You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing in Item 8 of this Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" in the Item 1. Business section of this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

1. Overview

We are a biopharmaceutical company focused on developing new drugs for the treatment of cardiovascular diseases where the growth of new blood vessels can improve the outcome for patients with these diseases. The active pharmaceutical ingredient ("API") in our drug candidates is FGF-1141 (formerly called Cardio Vascu-Grow™) and it facilitates the growth of new blood vessels in the heart and other tissues and organs with an impaired vascular system, a process referred to in the scientific community as "angiogenesis."

In 1994, 1995, and 1998, Dr. Thomas Stegmann, a founder of the Company, tested a protein drug candidate with the same API. A total of 40 patients were treated with a drug containing FGF-1141, pre-clinical work by the Company and others has shown that when FGF-1141 is injected into the hearts of animals with experimentally induced heart disease, new blood vessels grow in the injected areas. We were established in 1998, as a Delaware corporation, to commercialize the results of the clinical research in cardiovascular disease treatment for Severe Coronary Heart Disease (formerly known as No-Option Heart Patients) that Dr. Stegmann performed in the mid-1990s. We entered into an agreement with Dr. Stegmann, dated March 11, 1998 which is superseded by an agreement dated August 16, 2004, whereby Dr. Stegmann granted to us a non-revocable exclusive perpetual right to use, modify, add to, practice and sell the results of Dr. Stegmann's German clinical trials. Dr. Stegmann will receive a one percent royalty on all sales of drugs formulated with FGF-1141 through December 31, 2013. The grant of rights is perpetual and therefore cannot be terminated by Dr. Stegmann. We have made no royalty payments under this Agreement.

We have never generated revenues. We expect to incur substantial and increasing losses for at least the next several years. We do not expect to generate revenues until the United States Food and Drug Administration ("FDA") approves one of our drug candidates and we begin marketing it. We expect to continue to invest significant amounts on the development of our drug candidates. We expect to incur significant commercialization costs when we recruit a domestic sales force. We also plan to continue to invest in research and development for additional applications of FGF-1141 and to develop new drug delivery technologies. Accordingly, we will need to generate significant revenues to achieve and then maintain profitability.

Most of our expenditures to date have been for research and development activities and general and administrative expenses. We conduct research to identify and evaluate medical indications that may benefit from our protein drug candidates. When, in our opinion, the evidence and results of our research warrant, a potential new drug candidate is graduated from research to development. We classify our research and development into two major classifications: pre-clinical and clinical. Pre-clinical activities include product analysis and development, primarily animal efficacy and animal toxicity studies. Clinical activities include FDA (or other countries' equivalent regulatory agencies) Investigational New Drug ("IND") submissions, the FDA-authorized trials, and the FDA approval process for commercialization. Research and development expenses represent costs incurred for pre-clinical and clinical activities. We outsource our clinical trials and our manufacturing and development activities to third parties to maximize efficiency and minimize our internal overhead. Manufacturing is outsourced to an affiliated entity. We expense our research and development costs as they are incurred.

These expenses are subject to the risks and uncertainties associated with clinical trials and the FDA review and approval process. As a result, these additional expenses could exceed our estimated amounts, possibly materially. We are uncertain as to what we expect to incur in future research and development costs for our pre-clinical activities as these amounts are subject to the outcome of current pre-clinical activities, management's continuing assessment of the economics of each individual research and development project and the internal competition for project funding.

General and administrative expenses consist primarily of personnel and related expenses and general corporate activities, and through the end of December 31, 2006, have focused primarily on the activities of administrative support, marketing, intellectual property rights, corporate compliance and preparing us to be a public company. We anticipate that general and administrative expenses will increase as a result of the expected expansion of our operations, facilities and other activities associated with the planned expansion of our business, together with the additional costs associated with operating as a public company. We will incur sales and marketing expenses as we build our sales force and marketing capabilities for our drug candidates, subject to receiving required regulatory approvals. We expect these expenses to be material.

2. Critical Accounting Estimates

Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments related to these estimates. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting estimates are more fully described in our financial statements appearing in this Form 10-K, we believe that the following accounting policies relating to stock-based compensation charges are most critical to aid you in fully understanding and evaluating our reported financial results.

