Please wait

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-32741

Vyteris, Inc.

(Exact name of issuer as specified in its charter)

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)

(201) 703-2299

(Issuer’s telephone number)

Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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 ¨ No ¨

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

CLASS		OUTSTANDING AT NOVEMBER 8, 2010
Common stock, par value $0.015 share		68,755,067

VYTERIS, INC.

FORM 10-Q

INDEX

		Page No.
PART I	FINANCIAL INFORMATION	3

Item 1.	Financial Statements:	3

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

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

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

	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 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	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	32

PART II	OTHER INFORMATION	33

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 5.	Other Information	36

Item 6.	Exhibits	36

Signature		36

Vyteris® and LidoSite® are our trademarks. All other trademarks, servicemarks or trade names referred to in this Quarterly Report on Form 10-Q are the property of their respective owners.

ITEM 1. FINANCIAL STATEMENTS

VYTERIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2010			December 31, 2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,153,819		$	2,173,039
Other current assets		110,765			120,527
Total current assets		1,264,584			2,293,566

Debt issuance costs, net		2,044,421			—
Property and equipment, net		27,799			114,024
Other assets		290,352			225,356
TOTAL ASSETS	$	3,627,156		$	2,632,946

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	2,219,249		$	2,432,976
Fair value of derivative financial instruments		10,180,233			2,634,487
Accrued expenses and other		3,508,350			3,135,013
Interest payable and accrued expenses due to a related party		190,093			111,560
Total current liabilities		16,097,925			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)		26,859			—
Deferred revenue and other		746,237			821,237
Convertible note payable		500,000			500,000
Total liabilities		19,121,021			11,385,273

Commitments and contingencies

Stockholders’ equity (deficit):
Common stock, par value $0.015 per share; 400,000,000 shares authorized, at September 30, 2010 and December 31, 2009; 68,755,067 and 62,398,817 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively		1,031,326			935,982
Additional paid-in capital		213,139,437			204,642,912
Accumulated deficit		(229,664,628	)		(214,331,221	)
Total stockholders’ equity (deficit)		(15,493,865	)		(8,752,327	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	3,627,156		$	2,632,946

The accompanying notes are an integral part of these condensed consolidated financial statements.

VYTERIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
Revenues:
Product development	$	3,956		$	476,928		$	15,466		$	1,557,569
Other revenue		—			197,466			126,067			572,774
Total revenues		3,956			674,394			141,533			2,130,343

Cost and expenses:
Research and development		604,651			605,821			2,083,087			2,239,514
General and administrative		966,907			548,202			4,283,243			2,301,361
Facilities realignment and impairment of fixed assets		—			—			—			177,831
Registration rights penalty		—			65,581			—			194,603
Total cost and expenses		1,571,558			1,219,604			6,366,330			4,913,309
Loss from operations		(1,567,602	)		(545,210	)		(6,224,797	)		(2,782,966	)

Interest (income) expense:
Interest (income)		(750	)		(24	)		(1,182	)		(427	)
Interest expense to related parties		390,774			393,839			449,029			1,173,565
Interest (credit) expense		(3,548	)		15,002			29,367			83,292
Non-cash interest expense for warrants issued on induced conversion of debt		2,832,706			—			2,832,706			—
Non-cash interest expense for warrants issued to investors		485,029			—			485,029			—
Interest expense, net		3,704,211			408,817			3,794,949			1,256,430

Increase in fair value of derivative financial instruments		569,301			—			5,313,661			—
Gain on settlement of lease obligations		—			(1,953,977	)		—			(1,953,977	)

Net (loss) income	$	(5,841,114	)	$	999,950		$	(15,333,407	)	$	(2,085,419	)

Net (loss) income per common share:
Basic	$	(0.09	)	$	0.14		$	(0.24	)	$	(0.29	)
Diluted	$	(0.09	)	$	0.14		$	(0.24	)	$	(0.29	)

Weighted average number of common shares:
Basic		62,685,276			7,291,703			62,716,803			7,288,802
Diluted		62,685,276			7,398,739			62,716,803			7,288,802

The accompanying notes are an integral part of these condensed consolidated financial statements.

VYTERIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

					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		—		—		1,989,631		—			1,989,631
Issuance of common stock for services rendered		520,000		7,800		278,600		—			286,400
Issuance of common stock upon conversion of convertible debt		5,836,250		87,544		1,079,848		—			1,167,392
Issuance of warrants to investment finders included in debt issuance costs		—		—		1,954,831		—			1,954,831
Issuance of warrants for services rendered		—		—		342,400		—			342,400
Non-cash interest expense for warrants issued on induced conversion of convertible debt		—		—		2,832,706		—			2,832,706
Other issuance of warrants		—		—		18,509		—			18,509
Net loss for the nine months ended September 30, 2010		—		—		—		(15,333,407	)		(15,333,407	)
Balance at September 30, 2010		68,755,067	$	1,031,326	$	213,139,437	$	(229,664,628	)	$	(15,493,865	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

VYTERIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(15,333,407	)	$	(2,085,419	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		81,945			160,026
Stock based compensation charges		1,989,631			460,272
Non-cash increase in fair value of derivative financial instruments		5,313,661			—
Interest expense for warrants issued on induced conversion of convertible debt		2,832,706			—
Warrants issued to investors on conversion		485,029			—
Gain on settlement of lease obligations		—			(1,953,977	)
Warrants issued for services rendered		342,400			133,483
Common stock issued for services rendered		286,400			—
Accrued registration rights penalty		—			194,603
Facilities realignment and impairment costs		—			177,831
Deferred revenue		(75,000	)		(562,667	)
Other		350,317			311,034
Change in operating assets and liabilities:
Accounts receivable		—			(308,921	)
Other assets		(55,234	)		108,194
Accounts payable		(213,727	)		(38,728	)
Accrued expenses and other liabilities		380,401			1,564,995
Interest payable and accrued expenses to related parties		95,925			1,283,111
Net cash used in operating activities		(3,518,953	)		(556,163	)

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		2,935,000			—
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 (decrease) increase in cash and cash equivalents		(1,019,220	)		136,805
Cash and cash equivalents at beginning of the period		2,173,039			222,821
Cash and cash equivalents at end of the period	$	1,153,819		$	359,626

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
Issuance of common stock upon conversion of interest on convertible debt		17,392			—
Issuance of common stock upon conversion of convertible debt		1,167,392			—
Warrants issued to investment finders included in debt issuance costs		1,954,831			—

The accompanying notes are an integral part of these condensed consolidated financial statements.

