10QSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

________________________

OR

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

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-32741

Vyteris, Inc.

(formerly Vyteris Holdings (Nevada), Inc.)

(Exact name of small business issuer as specified in its charter)

NEVADA	84-1394211
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)
13-01 POLLITT DRIVE
FAIR LAWN, NEW JERSEY	07410
(Address of principal executive office)	(Zip Code)

(201) 703-2299

(Issuer’s telephone number)

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

YES S  NO £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES £       NO T

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

CLASS	OUTSTANDING AT AUGUST 5, 2007
Common stock, par value $.001 share	88,800,397

Transitional Small Business Disclosure Format (Check one):   o  Yes    x  No

VYTERIS, INC.

FORM 10-QSB

INDEX

		Page No.
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of June 30, 2007 (Unaudited) and December 31, 2006	3
	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2007 and 2006	4
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit) as of June 30, 2007 and December 31, 2006	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2007 and 2006	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Controls and Procedures	57
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Submission of Matters to a Vote of Security Holders	58
Item 5.	Other Information	59
Item 6.	Exhibits	60
Signature		60

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

2

ITEM 1. FINANCIAL STATEMENTS

VYTERIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2007			2006
ASSETS		(Unaudited)
Current assets:
Cash and cash equivalents	$	1,035,131		$	2,171,706
Accounts receivable, net		884,127			88,731
Inventory, net		473,950			3,374
Prepaid expenses and other current assets		259,288			311,684
Restricted cash		32,184			90,994
Total current assets		2,684,680			2,666,489
Restricted cash, less current portion		300,000			300,000
Property and equipment, net		861,624			936,103
Deferred offering costs, net		-			82,676
Other assets		273,376			273,376
TOTAL ASSETS	$	4,119,680		$	4,258,644
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Secured demand promissory notes due to a related party	$	2,850,000		$	2,500,000
Senior secured convertible debentures, net		-			210,048
Warrant liability		-			8,993,368
Accounts payable		2,748,833			2,996,048
Accrued registration rights penalty		2,009,971			1,880,948
Accrued expenses, deferred revenue and current portion of capital leases		2,722,534			3,593,446
Total current liabilities		10,331,338			20,173,858
Senior secured convertible promissory note, net		126,090			12,050
Subordinated convertible notes due to a related party, net		5,336,306			5,325,631
Deferred revenue, less current portion		380,623			442,962
Capital lease obligation, less current portion		5,815			22,422
Preferred stock, 50,000,000 shares authorized, on June 30, 2007 and December 31, 2006:
Series B convertible, mandatorilyredeemable preferred stock; 7,500,000 shares issued and outstanding on June 30, 2007 and December 31, 2006; liquidation preference $9,150,000 and $8,850,000 at June 30, 2007 and December 31, 2006, respectively		9,150,000			8,850,000
Total liabilities		25,330,172			34,826,923
Stockholders’ equity (deficit):
Common stock, par value $.001 per share; 200,000,000 shares authorized, 79,613,731 and 63,284,956 shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively		79,614			63,285
Additional paid-in capital		102,277,857			70,922,366
Accumulated deficit		(123,567,963	)		(101,553,930	)
Total stockholders’ equity (deficit)		(21,210,492	)		(30,568,279	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	4,119,680		$	4,258,644

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

3

VYTERIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three months ended June 30,						Six months ended June 30,
	2007			2006			2007			2006
Revenues:
Product sales	$	1,577		$	8,508		$	2,433		$	56,580
Product development		778,258			562,146			1,703,408			968,350
Other revenue		38,044			31,144			62,339			88,244
Total revenues		817,879			601,798			1,768,180			1,113,174
Cost and expenses:
Cost of sales		1,000			43,702			1,000			234,010
Research and development		2,090,954			1,858,379			4,226,057			3,734,390
General and administrative		4,491,822			1,459,427			6,339,637			3,007,545
Registration rights penalty		64,867			64,868			129,022			129,023
Total cost and expenses		6,648,643			3,426,376			10,695,716			7,104,968
Loss from operations		(5,830,764	)		(2,824,578	)		(8,927,536	)		(5,991,794	)
Interest (income) expense:
Interest income		(46,596	)		(16,884	)		(70,378	)		(33,846	)
Interest expense to related parties		855,051			345,832			1,359,720			724,541
Interest expense		528,571			641,121			1,455,747			1,254,507
Interest expense, net		1,337,026			970,069			2,745,089			1,945, 202
Revaluation of warrant liability		5,057,237			-			10,341,408			-
Total other expenses, net		6,394,263			970,069			13,086,497			1,945,202
Net loss	$	(12,225,027	)	$	(3,794,647	)	$	(22,014,033	)	$	(7,936,996	)
Net loss per common share:
Basic and diluted	$	(0.15	)	$	(0.20	)	$	(0.30	)	$	(0.41	)
Weighted average number of common shares:
Basic and diluted		79,190,152			19,295,152			72,333,639			19,294,486

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

4

VYTERIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

	Common Stock				Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity (Deficit)
	Shares		Amount
Balance at December 31, 2006		63,284,956	$	63,285	$	70,922,366		$	(101,553,930	)	$	(30,568,279	)
Stock-based compensation expense		-		-		1,470,699			-			1,470,699
Exercise of stock options		230,155		230		439,366			-			439,596
Issuance of restricted shares under outside director compensation plan		77,680		78		57,522			-			57,600
Issuance of common stock for capital raised		12,110,667		12,111		9,070,784			-			9,082,895
Disbursements related to issuance costs of common stock raise and warrants		-		-		(1,034,365	)		-			(1,034,365	)
Issuance of warrants associated with working capital facility		-		-		736,287			-			736,287
Issuance of common stock pursuant to conversion of senior secured convertible debentures		3,854,829		3,855		959,852			-			963,707
Transfer of warrant liability to equity upon approval of sufficient authorized shares		-		-		19,334,776			-			19,334,776
Cashless exercise of warrants		55,444		55		(55	)		-			-
Issuance of warrants to advisor		-		-		320,625			-			320,625
Net loss for the six months ended June 30, 2007		-		-		-			(22,014,033	)		(22,014,033	)
Balance at June 30, 2007		79,613,731	$	79,614	$	102,277,857		$	(123,567,963	)	$	(21,210,492	)

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

5

VYTERIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(22,014,033	)	$	(7,936,996	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		182,123			375,228
Stock based compensation charges		1,470,699			385,297
Amortization of senior secured convertible debentures discount		753,659			508,268
Amortization of offering costs on senior secured convertible debentures		125,716			239,169
Amortization of unsecured convertible debentures discount		-			10,674
Accrued registration rights penalty		129,023			129,023
Loss from revaluation of warrants issued in excess of authorized shares		10,341,408			-
Loss on disposal of fixed assets		-			1,480
Inventory reserves		-			108,684
Warrants issued for working capital facility		736,287			304,700
Deferred rent		24,516			35,096
Issuance of warrants to advisor		320,625			-
Deferred revenue		(62,339	)		(55,529	)
Other		93,869			-
Change in operating assets and liabilities:
Accounts receivable		(795,396	)		(115,228	)
Inventory		(470,576	)		(351	)
Prepaid expenses and other assets		52,396			222,584
Accounts payable		(247,215	)		(365,813	)
Accrued expenses and other liabilities		(1,094,172	)		56,376
Interest payable to related parties		660,277			409,167
Net cash used in operating activities		(9,793,133	)		(5,688,171	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes in restricted cash		58,810			560,175
Purchase of equipment		(107,644	)		(7,187	)
Net cash (used in) provided by investing activities		(48,834	)		552,988
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placements of common stock and warrants		8,036,420			-
Proceeds from issuance of unsecured promissory notes to related parties		-			250,000
Proceeds from the exercise of stock options		439,596			-
Proceeds from issuance of promissory note to related party		-			4,750,000
Proceeds from issuance of secured bridge note to related party		200,000			-
Repayment of secured bridge note to related party		(200,000	)		-
Proceeds from issuance of secured promissory note to related party		350,000			-
Repayment of capital lease obligations and other		(120,624	)		(17,488	)
Net cash provided by financing activities		8,705,392			4,982,512
Net decrease in cash and cash equivalents		(1,136,575	)		(152,671	)
Cash and cash equivalents at beginning of the period		2,171,706			826,177
Cash and cash equivalents at end of the period	$	1,035,131		$	673,506
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid		106,057			507,034
Issuance of warrants in connection with issuance of subordinated convertible unsecured promissory note		-			62,267
Conversion of senior secured convertible debentures into common stock		963,707			-
Reclassification of warrant value from a liability due to equity		19,334,776			-
Fair value of warrants issued to placement agents in connection with equity offering		1,145,487			-

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

6

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Organization and Basis of Presentation

Business

Vyteris, Inc. (formerly Vyteris Holdings (Nevada), Inc., (the terms “Vyteris” and the “Company” refer to each of Vyteris, Inc., its subsidiary, Vyteris, Inc. (incorporated in the State of New Jersey) and the combined company), has developed and produced the first FDA - approved electronically controlled transdermal drug delivery system that delivers drugs through the skin comfortably, without needles. This platform technology can be used to administer certain therapeutics either directly to the skin or into the bloodstream. In January 2005, Vyteris, Inc. received approval from the United States Food and Drug Administration (“FDA”) for its manufacturing facility and processes for LidoSite. Vyteris, Inc. holds over 60 U.S. patents relating to the delivery of drugs across the skin using a mild electric current and operates in one business segment.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. During the six month period ending June 30, 2007, the Company financed its operations with a $0.4 million loan in the form of a senior secured promissory note from Spencer Trask Specialty Group, LLC, or STSG (see Note 5), issued in the first quarter. In addition, in the first six months of 2007, the Company raised a total of $9.1 million, with net proceeds of $8.0 million, pursuant to stock purchase agreements for the sale of shares of common stock at $0.75 per share (see Note 10). Net proceeds from these financings have not provided sufficient funds for the Company’s current operations. Subsequent financings have been and will be required to fund the Company’s operations. No assurance can be given that the Company will be successful in arranging the further financing needed to continue the execution of its business plan, which includes the development of new products. Failure to obtain such financing will require management to substantially curtail operations, which will result in a material adverse effect on the financial position and results of operations of the Company. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might occur if the Company is unable to continue in business as a going concern.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2006. The condensed consolidated balance sheet as of June 30, 2007 has been derived from those audited consolidated financial statements. Operating results for the three and six month periods ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

Intercompany balances and transactions have been eliminated in consolidation.

7

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

2. Significant Accounting Policies

Accounting policies

There have been no significant changes in the Company’s accounting policies (as detailed in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2006). The following significant accounting policies are included herein.

Restricted cash

As of December 31, 2006, the Company had $0.4 million of restricted cash, consisting of $0.1 million deposited in a cash collateral account to secure the payment of interest on the senior secured convertible debentures issued on August 19, 2005 and the optional debentures, and $0.3 million that guarantees issued letters of credit. As of June 30, 2007, the Company has $0.3 million of restricted cash, that guarantees issued letters of credit.

Risk and uncertainties

The Company purchases raw materials and components from single-source suppliers. Some of those materials or components are custom-made and are the result of long periods of collaboration with suppliers. Although the Company has not experienced significant supply delays attributable to supply changes, the Company believes that, for electrode subcomponents and hydrogel in particular, alternative sources of supply would be difficult to develop over a short period of time. Because the Company has no direct control over its third-party suppliers, interruptions or delays in the products and services provided by these third parties may be difficult to remedy in a timely fashion. In addition, if such suppliers are unable or unwilling to deliver the necessary parts or products, the Company may be unable to redesign or adapt its technology to work without such parts or find alternative suppliers or manufacturers. In such events, the Company could experience interruptions, delays, increased costs, or quality control problems.

As of June 30, 2007, the Company had a single customer, B. Braun Medical, Inc., or B. Braun, to generate product revenue. The Company initially granted B. Braun the right to be its principal, worldwide sales and marketing distributor for its LidoSite product. On March 7, 2006 and on January 1, 2007 the Company and B. Braun amended B. Braun’s right to be its exclusive worldwide sales and marketing distributor for its LidoSite product by granting back to the Company the sales and marketing distribution rights to the U.S. physician office market and the Japanese market. At this time, B. Braun has not provided the Company with a purchase order for the prospective calendar quarters, and minimal product revenue was generated during the first two quarters of 2007.

On June 5, 2007, the Company entered into a sales and marketing agreement with Laboratory Corporation of America (“LabCorp”) to launch its LidoSite product in the physicians’ office market. The launch is consuming substantial Company resources, and if the product launch is not successful this could cause substantial, potentially unrecoverable losses. It is not yet possible to gauge market response to the product or to determine at what price the product can be sold, so even if there are substantial sales, there is no assurance that the Company will make a profit or cover its costs with regard to the initial introductory phase of the product launch.

The LidoSite product consists of a patch that adheres to the skin and contains the medication and a small reusable battery-powered, wearable electronic dose controller that connects to the patch. The controller that has been developed for LidoSite is a simple, single-pulse device initiated by the push of a button, which turns on the electric current for a ten-minute interval as it delivers the drug. Sophisticated control circuitry senses the skin’s electrical resistance and limits the amount of current that is delivered to a safe, comfortable level, thereby automatically adapting to a wide range of skin types and characteristics. The controller is designed to provide up to 99 applications of the LidoSite product. Certain defects relating to the operation of the controller have been remedied by the Company; however, there have been insufficient sales of the product to determine, on a widespread basis, if the remedies are effective, or if further changes will be needed to render the controllers fully effective.

8

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Income Taxes

In February 2007, the SEC staff clarified its views related to changes in the classification of interest and penalties for periods prior to the adoption of Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of Financial Accounting Standards Board (“FASB”) Statement No. 109” (“FIN 48”). Specifically, the SEC staff believes that if a registrant changes how it classifies interest and penalties upon adoption of FIN 48, it should not reclassify amounts in prior periods. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation was adopted by the Company effective January 1, 2007. The adoption of this interpretation did not have a material impact on the Company’s financial statements.

Recently issued accounting standards

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) SFAS No. 157, "Fair Value Measurements." This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and will become effective for the Company beginning with the first quarter of 2008. The Company does not believe the adoption of SFAS No. 157 will have a material impact on its financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has not yet determined the impact of the adoption of SFAS No. 159 on its financial statements and footnote disclosures.

9

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

3. Inventories, net

Inventories consist of the following:

	June 30, 2007			December 31, 2006
	(Unaudited)
Raw materials	$	781,776		$	510,276
Work in process		165,742			203,964
Finished goods		-			43,500
Inventory		947,518			757,740
Excess and obsolete inventory		(473,568	)		(754,366	)
Inventory, net	$	473,950		$	3,374

Inventories are stated at the lower of cost (first-in, first-out method) or market.

The Company assesses the valuation of its inventory on a quarterly basis to provide an allowance for the value of estimated excess and obsolete inventory and the lower of cost or market adjustment. The key factors in the Company’s inventory review process are the historical rates for raw material and fabricated patch meeting its product specification acceptance criteria, contractual terms with third parties and anticipated demand for the LidoSite product.

In August 2006, the Company exchanged with B. Braun approximately 60,000 LidoSite patches with current expiration dates for the same amount of patches, with a longer expiration period, from the Company’s finished goods inventory reducing its finished goods inventory and excess and obsolete reserve by approximately $0.3 million. In addition, inventory and related inventory reserves decreased during the three and six months ended June 30, 2007 and 2006, as the Company scrapped expired inventory.

4. Property and Equipment, net

Property and equipment, net consist of the following:

	June 30, 2007			December 31, 2006
	(Unaudited)
Manufacturing and laboratory equipment	$	2,054,582		$	2,029,512
Furniture and fixtures		326,671			324,669
Office equipment		303,784			260,373
Leasehold improvements		367,818			330,657
Software		198,345			198,345
		3,251,200			3,143,556
Less: Accumulated depreciation and amortization		(2,389,576	)		(2,207,453	)
Property and equipment, net	$	861,624		$	936,103

Depreciation and amortization expense, included in cost and expenses in the accompanying condensed consolidated statements of operations, was approximately $0.1 million and $0.2 million for the three months ended June 30, 2007 and 2006, respectively, and $0.2 million and $0.4 million for the six months ended June 30, 2007 and 2006, respectively .

10

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

5. Secured Demand Promissory Notes

In September 2004, Spencer Trask Specialty Group, LLC ("STSG"), a related party, agreed to provide the Company (or, at its option, cause a related party to provide to the Company) with up to $5.0 million in working capital loans, as amended, in the form of 11.5% secured demand promissory notes (the “Working Capital Facility”). Pursuant to the terms of the Working Capital Facility, amounts drawn under the facility were to be repaid on or before November 15, 2005. The Working Capital Facility is secured by a lien on all of the Company’s and its operating subsidiary’s assets which is subordinate to the lien on those assets held by the lenders in the December 2006 senior secured convertible promissory note (see Note 9).

