CLOSING OF THE MERGER

As described in Item 1.01 above, on March 2, 2010, we entered into the Merger Agreement with Chay and its wholly-owned subsidiary, Chay Acquisitions, Inc., and on that date we closed the Merger. On the Closing date and pursuant to the terms of the Merger Agreement, we acquired 100% of the outstanding common stock of DMI as a result of the merger of Chay Acquisitions into DMI, and DMI’s former stockholders were issued an aggregate of 15,070,657 shares, or approximately 95.8% our common stock.

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BUSINESS

DESCRIPTION OF BUSINESS

Our previous business was the acquisition of raw land tracts for development and sale to homebuilders or individuals. We owned 32 residential building lots in Fall River Country, South Dakota, which we sold to the Chay Control Shareholders contemporaneously with the Closing of the Merger. As a result, we are no longer engaged in the real estate business and our business is now that of DMI.

At the shareholder meeting held March 1, 2010 at which the Merger was approved, our shareholders also approved resolutions authorizing our reincorporation in the State of Delaware, the amendment and restatement of our certificate of incorporation and bylaws, and a name change to “Ampio Pharmaceuticals, Inc.,” which actions will be undertaken contemporaneously with our receiving a new stock trading symbol from FINRA. On March 3, 2010, we filed with the Colorado Secretary of State a statement of trade name, referred to as a d/b/a, under which we are now conducting business as Ampio Pharmaceuticals, Inc.

BUSINESS DEVELOPMENT OF DMI

Overview

DMI was incorporated in Delaware in December 2008 and did not conduct any business activity until April 16, 2009, at which time DMI purchased certain assigned intellectual property (including 107 patents and patent applications), business products and tangible property from DMI BioSciences, Inc. (“BioSciences”). DMI issued 3,500,000 shares of its common stock to BioSciences, and assumed certain liabilities, as consideration for the assets purchased from BioSciences. At the time of the asset purchase, DMI and BioSciences agreed to a non-compete prohibiting both companies from competing with one another anywhere in the world for a period of three years, and also agreed that DMI will receive a 10% royalty on license revenues received by BioSciences from a drug developed by BioSciences (and as to which BioSciences retained ownership) to treat male sexual dysfunction subject to DMI committing to additional funding.

Company Website and SEC Filings

Our website will be accessible shortly after the filing of this report at www.ampiopharma.com. All of our filings with the Securities and Exchange Commission, or SEC, will be accessible through our website promptly after filing; however, in the event that the website is inaccessible, we will provide paper copies of our most recent annual report on Form 10-K, the most recent quarterly report on Form 10-Q, current reports filed or furnished on Form 8-K and all related amendments, excluding exhibits, free of charge upon request. These filings are also accessible on the SEC’s website at www.sec.gov.

Business

DMI is a development stage company engaged in developing innovative, proprietary pharmaceutical drugs and diagnostic products to identify, treat and prevent a broad range of human diseases including metabolic disorders, cancer, and acute and chronic inflammation diseases.

The Formation of DMI

DMI was formed by Michael Macaluso, one of our directors, in December 2008. Following its formation, DMI did not conduct any business activities until April 16, 2009, at which time it acquired from BioSciences certain assigned intellectual property (including 107 patents and patent applications), business products and tangible property from DMI BioSciences, Inc. (“BioSciences”). DMI issued 3,500,000 shares of its common stock to BioSciences, and assumed certain liabilities, as payment for the assets acquired from BioSciences.

In conjunction with the asset purchase, DMI and BioSciences entered into a number of related agreements. Among these are agreements under which:

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DMI granted BioSciences and certain other DMI stockholders the right to demand registration of their DMI shares, or to piggyback their shares on a registration statement filed by DMI, under certain circumstances.

Immediately prior to the Merger, the outstanding Series A preferred stock of DMI was converted into DMI common stock, in accordance with DMI’s amended and restated certificate of incorporation. That document called for the automatic conversion of the Series A preferred stock into common stock immediately prior to the merger of DMI with a public traded company in which the holders of the voting securities of the publicly-traded company before the merger hold less than 25% of the total voting power of DMI’s voting securities after the merger. As our common stockholders before the Merger now hold less than 6% of the total outstanding shares after the Merger, the DMI Series A preferred stock was converted automatically into DMI common stock immediately prior to the Merger, and no Series A preferred stock is now issued or outstanding.

Business Model

DMI intends to develop proprietary pharmaceutical drugs and diagnostic products which capitalize on DMI’s intellectual property that includes assigned patents, filed patent applications, and trade secrets and know-how, some of which may be the subject of future patent applications. DMI’s intellectual property is strategically focused on three primary areas: new uses for FDA-approved drugs, referred to as repurposed drugs, new molecular entities, or NMEs, and rapid point-of-care tests for diagnosis, monitoring and screening.

Repurposed Drugs

Drug repurposing is the use of approved drugs to treat new diseases, sometimes referred to as new indications. Drug repurposing, sometimes called drug repositioning, drug re-profiling, therapeutic switching or drug re-tasking, is the discovery of new uses for FDA-approved drugs and making them available to new patient populations after completion of human clinical trials. In contrast to the development of New Molecular Entities (“NME”)NMEs, we believe that repurposing drugs can significantly accelerate development, improve success rates and lower development costs. This belief is based on the fact that repurposed drugs have already passed a significant number of toxicity and other tests reflecting previously collected pharmacokinetic, toxicology and safety data; the drug’s safety is known with respect to existing indications, and the risk of failure for reasons of adverse toxicology are reduced. By contrast, developing a NME can be significantly more costly than developing a repurposed drug, as pharmacokinetic, toxicology and safety data must first be collected in animal studies for a NME.

Repurposing is becoming a primary strategy for many research-based pharmaceutical companies. Examples of some well-known repurposed drugs include Pfizer’s Viagra® (sildenafil) in erectile dysfunction; CollaGenex’ Periostat® in periodontitis; and Oracea® in rosacea (both of which are new uses of the antibiotic doxycycline). Other companies that are engaged in repurposing initiatives include Horizon Therapeutics, which is developing a single-pill combination of ibuprofen and pepcid to reduce gastrointestinal complications that occur when patients take high doses of non-steroidal anti-inflammatory drugs; Orexigen, which is repurposing two fixed-dose combination products for the treatment of obesity; and Somaxon, which is repurposing the antidepressant doxepin for use in insomnia.

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DMI-5207 for Diabetic Retinopathy and Inflammatory Ocular Diseases

Our leading drug candidate, DMI-5207, is an approved oral drug being repurposed as a treatment for diabetic retinopathy. Diabetic retinopathy is damage to the retina caused by complications of diabetes mellitus. Diabetic retinopathy is a leading cause of blindness in adults, with almost all type-1 diabetics and more than 60% of type-2 diabetics developing retinopathy. We believe that an effective drug treatment of diabetic retinopathy is a significant unmet medical need.

Although the mechanism of action of DMI-5207 is not fully understood, we have shown that DMI-5207 has multi-targeted, disease-modifying activity that inhibits inflammation, cell proliferation, neovascularization, fibrosis and scarring. We have demonstrated that DMI-5207 reaches the target blood vessels and tissue of the eye.

The market size for diabetic retinopathy and macular edema is difficult to measure but the demographics suggest a very large potential market exists. The American Diabetes Association reports that 20.8 million people in the US have diabetes and another 54 million are pre-diabetic with 20% of type-2 diabetic patients having retinopathy when diagnosed. According to the World Health Organization, approximately 5 million individuals have diabetic retinopathy, accounting for 5 percent of world blindness. Over 360 million people worldwide are projected to have diabetes and its complications by 2030 with almost all patients with type-1 diabetes and more than 60% of patients with type-2 diabetes developing retinopathy.

There is no effective daily drug treatment for diabetic retinopathy other than general measures such as controlling blood sugar, hypertension, and blood lipids, among other factors. Intermittent laser treatments, surgery or intravitreal corticosteroid injections are currently used to address diabetic retinopathy in some developed countries, but these treatments may have limited efficacy and are costly. For these reasons, we believe DMI-5207 represents a significant Phase II stage clinical opportunity.

