Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

		Page No.
PART I	FINANCIAL INFORMATION	3

Item 1.	Financial Statements:	3

	Condensed Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and December 31, 2009	3

	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2010 and 2009	4

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Six Months ended June 30, 2010	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2010 and 2009	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Plan of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	31

PART II	OTHER INFORMATION	31

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3.	Defaults Upon Senior Securities	35

Item 5.	Other Information	35

Item 6.	Exhibits	36

Signature		36

	June 30, 2010			December 31, 2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,193,440		$	2,173,039
Other current assets		251,814			120,527
Total current assets		2,445,254			2,293,566

Debt issuance costs, net		2,377,417			—
Property and equipment, net		53,067			114,024
Other assets		290,352			225,356
TOTAL ASSETS	$	5,166,090		$	2,632,946

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Subordinated convertible promissory notes, net of discount (face amount $1.2 million)	$	664,971		$	—
Accounts payable		2,234,587			2,432,976
Derivative financial instruments		9,627,205			2,634,487
Accrued expenses and other		3,265,415			3,135,013
Interest payable and accrued expenses due to a related party		163,628			111,560
Total current liabilities		15,955,806			8,314,036

Promissory note due to a related party		1,750,000			1,750,000
Senior subordinated convertible promissory notes, net of discount (face amount $1.8 million)		12,015			—
Deferred revenue and other		771,237			821,237
Convertible note payable		500,000			500,000
Total liabilities		18,989,058			11,385,273

Commitments and contingencies

Stockholders’ equity (deficit):
Common stock, par value $0.015 per share; 400,000,000 shares authorized, at June 30, 2010 and December 31, 2009, 63,068,817 and 62,398,817 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively		946,032			935,982
Additional paid-in capital		209,054,515			204,642,912
Accumulated deficit		(223,823,515	)		(214,331,221	)
Total stockholders’ equity (deficit)		(13,822,968	)		(8,752,327	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	5,166,090		$	2,632,946

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Revenues:
Product development	$	123,254		$	453,710		$	137,577		$	1,080,641
Other revenue		—			187,753			—			375,309
Total revenues		123,254			641,463			137,577			1,455,950

Cost and expenses:
Research and development		684,394			872,189			1,478,436			1,633,692
General and administrative		1,611,569			675,941			3,316,336			1,753,157
Facilities realignment and impairment of fixed assets		—			51,221			—			177,831
Registration rights penalty		—			64,868			—			129,023
Total cost and expenses		2,295,963			1,664,219			4,794,772			3,693,703
Loss from operations		(2,172,709	)		(1,022,756	)		(4,657,195	)		(2,237,753	)

Interest (income) expense:
Interest income		(229	)		(72	)		(431	)		(402	)
Interest expense to related parties		34,529			391,188			58,255			779,726
Interest expense		16,215			9,095			32,915			68,290
Interest expense, net		50,515			400,211			90,739			847,614

Increase in fair value of derivative financial instruments		4,062,777			—			4,744,360			—

Net loss	$	(6,286,001	)	$	(1,422,967	)	$	(9,492,294	)	$	(3,085,367	)

Net loss per common share:
Basic and diluted	$	(0.10	)	$	(0.20	)	$	(0.15	)	$	(0.42	)

Weighted average number of common shares:
Basic and diluted		62,919,928			7,291,703			62,700,309			7,287,277

					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders’
	Shares		Amount		Capital		Deficit			Equity (Deficit)
Balance at December 31, 2009		62,398,817	$	935,982	$	204,642,912	$	(214,331,221	)	$	(8,752,327	)
Non-cash stock based compensation expense, net		—		—		1,635,758		—			1,635,758
Issuance of common stock for services rendered		670,000		10,050		362,850		—			372,900
Issuance of warrants to investment finders included in debt issuance costs		—		—		1,954,831		—			1,954,831
Issuance of warrants for services rendered		—		—		442,400		—			442,400
Other issuance of warrants		—		—		15,764		—			15,764
Net loss for the six months ended June 30, 2010		—		—		—		(9,492,294	)		(9,492,294	)
Balance at June 30, 2010		63,068,817	$	946,032	$	209,054,515	$	(223,823,515	)	$	(13,822,968	)

	Six Months Ended June 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(9,492,294	)	$	(3,085,367	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		56,677			104,134
Stock based compensation charges		1,635,758			228,308
Increase in fair value of derivative financial instruments		4,744,360			—
Warrants issued for services rendered		442,400			5,672
Common stock issued for services rendered		372,900			—
Accrued registration rights penalty		—			129,023
Facilities realignment and impairment costs		—			177,831
Deferred revenue		—			(375,112	)
Other		(31,641	)		(19,410	)
Change in operating assets and liabilities:
Accounts receivable		—			(316,567	)
Other assets		(196,283	)		75,954
Accounts payable		(198,389	)		(40,835	)
Accrued expenses and other liabilities		135,111			1,528,877
Interest payable and accrued expenses to related parties		52,069			889,273
Net cash (used in) operating activities		(2,479,332	)		(698,219	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Increase due to changes in restricted cash		—			124,245

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior secured subordinated convertible debentures		1,785,000			—
Proceeds from subordinated convertible promissory notes		1,150,000			—
Convertible debentures issuance costs		(435,267	)		—
Net proceeds from sale of manufacturing asset		—			568,723
Net cash provided by financing activities		2,499,733			568,723

Net increase (decrease) in cash and cash equivalents		20,401			(5,251	)
Cash and cash equivalents at beginning of the period		2,173,039			222,821
Cash and cash equivalents at end of the period	$	2,193,440		$	217,570

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	2,291		$	2,197
Repayment of secured convertible debenture in exchange for milestone payment		—			2,500,000
Warrants issued to investment finders included in debt issuance costs		1,954,831			—

In December 2009, the Company converted $20.3 million of secured indebtedness and preferred stock into common stock of the Company, as well as received a net cash payment of $2.1 million from the sale of the Company’s State of New Jersey net operating losses. In 2010, the Company raised $1.8 million through the sale of senior subordinated convertible promissory notes and in June 2010, the Company raised $1.2 million through the sale of short term subordinated convertible promissory notes. Nonetheless, subsequent financings will be required to fund the Company’s operations, fund research and development for new products, repay past due payables and pay debt service requirements.

As a result of the conversion of $20.3 million of secured indebtedness and preferred stock into common stock of the Company, Spencer Trask Specialty Group and affiliates (“STSG”) owned 81.8% of the issued and outstanding common stock of the Company as of June 30, 2010. Due to this stock ownership, the Company is controlled by STSG and is deemed a “controlled corporation”. STSG may influence the Company to take actions that conflict with the interests of other shareholders.

In December 2009, Ferring Pharmaceuticals, Inc. (“Ferring”) terminated its License and Development Agreement, dated September 27, 2004 under Section 9.04 thereof with the Company and thus discontinued its collaborative effort for their joint infertility project. The Company has commenced litigation against Ferring with regard to the termination of the License Agreement and disposition of remaining matters. As of June 30, 2010, the Company recorded $1.4 million in accrued expenses and other in the condensed consolidated balance sheets for the estimated amounts due to Ferring.

No assurance can be given that the Company will be successful in procuring the further financing needed to continue the execution of its business plan, which includes the development of new products. Failure to obtain such financing would require management to substantially curtail, if not cease, operations, which would result in a material adverse effect on the financial condition and results of operations of the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The report of the independent registered public accounting firm relating to the audit of the Company's consolidated financial statements for the year ended December 31, 2009 contains an explanatory paragraph expressing uncertainty regarding the Company’s ability to continue as a going concern because of its operating losses and its continuing need for additional capital in order to continue operations. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might occur if the Company is unable to continue in business as a going concern.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009. The condensed consolidated balance sheet as of December 31, 2009 has been derived from those audited consolidated financial statements. Operating results for the three and six month periods ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company developed and produced the first FDA-approved electronically controlled transdermal drug delivery system that delivers drugs through the skin comfortably, without needles. This platform technology can be used to administer a wide variety of therapeutics either directly into the skin or into the bloodstream. The Company holds U.S. and foreign patents relating to the delivery of drugs across the skin using an electronically controlled “smart patch” device with electric current. Given the termination of the September 27, 2004 Ferring agreement under Section 9.04 thereof, none of the Company products are currently in collaborative development; however, the Company is currently seeking collaborative partners for several of its projects.