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.	Liquidity and Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared assuming that Vyteris, Inc. (the terms “Vyteris” and the “Company” refer to each of Vyteris, Inc., its subsidiary, Vyteris, Inc. (incorporated in the State of Delaware) and the consolidated entity) will continue as a going concern.

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 February and May 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.

Spencer Trask Specialty Group and affiliates (“STSG”) owns 75.6% of the issued and outstanding common stock of the Company as of September 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.

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.

Basis of Presentation

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 nine month periods ended September 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.

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

(UNAUDITED)

Business

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 potentially 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, the Company is not currently engagement in any material collaborative development projects; however, the Company is currently seeking collaborative partners for several of its projects.

Merger Agreement

In September 2010 our Board of Directors approved an Agreement and Plan of Merger (the “Merger Agreement”) by and among MediSync BioServices, Inc., a Delaware corporation (“MediSync”), Vyteris and a newly created subsidiary of the Company (“Merger Sub“), pursuant to which the Merger Sub will be merged with and into MediSync, with MediSync continuing as the surviving corporation and a wholly-owned subsidiary of Vyteris (the “Merger”). As of early November 2010, we have received requisite shareholder approval to consummate the Merger, and the Merger will close upon completion of the information statement to shareholders pursuant to Section 14(c) process and filing of the certificates of merger in the State of Delaware. MediSync is in the business of consolidating preclinical and contract research organizations (“CROs”) and related businesses, including site management organizations (“SMOs”), which sub-contract clinical trial-related responsibilities from a CRO or pharmaceutical/biotechnology company, and post marketing surveillance companies, which monitor pharmaceutical drugs and devices after release into the market. MediSync believes that its future operations may provide added value to the pharmaceutical and biotechnology industries as a valuable outsource service to them. The CRO business model is expected to provide cash flow which can assist in funding operations while we continue to develop our drug delivery technologies. It will also provide operational synergies as two business operations are combined in one infrastructure creating efficiencies in administrative functions as well as other areas (see Note 12). There can be no assurance this transaction will be completed or that we will be able to execute the business plan.

2.	Significant Accounting Policies

Accounting policies

There have been no significant changes in the Company’s accounting policies (as detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2009). The following significant accounting policies are included herein.

Risk and uncertainties

The Company is embarking on a new business plan consistent with the impending MediSync merger. The Company has no experience in consolidating businesses or in the contract research organization space. The Company may be unable to successfully combine the businesses or obtain the necessary experience to compete effectively in the contract research organization industry.

Debt instruments, offering costs and the associated features and instruments contained therein

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. The fair value of the warrants issued to debt holders or placement agents are calculated utilizing the black scholes or probability weighted binomial method depending on the terms of the warrant agreements. 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.

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

(UNAUDITED)

Fair Value Measurements

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:

• Level 1 - - unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

• Level 2 - - inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

• Level 3 - - unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value

Derivative Financial Instruments

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.

At September 30, 2010, the Company has recorded the fair value (Level 3) of the derivative liabilities of $10.2 million, which consists of two components:

• the fair value of the warrant liability amounted to $5.5 million based on a binomial pricing model of weighted average probabilities of potential down-round scenarios for our securities using similar assumptions as noted in Note 10 of the Company’s condensed consolidated financial statements for the period ended September 30, 2010 for the valuation of stock options, except that the value of the underlying common stock has been reduced by 10% to reflect a “lack of marketability” discount arising since the underlying shares issuable upon exercise of the warrant are restricted from resale under Section 5 of the Securities Act of 1933 and subject to legend removal under Rule 144; and

• the fair value of the convertible debt conversion feature amounted to $4.7 million utilizing a level 3 market value based on pricing methodologies used to determine conversion features, which includes determining the fair value of the Company’s stock as of September 30, 2010. Since the shares underlying the convertible debt may be subject to legend removal under Rule 144 by “tacking back” to the date of the original note issuance, it is not appropriate to apply a “lack of marketability” discount to the quoted stock price at the end of the measurement period.

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

(UNAUDITED)

As a result of the change in the fair value of derivative instruments, the Company recognized a $0.6 million and $5.3 million loss on derivative financial instruments for the three and nine month periods ended September 30, 2010, respectively, on the condensed consolidated statement of operations.

Recently issued accounting standards

In January 2010, the Financial Accounting Standards Board (“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.

3.	Property and Equipment, Net

Property and equipment, net consist of the following:

	September 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		334,065			345,424
Leasehold improvements		367,818			367,818
Software		205,210			205,210
		2,935,816			2,950,925
Less: Accumulated depreciation and amortization		(2,908,017	)		(2,836,901	)
Property and equipment, net	$	27,799		$	114,024

Depreciation and amortization expense, included in cost and expenses in the accompanying condensed consolidated statements of operations, was approximately $0.03 million and $0.04 million for the three months ended September 30, 2010 and 2009, respectively, and $0.08 million and $0.16 million for the nine months ended September 30, 2010 and 2009, respectively.

4. Accrued Expenses and Other

Accrued expenses and other consist of the following:

	September 30,		December 31,
	2010		2009
	(Unaudited)

Compensation, accrued bonuses and benefits payable	$	482,718	$	413,743
Continuous motion patch machine costs and delivery		174,202		183,452
Reimbursement of development costs to Ferring (1)		1,354,567		1,386,919
Accrued insurance costs		-		101,224
Accounting, legal and consulting fees		676,652		371,243
Outside services		330,027		334,095
Food and Drug Administration fees		257,465		193,521
Other		232,719		150,816
Accrued expenses and other	$	3,508,350	$	3,135,013

(1)	Represents estimated liability for advances in 2009 of research and development costs under the License and Development Agreement with Ferring (see Note 8).

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

(UNAUDITED)

5.	Promissory Note Due to a Related Party

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 prospective equity or debt financing within certain parameters set forth (“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 and September 30, 2010. 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 from a Qualified Financing. The balance of the principal amount of the 2009 Promissory Note and all accrued and unpaid interest thereon is to be repaid upon consummation of a Qualified Financing with gross proceeds (in the aggregate) of more than $6.0 million. The Company closed on approximately $2.9 million of Qualified Financings as of September 30, 2010, as described in Note 6 and Note 7.

6.	Senior Subordinated Convertible Promissory Notes, Net of Discount

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 to the Investors 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. The warrants contain a cashless exercise provision and “full ratchet” anti-dilution provisions. 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.