Having developed over four decades of experience in human use worldwide, we believe DMI-5207 has demonstrated an acceptable safety profile that supports treatment of human neovascular and inflammatory ocular diseases. We anticipate that DMI-5207 can be offered to patients in a variety of formulations, including oral tablets, extended release implants, local injections and topically as eye drops. These formulations can increase bioavailability to the eye, may increase patient compliance and could provide additional barriers to competition.

The Company has filed method of use patent applications for DMI-5207 in a variety of ocular and other indications in the US and internationally and is formulating and executing an appropriate intellectual property rights strategy to protect and expand upon this asset.

We believe DMI-5207 will be eligible for regulatory approval in the U.S. as a §505(b)(2) New Drug Application submission and in the EU under its “hybrid abridged” procedure. DMI-5207 is potentially suitable for Fast Track designation and, if received, FDA 505(b)(2) regulatory approval can provide three years of market exclusivity in the U.S.

We are currently completing preparations for a human clinical trial tentatively titled, “A Randomized, Double-blind, Placebo-Controlled, Parallel Treatment Group, Dose-Ranging, Efficacy and Safety Study of Oral DMI-5027 Capsules in Subjects with Diabetic Macular Edema,” expected to begin in 2010. We intend to prepare for a second clinical trial while examining formulation and manufacturing issues. On completion of the dose-ranging, efficacy and safety study, the Company will be positioned for a larger, pivotal FDA clinical trial to confirm safety and effectiveness. Based on our perception of the high unmet need for a drug such as DMI-5207, the lack of pharmaceutical competition, and the history of the active pharmaceutical ingredient in DMI-5207, we believe that DMI-5207 could potentially be available for marketing in approximately three years.

New Molecular Entities, or NMEs

It has been widely reported that the average cost of developing a NME from discovery to launch is more than $800 million. However, this cost reflects failed research efforts, the estimated value of alternative investments, and is based also on the experience of a sample of large pharmaceutical firms. Our development strategy for NMEs is to obtain laboratory and animal study evidence that a drug is safe and effective enough for human testing through rapid, low-cost preclinical proof-of-concept, or POC. Preclinical POC involves collecting pharmacokinetic, toxicology and safety data in a cost-effective and timely manner.

We believe that drugs derived from naturally-occurring human proteins and peptides or that are analogues of previously approved drugs may have a higher chance of success in development. DMI has three classes of NMEs that have shown biological activity in the laboratory, including drug candidates from two of these classes that have been successfully tested for efficacy in animal models. Of these three classes, two classes are comprised of compounds derived from human serum albumin or other human proteins and the third is comprised of compounds that are derivatives of methylphenidate, a drug approved for treatment of attention-deficit hyperactivity disorder, Postural Orthostatic Tachycardia Syndrome and narcolepsy, most commonly known under the trade name Ritalin.

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The two most advanced compounds from these classes of NMEs are DMI-9523 and DMI-4983. DMI-9523, known as aspartate-alanine piperazinedione or diketopiperazine, or DA-DKP, is a synthetic small molecule mimic of a naturally occurring human cyclic dipeptide from the N-terminus human serum albumin. DMI-9523 is one of a class of over 1,000 diketopiperazines on which we have been granted patents or has filed patent applications. We have ascertained internally that DMI-9523, the compound in the class that has been most studied and developed, selectively inhibits human T-cell activation and reduces inflammatory and immune responses. Orally administered DMI-9523 crossed the blood-brain barrier and significantly reduced neurological symptoms with no apparent toxicity in a classic animal model of acute CNS inflammation and chronic immune-mediated CNS disease, relapsing experimental autoimmune encephalomyelitis. DMI-9523 also demonstrated ant-inflammatory and immunomodulary effects in human organ ex vivo models and inhibited activation of antigen-specific (memory) T-cells cloned from human multiple sclerosis brain tissue. In vitro investigations suggest multiple mechanisms of action, including inhibition of transcription factors for cytokines and chemokines, inhibition of the migration and adhesion of T-cells and monocytes, activity at the G-coupled protein receptor level, activity on actin-dependent cytoskeletal events, inhibition of platelet activating factor-induced inflammatory responses, and reduced cytokine production.

DA-DKP has been identified in human blood and spinal fluid and in pharmaceutical preparations of human serum albumin (HSA) administered intravenously to millions of people indicating that DMI-9523 can be expected to have an excellent safety profile and will be suitable for chronic administration. DMI-9523 is soluble, stable, readily manufactured with a low cost of goods, and protected by an issued US composition of matter and use patent (US Patent No. 6,555,543) and additional US and international patent filings.

As an orally available, non-steroidal drug DMI-9523 may be suitable for the treatment of a variety of chronic inflammatory and immune-mediated central nervous system (CNS) diseases, including multiple sclerosis and other neurodegenerative diseases such as Alzheimer’s, Parkinson’s, amyotrophic lateral sclerosis (ALS) and the cerebritis of systemic lupus erythematosus. We believe there is a high unmet medical need for orally available, anti-inflammatory and immunomodulatory drugs that can cross the blood-brain barrier to treat central nervous system diseases.

DMI-4983, or d-DAHK, Asp-Ala-His-Lys-NH2, is a small, synthetic mimic of the high affinity metal binding site of the N-terminus of human serum albumin. DMI has demonstrated that by sequestering copper DMI-4983 inhibits the formation of pro-angiogenic cytokines and chemokines, reduces ROS formation, and inhibits the earliest stages of inflammation initiated by ischemia-reperfusion events. Preclinical in vitro and whole animal in vivo myocardial infarction and stoke model studies have demonstrated that DMI-4983 provides significant preservation of cardiac and cerebral function.

DMI-4983 can be delivered intravenously for acute coronary syndromes, low cardiac output syndrome, or stroke. Acute coronary syndrome, which includes acute myocardial infarction and unstable angina pectoris, is the leading single cause of death in the U.S. According to the American Heart Association and the American College of Cardiology, more than 1.6 million cases of acute coronary syndrome occur each year in the U.S., with more than 500,000 associated annual deaths. DMI-4983 is uniquely positioned to help preserve myocardial contractility during acute coronary syndromes, and also to prevent in-stent restenosis after angioplasty/stent procedures, especially now that drug-eluting stents are considered to be a less attractive treatment option. DMI-4983 crosses the blood-brain barrier and can also help preserve cognitive function after open-heart bypass or valve replacement surgeries as well as during acute strokes.

Emerging evidence indicates that inflammatory responses during acute coronary syndrome are responsible for significant myocardial tissue damage and loss of cardiac function. Accordingly, reducing inflammation is an emerging target for cardiovascular disease. A number of studies have shown that inflammation of blood vessels is one of the major factors that increases the incidence of heart diseases, including atherosclerosis (clogging of the arteries), stroke and myocardial infarction or heart attack. Studies have associated obesity and other components of metabolic syndrome and cardiovascular risk factors with low-grade inflammation.

DMI-4983 is non-toxic in early preclinical safety studies at approximately 100 times an anticipated human dose. We anticipate currently that this class of compounds will have acceptable human safety profiles. DMI-4983 is soluble, stable, easily manufactured, can be administered orally, and is protected by a variety of U.S. and international patent filings. We expect an investigational new drug application can be submitted to the Food and Drug Administration (“FDA”) in 12 to 18 months with access to additional financial resources. We are beginning to explore research and development opportunities with pharmaceutical companies interested in the treatment of acute coronary syndrome, low cardiac output syndrome, or stroke.

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In Vitro Diagnostics

Diagnostics serve a key role in the health value chain by influencing the quality of patient care, health outcomes and downstream resource requirements. From consumer-friendly at-home pregnancy and glucose monitoring tests to more complex automated laboratory-based systems, these tests are often first-line health decision tools. While diagnostics comprise less than 5% of hospital costs and about 1.6% of all Medicare costs, their findings are commonly believed to influence as much as 60-70% of health care decision-making. The value of diagnostics accrues not only to clinicians and patients, but to health care managers, third-party payers and quality assurance organizations that use diagnostic performance to measure and improve health care quality.

