    480Common stock; .0001 par value; 150,000,000 shares
authorized; 3,668,730 shares issued and outstanding
    
    
    367Additional paid-in-capital
    
    
    53,183,721Accumulated deficit
    
    
    (9,014,463
    )Total stockholders equity
    
    
    44,170,105Total liabilities & stockholders equity
    
    $
    49,422,705
 The accompanying notes are an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS OF
SIRION HOLDINGS, INC.
 Year Ended December 31,2006
    
    
    2005Revenue:Service revenues
    
    $
    2,080,582
    
    
    $
    819,872Reimbursable out-of-pocket revenue
    
    
    1,392,781
    
    
    
    579,790Total revenue
    
    
    3,473,363
    
    
    
    1,399,662Expense:Research and development expenses
    
    
    3,319,756
    
    
    
    2,476,340General and administrative expenses
    
    
    3,872,285
    
    
    
    823,331Wages and related expenses
    
    
    4,027,839
    
    
    
    712,833Reimbursable out-of pocket cost
    
    
    1,392,781
    
    
    
    579,790Professional fees
    
    
    2,785,405
    
    
    
    390,986Total expense
    
    
    15,398,066
    
    
    
    4,983,280Loss from operations
    
    
    (11,924,703
    )
    
    
    (3,583,618
    )Other income (expense)Other income:Other income
    
    
    309,904
    
    
    
    Other expense:Change in derivative liability
    
    
    (2,840,000
    )
    
    
    Change in redeemable stock
    
    
    
    
    
    
    (40,000
    )Interest expense
    
    
    (320,593
    )
    
    
    (768,195
    )Total other expense
    
    
    (2,850,689
    )
    
    
    (808,195
    )Loss before income tax provision
    
    
    (14,775,392
    )
    
    
    (4,391,813
    )Income tax provision
    
    
    (3,460,059
    )
    
    
    Net loss
    
    $
    (11,315,333
    )
    
    $
    (4,391,813
    )Deemed dividend associated with beneficial
conversion feature of convertible preferred stock
    
    
    
    
    
    
    (1,286,866
    )Net loss attributable to common stockholders
    
    
    (11,315,333
    )
    
    
    (5,678,679
    )Proforma loss per share
    
    $
    (3.16
    )
    
    $
    (1.59
    )Proforma weighted average shares outstanding
    
    
    3,577,833
    
    
    
    3,577,833
 The accompanying notes are an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND MEMBERS INTEREST OF
SIRION HOLDINGS, INC.
 FOR THE YEARS ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2005
 Stock
    
    
    Additional
    
    
    
    
    
    
    TotalPreferred stock
    
    
    Common Stock
    
    
    Subscription
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Receivable
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance,
December 31, 2004
    
    
    
    
    
    $
    158,942
    
    
    
    1,880,000
    
    
    $
    1,880
    
    
    $
    
    
    
    $
    15,946
    
    
    $
    (1,613,923
    )
    
    $
    (1,437,155
    )Issuance of common
stock
    
    
    
    
    
    
    
    
    
    
    967,400
    
    
    
    967
    
    
    
    (2,500
    )
    
    
    9,900
    
    
    
    
    
    
    
    8,367Stock compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178,738
    
    
    
    
    
    
    
    178,738Original issue discount
on convertible notes
    
    
    
    
    
    
    95,771
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,771Beneficial conversion
feature on
convertible notes
    
    
    
    
    
    
    95,771
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,771Notes and warrants
converted to
preferred stock
    
    
    2,183,333
    
    
    
    1,650,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,650,000Issuance of additional
warrants on
convertible notes
    
    
    
    
    
    
    425,793
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    425,793Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,391,813
    )
    
    
    (4,391,813
    )Balance,
December 31, 2005
    
    
    2,183,333
    
    
    $
    2,426,277
    
    
    
    2,847,400
    
    
    $
    2,847
    
    
    $
    (2,500
    )
    
    $
    204,584
    
    
    $
    (6,005,736
    )
    
    $
    (3,374,528
    )Payment received
from stockholder
for common stock
issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    2,500Stock compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    773,760
    
    
    
    
    
    
    
    773,760Original issue discount
on convertible notes
    
    
    
    
    
    
    20,903
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,903Beneficial conversion
feature on
convertible notes
    
    
    
    
    
    
    20,903
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,903Stock options exercised
    
    
    
    
    
    
    
    
    
    
    128,750
    
    
    
    129
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,315,333
    )
    
    
    (11,315,333
    )Sytera, Inc Merger
    
    
    (2,152,734
    )
    
    
    (2,468,052
    )
    
    
    (2,709,923
    )
    
    
    (2,710
    )
    
    
    
    
    
    
    21,903,566
    
    
    
    7,523,043
    
    
    
    26,955,847Acquitsition of RxDR
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    783,563
    
    
    
    783,563Recapitalization of
the company
    
    
    1,641,437
    
    
    
    136
    
    
    
    3,311,606
    
    
    
    92
    
    
    
    
    
    
    
    5,031,575
    
    
    
    
    
    
    
    5,031,803Issuance of preferred
stock less offering
cost of $229,375
    
    
    3,125,000
    
    
    
    313
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,770,312
    
    
    
    
    
    
    
    24,770,625Issuance of common
stock
    
    
    
    
    
    
    
    
    
    
    90,897
    
    
    
    9
    
    
    
    
    
    
    
    499,924
    
    
    
    
    
    
    
    499,933Balance, December 31, 2006
    
    
    4,797,036
    
    
    $
    480
    
    
    
    3,668,730
    
    
    $
    367
    
    
    $
    
    
    
    $
    53,183,721
    
    
    $
    (9,014,463
    )
    