Upon consummation of the sale of the 2010 Notes, 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), in accordance with accounting for convertible instruments issued with detachable warrants (ASC 470). The Company recorded amortization debt discount of $14,844 and $26,858 for three and nine month periods ended September 30, 2010, respectively, using the effective interest method as interest expense on the condensed consolidated statement of operations. Unamortized debt discount at September 30, 2010 totaled approximately $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 the fair value of warrants issued to finders 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 nine month periods ended September 30, 2010, amortization of such costs amounted to $15,734 and $28,415, respectively, as a charge to interest expense on the condensed consolidated statement of operations.

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

(UNAUDITED)

At September 30, 2010, the Company remeasured the fair value of these derivative liabilities and determined the fair value of the warrant liability amounted to $3.4 million and the fair value of the convertible debt conversion feature amounted to $4.7 million. As a result of this remeasurement, the Company recognized a $0.5 million and $6.4 million loss on these derivative financial instruments for the three and nine month periods ended September 30, 2010, respectively on the condensed consolidated statement of operations. See Note 2 for description of the Company’s accounting policies on valuing such instruments.

For the three months ended September 30, 2010, the loss on derivatives consists of a ($0.4) million charge for the convertible debt conversion feature and a ($0.1) million charge for the revaluation of the warrant liability on the condensed consolidated statement of operations. The Company recorded a charge of approximately $0.4 million for changes in the value of derivative instruments, which included the above mentioned ($0.5) million charge, offset by favorable changes in the valuation of other outstanding warrants of approximately $0.1 million.

For the nine months ended September 30, 2010 the loss on derivatives consists of a ($4.2) million charge for the convertible debt conversion feature and a ($2.2) million charge for the revaluation of the warrant liability on the condensed consolidated statement of operations. The Company recorded a charge of approximately $4.2 million for changes in the value of derivative instruments, which included the above mentioned $(6.4) million charge, offset by favorable changes in the valuation of other outstanding warrants of $2.2 million.

7. June 2010 Subordinated Convertible Promissory Notes

On June 30, 2010, the Company consummated a private placement to accredited investors (“June 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 June 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. The warrants contain a cashless exercise provision and “full ratchet” anti-dilution provisions. STVI acted as finder in connection with the private placement. The June 2010 Notes bore interest at the rate of 6% per annum. In connection with the final closing, the Company received net proceeds of $1.2 million as the payment of cash finder fees have been deferred until the next offering.

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 at June 30, 2010 approximated $0.8 million, resulting in the recognition of a derivative warrant liability and a corresponding debt discount.

As of the June 30, 2010 closing date, the Company incurred debt issuance costs with STVI, in its capacity as a finder for the transaction, in the amount of $0.3 million. Such costs represent the fair value of the 460,000 warrants issued to finders of $0.2 million and accrued finders fees of approximately $0.1 million, representing cash commission of up to 10% and a 3% expense allowance and warrants.

At September 30, 2010, the Company determined that the fair value of the derivative liability immediately before conversion (see below) approximated $0.9 million (see Note 2 for description of the Company’s accounting policies on valuing such instruments). As a result, the Company recognized a loss on derivative financial instruments for the three and nine months ended September 30, 2010 of approximately $0.03 million and $0.4 million, respectively, on the condensed consolidated statement of operations.

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

(UNAUDITED)

On September 30, 2010, the June Investors elected to convert the principal amount of the June 2010 Notes and $17,392 of accrued interest into the Company’s common stock. For each $0.20 of principal and interest converted, the June Investors received both a share of the Company’s common stock and a 5 year warrant with an expiration date in 2015 to purchase one share of common stock at an exercise price of $0.25 per share. Therefore, the Company issued to June Investors upon conversion of the June 2010 Notes 5,836,250 shares of its common stock and 5,836,250 warrants to purchase common stock. This private placement 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. Upon conversion of the June 2010 Notes, the Company recorded in interest expense on the condensed consolidated statement of operations $0.3 million of deferred offering costs. The fair value of the 5,836,250 warrants issued to June Investors and the warrants issued to STVI to purchase 1,150,000 shares of the Company’s common stock of $2.8 million (using the weighted average probabilities of potential down-round scenarios and other assumptions utilizing a unmodified binomial model). The Company recognized the fair value of the additional warrants as an inducement charge.

8.	Termination of the Ferring Agreement

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:

all licenses and other rights granted to the Company shall, subject to the continued payment to Ferring of certain royalty payments under the Agreement, be converted to and continue as exclusive, worldwide irrevocable, perpetual, sub-licensable licenses to develop, make, have made, use, sell, offer to sell, lease, distribute, import and export the Product;

b)	all licenses and other rights granted to Ferring under the Agreement shall be terminated as of the effective date of the termination;

c)	Ferring shall grant to the Company an irrevocable, perpetual, exclusive, royalty-free, sub-licensable license to practice certain intellectual property jointly developed under the Agreement with respect to the iontophoretic administration of infertility hormone;

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;

e)	Ferring shall cease to use any Know-How, Information or Materials arising under this Agreement to the extent such Know-How, Information or Materials is owned by Ferring and shall promptly return to the Company all such materials; and

f)	Ferring is required to return to the Company all information knowhow and other materials and records in their possession or control relating exclusively to the Product (as such term is defined in the Agreement).

In July 2010, the Company filed a complaint against Ferring entitled “Vyteris, Inc. v. Ferring Pharmaceuticals, Inc.” (the “Lawsuit”) in the Superior Court of New Jersey, Chancery Division – Essex County to resolve outstanding issues with respect to this termination. Ferring filed a motion to compel arbitration in the case which is scheduled for hearing on November 19, 2010. As of September 30, 2010 and December 31, 2009, the Company recorded $1.4 million in accrued expenses and other in the condensed consolidated balance sheet for the estimated amounts due to Ferring.

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

(UNAUDITED)

9.	Related Party Transaction

In addition to the Promissory Note Due to a Related Party described in Note 5 and finder’s fees described in Note 6 and Note 7, the Company paid Russell Potts, one of its directors, approximately $3,253 for the nine months ended September 30, 2010, for consulting services and out of pocket expenses incurred in 2009.

10.	Stock-Based Compensation

2005 Stock Option Plans

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 Effective as of March 31, 2010, the Company amended its 2005 Stock Option Plan to increase the number of options available for grant under the plan pursuant to authorization provided by the unanimous consent of its Board of Directors. Specifically, the number of options available in its 2005 Stock Option Plan was increased to 20,000,000 options available to grant.