Our initial diagnostic, D-818, is a rapid, point-of-care blood test device that assesses total oxidative stress by measuring oxidation-reduction potential. This hand-held device is similar to a finger stick glucose meter (glucometer) and has a wide range of medical diagnostic, monitoring and screening uses.

Oxidation-reduction potential is a tightly controlled measurement, much like the vital signs routinely measured in medical practice – temperature, heart rate, respiratory rate, blood pressure and oxygen saturation of blood. Abnormal changes in oxidation-reduction potential are closely associated with poor outcomes in critically ill patients, including heart attack and pneumonia. Rapid results are essential for optimal treatment adjustments in critical care areas such as emergency and intensive care departments. Oxidation-reduction potential results may also help determine which patients are at high risk of early readmission at hospital discharge, especially patients with heart attack, heart failure, stroke, and pneumonia.

Numerous scientific studies confirm the clinical value of measuring oxidative stress. Recently, a large assortment of blood and cell tests have been used in research studies to measure separate biomarkers of oxidative stress, such as lipid peroxidation, protein oxidation and total antioxidants, but currently several of these separate biomarker test results are needed to start to assess total oxidative stress. We believe no practical or efficient method currently exists for measuring these oxidative stress biomarkers in a clinical setting. D-818 provides the first integrated measure of total oxidative stress status for clinical practice. This device is being developed as a battery-powered, hand-held unit for application of a drop of whole blood onto disposable electrode strips to provide a rapid test result.

We believe D-818 can be developed as a single-platform, multi-indication device, meaning it may be used in diverse applications. We have an extensive sample bank of individual patient blood plasma for testing D-818 results in diseases such as heart attack, stroke, brain injury, pneumonia, blood transfusion products and multiple trauma. These samples also have patient diagnosis and medical records for clinical correlation with D-818 results. Potential clinical uses include:

Determining the risk of serious heart disease

Patients with pain or discomfort in the chest due to a heart attack or acute coronary syndrome often have a normal electrocardiogram and heart damage blood tests for hours after the onset of symptoms. Hospital observation, imaging scans, and invasive angiography are frequently required to determine which patients have serious heart disease. D-818 may aid in this determination by providing rapid, point-of-care data measuring a patient’s total oxidative stress and, therefore, aid in the assessment of the risk for serious heart disease. D-818 may also help physicians assess the prognosis of heart patients and gauge response to treatment.

Readmission, determine the risk of early hospital readmission at time of discharge

The rate of unscheduled readmissions is an important quality indicator often associated with medical errors. Early readmissions have significant financial implications for hospitals and most readmission complications are preventable if the risk of readmission is identified and managed at discharge. For example, patients requiring prolonged periods of intensive care and mechanical ventilation or complications of pneumonia are at high risk for hospital readmission. Stroke and heart disease patients have high rates of early readmission due to developing pneumonia at home. D-818 may be useful at planned discharge to measure oxidative stress and identify patients at high risk of readmission, thus helping identify patients needing extended stay care or early disease home management programs. These programs can reduce early readmission rates and often include nurse contact within 24 hours after discharge and frequent home check-ups for proper medication compliance and rehabilitation treatments.

We believe that if its development efforts are successful, D-818 can be the first FDA-approved test to measure total blood oxidative stress in real time for clinical practice. If D-818 proves useful in clinical practice, we expect that the D-818 device may be useful for home monitoring in the same way that glucometers are now used for at-home blood sugar monitoring. The path for obtaining FDA approval of D-818 includes an initial §510(k) clearance followed by strategic premarket approval clinical development in several important medical indications.

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We intend to further develop, commercialize and monetize many of our proposed products through co-development and collaboration agreements with strategic, financial and industry partners. We currently have no active co-development or collaboration agreements to which we are party.

Regulation

The preclinical and clinical development, testing, manufacture, safety, efficacy, labeling, storage, distribution, promotion, sale and export, reporting, and record-keeping of our product candidates are subject to extensive regulation. The FDA and corresponding state agencies are primarily responsible for such regulation in the United States, and similar regulatory agencies in foreign countries are responsible for regulation of our product candidates outside the United States. We must provide the FDA and foreign regulatory authorities, if applicable, with clinical data that appropriately demonstrate each product candidate’s safety and efficacy in humans the product candidate can be approved for the targeted indications. We are unable to predict whether regulatory approval will be obtained for any product candidate we are developing or plan to develop. The regulatory review and approval process can take many years, is dependent upon the type, complexity, and novelty of the product, requires the expenditure of substantial resources, involves post-marketing surveillance, and may involve ongoing reporting or monitoring.

We may encounter delays or product candidate rejections based on new governmental regulations, future legislative or administrative actions, or changes in FDA policy or interpretation during the period of product development. Even if we obtain required regulatory approvals, such approvals may later be withdrawn. Delays or failures in obtaining regulatory approvals may:

Furthermore, if we fail to comply with applicable FDA and other regulatory requirements at any stage during the regulatory process, we may encounter or be subject to:

The ability to market a product outside of the United States is contingent upon receiving a marketing authorization from appropriate regulatory authorities. Foreign regulatory approval processes typically involve risks similar to those associated with obtaining FDA approval and may include additional risks. In addition, the requirements governing conduct of clinical trials and marketing authorizations, and the time required to obtain requisite approvals, may vary widely from country to country and differ from that required for FDA approval. We cannot assure you any of our product candidates will prove to be safe or effective, will receive regulatory approvals, or will be successfully commercialized.

Even if a product candidate receives regulatory approval, the approval is typically limited to specific clinical indications. Further, even after regulatory approval is obtained, subsequent discovery of previously unknown problems with a product may result in restrictions on its use or even complete withdrawal of the product from the market. Any FDA-approved products manufactured or distributed by us or on our behalf are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse events or experiences. Drug manufacturers and their subcontractors are required also to register their establishments with the FDA and state agencies, and are subject to periodic inspections by the FDA and state agencies for compliance with current Good Manufacturing Processes, or cGMP. The cGMP impose rigorous procedural and documentation requirements upon us and any manufacturers engaged by us. We cannot be certain that DMI or its present or future contract manufacturers or suppliers will be able to comply with cGMP regulations and other FDA regulatory requirements. Failure to comply with these requirements may result in, among other things, total or partial suspension of production activities, failure of the FDA to grant approval for marketing, and withdrawal, suspension, or revocation of marketing approvals.

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If the FDA approves one or more of our product candidates, we and our contract manufacturers must provide certain updated safety and efficacy information to the FDA and other regulatory agencies. Product changes, as well as certain changes in the manufacturing process or facilities where the manufacturing occurs (or other post-approval changes) may necessitate additional FDA review and approval. The labeling, advertising, promotion, marketing and distribution of a drug product also must be in compliance with FDA and Federal Trade Commission, or FTC, requirements which include, among others, standards and regulations for direct-to-consumer advertising, off-label promotion, industry sponsored scientific and educational activities, and promotional activities involving the Internet. The FDA and FTC have very broad enforcement authority, and failure to abide by these regulations can result in penalties, including the issuance of a warning letter directing us to correct deviations from regulatory standards and enforcement actions that can include seizures, fines, injunctions and criminal prosecution.

The FDA’s policies may change and additional government regulations may be enacted which could prevent or delay regulatory approval of our product candidates. Moreover, increased attention to the containment of health care costs in the United States and in foreign markets could result in new government regulations that could cause an increase in our compliance, manufacturing, or other operating expenses, or decrease our gross margins on any product candidates we commercialize.

Regulatory Approval Process for NMEs

FDA regulations require us to undertake a long and rigorous process before any of our NME product candidates may be marketed or sold in the United States. This regulatory process typically includes the following steps:

This process requires a substantial amount of time and financial resources which we currently do not possess. Even if we obtain financing that can be directed to the NME product candidate approval process, there is not assurance this process will result in the granting of an approval for any of our product candidates on a timely basis, if at all.