The Company purchases some raw materials and components from single-source suppliers. Some of those materials or components are custom-made and are the result of long periods of collaboration with suppliers. Although the Company has not experienced significant supply delays attributable to supply changes, the Company believes that, for electrode subcomponents and hydrogel in particular, alternative sources of supply would be difficult to develop over a short period of time. Because the Company has no direct control over its third-party suppliers, interruptions or delays in the products and services provided by these third parties may be difficult to remedy in a timely fashion. In addition, if such suppliers are unable or unwilling to deliver the necessary parts or products, the Company may be unable to redesign or adapt its technology to work without such parts or find alternative suppliers or manufacturers. In such events, the Company could experience interruptions, delays, increased costs, or quality control problems.

Deferred financing costs are amortized over the term of their associated debt instruments. The Company evaluates the terms of the debt instruments to determine if any embedded derivatives or beneficial conversion features exist. The Company allocated the aggregate proceeds of the debt instrument between the warrants and the debt based on their relative fair values as codified in ASC 470 Debt. The fair value of the warrants issued to debt holders or placement agents are calculated utilizing the Black-Scholes-Merton option-pricing model. The Company amortizes the resultant discount or other features over the terms of the debt through its earliest maturity date using the effective interest method. Under this method, the interest expense recognized each period will increase significantly as the instrument approaches its maturity date. If the maturity of the debt is accelerated because of defaults or conversions, then the amortization is accelerated.

Derivatives are recognized at fair value as required by ASC 815 “Derivatives and Hedging” (“ASC 815”). ASC 815 affects the accounting for warrants and many convertible instruments with provisions that protect holders from a decline in the stock price (or “down-round” provisions). For example, warrants with such provisions will no longer be recorded in equity. Down-round provisions reduce the exercise price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise price of those instruments or issues new warrants or convertible instruments that have a lower exercise price. The Company evaluated whether its warrants contain provisions that protect holders from declines in its stock price or otherwise could result in modification of either the exercise price or the shares to be issued under the respective warrant agreements. The Company determined that a portion of its outstanding warrants contained such provisions thereby concluding they were not indexed to the Company’s own stock. Accordingly the Company recorded a derivative financial instruments liability in the amount of $9.6 million and $2.6 million in current liabilities on the condensed balance sheets as of June 30, 2010 and December 31, 2009, respectively.

The Company measures fair value in accordance with Statement ASC 820, Fair Value Measurements (“ASC 820”). ASC 820 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, there exists a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance became effective for us with the reporting period beginning January 1, 2010, except for the disclosure on the roll forward activities for Level 3 fair value measurements, which will become effective for us with the reporting period beginning July 1, 2011. Other than requiring additional disclosures, adoption of this new guidance did not have a material impact on the Company’s condensed consolidated financial statements.

	June 30, 2010			December 31, 2009
	(Unaudited)

Manufacturing and laboratory equipment	$	1,872,180		$	1,875,930
Furniture and fixtures		156,543			156,543
Office equipment		338,269			345,423
Leasehold improvements		367,818			367,818
Software		205,210			205,210
		2,940,020			2,950,924
Less: Accumulated depreciation and amortization		(2,886,953	)		(2,836,900	)
Property and equipment, net	$	53,067		$	114,024

	June 30,		December 31,
	2010		2009
	(Unaudited)

Compensation, accrued bonuses and benefits payable	$	418,579	$	413,743
Continuous motion patch machine costs and delivery		156,230		183,452
Reimbursement of development costs to Ferring (1)		1,354,566		1,386,919
Accrued insurance costs		-		101,224
Accounting, legal and consulting fees		551,306		334,095
Outside services		341,275		371,243
Food and Drug Administration fees		235,917		193,521
Other		207,542		150,816
Accrued expenses and other	$	3,265,415	$	3,135,013

In December 2009, the Company issued to STSG a promissory note (“2009 Promissory Note”) with a principal amount of $2.0 million, with interest accruing at the rate of 6% per year and a maturity date of February 2, 2013. The 2009 Promissory Note is secured by a lien on the Company’s assets, subordinate to the lien of any existing creditors that have a lien senior to that of STSG and to any liens resulting from a Qualified Financing.

On December 28, 2009, the Company paid STSG $0.3 million to reduce the principal amount of the 2009 Promissory Note to $1.8 million as of December 31, 2009. Upon consummation of a Qualified Financing with gross proceeds in excess of $3.0 million, the Company is required to make another prepayment of $0.5 million. Upon consummation of a Qualified Financing with gross proceeds in excess of $5.0 million, the Company is required to make another prepayment of 50% of the net proceeds from any Qualified Financing in excess of $5.0 million. (See Subsequent Events Note 13.)

In February 2010 and May 2010, the Company sold to accredited investors (“Investors”) in a private placement $1.1 million and $0.7 million, respectively, principal amount of Senior Subordinated Convertible Promissory Notes due 2013 (the “2010 Notes”). The 2010 Notes bear no interest and are convertible into the Company’s common stock at the option of the Investors anytime at an initial conversion price of $0.20 per share. The conversion price automatically reduces by 1.5% of the conversion price after each 90 day period that 2010 Notes are outstanding, and additionally, the conversion price resets in the event of a subsequent issuance of stock at a lower price than the then effective conversion price. In addition, the 2010 Notes automatically convert into the Company’s common stock if the closing bid price of the Company’s common stock equals or exceeds 300% of the conversion price for a period of twenty consecutive trading days.

In connection with the sale of the 2010 Notes, the Company also issued five-year warrants to purchase an aggregate of 5,300,000 shares with an exercise price of $0.20 per share and 3,625,000 shares of the Company’s common stock with an exercise price of $0.25 per share, respectively. In conjunction therewith, the Company provided customary “piggyback” registration rights for a 24-month period to the Investors with respect to the shares of common stock underlying the 2010 Notes and related warrants.

In accordance with accounting for convertible instruments issued with detachable warrants (ASC 470), the Company determined the relative fair value of the aforementioned instruments and recorded debt discount on the 2010 Notes totaling $1.8 million (representing the derivative liabilities of $0.5 million for the convertible debt conversion feature and $1.3 million for the warrants limited to the amount of the proceeds). The Company recorded amortization debt discount of $9,020 and $12,015 for three and six month periods ended June 30, 2010, respectively, using the effective interest method as interest expense on the condensed consolidated statement of operations. Unamortized debt discount at June 30, 2010 totaled $1.8 million.

The Company received net proceeds of $0.8 million and $0.6 million from the 2010 Notes sold in February 2010 and May 2010, respectively, after payment of commissions and expense allowance to Spencer Trask Ventures, Inc. (“STVI”) a related party to STSG, a principal stockholder of the Company, to other finders and other offering related costs. STVI and other finders also received in the aggregate warrants to purchase 3,570,000 shares of the Company’s common stock bearing substantially the same terms as the Investor warrants. The Company incurred total debt issuance costs of $2.1 million, representing warrants issued to finders with a fair value of $1.8 million and other costs totaling $0.3 million. Such costs have been classified as other assets in accordance with accounting for debt issue costs (ASC 835) and are being amortized over the life of the corresponding debt using the effective interest method. As of the three and six month periods ended June 30, 2010, amortization of such costs amounted to $9,494 and $12,681 as a charge to interest expense on the condensed consolidated statement of operations.

At June 30, 2010, the Company adjusted the fair value of the derivative liabilities and determined the fair value of the warrant liability amounted to $3.3 million (a level 3 market value based on a Black Scholes pricing model) and the fair value of the convertible debt conversion feature amounted to $4.3 million (a level 3 market value based on pricing methodologies used to determine conversion features, which encompass the fair value of the Company’s stock as of June 30, 2010.) As a result of this adjustment, the Company recognized a $0.3 million and $3.0 million loss on derivative financial instruments for the three and six month periods ended June 30, 2010, respectively on the condensed consolidated statement of operations.

For the three months ended June 30, 2010, the loss on derivatives consists of a $0.1 million charge for the convertible debt conversion feature and a $0.2 million charge for the revaluation of the warrant liability on the condensed consolidated statement of operations. The Company recorded a charge of approximately $3.7 million for changes in the value of derivative instruments, which included the above mentioned $0.3 million charge, offset by favorable changes in the valuation of other outstanding warrants of approximately ($3.4) million.

For the six months ended June 30, 2010 the loss on derivatives consists of a $1.9 million charge for the convertible debt conversion feature and a $1.1 million charge for the revaluation of the warrant liability on the condensed consolidated statement of operations. The Company recorded a charge of approximately $4.3 million for changes in the value of derivative instruments, which included the above mentioned $3.0 million charge, offset by favorable changes in the valuation of other outstanding warrants of ($1.3) million.