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.

2010 Directors’ Incentive Plan

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 replaces 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 September 30, 2010, the Company issued 1,265,374 options to purchase shares of the Company’s common stock under the 2010 Directors’ Incentive Plan.

Summary stock option activity for all plans for the nine month period ended September 30, 2010 is as follows:

	Number of Shares			Exercise Price Per Share		Weighted Average Exercise Price		Intrinsic Value
Outstanding at January 1, 2010		4,293,442		$	0.35 - $0.65	$	0.50		-
Granted		12,444,724			0.35 – 0.65		0.50		-
Exercised		-			-		-		-
Forfeited		(160,645	)		0.29 - 45.60		1.25		-
Outstanding at September 30, 2010		16,577,521			0.25 - 45.60		0.82	$	1,549,654
Exercisable at September 30, 2010		8,129,735		$	0.25 - $45.60	$	1.17	$	849,681

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

(UNAUDITED)

The following table summarizes information about stock options outstanding and exercisable under all plans at September 30, 2010:

		Options Outstanding at September 30, 2010						Options Exercisable at September 30, 2010
	Exercise Price	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Number of Shares		Weighted Average Exercise Price
$	0.25-0.30		3,019,466	$	0.27		8.59		2,226,341	$	0.27
$	0.31-0.35		5,747,639		0.35		9.33		2,303,030		0.35
$	0.36-0.55		1,608,851		0.51		8.39		843,791		0.52
$	0.56-0.65		5,747,639		0.65		9.34		2,303,030		0.65
$	0.66-45.60		453,926		13.62		4.97		453,543		13.61
			16,577,521	$	0.82		9.05		8,129,735	$	1.17

The following table summarizes the Company’s unvested stock options under all plans as of September 30, 2010 and 2009:

	As of September 30, 2010					As of September 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		1,847,000		$	0.29
Forfeitures		-			-		(40,475	)	$	1.14
Vestings		(5,754,246	)	$	0.49		(1,015,948	)	$	0.59
Unvested at September 30,		8,447,786		$	0.57		2,030,655		$	0.57

Stock options available for grant under all stock option plans covered a total of 13,400,560 shares of common stock at September 30, 2010. Stock options available for grant under the 2005 Stock Option Plan covered 8,095,809 shares of stock, and the 2010 Outside Director Stock Incentive Plans covered 5,304,751 shares of stock at September 30, 2010.

The fair value of stock-based awards was estimated using the Black-Scholes-Merton model, or in the case of awards with market or performance based conditions, the binomial model with the following weighted-average assumptions for stock options granted in three and nine month periods ended September 30, 2010 and 2009 is as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2010		2009			2010			2009
	(1)
Expected holding period (years)		-		5.0			5.0			5.0
Risk-free interest rate		-		2.72	%		2.36	%		2.72	%
Dividend yield		-		0	%		0	%		0	%
Fair value of options granted		-	$	0.21		$	0.36		$	0.21
Expected volatility		-		91.9	%		91.9	%		91.9	%
Forfeiture rate		-		15.38	%		14.46	%		15.38	%

(1) The Company did not grant stock options in the three months ended September 30, 2010.

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

(UNAUDITED)

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 nine month periods ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Research and development	$	55,921	$	42,911	$	383,562	$	78,649
General and administrative		297,952		189,055		1,606,069		381,623
Stock-based compensation expense before income taxes		353,873		231,966		1,989,631		460,272
Income tax benefit		-		-		-		-
Total stock-based compensation expense after income taxes	$	353,873	$	231,966	$	1,989,631	$	460,272

As of September 30, 2010, $1.5 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 0.97 years.

11.	Material Agreements

Senior Executive Employment Agreements

On November 21, 2008, the Company entered into an employment agreement with Dr. Hartounian effective as of May 1, 2008, 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, which was renewed and 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.

Convertible Note

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. This resulted in a gain on the settlement of this obligation of $2.0 million.

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

(UNAUDITED)

12.	Merger Agreement

On September 12, 2010, the Company executed an Agreement and Plan of Merger with MediSync MediSync, Company and the Merger Sub, pursuant to which the Merger Sub will be merged with and into MediSync, with MediSync continuing as the surviving corporation and a wholly-owned subsidiary of Company. MediSync is in the business of consolidating preclinical and CRO and related businesses, including SMOs, which sub-contract clinical trial-related responsibilities from a CRO or pharmaceutical/biotechnology company, and post marketing surveillance companies, which monitor pharmaceutical drugs and devices after release into the market. MediSync believes that its future operations may provide added value to the pharmaceutical and biotechnology industries as a valuable outsource service to them. As a result of the Merger, the business of MediSync will be wholly owned and operated by Company. The parties have made customary representations, warranties, covenants and indemnification provisions in the Merger Agreement. The parties’ obligations to consummate the closing of the Merger are subject to certain closing conditions, including stockholder approval, and there can be no assurance that the Merger will be consummated. In addition, the Merger Agreement contains certain termination rights for both parties. The Company had previously anticipated that closing of the Merger would occur on or before November 15, 2010 if all closing conditions of both Company and MediSync were met. The closing has been extended by the parties to December 15, 2010.

The following is a summary of certain terms and conditions set forth in the Merger Agreement.

Purchase Price

The Company has agreed to pay the following consideration to the holders of debt and equity securities of MediSync in connection with the Merger:

To the holders of MediSync common stock, five shares of the Company’s common stock for each share of MediSync’s common stock.

To the holders of convertible notes and other indebtedness of MediSync, five shares of the Company’s common stock for each $1.00 of MediSync debt.

To the holders of MediSync warrants, warrants to purchase five shares of the Company’s common stock, at a $0.20 exercise price, for each warrant to purchase (i) a share of MediSync common stock and (ii) $1 of convertible note to be issued by MediSync.

To the holders of MediSync options, options to purchase five shares of the Company’s common stock for each option to purchase a share of MediSync common stock.

In total, (i) 25,031,253 shares of Company common stock shall be issued to holders of MediSync common stock, convertible notes and other indebtedness, (ii) warrants to purchase 2,090,000 shares of Company common stock shall be issued to holders of MediSync warrants and (iii) options to purchase 1,010,250 shares of Company common stock shall be issued to holders of MediSync options.

Board Seats

Subject to the terms and conditions set forth in the Merger Agreement, the parties agreed that upon consummation of the Merger, two current MediSync directors shall be appointed to the Company’s Board of Directors.