As of September 30, 2005, the Company did not have adequate accounts receivable and inventory to collateralize amounts drawn under the Working Capital Facility. Through several amendments, STSG and the Company agreed to the following: (a) the noteholders waived all covenant defaults resulting from inadequate collateral coverage until June 1, 2007, (b) the maturity dates under the Working Capital Facility were deferred until June 1, 2007 (which has been extended pending formal agreement, which is expected shortly), (c) on a monthly basis until November 30, 2007, the Company will issue to the noteholders warrants to purchase 110,000 shares of the Company's common stock at an exercise price of $2.40 per share, and (d) the lenders shall have the option to convert the outstanding principal amount of the Working Capital Facility into Company common stock at a price of $1.25 per share. Management estimated that the fair value of the 220,000 warrants issued during the three months ended June 30, 2007 was $0.3 million and the 330,000 warrants issued during the three months ended June 30, 2006 was $0.1 million using the Black-Scholes option-pricing model. As the Company is currently renegotiating with STSG, no warrant issuances have been made thereunder since May 2007. The estimated fair value of the 550,000 warrants issued in the six months ended June 30, 3007 was $0.5 million and the fair value and 660,000 warrants issued during each of the three months June 30, 2006 was $0.3 million using the Black-Scholes option-pricing model with the following weighted average assumptions; 4.71% risk-free interest rate, 5.0 years expected holding period and 99.1% expected volatility. The fair value of these warrants is included in interest expense to related parties in the accompanying condensed consolidated statements of operations. The Company has estimated an interest expense for June 2007 of approximately $0.02 million based upon expected renegotiated terms.

Upon the issuance of common stock in the November 2006 Financing, the December 2006 Financing and the 2007 Financings at a purchase price below the current exercise price of the warrants, the Company applied the weighted average anti-dilution provisions contained in the Working Capital Facility warrant agreement (see Note 9 and Note 10).

On February 23, 2007, STSG loaned to the Company $0.4 million in aggregate principal amount in the form of a senior secured promissory note subject to the terms of the Working Capital Facility. In connection with the loan, on a monthly basis the Company will issue to the noteholders warrants to purchase 49,280 shares of the Company’s common stock at an exercise price of $0.75 per share. Management estimated that the fair value of the 96,560 and 197,120 warrants issued during the three and six month periods ended June 30, 2007 was approximately $0.172 million and $0.234 million, respectively, using the Black-Scholes option-pricing model with the following weighted average assumptions; 4.75% risk-free interest rate, 5.0 years expected holding period and 99.1% expected volatility. The fair value of these warrants is included in interest expense to related parties in the accompanying condensed consolidated statements of operations.

11

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

As of June 30, 2007 and December 31, 2006, respectively, $2.9 million and $2.5 million was outstanding under the Working Capital Facility. The Company recorded accrued and unpaid interest to related parties of approximately $0.1 million in accrued expenses in the accompanying condensed consolidated balance sheets as of June 30, 2007 and December 31, 2006.

6. Accrued Registration Rights Penalty

In connection with the delayed filing of a registration statement for securities sold pursuant to a $15.1 million private placement in 2004, the Company incurred approximately $1.4 million of liquidated damages in 2005. In addition, the Company is obligated to pay interest at a rate of 18% per annum, accruing daily, for any liquidated damages not paid in full within 7 days of the date payable. The Company has not yet paid such amount and interest continues to accrue. Interest expense, included in registration rights penalty in the accompanying condensed consolidated statements of operations, was approximately $0.06 million for each of the three month periods ended June 30, 2007 and 2006, and $0.13 million for each of the six month periods ended June 30, 2007 and 2006.

7. Accrued Expenses, Deferred Revenue and Current Portion of Capital Leases

Accrued expenses, deferred revenue and current portion of capital leasesconsist of the following:

	June 30,		December 31,
	2007		2006
	(Unaudited)
Compensation, accrued bonuses and benefits payable	$	348,201	$	879,202
Interest payable and accrued expenses due to a related party		1,120,551		776,188
Finders’ fees on private placements		31,872		1,103,747
Continuous motion patch machine costs and delivery		166,264		166,264
Deferred revenue, current portion		124,678		124,678
Insurance		72,112		106,301
Legal and consulting		303,744		36,053
Accounting fees		79,000		109,500
Current portion of capital lease obligation		32,030		29,746
Other		444,082		261,767
	$	2,722,534	$	3,593,446

8. Senior Secured Convertible Debentures issued on August 19, 2005

Senior secured convertible debt consists of the following:

	June 30, 2007		December 31, 2006
	(Unaudited)
Total principal amount of outstanding debt before debt discount	$	-	$	963,707
Unamortized debt discount		-		(753,659	)
Total senior secured convertible debt, net of discount	$	-	$	210,048

At December 31, 2006, the outstanding balance of the senior secured convertible debt was held by Qubit Holdings LLC, or Qubit, an entity owned by certain trusts established for the benefit of the children of the Company’s controlling stockholder, Kevin Kimberlin.

12

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

At March 31, 2007, Qubit elected to convert the entire remaining principal balance into 3,854,829 shares of the Company’s common stock at a conversion price of $0.25 per share. As a result of this conversion of debt, the Company accelerated the amortization of deferred offering costs relative to the amount of debt converted. Offering costs of $0.1 million related to the conversion of debt to common stock were recorded as a reduction of paid in capital as of June 30, 2007. Offering costs amortization expense was approximately $0.1 million and $0.2 million for the three and six-month periods ended June 30, 2006, respectively, and is included in interest expense in the condensed consolidated statements of operations.

In addition, as a result of this conversion, the Company charged the related $0.6 million of unamortized debt discount to interest expense, included in the condensed consolidated statement of operations for the three months ended March 31, 2007. Debt discount amortization expense totaled $0.8 million and $0.3 million for the three months ended March 31, 2007 and 2006, respectively, and is included in interest expense in the condensed consolidated statements of operations for the three months ended March 31, 2007 and 2006, respectively. There was no amortization expense recorded in the three month period ended June 30, 2007.

In connection with the issuance of the senior secured convertible debt in 2005, the Company issued Qubit warrants to purchase 3,601,993 shares of the Company’s common stock with an exercise price of $0.25 per share, which fair value was being amortized over the term of the debt with the remaining unamortized amount expensed at the date of conversion. These warrants are outstanding as of June 30, 2007.

As a result of the closing of the November 2006 Financings (See Note 9), certain anti-dilution provisions in the debt were triggered in the fourth quarter of 2006, whereby the conversion price of the debt, and the exercise price and the number of shares pertaining to the warrants were adjusted to reflect the purchase price agreed to with the investors in the November 2006 Financings. Pursuant to EITF 06-6, “Debtor's Accounting for a Modification (or Exchange) of Convertible Debt Instruments”, the Company calculated a revised debt discount related to the change in the warrant value and beneficial conversion feature and evaluated the change in the debt discount resulting from the triggering of the anti-dilution agreement. As a result, the Company concluded that the revised debt discount was equal to the then outstanding debt and a debt modification had occurred. As of June 30, 2007, all of the outstanding debt and related debt discount have been settled and there is no outstanding balance.

9. 2006 Debt Financings

January 2006 Promissory Note

On January 31, 2006, STSG provided the Company with a $0.3 million loan in the form of 10.0% subordinated convertible unsecured promissory note (the "January 2006 Promissory Note"). Pursuant to the terms of the January 2006 Promissory Note, amounts must be repaid on or before December 1, 2008. At any time prior to maturity date, STSG shall have the option to convert the entire January 2006 Promissory Note and interest accrued into shares of the Company's common stock at a conversion price of $2.40 per share. In connection with the January 2006 Promissory Note, the Company issued warrants to STSG that are exercisable into a maximum of 52,083 shares, in the aggregate, of the Company's common stock at an exercise price of $2.88 per share.

13

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company allocated the aggregate proceeds of the January 2006 Promissory Note between the warrants and the debentures based on their relative fair values in accordance with APB No. 14 and thus recorded approximately $62,000 as additional paid-in capital for the value allocated to the warrants. Management determined the fair value of the warrants utilizing the black scholes option-pricing model. The Company is amortizing the fair market value of the warrants through December 2008, the date of maturity. Warrant amortization expense was approximately $5,300 and $10,700 for the three and six-month periods ended June 30, 2007 and 2006, respectively, and is included in interest expense to related parties in the condensed consolidated statements of operations. Should the January 2006 Promissory Note be converted or paid prior to the payment terms, the amortization of the fair value allocated to the warrants will be accelerated.

2006 Promissory Notes

In 2006, STSG provided the Company with a total of $8.1 million in loans in the form of Subordinated Convertible Unsecured Promissory Notes (the “2006 Promissory Notes”). The 2006 Promissory Notes: (i) mature on December 1, 2008; (ii) bear interest at a rate equal to 10% per annum payable in cash on a semi-annual basis; (iii) are convertible into shares of common stock at a conversion price of $2.40 per share; (iv) are convertible into the Company’s next private financing of equity or debt securities and (v) have piggy-back registration rights. As an inducement to STSG to make these loans the Company entered into a letter agreement with STSG pursuant to which the Company agreed to use its best efforts to take all necessary and appropriate action to amend its articles of incorporation to reduce the conversion price of its series B convertible preferred stock (of which STSG is the principal holder) from $7.16 per share to $1.00 under certain conditions and is currently at $3.58 per share. This reduction has not yet taken place.

As an inducement to STSG to purchase the August 30, 2006 subordinated convertible unsecured promissory note, the Company agreed to amend the prior 2006 Promissory Notes to conform the conversion provision of the notes to conversion at the option of the holder, rather than automatic conversion, in a "Qualified Financing," as defined. On December 11, 2006, STSG elected to convert $3.0 million of these notes into 4.0 million shares of common stock, at a conversion price of $0.75 per share, in connection with the December 2006 Financing (a “Qualified Financing”). STSG has signed an agreement with the Company that the conversion price will remain at $2.40 for all notes outstanding at December 31, 2006.

The following is a schedule of the balance of the 2006 Financings at June 30, 2007:

Lender	Issuance Date	Principal Amount		Balance
Spencer Trask Specialty Group, LLC	January 31, 2006	$	250,000	$	250,000
Spencer Trask Specialty Group, LLC	February 13, 2006		500,000		500,000
Spencer Trask Specialty Group, LLC	February 16, 2006		500,000		500,000
Spencer Trask Specialty Group, LLC	March 21, 2006		500,000		500,000
Spencer Trask Specialty Group, LLC	April 4, 2006		500,000		500,000
Spencer Trask Specialty Group, LLC	April 18, 2006		750,000		750,000
Spencer Trask Specialty Group, LLC	May 5, 2006		500,000		500,000
Spencer Trask Specialty Group, LLC	May 23, 2006		500,000		500,000
Spencer Trask Specialty Group, LLC	June 8, 2006		500,000		500,000
Spencer Trask Specialty Group, LLC	June 26, 2006		500,000		500,000
Spencer Trask Specialty Group, LLC	July 7, 2006		200,000		200,000
Spencer Trask Specialty Group, LLC	July 18, 2006		166,550		166,550
Less: fair value of warrants (original basis $62,267), net of amortization					(30,244	)
Balance at June 30, 2007				$	5,336,306

14

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

December 2006 Senior Secured Convertible Promissory Note

On December 11, 2006, the Company issued a senior secured convertible promissory note in the principal amount of $0.5 million to Allen Capital Partners. This promissory note accrues interest at a rate of 6% per annum and is payable on or before December 10, 2008. The holder of the promissory note may elect to convert the promissory note at any time into shares of common stock of the Company at a conversion price of $0.25 per share. The promissory note is secured by the assets of the Company.

In accordance with EITF 98-5 and EITF 00-27, the Company has determined that there is a beneficial conversion feature to the senior secured convertible promissory note in the amount of $0.5 million. This amount is being amortized over the life of the debt using the effective interest method. Warrant amortization expense for the three and six months ended June 30, 2007 was $0.1 million and is included in interest expense in the condensed consolidated statements of operations, and unamortized debt discount of $0.3 million is included in the accompanying condensed consolidated balance sheets as of June 30, 2007.

10. Private Placements of Common Stock and Warrants

2006 Private Placements

In the fourth quarter of 2006, the Company raised $5.75 million pursuant to which the Company issued to investors a total of (i) 23,000,000 shares of common stock and (ii) 11,500,000 warrants, each of which may be exercised for two years from the date of issuance to purchase an additional share of common stock for $0.45 per share (the “November 2006 Financing”). These securities were offered in units of two shares of common stock and one warrant at a purchase price of $0.50 per unit (the “Unit”). Each warrant is callable by the Company when the bid price of the common stock trades at or above $1.00 per share for twenty consecutive trading days. These securities were issued in a private placement exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) of that act. In connection with the agreement, the Company will use its best efforts to register the shares, however, no penalties are required in the event the Company does not register the shares.

In connection with the November 2006 Financing, the Company paid finders fees to Wolverine International Holdings Ltd. (“Wolverine”) and to Spencer Trask Ventures, Inc. (“STVI”) a related-person of STSG, a principal stockholder of the Company, in the amount of $0.5 million and $0.1 million, respectively, representing 10% of the gross proceeds raised. In addition, the Company issued to Wolverine and STVI warrants to purchase up to 950,000 and 200,000 Units, respectively, representing 10% of the Units issued to investors. Each warrant may be exercised for two years from the date of issuance to purchase an additional share of common stock for $0.45 per share and two shares of common stock. The registration rights agreement described above also will cover the resale of the common stock and the amount of common shares underlying the warrants issued to Wolverine and STVI pursuant to their agreements with the Company. Net proceeds were $5.1 million, with finders fees and other legal costs of $0.6 million recorded as a reduction of equity as a cost of the transaction.

Upon completion of the November 2006 Financing, the Company issued 7.1 million shares to International Capital Advisory, Inc. (“ICA”) and four related finders in equal proportion as an advisory fee. These shares are a component of the cost of the transaction. As of June 30, 2007, ICA has assisted the Company in raising a total of $19.1 million in funding.

15

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

At the end of the fourth quarter of 2006, the Company sold an additional $5.3 million of common stock at $0.75 per share for a total of 7,053,638 million shares (the "December 2006 Financing", and with the November 2006 Financing, the “2006 Financings”). In connection with the December 2006 Financing, the Company paid finders fees to Wolverine and STVI of $0.3 million each, representing 10% of the gross proceeds raised. In addition, the Company issued to Wolverine and STVI warrants to purchase up to 341,300 and 364,064 shares of the Company's common stock, respectively, representing 10% of the common stock issued to investors. Each warrant may be exercised for five years from the date of issuance to purchases share of common stock for $0.75 per share. The registration rights agreement described above also will cover the resale of the common stock and the amount of common shares underlying the warrants issued to Wolverine and STVI pursuant to their agreements with the Company. Net proceeds were $4.7 million, with finders fees and other legal costs of $0.6 million recorded as a reduction of equity as a cost of the transaction.

2007 Private Placements

In 2007, the Company raised a total of $9.1 million pursuant to which the Company issued to investors a total of 12,110,667 shares of common stock at $0.75 per share (the “2007 Financings”). In connection with the 2007 Financing, the Company paid finders fees to Wolverine and to STVI, in the amount of $0.9 million and $0.04 million, respectively, representing 10% of the gross proceeds raised. In addition, the Company issued to Wolverine and STVI warrants to purchase up to 1,161,664 and 49,400 shares of the Company's common stock, respectively, representing 10% of the common stock issued to investors. Each warrant may be exercised for five years from the date of issuance to purchases share of common stock for $0.75 per share. The transaction calls for filing of a registration statement to cover the resale of the common stock and the amount of common shares underlying the warrants issued to Wolverine and STVI pursuant to their agreements with the Company. Net proceeds were $8.0 million, with finders fees and other legal costs of $1.0 million recorded as a reduction of equity as a cost of the transaction.

Upon the issuance of Units at a purchase price of $0.50 in the November 2006 Financing, and issuance of common stock at a purchase price of $0.75 per share in the December 2006 Financing and the 2007 Financings, warrants currently held beneficially or of record by STVI, and employees thereof which had been issued to STVI as placement agent in connection with a September 2004 private placement became convertible into 6,871,429 shares of the Company’s common stock rather than 2,119,834 shares of common stock, giving effect to the weighted average anti-dilution provisions contained in those warrants. Warrants currently held beneficially or of record by STSG, in connection with the 279,330 warrants originally issued in connection with the Working Capital Facility, were amended to a total of 946,710 warrants with an exercise price of $1.09, giving effect to the weighted average anti-dilution provisions contained in those warrant. In addition, the 1,815,000 warrants issued for amendments to the Working Capital Facility were modified to a total of 4,347,359 with a weighted average exercise price of $0.90, giving effect to the weighted average anti-dilution provisions contained in those warrants. These modifications to the warrants issued to both the placement agents in the September 2004 private placement and warrants issued in connection with the Working Capital Facility were included in the original warrant agreements in order to allow the holder of the warrants to maintain their comparative values in the Company. Accordingly, there was no impact on the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2007.