Preclinical Testing

Preclinical tests generally include laboratory evaluation of a product candidate, its chemistry, formulation, stability and toxicity, as well as certain animal studies to assess its potential safety and efficacy. Results of these preclinical tests, together with manufacturing information, analytical data and the clinical trial protocol, must be submitted to the FDA as part of an IND, which must become effective before human clinical trials can begin. An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the intended conduct of the trials and imposes what is referred to as a clinical hold. Preclinical studies generally take several years to complete, and there is no guarantee that an IND based on those studies will become effective, allowing clinical testing to begin. In addition to FDA review of an IND, each medical site that desires to participate in a proposed clinical trial must have the protocol reviewed and approved by an independent IRB. The IRB considers, among other things, ethical factors, and the selection and safety of human subjects. Clinical trials must be conducted in accordance with the FDA’s Good Clinical Practices requirements.

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We cannot be certain that we will successfully complete the Phase 1, Phase 2, or Phase 3 testing of its product candidates within any specific time period, if at all. Furthermore, The FDA or an IRB may suspend or terminate a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

Post-Approval Regulation

Even if a product candidate receives regulatory approval, the approval is typically limited to specific clinical indications. Further, even after regulatory approval is obtained, subsequent discovery of previously unknown problems with a product may result in restrictions on its use or even complete withdrawal of the product from the market. Any FDA-approved products manufactured or distributed by us are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse events or experiences. Further, drug manufacturers and their subcontractors are required to register their establishments with the FDA and state agencies, and are subject to periodic inspections by the FDA and state agencies for compliance with cGMP, which impose rigorous procedural and documentation requirements upon DMI and its contract manufacturers. We cannot be certain that we or our present or future contract manufacturers or suppliers will be able to comply with cGMP regulations and other FDA regulatory requirements. Failure to comply with these requirements may result in, among other things, total or partial suspension of production activities, failure of the FDA to grant approval for marketing, and withdrawal, suspension, or revocation of marketing approvals.

If the FDA approves one or more of our product candidates, we and our contract manufacturers must provide certain updated safety and efficacy information. Product changes, as well as certain changes in the manufacturing process or facilities where the manufacturing occurs or other post-approval changes may necessitate additional FDA review and approval. The labeling, advertising, promotion, marketing and distribution of a drug or biologic product also must be in compliance with FDA and Federal Trade Commission (“FTC”) requirements which include, among others, standards and regulations for direct-to-consumer advertising, off-label promotion, industry sponsored scientific and educational activities, and promotional activities involving the Internet. The FDA and FTC have very broad enforcement authority, and failure to abide by these regulations can result in penalties, including the issuance of a warning letter directing us to correct deviations from regulatory standards and enforcement actions that can include seizures, fines, injunctions and criminal prosecution.

The FDA’s policies may change and additional government regulations may be enacted which could prevent or delay regulatory approval of our product candidates. Moreover, increased attention to the containment of health care costs in the United States and in foreign markets could result in new government regulations that could have a material adverse effect on our business. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.

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Fast Track Status and Orphan Drug

The FDA has developed “Fast Track” policies, which provide the potential for expedited review of a NDA. However, there is no assurance that the FDA will, in fact, accelerate the review process for a Fast Track product candidate if we submit a product for that review. Fast Track status is provided only for those new and novel therapies that are intended to treat persons with life-threatening and severely debilitating diseases where there is a defined unmet medical need, especially where no satisfactory alternative therapy exists or the new therapy is significantly superior to alternative therapies. During the development of product candidates that qualify for this status, the FDA may expedite consultations and reviews of these experimental therapies. An accelerated approval process is potentially available to product candidates that qualify for this status and the FDA may expedite consultations and review of these experimental therapies. Further, an accelerated approval process is potentially available for product candidates that have been studied for their safety and effectiveness in treating serious or life-threatening illnesses.

The FDA can base approval of a marketing application for a Fast Track product on an effect on a clinical endpoint, or on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may condition the approval of an application for certain Fast Track products to additional post-approval studies to validate the surrogate endpoint or confirm the effect on the clinical endpoint. Fast Track status also provides the potential for a product candidate to have a “Priority Review.” A Priority Review allows for portions of the NDA to be submitted to the FDA for review prior to the completion of the entire application, which could result in a reduction in the length of time it would otherwise take the FDA to complete its review of the NDA. Fast Track status may be revoked by the FDA at any time if the clinical results of a trial fail to continue to support the assertion that the respective product candidate has the potential to address and unmet medical need.

The FDA may grant Orphan Drug status to drugs intended to treat a “rare disease or condition,” which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. If and when the FDA grants Orphan Drug status, the generic name and trade name of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Aside from guidance concerning the non-clinical laboratory studies and clinical investigations necessary for approval of the NDA, Orphan Drug status does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The FDA may grant Orphan Drug status to multiple competing product candidates targeting the same indications. A product that has been designated as an Orphan Drug that subsequently receives the first FDA approval is entitled to Orphan Drug exclusivity. This exclusivity means the FDA may not approve any other applications to market the same drug for the same indication, except in very limited circumstances, for seven yeas from the date of the initial FDA approval. Orphan Drug approval may also provide certain tax benefits to the company that receives the first FDA approval. Finally, the FDA may fund the development of orphan products through its grants program for clinical studies.

Foreign Regulatory Approval

Outside of the United States, our ability to market DMI’s product candidates will be contingent also upon our receiving marketing authorizations from the appropriate foreign regulatory authorities, whether or not FDA approval has been obtained. The foreign regulatory approval process in most industrialized countries generally encompasses risks similar to those we will encounter in the FDA approval process. The requirements governing conduct of clinical trials and marketing authorizations, and the time required to obtain requisite approvals, may vary widely from country to country and differ from that required for FDA approval.

Europe

Under European Union regulatory systems, marketing authorizations may be submitted either under a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessment report, each member state must decide whether to recognize approval. The mutual recognition process results in separate national marketing authorizations in the reference member state and each concerned member state. We will seek to choose the appropriate route of European regulatory filing in an attempt to accomplish the most rapid regulatory approvals for our product candidates when ready for review. However, the chosen regulatory strategy may not secure regulatory approvals or approvals of the chosen product indications. In addition, these approvals, if obtained, may take longer than anticipated. We can provide no assurance that any of our product candidates will prove to be safe or effective, will receive required regulatory approvals, or will be successfully commercialized.

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Intellectual Property

As of March 1, 2010, we owned or are the exclusive licensee under 14 granted patents, 123 filed patent applications, and 36 provisional patent filings. We also maintain trade secrets and proprietary know-how that we seek to protect through confidentiality and nondisclosure agreements. We expect to seek United States and foreign patent protection for drug and diagnostic products we discover, as well as therapeutic and diagnostic products and processes. We expect also to seek patent protection or rely upon trade secret rights to protect certain other technologies which may be used to discover and characterize drugs and diagnostic components, and which may be used to develop novel therapeutic and diagnostic products and processes. These agreements may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of confidential and proprietary information. If we do not adequately protect our trade secrets and proprietary know-how, our competitive position and business prospects could be materially harmed.

The patent positions of companies such as ours involve complex legal and factual questions and, therefore, their enforceability cannot be predicted with any certainty. Our issued and licensed patents, and those that may be issued to us in the future, may be challenged, invalidated or circumvented, and the rights granted under the patents or licenses may not provide us with meaningful protection or competitive advantages. Our competitors may independently develop similar technologies or duplicate any technology developed by us, which could offset any advantages we might otherwise realize from our intellectual property. Furthermore, even if our product candidates receive regulatory approval, the time required for development, testing, and regulatory review could mean that protection afforded us by our patents may only remain in effect for a short period after commercialization. The expiration of patents or license rights we hold could adversely affect our ability to successfully commercialize our pharmaceutical drugs or diagnostics, thus harming our operating results and financial position.

We will be able to protect our proprietary intellectual property rights from unauthorized use by third parties only to the extent that such rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. If we must litigate to protect our intellectual property from infringement, we may incur substantial costs and our officers may be forced to devote significant time to litigation-related matters. The laws of certain foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States.

Our pending patent applications, or those we may file or license from third parties in the future, may not result in patents being issued. Until a patent is issued, the claims covered by the patent may be narrowed or removed entirely, thus depriving us of adequate protection. As a result, we may face unanticipated competition, or conclude that without patent rights the risk of bringing product candidates to market exceeds the returns we are likely to obtain. We are generally aware of the scientific research being conducted in the areas in which we focus our research and development efforts, but patent applications filed by others are maintained in secrecy for at least 18 months and, in some cases in the United States, until the patent is issued. The publication of discoveries in scientific literature often occurs substantially later than the date on which the underlying discoveries were made. As a result, it is possible that patent applications for products similar to our drug or diagnostic candidates may have already been filed by others without our knowledge.