As of the date of this filing, we have received the requisite vote necessary to consummate the merger, and the merger will close upon completion of the necessary steps under Regulation 14C and filing of the certificates of merger in the State of Delaware.

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

(UNAUDITED)

13.	Loss Per Share and Warrant Information

The following table sets forth the computation of basic and diluted net loss attributable to common stockholders per share for the three and nine month periods ended September 30, 2010 and 2009.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2010			2009		2010			2009
Numerator:
Net (loss) income	$	(5,841,114	)	$	999,950	$	(15,333,407	)	$	(2,085,419	)

Denominator:
Weighted average shares:
Basic		62,685,276			7,291,703		62,716,803			7,288,802
Diluted		62,685,276			7,398,739		62,716,803			7,288,802

Net (loss) income per share:
Basic	$	(0.09	)	$	0.14	$	(0.24	)	$	(0.29	)
Diluted	$	(0.09	)	$	0.14	$	(0.24	)	$	(0.29	)

The following table shows dilutive common share equivalents outstanding, which are not included in the above historical calculations, as the effect of their inclusion is anti-dilutive during each period.

	As of September 30,
	2010		2009
Convertible preferred stock		-		500,000
Convertible debt		9,477,454		365,180
Warrants		32,489,513		3,530,990
Options		16,557,521		4,135,402
Total		58,524,488		8,531,572

Warrants

The following table summarizes information about warrants outstanding of which 27,615,469 are classified as derivative liabilities and exercisable at September 30, 2010:

				Warrants Outstanding and Exercisable At September 30, 2010
Exercise Price		Number of Shares		Weighted Average Exercise Price		Expiration Dates		Fair Value of Warrants Classified As Derivative Liabilities
$	0.10-0.20		12,345,000	$	0.20		2012 -2015	$	3,084,484
$	0.21-0.25		14,177,390		0.25		2014- 2015		2,318,166
$	0.26-3.75		4,265,992		2.57		2011- 2015		-
$	3.76-143.25		1,701,131		17.14		2010- 2014		51,852
$	0.10-143.25		32,489,513		1.00		2010-2015	$	5,454,502

The following table summarizes the major 2010 warrant issuances as follows:

	2010 Transactions
Issued in connection the 2010 Notes (see Note 6)		12,495,000
Issued in connection the June 2010 Notes (see Note 7)		2,760,000
Issued in connection with September 30, 2010 conversion of the June 2010 Notes (see Note 7)		6,986,250
Issued to vendors and others		1,294,060
Total		23,535,310

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

Overview

Introduction

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.

Market Opportunity

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.

Merger Agreement

In September 2010 our Board of Directors has approved an Agreement and Plan of Merger (the “Merger Agreement”) by and among MediSync BioServices, Inc., a Delaware corporation (“MediSync”), Vyteris and a newly created subsidiary of the Company (“Merger Sub“), pursuant to which the Merger Sub will be merged with and into MediSync, with MediSync continuing as the surviving corporation and a wholly-owned subsidiary of Vyteris (the “Merger”). As of early November 2010, we have received requisite shareholder approval to consummate the Merger, and the Merger will close upon completion of the 14C process and filing of the certificates of merger in the State of Delaware. The proposed Merger would substantially change the way we do business. MediSync is in the business of consolidating preclinical and contract research organizations (“CROs”) and related businesses, including site management organizations (“SMOs”), which sub-contract clinical trial-related responsibilities from a CRO or pharmaceutical/biotechnology company, and post marketing surveillance companies, which monitor pharmaceutical drugs and devices after release into the market. MediSync believes that its future operations may provide added value to the pharmaceutical and biotechnology industries as a valuable outsource service to them. The CRO business model is expected to provide cash flow which can assist in funding operations while we continue to develop our drug delivery technologies. It will also provide operational synergies as two business operations are combined in one infrastructure creating efficiencies in administrative functions as well as other areas.

Liquidity

On September 30, 2010, our cash position was $1.2 million, and we had a working capital deficit of $14.8 million. There is substantial doubt about our ability to continue as a going concern. We implemented several cost reduction measures in 2009 and 2010, 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 75.6% of our common stock 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.

Technology

Overview of Electrotransport, or Active Transdermal Drug Delivery

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).

Our Approach to Iontophoresis

We have developed a proprietary technology encompassing a series of significant improvements to drug formulation and commercial manufacturing. We used this technology with our FDA-approved 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.

Business Model

Our long term viability with respect to our drug delivery business 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. We intend to carry on with our active transdermal drug delivery technology in its current form of operation after the Merger is consummated.

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 as compared to the traditional development and regulatory approval processes for new drugs. We are in the process of undertaking two feasibility studies, with the goal of converting at least one of those studies into a full development program in 2010. Additionally, we are exploring various strategies to derive revenue from our FDA approved LidoSite product, and our phase II infertility (upon completion of a settlement with Ferring Pharmaceuticals, Inc. (“Ferring”) arising out of the December 2009 termination of the joint infertility project by Ferring) and phase I migraine projects. These strategies include sale or licensing of these products to third parties and pursuit of partnership opportunities with other companies in the pharmaceutical and biotechnology industries.

Technology initiatives are also under way to expand our drug delivery capabilities so that we are able to utilize our technology for a wider variety of pharmaceutical applications. We are looking to improve our existing patch and controller technology, as well as to implement innovative product manufacturing methods to reduce materials costs. We also seek to combine our technology with complementary technologies such as ultrasound and chemical enhancers, in order to further increase transdermal drug penetration that may lead to successful delivery of higher molecular weight drugs. As we move toward commercially viable products, we continue to develop a comprehensive strategy for efficient clinical and large scale manufacturing at lower cost of goods, which may include outsourcing, to be presented to prospective development partners.

We are also looking for growth opportunities through the acquisition of late development-stage or revenue-generating complementary businesses. We believe that there may be small private drug development and related companies that would have an interest in the benefits of becoming part of a public company, including access to the capital markets as a public company and stockholder liquidity.

We have identified key areas of market opportunity in the areas of therapeutic peptides and small molecules which we intend to pursue:

Women’s health, such as infertility,

Migraine treatment,

Pain management, and

Metabolic diseases, such as diabetes and osteoporosis.

Our focus on these core market areas represents our belief in their relatively near-term commercialization and revenue-generating potential.