11.Warrant Liability

In connection with the 2006 Financings and the 2007 Financings (see Note 10), the Company determined that approximately 25.8 million common shares reserved for issuance under the warrants were in excess of authorized shares on a fully diluted basis (the “excess warrants”). Until such time that the certificate of incorporation was amended, the Company had classified these excess warrants as liabilities in the condensed

16

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

consolidated balance sheets, at fair value as calculated using a Black Scholes model, and recorded a corresponding loss from changes in the fair value of warrants issued in excess of authorized shares in the condensed consolidated statement of operations. For the three and six months ended June 30, 2007, a revaluation of warrant liability of $5.1 million and $10.3 million, respectively, was recorded in the accompanying condensed consolidated statements of operations. On May 2, 2007, shareholders approved the amendment to the Company’s articles of incorporation (and the Company so filed its amendment to its articles of incorporation) to increase its authorized shares to 200,000,000 and reclassified the warrant liability to additional paid in capital at its then fair value, or $26.6 million.

12. Preferred Stock - Series B

Each holder of Vyteris’s Series B convertible redeemable preferred stock is entitled to receive dividends when, and if declared by the Board of Directors as long as any shares of the Vyteris, Inc. Series A preferred stock remained outstanding. Effective upon cancellation of all outstanding shares of the Vyteris, Inc. Series A convertible redeemable preferred stock on September 29, 2004, the holders of the Vyteris’s Series B convertible redeemable preferred stock are entitled to receive, ratably, an annual cash dividend of 8% of the then applicable redemption price, as defined, out of funds legally available, payable quarterly. Subject to the prior rights of the Vyteris, Inc. Series A convertible redeemable preferred stock, the dividends on the Vyteris’s Series B convertible redeemable preferred stock were cumulative, whether or not earned or declared and were to be paid quarterly in arrears. In the event of liquidation, holders of Vyteris’s Series B convertible redeemable preferred stock are entitled to receive a liquidation preference of $1.00 per share (adjusted for stock splits or combinations of such stock, recapitalizations, or other similar transactions that have the effect of increasing or decreasing the number of shares represented by each outstanding share of such stock), plus an amount equal to all declared but unpaid dividends on the Vyteris ’s Series B convertible redeemable preferred stock.

The Company accrued cumulative dividends in arrears on Vyteris’s Series B convertible redeemable preferred stock by recognizing $0.2 million, for each of the three months ended June 30, 2007 and 2006, respectively, and $0.3 million for each of the six months ended June 30, 2007 and 2006, respectively, of interest expense to related parties in the accompanying condensed consolidated statement of operations and increasing the redemption value of the Vyteris’s Series B convertible redeemable preferred stock.

With respect to the distribution of assets, Vyteris’s Series B convertible redeemable preferred stock ranks senior to the Company’s common stock. Each share of Vyteris’s Series B convertible redeemable preferred stock is convertible at any time, at the option of the holder, into common stock at a price per share if converted any time after March 31, 2007 at $3.58 (which is currently subject to renegotiation to $1.50 per share). The holders of Vyteris’s Series B convertible redeemable preferred stock (and the holders of any other series of preferred stock with similar voting rights as the Vyteris’s Series B convertible redeemable preferred stock) vote together with the holders of shares of common stock as a single class in all matters to be voted on by shareholders of the Company, except that the vote or consent of the holders of a majority of the shares of Vyteris’s Series B convertible redeemable preferred stock is necessary to authorize or issue an equity security having any preference over or being on a parity with the Vyteris’s Series B convertible redeemable preferred stock with respect to dividend or liquidation preference; increase the number of authorized shares of Vyteris’s Series B convertible redeemable preferred stock; or amend, alter or repeal any provision of the Company’s Certificate of Incorporation, Certificate of Designations or By-laws, if such action would alter, in any material respect, the rights of the Vyteris’s Series B convertible redeemable preferred stock. Mandatory redemption commences on March 1, 2006, the first anniversary date of the first commercial sale of LidoSite and continuing for one year thereafter, the Company is required to redeem (on a quarterly basis) an amount of Vyteris’ Series B convertible redeemable preferred stock equal to 5% of the gross profits derived from the sale of LidoSite. During the following years, the Company is required to redeem (on a quarterly basis) an amount of Vyteris’s Series B convertible redeemable preferred stock equal to 10% of the gross profits derived from the sale of LidoSite. No such redemptions have been required to date.

17

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

13. Related Party Transactions

In addition to the secured demand promissory notes described in Note 5, interest payable and accrued expenses due to a related party in Note 7, to related the 2006 Debt Financings described in Note 9, the private placements of common stock and warrants described in Note 10, and the lease agreement in Note 16, the Company had the following related party transactions:

· At June 30, 2007 and December 31, 2006, approximately $61,000 is included in accrued expenses and current portion of long term liabilities in the accompanying condensed consolidated balance sheets for amounts owed to STSG and STVI for certain expenses paid on behalf of the Company.

· During December 2001, $10,000 of STSG’s funds was deposited in the Company’s bank account in error by the Company’s bank. Therefore, at June 30, 2007 and December 31, 2006, $10,000 is included in accrued expenses in the accompanying condensed consolidated balance sheets.

· On April 26, 2005, the Company announced the appointment of Russell O. Potts, Ph.D. to its Board of Directors. Dr. Potts has served the Company as a consultant in drug delivery, glucose monitoring and medical devices since April 2003. The Company paid Dr. Potts approximately $46,000 and $50,000 for consulting services and out of pocket expenses in the six months ended June 30, 2007 and 2006, respectively.

· On March 12, 2007, the Company borrowed from Donald F. Farley, Chairman of the Board of Directors of the Company, $200,000 at an interest rate of 10% per annum, plus reimbursement to Mr. Farley for his closing costs. The Company repaid this loan plus accrued interest in full on March 28, 2007.

14.Stock-Based Compensation

2005 Stock Option Plans

In March 2001, the Board of Directors and stockholders of Vyteris, Inc. approved the adoption of the Vyteris, Inc. Stock Option Plan (the “Vyteris, Inc. Stock Option Plan”). In April 2005 the Board of Directors and stockholders of the Company approved the 2005 Stock Option Plan (the “2005 Stock Option Plan”). Under the 2005 Stock Option Plan, incentive stock options and non-qualified stock options to purchase shares of the Company’s common stock may be granted to directors, officers, employees and consultants. At adoption a total of 2,901,902 shares of the Company’s common stock were available for issuance pursuant to the 2005 Stock Option Plan. In December 2005, the 2005 Stock Option Plan was amended to increase the number of shares available for issuance by 2,000,000 for a total of 4,901,902 shares available for issuance pursuant to the 2005 Stock Option Plan. On May 31, 2007, the Board of Directors of Vyteris voted unanimously to increase the number of shares of Company stock available for issuance under the Plan from 4,901,902 to 14,901,902.

Options granted under the 2005 Stock Option Plan vest as determined by the Compensation Committee of the Board of Directors (the “Compensation Committee”) and terminate after the earliest of the following events: expiration of the option as provided in the option agreement, termination of the employee, or ten years from the date of grant (five years from the date of grant for incentive options granted to an employee who owns more than 10% of the total combined voting power of all classes of the Company stock at the date of grant). Granted stock options are immediately exercisable into restricted shares of common stock, which vest in accordance with the original terms of the related options. If an optionee’s status as an employee or consultant changes due to termination, the Company has the right, but not the obligation, to purchase from the optionee all unvested shares at the original option exercise price. Prior to the adoption of SFAS No. 123R, the vesting period of a stock options was 33% per annum over a three-year period.  Subsequent to the adoption of SFAS No. 123R, the vesting period of stock options are either performance based or contain vesting periods of two years or less.  The Company recognizes compensation expense ratably over the requisite service period.

18

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The option price of each share of common stock shall be determined by the Compensation Committee, provided that with respect to incentive stock options, the option price per share shall in all cases be equal to or greater than 100% of the fair value of a share of common stock on the date of the grant, except an incentive option granted under the 2005 Stock Option Plan to a shareholder that at any time an option is granted owns more than 10% of the total combined voting power of all classes of the Company stock, shall have an exercise price of not less than 110% of the fair value of a share of common stock on the date of grant. No participant may be granted incentive stock options, which would result in shares with an aggregate fair value of more than $100,000 first becoming exercisable in one calendar year

Outside Director Stock Incentive Plan Option Plan Amendment

In November 2005, the Company’s Board of Directors approved the adoption of the Outside Director Stock Incentive Plan (the “Directors’ Incentive Plan”). The purpose of the Directors’ Incentive Plan is to attract qualified candidates to accept positions of responsibility as outside directors with the Company. The Company has reserved an aggregate of 500,000 common shares for issuance pursuant to the Directors’ Incentive Plan. Under the Directors’ Incentive Plan each director who is not and has not been an employee of the Company for a period of twelve months prior to appointment as a director (an “Outside Director”) is entitled to receive a stock award equal to $1,500 in value for each qualified meeting, as defined in the Directors’ Incentive Plan, attended. The stock award is payable in stock, or in a combination of stock and cash with the cash component capped at a maximum of 40% of the value of the stock award. In addition, each Outside Director shall receive an annual option grant to purchase 10,000 shares of the Company’s common stock. As of June 30, 2007, the Company issued 150,000 options to purchase shares of the Company’s common stock and 77,680 restricted common stock to its Board of Directors under the Directors’ Incentive Plan.

Stock option activity for all plans for the six month period ended June 30, 2007:

	Number of Shares			Exercise Price Per Share		Weighted  Average Exercise Price		Intrinsic Value
Outstanding at January 1, 2007		4,220,928			$0.28 - $3.04	$	1.97
Granted		5,270,000			0.75 - 2.76		2.56
Exercised		(230,155	)		2.37 - 3.00		2.59
Cancelled		(1,132,954	)		0.28 - 3.04		2.56
Outstanding at June 30, 2007		8,127,819			0.28 - 3.04		2.27	$	3,008,115
Exercisable at June 30, 2007		1,592,249			0.28 - 3.04	$	1.96	$	1,048,363

19

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table summarizes information about stock options outstanding and exercisable under all plans at June 30, 2007:

	Options Outstanding at June 30, 2007						Options Exercisable at June 30, 2007
Exercise Price	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Number of Shares		Weighted Average Exercise Price
$ 0.28		67,500	$	0.28		6.1		45,000	$	0.28
$ 0.75		360,000		0.75		9.6		120,000		0.75
$ 1.24		105,000		1.24		9.8		-		1.24
$ 1.31		1,750,000		1.31		3.5		500,000		1.31
$ 1.43		9,599		1.43		3.8		9,599		1.43
$ 1.45		40,000		1.45		8.4		15,000		1.45
$ 1.60		27,500		1.60		8.4		17,498		1.60
$ 1.91		351,845		1.91		5.7		351,845		1.91
$ 2.72		4,450,000		2.72		9.9		-		2.72
$ 2.75		120,000		2.75		9.9		-		2.75
$ 2.76		235,000		2.76		9.2		-		2.76
$ 3.04		611,375		3.04		6.9		533,307		3.04
Total		8,127,819	$	2.27		8.1		1,592,249	$	1.96

The following table summarizes the Company’s unvested stock options under all plans as of June 30, 2007, and changes during the six months ended June 30, 2007, is presented below:

Unvested Stock Awards	Shares			Weighted Average Grant Date Fair Value
Unvested at January 1, 2007		2,052,466		$	0.94
Awards		5,270,000		$	2.69
Forfeitures		(243,834	)	$	0.83
Vestings		(543,062	)	$	1.42
Unvested at June 30, 2007		6,535,570		$	2.32

Stock options available for grant under all stock option plans are 11,973,908 shares of common stock at June 30, 2007. Stock options available for grant under the 2005 Stock Option Plan are 11,543,908 shares of stock, and the Outside Director Stock Incentive Plan covered 430,000 shares of stock at June 30, 2007.

The following table sets forth the total stock-based compensation expense resulting from stock options in the Company’s condensed consolidated statements of operations for the three and six month periods ended June 30, 2007 and 2006:

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Research and development	$	107,081	$	73,320	$	205,575	$	145,210
General and administrative		1,099,118		120,844		1,265,124		240,087
Stock-based compensation expense before income taxes		1,206,199		194,164		1,470,699		385,297
Income tax benefit		-		-		-		-
Total stock-based compensation expense after income taxes	$	1,206,199	$	194,164	$	1,470,699	$	385,297

20

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The fair value of stock-based awards was estimated using the black scholes model, or in the case of awards with market or performance based conditions, the binomial model with the following weighted-average assumptions for stock options granted in the three and six months ended June 30, 2007 and 2006:

	Three Months Ended June 30,						Six Months Ended June 30,
		2007			2006			2007			2006
Weighted-average:
Expected holding period (years)		9.6			5.1			9.1			5.0
Risk-free interest rate		4.90	%		5.16	%		4.90	%		4.50	%
Dividend yield		0	%		0	%		0	%		0	%
Volatility		98.6	%		92.8	%		96.8	%		96.2	%
Fair value at grant date	$	2.43		$	0.22		$	2.32		$	1.24
Forfeiture rate		13.2	%		6.5	%		12.9	%		5.5	%

The Company’s computation of expected life is based on historical exercise patterns. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The key factors in the Company’s determination of expected volatility are historical and market-based implied volatility, comparable companies with longer stock trading periods than the Company and industry benchmarks. Due to the Company’s limited trading history and trading volumes, it used the volatility calculated at the time of the Merger from September 2004 through May 2006, as the utilization of an average volatility would likely have been significantly lower.

On December 19, 2005, the Company entered into an employment agreement with Timothy McIntyre, pursuant to which, commencing on January 1, 2006, Mr. McIntyre began serving as the President and CEO of the Company. In connection with his employment agreement, Mr. McIntyre was granted options covering up to 1,750,000 shares of Company common stock with vesting upon the achievement of several milestones. The milestones contained in this agreement consisted of both market and performance based vesting terms. As of December 31, 2006, 200,000 stock options vested under this employment agreement for which the Company recorded $0.2 million in compensation expense in the consolidated statement of operations for the year ended December 31, 2006. In connection with an amendment to Mr. McIntyre's employment agreement on May 31, 2007, the Board approved a grant of stock options to Mr. McIntyre covering an additional 4,450,000 shares of Company common stock, pursuant to the Company's 2005 Stock Option Plan, with vesting upon the achievement of milestones, none of which have vested as of June 30, 2007. The Board also revised the milestones in Mr. McIntyre's previous stock option grant agreement in connection with the amendment to his employment agreement.

As of June 30, 2007, $1.8 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.6 years.

15. Commitments and Contingencies

From time to time, we are involved in other lawsuits, claims, investigations and proceedings, including pending opposition proceedings involving patents, that arise in the ordinary course of business. There are no matters pending that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows.

21

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

16.Material Agreements

Lease agreement

In August 2006, the Company entered into a five year lease agreement for its principal facility which houses its FDA approved manufacturing operations. As part of the agreement, the Company paid $0.2 million for a security deposit and issued a $0.2 million letter of credit to the landlord. STSG, a principal stockholder of and lender to the Company, deposited $0.2 million on the Company’s behalf to secure this letter of credit.

At June 30, 2007, the minimum lease payments under the non-cancelable operating subleases for office and facility space are as follows:

	Operating Lease
Period ended June 30,
2007	$	578,676
2008		586,039
2009		620,198
2010		656,298
2011		248,089
Thereafter		1,120,291
Total minimum lease payments	$	3,809,591

Rent expense recorded in the accompanying condensed consolidated statements of operations was approximately $0.1 million for the three months ended June 30, 2007 and 2006 and $0.3 million and $0.2 million for the six months ended June 30, 2007 and 2006 respectively.

Investment Services Agreements

On September 13, 2006, the Company entered into a finders’ agreement with International Capital Advisory Inc., a Canadian corporation (“ICA”), pursuant to which ICA agreed to help the Company locate investors outside of the United States. Pursuant to the finders’ agreement, the Company will pay to ICA a cash fee equal to 10% percent of the gross proceeds raised by ICA. In addition, the Company will issue to ICA warrants to purchase up to 10% percent of the number of units of common stock and warrants sold in connection with the efforts of ICA. The exercise price of each warrant issued will be equal to the purchase price paid by the investors in the particular private offering for which the warrant is being issued to ICA as compensation.

In addition, on September 13, 2006, the Company entered into an advisory consulting agreement with ICA pursuant to which ICA will provide advice to the Company with respect to investor relations, financing and other strategic decisions. Pursuant to the advisory consulting agreement, the Company has agreed to pay to ICA an advisory fee of $12,500 per month from September 1, 2006, until August 1, 2007, and $15,000 per month from September 1, 2007, until August 1, 2009. Furthermore, the Company has issued to ICA (or its affiliates) 7,100,000 shares of its common stock, valued at $0.25 per share which approximates the quoted market value at such date, since ICA assisted the Company in raising $15.0 million in funding. As of June 30, 2007, ICA has assisted the Company in raising a total of $19.1 million in funding.