    $
    44,170,105
 The accompanying notes are an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS OF
SIRION HOLDINGS, INC.
 Year Ended December 31,2006
    
    

2005Operating activitiesNet loss
    
    $
    (11,315,333
    )
    
    $
    (4,391,813
    )Adjustments to reconcile net loss to net cash
used by operating activities:Depreciation and amortization
    
    
    847,443
    
    
    
    118,138Bad debt expense
    
    
    69,644
    
    
    
    15,043Change in valuation of redeemable stock
    
    
    
    
    
    
    40,000Interest expense on beneficial conversion feature of convertible debt
    
    
    20,903
    
    
    
    95,771Warrants converted to preferred stock
    
    
    
    
    
    
    425,793Amortization of discount on notes payable
    
    
    20,903
    
    
    
    145,732Stock compensation expense
    
    
    773,769
    
    
    
    178,738Change in derivative liability
    
    
    2,840,000
    
    
    
    Change in deferred income tax
    
    
    (3,460,059
    )
    
    
    (Increase) decrease in:Accounts receivable
    
    
    (506,860
    )
    
    
    20,417Other current assets
    
    
    (284,465
    )
    
    
    28,690Increase (decrease) in:Accounts payable and other accrued liabilities
    
    
    1,062,894
    
    
    
    853,960Customer deposits
    
    
    (117,686
    )
    
    
    214,821Total adjustments
    
    
    1,266,486
    
    
    
    2,137,103Net cash used by operating activities
    
    
    (10,048,847
    )
    
    
    (2,254,710
    )Investing activitiesAcquisition of RX Development Resources assets, net of cash
    
    
    Acquisition of Sytera assets, net of cash
    
    
    32,280Acquisition and recapitalization of Tenby Pharma
    
    
    31,675Purchase of certificate of deposit
    
    
    (84,600
    )Purchase of property and equipment
    
    
    (1,149,974
    )
    
    
    (187,565
    )Purchase of product license
    
    
    (1,250,000
    )Payment on acquisition earn out
    
    
    (2,562,215
    )Net cash used by investing activities
    
    
    (4,982,834
    )
    
    
    (187,565
    )Financing activitiesProceeds from the issuance of common stock
    
    
    24,770,982
    
    
    
    10,867Proceeds from notes payable
    
    
    6,010,000
    
    
    
    2,500,000Payments on notes payable
    
    
    (5,074,808
    )
    
    
    (40,852
    )Principal payments under capital lease obligations
    
    
    (15,111
    )
    
    
    (6,237
    )Stock subscription receivable
    
    
    2,500
    
    
    
    (2,500
    )Net borrowings on line of credit
    
    
    (195,000
    )
    
    
    195,000Net cash provided by financing activities
    
    
    25,498,563
    
    
    
    2,656,278Net increase in cash
    
    
    10,466,882
    
    
    
    214,003Cash, beginning of period
    
    
    311,180
    
    
    
    97,177Cash, end of period
    
    $
    10,778,062
    
    
    $
    311,180
 The accompanying notes are an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS OF
SIRION HOLDINGS, INC.
 Supplemental disclosures of cash flow information and non cash investing and financing
activities:
      Fair value of assets acquired
    
    $
    32,102,849Value of stock issued
    
    
    22,725,527Liablities assumed
    
    $
    9,377,322
      The accompanying notes are an integral part of the consolidated financial statements.
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Notes to Consolidated Financial Statements
 1. Significant Accounting Principles
 Nature of Business & Basis of Presentation
     Estimated Fair Value of Financial Instruments
  Cash and Cash Equivalents
  Revenue Recognition.
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Research and Development Expense
  Accounts Receivable/Allowance for Doubtful Accounts
  Concentration of Business and Credit Risk
     Property and Equipment
  YearsEquipment
    
    
    2-7Office equipment
    
    
    3-10Computer equipment and software
    
    
    2-5Leasehold improvements
    
    Lease Term
 Impairment of Long-Lived Assets
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Goodwill
  Customer Deposits
  Net Loss per Share Data
  Stock-Based Compensation
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Weighted AverageNumber of
    
    
    Grant DateOptions
    
    
    Fair ValueNonvested options  December 31, 2005
    
    
    128,750
    
    
    $
    0.001Granted
    
    
    457,829
    
    
    $
    5.50Excerised
    
    
    (128,750
    )
    
    $
    0.001Forfeited
    
    
    
    
    
    $
    Nonvested options  December 31, 2006
    
    
    457,829
    
    
    $
    5.50
  Investment Equity Method
  Use of Estimates
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Income Taxes
  Derivative Financial Instruments
   New Accounting Pronouncements
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2. Property and Equipment
  Computer equipment
    
    $
    88,797Furniture and fixtures
    
    
    83,750Lab equipment
    
    
    816,809Leasehold improvements
    
    
    117,596Office equipment
    
    
    39,117Production equipment
    
    
    61,128Construction in progress
    
    
    197,679Software
    
    
    60,0991,464,975Less accumulated
depreciation
    
    
    (134,541
    )Property and equipment,
net
    
    $
    1,330,434
  3. Debt
 2006 Convertible Debt  Related Party
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Risk-free interest rate
    
    
    4.57% - 4.72
    %
    
    
    3.71% - 4.17
    %Contractual life
    
    5 years
    
    5 yearsFair market value of Series A preferred stock
    
    $
    1.00
    
    
    $
    1.00Fair market value of Series B preferred stock
    
    $
    2.25
    
    
    $
    2.25Exercise price of Series A warrants
    
    $
    1.00
    
    
    $
    1.00Exercise price of Series B warrants
    
    $
    2.25
    
    
    $
    2.25Expected volatility
    
    
    0
    %
    
    
    0
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    4. Intangible Assets
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2006Intangible assets subject to amortization:Non-compete, net of accumulated amortization
of $89,760
    