The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights, and it is possible that our development of product candidates could be challenged by other pharmaceutical or biotechnology companies. If we become involved in litigation concerning the enforceability, scope and validity of the proprietary rights of others, we may incur significant litigation or licensing expenses, be prevented from further developing or commercializing a product candidate, be required to seek licenses that may not be available from third parties on commercially acceptable terms, if at all, or subject us to compensatory or punitive damage awards. Any of these consequences could materially harm our business.

Competition

The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change as researchers learn more about diseases and develop new technologies and treatments. Significant competitive factors in our industry include product efficacy and safety; quality and breadth of an organization’s technology; skill of an organization’s employees and its ability to recruit and retain key employees; timing and scope of regulatory approvals; government reimbursement rates for, and the average selling price of, products; the availability of raw materials and qualified manufacturing capacity; manufacturing costs; intellectual property and patent rights and their protection; and sales and marketing capabilities.

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There are many companies that are researching and developing ophthalmology products, and the competition among developed ophthalmology products is intense. Even if we develop a product candidate that receives regulatory approvals, it is likely that other companies in the ophthalmology industry could develop, purchase or license products that may address the same clinical indications. We cannot assure you that any ophthalmology product we succeed in developing will be clinically superior or scientifically preferable to products developed or introduced by our competitors.

Many of our actual and potential competitors have substantially longer operating histories and possess greater name recognition, product portfolios and significantly greater financial, research, and marketing resources than us. Among our smaller competitors, many of these companies have established co-development and collaboration relationships with larger pharmaceutical and biotechnology firms, which may make it more difficult for us to attract a strategic partner. Our current and potential competitors include major multinational pharmaceutical companies, biotechnology firms, universities and research institutions. Some of these companies and institutions, either alone or together with their collaborators, have substantially greater financial resources and larger research and development staffs than do we. In addition, many of these competitors, either alone or together with their collaborators, have significantly greater experience than us in discovering, developing, manufacturing, and marketing pharmaceutical products and diagnostics. If one of our competitors realizes a significant advance in pharmaceutical drugs or diagnostics that address one or more of the diseases targeted by our product candidates, our products or diagnostics could be rendered uncompetitive or obsolete.

Our competitors may also succeed in obtaining FDA or other regulatory approvals for their product candidates more rapidly than we are able to do, which could place us at a significant competitive disadvantage or deny us marketing exclusivity rights. Market acceptance of our product or diagnostic candidates will depend on a number of factors, including:

Although we believe our product candidates possess attractive attributes, we cannot assure you that our product candidates will achieve regulatory or market acceptance, or that we will be able to compete effectively in the pharmaceutical drug or diagnostic markets. If our product candidates fail to gain regulatory approvals and acceptance in their intended markets, we may not generate meaningful revenues or achieve profitability.

Research and Development

Our strategy is to minimize fixed overhead by outsourcing much of our research and development activities. Through a sponsored research agreement, our discovery activities are conducted by Trauma Research LLC, or TRLLC, a limited liability company owned by Dr. David Bar-Or. Under the research agreement, TRLLC conducts drug and biomarker discovery and development programs at its research facilities, and we provide funding and some scientific personnel. Intellectual property from discovery programs conducted by TRLLC belongs to us, and we are solely responsible for protecting that intellectual property. While we have the right to generally request development work under the research agreement, TRLLC directs such work and is responsible for how the work is performed.

Compliance with Environmental Laws

We believe we are in compliance with current material environmental protection requirements that apply to us or our business. Costs attributable to environmental compliance are not currently material.

Product Liability and Insurance

The development, manufacture and sale of pharmaceutical products involve inherent risks of adverse side effects or reactions that can cause bodily injury or even death. Product candidates we succeed in commercializing could adversely affect consumers even after obtaining regulatory approval and, if so, we could be required to withdraw a product from the market or be subject to administrative or other proceedings. As we are not now manufacturing, marketing or distributing pharmaceutical products or diagnostics, we have elected not to obtain product liability insurance at the current time. We expect to obtain clinical trial liability coverage for human clinical trials, and appropriate product liability insurance

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coverage for products we manufacture and sell for human consumption. The amount, nature and pricing of such insurance coverage will likely vary due to a number of factors such as the product candidate’s clinical profile, efficacy and safety record, and other characteristics. We may not be able to obtain sufficient insurance coverage to address our exposure to product recall or liability actions, or the cost of that coverage may be such that we will be limited in the types or amount of coverage we can obtain. Any uninsured loss we suffer could materially and adversely affect our business and financial position.

Facilities

We maintain our headquarters in leased space in Greenwood Village, Colorado., for a monthly rental of $2,400. The lease expires in April 2010. We anticipate that the lease can be renewed for an additional term of 12 months on terms similar to those now in effect.

Legal Proceedings

We are currently not a party to any material legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings in which we will become involved. In 2005 and 2006, Isolagen, Inc. and certain of its current and former officers and directors were named as defendants in various class action suits that were later consolidated into a multi-district class action. The suit included purported claims for misrepresentations or omissions of material fact, violations of the registration provisions of the Securities Act of 1933, and violations of the Securities Exchange Act. Michael Macaluso, one of our directors, served as president and/or chief executive officer of Isolagen until September 2004, and as a director until May 2005, and was named as one of the defendants in this action. In September 2008, the suit was settled and a stipulation for dismissal was filed. Mr. Macaluso was not required to make any contribution to the settlement and obtained a full release as a condition of settlement.

Employees

As of the Closing Date, we had six full-time employees and utilized the services of a number of consultants on a part-time basis. Overall, we have not experienced any work stoppage and do not anticipate any work stoppage in the foreseeable future. Management believes that relations with our employees are good.

Corporate Information

Our principal executive offices are located at 8400 East Crescent Parkway, Suite 600, Greenwood Village, Colorado 80111 USA, and our phone number is (303) 418-1000.

RISK FACTORS

An investment in our securities involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in or incorporated into this report that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

We are a development stage entity that has generated operating losses since inception, and if we are unable to generate significant revenues and achieve profitability in the future, you may lose your entire investment.

We are a development stage company and have generated no revenues since our inception in December 2009. The assets we acquired in April 2009 from BioSciences generated a total of $103,750 in revenues in the year ended September 30, 2008 and the period from September 30, 2008 through April 15, 2009. We have generated operating losses since inception, and in the year ended December 31, 2009, we generated a net loss of $1,511,828. Our accumulated deficit at December 31, 2009 was $(1,764,923). We anticipate that we will continue to generate losses for the foreseeable future and that we will require substantial additional capital during 2010 and 2011 in order to fund our operations and implement our business plan. The amount of capital we require could change depending on our success in securing co-development or collaboration agreements, but we currently have no such agreements. If we are unable to implement our business strategy and realize revenues from our product candidates, we will continue to generate losses and you may lose your entire investment.

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We depend on the services of our Chief Scientific Officer, David Bar-Or, M.D., and several of our key employees for researching and developing pharmaceutical drugs and diagnostics, and the loss of the services of any of these employees may adversely impact our ability to develop and commercialize our product candidates.

Dr. David Bar-Or is our Chief Scientific Officer and also is the chief executive of Trauma Research LLC, the firm to which we outsource much of our research and development activities. It would be extremely difficult, if not impossible, to replace Dr. Bar-Or if his services became unavailable to us for any reason. DMI has an employment agreement with Dr. Bar-Or, and we anticipate entering into employment agreements with Dr. Bar-Or and our other key employees now that the Merger has closed. Even if we have employment agreements with Dr. Bar-Or and other key employees, those agreements do not guarantee that these persons will remain with us in the future. We do not have key-man life insurance on Dr. Bar-Or, or key person insurance on our other key employees, although we intend in the future to obtain key-man insurance on Dr. Bar-Or, depending on its cost and availability. We also depend in particular on the services of Dr. Vaughan Clift, our director of product development, Dr. James Winkler, our director of medical affairs, Raphael Bar-Or, our chief technology officer, and Wannell M. Crook, Esq., our director of intellectual property. If we lose the services of any of these employees or our other executive officers or directors, we may be hindered in developing or commercializing our product candidates or may experience delays while recruiting other qualified personnel.