22

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Employment Agreement

On May 31, 2007, the Board of Directors of the Company approved an amendment to the Company's employment agreement with Timothy McIntyre, the President and Chief Executive Officer of the Company. Mr. McIntyre's base salary, effective June 1, 2007, was increased to $0.4 million on an annualized basis, and will further increase to $0.035 million (on an annualized basis) commencing April 1, 2008. Mr. McIntyre received a one-time bonus of $0.025 million on June 1, 2007; and will receive a one-time bonus of $0.075 million upon renewal on April 1, 2008.

In addition to the remaining $0.037 million of his initial signing bonus, which is payable on July 1, 2007, Mr. McIntyre is eligible for a discretionary bonus at the end of 2007, targeted at 25% of his original base salary, based on the achievement of milestones established by the Board. Mr. McIntyre is also entitled to an additional bonus, targeted at 25% of his base salary, based on the achievement of Company revenue milestones. The severance, non-compete and non-solicitation provisions of Mr. McIntyre's employment agreement were not modified.

Consulting and Sales Promotion Agreement with Caswood Group, Inc.

Effective as of May 11, 2007, the Company entered into an agreement with Caswood Group, Inc. for Caswood to provide marketing and promoting of the Company’s pharmaceutical products to designated physicians and other health care accounts in the United States. The Agreement carries an initial term of six months.

The total compensation (exclusive of additional costs and fees which will be separately billed) for the initial term of the Agreement is set to not exceed $2.1 million and is broken down as follows:

(i) an estimated amount of $1.0 million for 12 field representatives, with $0.3 million being due upon execution of an initial letter of intent and four $0.2 million installments due on July 15, 2007, August 15, 2007, September 15, 2007 and October 15, 2007;

(ii) an estimated amount of $0.3 million for four full time district managers, with $0.1 million being due upon execution of an initial letter of intent and four $0.1 million payments due on July 15, 2007, August 15, 2007, September 15, 2007 and October 15, 2007; and

(iii) an estimated amount of $0.4 million for five in service specialists, with $0.1 million being due upon execution of an initial letter of intent and four $0.1 million payments due on July 15, 2007, August 15, 2007, September 15, 2007 and October 15, 2007.

Other

On June 8, 2007, in consideration for Roswell Capital’s grant of an extension on an option to obtain financing granted to the Company and for a break up fee, if funding was not consummated by June 30, 2007, the Company agreed to pay Roswell Capital Partners a fee of $0.1 million and to grant Roswell a warrant to purchase up to 112,500 shares of the Company’s common stock, at an exercise price of $1.25 per share, with a warrant term of 5 years. Management estimated that the fair value of the 112,500 warrants issued was approximately $0.3 million, using the Black-Scholes option-pricing model with the following weighted average assumptions; 5.06% risk-free interest rate, 5.0 years expected holding period and 99.1% expected volatility. The fair value of these warrants is included in interest expense to third parties in the accompanying condensed consolidated statements of operations.

23

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

17. Loss Per Share

The following table sets forth the computation of basic and diluted net loss attributable to common stockholders per share for the three and six months ended June 30, 2007 and 2006.

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Numerator:
Net loss	$	(12,225,027	)	$	(3,794,647	)	$	(22,014,033	)	$	(7,936,996	)
Denominator:
Weighted average shares		79,190,152			19,295,152			72,333,639			19,294,486
Basic and diluted net loss per share	$	(0.15	)	$	(0.20	)	$	(0.30	)	$	(0.41	)

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

	As of June 30,
	2007		2006
Convertible preferred stock		2,095,000		1,047,500
Convertible debt		6,416,063		6,567,680
Warrants		36,157,472		8,788,542
Options		8,127,819		4,282,395
Total		52,796,354		20,686,117

As of June 30, 2007, the following warrants were outstanding:

Number of shares	Exercise Price	Expiration Date
20,950	$ 9.55	2010(1)
1,138,990	$ 4.47	2009(1)
52,083	$ 2.88	2013(3)
1,780,226	$ 2.39	2009(1)
3,565,316	$ 1.09	2009(3)
946,926	$ 1.09	2009(3)
4,567,893	$ 0.77 - 2.40	2011(3)
3,307,045	$ 0.77	2014(3)
1,916,430	$ 0.75	2011(3)
197,120	$ 0.75	2012(4)
9,500,000	$ 0.45	2008(3)
2,000,000	$ 0.45	2008(3)
950,000	$ 0.45	2011(3)
200,000	$ 0.45	2011(3)
3,601,993	$ 0.25	2012(2)
1,900,000	$ 0.25	2011(3)
400,000	$ 0.25	2011(3)
112,500	$ 1.25	2011(5)
36,157,472
(1) These warrants were issued in 2004. (2) These warrants were issued in 2005, see Note 8. (3) These warrants were issued in 2007, 2006 and 2005 see Note 9. (4) These warrants were issued in 2007, see Note 5. (5) These warrants were issued in 2007, see Note 16.

24

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

18. Potential Acquisition

On February 23, 2007, we entered into a nonbinding written letter of intent (the "Letter of Intent"), titled the "Spencer Trask Ventures, Inc. Proposal for the Acquisition of Lehigh Valley Technologies, Inc. by Vyteris, Inc.," with respect to the potential acquisition by us of privately-held Lehigh Valley Technologies, Inc. ("LVT").

Subject to conditions contained in the Letter of Intent, including, without limitation, approval of the transaction described in the Letter of Intent (the "Transaction") by our Board of Directors and stockholders, the absence of an injunction or order by any governmental authority prohibiting the Transaction, due diligence, the execution and delivery of definitive agreements with respect to the Transaction (including, without limitation, an acquisition agreement and an employment agreement with LVT's chief executive officer, Jeffrey M. Moshal, an audit of LVT's 2006, 2005 and 2004 financial statements, and other customary closing conditions, the Company, through a to-be-formed wholly owned subsidiary, would acquire 100% of the capital stock of LVT, and the shareholders of LVT, in the aggregate, would receive $13.0 million in cash and $3.0 million in principal amount of 6% secured convertible notes ("Secured Notes"). LVT would be required to reduce any outstanding debt to approximately $0.7 million and have a working capital balance of no less than zero at closing. The Company would be obligated to promptly register the shares of our common stock into which the Secured Notes would be convertible. In order to consummate the Transaction, we will need to obtain financing for the entire amount of the cash purchase price.

The Company is currently proceeding with due diligence and audit of LVT’s financial statements in order to make a determination as to whether to proceed with a Transaction.

19. Amendment to the Articles of Incorporation

On May 1, 2007, the Company held its Special Meeting of Shareholders, as set forth in its Definitive Schedule 14A, filed with the Securities and Exchange Commission on March 30, 2007, and mailed to shareholders on or about March 30, 2007. At the Special Meeting, shareholders approved the following:

1. A proposal to amend the Company’s Articles of Incorporation to increase the number of authorized shares of the Company’s common stock, par value $0.001 per share, from 100,000,000 shares to 200,000,000 shares; and

2. A proposal to amend the Company’s Articles of Incorporation to change the name of the Company from Vyteris Holdings (Nevada), Inc. to Vyteris, Inc.

On May 2, 2007, the Company accordingly filed an amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada which amended the Articles of Incorporation effecting the amendments set forth in the two approved proposals.

20. Product Marketing Agreement

On June 5, 2007, the Company entered into a product marketing agreement with Laboratory Corporation of America® Holdings (“LabCorp”®), headquartered in Burlington, North Carolina. The Product Marketing Agreement (the “Agreement”) sets forth the terms and conditions upon which LabCorp is granted marketing rights to the Company’s LidoSite® product (on an exclusive basis in specific target markets), under the LidoSite brand name. The target markets primarily consist of medical doctors' offices located within the United States. Phase I of the Agreement ends on May 31, 2008, with Phase II options (to include exclusive rights to Patient Service Centers) to begin June 1, 2008 or earlier based upon mutual agreement of the parties. Phase II criteria will be negotiated during a 60 day period to commence during the Phase I period with the following options: (i) terminate commercial activity, (ii) trigger a market exclusivity arrangement based on minimum purchases of Product, or (iii) continue with a non-exclusive arrangement.

25

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Agreement excludes specific specialties: AMA listed dermatologists, rheumatologists, oncologists and orthopedic surgeons, ambulatory care centers and in-patient hospital segments. Also, under the Agreement, the Company retains the right to conduct the Company’s own sales and marketing activity with regard to the LidoSite product for the specialties and scenarios not covered by the Agreement and for geographic areas not covered by the Agreement. However, there is an option to expand the exclusivity to the patient service center market, pursuant to applicable regulations.

The Agreement calls for certain estimated market pricing for the product as well as for a set sales effort fee reimbursement to LabCorp for each physician office which agrees to participate in Phase I. Distribution shall be handled by a third party distributor, and the product is Vyteris branded in Phase I. The Company expects to launch the LabCorp project late in the third quarter of 2007. There are also specified metrics for methodology to identify and collect the quantitative data needed to fully evaluate the use and acceptance of the product by the Phase I market evaluation sites, to determine whether to continue to Phase II.

21. Subsequent Events

2007 Outside Director Cash Compensation and Stock Incentive Plan

On August 1, 2007, the Company formally adopted its 2007 Outside Director Cash Compensation and Stock Incentive Plan. The Plan, which replaces the 2005 Plan, increases the number of authorized shares under the Plan to 5,000,000 and provides for the following compensation to outside directors:

(i) Cash: $25,000 annual retainer, $5,000 annually for sitting on a Board Committee, $5,000 annually for acting as the Chairman of a Committee, and $15,000 annually for acting as Chairman of the Board.

(ii) Options with a fair market value strike price and 10 year term: 50,000 initial grant vesting over three years, with 5,000 options vesting per quarter during the first year and 3,750 options vesting for quarter during the second and third years; and 30,000 annual option grant, vesting quarterly over one year, at 7,500 options per quarter.

Common Stock Private Placement

As of July 25, 2007, the Company raised a total of $12.7 million pursuant to which the Company issued to investors a total of 8,489,997 shares of common stock at a purchase price of $1.50 per share (“July 2007 Financing”). The subscribers were also issued warrants to purchase Company common stock in the amount of the number of shares purchased. Those investor warrants bear a three year term and have an exercise price of $3.00 per share, and contain a mandatory exercise provision at the Company’s election should the market price of the Company’s common stock be at least $4.00 for 20 consecutive trading days. In connection with the 2007 Financing, the Company paid a finders fee to Ramp International, Inc. (“Ramp”), as assignee from Wolverine International Holdings, Inc. (“Wolverine”). in the amount of $1.3 million, representing 10% of the gross proceeds raised. In addition, the Company issued to Ramp warrants to purchase up to 848,999 shares of the Company's common stock, respectively, representing 10% of the common stock issued to investors. Each warrant may be exercised for five years from the date of issuance to purchase shares of common stock for $3.00 per share. Net proceeds were $11.4 million, with finders fees and other legal costs of $1.3 million recorded as a reduction of equity as a cost of the transaction. The Company sold these shares of unregistered securities in private placement transactions in reliance upon the exemption from registration under Section 4(2) under the Securities Act of 1933, as amended, to accredited investors or to non-United States residents.

26

VYTERIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Consulting Agreement with Wolverine International Holdings

On July 25, 2007, the Company entered into a consulting agreement (the “Wolverine Agreement”) with Wolverine with respect to consulting services and strategic relationships for both the capital and pharmaceutical industries. The Wolverine Agreement has a one year term. The fees under the Wolverine Agreement are: $0.5 million and warrants to purchase up to 5,250,000 of Company common stock, all of which carry a five year term and an exercise price of $1.50 per share. The warrants carry standard cashless exercise provisions and contain a provision which prohibits exercise if at any time Wolverine and its affiliates beneficially own more than 9.9% of the Company’s common stock. During 2007 and 2006, Wolverine has also acted as an advisor for the Company with respect to various common stock private placements. The Company has made payments (in cash or Company's securities) to financial advisors in the past, including International Capital Advisory, Inc., Wolverine, and certain other finders all of whom may have business and other relationships with one another.

Viking Investment Group Financial Consulting Services Agreement

On July 26, 2007, the Company entered into a consulting agreement (the “VIG Agreement”) with Viking Investment Group II Inc. (“VIG”) to provide certain financial consulting services to the Company. The VIG Agreement has a one year term. The fees under the VIG Agreement are: $0.5 million and warrants to purchase up to 5,250,000 shares of Company common stock, all of which carry a five year term and an exercise price of $1.50 per share. The warrants carry standard cashless exercise provisions and contain a provision which prohibits exercise if at any time VIG and its affiliates beneficially own more than 9.9% of the Company’s common stock.

Appointment of New Chief Financial Officer

Effective as of August 1, 2007, the Company is appointing Anthony Cherichella as its Chief Financial Officer and Principal Accounting Officer. Mr. Cherichella will not assume the responsibilities of Chief Financial Officer and Principal Accounting Officer for the purposes of the Company’s filings to be made with the Securities and Exchange Commission until August 15, 2007. In connection with his employment, the Company has entered into an employment agreement with Mr. Cherichella, also effective as of August 1, 2007. The term of the employment agreement is one year and shall be automatically renewed for additional one year periods unless terminated by the Company by written notice at least 90 days prior to the end of any initial or extended term, as applicable. The employment agreement calls for a base salary of $0.3 million for the first year and shall be reviewed by the Board on each anniversary of the date of this Agreement and may be increased to such rate as the Board may determine. Mr. Cherichella will also be eligible to receive a cash bonus of up to 40% of the base salary, with one half of such bonus for the first year being based on successful achievement of certain milestone objectives described in the employment agreement, and the second half of the bonus for the first year and all of the bonus for years thereafter being based upon successfully achieving certain stated objectives, all as determined by the Company’s Chief Executive Officer and the Board’s Compensation Committee. The employment agreement calls for an initial grant of 750,000 options under the Company’s 2005 Stock Option Plan, which vest upon the occurrence of certain events set forth in the employment agreement, and calls for further grants no less frequently than annually (by March 31^st of each calendar year starting in 2008), with the goal of targeting an annual grant of at least 750,000 options. The options shall bear an exercise price equal to market price at the date of grant and become fully vested upon the occurrence of certain events, including, but not limited to, a merger or consolidation or sale of all or substantially all of the assets of the Company.

27

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

The following discussion and analysis should be read in conjunction withthe other financial information and condensed consolidated financial statements andrelated notes appearing elsewhere in this Quarterly Report on Form 10-QSB. This discussion contains forward-lookingstatements that involve risks and uncertainties. Our actual results coulddiffer materially from those anticipated in the forward-looking statements as aresult of a variety of factors, including those discussed in “Risk Factors” andelsewhere in this Quarterly Report on Form 10-QSB.

Overview

Vyteris, Inc. (formerly Vyteris Holdings (Nevada), Inc.) has developed and produced the first electronically controlled transdermal drug delivery system that delivers drugs through the skin comfortably, without needles. This platform technology can be used to administer certain therapeutics either directly to the skin or into the bloodstream. In January 2005, the Company received approval from the United States Food and Drug Administration (“FDA”) for its manufacturing facility and processes for LidoSite. The Company holds over 60 U.S. patents relating to the delivery of drugs across the skin using a mild electric current. The terms “Company,” “Vyteris,” “us,” “we” or “our” refer to each of Vyteris, Inc., its subsidiary, also named Vyteris, Inc. (incorporated in the State of New Jersey), and the combined company.

Liquidity

On June 30, 2007 our cash position was $1.0 million, and we had negative working capital of $7.6 million. During 2006 we received proceeds of $8.4 million from the issuance of unsecured promissory notes to STSG, we received $9.8 million from the issuance of common stock and warrants in private placements and we received net proceeds of $0.5 million from the issuance of senior secured debentures. These increases were partially offset by a total of $9.1 million in principal payments to holders of our senior secured convertible debentures during 2006. In 2007, the Company raised a total of $9.1 million pursuant to which the Company issued to investors a total of 12,110,667 shares of common stock at $0.75 per share (the “2007 Financings”). Net proceeds were $8.0 million, with finder’s fees and other legal costs of $1.1 million recorded as a reduction of equity as a cost of the transaction. We also borrowed $0.4 million from STSG in the first quarter of 2007 pursuant to a senior secured promissory note and $0.4 million in proceeds from the exercise of stock options. There were no additional equity raises or funds borrowed during the first six months of 2007.

As of July 25, 2007, we raised a total of $12.7 million pursuant to which we issued to investors a total of 8,489,997 shares of common stock at a purchase price of $1.50 per share and warrants to purchase 8,489,997 shares of common stock, at an exercise price of $3.00 per share. Additional funding, above the $12.7 million raised during the third quarter of 2007, may not be available on favorable terms or at all. Failure to obtain such financing will require management to substantially curtail operations, which will result in a material adverse effect on our financial position and results of operations. In the event that we do raise additional capital through a borrowing, the covenants associated with existing debt instruments may impose substantial impediments on us.

Technology

Our active transdermal drug delivery technology is based on a process known as electrotransport, or more specifically iontophoresis, a process that transports drugs through the skin by applying a low-level electrical current. Vyteris’ active patch patented technology works by applying a charge to the drug-holding reservoir of the patch. This process differs significantly from passive transdermal drug delivery which relies on the slow, steady diffusion of drugs through the skin. A significantly greater number of drugs can be delivered through active transdermal delivery than is possible with passive transdermal delivery. Based on our analysis thus far, we estimate that there are currently 220 FDA-approved drugs that may be delivered through our active transdermal delivery platform.