    
    464,752Product Licenses, net of accumulated amortization
of $543,256
    
    
    16,092,888Total
    
    $
    16,557,640
   Year ended December 31
    
    Amount2007
    
    $
    1,315,0002008
    
    $
    1,315,0002009
    
    $
    1,222,0002010
    
    $
    1,130,0002011
    
    $
    1,130,000
 5. Goodwill
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6. Equity
  Series A Preferred Stock
      Common Stock
  Restricted Stock
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7. Related Party Transactions
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8. Contractual Obligations
  2007
    
    
    710,4002008
    
    
    672,5002009
    
    
    587,9002010
    
    
    203,400Thereafter
    
    
    96,000Total
    
    $
    2,270,200
      During fiscal 2007:
    
    $2.6 million or more (in the aggregate)During fiscal 2008:
    
    $7 million or more (in the aggregate)Total through fiscal 2008:
    
    $13 million or more (in the aggregate)
  Employment Contracts
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9. Acquisitions
  Aggregate Stock Consideration
    
    $
    22,725,527Aggregate Note Consideration
    
    
    5,000,000Liabilities
acquired including deferred tax liability of $3,460,059
    
    
    7,837,382Total Asset Purchase price
    
    
    35,562,909Tangible Assets acquired
    
    
    282,619Value allocable to Intangible Assets
    
    
    35,280,290Fair value of Intangible Assets
    
    
    15,940,654Goodwill
    
    
    19,339,636
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10. Income Taxes
  Fiscal Year Ended December31, 20062006
    
    
    2005CurrentFederal
    
    
    
    
    
    
    State
    
    
    
    
    
    
    Foreign
    
    
    
    
    
    
    TotalDeferredFederal
    
    
    (2,938,846
    )
    
    
    State
    
    
    (521,213
    )
    
    
    Total
    
    
    (3,460,059
    )
    
    
    Allocated to discontinued operations
    
    
    
    
    
    
    Continuing operations
    
    
    (3,460,059
    )
    
    
    
  2006
    
    
    2005Income tax provision at statutory rate:
    
    
    (5,023,633
    )
    
    
    (1,493,216
    )Increase (decrease) in income tax due to:Meals & Entertainment
    
    
    21,522
    
    
    
    Preacquisition income from RXDR
    
    
    (102,988
    )
    
    
    Stock options
    
    
    23,172
    
    
    
    State income taxes net
    
    
    (890,956
    )
    
    
    (264,826
    )Preacquisition losses
    
    
    1,424,298Change in valuation allowance
    
    
    1,088,526
    
    
    
    1,758,043(3,460,059
    )
    
    
    0
  2006
    
    
    2005Current deferred tax assets (liabilities)Allowance for doubtful accounts
    
    
    18,271
    
    
    
    
    
    
    
    Other ReservesValuation Allowance
    
    
    (18,271
    )
    
    
    0
    
    
    
    Long-term deferred tax assets (liabilities)Derivative Liability
    
    
    1,136,852
    
    
    
    
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2006
    
    
    2005Net Operating Loss carryover
    
    
    5,977,972
    
    
    
    1,826,854Intangibles
    
    
    (6,244,401
    )
    
    
    Nonqualifed FAS 123R expense
    
    
    4,119
    
    
    
    Other
    
    
    40,973
    
    
    
    Charitable contribution C/O
    
    
    6,005
    
    
    
    R&D Credit
    
    
    148,736
    
    
    
    Valuation Allowance
    
    
    (1,070,255
    )
    
    
    (1,826,854
    )(0
    )
    
    
    0
    11. Derivative financial instruments
  12. Stock Options and Warrants
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Weighted AverageShares (In thousands)
    
    Exercise Price
    
    Exercise PriceStock
    
    per Share
    
    per ShareWarrants
    
    Options
    
    Warrants
    
    Options
    
    Warrants
    
    OptionsOutstanding at December 31, 2004
    
    
    480,000
    
    
    
    108,750
    
    
    
    1.00
    
    
    
    0.001
    
    
    
    1.00
    
    
    
    0.001Granted
    
    
    662,222
    
    
    
    20,000
    
    
    
    1.00 - 2.25
    
    
    
    0.001
    
    
    
    1.34
    
    
    
    0.001Exercised
    
    
    (960,000
    )
    
    
    
    
    
    
    1.00
    
    
    
    
    
    
    
    
    
    
    
    Canceled or expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at December 31, 2005
    
    
    182,222
    
    
    
    128,750
    
    
    
    2.25
    
    
    
    0.001
    
    
    
    2.25
    
    
    
    0.001Granted
    
    
    44,445
    
    
    
    457,829
    
    
    
    2.25
    
    
    
    5.50
    
    
    
    2.25
    
    
    
    5.50Exercised
    
    
    (226,667
    )
    
    
    (128,750
    )
    
    
    2.25
    
    
    
    0.001
    
    
    
    2.25
    
    
    
    0.001Canceled or expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at December 31, 2006
    
    
    
    
    
    
    457,829
    
    
    
    
    
    
    
    5.50
    
    
    
    
    
    
    
    5.50Exercisable at December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercisable at December 31, 2005
    
    
    182,222
    
    
    
    36,822
    
    
    
    2.25
    
    
    
    0.001
    
    
    
    2.25
    
    
    
    0.001
   Weighted Average
    
    Weighted AverageRange of Exercise
    
    Number
    
    Remaining Contractual
    
    Exercise PricePrices
    
    Outstanding / Exercisable
    
    Life (Years)
    
    Outstanding / Exercisable$5.50
    
    457,829 / 0
    
    
    4.88
    
    
    $5.50 / $0
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For the years endedDecember 31,
    