On June 30, 2010, the Company consummated a private placement to accredited investors (“Investors”) of $1.2 million principal amount of Subordinated Convertible Promissory Notes due September 30, 2010 (the “June 2010 Notes”). The sale of the June 2010 Notes also included issuance to Investors of five-year warrants to purchase an aggregate of 2,300,000 shares of the Company’s common stock with an exercise price of $0.25 per share. STVI acted as finder in connection with the private placement but has deferred any fees to the Next Offering (as defined below). The June 2010 Notes bear interest at the rate of 6% per annum and are convertible into common stock of the Company at the option of the Investors upon the same terms and conditions of securities offered to investors in the next subsequent equity securities financing of the Company (“Next Offering”). In connection with the final closing, the Company received net proceeds of $1.2 million as all fees to the finder have been deferred until the conversion of June 2010 Notes at the Next Offering at which time the finder shall receive fees as if the Investors had purchased securities in the Next Offering for cash.

In accordance with accounting for convertible instruments issued with detachable warrants (ASC 470), the Company determined the relative fair value of the warrants at the time of closing approximated $0.5 million, resulting in the recognition of a derivative warrant liability and a corresponding debt discount. Unamortized debt discount at June 30, 2010 approximated $0.5 million.

At June 30, 2010, the Company determined that the fair value of the derivative approximated $0.8 million (a level 3 market value based on a Black Scholes Merton pricing model), which encompasses the fair value of the Company’s stock as of the reporting date. As a result, the Company recognized a loss on derivative financial instruments for the quarter ended June 30, 2010 of approximately $0.4 million on the condensed consolidated statement of operations.

As of the June 30, 2010 closing date, the Company incurred debt issuance costs with STSG, in their capacity as a finder for the transaction, in the amount of $0.2 million. Such costs represent the fair value of the 460,000 warrants issued to finders. The Company accrued approximately $0.1 million, representing cash commission of up to 10% a 3% expense allowance and warrants. These costs have been classified as other assets in accordance with accounting for debt issue costs (ASC 835) and are being amortized over the life of the corresponding debt.

On December 21, 2009, the Company received notice from Ferring of its termination of the License and Development Agreement, dated September 27, 2004, by and between the Company and Ferring (“Agreement”) under Section 9.04 of the Agreement, effective January 21, 2010. Pursuant to the Agreement, upon a termination by Ferring under Section 9.04 after December 31, 2004, the following disposition of intellectual property associated with the Agreement shall occur under Section 9.05 of the Agreement:

Ferring shall cease to use and shall assign to the Company all of its rights, title and interest in and to all clinical, technical and other relevant reports, records, data, information and materials relating exclusively to the Product and all regulatory filings (including any NDA, 510(k) or similar regulatory filing) relating exclusively to the Product and provide the Company one copy of each physical embodiment of the aforementioned items within thirty (30) days after such termination;

In April 2005, the Board of Directors and stockholders of the Company approved the 2005 Stock Option Plan (the “2005 Stock Option Plan”). Under the 2005 Stock Option Plan, incentive stock options and non-qualified stock options to purchase shares of the Company’s common stock may be granted to directors, officers, employees and consultants. At adoption, a total of 193,460 shares of the Company’s common stock were available for issuance pursuant to the 2005 Stock Option Plan. On May 31, 2007, the Company’s Board of Directors voted unanimously to increase the number of shares of Company stock available for issuance under the Plan to 973,417.

Options granted under the 2005 Stock Option Plan vest as determined by the Compensation Committee of the Board of Directors (the “Compensation Committee”) and terminate after the earliest of the following events: expiration of the option as provided in the option agreement, termination of the employee, or ten years from the date of grant (five years from the date of grant for incentive options granted to an employee who owns more than 10% of the total combined voting power of all classes of the Company stock at the date of grant). In some instances, granted stock options are immediately exercisable into restricted shares of common stock, which vest in accordance with the original terms of the related options. If an optionee’s status as an employee or consultant changes due to termination, the Company has the right, but not the obligation, to purchase from the optionee all unvested shares at the original option exercise price. The Company recognizes compensation expense ratably over the requisite service period.

The option price of each share of common stock shall be determined by the Compensation Committee, provided that with respect to incentive stock options, the option price per share shall in all cases be equal to or greater than 100% of the fair value of a share of common stock on the date of the grant, except an incentive option granted under the 2005 Stock Option Plan to a shareholder that owns more than 10% of the total combined voting power of all classes of the Company stock, shall have an exercise price of not less than 110% of the fair value of a share of common stock on the date of grant. No participant may be granted incentive stock options, which would result in shares with an aggregate fair value of more than $100,000 first becoming exercisable in one calendar year.

In March 2010, the Company’s Board of Directors unanimously approved the Company’s 2010 Outside Director Cash Compensation and Stock Incentive Plan (the “2010 Directors’ Incentive Plan”). The 2010 Directors’ Incentive Plan, which is replacing the 2007 Directors’ Incentive Plan, increases the number of authorized options under the Directors’ Incentive Plan from 2,583,333 options to 10,000,000 options. As of June 30, 2010, the Company issued 1,265,374 options to purchase shares of the Company’s common stock under the 2010 Directors’ Incentive Plan.

	Number of Shares			Exercise Price Per Share		Weighted Average Exercise Price		Intrinsic Value
Outstanding at January 1, 2010		4,293,442		$	0.25 - $45.60	$	0.84		-
Granted		12,444,724			0.35 – 0.65		0.50		-
Exercised		-			-		-		-
Forfeited		(80,228	)		0.29 - 45.60		0.57		-
Outstanding at June 30, 2010		16,657,938			0.25 - 45.60		0.82	$	1,203,751
Exercisable at June 30, 2010		6,763,122		$	0.25 - $45.60	$	1.33	$	563,909

		Options Outstanding at June 30, 2010						Options Exercisable at June 30, 2010
Exercise Price		Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Number of Shares		Weighted Average Exercise Price
$	0.25-18.60		16,472,373	$	0.51		8.62		6,578,358	$	0.57
$	18.61-21.75		86,536		19.73		1.89		86,542		19.73
$	21.76-24.00		20,267		23.26		7.16		19,437		23.26
$	24.01-31.50		17,016		29.65		3.81		17,036		29.65
$	31.51-45.60		61,746		42.19		5.37		61,749		42.19
			16,657,938	$	0.82		6.92		6,763,122	$	1.33

	As of June 30, 2010					As of June 30, 2009
Unvested Stock Option Awards	Stock Options			Weighted Average Grant Date Fair Value		Stock Options			Weighted Average Grant Date Fair Value
Unvested at January 1,		1,757,308		$	0.69		1,240,078		$	0.69
Awards		12,444,724		$	1.00		-			-
Forfeitures		-			-		(35,475	)	$	1.23
Vestings		(4,307,216	)	$	0.50		(181,436	)	$	1.58
Unvested at June 30,		9,894,816		$	0.57		1,023,167		$	0.57

The Company’s computation of expected life is based on historical exercise and forfeiture patterns. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The key factors in the Company’s determination of expected volatility are historical and market-based implied volatility, comparable companies with longer stock trading periods than the Company and industry benchmarks. The following table sets forth the total stock-based compensation expense resulting from stock options in the Company’s condensed consolidated statements of operations for the three and six month periods ended June 30, 2010 and 2009:

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Research and development	$	118,447	$	12,005	$	327,641	$	35,737
General and administrative		332,942		79,408		1,308,117		192,571
Stock-based compensation expense before income taxes		451,389		91,413		1,635,758		228,308
Income tax benefit		-		-		-		-
Total stock-based compensation expense after income taxes	$	451,389	$	91,413	$	1,635,758	$	228,308

On November 21, 2008, the Company entered into an employment agreement with Dr. Hartounian effective as of May 1, 2008 with a term expiring December 1, 2009, which was renewed and is currently set to expire on November 30, 2011. Dr. Hartounian’s base salary is $0.3 million per year and is eligible for a bonus of up to 40% of his salary payable in cash. In connection with the extension of the term of the employment agreement, Dr. Hartounian is to be granted up to 7,423,970 options to purchase Company common stock, with the initial 5,196,780 options having been granted and 2,227,190 options to be granted upon raising of $7.0 million by the Company. All options granted shall vest as follows: 35% immediately upon issuance and 65% quarterly over three years from date of grant.

On November 21, 2008, the Company entered into an employment agreement with Joseph N. Himy effective as of May 1, 2008 with a term expiring December 1, 2009, which is currently set to expire on November 30, 2011. Mr. Himy’s base salary is $0.2 million per year and he is eligible for a bonus of up to 25% of his salary payable in cash or stock. Mr. Himy is to be granted up to 2,227,191 options, with the initial 1,559,034 options having been granted and 668,157 options to be granted upon raising of $7.0 million by the Company. All options granted shall vest as follows: 35% immediately upon issuance and 65% quarterly over three years from date of grant.