28

Business Model

Our commercialization strategy is to focus on near-term and future market opportunities utilizing FDA-approved and marketed drugs with our proprietary delivery technology, using our own brands and by partnering with major pharmaceutical companies on other opportunities. By pursuing this strategy, our plan is to develop and commercialize new products that can reach market faster than the traditional development of new chemical entities, so as to have a higher probability of commercial success. During the first quarter of 2007, we focused our resources on implementation of our business model and had no manufacturing or sales activity. We continued these efforts through the second quarter, and based upon the agreement reached with LabCorp during the second quarter, recommenced manufacturing activities and plan to recommence sales activities in the third quarter of 2007 in an effort to begin commercialization of our products. The official product launch is expected in August 2007, and we are expecting to receive our first orders in that month. While it is too premature to predict the volume of LidoSite sales, the product launch is the initial mass introduction of the LidoSite product into the market, and we are hopeful that these concerted marketing efforts will lead to significant sales volumes in the third quarter.

During July 2007, we undertook the first steps in our project to commercially launch the LidoSite product. The efforts have been highlighted by formation of a joint Vyteris - LabCorp team to initiate sales and marketing activities, under the agreement with LabCorp. In addition, we hired our own internal sales and marketing team and a senior vice president for sales and marketing. In addition to spearheading the marketing activities for those markets not covered by the agreement with LabCorp, the team is the core of the Vyteris group working with LabCorp to prepare for the launch of LidoSite into the physician office market.

Each new market opportunity and potential product will be evaluated on our projection of speed to market and size of return to us and our partners, in particular looking for high value market sectors where major FDA-approved drugs will soon be coming off patent. We have identified three additional key areas of market opportunity, in addition to needle stick pain, which we intend to pursue:

· Migraine pain,

· NSAIDs, and

· Fertility hormones.

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

Needle Stick Pain

The first key area targeted with our active transdermal drug delivery technology is needle stick pain. On May 6, 2004, we received approval from the FDA to commercially launch our first product, LidoSite, in the United States. LidoSite is a topical delivery system indicated for use on normal intact skin to provide local anesthesia prior to needle stick procedures such as venipunctures (blood draws), injections and intravenous therapies as well as superficial dermatological procedures. Our LidoSite product uses our smart patch technology to achieve rapid, deep local anesthesia prior to needle-stick procedures.

Our LidoSite product delivers lidocaine, a local anesthetic, along with a small quantity of epinephrine, a drug that helps lidocaine work faster and last longer by accelerating the onset of anesthesia and extending the duration of pain reduction. The system consists of a patch that adheres to the skin containing the medication and a small reusable battery-powered, wearable electronic dose controller connected to the patch. Clinical trials have shown LidoSite:

· works in as little as 10 minutes;

· provides deep anesthesia through the skin, from six to 10 mm in depth; and

· is well suited for applications in the clinic, where time and staff productivity are important.

29

We plan to generate near-term growth by marketing LidoSite to the physician office, hospital, and commercial diagnostic laboratory markets. An estimated 550 million blood samples are drawn each year in the U.S., from which an estimated 20-25 percent of patients may be needle pain sensitive or needle phobic, making them ideal candidates for LidoSite.

The major near term initiative in this area is the relationship with LabCorp. On June 5, 2007, we entered into a product marketing agreement with LabCorp which sets forth the terms and conditions upon which LabCorp is granted marketing rights to our LidoSite product (on an exclusive basis in specific target markets), under the LidoSite brand name. The target markets primarily consist of medical doctors' offices located within the United States and Phase I of the Agreement ends on May 31, 2008.

Previously, we entered into a license, development and supply agreement with B. Braun Medical, Inc., or B. Braun, on September 20, 2002 and amendments to that agreement on March 7, 2006, and January 1, 2007 relating to the marketing and distribution of LidoSite in the hospital market. We refer to this agreement, as amended, as the B. Braun Agreement.

The principal terms of the B. Braun Agreement provide for the following:

· B. Braun will act as our principal sales and marketing distributor for LidoSite in the hospital market;

· We are responsible for manufacturing and delivering LidoSite product to B. Braun;

· Title and risk of loss transfer to B. Braun upon delivery of the LidoSite product by us. We have no storage obligations once the product has been delivered to B. Braun; and

· B. Braun will be responsible for marketing, distribution and international registration, except for Japan, and will have the right to distribute the product in such manner as it shall determine.

Once we establish LidoSite for use in the physician office, hospitals, and commercial diagnostic laboratory markets, we intend to qualify LidoSite for use in the home, for numbing the skin for the many intramuscular, intravenous and subcutaneous self administered injectables, such as the tumor necrosis factor, (“TNF”) injections for rheumatoid arthritis.

Another significant needle pain market opportunity for LidoSite lies in the rheumatoid arthritis sector. TNF inhibitors like Enbrel® and Humira™, used to treat rheumatoid arthritis, are only available as injections. Over 200,000 prescriptions are written each month, leading to 20 million injections per year, making this a potential $6 billion market segment. This therapeutic category is all about relieving pain, yet for many patients, the necessity of multiple injections makes the cure almost as painful as the disease itself. LidoSite could be used for pain relief prior to these injections. To successfully execute on this market opportunity, we intend to qualify LidoSite for use in the home. Our path to market necessitates additional patient home use studies, which are now under-way and scheduled to be completed in late 2007.

With the increasing use of elective skin procedures, such as the approximately four million Botox injections annually and approximately two million Restylane injections annually, in addition to traditional in-patient procedures, dermatologist offices represent a significant market opportunity for our LidoSite active transdermal delivery to quell the fear of blenophobic patients.

Oncology is another fast growing segment within the pharmaceutical industry, where several new injectable medications are coming into the marketplace each year. The injection treatments in oncology require multiple visits by the patient. LidoSite use prior to those chemotherapy injections could help reduce the pain and provide a better chemotherapy experience for the patients.

30

We believe the market opportunities available within the needle pain market segment are significant and complementary in utilizing our active transdermal patch delivery system as point of entry platform into multiple market segments. Our efforts to gain additional distribution partners into the physician office and commercial diagnostic laboratories, namely the LabCorp relationship, will be a key to our near-term success.

Insurance Reimbursement

Our efforts to make LidoSite reimbursable by insurers has yielded preliminary indications that it will be reimbursable based on available evidence from the Technology Evaulation Center (TEC) of the Blue Cross and Blue Shield Association which found sufficient evidence to permit conclusions that the effect of iontophoretic drug delivery on health outcomes in patients requiring administration of local anesthetic prior to skin puncture or dermal procedures meets their criteria, a key to insurance reimbursement. Blue Cross of Idaho, Blue Cross of California, and UniCare have each made determinations that iontophoresis may be considered medically necessary to administer local anesthesia prior to a venipuncture or dematologic procedure. These actions will aid in the broader adoption of LidoSite and support our ongoing marketing and communications efforts in support of it.

Migraine

The second key area where we are pursuing to market our own brand is the treatment of migraines. This is a highly attractive market segment, estimated at over $3 billion per year, where major market leaders face imminent patent expirations. By focusing on these expiring drugs, we believe we can achieve more rapid commercialization by offering potential partners expanded patent protection through use of our active transdermal patch delivery platform and provide a low-cost point of entry for us into this market.

The treatment of migraine requires rapid onset of medication. A class of compounds known as “triptans” is currently considered the best treatment. We believe a significant market opportunity exists to improve the efficacy of triptan therapy for migraines by changing the method by which triptans are administered. Taken orally, triptans often fail to deliver sufficient quantities of medication in the short time frame required to optimally treat migraine onset. Further, they often fail to prevent the second episode, known as recurrence, that many migraine patients suffer within 12 to 18 hours after a first attack. We have demonstrated in a Phase I study our proprietary active transdermal delivery technology can be used to provide controlled delivery of zolmitriptan, a leading migraine medication, in humans. Our intent is to complete the necessary trials and obtain FDA approval to launch zolmitriptan in a smart patch, about the time it loses patent protection.

Our active patch technology can be pre-programmed for rapid delivery — as little as 15 minutes to achieve therapeutic levels — followed by a sustained maintenance dose that may prevent recurrence. If our Smart Patch is applied in this area, this customizable drug delivery could offer tremendous advantages in the treatment of migraine, and could improve patient satisfaction and patient compliance. This method of delivery represents a unique and significantly improved therapy and we believe it could be a potentially effective way of treating migraine headaches and preventing recurring migraine headaches.

Pain Management

Another key area of potential partnership with pharmaceutical companies we are pursuing is in pain management, specifically, the non-steroidal anti-inflammatory drug (“NSAID”) sector, which falls in line with our strategy of pursuing high probability, low risk opportunities leading to better patient care. The NSAID market is potentially worth $6 billion. The recent withdrawal of COX-2 Inhibitor products because of safety issues has led to a 49 percent decline, or a $3 billion immediate market opportunity.

NSAIDs have made a dramatic contribution to pain management, but their extensive use has also documented a problematic safety profile, due to gastrointestinal (“GI”) side effects associated with extended use or over dosing of the drugs. In the United States alone, more than 200,000 hospitalizations are attributed to NSAID use, and more than 16,000 deaths a year are attributed to NSAID use. We believe there is market opportunity for a drug delivery system minimizing the GI side affects associated with oral NSAIDs.

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Our active delivery system bypasses the gastrointestinal tract minimizing the GI side effects associated with oral NSAIDs, and circumvents a major disadvantage of these commonly used medications. We believe that if our smart patch technology is applied to NSAIDs, the controlled drug delivery profile from our active patch could also curtail overdosing of the drugs.

We expect to conduct clinical trials of our proprietary transdermal system for the delivery of NSAIDs in 2007.

Infertility Product

Lastly, we have partnered with Ferring Pharmaceuticals, Inc., or Ferring, for the development of an innovative product to treat infertility. The product under development mimics the body's natural rhythms, a characteristic important in the delivery of therapeutics for the treatment of infertility. To be effective, medication must be delivered in multiple daily doses for up to 21 days during a woman's 28-day cycle. Many patients currently need to undergo multiple injection-based protocols for ovulation induction. The product being co-developed by Vyteris and Ferring makes it possible to administer the peptide without needles, and is being designed to deliver multiple transdermal pulses automatically, around the clock, in a painless, convenient and cost-effective manner.

Furthermore, the use of an active patch to deliver peptides would constitute a major scientific breakthrough in the biotech and biopharma sectors. Virtually all new biotech drugs being developed are peptide molecules, and — up to this point — require injections.

The principal terms of our development and marketing agreement and a supply agreement with Ferring agreement is as follows:

· We are responsible for all product development activities. Product development activities include all activities associated with the design, engineering and laboratory testing of the physical product and its manufacturing processes, including hardware, software, materials, components, specifications, procedures and manufacturing equipment;

· Ferring is obligated to reimburse us for 50 percent of our product development costs, provided such costs do not exceed 110 percent of the amount budgeted;

· Ferring is responsible for all regulatory filings;

· Ferring is responsible for the conduct of, and cost of, clinical trials. Clinical trials include experimental testing of the product on humans in a clinical environment according to FDA guidelines to demonstrate safety and efficacy and ultimately gain FDA approval. This includes all activities associated with design of the experimental trials, selecting the test centers, personnel costs associated with carrying out the trials, acquisition and analysis of data from the trials, and presentation or publication of the data in a format suitable for submission to the FDA; and

· Ferring is obligated to pay up to $9.0 million on the occurrence of certain events during the term of the agreements. Through June 30, 2007, Ferring has made $0.5 million of such milestone payments to us.

On June 2, 2005, Ferring submitted an investigational new drug (“IND”) application to the FDA in preparation for the initiation of clinical trials on a new transdermal product to treat female infertility.  Clearance from the FDA was received on July 2, 2005 and Ferring initiated clinical studies on July 18, 2005. Upon Ferring’s submission of the IND to the FDA, we received a $0.3 million milestone payment from Ferring, which revenue recognition was deferred and will be recognized over the life of the development and marketing agreement. Revenue recognized from the Ferring agreement was approximately $0.8 million and $0.6 for the three months ended June 30, 2007 and 2006, respectively, and $1.7 million and $1.0 million for the six months ended June 30, 2007 and 2006 respectively.

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Critical Accounting Policies

Our discussion and analysis of our financial position and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. Our significant accounting policies are more fully described in our Annual Report on Form 10-KSB for the year ended December 31, 2006. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported revenues and expenses during the period.

We consider certain accounting policies related to revenue recognition, allowance for excess and obsolete inventory, accrued expenses and stock-based compensation to be critical to our business operations and the understanding of our results of operations.

Revenue

Product sales. The Company recognizes product revenue, net of allowances for anticipated returns, provided that (1) persuasive evidence of an arrangement exists, (2) delivery to the customer has occurred, (3) the selling price is fixed or determinable and (4) collection is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. The price is considered fixed or determinable when it is not subject to refund or adjustments. Our standard shipping terms are freight on board (F.O.B.) shipping point.

Product Development Revenue. In accordance with EITF No. 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred”, the Company recognizes revenues for the reimbursement of development costs when it bears all the risk for selection of and payment to vendors and employees. Costs associated with such activities are included in research and development expenses on the condensed consolidated statements of operations.

Feasibility Studies. We conduct feasibility studies to demonstrate the viability of our technology to interested potential partners to enter into a development, marketing and supply partnership. Revenues on feasibility studies are measured using the proportional performance method of accounting. Such studies are typically completed within a one- to three-month period. Revenue producing feasibility studies do not occur regularly, are priced at what we anticipate the actual costs will be and are not expected to produce material revenues or a profit. When applying the proportional performance method, we rely on total expected input (contract) costs in order to determine the amount of revenue earned to date. We follow this method because reasonably dependable estimates of the revenue applicable to various contract milestones can be made. We monitor estimates of total contract revenues and cost on a routine basis throughout the contract period. The cumulative impact of any change in estimates of the contract revenues or costs is reflected in the period in which the changes become known. In the event that a loss is anticipated on a particular contract, provision is made for the estimated loss in the period in which the anticipated loss becomes known. We issue invoices related to fixed price contracts based on either the achievement of milestones during a project or other contractual terms. Differences between the timing of billings and the recognition of revenue based upon the proportional performance method of accounting are recorded as revenue earned in excess of billings or deferred revenue. The reimbursements are included in other revenue on the condensed consolidated statements of operations.

Deferred Revenue. Vyteris uses revenue recognition criteria outlined in Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements, and EITF No. 00-21 “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). Accordingly, revenues from licensing agreements are recognized based on the performance requirements of the agreement. Non-refundable up-front fees, where the Company has an ongoing involvement or performance obligation, are generally recorded as deferred revenue in the balance sheet and amortized into license fees in the statement of operations over the term of the performance obligation.

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Allowance for Excess and Obsolete Inventory.

We assess the valuation of our inventory on a quarterly basis to provide an allowance for the value of estimated excess and obsolete inventory. The key factors in our inventory review process are contractual terms with B. Braun, our historical experience for raw materials and fabricated patch product meeting our specification acceptance criteria. The failure to meet specifications renders raw materials unusable in our patch fabrication process and for fabricated patches renders such patches not available for sale. If future sales are less than currently projected by management, additional inventory allowances for excess or obsolete inventory may be required. Increases in the allowance for excess and obsolete inventory result in a corresponding expense to cost of sales.

Accrued estimates.

As part of the process of preparing our condensed consolidated financial statements, we are required to estimate certain expenses. This process involves identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for such service as of each balance sheet date in our financial statements. Examples of estimated expenses for which we accrue include professional service fees, contract service fees and fees paid to contract research organizations in connection with the conducting of clinical trials. Our estimates are most affected by our understanding of the status and timing of services provided relative to the actual levels of services incurred by such service providers. In the event that we do not identify certain costs which have begun to be incurred or we under-estimate or over-estimate the level of services performed or the costs of such services for a period, our reported expenses for such period would be too low or too high. The date on which certain services commence, the level of services performed on or before a given date and the cost of such services are often estimated. We make these estimates based upon the facts and circumstances known to us in accordance with U.S. generally accepted accounting principles.

Stock-based compensation.

On January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for either equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R requires that such transactions be accounted for using a fair-value-based method and recognized as expense on the grant date in our condensed consolidated statements of operations.

In considering the fair value of the underlying stock when we grant options, we consider several factors, including third party valuations and the fair values established by market transactions. Stock-based compensation includes estimates of when stock options might be exercised, forfeiture rates and stock price volatility. The timing for exercise of options is out of our control and will depend, among other things, upon a variety of factors, including our market value and the financial objectives of the holders of the options. We have limited historical data to determine volatility in accordance with Black-Scholes-Merton modeling or other acceptable valuation models under SFAS No. 123R. In addition, future volatility is inherently uncertain and the valuation models have its limitations. These estimates can have a material impact on stock-based compensation expense in our condensed consolidated statements of operations but will have no impact on our cash flows. Therefore determining the fair value of our common stock involves significant estimates and judgments.