    December 31,2006
    
    2005Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    89.2
    %
    
    
    0
    %Risk-free interest rate
    
    
    4.60
    %
    
    
    4.17
    %Expected life of options
    
    5 years
    
    5 years
 13. Subsequent Events
 ®
 14. Unaudited ProForma Summary
  For the years endedDecember 31,
    
    December 31,2006
    
    2005Revenues
    
    $
    3,473,363
    
    
    $
    1,399,662Operating Expenses
    
    
    (18,938,755
    )
    
    
    (11,298,341
    )Net Loss
Industry Tax Benefit of 3,460,059
    
    
    (12,005,333
    )
    
    
    (9,898,679
    )Proforma Net Loss per share
    
    ($
    3.36
    )
    
    ($
    2.77
    )
 
 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 8A. Controls and Procedures
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Item 8B. Other Information
  
 Part III
 
 Item 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance With Section 16(a) of the Exchange Act
  Name
    
    Age
    
    Principal PositionsBarry S. Butler
    
    
    47
    
    
    Director & Chief Executive OfficerRoger Vogel, M.D.
    
    
    63
    
    
    Director & Chief Medical OfficerC. Christine Miller
    
    
    49
    
    
    Chief Operating OfficerSusan K. Benton
    
    
    42
    
    
    Chief Commercial OfficerPhilippe Boulangeat
    
    
    58
    
    
    Chief Business OfficerWilliam F. Stringer
    
    
    51
    
    
    Chief Manufacturing & Compliance OfficerTodd A. Creech
    
    
    38
    
    
    Senior Vice President, FinanceKevin J. Kinsella
    
    
    60
    
    
    DirectorKenneth J. Widder, M.D.
    
    
    53
    
    
    DirectorAnthony Maida, III
    
    
    55
    
    
    DirectorThomas Riedhammer, Ph.D.
    
    
    59
    
    
    Director
 Barry S. Butler.
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Roger Vogel, M.D. ® ®
 Susan K. Benton.
 Philippe Boulangeat.
 C. Christine Miller Pharm. D. C.
 William F. Stringer.
 Todd A. Creech.
 Kevin J. Kinsella. Jersey
Boys
 Kenneth J. Widder, M.D.
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Anthony Maida, III
 Thomas Riedhammer, Ph.D.
 Code of Ethics
  Audit
Committee
  Compensation
Committee
  Nomination
Committee
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Director
Independence
  Section 16(a) Beneficial Ownership Reporting Compliance
   
 Item 10. Executive Compensation
  SUMMARY COMPENSATION TABLE
 Name and Principal
    
    
    
    
    
    Salary
    
    Bonus
    
    TotalPosition
    
    Year
    
    ($)
    
    ($)
    
    ($)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (j)Barry Butler(2)Chief
    
    
    2005
    
    
    
    
    
    
    
    Executive Officer
    
    
    2006
    
    
    
    200,000
    
    
    
    100,000
    
    
    
    300,000Roger Vogel(2)
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    Chief Medical Officer
    
    
    2006
    
    
    
    250,000
    
    
    
    125,000
    
    
    
    375,000Susan K. Benton
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    Chief Commercial Officer
    
    
    2006
    
    
    
    175,000
    
    
    
    87,500
    
    
    
    262,500
 (1)
    
    Employment Agreement  all officers are contracted under the same employment agreement. The
material terms include:
 
    
    The officer is eligible to receive an annual bonus at the discretion of the
Companys Board of Directors. (The current target level of each officers discretionary
bonus is an amount equal to up to 50% of his or her base salary.)
    
    If the officers employment is terminated by the Company or Sirion without
cause (as defined in the employment agreement), he or she will be entitled to receive
a severance payment equal to his or her annual base salary, continued health insurance
for twelve months, and payment of outplacement services for twelve months (up to
$25,000).
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
    
    In the event the officers employment is terminated without cause or the
officer resigns for good reason (as defined in the employment agreement) within 24
months of a change in control, the officer is entitled to receive a severance payment
equal to two times his or her annual salary, two times his or her current target or
prior years bonus (whichever is greater), continued health insurance for twenty-four
months, payment of outplacement services for twelve months (up to $25,000), and any
unvested stock options, restricted stock or other equity-based compensation awards shall
become 100% vested as of the termination date of the officers employment.
    
    The officer is entitled to customary employee benefits such as health insurance,
401(k) plan participation and paid vacation.
  
 Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders
Matters
 Securities Authorized for Issuance Under Equity Compensation Plans
  (c)(a)
    
    
    
    
    
    Number of SecuritiesNumber of Securities
    
    (b)
    
    Remaining Available forto be Issued upon
    
    Weighted-Average
    
    Future Issuance underExercise of
    
    Exercise Price of
    
    Equity Compensation PlanOutstanding Options,
    
    Outstanding Options,
    
    (Excluding SecuritiesPlan Category
    
    Warrants and Rights
    
    Warrants and Rights
    
    Reflected in Column (a))Equity compensation
plans approved by
security holders
    
    
    457,829
    
    
    
    5.50
    
    
    
    76,737
 Recent Sales of Unregistered Equity Securities.
 Sales of Unregistered Securities by the Company.
  Beneficial
Ownership
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Amount and Nature
    
    Percent ofName and Address of Beneficial
    
    
    
    of Beneficial Owner
    
    ClassOwner
    
    Title of Class
    
    (1)
    
    (2)5% or Greater Stockholders:Affiliates of Avalon Ventures GP,
    
    Series A Preferred
    
    
    422,036
    
    
    
    8.79
    %LLC & Avalon Ventures VII GP,
    
    Common Stock
    
    
    1,387,699
    
    
    