On September 30, 2009, the Company entered into a Settlement and Release Agreement with 17-01 Pollitt Drive, L.L.C. (“Landlord”) with respect to its lease. Under the settlement agreement the Company is to pay Landlord $0.5 million, which is evidenced by the issuance of a five year interest only balloon note with interest accruing at the rate of 6% per year. Upon a default by the Company under this promissory note, the principal amount is increased to $0.6 million. The note is convertible at the Landlord’s sole discretion into unregistered common stock of the Company at the conversion price of $1.50 per share. In exchange for the note, Landlord released the Company from its obligations under the Company’s lease between Landlord and the Company.

		Warrants Outstanding and Exercisable At June 30, 2010
Exercise Price		Number of Shares		Weighted Average Exercise Price		Expiration Dates
$	0.10-6.75		24,128,800	$	1.92		2010 -2015
$	6.79-11.25		936,732		6.87		2011- 2014
$	15.90-18.75		7,500		18.75		2010- 2010
$	13.49-22.50		590,423		19.70		2011- 2012
$	28.50-45.00		26,005		38.07		2010-2013
$	67.05-143.25		1,398		143.25		2010-2010
$	0.10-143.25		25,690,858		1.20		2010-2015

On July 1, 2010, the Company filed a complaint against Ferring (the “Lawsuit”). In the Lawsuit, the Company brings claims against Ferring for various causes of action, including, but not limited to, injunctive relief, declaratory judgment, and various other claims arising out of Ferring’s termination of the License and Development Agreement, dated September 27, 2004, between it and the Company in December 2009 under Section 9.04 of this Agreement and Ferring’s conduct subsequent to the December 2009 termination. The Lawsuit is in its initial stages, and the Company cannot predict the outcome of the Lawsuit, or what relief it shall receive, if it does prevail on the merits.

On July 29, 2010, the 2009 Promissory Note due to STSG, a related party, was amended so that a prepayment in the amount of $0.5 million is due from the Company upon receipt of gross proceeds of each of $3.5 million and $4.0 million instead of gross proceeds of $3.0 million. The balance of the principal amount of the 2009 Promissory Note and all accrued and unpaid interest thereon is to be repaid and Qualified Financing with gross proceeds (in the aggregate) of more than $6.0 million instead of gross proceeds of $5.0 million.

The following discussion and analysis should be read in conjunction with the other financial information and condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including those discussed in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

Vyteris, Inc. (the terms “Vyteris”, “we”, “our”, “us” and the “Company” refer to each of Vyteris, Inc. incorporated in the State of Nevada, its subsidiary, Vyteris, Inc. (incorporated in the State of Delaware) and the consolidated company) has developed and produced the first FDA-approved electronically controlled transdermal drug delivery system that transports drugs through the skin comfortably, without needles. This platform technology can be used to administer a wide variety of therapeutics either directly into the skin or into the bloodstream. We hold approximately 50 U.S. and 70 foreign patents relating to the delivery of drugs across the skin using an electronically controlled “smart patch” device with electric current.

We believe there are a significant number of pharmaceutical drugs with substantial annual sales for which the patents are due to expire by 2012. Based on our analysis, there are currently a significant number of these and other FDA-approved drugs that may be relatively easily formulated for transdermal delivery and thus made eligible for new patent protection. We believe that the application of our novel drug delivery technologies to such existing therapeutics is an attractive means of prolonging the commercial viability of many currently marketed drugs.

On June 30, 2010, our cash position was $2.2 million, and we had a working capital deficit of $13.5 million. There is substantial doubt about our ability to continue as a going concern. We implemented several cost reduction measures in 2009, including headcount and salary reductions, reducing the level of effort spent on research and development programs, general decrease in overhead costs and renegotiation of our cost structures with our vendors. In December 2009, Ferring discontinued its collaborative effort with us for our joint infertility project, which had been our principal source of cash flow, other than proceeds from our December 2009 sale of State of New Jersey tax credits. Thus, unless we are able to raise additional funding, we may be unable to continue operations. Especially in the current economic climate and given that 81.8% of the common stock of our is controlled by a single entity, additional funding may not be available on favorable terms or at all. Failure to obtain such financing would require management to substantially curtail operations, which would result in a material adverse effect on our financial position and results of operations. In the event that we do raise additional capital through a borrowing, the covenants associated with existing debt instruments may impose substantial impediments on us.

Our active transdermal drug delivery technology (also referred to as our smart patch technology) is based on a process known as electrotransport, or more specifically, iontophoresis, a process that transports drugs through the skin by applying a low-level electrical current. Our patented technology works by applying a charge to the drug-holding reservoir of the patch. A positive charge is applied to a reservoir where a positively charged drug molecule is held. Because like-charges repel, the drug molecules are forced out of the reservoir and into the skin (the same process can occur when a negative charge is applied to a reservoir containing a negatively charged drug molecule).

We have developed a proprietary technology encompassing a series of significant improvements to drug formulation and commercial manufacturing. We used this technology with our first product, LidoSite, and are currently in various stages of testing this technology to deliver peptides and small molecules. Many of our innovations center on the way we approach designing and formulating electronically controlled drug delivery patches. Our patches are pre-filled with the proper dosage of drug during the manufacturing process. They are designed to be disposable after a single application and are discreet in appearance. Further, we designed our patches so that they can be quickly and cost-effectively mass-produced using automated manufacturing processes.

To complement our patch design, we approached the design of electronic controllers with the goal of being small, wearable, simple to operate and programmable to handle simple, as well as complex, drug delivery profiles. The dose controller contains a miniature battery and circuitry controlling delivery rate, and is capable of recording information on the amount and time of drug delivered. We believe the controllability and programmability offered by our technology are distinct competitive advantages that will enable our products to deliver more consistent and predictable results for a broad range of existing and new drugs.

Our long term viability is linked to our ability to successfully pursue new opportunities with products that can be delivered by means of our smart patch technology, such as those facing patent expiration. In addition to extended patent and clinical usage, our platform may also be a useful tool for pharmaceutical and biotechnology companies to reduce their research and development investment and protect their brands against generics. Based upon these tenets, our business model for achieving corporate growth focuses on three areas: commercialization and revenue-development strategies, technology initiatives and acquisition opportunities. By focusing on all three areas during the balance of 2010, we seek to expand our capabilities to generate revenues over the next several years.

Our commercialization strategy is to develop near-term and future market opportunities utilizing FDA-approved and marketed drugs (primarily peptides and small molecule drugs) with our proprietary delivery technology. By targeting compounds that may qualify for accelerated development and regulatory pathways such as those implemented under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, we strive to develop and commercialize products that can reach the market faster and at a reduced cost than the traditional development and regulatory approval processes for new drugs.

Technology initiatives are also under way to expand our drug delivery capabilities so that we may be able to utilize our technology for a wider variety of pharmaceutical applications. We are also looking for growth opportunities through the acquisition of a late development-stage or revenue-generating complementary business. We believe that there may be small private drug development and delivery companies that would have an interest in the benefits of becoming part of a public company, such as Vyteris, including access to the capital markets as a public company and stockholder liquidity.

Given the December 2009 termination by Ferring under Section 9.04 of our License Agreement with Ferring of its joint collaborative infertility project with us, we have reevaluated our business strategy. We seek to continue to streamline our operations and focus our resources on a narrow breadth of projects geared to determine viability and/or sale and license of our current in-house projects. We will also evaluate a finite number of licensing and/or acquisition opportunities in an effort to bring in a technology or product which is closer to commercialization, such as a complementary technology appropriate for Phase III testing. Our business plan will continue to evolve over the next few fiscal quarters as we evaluate in-house projects as well as review appropriate outside opportunities.

One of our development opportunities is in the peptide delivery market. The product under development is designed to mimic the female body's natural rhythms of hormonal secretions, a characteristic important in the delivery of therapeutics for the treatment of infertility. To be effective, many patients currently need to undergo multiple injection-based protocols for ovulation inducement, sometimes as many as eight daily injections for up to three weeks. Our product would make it possible to administer the peptide without needles in a painless, convenient and cost-effective manner. There are also other potential benefits, including possible reduction of the likelihood of multiple births.

We are currently reviewing the results of the Phase II clinical trials of the infertility product to determine what degree of success was achieved based on the goals of the trial; whether an additional Phase II trial may be needed; and the feasibility of progressing to Phase III trials. We anticipate that any such additional trials would be conducted by a strategic partner pursuant to a development and marketing agreement.

Another key area where we are seeking to apply our smart patch technology is the treatment of migraines. This may be a highly attractive market segment, estimated at over $3 billion per year (“Migraine Market: Trexima Approval Delays Benefits Generic Triptan”, RedOrbit NEWS, published March 29, 2007), where major market leaders face imminent patent expirations. By focusing on these patent-expiring drugs, we believe we can offer potential development partners extended patent protection through use of our active transdermal patch delivery platform, with the additional benefit of potentially providing a more effective product.