Stock Based Compensation. In December 2004, the FASB issued SFAS No. 123(R)
(revised 2004), "Share Based Payment" ("SFAS No. 123(R)"). SFAS No. 123(R)
supersedes our previous accounting under SFAS 123 for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 107 (SAB 107) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R). The Company has used the Black-Scholes Model formula to estimate the fair value of stock options granted to employees and consultants since its inception, and therefore this method represents no significant change in the Company's accounting for options and warrant issuances.

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards to employees and directors on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company's Statements of Operations. Prior to the adoption of SFAS 123(R), the Company accounted for stock-based awards to employees and directors using the method as allowed under SFAS No. 123, "Accounting for Stock-Based Compensation (SFAS 123)".

We account for stock option and warrant grants issued to non-employees using the guidance of SFAS No. 123R and EITF No. 96-18, "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services," whereby the fair value of such option and warrant grants is determined using the Black-Scholes Model at the earlier of the date at which the non-employee's performance is completed or a performance commitment is reached.

Valuation of Derivative Instruments. FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" requires bifurcation of embedded derivative instruments and measurement of their fair value for accounting purposes. In determining the appropriate fair value, we use the Black-Scholes Model. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as Adjustments to Fair Value of Derivatives. In addition, the fair value of freestanding derivative instruments such as warrants are valued using Black-Scholes Models.

Research and Development Costs. We account for research and development costs in accordance with SFAS No. 2, "Accounting for Research and Development Costs." Research and development costs are charged to operations as incurred.

Development Stage Enterprise. We are a development stage company as defined in Statement of Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development Stage Enterprises." We are devoting substantially all of our present efforts to its formation, fundraising, and product development and approval. Our planned principal operations of selling our pharmaceutical products have not yet commenced. For the period from March 11, 1998 (inception) through December 31, 2006, we have accumulated a deficit of $43,304,891. There can be no assurance that we will have sufficient funds available to complete our research and development programs or be able to commercially manufacture or market any products in the future, that future revenue will be significant, or that any sales will be profitable. We expect operating losses to increase for at least the next several six months due principally to the anticipated expenses associated with the proposed product development, clinical trials and various research and development activities.

Income Taxes. The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

3. Results of Operations

Years Ended December 31, 2006 and 2005

Our activities during the year ended December 31, 2006 consisted almost entirely of research and development and general corporate activities to support our FDA clinical trials. Research and development expenses increased 131% from $3,090,626 to $7,134,944 for the years ended December 31, 2005 and 2006, respectively.

The increase of $4,044,319 is part due to increased clinical costs of $2,018,289 for the year ended December 31, 2006. The increase in clinical costs is due to the following clinical trials updates:

a) As of December 31, 2006, we have completed the enrollment and treatment of all patients specified in our Phase I clinical trial protocol. A total of 21 patients were treated at six participating U.S. medical centers that were managed by our contract clinical research organization. We are currently collecting the final safety data at 12 month follow-up visits on our patients who were treated in our Phase I clinical trial. We filed a report with the FDA listing all adverse events or other safety issues observed in this trial up to and including the 12 week follow-up visit of all patients who participated in this trial. We have finalized the development of a clinical protocol for our Phase II study, where we will test our drug candidate in an expanded patient population in both U.S. and foreign clinical trial sites. We have chosen a new clinical research organization, Kendle, to oversee and manage our international Phase II trial. Given the uncertainty of drug candidate progress due to the FDA's control over the course and timing of our clinical trials, we anticipate the injections into patients for our Phase II and pivotal Phase III clinical trials to be completed in 2009.

b) We were authorized by the FDA to conduct clinical testing of our wound healing drug candidate, CVBT-141B, with API, in patients with diabetic foot ulcers or venous stasis leg wounds. This Phase I study in which eight patients will receive either a low or high dose application of our wound healing drug candidate has been initiated at two clinical sites located in the Pittsburgh, PA area. To date three patients have been dosed. Previously, we completed animal studies that demonstrated that CVBT-141B was a safe and efficacious agent in healing wounds in diabetic mice. In addition, it was demonstrated that little, if any, of our wound healing drug candidate was absorbed into the blood stream after topical application to the wound surface. Similar absorption studies are being conducted in patients in our Phase I clinical trial.

