Rhinosinusitis is one of the most commonly reported chronic diseases in the U.S., affecting an estimated 14% of the population. Approximately 35 million Americans suffer from rhinosinusitis every year, and an estimated 90% of all rhinosinusitis cases are chronic. According to the March 1999 Journal of Allergy and Clinical Immunology, overall health care expenditures attributable to rhinosinusitis were estimated to be $5.8 billion in direct costs during 1996. A primary diagnosis of acute bacterial rhinosinusitis or chronic rhinosinusitis accounted for 59% of all expenditures, or $3.5 billion, for 1996.

Chronic rhinosinusitis, or CRS, also results in indirect costs for Americans, such as greater than 70 million lost activity days and reduced social and physical functioning. As set forth in the December 2002 Journal of Allergy and Clinical Immunology, at least 30 million courses of antibiotics are prescribed each year for CRS, and it is one of the leading forms of chronic disease. The U.S. Department of Health and Human Services estimated that, during a 12-month period ending in 2000, CRS accounted for 9.2 million primary care office visits, 1.1 million surgical specialty office visits, 951,000 medical specialty office visits, 1.3 million outpatient department hospital visits, and 693,000 emergency department visits. The U.S. Department of Health & Human Services also estimates that approximately 500,000 people resorted to sinus surgery in 1996.

Non-Hodgkin’s Lymphoma, or NHL, is a cancer of the lymphatic system, which is a part of the immune system and serves as the body’s primary blood filtering and disease fighting tissue. NHL is the sixth most common cancer and the sixth leading cause of death among cancers in the U.S. There are approximately 55,000 new cases of NHL diagnosed each year in the U.S. with a comparable number estimated in Europe. Currently in the U.S., there are over 300,000 patients diagnosed with NHL. Of these cases, approximately 85% are in the form of B-cell NHL, while 15% are T-cell NHL.

The Company is developing a product for the treatment of chronic rhinosinusitis, or CRS, based on an intranasal formulation of amphotericin B, and it intends to market and sell this product under the name SinuNase. SinuNase is an intranasal antifungal suspension formulated for the treatment of CRS. SinuNase’s active ingredient is amphotericin B, which is an antifungal medication currently used as an intravenous formulation to treat a wide variety of systemic fungal infections. Amphotericin B in other formulations has been approved for many years in the U.S. and the European Union for other indications.

Biovaxid is an injectable patient-specific vaccine that the Company is developing to treat the follicular form of non-Hodgkin’s lymphoma, or NHL. Biovaxid is a customized immunotherapy that is derived from a patient’s own cancer cells and is designed to utilize the power of each patient’s immune system to recognize and destroy cancerous lymphoma cells while sparing normal cells. Biovaxid is currently undergoing a pivotal Phase III clinical trial with patients diagnosed with the indolent follicular form of B-cell NHL.

The Company currently markets and sells ten pharmaceutical products in the respiratory and pain markets. Each of these products is manufactured exclusively for the Company by third-party pharmaceutical manufacturers.

In addition, the Company has a pipeline of 10 specialty pharmaceutical products currently under development, consisting of MD TurboTM, EmezineTM, and a portfolio of eight narcotic pain formulations.

Cost of sales for the three months ended December 31, 2004 was $2.2 million compared to $2.7 million, or 37% during the three months ended December 31, 2003. This represented a decrease of $0.5 million, or 19%, over the three months ended December 31, 2003.

Research and development costs were $1.9 million in the three months ended December 31, 2004, an increase of $0.9 million, or 111%, over the three months ended December 31, 2003.

Sales and marketing expenses were $3.9 million in the three months ended December 31, 2004, an increase of $1.2 million, or 46%, over the three months ended December 31, 2003.

In the three months ended December 31, 2004, net interest expense was $0.6 million, an increase of 15% of the three months ended December 31, 2003, net interest expense of $0.7 million.