    37.83LLC (3)(4)888 Prospect StreetSuite 320La Jolla, CA 92037Randy D. Milby
    
    Common Stock
    
    
    250,000
    
    
    
    6.81
    %270 Presidential DriveWilmington, DE 19807Affiliates of North Sound
    
    Series A Preferred
    
    
    3,125,000
    
    
    
    65.14
    %Capital LLC (4)(5)20 Horseneck LaneGreenwich, CT 06830Quintiles Transnational Corp. &
    
    Series A Preferred
    
    
    1,250,000
    
    
    
    26.06
    %PharmaBio Development Inc.(d/b/a NovaQuest) (4)(6)4709 Creekstone DriveRiverbirch Building, Suite 200Durham, NC 27703The Lichter Family Trust
    
    Common Stock
    
    
    214,294
    
    
    
    5.84
    %4950 Sandshore CourtSan Diego, CA 92130 (7)The Widder Family Limited
    
    Common Stock
    
    
    261,927
    
    
    
    7.14
    %Partnership (8)P.O. Box 676250Rancho Santa Fe, CA 92067Directors and NamedExecutive Officers:Kevin J. Kinsella (3)
    
    Series A Preferred
    
    
    422,036
    
    
    
    8.79
    %Common Stock
    
    
    1,387,699
    
    
    
    37.83
    %Kenneth J. Widder, M.D. (8)
    
    Common Stock
    
    
    261,927
    
    
    
    7.14
    %Barry Butler
    
    Common Stock
    
    
    312,500
    
    
    
    8.52
    %Roger Vogel, M.D.
    
    Common Stock
    
    
    312,500
    
    
    
    8.52
    %Susan K. Benton
    
    Common Stock
    
    
    312,500
    
    
    
    8.52
    %Anthony Maida, III (9)
    
    Common Stock
    
    
    0
    
    
    
    0
    %Thomas Riedhammer, Ph.D. (9)
    
    Common Stock
    
    
    0
    
    
    
    0
    %All directors and executive
    
    Series A Preferred
    
    
    422,036
    
    
    
    8.79
    %officers as a group (3)(8):
    
    Common Stock
    
    
    3,354,474
    
    
    
    91.4
    %
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(1)
    
    Beneficial ownership is determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to securities. Shares of
common stock subject to options and warrants exercisable or convertible at or within 60 days are deemed outstanding for computing the percentage of the person holding such
option or warrant but are not deemed outstanding for computing the percentage of any other person.
The indication herein that shares are beneficially owned is not an admission on the part of the
listed stockholder that he, she or it is or will be a direct or indirect beneficial owner of those
shares.(2)
    
    Based upon 3,668,733 shares of Common Stock, including 534,566 options, and 4,797,036 shares of
Series A Preferred issued and outstanding as of March 23, 2007.(3)
    
    Includes 1,059,467 shares of Common Stock and 38,274 shares of Series A Preferred owned of
record by Avalon Ventures VI, L.P., 314,691 shares of Common Stock and 11,365 shares of Series A
Preferred owned of record by Avalon Ventures VI GP Fund, LLC, and 13,541 shares of Common Stock
and 372,397 shares of Series A Preferred owned of record by Avalon Ventures VII, L.P. Avalon
Ventures GP, LLC acts as the general partner of each of Avalon Ventures VI, L.P. and Avalon
Ventures VI GP Fund, LLC (collectively, the Avalon VI Funds). Likewise, Avalon Ventures VII GP,
LLC acts as the general partner of Avalon Ventures VII, L.P. (the Avalon VII Fund and, together
with the Avalon VI Funds, the Avalon Funds). Kevin J. Kinsella acts as the managing member of
each of Avalon Ventures GP, LLC and Avalon Ventures VII GP, LLC. In the foregoing capacities, each
of Avalon Ventures GP, LLC and Mr. Kinsella has full voting and investment control with respect to
the shares held of record by the Avalon VI Funds, and each of Avalon Ventures VII GP, LLC and Mr.
Kinsella has full voting and investment control with respect to the shares held of record by the
Avalon VII Fund. As a result, each of Avalon Ventures GP, LLC, Avalon Ventures VII GP, LLC and Mr.
Kinsella may be deemed to be the beneficial owner of such shares. However, each of Avalon Ventures
GP, LLC, Avalon Ventures VII GP, LLC and Mr. Kinsella specifically disclaims beneficial ownership
of all shares held of record by the Avalon Funds except to the extent of its or his economic
interest therein.(4)
    
    Does not include shares of Common Stock into which the stockholders Series A Preferred would
be convertible but for a limitation on conversion set forth in the Companys Certificate of
Designations of Series A Convertible Preferred Stock. Such limitation may be waived by the holder
by written notice to the Company, but such waiver would only be effective 61 days after delivery of
such notice to the Company. If such limitation was disregarded or waived with respect to any holder
of Series A Preferred, such stockholders Series A Preferred would be convertible on a one-to-one
ratio for shares of Common Stock (which ratio is subject to adjustment from time to time upon the
occurrence of certain events). If such limitation was disregarded or waived with respect to Avalon
Ventures VI, L.P., Avalon Ventures VI GP Fund, LLC, and Avalon Ventures VII, L.P., but no other
holder of Series A Preferred, affiliates of Avalon Ventures GP, LLC and Avalon Ventures VII GP, LLC
would be deemed to beneficially own 1,809,735 shares of Common Stock or 39.13% of the class. If
such limitation was disregarded or waived with respect to North Sound Legacy Institutional Fund LLC
and North Sound Legacy International Ltd. (collectively, the North Sound Funds) but no other
holder of Series A Preferred, affiliates of North Sound Capital LLC would be deemed to beneficially
own 3,125,000 shares of Common Stock or 42.64% of the class. If such limitation was disregarded or
waived with respect to the shares of Series A Preferred held of record by PharmaBio Development
Inc. (d/b/a NovaQuest), but no other holder of Series A Preferred, Quintiles Transnational Corp.
and PharmaBio Development Inc. (d/b/a NovaQuest) would be deemed to beneficially own 1,250,000
shares of Common Stock or 22.92% of the class.(5)
    