Female Infertility Treatment

One of our development opportunities is in the peptide delivery market. Pursuant to the termination provisions of our former Development Agreement with Ferring, we believe we now own the rights for the development of an innovative product to treat female infertility using our smart patch technology and are negotiating with Ferring with regard to our ability to utilize the technology, as part of a settlement with Ferring. 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.

Migraine Treatment

Another key area where we are seeking to apply our smart patch technology is the treatment of migraines. Our active patch technology can be pre-programmed for rapid delivery — as little as 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.

Pain Management

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. 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.

Metabolic Diseases

We are also exploring possible opportunities to use our technology to combat certain metabolic diseases, including diabetes and osteoporosis.

Diabetes

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 peptides (insulin or GLP-1) through the skin may be accomplished by iontophoresis alone or by a combination of physical or chemical enhancement technologies with iontophoresis for delivery of these therapies.

Osteoporosis

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 (1-34). Such delivery could be useful for chronic treatment of post-menopausal osteoporosis and other clinical indications as a superior alternative to injection.

Topical Anesthesia

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.

Significant Accounting Policies

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 consider certain accounting policies related to revenue recognition, accrued expenses, stock-based compensation and deferred financing and other debt-related costs to be significant to our business operations and the understanding of our results of operations.

Revenue

Revenues for the reimbursement of development costs when it bears all the risk for selection of and payment to vendors and employees.

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.

Accrued Expenses

As part of the process of preparing our condensed 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.

Stock-based Compensation

We account for our stock based employee compensation plans under ASC 718 and ASC 505. ASC 718 and ASC 505 address the accounting for share 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 and Other Debt-Related Costs

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 weighted average probability option-pricing model or probability weighted outcomes using a binomial model, depending on the terms of the instruments. 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.

Fair Value of Liabilities for Warrant and Embedded Conversion Option Derivative Instruments

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 weighted average probabilities of potential down-round scenarios and other assumptions utilizing a unmodified binomial model to estimate such fair value, which requires the use of numerous assumptions, including, among others, expected life, volatility of the underlying equity security, fair value of the underlying common stock, expectations of pricing of the future financing rounds, a risk-free interest rate and expected dividends. The use of different values by management in connection with these assumptions in the weighted average probabilities of potential down-round scenarios and other assumptions utilizing a unmodified binomial model could produce substantially different results. Because we record changes in the fair value of warrants classified as derivative liabilities as either a charge or credit in our condensed consolidated statement of operations, materially different results could have a material effect on our results of operations.

Recently Issued Accounting Standards

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 our condensed consolidated financial statements.

Consolidated Results of Operations

The following table sets forth the percentage increases or (decreases) in certain line items on our condensed consolidated statements of operations for the three and nine months ended September 30, 2010 as compared to the three and nine months ended September 30, 2009:

	Three Months Ended			Nine Months Ended
	September 30, 2010 Versus September 30, 2009
Revenues		(99.4	)%		(93.4	)%
Research and development		(0.2	)%		(7.0	)%
General and administrative		76.4	%		86.1	%
Facilities realignment and impairment of fixed assets		-			(100.0	)%
Registration rights penalty		(100.0	)%		(100.0	)%
Interest (income) expense, net		806.1	%		202.0	%
Increase in fair value of derivative financial instruments		100.0	%		100.0	%
Gain on settlement of lease obligations		(100.0	)%		(100.0	)%
Net loss		(684.1	)%		635.3	%

Comparison of the Three Month Periods Ended September 30, 2010 and 2009

Revenues

Revenues were $3,956 for the three months ended September 30, 2010, compared to $0.7 million for the comparable period in 2009, a decrease of 99.4% or $0.7 million. Our revenue for the three-month period ended September 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.

Research and development

Research and development expenses was $0.6 million for the three months ended September 30, 2010 and 2009. In 2009 our primary research and development project was our infertility project with Ferring. However, in 2010, due to the termination of the Ferring project, we have instead allocated our research and development resources to internal development projects in the areas of therapeutic peptides and small molecules which we intend to pursue, such as diabetes and osteoporosis.

General and administrative

General and administrative expenses totaled $1.0 million for the three months ended September 30, 2010, as compared to $0.5 million for the comparable period in 2009, an increase of 76.4%, or $0.4 million. General and administrative expense for the three months ended September 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 $0.2 million for the comparative period in the prior year. The increase in general and administrative expenses is primarily attributable to an increase in investor relations costs, legal fees, and consulting arrangements.

Registration rights penalty

The registration rights penalty for failure to register common stock issued totaled $0.1 million for the three months ended September 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 September 30, 2010.

Interest (income) expense, net

Interest (income) expense, net totaled $3.7 million for the three months ended September 30, 2010, as compared to $0.4 million for the comparable period in 2009, an increase of $3.3 million or 806.1%. The increase in interest (income) expense, net, for the three months ended September 30, 2010 is primarily attributable to the non-cash warrant expense issued to investors of $0.5 million and the non-cash interest expense charge of $2.8 million for the fair value of 5,836,250 warrants issued to noteholders to purchase our common stock at an exercise price of $0.25 per share to induce conversion of the June 30, 2010 convertible notes into common stock.

Increase in fair value of derivative financial instruments

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 September 30, 2010, we recorded an expense of $0.6 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 weighted average probabilities of potential down-round scenarios and other assumptions utilizing a unmodified binomial model.

Comparison of the Nine Month Periods Ended September 30, 2010 and 2009

Revenues

Revenues were $0.1 million for the nine months ended September 30, 2010, compared to $2.1 million for the comparable period in 2009, a decrease of 93.4% or $2.0 million. Our revenue for the nine-month period ended September 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 nine-month period ended September 30, 2010 was primarily derived from research and development work performed on behalf of our other customers.

Research and development

Research and development expenses were $2.1 million for the nine months ended September 30, 2010, compared to $2.2 million for the comparable period in 2009, a decrease of 7.0% or $0.2 million. Research and development expenses for the nine months ended September 30, 2010; include a non-cash charge of $0.4 million for the fair value of employee share-based payments as compared to approximately $0.1 million 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. In 2010, we allocated our research and development resources to internal development projects in the areas of therapeutic peptides and small molecules which we intend to pursue, such as diabetes and osteoporosis.

General and administrative

General and administrative expenses totaled $4.3 million for the nine months ended September 30, 2010, as compared to $2.3 million for the comparable period in 2009, an increase of 86.1%, or $2.0 million. General and administrative expense for the nine months ended September 30, 2010, included a non-cash charge of $1.6 million for the fair value of employee and director share-based payments as compared to approximately $0.4 million for the comparative period in the prior year. The increase in general and administrative expenses of $0.7 million, net of the increase in non-cash charges, is primarily attributable to an increase in investor relations costs, legal fees, and consulting arrangements.