The treatment of migraine requires rapid onset of medication. A class of compounds known as “triptans” is currently considered an effective treatment. We believe a significant market opportunity exists to improve the efficacy of triptan therapy for migraines by changing the method by which triptans are administered. Taken orally, triptans often fail to deliver sufficient quantities of medication in the short time frame required to optimally treat migraine onset. Further, they often fail to prevent the second episode, known as recurrence, which many migraine patients suffer within 12 to 18 hours after a first attack.

Our active patch technology can be pre-programmed for rapid delivery — as little as 10-15 minutes to achieve therapeutic levels — followed by a sustained maintenance dose that may prevent headache recurrence. If our smart patch is applied in this area, this customizable drug delivery could offer advantages in the treatment of migraine, and could improve patient satisfaction and patient compliance. We believe that this could be a unique and significantly improved therapy and that it could be a potentially effective way to significantly improve treating and preventing recurring migraine headaches.

We have demonstrated in a Phase I study that our proprietary active transdermal delivery technology can be used to provide controlled delivery of a leading migraine triptan medication in humans. Our objective is to find a development and marketing partner to complete the necessary trials and obtain FDA approval to launch this triptan loaded smart patch about the time the specific triptan we are targeting loses patent protection in 2013.

Another key area of potential partnership with pharmaceutical companies is in pain management, specifically, the non-steroidal anti-inflammatory drug (“NSAID”) sector, which falls in line with our strategy of pursuing high probability, low risk opportunities leading to better patient care. The total annual NSAID market is potentially worth $6 billion (see “Celebrex sales plunge 40 percent”, CNN Money.com, June 29, 2005). Some of the well-known NSAIDs that are or have been on the market are Vioxx, Celebrex, Naproxen and Daypro.

NSAIDs have made a dramatic contribution to pain management, but their extensive use has also documented a problematic safety profile, due to gastrointestinal (“GI”) side effects associated with extended use or over dosing of the drugs. In the United States alone, more than 107,000 hospitalizations are attributed to NSAID use, and more than 16,000 deaths a year are attributed to NSAID use (“Horizon Therapeutics Announces Two Pivotal HZT-501 Phase 3 Trials Meet Primary Endpoints,” Horizon Therapeutics, Inc., December 2, 2008).

Our active delivery system bypasses the gastrointestinal tract, minimizing the GI side effects associated with oral NSAIDs, and circumvents a major disadvantage of these commonly used medications. We believe that if our smart patch technology is applied to NSAIDs, the controlled drug delivery profile from our active patch could also curtail overdosing of the drugs. This may represent a significant market opportunity if we are successful in entering into a strategic partnership to penetrate the NSAID market.

Diabetes mellitus is a common metabolic disease. It is characterized by a lack of insulin secretion and/or increased cellular resistance to insulin, resulting in hyperglycemia and other metabolic disturbances. People with diabetes suffer from increased morbidity and premature mortality related to cardiovascular, microvascular and neuropathic complications. The Diabetes Control and Complication Trial has convincingly demonstrated the relationship of hyperglycemia to the development and progression of complications and showed that improved glycemic control reduced these complications. The delivery of large peptides (insulin or GLP-1) through the skin may be accomplished by iontophoresis alone or by a combination of physical or chemical enhancers with iontophoresis to result in delivery of these therapies.

Osteoporosis is a metabolic skeletal disorder wherein bone strength decreases and risk of bone fracture increases. Bone strength is maintained by a continual process of bone resorption and bone regeneration. Osteoporosis results when bone resorption occurs at a faster rate than bone regeneration. We believe iontophoresis can be used to transdermally deliver calcium-regulating hormones such as salmon calcitonin and parathyroid hormone (1 to 34). Such delivery could be useful for chronic treatment of post-menopausal osteoporosis and other clinical indications as a superior alternative to injection.

The first area targeted with our smart patch technology, and our “proof of concept” case, was primarily needle stick pain with a secondary focus on the areas of dermatology, rheumatology and oncology procedures. On May 6, 2004, we received approval from the FDA to commercially launch our first product, LidoSite. LidoSite is a topical delivery system indicated for use on normal intact skin to provide local anesthesia prior to needle stick procedures such as venipunctures (blood draws), injections and intravenous therapies for arthritis and oncology patients as well as superficial dermatological procedures. Our LidoSite product, discontinued in 2008, used our technology to achieve rapid, deep local anesthesia prior to these procedures. We are currently seeking a sale, licensing or strategic partnering opportunity for our LidoSite product line.

Our discussion and analysis of our financial position and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. Our significant accounting policies are more fully described in our Annual Report on Form 10-K for the year ended December 31, 2009. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported revenues and expenses during the period.

We use revenue recognition criteria outlined in ASC 605. Accordingly, revenues from licensing agreements are recognized based on the performance requirements of the agreement. Non-refundable up-front fees, where we have an ongoing involvement or performance obligation, are generally recorded as deferred revenue in the balance sheet and amortized into license fees in the statement of operations over the term of the performance obligation. Subsequent milestone payments received are either recognized immediately or ratably, over a development period, depending on the nature of the milestone collaborative agreement terms and accounting guidance for collaborative transactions.

As part of the process of preparing our consolidated financial statements, we are required to estimate certain expenses. This process involves identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for such service as of each balance sheet date in our financial statements. Examples of estimated expenses for which we accrue include professional service fees, contract service fees and fees paid to contract research organizations in connection with the conducting of clinical trials. Our estimates are most affected by our understanding of the status and timing of services provided relative to the actual levels of services incurred by such service providers. In the event that we do not identify certain costs which have begun to be incurred or we under-estimate or over-estimate the level of services performed or the costs of such services for a period, our reported expenses for such period would be too low or too high. The date on which certain services commence, the level of services performed on or before a given date and the cost of such services are often estimated. We make these estimates based upon the facts and circumstances known to us in accordance with accounting principles generally accepted in the United States of America.

We account for our stock based employee compensation plans under ASC 718 and ASC 505. ASC 718 and ASC 505 address the accounting for shared based payment transactions in which an enterprise receives employee services for equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. ASC 718 and ASC 505 require that such transactions be accounted for using a fair value based method.

In considering the fair value of the underlying stock when we grant options or restricted stock, we consider several factors, including third party valuations and the fair values established by market transactions. Stock-based compensation includes estimates of when stock options might be exercised, forfeiture rates and stock price volatility. The timing for exercise of options is out of our control and will depend, among other things, upon a variety of factors, including our market value and the financial objectives of the holders of the options. We have limited historical data to determine volatility in accordance with Black-Scholes-Merton modeling or other acceptable valuation models under ASC 718 and ASC 505. In addition, future volatility is inherently uncertain and the valuation models have its limitations. These estimates can have a material impact on stock-based compensation expense in our consolidated statements of operations but will have no impact on our cash flows. Therefore determining the fair value of our common stock involves significant estimates and judgments.

Deferred financing costs are amortized over the term of its associated debt instrument. We evaluate the terms of the debt instruments to determine if any embedded derivatives or beneficial conversion features exist. We allocate the aggregate proceeds of the notes payable between the warrants and the notes based on their relative fair values in accordance with ASC 470. The fair value of the warrants issued to note holders or placement agents are calculated utilizing the Black-Scholes-Merton option-pricing model. We amortize the resultant discount or other features over the terms of the notes through its earliest maturity date using the effective interest method. Under this method, interest expense recognized each period will increase significantly as the instrument approaches its maturity date. If the maturity of the debt is accelerated because of defaults or conversions, then the amortization is accelerated.

Under applicable accounting guidance, an evaluation of outstanding warrants is made to determine whether warrants issued are required to be classified as either equity or a liability. Because certain warrants we have issued in connection with past financings contain certain provisions that may result in an adjustment to their exercise price, we classify them as derivative liabilities, and accordingly, we are then required to estimate the fair value of such warrants, at the end of each quarter. We use the Black-Scholes option pricing model to estimate such fair value, which requires the use of numerous assumptions, including, among others, expected life, volatility of the underlying equity security, a risk-free interest rate and expected dividends. The use of different values by management in connection with these assumptions in the Black Scholes option pricing model could produce substantially different results. Because we record changes in the fair value of warrants classified as derivative liabilities as either an increase or decrease in fair value of derivative financial instruments on our condensed consolidated statement of operations, materially different results could have a material effect on our results of operations. As of June 30, 2010, we recorded on our condensed consolidated balance sheets a derivative liability of $9.6 million.