Recently issued accounting standards

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and will become effective for us beginning with the first quarter of 2008. We do not believe the adoption of SFAS No. 157 will have a material impact on our financial statements.

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In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We have not yet determined the impact of the adoption of SFAS No. 159 on our financial statements and footnote disclosures.

Consolidated Results of Operations

The following table sets forth the percentage increases or (decreases) in certain line items on our condensed consolidated statements of operations for the three and six months ended June 30, 2007 and June 30, 2006

	Three months  ended June 30, 2007 Versus June 30, 2006			Six months ended June 30, 2007 Versus June 30, 2006
Revenues		35.9	%		58.8	%
Cost of sales		(97.7	%)		(99.6	%)
Research and development expense		12.5	%		13.2	%
General and administrative expense		207.3	%		110.6	%
Registration rights penalty		-			-
Interest expense, net		37.8	%		41.1	%
Net loss		222.0	%		177.3	%

Comparison of the Three Month Periods Ended June 30, 2007 and 2006

Revenues

Revenues were $0.8 million for the three months ended June 30, 2007, compared to $0.6 million for the comparable period in 2006, an increase of 35.9% or $0.2 million. Our revenues for the three-month period ended June 30, 2007 were primarily derived from reimbursement of product development costs. Revenues in the comparable period in the prior year were principally comprised of $0.6 million under the development and marketing agreement with Ferring.

Revenues from the development and marketing agreement with Ferring were $0.8 million for the three months ended June 30, 2007, compared to $0.6 million for the comparable period in 2006, an increase of 38.4% or $0.2 million. This increase is primarily attributable to additional research and development resources dedicated to this agreement. Due to the accelerated pace of development costs during the first and second quarters of 2007, it is possible that by the third or fourth quarter of 2007, we could incur 100% of the development costs without any revenue.

We had minimal product sales under the B. Braun Agreement during the three months ended June 30, 2006 and none for the three months ended June 30, 2007. At this time, B. Braun has not provided the quarterly purchase orders or the related rolling forecast for the prospective calendar quarters. We expect minimal product sales revenues, if any, for the coming quarter from product sales under the B. Braun Agreement.

We anticipate that gross revenues for the balance of 2007 will show material improvement due to the product marketing agreement we entered into with LabCorp and our LidoSite product launch although it is premature to predict the actual success. We have devoted substantial resources to introduction of LidoSite to the market and anticipate the ability to begin to gauge the success of our efforts through its third quarter results.

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Cost of Sales

There was minimal cost of sales for the three months ended June 30, 2007, compared to $0.04 million for the comparable period in 2006. During the three-month period ended June 30, 2006, cost of sales consisted of an increase in our valuation allowance for excess and obsolete inventory. The key factors in our inventory review process are the contractual terms with B. Braun, the anticipated demand for the product and the historical rates for raw materials and fabricated patch product meeting specification acceptance criteria. We did not manufacture our LidoSite product during the three-month period ended June 30 2006 as we had enough products in inventory to satisfy anticipated demand through the second quarter of 2007. Based upon the agreement reached with LabCorp during the first quarter of 2007, we recommenced manufacturing activities in an effort to begin commercialization of our LidoSite product.

Research and Development Expenses

Research and development expenses were $2.1 million for the three months ended June 30, 2007, compared to $1.9 million for the comparable period in 2006, an increase of 12.5% or $0.2 million. Research and development expenses primarily consist of product development activities in connection with the development and marketing agreement with Ferring. Research and development expenses in the three-month period ended June 30, 2006 included expenses incurred additional resources required with the temporary suspension of the manufacturing process. Research and development expenses for the three months ended June 30, 2007 and 2006, also include a non-cash charge of $0.1 million relating to the adoption of SFAS 123R on January 1, 2006, which requires us to measure the fair value of all employee share-based payments and recognize that value as an operating expense.

General and Administrative Expenses

General and administrative expenses totaled $4.5 million for the three months ended June 30, 2007, compared to $1.5 million for the comparable period in 2006, an increase of 207.3% or $3.0 million. We have increased spending on general and administrative activities in the second quarter of 2007 to make our products market ready in order to get ready for arrangements with large pharmaceutical companies that will sell directly to office-based physicians, especially rheumatologists, orthopedic surgeons, pediatricians, dermatologists, and internal medicine practitioners. In the second quarter of 2007, we incurred approximately $1.5 million of expenses initiating our own internal sales and marketing team, hiring a senior vice president for sales and marketing and marketing materials for our third quarter product launch. General and administrative expenses for the three months ended June 30, 2007 and 2006, also include a non-cash charge of $1.1 million and $0.1 million, respectively, relating to the adoption of SFAS 123R on January 1, 2006, which requires us to measure the fair value of all employee share-based payments and recognize that value as an operating expense.

Registration Rights Penalty

The registration rights penalty for failure to register common stock issued totaled $0.1 million for each of the three months ended June 30, 2007 and 2006. In connection with our private placement transactions in September 2004, we filed a registration statement with the SEC relating to the resale of shares of our common stock. Since the SEC did not declare that registration statement effective by February 25, 2005, we are obligated to pay a registration rights penalty to certain stockholders. The registration statement was declared effective on May 12, 2005, resulting in a cumulative obligation to pay liquidated damages of approximately $1.4 million, payment of which would materially adversely affect our financial condition and ability to remain in business. In addition, we are obligated to pay interest at a rate of 18% per annum, accruing daily, for any liquidated damages not paid in full within 7 days of the date payable.

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Interest (Income) Expense, Net

Interest (income) expense, net, was $1.3 million in the three-month period ended June 30, 2007, compared to $1.0 million in the comparable period in the prior year, an increase of 37.8%, or $0.3 million. This increase is principally attributable to the increase of third party interest expense and interest expense to related parties for the warrants issued for the Working Capital Facility extension. Third party interest expense totaled $0.5 million in the three-month period ended June 30, 2007 as compared to $0.6 million for the comparable period in 2006. Interest expense to related parties totaled $0.9 million in the three-month period ended June, 2007 as compared to $0.3 million for the comparable period in 2006. Interest income, included in interest expense, net, was $0.05 million for the three month period ended June 30, 2007 as opposed to $0.02 million for the three month period ended June 30, 2006.

During three-month periods ended June 30, 2007 and 2006, interest expense consisted of the following:

	Three Months Ended June 30,
	2007		2006
Non-cash interest expense:
Amortization of warrants issued with debt	$	5,337	$	259,470
Offering costs amortization		-		120,643
Warrants issued for Working Capital Facility extension		523,363		102,300
Beneficial conversion feature		57,447		-
Other		320,625		-
Total non-cash interest expense		906,772		482,413
Coupon and other interest		326,850		354,540
Interest on Series B convertible redeemable preferred stock		150,000		__150,000
Total interest expense	$	1,383,622	$	986,953

Revaluation of Warrant Liability

In connection with the November 2006 Financing, the December 2006 Financings and the 2007 Financings, we determined that approximately 24.1 million common shares reserved for issuance under the warrants were in excess of authorized shares on a fully diluted basis (the “excess warrants”). This required us to record the fair value of the warrants as a liability at each period. As a result, we amended our certificate of incorporation on May 2, 2007 to increase the amount of authorized shares of common stock to 200,000,000 shares accommodate the exercise of the excess warrants. Accordingly, we recorded revaluation of warrant liability expense of $5.1 million in the accompanying condensed consolidated statements of operations in the three months ended June 30, 2007.

Comparison of the Six Month Periods Ended June 30, 2007 and 2006

Revenues

Revenues were $1.8 million for the six months ended June 30, 2007, compared to $1.1 million for the comparable period in 2006, an increase of 58.8% or $0.7 million. Our revenues for the six-month period ended June 30, 2007 were primarily derived from reimbursement of product development costs. Revenues in the comparable period in the prior year were principally comprised of $1.0 million under the development and marketing agreement with Ferring and $0.1 million in research feasibility studies and product and demonstration unit sales to B. Braun.

Revenues from the development and marketing agreement with Ferring were $1.7 million for the first six months in 2007, compared to $1.0 million for the comparable period in 2006, an increase of 75.9% or $0.7 million. This increase is primarily attributable to additional research and development resources dedicated to this agreement during the first six months of 2007 and is approximately $0.7 million in excess of the $1.0 million billed in the comparable period in the prior year. Due to the accelerated pace of development costs during the first six months of 2007, it is possible that by the third or fourth quarter of 2007, we could incur 100% of the development costs without any revenue.

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We had minimal product sales under the B. Braun Agreement during the six months ended June 30, 2006 and none for the six months ended June 30, 2007. At this time, B. Braun has not provided the quarterly purchase orders or the related rolling forecast for the prospective calendar quarters. We expect minimal product sales revenues, if any, for the coming quarter from product sales under the B. Braun Agreement.

We anticipate that gross revenues for the balance of 2007 will show material improvement due to the product marketing agreement we entered into with LabCorp and our LidoSite product launch although it is premature to predict the actual success. We have devoted substantial resources to introduction of LidoSite to the market and anticipate the ability to begin to gauge the success of our efforts through third quarter results.

Cost of Sales

There was minimal cost of sales for the six months ended June 30, 2007, compared to $0.2 million for the comparable period in 2006. During the six-month period ended June 30, 2006, cost of sales consisted of an increase in our valuation allowance for excess and obsolete inventory. The key factors in our inventory review process are the contractual terms with B. Braun, the anticipated demand for the product and the historical rates for raw materials and fabricated patch product meeting specification acceptance criteria. We did not manufacture our LidoSite product during the six-month periods ended June 30, 2006 as we had enough products in inventory to satisfy anticipated demand through the first quarter of 2007. Based upon the agreement reached with LabCorp during the second quarter of 2007, we recommenced manufacturing activities in an effort to begin commercialization of our LidoSite product.

Research and Development Expenses

Research and development expenses were $4.2 million for the six months ended June 30, 2007, compared to $3.7 million for the comparable period in 2006, an increase of 13.2% or $0.5 million. Research and development expenses primarily consist of product development activities in connection with the development and marketing agreement with Ferring. During the first six months of 2007 we allocated additional research and development resources dedicated to this agreement. Research and development expenses in the six-month period ended June 30, 2006 included expenses incurred for a research feasibility study for a pharmaceutical company and additional resources required with the temporary suspension of the manufacturing process. Research and development expenses for the six months ended June 30, 2007, also include a non-cash charge of $0.2 million relating to the adoption of SFAS 123R on January 1, 2006, which requires us to measure the fair value of all employee share-based payments and recognize that value as an operating expense.

General and Administrative Expenses

General and administrative expenses totaled $6.3 million for the six months ended June 30, 2007, compared to $3.0 million for the comparable period in 2006, an increase of 110.6% or $3.3 million. We have increased spending on general and administrative activities in the first six months of 2007 to make our products market ready in order to get ready for arrangements with large pharmaceutical companies that will sell directly to office-based physicians, especially rheumatologists, orthopedic surgeons, pediatricians, dermatologists, and internal medicine practitioners. In the second quarter of 2007, we incurred approximately $1.5 million of expenses initiating our own internal sales and marketing team, hiring a senior vice president for sales and marketing and marketing materials for our third quarter product launch. General and administrative expenses for the six months ended June 30, 2007 and 2006, also include a non-cash charge of $1.3 million and $0.2 million, respectively, relating to the adoption of SFAS 123R on January 1, 2006, which requires us to measure the fair value of all employee share-based payments and recognize that value as an operating expense.

Registration Rights Penalty

The registration rights penalty for failure to register common stock issued totaled $.13 million for each of the six months ended June 30, 2007 and 2006. In connection with our private placement transactions in September

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2004, we filed a registration statement with the SEC relating to the resale of shares of our common stock. Since the SEC did not declare that registration statement effective by February 25, 2005, we are obligated to pay a registration rights penalty to certain stockholders. The registration statement was declared effective on May 12, 2005, resulting in a cumulative obligation to pay liquidated damages of approximately $1.4 million, payment of which would materially adversely affect our financial condition and ability to remain in business. In addition, we are obligated to pay interest at a rate of 18% per annum, accruing daily, for any liquidated damages not paid in full within 7 days of the date payable. Accordingly, we have accrued interest expense of approximately $0.1 million on the total liquidated damages for the six-month period ended June 30, 2007 and 2006 in the condensed consolidated statements of operations.

Interest (Income) Expense, Net

Interest (income) expense, net, was $2.7 million in the six-month period ended June 30, 2007, compared to $1.9 million in the comparable period in the prior year, an increase of 41.1%, or $0.8 million. This increase is principally attributable to the increase of third party interest expense and interest expense to related parties for the warrants issued for the Working Capital Facility extension. Third party interest expense totaled $1.4 million in the six-month period ended June 30, 2007 as compared to $1.3 million for the comparable period in 2006. Interest expense to related parties totaled $1.4 million in the six-month period ended June, 2007 as compared to $0.7 million for the comparable period in 2006. Interest income, included in interest expense, net, was $.0.1 million for the six month period ended June 30, 2007 and $0.03 million for the six month period ended June 30, 2006.

During six-month periods ended June 30, 2007 and 2006, interest expense consisted of the following:

	Six Months Ended June 30,
	2007		2006
Non-cash interest expense:
Amortization of warrants issued with debt	$	764,333	$	518,942
Offering costs amortization		11,404		239,169
Warrants issued for Working Capital Facility extension		757,663		304,700
Beneficial conversion feature		114,041		-
Other		320,625		-
Total non-cash interest expense		1,968,066		1,062,811
Coupon and other interest		547,401		766,237
Interest on Series B convertible redeemable preferred stock		300,000		150,000
Total interest expense	$	2,815,467	$	1,979,048

Revaluation of Warrant Liability

In connection with the November 2006 Financing, the December 2006 Financings and the 2007 Financings, we determined that approximately 24.1 million common shares reserved for issuance under the warrants were in excess of authorized shares on a fully diluted basis (the “excess warrants”). This required us to record the fair value of the warrants as a liability at each period As a result, we amended our certificate of incorporation on May 2, 2007 to increase the amount of authorized shares of common stock to 200,000,000 shares to permit the exercise of the excess warrants. Accordingly, we recorded revaluation of warrant liability expense of $10.3 million in the accompanying condensed consolidated statements of operations in the six months ended June 30, 2007.

Liquidity and Capital Resources

The condensed consolidated financial statements have been prepared assuming that we will continue as a going concern; however, at our current and planned rate of spending, we believe that our cash and cash equivalents of $1.0 million, as of June 30, 2007 are not sufficient to allow us to continue operations after September 2007 without immediate additional funding. No assurance can be given that we will be successful in arranging additional financing needed to continue the execution of our business plan, which includes the development of new products. Failure to obtain immediate financing may require management to further substantially curtail operations, which may result in a material adverse effect on our financial position and results of operations. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might occur if we are unable to continue in business as a going concern.

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On June 30, 2007 our cash position was $1.0 million and we had negative working capital of $7.6 million. In the first six months of 2007, through placement of common stock, we raised a total of $9.1 million pursuant to which we issued to investors a total of 12,110,667 shares of common stock at $0.75 per share. Net proceeds were $8.0 million, with finder’s fees and other legal costs of $1.1 million recorded as a reduction of equity as a cost of the transaction. The Company also borrowed $0.4 million from STSG in the first quarter pursuant to a senior secured promissory note.

Subsequent to June 30, 2007, we raised a total of $12.7 million pursuant to which we issued to investors a total of 8,489,997 shares of common stock at a purchase price of $1.50 per share and warrants to purchase 8,489,997 shares of common stock, at an exercise price of $3.00 per share.

Cash flows from operating activities

For the six-month period ended June 30, 2007, we used $9.8 million of cash in operating activities, as compared to $5.7 million of net cash used in operating activities in the comparable period in the prior year, an increase of $4.0 million, or 72.2%. The principal factors in the increase is the increase in net loss of $14.1 million and the cash flow utilized to satisfy accounts payable and the increase in accrued interest payable to related parties during the first six months of 2007 from the same period in 2006.

During the six-month period ended June 30, 2007, we had a net loss of $22.0 million partially offset by approximately $14.1 million of non-cash items and a $1.9 million decrease in operating assets and liabilities resulting in net cash used in operating activities of $9.8 million. During the six-month period ended June 30, 2006, we had a net loss of $7.9 million partially offset by approximately $2.0 million of non-cash items and a $0.2 million increase in operating assets and liabilities resulting in net cash used in operating activities of $5.7 million.

Until we can develop and maintain consistent sales, we shall continue to utilize more cash in operating activities than is generated, especially after marketing, manufacturing and sales activities recommence. Therefore, until there are significant sales to cover operating costs, we will be dependent upon cash flows from financing activities to fund our operations.

Cash flows from investing activities

For the six-month period ended June 30, 2007, net cash used in investing activities was $0.05 million, as compared to $0.6 million of net cash provided by investing activities in the comparable period in the prior year, a decrease of $0.6 million, or 108.8%. During the six-month period ended June 30, 2007, we released $0.1 million of restricted cash, in interest payments, as opposed to $0.6 million, of restricted cash in interest payments during the first six months of 2006, and $0.1 million to the landlord of our second facility during the first six months of 2006. In the first six months of 2007, we also purchased $0.1 million in equipment as opposed to minimal purchases during the same period in 2006.