    North Sound Capital LLC (North Sound) acts as the managing member and investment advisor,
respectively of the North Sound Funds, who are the record holders of such securities. In such
capacity, North Sound has voting and investment control with respect to the securities held by the
North Sound Funds. Thomas McAuley is the Manager of North Sound. Although each of North Sound and
Mr. McAuley may be deemed the beneficial owner of some or all of the shares held by the Funds
pursuant to applicable securities laws, neither owns such shares directly. Each of North Sound and
Mr. McAuley disclaims beneficial ownership of the shares held by the North Sound Funds except to
the extent of their respective economic interests in each of the North Sound Funds.(6)
    
    These shares of Series A Preferred are owned of record by PharmaBio Development Inc. (d/b/a
NovaQuest), which is a wholly-owned subsidiary of Quintiles Transnational Corp. As the sole
stockholder of PharmaBio Development Inc. (d/b/a NovaQuest), Quintiles Transnational Corp. shares
voting and investment control with respect to the shares of Series A Preferred owned of record by
PharmaBio Development Inc. (d/b/a NovaQuest) and therefore may be deemed the beneficial owner of
all of such shares, but is not a direct owner of such shares.(7)
    
    Jay Lichter, PhD. acts as trustee of The Lichter Family Trust. In such capacity, Dr. Lichter
has full voting and investment control with respect to the shares held of record by The Lichter
Family Trust. As a result, Dr. Lichter may be deemed to be the beneficial owner of such shares.
However, Dr. Lichter specifically disclaims beneficial ownership of all shares held of record by 60 of 68




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The Lichter Family Trust except to the extent of his economic interest therein.(8)
    
    Kenneth J. Widder, M.D. acts as a partner of The Widder Family Limited Partnership. In such
capacity, Dr. Widder has full voting and investment control with respect to the shares held of
record by The Widder Family Limited Partnership. As a result, Dr. Widder may be deemed to be the
beneficial owner of such shares. However, Dr. Widder specifically disclaims beneficial ownership of
all shares held of record by The Widder Family Limited Partnership except to the extent of his
economic interest therein.(9)
    
    Thomas Riedhammer and Anthony Maida each own 20,000 options which are neither
exercisable nor convertible at or within 60 days of this fling. 
 Item 12. Certain Relationships and Related Transactions, and Director Independence
 Series A Preferred Stock Purchase Agreement
  Investors Rights Agreement
  Acquisition of Sirion Therapeutics, Inc. and Related Transactions
  
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Acquisition of Rx Development Resources, LLC and Related Transactions
    Acquisition of Sytera, Inc. and Related Transactions
    
    
    An Escrow Agreement, dated July 5, 2006, by and among Sirion
Therapeutics, The Widder Family Limited Partnership, as stockholder
representative for the former stockholders of Sytera, and Barry Butler, as
stockholder representative for the stockholders of Sirion Therapeutics prior to
the transaction, pursuant to which, among other things, the Sirion Therapeutics
stockholders and the Sytera stockholders secured their respective indemnification
obligations under the Sytera Merger Agreement by placing shares of Sirion
Therapeuticss common stock in escrow, which shares may be released to
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the indemnified parties in the event of a breach of the indemnifying parties
representations and warranties in the Sytera Merger Agreement;
    
    A Voting Agreement, dated July 5, 2006, by and among Sirion
Therapeutics, Barry Butler, Susan K. Benton, Philippe Boulangeat, Roger Vogel,
M.D., The Widder Family Limited Partnership, Avalon Ventures VI, L.P., Avalon
Ventures VI GP, LLC, Avalon Ventures, VII, L.P., Dr. Nathan L. Mata, and
PharmaBio Development Inc. (d/b/a NovaQuest), pursuant to which, among other
things, the parties agreed to vote their shares of Sirion Therapeuticss common
stock for the election of certain directors. This Voting Agreement terminated
upon the consummation of the Contribution Transaction.
    
    An Investor Rights Agreement, dated July 5, 2006, by and among
Sirion Therapeutics, Barry Butler, Susan K. Benton, Philippe Boulangeat, Roger
Vogel, M.D., The Widder Family Limited Partnership, Avalon Ventures VI, L.P.,
Avalon Ventures VI GP, LLC, Avalon Ventures, VII, L.P., Dr. Nathan L. Mata, and
PharmaBio Development Inc. (d/b/a NovaQuest), pursuant to which, among other
things, Sirion Therapeutics granted the other parties certain registration
rights, information rights, consent rights, preemptive rights and other rights.
This Investor Rights Agreement terminated upon the consummation of the
Contribution Transaction.
 Transactions Between the Company and the Founder
   Other Related Party Transactions
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Item 13. Exhibits
 Exhibit No.
    