We will need additional capital and we may not be able to obtain it at acceptable terms, or at all, which could adversely affect our liquidity and financial position.

Our research into pharmaceutical drugs and diagnostics, our development of our product candidate, and our intended commercialization of our existing and any future product candidates will require us to raise additional capital. While we intend to limit our capital requirements by continuing to outsource much of our development work and by entering into co-development and collaboration agreements with larger strategic partners, we are not currently party to any such agreements and may not be successful in obtaining such agreements. Even if we secure such agreements, we will require additional capital to fund our on-going operating and commercialization activities, in addition to development activities for other product candidates. We will likely be required to raise capital through the sale of equity or convertible instruments, as we do not have assets which will qualify as collateral for conventional debt financing.

Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including, but not limited to:

Our business depends on our ability to protect our intellectual property effectively. Our inability to protect our intellectual property could harm the development or commercialization of our product candidates and adversely affect our business.

We believe our patents and other intellectual property that we own and license are critical to our success. We also claim proprietary rights in various unpatented technologies, consisting of know-how and trade secrets relating to our product candidates and development processes. Our ability to implement our business plan depends in substantial part on our patents, unpatented technologies, and other intellectual property. If our existing patents or patents granted in respect of our patent applications fail to protect our proprietary rights, or if any third party misappropriates or infringes on our intellectual property, any advantage those proprietary rights provide may be negated and the value of our product candidates may be harmed, which could have a material adverse effect upon our business and might prevent us from successfully commercializing our product candidates. To the extent we have obtained patents, or filed patents pending in foreign jurisdictions which are granted subsequently, the protection available in such jurisdictions may not be as extensive as the protection available in the United States.

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Monitoring infringement of intellectual property rights is difficult and we cannot be certain that any precautions we take will prevent the unauthorized use of our intellectual property and know-how, particularly in countries where we do not have patents or where the laws of such countries may not protect our proprietary rights as adequately as the laws of the United States or at all. Pursuing legal remedies against persons infringing on our patents or otherwise improperly using our proprietary information is a costly and time-consuming process that would divert management’s attention and other resources from the conduct of our business, which could cause delays and other problems with the development or commercialization of our product candidates.

If we are unable for any reason to adequately protect our intellectual property rights, our business, results of operations, financial condition and prospects could be materially and adversely affected.

If we are found to have violated the intellectual property rights of others, we could be required to reformulate our products, pay significant damages, or enter into license agreements with third parties that may increase our operating expenses.

The pharmaceutical and biotechnology industries are characterized by a large number of patents and trade secrets and by frequent litigation based on allegations of infringement or other violation of intellectual property rights. As we continue the development of our product candidates and associated commercialization efforts, third parties may assert that our drugs or diagnostics violate their intellectual property rights. Although we have no knowledge of actual infringement, we cannot assure investors that we are not in infringement of third party patents or patents pending, which are often entitled to remain secret during some or all of the time that a patent is pending. Any claim, regardless of its merits, could be expensive and time consuming to defend against, and would divert the attention of our technical and management teams. Successful intellectual property claims against us could result in significant financial liability or prevent us from marketing one or more of our pharmaceutical products. In addition, resolution of claims may require us to reformulate a product candidate, to cease marketing of a product, or to obtain licenses to use intellectual property belonging to third parties, which we may not be able to obtain on reasonable terms, if at all. Any of these events could materially harm our business, financial condition and results of operations.

Our research and development efforts may not succeed in developing commercially successful products.

Like other pharmaceutical companies, in order to be competitive we must obtain regulatory approval for our product candidates and commercialize those product candidates. To accomplish this, we will commit substantial effort, funds and other resources to research and development, principally through our sponsored research agreement with TRLLC. There is a high rate of failure inherent in the research to develop new drugs to treat diseases. As a result, there is a high risk that funds invested by us in research will not generate financial returns. This risk profile is compounded by the fact that this research has a long investment cycle. To bring a pharmaceutical compound from the discovery phase to market may take a decade or more and failure can occur at any point in the process, including later in the process after significant funds have been invested. Each phase of testing is highly regulated, and during each phase there is a substantial risk that we will encounter serious obstacles or will not achieve our goals and, accordingly, be required to abandon a product in which we have invested substantial amounts of time and resources. Some of the risks encountered in the research and development process include the following: pre-clinical testing of a new compound may yield disappointing results; clinical trials of a new drug may not be successful; a new drug may not be effective or may have harmful side effects; a new drug may not be approved by the FDA for its intended use; it may not be possible to obtain a patent for a new drug; or sales of a new product may be disappointing.

We cannot state with certainty when or whether any of our product candidates now under development will be approved or launched; whether we will be able to develop or license drugs or diagnostics; whether any products, once launched, will be commercially successful; or whether launched products will be displaced by competing products or therapies. Failure to achieve success in our development efforts in the short term or long term will have a material adverse effect on our business, results of operations, financial position, and prospects.

Our product candidates cannot be marketed unless we obtain and maintains regulatory approvals.

Our research, preclinical testing, clinical trials and manufacturing and marketing activities are subject to extensive regulation by numerous federal, state and local governmental authorities in the United States, including the FDA, and by foreign regulatory authorities, including the EC. In the United States, the FDA is of particular importance, as it administers

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requirements covering the testing, approval, safety, effectiveness, manufacturing, labeling and marketing of prescription pharmaceuticals. In many cases, FDA requirements increase the amount of time and money necessary to develop new products and bring them to market in the United States. Regulation outside the United States also is primarily focused on drug safety and effectiveness and, in some cases, cost reduction. The FDA and foreign regulatory authorities have substantial discretion to require additional testing, to delay or withhold registration and marketing approval and to mandate product withdrawals.

Even if we are successful in developing our product candidates, we will not be able to market any products unless and until we obtain all required regulatory approvals in each jurisdiction where we propose to market the new products. Once obtained, we must maintain approval as long as we plan to market our products in each jurisdiction where approval is required. Our failure to obtain approval, significant delays in the approval process, or our failure to maintain approval in any jurisdiction will prevent us from selling any new product in that jurisdiction until approval is obtained, if ever. We will not be able to generate revenues for any new products in any jurisdiction where we do not obtain regulatory approval.

We will be dependent on third-party manufacturers to produce our pharmaceutical drugs and diagnostics, and our inability to obtain qualified manufacturing sources or the inability of a manufacturer to fulfill our orders or to maintain the quality of our product candidates could adversely affect our ability to commercialize our products or result in product recalls.

We do not own or operate any manufacturing facilities and will depend on third parties for the manufacture of any of our product candidates for which we secure regulatory approvals. Even if we identify potential manufacturers from which we can secure drugs or diagnostics for which we have regulatory approval, we may not be able to obtain sufficient quantities of our products when needed, or the products’ manufacturing costs may adversely impact the pricing of our products in the market. If a manufacturer with which we contract was unable or unwilling to produce our products in a timely manner or to produce sufficient quantities to support our growth, if any, we would have to identify and qualify new manufacturers. Any shift in manufacturing sources could delay product deliveries or availability. Only a limited number of manufacturers may have the ability to produce a high volume of our pharmaceutical drugs and diagnostics, and it could take a significant period of time to qualify and contract alternative manufacturing sources. In addition, we may encounter difficulties or be unable to negotiate satisfactory pricing or other terms with new manufacturing sources. There can be no assurance that we would be able to identify and qualify new manufacturers in a timely manner or that such manufacturers could allocate sufficient capacity in order to meet our requirements, which could adversely affect our ability to make timely deliveries of product.