	Three Months Ended June 30, 2010 Versus June 30, 2009			Six Months Ended June 30, 2010 Versus June 30, 2009

Revenues		(80.8	)%		(90.6	)%
Research and development		(21.5	)%		(9.5	)%
General and administrative		138.4	%		89.2	%
Facilities realignment and impairment of fixed assets		(100.0	)%		(100.0	)%
Registration rights penalty		(100.0	)%		(100.0	)%
Interest (income) expense, net		(87.4	)%		(89.3	)%
Increase in fair value of derivative financial instruments		100.0	%		100.0	%
Net loss		341.8	%		207.7	%

Revenues were $0.1 million for the three months ended June 30, 2010, compared to $0.6 million for the comparable period in 2009, a decrease of 80.8% or $0.5 million. Our revenue for the three-month period ended June 30, 2009 was primarily derived from reimbursement of product development costs from Ferring. This decrease is primarily attributable to the termination by Ferring of its License Agreement with us in December 2009. Our revenue for the three-month period ended June 30, 2010 and 2009 was primarily derived from research and development work performed on behalf of our costumers.

Research and development expenses were $0.7 million for the three months ended June 30, 2010, compared to $0.9 million for the comparable period in 2009, a decrease of 21.5% or $0.2 million. Research and development expenses for the three months ended June 30, 2010 include a non-cash charge of $0.1 million for the fair value of employee share-based payments as compared to approximately $12,000 for the comparative period in the prior year. This decrease in research and development expenses is primarily attributable to the termination by Ferring of its License Agreement with us and the completion of the related phase II clinical trial work in December 2009.

General and administrative expenses totaled $1.6 million for the three months ended June 30, 2010, as compared to $0.7 million for the comparable period in 2009, an increase of 138.4%, or $0.9 million. General and administrative expense for the three months ended June 30, 2010 included a non-cash charge of $0.3 million for the fair value of employee and director share-based payments as compared to approximately $0.1 million for the comparative period in the prior year. The increase in general and administrative expenses, net of the increase in non-cash charges of $0.7 million, is primarily attributable to an increase in investor relations costs, legal fees, and consulting arrangements.

The registration rights penalty for failure to register common stock issued totaled $0.1 million for the three months ended June 30, 2009. On October 30, 2009, we entered into an Amendment and Waiver (“Amendment”) to the Registration Rights Agreement dated September 29, 2004 among the Company, Spencer Trask Ventures, Inc., a related party, Rodman & Renshaw, LLC, and various shareholders. The Amendment required us to compensate investors for registration rights penalties incurred of approximately $2.6 million. We issued 1,250,000 restricted shares of our common stock with a fair value of $0.8 million and warrants to purchase up to 1,250,000 restricted shares of our common stock at an exercise price of $0.75 per share with an expiration date of October 30, 2012 in order to settle the accrued liquidated damages. Accordingly we did not incur registration right penalty expense in the three month period ended June 30, 2010.

Interest (income) expense, net totaled $0.1 million for the three months ended June 30, 2010, as compared to $0.4 million for the comparable period in 2009, a decrease of 87.4%, or $0.4 million. The decrease in interest (income) expense, net, is primarily attributable to the conversion of approximately $20.3 million in senior secured convertible debt and preferred stock into our common stock in December 2009.

We performed an evaluation to determine whether our equity-linked financial instruments (or embedded features) are indexed to our stock, including evaluating the instruments contingent exercise and settlement provisions in accordance with ASC Topic 815. This requirement affects the accounting for our warrants that protect holders from a decline in the stock price (or “down-round” provisions). This also affects the beneficial conversion feature of the 2010 Notes, which have an initial conversion price of $0.20 per share (but such price decreases by 1.5% each 90 period that the instrument is outstanding, and contains a reset provision in the event subsequent equity raises are at a lower value). For the three month period ended June 30, 2010, we recorded an expense of $4.1 million in the condensed consolidated statement of operations due to the changes in the fair value of our issued warrants that contain such anti-dilution provisions and the variable beneficial conversion feature, using the Black-Scholes-Merton option-pricing model.

Revenues were $0.1 million for the six months ended June 30, 2010, compared to $1.5 million for the comparable period in 2009, a decrease of 90.6% or $1.3 million. Our revenue for the six-month period ended June 30, 2009 was primarily derived from reimbursement of product development costs from Ferring. This decrease is primarily attributable to the termination by Ferring of its License Agreement with us in December 2009. Our revenue for the six-month period ended June 30, 2009 was primarily derived from research and development work performed on behalf of our customers.

Research and development expenses were $1.5 million for the six months ended June 30, 2010, compared to $1.6 million for the comparable period in 2009, a decrease of 9.5% or $0.2 million. Research and development expenses for the six months ended June 30, 2010; include a non-cash charge of $0.3 million for the fair value of employee share-based payments as compared to approximately $35,000 for the comparative period in the prior year. This decrease in research and development expenses is primarily attributable to the termination by Ferring of its License Agreement with us and the completion of the related phase II clinical trial in December 2009.

General and administrative expenses totaled $3.3 million for the six months ended June 30, 2010, as compared to $1.8 million for the comparable period in 2009, an increase of 89.2%, or $1.6 million. General and administrative expense for the six months ended June 30, 2010, included a non-cash charge of $1.3 million for the fair value of employee and director share-based payments as compared to approximately $0.2 million for the comparative period in the prior year. The increase in general and administrative expenses, net of the increase in non-cash charges of $0.4 million, is primarily attributable to an increase in investor relations costs, legal fees, and consulting arrangements.

The registration rights penalty for failure to register common stock issued totaled $0.1 million for the six months ended June 30, 2009. On October 30, 2009, we entered into an Amendment and Waiver (“Amendment”) to the Registration Rights Agreement dated September 29, 2004 among the Company, Spencer Trask Ventures, Inc., a related party, Rodman & Renshaw, LLC, and various shareholders. The Amendment required us to compensate investors for registration rights penalties incurred of approximately $2.6 million. We issued 1,250,000 restricted shares of our common stock with a fair value of $0.8 million and warrants to purchase up to 1,250,000 restricted shares of our common stock at an exercise price of $0.75 per share with an expiration date of October 30, 2012 in order to settle the accrued liquidated damages. Accordingly we did not incur registration right penalty expense in the six month period ended June 30, 2010.

Interest (income) expense, net totaled $0.1 million for the six months ended June 30, 2010, as compared to $0.8 million for the comparable period in 2009, a decrease of 89.3%, or $0.8 million. The decrease in interest (income) expense, net, is primarily attributable due to the conversion of approximately $20.3 million in senior secured convertible debt and preferred stock into our common stock in December 2009.

We performed an evaluation to determine whether our equity-linked financial instruments (or embedded features) are indexed to our stock, including evaluating the instruments contingent exercise and settlement provisions in accordance with ASC Topic 815. This requirement affects the accounting for our warrants that protect holders from a decline in the stock price (or “down-round” provisions). This also affects the beneficial conversion feature of the 2010 Notes, which have an initial conversion price of $0.20 per share (but such price decreases by 1.5% each 90 period that the instrument is outstanding, and contains a reset provision in the event subsequent equity raises are at a lower value). For the six month period ended June 30, 2010, we recorded an expense of $4.7 million in the condensed consolidated statement of operations due to the changes in the fair value of our issued warrants that contain such anti-dilution provisions and the variable beneficial conversion feature, using the Black-Scholes-Merton option-pricing model.

The condensed consolidated financial statements have been prepared assuming that we will continue as a going concern; however, we had cash and cash equivalents of $2.2 million and a working capital deficit of $13.5 million, as of June 30, 2010, which are not sufficient to allow us to continue operations without additional funding, especially given the fact that the Company has approximately $2.1 million in accounts payable which are more than 60 days past due, with increasing numbers of creditors either making claims and/or commencing litigation against us. No assurance can be given that we will be successful in arranging additional financing needed to continue the execution of our business plan, which includes the development of new products. Failure to obtain such financing may require management to substantially curtail operations, cease operating our business or file for bankruptcy, which would result in a material adverse effect on our financial position and results of operations. Since February 2008, our primary source of financing has been loans, development fees and milestone payments from our collaborative partner, Ferring. In December 2009, Ferring terminated its License Agreement with us and thus we are no longer receiving any payments from Ferring. These factors raise substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might occur if we are unable to continue in business as a going concern.

For the six-month period ended June 30, 2010, net cash used in operating activities was $2.5 million, as compared to $0.7 million of net cash used in operating activities in the comparable period in the prior year. The increase in net cash used in operating activities for the six month period ended June 30, 2010 as compared to same period in the prior year is primarily due to Ferring’s termination of its License Agreement with us in December 2009 and discontinuance of reimbursement of our product development expenditures under the Agreement. We received $1.8 million of such reimbursement of product development expenses in the six month period ended June 30, 2009.