Facilities realignment and impairment of fixed assets

Expenses for facilities realignment and impairment of fixed assets totaled $0.2 million for the nine months ended September 30, 2009. On September 30, 2009, we entered into a Settlement and Release Agreement with the landlord of this facility and accordingly we did not incur facility realignment expense in the nine month period ended September 30, 2010.

Registration rights penalty

The registration rights penalty for failure to register common stock issued totaled $0.2 million for the nine months ended September 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 nine month period ended September 30, 2010.

Interest (income) expense, net

Interest (income) expense, net totaled $3.8 million for the nine months ended September 30, 2010, as compared to $1.3 million for the comparable period in 2009, an increase of $2.5 million or 202.0%. The increase in interest (income) expense, net, for the nine months ended September 30, 2010 is primarily attributable to the non-cash warrant expense issued to investors of $0.5 million and non-cash interest expense charge of $2.8 million for the fair value of 5,836,250 warrants issued to noteholders to purchase our common stock at an exercise price of $.0.25 per share to induce conversion of the June 30, 2010 convertible notes into common stock.

Increase in fair value of derivative financial instruments

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 nine month period ended September 30, 2010, we recorded an expense of $5.3 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 weighted average probabilities of potential down-round scenarios and other assumptions utilizing a unmodified binomial model.

Gain on settlement of lease obligations

On September 30, 2009, we entered into a Settlement and Release Agreement with 17-01 Pollitt Drive, L.L.C. with respect to our former leasehold at 17-01 Pollitt Drive. The settlement called for us to pay the 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. In exchange the landlord released us from our obligations under the lease resulting in a credit of $(2.0) million for the nine month period ended September 30, 2009 in the condensed consolidated statement of operations.

Liquidity and Capital Resources

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 $1.2 million and a working capital deficit of $14.8 million, as of September 30, 2010, which are not sufficient to allow us to continue operations without additional funding, especially given the fact that the Company has approximately $2.0 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.

In November 2010, we were awarded two equal grants totaling $0.5 million under the IRS Qualifying Therapeutic Discovery Project (QTDP) program. The grants will be used to advance our smart patch technology for the delivery of therapeutic medicines planned for use to treat female infertility and diabetes. The QTDP program was created by the U.S. Congress as part of the Patient Protection and Affordable Care Act passed on March 23, 2010. Eligibility for the grant requires that a project have the potential to develop new treatments that address "unmet medical needs" or chronic and acute diseases; reduce long-term health care costs; or represent a significant advance in finding a cure for cancer.

Cash flows from operating activities

For the nine-month period ended September 30, 2010, net cash used in operating activities was $3.5 million, as compared to $0.6 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 nine month period ended September 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 $3.1 million of such reimbursement of product development expenses in the nine month period ended September 30, 2009. We redeployed the resources working in this project to other projects, and therefore, our fixed costs have remained relatively constant. Until our business development activities are successful, we shall continue to utilize more cash in operating activities than is generated, and this trend may increase in the future as we engage in increased business development activities. Therefore, we will be dependent upon cash flows from financing activities to fund our operations for the foreseeable future.

Cash flows from investing activities

For the nine-month period ended September 30, 2010, we did not incur any cash expenditures in investing activities as we significantly reduced variable spending as part of our cost reduction initiatives. For the nine-month period ended September 30, 2009, net cash provided by investing activities was $0.1 million.

Cash flows from financing activities

For the nine-month period ended September 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 nine-month period ended September 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 nine-month period ended September 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.

Financing History 2009 and 2010

Transaction Agreement with Ferring March 2009

In March 2009, we entered into a transaction with Ferring whereby they agreed to fund the first half of the 2009 development budget up to $3.3 million, in exchange for which we granted Ferring a senior security interest in our assets (which Ferring has agreed to subordinate to the security interest of new third party lenders for a value of over $3.3 million).

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.

Termination of Ferring Agreement

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 after December 31, 2004, the following disposition of intellectual property associated with the Agreement shall occur under Section 9.05 of the Agreement:

all licenses and other rights granted to us shall, subject to the continued payment to Ferring of certain royalty payments under the Agreement, be converted to and continue as exclusive, worldwide irrevocable, perpetual, sub-licensable licenses to develop, make, have made, use, sell, offer to sell, lease, distribute, import and export the Product;

b)	all licenses and other rights granted to Ferring under the Agreement shall be terminated as of the effective date of the termination;

c)	Ferring shall grant to us an irrevocable, perpetual, exclusive, royalty-free, sub-licensable license to practice certain intellectual property jointly developed under the Agreement with respect to the iontophoretic administration of infertility hormone;

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;

e)	Ferring shall cease to use any Know-How, Information or Materials arising under this Agreement to the extent such Know-How, Information or Materials is owned by Ferring and shall promptly return to us all such materials; and

f)	Ferring is required to return to us all information and our know-how and other materials and records in their possession or control relating exclusively to the Product (as such term is defined in the Agreement).

In July 2010, we filed a complaint against Ferring entitled “Vyteris, Inc. v. Ferring Pharmaceuticals, Inc.” in the Superior Court of New Jersey, Chancery Division – Essex County to resolve outstanding issues with respect to this termination. There is no further disposition other than a hearing scheduled for late November 2010.

Other Financings

October 30, 2009 Private Placement

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.

Proceeds from previously approved sale of State of New Jersey net operating tax losses

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.

Senior subordinated convertible promissory notes, net of discount

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.

Subordinated convertible promissory notes, net of discount

On June 30, 2010, we consummated a private placement to accredited investors (“June 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. As of September 30, 2010, the Investors converted the June 2010 Notes into 5,836,250 shares of our common stock and 5,836,250 warrants to purchase our common stock.

Cash Position

See “Liquidity and Capital Resources” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information on our cash position.