c) A clinical protocol for a PAD Phase I study in diabetic patients has been prepared and was submitted to the FDA for their review in August 2006. We have received FDA- authorization to initiate our Phase I clinical trial in PAD patients suffering from intermittent claudication.

d) We performed animal toxicity studies to support the safety of our lumbar ischemia drug candidate CVBT-141E for this proof of concept clinical trial. We have initiated a Phase I clinical trial in Russia and Serbia in 2006 to test whether our lumbar ischemia drug candidate, CVBT-141E, can successfully treat chronic back pain. We have completed animal toxicity studies to support the safety of our product for this proof of concept clinical trial. Clinical protocols were submitted to regulatory authorities in Russia and Serbia who have authorized the start of this clinical study in which 32 patients (four groups of 8 patients each) will receive 4 increasing doses of CVBT-141E. The patients will be followed for a decrease in back pain, as determined by standardized back pain questionnaires, as well as increased blood perfusion into their lower back muscles as assessed by magnetic resonance imaging (MRI). The first patient was treated in December 2006 and enrollment of all patients is expected to be completed in 2007. If the results of the proof of concept clinical trial in Russia and Serbia are positive, we plan to then file an IND application with the FDA to allow a Phase I human trial to begin in chronic back pain patients in the U.S.

e) The increase in research and development costs was also due to salaries and benefits of employees of $1,224,813, and R&D operating expenses of $421,574 as we continue to add resources to this function. As of December 31, 2006, we had four scientist employees, eight scientists under contract through a technical support agreement with a related party, and two other individuals involved in research and development activities under contract. Their tasks included overseeing pre-clinical testing, researching other medical uses of FGF-1141 and preparing and filing various regulatory documents with the FDA. In addition, these personnel are responsible for establishing that the quality of FGF-1141 used in the clinical trials meets the specifications required by the FDA.

For the Years Ended December 31, 2005 2006 $ Change % Change

General and administrative expenses increased 47% from $7,979,156 to $11,734,149 for the years ended December 31, 2005 and 2006, respectively. The increase of $3,754,993 is a result of a substantial increase in our marketing expenses of $1,192,338 as we became more active in our corporate development and investor relations activities and contributions to a non-profit medical education organization of $303,532. Related to these activities, our travel expense increased $241,457 during the year ended December 31, 2006 as compared to the prior year.

Another increase in administrative expenses relates to opening our corporate office in Las Vegas. Our rent has increased $118,822 and the increase in staff size to twenty full time, two part time, and seven contractors, from seven full time, four part time employees, and five contractors staff resulting in an increase in staff salaries of $348,276 during the year ended December 31, 2006 as compared to the prior year. In addition to staffing, our

computer expenses have increased accordingly as we now are running on our network and have improved our redundancy and back-up capabilities, resulting in an increase of $539,136 during the year ended December 31, 2006 as compared to the year ago period.

Our legal and professional expenses have increased approximately $559,117 as we have stepped up our corporate activities and compliance with Sarbanes Oxley requirements during the year ended December 31, 2006 as compared to the year ended December 31, 2005. Other increased expenditures also include insurance of $180,783 which is mostly related to our increased D&O costs.

For the Years Ended December 31, 2005 2006 $ Change % Change

Interest income increased to $695,050 from $297,600 for the years ended December 31, 2005 and 2006, respectively. This is a result of a higher level of cash and marketable securities available for investment from the sale of $20,000,000 of convertible senior secured notes in March 2006 and increased interest rates available on money market securities.

For the Years Ended December 31, 2005 2006 $ Change % Change

Interest expense increased 274% to $5,961,534 from $1,593,740 for the years ended December 31, 2005 and 2006, respectively. Interest expense for 2006 represents interest on senior secured convertible notes payable quarterly, and includes non-cash charges to interest expense for amortization of deferred financing costs of $402,631 and amortization of discount for the fair value of derivatives of $2,742,675 aggregating $3,145,306 of interest expense from amortization. The 2005 interest charge includes similar non-cash charges of $712,461 related to deferred debt financing costs, and $710,001 of discount on debt.