For the six-month period ended June 30, 2010, net cash provided by financing activities was $2.5 million, as compared to $0.6 million of net cash provided by financing activities in the comparable period in the prior year. During the six-month period ended June 30, 2010, we sold to accredited investors $1.8 million principal amount of senior subordinated convertible promissory notes due 2013 and $1.1 million of subordinated convertible promissory notes which was partially offset by $0.4 million in related debt issuance costs. During the six-month period ended June 30, 2009, we received gross proceeds of $1.0 million from the sale of our PMK 150 Patch manufacturing machine which was partially offset by the repayment of $0.4 million of senior secured convertible debentures due to Ferring.

Ferring also agreed to buy our PMK 150 machine for $1.0 million, of which $0.5 million was paid at closing (half to satisfy outstanding senior secured convertible debentures due to Ferring) and $0.3 million was paid on May 14, 2009 (part to satisfy accrued and unpaid interest on loans from Ferring) and which has been leased back to us at a rental amount of $1,000 per month. We account for the lease of the PMK 150 machine as an operating lease and are recognizing the deferred gain on the sale of the machine over the 10 year lease.

On December 21, 2009, we received notice from Ferring of its termination of the License and Development Agreement, dated September 27, 2004, by and between us and Ferring (“Agreement”) under Section 9.04 of the Agreement, effective January 21, 2010. Pursuant to the Agreement, upon a termination by Ferring under Section 9.04 after December 31, 2004, the following disposition of intellectual property associated with the Agreement shall occur under Section 9.05 of the Agreement:

Ferring shall cease to use and shall assign to us all of its rights, title and interest in and to all clinical, technical and other relevant reports, records, data, information and materials relating exclusively to the Product and all regulatory filings (including any NDA, 510(k) or similar regulatory filing) relating exclusively to the Product and provide us one copy of each physical embodiment of the aforementioned items within thirty (30) days after such termination;

On October 30, 2009, we issued 3,000,000 shares of our common stock and 3,000,000 warrants to purchase our common stock to an investor for a purchase price of $0.6 million in a transaction exempt from registration under Section 4(2) of the Securities Act of 1933. The warrants are exercisable into shares of our common stock at an exercise price of $0.20 per share, and bear a term of five years from the date of closing. The warrants contain a cashless exercise provision and “full ratchet” anti-dilution provisions. We paid finders fees in the amount of $0.1 million and issued a total of 1,200,000 warrants allocated as follows: (i) 600,000 warrants representing 20% of the common stock issued to investors and (ii) 600,000 warrants representing 20% of the warrants issued to investors in connection with this private placement recorded as a reduction of equity as a cost of the transaction. All warrants issued contain terms identical to the terms of the warrants issued to the investors.

On December 23, 2009, we consummated a non-dilutive capital raise in the net amount of $2.1 million. The State of New Jersey approved the sale of our prior year’s state net operating tax losses and research tax credits through the New Jersey Economic Development Authority (NJEDA). The funding has been used for operations and capital expenditures in accordance with rules, regulations and stipulations set forth by the New Jersey program.

In February 2010 and May 2010, we sold to accredited investors (“Investors”) in a private placement $1.1 million and $0.7 million, respectively, principal amount of Senior Subordinated Convertible Promissory Notes due 2013 (the “2010 Notes”). The 2010 Notes bear no interest and are convertible into our common stock at the option of the Investors anytime at an initial conversion price of $0.20 per share. The conversion price automatically reduces by 1.5% of the conversion price after each 90 day period that 2010 Notes are outstanding, and additionally, the conversion price resets in the event of a subsequent issuance of stock at a lower price than the then effective conversion price. In addition, the 2010 notes automatically convert into our common stock if the closing bid price of our common stock equals or exceeds 300% of the conversion price for a period of twenty consecutive trading days.

In connection with the sale of the 2010 Notes, we also issued five-year warrants to purchase an aggregate of 5,300,000 shares with an exercise price of $0.20 per share and 3,625,000 shares of our common stock with an exercise price of $0.25 per share, respectively. In conjunction therewith, we provided customary “piggyback” registration rights for a 24-month period to the Investors with respect to the shares of common stock underlying the notes and warrants.

On June 30, 2010, we consummated a private placement to accredited investors (“Investors”) of $1.2 million principal amount of Subordinated Convertible Promissory Notes due September 30, 2010 (the “June 2010 Notes”). The sale of the June 2010 Notes also included issuance to Investors of five-year warrants to purchase an aggregate of 2,300,000 shares of our common stock with an exercise price of $0.25 per share. The June 2010 Notes are convertible into our common stock at the option of the Investors upon the same terms and conditions of securities offered to investors in the next subsequent equity securities financing.

	Payments due by Period as of June 30, 2010
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating lease obligations	$	576,613	$	374,752	$	201,861	$	—	$	—
PMK 150 lease agreement		104,000		12,000		24,000		24,000		44,000
Debt obligations (1)		5,185,000		1,750,000		2,935,000		—		500,000
Advisory agreement		45,000		45,000		—		—		—
Total	$	5,910,613	$	2,181,752	$	3,160,861	$	24,000	$	544,000

Lender	Face Amount		Due Date	Interest Rate			Amount Description On Balance Sheet

Senior subordinated convertible promissory notes	$	1,060,000	February 2013		-		Senior subordinated convertible promissory notes, net of discount (see Note 6)

Promissory note due to STSG		1,750,000	December 2012		6	%	Promissory note due to a related party (see Note 5)

Senior subordinated convertible promissory notes		725,000	May 2013		-		Senior subordinated convertible promissory notes, net of discount (see Note 6)

Subordinated convertible promissory notes		1,150,000	September 2010		6	%	Subordinated convertible promissory notes, net of discount (see Note 7)

Convertible notes payable		500,000	August 2014		6	%	Convertible note payable(see Note 11)
Total	$	5,185,000

This Quarterly Report on Form 10-Q contains forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended). When used in this Quarterly Report on Form 10-Q, the words “anticipate,” “believe,” “estimate,” “will,” “plan,” “seeks,” “intend,” and “expect” and similar expressions identify forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in any forward-looking statements are reasonable, these plans, intentions, or expectations may not be achieved. Our actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied, by the forward-looking statements contained in this Quarterly Report on Form 10-Q. Important factors that could cause actual results to differ materially from our forward-looking statements are set forth in this Quarterly Report on Form 10-Q, including under the heading “Risk Factors.” All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this Quarterly Report on Form 10-Q. Except as required by federal securities laws, we are under no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

Our exposure to market risk for changes in interest rates relates primarily to the market-driven increase or decrease in interest rates, and the impact of those changes on our ability to realize a return on invested or available funds. We ensure the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in commercial checking and savings accounts.

As of the end of the period covered by this Quarterly Report on Form 10-Q, management performed, with the participation of our Principal Executive Officer and Principal Accounting Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the report we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management including our Principal Executive Officer and our Principal Accounting Officer, to allow timely decisions regarding required disclosures. Based on the evaluation above, our Principal Executive Officer and our Principal Accounting Officer concluded that, as of June 30, 2010, our disclosure controls and procedures were not effective.

During the quarter ended June 30, 2010 there have been no changes in our internal controls or in other factors that could affect any corrective actions with regard to deficiencies and material weaknesses with respect to internal controls over financial reporting. As there has been no change in our internal controls since disclosure in our Form 10-K for the year ending December 31, 2009, filed with the Securities and Exchange Commission, on March 25, 2010 with regard to segregation of accounting duties, we reiterate the following material weakness which also existed as of December 31, 2009.

From time to time, we are involved in lawsuits, claims, investigations and proceedings, including pending opposition proceedings involving patents that arise in the ordinary course of business. Except as set forth below, there are no matters pending that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows except for approximately $0.7 million in accounts payable collection claims and litigation. Unless we are able to obtain sufficient funds to commence settlement of outstanding accounts payable, these numbers of claims and litigation are likely to increase.

Subsequent to receipt of such notice, we attempted to reach a reasonable resolution of the outstanding matters with Ferring, including payment of any amounts due. The negotiations were unsuccessful as Ferring sought to reach resolutions not contemplated by the Agreement pursuant to its December 21, 2009 termination under Section 9.04, to which we do not believe Ferring is entitled under its Section 9.04 termination, as detailed above.

In the Lawsuit, we assert claims against Ferring for various causes of action, including, but not limited to, injunctive relief, declaratory judgment, money damages, and various other claims arising out of Ferring’s termination of the License and Development Agreement in December 2009 and Ferring’s conduct subsequent to the December 2009 termination. In the complaint filed with respect to the Lawsuit, we seek various types of relief which include: (i) injunctive relief requiring Ferring to turn over all information requested by us under Section 9.05 of the License and Development Agreement; (ii) a declaratory judgment that we are entitled to receive from Ferring, inter alia, all test data, results, analyses and intellectual property under Section 9.05, and (iii) various compensatory, punitive and treble damages, as well as costs of suit, interest and attorneys’ fees.