    Description3.1
    
    Certificate of Incorporation of the Company(1)3.2
    
    Certificate of Amendment of Certificate of Incorporation of the Company(1)3.3
    
    Certificate of Amendment of Certificate of Incorporation of the Company(2)3.4
    
    Certificate of Designations of Series A Convertible Preferred Stock of the
Company(3)3.5
    
    Bylaws of the Company(1)3.6
    
    First Amendment to Bylaws of the Company(8)10.1
    
    Agreement and Plan of Merger and Reorganization, dated July 5, 2006, by and
among Sirion Therapeutics, Inc., Sytera, Inc., Sytera II, Inc., Kenneth J.
Widder, M.D., as representative of the holders of Sytera, Inc. securities,
and Barry Butler, as representative of the holders of Sirion Therapeutics,
Inc. securities(3)*10.2
    
    Exclusive License Agreement, dated as of June 30, 2006, by and between
Sytera, Inc. and Sytera II, Inc.(3)10.3
    
    Exclusive License Agreement, dated as of July 5, 2006, by and between Sirion
Therapeutics, Inc. and Sytera II, Inc.(3)10.4
    
    Stock Purchase Agreement, dated as of July 5, 2006, by and between Sirion
Therapeutics, Inc. and Sytera II, Inc.(3)10.5
    
    Agreement for Sale and Purchase of Membership Interests, dated June 2, 2006,
by and between Rx Development Resources, LLC and Philippe Boulangeat(3)10.6
    
    Master Service Agreement, dated July 7, 2006, by and between Rx Development
Resources, LLC and FOCUS-ED, LLC(3)10.7
    
    License Agreement, dated May 1, 2006, Rx Development Resources, LLC and
FOCUS-ED, LLC(3)10.8
    
    Membership Interest Purchase Agreement, dated August 28, 2006, by and
between Sirion Therapeutics, Inc., The Butler Partnership, Inc., and
Rogellen Partners, Inc.(3)10.9
    
    Contribution Agreement, dated September 13, 2006, by and among the Company,
Sirion Therapeutics, Inc. and the stockholders of Sirion Therapeutics,
Inc.(3)10.10
    
    Series A Preferred Stock Purchase Agreement, dated September 13, 2006, by
and among the Company, North Sound Legacy Institutional Fund LLC and North
Sound Legacy International Ltd.(3)10.11
    
    Investors Rights Agreement, dated September 13, 2006, by and among the
Company, North Sound Legacy Institutional Fund LLC and North Sound Legacy
International Ltd., Avalon Ventures VI, L.P., Avalon Ventures VI GP Fund,
LLC, Avalon Ventures VII, L.P., PharmaBio Development Inc., The Widder
Family Limited Partnership, The Lichter Family Trust, Nathan Mata, Gabe
Travis, Barry Butler, Roger Vogel, M.D., Susan K. Benton, Philippe
Boulangeat and Randy Milby(3)10.12
    
    Assignment and Assumption of Lease, dated August 28, 2006, by and among
Sirion Therapeutics, Inc. and Rx Development Resources, LLC(3)10.13
    
    Lease Agreement, dated May 24, 2004, by and between Liberty Property Limited
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Exhibit No.
    
    DescriptionPartnership and Sirion Therapeutics, Inc. (as assignee of Rx Development
Resources, LLC)(3)10.14
    
    Sublease Agreement, dated September 5, 2006, by and between Avanir
Pharmaceuticals and Sirion Therapeutics, Inc. for leased premises at 11408
Sorrento Valley Road, San Diego, California 92121(3)10.15
    
    Form of Amended and Restated Executive Employment Agreements by and between
the Company, Sirion Therapeutics, Inc. and their executive officers(3)10.16
    
    Offer Letter, dated April 25, 2006, from the Sirion Therapeutics, Inc. to
Dawn Bennett Johnson(3)10.17
    
    Offer Letter, dated April 25, 2006, from the Sirion Therapeutics, Inc. to
William F. Stringer(3)10.18
    
    Consulting Agreement, dated as of July 5, 2006, by and between Sirion
Therapeutics, Inc. and Philippe Boulangeat(3)10.19
    
    Consulting Agreement, dated July 5, 2006, by and between Sirion
Therapeutics, Inc. and Kenneth J. Widder, M.D.(3)10.20
    
    Consulting Agreement, dated July 5, 2006, by and between Sirion
Therapeutics, Inc. and Jay Lichter, Ph.D(3)10.21
    
    Form of Indemnification Agreements by and between the Company and its
executive officers and certain directors(3)10.22
    
    Form of Noncompetition and Nonsolicitation Agreement, dated as of July 5,
2006, by and between Sirion Therapeutics, Inc. and certain former
stockholders of Sytera, Inc.(3)10.23
    
    Management Services Agreement, dated December 1, 2004, between Rx
Development Resources, LLC and The Butler Partnership, Inc.(3)10.24
    
    Management Services Agreement, dated December 1, 2004, between Rx
Development Resources, LLC and Rogellen Partners, Inc.(3)10.25
    
    Promissory Note, dated February 7, 2006, issued by the Company to Randy
Milby(3)10.26
    
    Promissory Note, dated June 15, 2006, issued by the Company to Randy Milby(3)10.27
    
    Termination and Acknowledgment Agreement, dated September 13, 2006, between
the Company and Randy Milby(3)10.28
    
    Loan Agreement, dated February 14, 2006, by and among Sirion Therapeutics,
Inc. and PharmaBio Development Inc. (d/b/a NovaQuest)(3)10.29
    
    First Amendment to Loan Agreement, dated July 5, 2006, by and among Sirion
Therapeutics, Inc. and PharmaBio Development Inc. (d/b/a NovaQuest)(3)10.30
    
    Security Agreement, dated February 14, 2006, by and among Sirion
Therapeutics, Inc. and PharmaBio Development Inc. (d/b/a NovaQuest)(3)10.31
    
    Promissory Note, dated February 14, 2006, issued by Sirion Therapeutics,
Inc. to PharmaBio Development Inc. (d/b/a NovaQuest)(3)10.32
    
    Investors Rights Agreement, dated February 14, 2006, by and among Sirion
Therapeutics, Inc. and PharmaBio Development Inc. (d/b/a NovaQuest)(3)10.33
    
    Termination of Loan Documents and Investors Rights Agreement, dated
September 13, 2006, by and among Sirion Therapeutics, Inc. and PharmaBio
Development Inc. (d/b/a NovaQuest)(3)
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Exhibit No.
    