Cash flows from financing activities

For the six-month period ended June 30, 2007, net cash provided by financing activities was $8.7 million, as compared to $5.0 million of net cash in financing activities in the comparable period in the prior year, an increase of $3.7 million, or 74.7%. During six-month period ended June 30, 2007 we raised $8.0 million in net proceeds from private placements of common stock and warrants and borrowed $0.4 million from a related party by issuance of a secured promissory note, which were partially offset by a repayment of capital lease obligations and other activities in the amount of $0.1 million. For the six-month period ended June 30, 2006, we borrowed $5.0 million from the issuance of unsecured promissory notes to STSG, a related party.

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Until the Company is able to generate sufficient revenues through sales of its products, it will be largely dependent upon financing activities to cover its operating costs. The marked increase in cash flows requirements for the six month period ended June 30, 2007 over the comparable period in the prior year is largely due to increased consulting fees and purchase of raw materials in anticipation of recommencement of manufacturing and sales and marketing efforts in 2007, which will need to be covered by cash flows from financing activities until there are sufficient revenues from sales to cover cash flow needs from operating activities. Until there is a sufficient amount of sales and marketing activity to accurately gauge market demand for our products and to accurately track costs of sales, it is not possible to predict when, if at all, revenues from product sales will be sufficient to cover operating and other costs.

Financing History 2007 and 2006

Working Capital Facility

On February 23, 2007, STSG loaned to the Company $0.4 million in aggregate principal amount in the form of a senior secured promissory note subject to the terms of its Working Capital Facility with STSG, which was originally put into place in September 2004. In connection with the loan, on a monthly basis we will issue to the noteholders warrants to purchase 49,280 shares of the Company’s common stock at an exercise price of $0.75 per share. As of June 30, 2007 and 2006, respectively, $2.9 million and $2.5 million were outstanding under this facility. As the Company is currently renegotiating with STSG, no warrant issuances have been made thereunder since May 2007. We have estimated an interest expense for June 2007 of approximately $0.02 million based upon expected renegotiated terms.

January 31, 2006 Promissory Note

On January 31, 2006, STSG provided us with a $0.3 million loan in the form of 10.0% Subordinated Convertible Unsecured Promissory Note (the "January 31, 2006 Promissory Note"). Pursuant to the terms of the January 31, 2006 Promissory Note, amounts must be repaid on or before December 1, 2008. At any time prior to maturity date, STSG shall have the option to convert the entire January 31, 2006 Promissory Note and interest accrued into shares of our common stock at a conversion price of $2.40 per share. In connection with the January 31, 2006 Promissory Note, we issued warrants to STSG that are exercisable into a maximum of 52,083 shares, in the aggregate, of our common stock at an exercise price of $2.88 per share.

2006 Promissory Notes

In 2006, STSG provided us with a total of $8.1 million in loans in the form of Subordinated Convertible Unsecured Promissory Notes (the “2006 Promissory Notes”). The 2006 Promissory Notes: (i) mature on December 1, 2008; (ii) bear interest at a rate equal to 10% per annum payable in cash on a semi-annual basis; (iii) are convertible into shares of common stock at a conversion price of $2.40 per share; (iv) are convertible into the Company’s next private financing of equity or debt securities and (v) have piggy-back registration rights. As an inducement to STSG to make these loans, we entered into a letter agreement with STSG pursuant to which we agreed to use our best efforts to take all necessary and appropriate action to amend our articles of incorporation to reduce the conversion price of its series B convertible preferred stock (of which STSG is the principal holder) from $7.16 per share to $ $1.00 under certain conditions and is currently at $3.58 per share. This reduction to the conversion price has not yet occurred.

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As an inducement to STSG to purchase the August 30, 2006 Subordinated Convertible Unsecured Promissory Note, we agreed to amend the prior 2006 Promissory Notes to conform the conversion provision of the notes to conversion at the option of the holder, rather than automatic conversion, in a "Qualified Financing," as defined.

2006 Private Placements

In the fourth quarter of 2006, we raised gross proceeds of $5.75 million pursuant to the sale to investors of a total of (i) 23,000,000 shares of common stock and (ii) 11,500,000 warrants, each of which may be exercised for two years from the date of issuance to purchase one share of common stock for $0.45 per share (the “November 2006 Financing”). These securities were offered in units of two shares of common stock and one warrant at a purchase price of $0.50 per unit (the “Unit”). The warrants are callable by us when the bid price of the common stock trades at or above $1.00 per share for twenty consecutive trading days. These securities were issued in a private placement exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) of that act. In connection with the agreement, we will use our best efforts to register the shares sold and the shares underlying the warrants with the SEC, however, no penalties are required in the event we do not register the shares. Net proceeds were $5.1 million, with finders fees and other legal costs $0.6 million recorded as a reduction of equity as a cost of the transaction.

At the end of the fourth quarter of 2006, we sold an additional $5.3 million of common stock at $0.75 per share for a total of 7,053,638 million shares (the "December 2006 Financing"). Net proceeds were $4.7 million, with finders fees and other legal costs of $0.6 million recorded as a reduction of equity as a cost of the transaction.

In connection with the November 2006 Financing, the Company paid finders fees to Wolverine International Holdings Ltd (“Wolverine”) and to Spencer Trask Ventures, Inc. (“STVI”) a related-person of STSG, a principal stockholder of Vyteris, in the amount of $0.5 million and $0.1 million, respectively, representing 10% of the gross proceeds raised. In addition, we issued to Wolverine and STVI warrants to purchase up to 950,000 and 200,000 Units, respectively, representing 10% of the Units issued to investors. Each warrant may be exercised for two years from the date of issuance to purchase an additional share of common stock for $0.45 per share and two shares of common stock. The registration rights agreement described above also will cover the resale of the common stock and the amount of common shares underlying the warrants issued to Wolverine and STVI pursuant to their agreements with us.

In connection with the December 2006 Financing, we paid finders fees to Wolverine and STVI of $0.3 million each, representing 10% of the gross proceeds raised. In addition, we issued to Wolverine and STVI warrants to purchase up to 341,300 and 364,064 shares of our common stock, respectively, representing 10% of the common stock issued to investors. Each warrant may be exercised for five years from the date of issuance to purchase an additional share of common stock for $0.75 per share. The registration rights agreement described above also will cover the resale of the common stock and the warrants to be issued to Wolverine and STVI pursuant to their agreements with us.

2007 Private Placement

During the first six months of 2007, we raised a total of $9.1 million pursuant to which we issued to investors a total of 12,110,667 shares of common stock at $0.75 per share. In connection with the 2007 Financing, we paid finders fees to Wolverine and to STVI, in the amount of $0.9 million and $0.04 million, respectively, representing 10% of the gross proceeds raised. In addition, we issued to Wolverine and STVI warrants to purchase up to 1,161,664 and 49,400 shares of our common stock, respectively, representing 10% of the common stock issued to investors. Each warrant may be exercised for five years from the date of issuance to purchases share of common stock for $0.75 per share. The transaction calls for filing of a registration statement to cover the resale of the common stock and the amount of common shares underlying the warrants issued to Wolverine and STVI pursuant to their agreements with the Company. Net proceeds were $8.0 million, with finders fees and other legal costs of $1.0 million recorded as a reduction of equity as a cost of the transaction.

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Cash Position

As of June 30, 2007, we had a cash balance of $1.0 million and negative working capital of $7.6 million as compared with a cash balance of $2.2 million and negative working capital of $18.0 million at December 31, 2006.

During the first six months of 2007, we financed our operations through two financings. First, we raised $9.1 million pursuant to which we issued to investors a total of 12,110,667 shares of common stock at $0.75 per share (the “2007 Financings”). Net proceeds were $8.1 million, with finder’s fees and other legal costs of $1.0 million recorded as a reduction of equity as a cost of the transaction. We also borrowed $0.4 million from STSG in the first quarter of 2007 pursuant to a senior secured promissory note. There were no additional equity raises or funds borrowed during the first six months of 2007. Subsequent to June 30, 2007, we raised a total of $12.7 million pursuant to which we issued to investors a total of 8,489,997 shares of common stock at a purchase price of $1.50 per share. Additional funding, above the $12.7 million raised during the third quarter of 2007, may not be on terms as favorable as the terms of this recent private placement.No assurance can be given that we will be successful in arranging the further immediate financing needed to continue the execution of our business plan, which includes the development of new products. Failure to obtain such immediate financing will require management to substantially curtail operations, which will result in a material adverse effect on our financial position and results of operations.

Although the SEC extended the compliance deadline with Section 404 of the Sarbanes-Oxley Act of 2002 for non-accelerated filers like the Company to its first fiscal year ending on or after December 15, 2007, we anticipate becoming an accelerated filer by the end of 2007, and we continue to finalize our plan for compliance, which we anticipate completing during the third quarter.. We expect that the internal and external costs of complying with the Sarbanes-Oxley Act of 2002, in particular Section 404, will be substantial in 2007.

We expect to devote substantial resources to scale-up the manufacturing process for our LidoSite product, to expand our manufacturing capacity for LidoSite and to continue the development of our infertility product. Our funding requirements will depend on numerous factors, including the following:

· manufacturing costs of LidoSite;

· LidoSite sales which commenced in the first quarter of 2005;

· the time and costs required for us to scale-up our manufacturing process;

· our ability to enter into marketing partnerships for our Northstar System, marketed by B. Braun as LidoSite, for the U.S. physicians’ office and Japanese markets and our ability to commence commercial distribution into such markets.

· our ability to enter into development partnerships with pharmaceutical companies;

· the results of the development activities on our planned new products; and

· the cost involved in preparing, filing, prosecuting, defending, maintaining and enforcing patent claims and other patent related costs.

Accrued Registration Rights

In connection with the September 2004 Private Placement and the December 2004 Notes, we filed a registration statement with the SEC relating to the resale of shares of our common stock. Since that registration statement was not declared effective by the SEC by February 25, 2005, we are obligated to pay to certain stockholders an amount

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equal to 1% of the purchase price paid by such stockholders for the shares owned by such stockholders which are covered by the registration statement, and for each month, or portion of a month, in which such delay continues, an amount equal to 2% of such purchase price, until we have cured the delay, with an overall cap on such registration rights penalty, or liquidated damages, of 10% of the aggregate purchase price paid by such stockholders for such shares. The registration statement was declared effective on May 12, 2005, resulting in an obligation to pay liquidated damages of approximately $1.4 million, payment of which would materially adversely affect our financial condition. In addition, we are obligated to pay interest at a rate of 18% per annum, accruing daily, for any liquidated damages not paid in full within 7 days of the date payable. We have not yet paid such amount and interest continues to accrue. Interest expense, included in registration rights penalty in the accompanying condensed consolidated statements of operations, was approximately $0.1 million for the six months periods ended June 30, 2007 and 2006. As of June 30, 2007, we accrued approximately $2.0 million for this penalty.

Contractual Obligations and Other Commitments

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

	Payments due by Period as of June 30, 2007
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating lease obligations	$	3,809,591	$	578,676	$	1,206,237	$	904,387	$	1,120,291
Continuous motion patch machine		166,264		166,264		-		-		-
Capital lease obligations		41,461		35,538		5,923		-		-
Distribution Agreement		360,000		120,000		240,000		-		-
Debt obligations		8,691,550		2,850,000		5,841,550		-		-
Advisory consulting agreement		565,000		175,000		360,000		30,000		-
Total	$	13,633,866	$	3,925,478	$	7,653,710	$	934,387	$	1,120,291

Effective as of September 28, 2004, the holders of Vyteris Holdings Series B convertible redeemable preferred stock were entitled to receive an annual cash dividend of 8% of the then applicable redemption price, as defined, out of funds legally available, payable quarterly. The dividends with respect to Vyteris Holdings Series B convertible redeemable preferred stock are cumulative, whether or not earned or declared and shall be paid quarterly in arrears. We expect to accrue dividends of $.02 million per year until redemption begins. Interest accrued was $0.2 million for the three-month periods ended June 30, 2007 and 2006 and $0.3 million for the six months ended June 30, 2007 and 2006.

Commencing on March 1, 2006, we are required to redeem on a quarterly basis an amount of Series B convertible redeemable preferred stock equal to 10% of the gross profits derived from the sale of LidoSite. The redemption price of the Series B convertible redeemable preferred stock is $3.58 per share (adjusted for splits, etc.) (which is currently subject to renegotiation to $1.50 per share) plus any accrued but unpaid dividends.

We are required to pay Becton Dickinson a royalty in respect of sales of each iontophoresis product stemming from intellectual property received by us from Becton Dickinson as part of our formation. For each such product, on a country-by-country basis, that obligation continues for the later of 10 years after the date of the first commercial sale of such product in a country and the date of the original expiration of the last-to-expire patent related to such product granted in such country. The royalty, which is to be calculated semi-annually, will be equal to the greater of 5% of all direct revenues, as defined below, or 20% of all royalty revenues, with respect to the worldwide sales on a product-by-product basis. No royalties will be earned by Becton Dickinson prior to November 10, 2005. “Direct revenues” are the gross revenues actually received by us from the commercial sale of any iontophoresis product, including upfront payments, less amounts paid for taxes, duties, discounts, rebates, freight, shipping and handling charges or certain other expenses. “Royalty revenues” are the gross revenues actually received by us from any licensing or other fees directly relating to the licensing of any iontophoresis product, including upfront payments, less amounts paid for taxes, duties, discounts, rebates, freight, shipping and handling charges and certain other expenses. Total accrued royalty in the condensed consolidated balance as of June 30, 2007 was insignificant.

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Forward-Looking Information

This Quarterly Report onForm 10-QSB contains forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended). When used in this Quarterly Report onForm 10-QSB, the words “anticipate,” “believe,” “estimate,” “will,” “plan,” “seeks,” “intend,” and “expect” and similar expressions identify forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in any forward-looking statements are reasonable, these plans, intentions, or expectations may not be achieved. Our actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied, by the forward-looking statements contained in this Quarterly Report onForm 10-QSB. Important factors that could cause actual results to differ materially from our forward looking statements are set forth in this Quarterly Report onForm 10-QSB, including under the heading “Risk Factors.” All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this Quarterly Report onForm 10-QSB. Except as required by federal securities laws, we are under no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

Risk Factors

You should carefully consider the risks described below together with all of the other information included in this Quarterly Report on Form 10-QSB when evaluating the Company and its business. If any of the following risks actually occurs, our business, financial condition, and results of operations could suffer. In that case, the price of our common stock could decline and our stockholders may lose all or part of their investment.

Risks Related to Our Business

We are experiencing a severe, continuing cash shortage and without sufficient financing we may be required to cease operations.

As of June 30, 2007, our cash and cash equivalents amounted to $1.0 million. Without any substantial revenues, we have been dependent upon borrowings and equity financings to remain in business. As of June 30, 2007, our current liabilities exceeded our current assets by approximately $7.6 million. If we do not continue to raise capital until we generate sufficient sums of revenue to cover this working capital deficit, we will be required to discontinue or substantially modify our business. These factors raise substantial doubt about our ability to continue as a going concern.

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

From November 2000 through June 30, 2007, we incurred net losses in excess of $123.6 million, as we had been engaged primarily in clinical testing and development activities. We have never been profitable, we may never be profitable, and, if we become profitable, we may be unable to sustain profitability. We expect to continue to incur significant losses for the foreseeable future and to finance our operations through sales of securities and incurrence of indebtedness.

We are subject to restrictive covenants which are not likely to be waived by the holders of various financing instruments to which the Company is a party.

When we have issued various financing instruments, we were required to agree to several restrictive covenants, including, among others, restrictions on our ability to sell to, merge with, or purchase, another business, incur additional debt, grant liens on our assets, or buyback or redeem stock, without the consent of those lenders. The holders such instruments have advised us that they have no intention of granting us waivers with respect to any of those covenants. Several of those covenants have made, and may make, it more difficult for us to obtain additional financing through the issuance of debt securities.

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An agreement that provided us with our principal source of revenues is subject to termination on short notice.

Our agreement with Ferring Pharmaceuticals, Inc., under which we are developing a drug delivery product for female infertility, enables Ferring to terminate our relationship on short notice. This agreement was our principal source of revenues during 2006 and during the first six months of 2007. Any reduction in our revenues will produce further need for capital infusions, which may not be available to us.

The Company has adopted a new business strategy, which involves a recommencement of its manufacturing and sales and marketing activities, which it may not be able to accomplish.

In September 2006 we announced the adoption of a new business strategy which will require significant additional financing to accomplish that strategy, which financing may not be available on acceptable terms, or at all. The new plan required us to resume manufacturing in the second quarter of 2007. Further, our new plan requires that we be ready to recommence in the third quarter of 2007. We will need to rapidly and substantially ramp up our manufacturing capability, relationships with critical vendors, obtain additional regulatory approvals (including FDA approval of packaging and labeling changes), hire additional technical employees, and improve its know-how and processes, all of which may not be possible in those time frames or at all. Also, there are difficulties inherent in any substantial ramp up process, such as management of increased infrastructure and streamlining manufacturing processes, which may further hinder our ability to recommence manufacturing and sales and marketing in a timely manner.