Any manufacturers we engage will be required to adhere to strict FDA and other regulatory mandates applicable to the production of pharmaceutical drugs and diagnostics, including quality, safety and efficacy requirements. In addition, manufacturers of pharmaceutical drugs and diagnostics are required to comply with all federal, state and local laws with respect to products designed for human consumption or use. There can be no assurance that any manufacturers with which we contract will produce products that are consistent with our standards or in compliance with applicable laws. The failure of any manufacturer to produce products that conform to our standards and in conformance with regulatory requirements could materially and adversely affect our reputation in the marketplace and result in product recalls, product liability claims and severe economic losses.

Although our sponsored research relationship with Trauma Research LLC is an important component of our future operations, there can be no assurance this relationship will continue indefinitely.

We currently maintain a sponsored research agreement with Trauma Research LLC, or TRLLC, an entity owned by Dr. Bar-Or. Under the research agreement, TRLLC conducts research and development activities on our behalf using facilities provided by TRLLC. Although we believe our relationship with TRLLC will continue into the foreseeable future, we cannot assure you that this will be the case. The sponsored research agreement can be terminated by us or TRLLC on relatively short notice for cause, including any non-payment by us of monthly development costs. If the research agreement is terminated by either party for any reason, it would have a material adverse effect on our business and operations.

Adverse publicity or consumer concern regarding the safety and efficacy of any products we commercialize, or for pharmaceutical drugs or diagnostics marketed by others that are designed to treat or diagnose diseases also targeted by our products, may diminish the success of our commercialization efforts, if any.

We will be highly dependent upon consumers’ perception of the safety, quality and efficacy of our pharmaceutical drugs and diagnostics for which we obtain regulatory approvals, if any. As a result, substantial negative publicity

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concerning one or more of our commercialized products or similar drugs or diagnostics developed by others could lead to a loss of consumer confidence in our products, removal of our products from retailers’ shelves, or reduced sales and prices of our products. Any of these events could have a material adverse effect on our business, results of operations and financial condition.

If we conduct operations in a market segment that suffers a loss in consumer confidence as to the safety and efficacy of pharmaceutical drugs, our business could be adversely affected. The pharmaceutical industry has recently been subject to negative publicity concerning unexpected or unexplained side effects that may be attributable to market-approved pharmaceuticals. Developments in any of these areas including, but not limited to, a negative perception about our pharmaceutical drugs, could harm our sales and operating results, perhaps significantly.

We may be subject to significant liability should the consumption of any of drugs developed and marketed by us cause injury, illness or death, or should any diagnostics we develop and market prove ineffective. Regardless of whether such claims against us are valid, they may be expensive to defend and may generate negative publicity, both of which could adversely, significantly affect our operating results.

The sale of pharmaceutical products for human consumption involves the risk of injury to consumers. Such injuries may result from tampering by third parties, product contamination or spoilage, and unexpected side effects and adverse reactions. If the consumption of our commercialized products, if any, causes or is alleged to have caused an illness or death in the future, we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding an illness, injury or death could adversely affect our reputation with potential customers, our corporate image, and our operating results. Moreover, claims or liabilities of this nature might not be covered by insurance or by any contractual rights of indemnity or contribution that we may secure from manufacturers of our products. We currently maintain no product liability insurance coverage. Although we intend to secure such coverage in amounts we believe to be adequate at the time we introduce any products we commercialize, we cannot be sure that claims or liabilities will be asserted for which adequate insurance will be available or that such claims or liabilities will not exceed the amount of insurance coverage we intend to obtain or any contractual indemnity rights from any manufacturer with which we contract. Furthermore, the cost of insurance coverage may inhibit our ability to obtain meaningful coverage, thus exposing us to greater financial risk if a claim is asserted that exceeds available coverage. Even if we have adequate insurance or contractual indemnification, product liabilities relating to defective products could have a material adverse effect on our business, results of operations, liquidity, financial condition and brand image.

Our pharmaceutical products may also experience product tampering, contamination or spoilage, or be mislabeled or otherwise damaged. Under certain circumstances a product recall could be initiated, leading to a material adverse effect on our reputation, operations and operating results. Even if a product recall is not mandated, we may as a practical matter be required to recall a product to avoid seizures or civil or criminal litigation. Even if such a situation does not necessitate a recall, product liability claims could be asserted against us. A products liability judgment or a product recall involving us could have a material adverse effect on our business, financial condition, results of operations or liquidity.

Regardless of whether any product liability claims against us are valid, or whether we are ultimately held liable, claims may be expensive to defend and may divert time and money away from our operations, which could have a detrimental effect on our performance. A judgment that is significantly in excess of our insurance coverage or contractual indemnification from a manufacturer could materially and adversely affect our financial condition or results of operations. Any adverse publicity resulting from these allegations may also materially and adversely affect our reputation, which could adversely affect our results.

If we are unable to compete successfully in the pharmaceutical drug or diagnostic markets, we may fail to generate meaningful revenues and the value of shares of our common stock may decline.

The market for pharmaceutical drugs and diagnostics is highly competitive. We face intense competition from other pharmaceutical and biotechnology companies, including many large domestic and international companies that have substantially greater financial, technical, marketing, distribution and other resources, broader product lines, lower cost structures, greater consumer recognition than we do. As a result, our competitors may be able to respond faster or more effectively in introducing pharmaceutical drugs or diagnostics designed to treat or diagnose those diseases targeted by our product candidates. Further, many of our competitors are in better financial and marketing positions from which to influence market acceptance of a particular pharmaceutical drug or diagnostic test than we are. Our competitors may also be able to devote greater resources to the development, promotion and sale of drug or diagnostic products, and may be able

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to deliver competitive products at a lower price. If our competitors develop new pharmaceutical drugs or diagnostics or enhancements to existing products that render our products or their clinical efficacy obsolete or uncompetitive, any commercial success we achieve could be harmed, perhaps substantially.

We expect to face competition from existing competitors and new and emerging pharmaceutical and biotechnology companies that may enter our intended markets with similar or alternative products which may be less costly or provide superior clinical results. Competition in these markets may intensify due to the development of cooperative relationships among our current and potential competitors or third parties with which we may seek co-development or collaborative relationships. Accordingly, it is possible that new competitors or alliances among competitors may emerge that adversely impacts our ability to commercialize our products and otherwise implement our business strategy.

We may be less competitive if we fail to develop or obtain rights to market new and enhanced pharmaceutical drugs or diagnostics, respond to market developments, and achieve market acceptance.

The pharmaceutical drug and diagnostic markets are subject to rapid technological change, product obsolescence, and frequent new product introductions and enhancements. Our ability to compete in these markets will depend in significant part upon our ability to successfully develop, obtain regulatory approvals, and commercialize new and enhanced pharmaceutical products on a timely and cost-effective basis, and to respond to competitive developments.

The development of pharmaceutical drugs and diagnostics is a lengthy process, and oftentimes involves unforeseen delays and unexpected clinical results. These delays could provide a competitor a first-to-market opportunity and allow a competitor to achieve market share at our expense. Our product development process is inherently risky because it is difficult to foresee developments in therapeutic and diagnostic technologies. Even if we are first to market with a drug or diagnostic test, we may not gain market acceptance for that product. Accordingly, there can be no assurance that our product development efforts will result in the generation of substantive revenues or market acceptance. Lack of market acceptance for any products we commercialize will jeopardize our ability to recoup research and development expenditures, hurt our reputation and harm our business, financial condition and results of operations.

We do not currently have a majority of independent directors serving on our board of directors, which could present potential conflicts of interest.

We do not currently have a majority of independent directors serving on our board of directors. In the absence of a majority of independent directors, our executive officers could establish policies and enter into transactions without independent review and approval of such transactions. This could present potential conflicts of interest between us and our stockholders, generally, and among our executive officers and directors, on the one hand, and our stockholders, on the other. We are not currently subject to the corporate governance requirements of any nationally recognized stock exchange. At such time as our securities qualify for listing on a nationally-recognized stock exchange, we intend to list our securities on such an exchange, at which time we will be required to adhere to the corporate governance requirements as a condition of initial and continued listing. Until that time, however, our board of directors may continue to lack a majority of independent directors.

We will be exposed to risks relating to the evaluations of internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002 and our failure to maintain effective internal control over financial reporting could result in a negative market reaction.

