Dermatology is the field of medicine concerned with the treatment of diseases and disorders of the skin, as well as the treatment of aging skin and other conditions that affect human appearance. Dermatologists and other physicians prescribe and dispense products and perform procedures to treat skin diseases and disorders, as well as to enhance the appearance of a patient’s skin.

Based on data provided by IMS Health, sales of prescription pharmaceutical products in the U.S. used to treat dermatologic skin conditions and diseases totaled $8.3 billion in 2004 and increased at a compound annual growth rate of 9.6% from 2000 to 2004. Two of the top three drug classes of prescribed dermatology products are topical acne products and topical steroids. Sales of prescription topical acne skin care products totaled $1.4 billion in 2004 and increased at a compound annual growth rate of 12.5% from 2000 to 2004 and sales of prescription topical steroids totaled $1.1 billion in 2004 and increased at a compound annual growth rate of 4.2% from 2000 to 2004, based on data provided by IMS Health. Based on data provided by The Freedonia Group, sales of non-prescription anti-aging and skin care products totaled $3.4 billion in the U.S. in 2003 and increased at a compound annual growth rate of over 16.1% from 1998 to 2003.

The field of dermatology and skin care has experienced significant growth in the last several years. In addition to its recent significant growth, the dermatology market is attractive because of the relatively small, high-prescribing dermatology community and the fragmented nature of the industry. Based on data provided by IMS Health, 11,224 U.S. dermatologists collectively wrote prescriptions with a retail value of $3.6 billion in 2004. On average, these dermatologists wrote 40% more prescriptions than all other physicians, and generated approximately $320,000 each in retail prescription sales volume compared to $170,000 for all other physicians. In addition, few large companies primarily focus on dermatology products.

The Company currently markets two prescription pharmaceutical products: VANIQA (eflornithine hydrochloride) Cream, 13.9%, and EpiQuin Micro (hydroquinone USP 4%). VANIQA, a topical formulation of eflornithine hydrochloride, is the only prescription product available in the U.S. for the reduction of growth of unwanted facial hair in women. VANIQA works during the growth phase of the hair cycle by blocking an enzyme that is necessary for hair growth. EpiQuin Micro is a topical 4% hydroquinone product using the Microsponge technology, indicated for the treatment of hyperpigmentation, a condition that results in heavily pigmented or dark areas of the skin.

The Company is developing a product candidate that combines EpiQuin Micro with the DelPouch delivery technology. For the treatment of acne, the Company is developing a line of benzoyl peroxide creams and washes using the patented Microsponge drug delivery technology. The Company is jointly developing a line of topical steroids with Dow Pharmaceutical Sciences, using patented water-based Hydrogel technology licensed from Dow Pharmaceutical Sciences for the treatment of atopic dermatitis.

The Company offers a full line of non-prescription, scientifically formulated cosmeceutical products, which form a complete skin care treatment regimen that addresses the needs of all skin types.

The Company’s line of cosmeceutical products consists of its core Tissue Nutrient Solution (TNS) products and products designed to complement them. The Company’s TNS products contain NouriCel-MD, a patented biotechnology-derived enriched nutrient solution. NouriCel-MD contains four natural human growth factors, interleukins, which are proteins that stimulates the growth and maturation of cells of the immune system, soluble collagens, proteins, and antioxidants derived from a process used to manufacture collagen, a connective tissue.

Ceratopic is a ceramide-based replenishing lotion that has been shown to relieve dry, itchy, irritated skin.

The Company also markets a wide variety of skin cleansers, moisturizers, toners, and special care products, as well as a chemical facial peel, to complement of TNS and Ceratopic products.

Cost of revenues increased 60.3%, or $1.5 million, from $2.5 million for the year ended December 31, 2003 to $4.0 million for the year ended December 31, 2004.

Gross profit increased by $7.5 million, or 69.9%, to $18.1 million for the year ended December 31, 2004 compared to $10.6 million for the year ended December 31, 2003.

Selling and marketing expenses increased by $4.4 million, or 37.6%, to $16.2 million for the year ended December 31, 2004 compared to $11.8 million for the year ended December 31, 2003.

Net loss increased 7.5%, or $1.0 million, from $13.8 million for the year ended December 31, 2003 to $14.8 million for the year ended December 31, 2004.