You should carefully consider the risks described below together with all of the other information included in this report, as well as all other information included in all other filings, incorporated herein by reference, when evaluating the Company and its business. We only state those risk factors which may have changed from our 10-K filed for the year ended December 31, 2009. If any of the following risks actually occurs, our business, financial condition, and results of operations could suffer. In that case, the price of our common stock could decline and our stockholders may lose all or part of their investment.

As of June 30, 2010, our cash and cash equivalents amounted to $2.2 million. In 2010, we have had minimal revenue, and we have been dependent upon proceeds from financing activities to fund our operations. As of June 30, 2010, our current liabilities exceeded our current assets by approximately $13.5 million, and we have approximately $2.1 million in outstanding accounts payable which are over 60 days past due. If we do not continue to raise capital until we generate sufficient cash flow from operations to cover this working capital deficit, we may be required to discontinue or further substantially modify our business, in addition to the substantial cost cutting measures that have been implemented in the last two years. We cannot be certain that additional financing will be available to us on favorable terms when required, if at all. The failure to raise needed funds could have a material adverse effect on our business, financial condition, operating results and prospects. Additionally, we face mounting claims and litigation from our vendors and other parties to which we owe money, and we do not have sufficient funds to pay such payables and/or to defend litigation which may arise from nonpayment. These factors raise substantial doubt about our ability to continue as a going concern. The report of the independent registered public accounting firm relating to the audit of our consolidated financial statements for the year ended December 31, 2009 contains an explanatory paragraph expressing uncertainty regarding our ability to continue as a going concern because of our operating losses and our need for additional capital. Such explanatory paragraph could make it more difficult for us to raise additional capital and may materially and adversely affect the terms of any future financing that we may obtain.

From November 2000 through June 30, 2010, we incurred net losses in excess of $223.8 million, as we have been engaged primarily in clinical testing and development activities. We have never been profitable, we may never be profitable, and, if we become profitable, we may be unable to sustain profitability. We expect to continue to incur significant losses for the foreseeable future and will endeavor to finance our operations through sales of securities and incurrence of indebtedness, of which there can be no assurance.

(ii) Unless we are able to secure an alternative development partner for our drug delivery product for female infertility or are otherwise able to continue development of this product on our own, we will in all likelihood have to abandon this product line, which would likely have a material adverse effect on us both with respect to our ability to derive a stream of revenues and our ability to bring a product to market within the time frames previously anticipated by us.

(iv) Because of this lawsuit, we will be required to expend significant funds as well as utilize significant amounts of time of our management and other personnel. We cannot assure you that we will receive a favorable outcome in the litigation, and in using our efforts and legal counsel to obtain a favorable outcome, we cannot accurately predict the potential costs that will be involved.

The market price of our common stock could decline as a result of sales of substantial amounts of our common stock in the public market or the perception that substantial sales could occur because of our sale of common stock, convertible securities or warrants, or the issuance or exercise of stock options or warrants. These sales also might make it difficult for us to sell equity securities in the future at a time when, and at a price which, we deem appropriate.

As of June 30, 2010, we had stock options to purchase 16,657,938 shares of our common stock outstanding, of which options to purchase 6,763,122 shares were exercisable. Also outstanding as of the same date were warrants exercisable for 25,690,858 shares of our common stock and senior secured debentures that can convert into 9,258,333 shares of our common stock. Exercise of any current or future outstanding stock options or warrants could harm the market price of our common stock.

As of June 30, 2010, Spencer Trask Specialty Group, LLC or STSG, beneficially owned approximately 81.8% of our issued and outstanding common stock. Due to this stock ownership, we are controlled by STSG and deemed a “controlled corporation”. This control occurred as a result of the December 22, 2009 restructuring and conversion into common stock of over $20.3 million of preferred stock and senior secured debt that we owed to STSG. STSG may take actions that conflict with the interests of other shareholders. Due to STSG’s voting control of our common stock, STSG has substantial control over us and has substantial power to elect directors and to generally approve all actions requiring the approval of the holders of our voting stock.

On June 30, 2010, we consummated a private placement to accredited investors (“Investors”) of $1.2 million principal amount of subordinated convertible promissory notes due September 30, 2010 (the “Notes”). The Notes are convertible into our common stock at the option of the Investors upon the same terms and conditions of securities offered to investors in our next subsequent equity securities financing (“Next Offering”). There is no assurance that we will consummate our next offering by September 30, 2010 or that if we do, whether all or part of the Notes will be converted. If the Notes are not all so converted by September 30, 2010, and we are not able to either repay all amounts due under any unconverted Notes, or obtain an extension past the September 30, 2010 maturity date, we will be in default of those remaining unconverted Notes, and the Investors will be able to exercise all available remedies against us, which includes suing us for the remaining principal amount of the Notes plus interest thereon plus default interest and costs of collection.

On May 6, 2010, we consummated a private placement to accredited investors (“Investors”) of $0.7 million principal amount of Senior Subordinated Convertible Promissory Notes due 2013 (the “2010 Notes”). The sale of the 2010 Notes also included issuance to Investors of five-year warrants to purchase an aggregate of 3,625,000 shares of our common stock with an exercise price of $0.25 per share. Spencer Trask Ventures, Inc. acted as placement agent in connection with the private placement. The 2010 Notes have the same terms as those issued in the February 2010 private placement. This private placement transaction to accredited investors is exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof and Regulation D, promulgated thereunder.

In connection with the final closing, we received net proceeds of $0.6 million, after payment of an aggregate of $0.1 million of commissions and expense allowance to the placement agent and other offering and related costs. The placement agent also received warrants to purchase 1,450,000 shares of our common stock (725,000 warrants at an exercise price of $0.20 and 725,000 warrants at an exercise price of $0.25) bearing substantially the same terms as the Investor warrants.

On June 30, 2010, we consummated a private placement to accredited investors (“Investors”) of $1.2 million principal amount of 6% Subordinated Convertible Promissory Notes due September 30, 2010 (the “Notes”). The sale of the Notes also included issuance to Investors of five-year warrants to purchase an aggregate of 2,300,000 shares of our common stock with an exercise price of $0.25 per share. Spencer Trask Ventures, Inc. acted as finder in connection with the private placement.

Item 6(a)		Exhibits

10.163		Amendment No. 1 to 6 % Secured Promissory Note, dated July 29, 2010, with Spencer Trask Specialty Group LLC

31.1		Certification by the Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2		Certification by the Principal Accounting Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1		Certification by the Principal Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2		Certification by the Principal Accounting Officer pursuant to 18 U.S.C. Section 1350.

Item No.		Description

10.163		Amendment No. 1 to 6 % Secured Promissory Note, dated July 29, 2010, with Spencer Trask Specialty Group LLC

31.1		Certification by the Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

31.2		Certification by the Principal Accounting Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

32.1		Certification by the Principal Executive Officer pursuant to 18 U.S.C. Section 1350

32.2		Certification by the Principal Accounting Officer pursuant to 18 U.S.C. Section 1350

NEVADA		84-1394211
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

13-01 POLLITT DRIVE
FAIR LAWN, NEW JERSEY		07410
(Address of principal executive office)		(Zip Code)

Large accelerated filer £	Accelerated filer £
Non-accelerated filer (Do not check if a smaller reporting company) £	Smaller reporting company S

CLASS		OUTSTANDING AT AUGUST 8, 2010
Common stock, par value $0.015 share		63,068,817

	Three Months Ended June 30,					Six Months Ended June 30,
	2010			2009		2010			2009
				(1)					(1)
Expected holding period (years)		5.0			-		5.0			-
Risk-free interest rate		2.10	%		-		2.36	%		-
Dividend yield		0	%		-		0	%		-
Fair value of options granted	$	0.36			-	$	0.36			-
Expected volatility		91.86	%		-		91.86	%		-
Forfeiture rate		15.38	%		-		15.38	%		-

		Vyteris, Inc.

Date: August 13, 2010		/s/ Haro Hartounian
		Haro Hartounian
		Principal Executive Officer

Date: August 13, 2010		/s/ Joseph Himy
		Joseph Himy
		Principal Financial Officer and Principal Accounting Officer

	As of June 30,
	2010		2009
Convertible preferred stock		-		500,000
Convertible debt		9,258,333		365,180
Warrants		25,690,858		4,088,377
Options		16,657,938		2,293,402
Total		51,607,129		7,246,959