We have not yet begun the process of evaluating our internal controls systems after the Merger in order to allow management to assess, and our independent auditors to report on, our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. We will be required to completely document and test our internal control systems and procedures for financial reporting as part of this process. Ultimately, our management will be responsible for assessing the effectiveness of our internal control over financial reporting, and our independent registered public accounting firm will be requested to attest to that assessment. If legislative efforts to eliminate the attestation requirement are successful, it is possible that we may be exempt from the auditor attestation requirement until the value of our securities’ market float exceeds certain levels, if ever. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their impact on our operations, although we intend to complete such activities by December 31, 2010.

Our filing of our annual report on a timely basis will depend upon our timely completion of these tasks. A late filing of our annual report could have material adverse effects on us, both legally and with respect to the opinions of investors, analysts and other participants in the securities markets.

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Furthermore, upon completion of this process, we may identify control deficiencies of varying degrees of severity that are and remain unremediated, as a result of which our management may not be able to assert that our internal controls are effective under applicable SEC and Public Company Accounting Oversight Board rules and regulations. If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to attest that our management’s assessment is fairly stated or they are unable to express an opinion on the effectiveness of our internal controls, it could result in a negative market reaction.

As a public company, we will be required to report, among other things, control deficiencies that constitute “material weaknesses” or changes in internal controls that, or are reasonably likely to, materially affect internal controls over financial reporting. A “material weakness” is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. If we fail to implement the requirements of Section 404 in a timely manner, we may be subject to sanctions or investigation by regulatory authorities such as the SEC or any stock exchange or automated quotation service on which our stock may then be listed. In addition, if any material weakness or significant deficiency is identified and is not remediated, investors may lose confidence in the accuracy of our reported financial information, and our stock price could be significantly adversely affected as a result.

We will incur increased costs as a result of being a public company with active operations.

We will incur significantly greater legal, accounting and other expenses in the future as compared to the level of those expenditures before the Merger was consummated. The Exchange Act requires us to file annual, quarterly and current reports with respect to our business and financial condition, which causes us to incur legal and accounting expenses. The Sarbanes-Oxley Act requires us to maintain effective disclosure controls and procedures and internal controls for financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, significant resources and management oversight will be required. We expect the compliance with the corporate governance rules and regulations of the SEC will increase our legal and financial reporting costs and make some activities more time consuming and costly. These requirements may place a strain on our systems and resources and may divert our management’s attention from other business concerns, which could cause our operating results to suffer. In addition, we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge, which will increase our operating expenses in future periods. We also expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.

Our executive officers, directors, non-executive officers, and principal stockholders have substantial control over us, and could delay or prevent a change in our corporate control even if our other stockholders want it to occur.

Our executive officers, directors, non-executive officers, and principal stockholders hold approximately 79.9% of our outstanding common stock. Accordingly, these stockholders are able to control all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could delay or prevent an outside party from acquiring or merging with us even if our other stockholders want this to occur.

Our common stock is currently subject to the SEC’s penny stock rules, which may cause broker-dealers executing trades in our stock to experience difficulty in completing customer transactions and which may adversely affect the trading of our common stock after the exchange.

Because we have net tangible assets of less than $5.0 million and our common stock’s market price per share is less than $5.00, transactions in our common stock are currently subject to the “penny stock” rules under the Exchange Act. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:

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Broker-dealers may find it difficult to complete customer transactions in our stock as a result of our being subject to these rules, and trading activity in our common stock may continue to be adversely affected as a result. This may cause the market price of our common stock to be less than it might otherwise be, and you may find it more difficult to sell your shares of common stock if you desire to do so.

Our common stock is quoted on the OTC Bulletin Board, which limits the liquidity and price of our common stock more than if it was quoted or listed on a national exchange.

Our common stock is traded in the over-the-counter market and is quoted on the OTC Bulletin Board, a NASD-sponsored and operated inter-dealer automated quotation system for equity securities not included on The Nasdaq Stock Market. We believe that quotation of our common stock on the OTC Bulletin Board limits the liquidity and price of our common stock more than if our common stock were quoted or listed on The Nasdaq Stock Market or a national exchange. We cannot assure you, however, that our common stock will continue to be authorized for quotation by the OTC Bulletin Board or any other market in the future, in which event the liquidity and price of our securities would then be even more adversely impacted.

Our stock price is highly volatile, and you may not be able to resell your shares at or above recent public sale prices.

There has been, and continues to be, a limited public market for our common stock, and an active trading market for our common stock has not and may never develop or, if developed, be sustained. You may not be able to resell shares of our common stock at or above the price you paid. The market price of our common stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, including the following:

We cannot assure you that you will be able to liquidate your investment without considerable delay, if at all. The factors discussed above may have a significant impact on the market price of our common stock. It is also possible that the relatively low price of our common stock may keep many brokerage firms from engaging in transactions in our common stock.

We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.

We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any return on your investment in us will be limited to the value of our common stock.

Substantial amounts of our common stock could be sold commencing six months after the Merger, which could depress our stock price.

We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of common stock for sale will have on the market price of our common stock. The common stock issued to the DMI

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shareholders on closing of the Merger were “restricted securities” under the Securities Act. These shares are eligible for future sale in the public market at prescribed times pursuant to Rule 144 under the Securities Act, or otherwise. Sales of a significant number of these shares of common stock in the public market could reduce the market price of our common stock.

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

There is no established public trading market for our common stock. However our common stock is quoted on the Over-the-Counter Bulletin Board under the symbol “CHYE.” The following table sets forth the high and low bid information for our common stock for the period from January 1, 2008 through March 1, 2010. The Over-the-Counter Bulletin Board quotations reflect inter-dealer prices, are without retail markup, markdowns or commissions, and may not represent actual transactions.

Holders of Common Stock

As of December 31, 2009, there were of record 235 holders of our common stock.

Dividend Policy

We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends on our common stock for the foreseeable future. Future cash dividends, if any, will be at the discretion of our board of directors and will depend upon our future operations and earnings, capital requirements, financial condition, contractual restrictions and other factors our board of directors may deem relevant.

Indemnification of Directors and Officers

Our officers and directors are indemnified as provided by the Colorado Business Corporation Act, or CBCA, and our bylaws.

Under the CBCA, director immunity from liability to a company or its shareholders for monetary liabilities applies automatically unless it is specifically limited by a company’s articles of incorporation. Our articles of incorporation contain no such provision. Excepted from that immunity are:

(1) a willful failure to deal fairly with the company or its shareholders in connection with a matter in which the director has a material conflict of interest;

(2) a violation of criminal law (unless the director had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful);

(3) a transaction from which the director derived an improper personal profit; and

(4) willful misconduct.

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Our Articles of Incorporation permits us to indemnify our officers and directors to the fullest extent authorized or permitted by law in connection with any proceeding arising by reason of the fact any person is or was our officer or director. Notwithstanding this indemnity, a director shall be liable to the extent provided by law for any liability incurred by the director as a result of fraud or willful breach of duty.

Our bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by Colorado law. Our bylaws provide that we will advance all expenses incurred to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was our director or officer, or is or was serving at our request as a director or executive officer of another company, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request. This advance of expenses is to be made upon receipt of an undertaking by or on behalf of such person to repay said amounts should it be ultimately determined that the person was not entitled to be indemnified under our bylaws or otherwise.

Pending Reincorporation and Name Change

At the special meeting of our shareholders held March 1, 2010, our shareholders approved a resolution authorizing our reincorporation in the State of Delaware at such time as is determined to be appropriate by our board of directors. Upon our obtaining our new stock symbol from FINRA, we anticipate reincorporating in the State of Delaware and contemporaneously changing our name to Ampio Pharmaceuticals, Inc. We will at that time also update our certificate of incorporation to include indemnification and contribution, governance and other provisions that conform to Delaware law.

Securities Authorized for Issuance Under Equity Compensation Plans

At the special meeting of our shareholders on March 1, 2010, our shareholders approved the adoption of our Stock and Option Award Plan, under which 2,500,000 shares are reserved for future issuance under restricted stock awards, options, and other equity awards. The plan permits grants of equity awards to employees, directors and consultants. The following table displays equity compensation plan information as of March 2, 2010.

Equity Compensation Plan Information