Contractual Obligations and Other Commitments

Our contractual obligations and commitments include obligations associated with capital and operating leases, manufacturing equipment, and employee agreements as set forth in the table below:

	Payments due by Period as of September 30, 2010
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating lease obligations	$	502,940	$	401,439	$	101,501	$	—	$	—
PMK 150 lease agreement		101,000		12,000		24,000		24,000		41,000
Debt obligations (1)		4,035,000		1,750,000		1,785,000		500,000		—
Advisory agreement		22,500		22,500		—		—		—
Total	$	4,661,440	$	2,185,939	$	1,910,501	$	524,000	$	41,000

(1) Debt obligations are summarized as follows:

Lender	Face Amount		Due Date	Interest Rate			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 a related party		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)

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

Total	$	4,035,000

Forward-Looking Information

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

ITEM 4. CONTROLS AND PROCEDURES

A.	Disclosure

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 September 30, 2010, our disclosure controls and procedures were not effective.

B. Changes in Internal Control Over Financial Reporting

During the quarter ended September 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.

Segregation of Duties

We currently have accounting staff limited to our chief financial officer and two support staff members. Limited resources in this area may not provide sufficient staffing for internal control purposes. This resulted in a couple of proposed journal entries resulting from the audit process to correct the recorded balances in our general ledger. In order to correct this deficiency, we are in the process of augmenting our finance staff through the prospective hire of additional accounting personnel as needed to ensure adequate resources.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

In July 2010, the Company filed a complaint against Ferring entitled “Vyteris, Inc. v. Ferring Pharmaceuticals, Inc.” (the “Lawsuit”) in the Superior Court of New Jersey, Chancery Division – Essex County to resolve outstanding issues with respect to this termination. Ferring filed a motion to compel arbitration in the case which is scheduled for hearing on November 19, 2010. The Lawsuit is in its initial stages, and we cannot predict the outcome of the Lawsuit, or what relief we may receive, if we do prevail on the merits.

ITEM 1A. RISK FACTORS

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 Form 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.

We continue to experience a severe, continuing cash shortage and without sufficient additional financing we may be required to cease operations, and this demonstrates uncertainty as to our ability to continue as a going concern.

As of September 30, 2010, our cash and cash equivalents amounted to $1.2 million. In 2010, we have had minimal revenue, and we have been dependent upon proceeds from financing activities to fund our operations. As of September 30, 2010, our current liabilities exceeded our current assets by approximately $14.8 million, and we have approximately $2.0 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.

Our proposed merger with MediSync and entry into the Clinical Research Organization (CRO) business may not be successful and may pose further risks to our organization.

With the impending merger with MediSync, we are embarking on an augmentation to our business plan which involves shifting our focus solely from developing transdermal drug delivery systems to complementing our business with the business of running a CRO consolidation organization. The MediSync merger poses the following material risks to us:

The Company has no experience in consolidating businesses. The consolidation will require both expertise and significant financial and managerial resources. We will need to rely heavily on newly retained personnel and outside resources to effectively consolidate. There is no assurance that we will have the financial resources to support use of the expertise or that we will successfully combine the businesses with the assistance of our newly marshaled resources.

We have no expertise in the CRO space and will rely heavily on the limited number of MediSync personnel to run the CRO business. There are no assurances that the MediSync personnel have sufficient experience to effectively run this business without expert guidance from our management team.

We have limited capital with which to run the MediSync business. There is no assurance that we will be able to garner the resources to compete effectively in the contract research organization industry.

The ability to effectively expand the CRO business is based largely upon our “roll up” strategy. There is no assurance that we will be able to obtain the capital necessary to consummate further CRO acquisitions or to consolidate any of MediSync’s proposed acquisitions into the MediSync subsidiary.

We have never been profitable, we may never be profitable, and, if we become profitable, we may be unable to sustain profitability.

From November 2000 through September 30, 2010, we incurred net losses in excess of $229.7 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.

Ferring’s December 2009 termination of its License and Development Agreement with us and the lawsuit we filed with respect to such termination could have a material adverse effect on us.

Ferring’s termination of its License and Development Agreement with us and the ensuing lawsuit present several risks.

(i) Advances and fundings made to us by Ferring pursuant to various Ferring agreements were our principal source of revenues since 2006. Unless we are able to secure another source of revenues, we will be dependent upon proceeds from financings to fund our operations until alternative sources of revenue develop.

(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.

(iii) In December 2009, Ferring terminated our September 27, 2004 agreement with them pursuant to Section 9.04 thereof. As a result of the subsequent inability to reach a reasonable resolution with Ferring, we filed a lawsuit against Ferring on July 1, 2010 in the Superior Court of New Jersey, Chancery Division – Essex County.

(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.

(v) In connection with the March 2009 financing with Ferring, we granted Ferring a first lien on all of our assets. If we are not able to reach a favorable disposition in litigation, Ferring could exercise legal remedies against us, including, but not limited to, foreclosing on our assets.

Our sale of a significant number of shares of our common stock, convertible securities or warrants or the issuance or exercise of stock options or warrants could depress the market price of our stock.

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 September 30, 2010, we had stock options to purchase 16,577,521 shares of our common stock outstanding, of which options to purchase 8,129,735 shares were exercisable. Also outstanding as of the same date were warrants exercisable for 32,489,513 shares of our common stock and senior secured debentures that can convert into 9,477,454 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.

We are a controlled company and our majority shareholder may take actions adverse to the interests of other shareholders.

As of September 30, 2010, Spencer Trask Specialty Group, LLC or STSG, beneficially owned approximately 75.6% 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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Conversion of Notes Issued in June 2010 Financing

On June 30, 2010, we consummated a private placement to accredited investors (“ June Investors”) of $1.2 million principal amount of 6% Subordinated Convertible Promissory Notes due September 30, 2010 (the “June 2010 Notes”). The sale of the June 2010 Notes also included issuance to the June 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 warrants contain a cashless exercise provision and “full ratchet” anti-dilution provisions Spencer Trask Ventures, Inc. acted as finder in connection with the private placement.

On September 30, 2010, the June Investors elected to convert the principal amount of the June 2010 Notes and $17,392 of accrued interest into our stock. For each $0.20 of principal and interest converted, the June Investors received both a share of our common stock and a 5 year warrant with an expiration date in 2015 to purchase one share of common stock at an exercise price of $0.25 per share. Therefore, the Company issued to the June Investors upon conversion of the June 2010 Notes 5,836,250 shares of its common stock and 5,836,250 warrants to purchase common stock. This private placement 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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Item 6(a)	Exhibits

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.

SIGNATURE

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Vyteris, Inc.

Date: November 15, 2010		/s/ Haro Hartounian
		Haro Hartounian
		Principal Executive Officer

Date: November 15, 2010		/s/ Joseph Himy
		Joseph Himy
		Principal Financial Officer and Principal Accounting Officer

EXHIBIT INDEX

Item No.	Description

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