For the Years Ended December 31, 2005 2006 $ Change % Change

Adjustments to fair value of derivatives arose in the period ended March 31, 2006 as we entered into a financing transaction that contained embedded derivatives in the notes and derivated features in the warrants. In addition, we recorded option and warrant derivatives for outstanding and vested non-employee warrants and options on the date of the financial transaction and revalued these same vested non-employee options and warrants at March 31, 2006. These derivative features are required to be re-valued at fair market value at each measurement date. The result of re-valuing these derivative features as of December 31, 2006 resulted in a charge to the statement of operations of $(18,564,507).

The following table shows the change in the fair value of the derivatives that is included in the Statement of Operations as of December 31, 2006:

                                                                       Additions,
                                                                      Deletions for
                             Fair Value at                                 New
                               March 20,                               Issuances,                          Fair Value at
                                 2006           Change in Fair        Conversions,      Adjustments        December 31,
December 31, 2006             (unaudited)           Value               Exercises          To PIC              2006
Convertible note
embedded derivatives and
warrant derivatives         $    10,578,898    $     (8,174,031 )    $            -     $ (1,813,832 )    $       591,035
Warrant and option
derivatives -
non-employees                    12,209,055         (10,390,476 )          1,271,286      (1,318,000 )          1,771,865

Change in fair value                                (18,564,507 )

Years Ended December 31, 2004 and 2005

Our activities during fiscal 2005 consisted almost entirely of research and development and general corporate activities to support our FDA clinical and pre-clinical trials. Research and development expenses increased 22% from $2,543,530 to $3,090,625 for the years ended December 31, 2004 and 2005, respectively. We began our Phase l FDA clinical trial with our first patient in December 2003 and the trial has continued through 2005. The pace of our "Severe Coronary Heart Disease" study is related to the ability to find qualified candidates. This increase of $547,095 is due primarily to clinical costs for the FDA Phase I clinical trial of $2,528,000 and pre-clinical costs for an animal study for wound healing of $108,000, peripheral vascular disease $163,000, stroke $80,000, chronic back pain and lumbar ischemia $63,000 and intestinal ischemia of $63,000. Additionally, we incurred increased drug production costs of $202,965 for clinical and pre-clinical development of our drug candidates and an increase of $119,250 in consulting fees.

For the Years Ended December 31, 2004 2005 $ Change % Change

General and administrative expenses increased 241% from $2,337,014 to $7,979,156 for the years ended December 31, 2004 and 2005, respectively. We incurred increases of approximately $3,019,000 in the costs associated with being a publicly traded company, of which approximately $1,700,000 in options issued to the board of directors. Additionally, we had a substantial increase in our marketing and travel expenses of $1,683,000 as we increased our marketing and corporate awareness and image activities. Other increases resulted from administrative costs supporting the increased activity in research and development administrative infrastructure of $233,000, and expense increases of approximately $680,000 related to insurance, computer systems and legal expenses.

For the Years Ended December 31, 2004 2005 $ Change % Change

Interest income increased $263,558 in the year ended December 31, 2005, when compared to December 31, 2004. This is a result of a higher level of cash and marketable securities available for investment during 2005.

For the Years Ended December 31, 2004 2005 $ Change % Change

Interest expense decreased 49% or $1,558,257 for the year ended December 31, 2005, when compared to December 31, 2004. The decrease resulted from increased debt related costs for interest, amortization of deferred financing costs of over $712,000 and amortization of the beneficial conversion cost of over $710,000 related to the conversion of our convertible notes financings.

For the Years Ended December 31, 2004 2005 $ Change % Change

Years Ended December 31, 2003 and 2004

Our activities during fiscal 2004 consisted almost entirely of research and development and general corporate activities to support our FDA Phase l clinical trial. Research and development expenses increased 239% from $750,138 to $2,543,530 for the years ended December 31, 2003 and 2004, respectively. We began our Phase l FDA clinical trial with our first patient in December 2003. The trial has continued through 2004. This increase of $1,793,392 is due primarily to clinical costs for the FDA Phase I clinical trial of $562,210 and patient recruiting costs $425,232 for this trial and pre-clinical costs for an animal study for stroke of $20,000. Additionally, we incurred increased consulting fees of $169,716 for market research for potential new uses for CVBT-141A and an increase of $260,000 in consulting fees to our Chief Medical Officer, Dr. Thomas Stegmann, which fees began in the fourth quarter of 2003.

For the Years Ended December 31, 2003 2004 $ Change % Change