    Description10.34
    
    Master Laboratory Services Agreement, dated September 1, 2005, by and
between Rx Development Resources, LLC and Quintiles Laboratories Limited(3)10.35
    
    Confirmation of Central Laboratory Services, dated August 26, 2005, by and
between Rx Development Resources, LLC and Quintiles Laboratories Limited(3)10.36
    
    Exclusive License Agreement, dated June 15, 2006, by and between Sirion
Therapeutics, Inc. and Laboratorios Sophia S.A. de C.V.(3)*10.37
    
    Exclusive License Agreement, dated April 3, 2006, by and between Sirion
Therapeutics, Inc. and Senju Pharmaceutical Co., Ltd.(3)*10.38
    
    Softgel Development and Clinical Supply Agreement, dated October 5, 2005, by
and between Sirion Therapeutics, Inc. (as successor to Sytera, Inc.) and
Cardinal Health PTS, LLC(3)*10.39
    
    Cardinal Health PTS, LLC Quotation, dated May 23, 2006(3)*10.40
    
    Cardinal Health PTS, LLC Quotation, dated May 23, 2006(3)*10.41
    
    Cardinal Health PTS, LLC Quotation, dated September 1, 2006(3)*10.42
    
    Binding Letter of Intent and Term Sheet, dated July 20, 2006, by and between
Sirion Therapeutics, Inc. and Plantex USA, Inc.(3)*10.43
    
    Encompass Pharmaceutical Services, Inc. Proposal, dated August 3, 2006(3)*10.44
    
    Encompass Pharmaceutical Services, Inc. Proposal, dated August 7, 2006(3)*10.45
    
    Bio-Concept Laboratories, Inc. Quotation, dated July 24, 2006(3)*10.46
    
    Memorandum of Agreement, dated September 21, 2006, between Sirion
Therapeutics, Inc. ad DSM Pharmaceuticals, Inc.(2)*10.47
    
    Assignment and Amendment of Consulting Agreement, dated September 25, 2006,
by and among Sirion Therapeutics, Inc., Kenneth J. Widder, M.D. and DSC
Associates, LLC(2)10.48
    
    Sirion Holdings, Inc. 2006 Stock Incentive Plan(2)10.49
    
    Exclusive License Agreement, dated January 10, 2007 by and between Sirion
Therapeutics, Inc. and Laboratoires Thea S.A *10.50
    
    Form of Incentive Stock Option Agreement (6)10.51
    
    Form of Non Qualified Stock Option Agreement (6)10.52
    
    Second Amendment to Investors Rights Agreement (7)16.1
    
    Letter, dated October 6, 2006 from Raich Ende Malter & Co. LLP(4)16.2
    
    Letter, dated October 23, 2006 from Raich Ende Malter & Co. LLP(5)21.1
    
    Subsidiaries31.1
    
    Certification of Chief Executive Officer, pursuant to Rule 13a-14(a).31.2
    
    Certification of Senior Vice President Finance, pursuant to Rule 13a-14(a).32.1
    
    Certification of Chief Executive
Officer and Senior Vice President Finance, pursuant to Section 1350.
 
 (1)
    
    Incorporated by reference to the Companys Form 10-SB filed with the Securities and
Exchange Commission on March 3, 2006, Commission File No. 000-51834.(2)
    
    Incorporated by reference to the Companys Form 10-QSB filed with the Securities and
Exchange Commission on November 15, 2006, Commission File No. 000-51834.(3)
    
    Incorporated by reference to the Companys Form 8-K filed with the Securities and
Exchange Commission on
September 18, 2006, Commission File No. 000-51834. 66 of 68




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(4)
    
    Incorporated by reference to the Companys Form 8-K filed with the Securities and
Exchange Commission on October 11, 2006, Commission File No. 000-51834.(5)
    
    Incorporated by reference to the Companys Amendment No. 1 to Form 8-K filed with the
Securities and Exchange Commission on October 24, 2006, Commission File No. 000-51834.(6)
    
    Incorporated by reference to the Companys Form 8-K filed with the Securities and
Exchange Commission on November 21, 2006, Commission File No. 000-51834.(7)
    
    Incorporated by reference to the Companys Form 8-K filed with the Securities and
Exchange Commission on December 22, 2006 Commission File No. 000-51834.(8)
    
    Incorporated by reference to the Companys Form 8-K filed with the Securities and
Exchange Commission on January 17, 2007 Commission File No. 000-51834.*
    
    Certain Parts of this exhibit have not been disclosed and have been filed separately with the
Secretary of Securities and Exchange Commission, and are subject to a confidential treatment
request pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. 
 Item 14. Principal Accountant Fees and Services
 Audit Fees
  Audit Related Fees
   Tax Fees
  Other Tax Fees
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SIGNATURES
   By:
    
    /s/ Barry Butler

Barry Butler, Chief Executive OfficerDate:
    
    March 30, 2007
  Date:
March 30, 2007
    
    
    
    /s/ Barry Butler

Barry Butler, Chief Executive Officer and DirectorDate:
March 30, 2007
    
    
    
    /s/ Todd CreechTodd Creech, Senior Vice-President FinanceDate:
March 30, 2007
    
    
    
    /s/ Roger VogelRoger Vogel, DirectorDate:
March 30, 2007
    
    
    
    /s/ Thomas RiedhammerThomas Riedhammer, DirectorDate:
March 30, 2007
    
    
    
    /s/ Kenneth J. WidderKenneth J. Widder, Director
 68 of 68