Our new strategy, when implemented, may not be sufficient to enable us to operate on a self-sustaining basis.

There are several steps that we intend to take to turn-around our operational difficulties and to respond to the challenges that we face. We cannot assure you that we will be successful in implementing any or all of those plans or that, if implemented; such plans will be successful in enabling us to operate on a self-sufficient basis or on a basis that will enable us to attract additional capital.

Even if we are successful in implementing our new strategy, we will likely require additional capital and cannot assure you that we will be able to raise such capital on acceptable terms, if at all.

Our new strategy is designed to address problems that we have experienced. The new strategy, even if successful, provides no assurance that we will be able to attain profitability in the near term or medium term or ever. Accordingly, we expect that we will require additional capital in order to be able to reach profitable operations, although we cannot assure you that we will ever be profitable. Given the difficulties that we have experienced in the past, we cannot assure you that we will be successful in our capital raising efforts. If we are unable to raise sufficient additional capital on acceptable terms in a timely fashion, we will be forced to restrict new product development and may be unable to continue our business operations. If we raise capital in the future and it involves equity, such a financing will almost certainly involve substantial dilution of outstanding equity. Any subsequent offerings may also require the creation or issuance of a class or series of stock that by its terms ranks senior to the common stock with respect to rights relating to dividends, voting and/or liquidation. It will be necessary for us to seek additional capital almost immediately.

We plan to make capital expenditures that may result in excess manufacturing capacity.

We intend to take delivery of equipment which has been manufactured to our specifications and is currently on the premises of the manufacturer in Europe. However, current demand for our LidoSite product is not sufficient to make efficient use of this equipment. When we take delivery of this equipment (anticipated to be in the fourth quarter of 2007), it will be necessary for us to incur substantial additional expenses to install the equipment and qualify the production space under FDA regulations and we may have excess manufacturing capacity, and we will not be able to begin to predict when we will be able to, if at all, utilize this capacity until there has been a sufficient prospective history of sales to gauge demand for the products

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We received an unscheduled visit from the FDA during December 2005 and received a report on Form 483 which required us to spend substantial time and money to correct deficiencies identified by the FDA.

The FDA conducted a cGMP (current Good Manufacturing Practices) inspection of our facility and manufacturing process at our Fair Lawn, New Jersey location from late December 2005 to January 2006. As a result of the inspection, we received a report on Form 483. Thereafter, we responded to the FDA with a commitment to improve certain documentation, procedures and manufacturing processes. Implementing these improvements has required us to spend substantial time and money prior to the resumption of manufacturing our LidoSite product. We may be subject to additional inspections by the FDA. If we are required to take additional remedial measures, we may not have sufficient resources to complete the activities in the proscribed timeframes or at all. Such noncompliance could have severe consequences, including halting of manufacturing, distribution and sales, product recall or product seizure.

Our 2006 audited financial statements contain, and our future audited financial statements are likely to contain, an explanatory paragraph expressing uncertainty regarding our ability to continue as a going concern. The inclusion of this paragraph may make it more difficult for us to raise additional capital on acceptable terms.

The report of the independent registered public accounting firm relating to the audit of our consolidated financial statements for the year ended December 31, 2006 contains an explanatory paragraph expressing uncertainty regarding our ability to continue as a going concern because of our operating losses and our need for additional capital. Such explanatory paragraph could make it more difficult for us to raise additional capital and may materially and adversely affect the terms of any financing that we may obtain.

Since we are a company with a limited independent operating history, it is difficult to predict our future growth and operating results, thereby making investment decisions difficult.

Our limited operating history as an independent drug delivery business makes predicting our future growth and operating results difficult. Vyteris, Inc., our subsidiary incorporated in New Jersey, now a subsidiary of Vyteris, Inc. (incorporated in Nevada), was incorporated in Delaware in 2000, although a substantial portion of its business was developed by Becton Dickinson from prior to 1990 until 2000.

As a small company with limited financial resources, we have not proven that we will be capable to meet the many challenges that we face.

You should consider the risks and uncertainties that a company with a limited independent existence faces in the rapidly evolving market for drug delivery technologies. In particular, you should consider that we have not proven that we will be able to:

· raise significant additional capital in the public or private markets;

· obtain the regulatory approvals necessary to commence selling drug delivery systems that we may develop in the future,

· manufacture products, including our LidoSite product, in a manner that enables us to be profitable or meets regulatory, strategic partner or customer requirements;

· attract, retain and manage a large, diverse staff of engineers and scientists;

· develop the relationships with strategic partners and key vendors that are necessary to our ability to exploit the processes and technologies that we develop;

· effectively manage our operations;

· develop new products and drug delivery processes and new applications for our drug delivery technology;

· respond effectively to competitive pressures; or

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· risks associated with the current LidoSite product launch, which include, but are not limited to, the risk that LidoSite may not ultimately be successfully commercialized; the risk of supply interruptions and other uncertainties relating to future ability to acquire components necessary for the manufacture of LidoSite, which is outside the Company's control and may impact the success of product launch and market penetration, including the possibility that the Company may not have sufficient components to manufacture additional launch quantities if necessary to meet product demand; and the risk that the Company may encounter production issues and/or inefficiencies in the process of manufacturing commercial quantities of LidoSite, which could adversely affect the success of product launch and LidoSite’s results of operations.

If we cannot accomplish these goals, our business is not likely to succeed.

Our drug delivery business may not generate any material revenues from sales of the one product that we are currently permitted to sell, in which case our results of operations, financial condition and liquidity will be materially and adversely impacted and our opportunities to develop, market and sell other products may be jeopardized.

To date, we have not generated material revenues from sales of our first drug delivery product, LidoSite, and in fact generated no revenue whatsoever from LidoSite sales during the first two quarters of 2007, our most recent reporting period. As is common in our industry, we have spent many years and substantial sums of money in developing LidoSite. To develop that product to the point where we are able to commence commercial sales, it has been necessary for us to prove our concepts, develop patent positions, engage in substantial clinical trials, develop appropriate manufacturing processes, obtain necessary regulatory approvals and establish a marketing and distribution agreement with B. Braun. Our initial product sales demonstrated that we needed to perform corrective work on the controller component of our LidoSite product. With all of this work effort and the attendant capital and operating expenditures, we still have not tested the market in a manner that can assure us or our investors that we will derive material revenues from LidoSite. If we are unable to derive material revenues from the sale of our LidoSite product, our liquidity will be materially and adversely impacted, we will require additional capital and we may find it more difficult to attract marketing partners for subsequent products that we may develop.

We cannot be certain of the pace at which B. Braun will deliver our LidoSite product to the hospital market and whether significant sales will result.

Upon our test launch, a small sample of initial customers for LidoSite found, in certain instances, that the controllers in our LidoSite product did not perform. B. Braun has implemented a national hospital sales effort with our redesigned controllers and during the first two quarters of 2007, there were no sales, and we do not know if significant sales will result. Additionally, as we are also just commencing our initial marketing efforts with LabCorp, we do not know if there will be significant sales from those efforts.

We cannot expect that we will be able to derive material revenues from the sale of products other than LidoSite in the near future.

While we have commenced development of other products and believe that our technology can and should be pursued with respect to several applications that could result in commercially viable products, the process of developing drug delivery products to the point of commercial sales takes significant time and requires a substantial commitment of financial and other resources that may not be available to us for regulatory approval. We cannot assure investors that we will have the financial resources necessary to bring future products to market or that developments in our industry will not preclude us from expanding our product line beyond LidoSite. If we are unable to bring additional products to market, we will be forced to rely, at best, on a single source of revenue and the future success of our Company would be dependent entirely upon the continued demand for a single product. If we are forced to rely on a single product, our entire business would be at risk in the event that market or competitive conditions threatened the viability of that product, thereby increasing the risk of a dramatic decline in the market value of our capital stock.

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We may not be able to obtain FDA or foreign regulatory approval for our products in a timely manner, or at all, which could have a material adverse effect on our ability to sell and market our products.

Drug formulations and related delivery systems that we may develop in the future cannot be sold in the United States until the FDA approves such products for medical use. Similar foreign regulatory approvals will be needed in order to sell any new drug formulations and related drug delivery systems, including our LidoSite product, outside of the U.S. We may not be able to obtain FDA or foreign regulatory approval for our products in a timely manner, or at all. Delays in obtaining FDA or foreign approvals for our products could result in substantial additional costs to us, and, therefore, could adversely affect our ability to compete with other drug delivery companies. If we do not obtain such approvals at all, our revenues may be insufficient to support continuing operations.

We rely on single suppliers for certain key materials and components used in our LidoSite product, which makes us dependent on persons that we cannot control.

Certain raw materials and components used in the manufacture of our LidoSite product are available only from single suppliers. Some of those materials or components are custom-made for us and are the result of long periods of collaboration with our suppliers. The hydrogel that we use to hold lidocaine in the patch and the electrode subcomponents that we use to carry current through our lidocaine delivery system, for example, are both provided by single suppliers. Any curtailment of the availability of such raw materials or components could be accompanied by production or other delays and could result in a material loss of sales, with resulting adverse effects on our business and operating results. In addition, because raw material sources for pharmaceutical products must generally be approved by regulatory authorities, changes in raw material suppliers may result in production delays, higher raw material costs and loss of sales, customers and market share.

The development or identification of alternative sources, or redesigning products, could be time-consuming and expensive. We cannot assure you that price increases or interruptions in the supply of raw materials and components will not occur in the future or that we will not have to seek alternate suppliers or obtain substitute raw materials or components, which may require additional product validations and regulatory approvals. Further, our suppliers could experience price increases or interruptions in the supply of materials from their suppliers, or could fail to meet our or governmental manufacturing standards.

Any significant price increase, interruption of supply, our inability to secure an alternate source or our inability to qualify a substitute material could have a material adverse effect on our ability to manufacture our LidoSite product or maintain regulatory approval.

We have limited experience in manufacturing drug delivery systems for commercial resale and may be unable to manufacture our products for commercial sale on a profitable or reliable basis.

As an organization we have had limited experience in manufacturing drug delivery systems for sale. We must increase our production capabilities significantly beyond our present manufacturing capacity, which has been focused on producing small quantities of our LidoSite product, and incur significant capital expense in order to be able to produce our LidoSite product in commercial volumes in a cost effective manner. The equipment and machinery that we use to manufacture the drug and patches for our LidoSite product are expensive and custom-built, and have never been used in the large-scale production of pre-filled drug delivery patches.

We cannot assure investors that we can:

· successfully increase our manufacturing capabilities and develop large-scale manufacturing processes on a profitable basis;

· hire and retain skilled personnel to oversee our manufacturing operations;

· avoid design and manufacturing defects and correct or redesign components once they are in production; or

· develop and maintain our manufacturing facility in compliance with governmental regulations, including the FDA's good manufacturing practices.

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We may not be able to manufacture our LidoSite product, or any future products, in a manner that ensures that the systems provide reproducible dosages of stable formulations of drugs for sufficient periods after manufacture. If we cannot ensure that our products have sufficient post-production shelf-life, we may be unable to produce our products in sufficient quantities to develop an economical supply chain. Accordingly, we may not be able to manage our inventory successfully.

We operate in a complex regulatory environment which creates specific challenges in hiring and maintaining our sales force.

Pharmaceutical companies, such as Vyteris, operate in a regulatory environment at both the federal and state level, which continues to increase in complexity as well as the areas which are covered by regulation. Additionally, both federal and state regulations may impose different regulatory and reporting requirements on the same areas, thus making compliance even more difficult and intricate. Many areas of these regulations cover reporting and compliance by our sales force, thus as we continue to expand our sales force, it becomes increasingly difficult to assure full compliance without the expenditure of significant resources. This expenditure of resources affects our ability to assure commercial success and may affect our profitability.

The failure of any of our products, including our LidoSite product, to achieve market acceptance could materially and adversely impact our future success.

Our future success depends upon the acceptance of our LidoSite product and any of our potential future products by health care providers and patients. In addition, our future success may be dependent upon acceptance by third-party payors -- including, without limitation, health insurance companies, Medicaid and Medicare -- of products that we may develop in the future. Such market acceptance may depend on numerous factors, many of which may not be under our control, including:

· the safety and efficacy of our products;

· regulatory approval and product labeling;

· the availability, safety, efficacy and ease of use of alternative technologies;

· the price of our products relative to alternative technologies; and

· for future products, the availability of third-party reimbursement.

Our LidoSite product is based upon a method of drug delivery through the skin that, to date, has not gained widespread market acceptance. We cannot assure you that LidoSite or any future product will ever gain broad market acceptance.

In addition, the adoption of new pharmaceutical products is greatly influenced by health care providers and administrators, inclusion in hospital formularies, and reimbursement by third party payors. Because our existing and proposed drug delivery systems encompass both a device and a drug and may be used by many different departments within a hospital or health care facility, buying decisions in these settings require more departmental approvals than are required for either a stand-alone drug or a stand-alone device. As a result, it may be more difficult and more time consuming to achieve market penetration with our products. We cannot assure investors that health care providers and administrators, hospitals or third party payors will accept our products on a large scale or on a timely basis, if at all, or that we will be able to obtain approvals for additional indications and labeling for our products which facilitate or expand their market acceptance or use. In addition, unanticipated side effects, patient discomfort, defects or unfavorable publicity concerning any of our products, or any other product incorporating technology similar to that used by our products, could have a material adverse effect on our ability to commercialize our products or achieve market acceptance.

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We may be unable to secure strategic partnering relationships, which could limit our ability to effectively market, sell or distribute certain products.

In order for us to develop, market, sell and distribute certain future products, we will be dependent on entering into satisfactory arrangements with strategic partners. We cannot assure investors that we will be able to negotiate such agreements on terms that are acceptable to us, or at all. In addition, we cannot assure any investor that any strategic partner will not also engage in independent development of competitive delivery technologies.

If we are unable to protect our proprietary technology and preserve our trade secrets, we will increase our vulnerability to competitors which could materially adversely impact our ability to remain in business.

Our ability to commercialize successfully our LidoSite product and any other products that we develop will depend, in large measure, on our ability to protect those products and our technology with United States and foreign patents. We will also need to continue to preserve our trade secrets. The issuance of a patent is not conclusive as to its validity or as to the enforceable scope of the claims of the patent. The patent positions of pharmaceutical, biotechnology and drug delivery companies, including our Company, are uncertain and involve complex legal and factual issues.

We cannot assure you that our patents will prevent other companies from developing similar products or products which produce benefits substantially the same as our products, or that other companies will not be issued patents that may prevent the sale of our products or require us to pay significant licensing fees in order to market our products. Accordingly, if our patent applications are not approved or, even if approved, if such patents are circumvented or not upheld in a court of law, our ability to competitively exploit our patented products and technologies may be significantly reduced. Additionally, the coverage claimed in a patent application can be significantly reduced before the patent is issued.

From time to time, we may need to obtain licenses to patents and other proprietary rights held by third parties in order to develop, manufacture and market our products. If we are unable to timely obtain these licenses on commercially reasonable terms, our ability to commercially exploit such products may be inhibited or prevented. Additionally, we cannot assure investors that any of our products or technology will be patentable or that any future patents we obtain will give us an exclusive position in the subject matter claimed by those patents. Furthermore, we cannot assure investors that our pending patent applications will result in issued patents, that patent protection will be secured for any particular technology, or that our issued patents will be valid or enforceable or provide us with meaningful protection.

If we are required to engage in expensive and lengthy litigation to enforce our intellectual property rights, the costs of such litigation could be material to our results of operations, financial condition and liquidity and, if we are unsuccessful, the results of such litigation could materially adversely impact our entire business.

We may find it necessary to initiate litigation to enforce our patent rights, to protect our trade secrets or know-how or to determine the scope and validity of the proprietary rights of others. We plan to aggressively defend our proprietary technology and any issued patents, if funding is available to do so. Litigation concerning patents, trademarks, copyrights and proprietary technologies can often be time-consuming and expensive and, as with litigation generally, the outcome is inherently uncertain.

Although we have entered into invention assignment agreements with our employees and with certain advisors, if those employees or advisors develop inventions or processes independently which may relate to products or technology under development by us, disputes may also arise about the ownership of those inventions or processes. Time-consuming and costly litigation could be necessary to enforce and determine the scope of our rights under these agreements.

We also rely on confidentiality agreements with our strategic partners, customers, suppliers, employees and consultants to protect our trade secrets and proprietary know-how. We may be required to commence litigation to enforce such agreements and it is certainly possible that we will not have adequate remedies for breaches of our confidentiality agreements.

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Other companies may claim that our technology infringes on their intellectual property or proprietary rights and commence legal proceedings against us which could be time-consuming and expensive and could result in our being prohibited from developing, marketing, selling or distributing our products.

Because of the complex and difficult legal and factual questions that relate to patent positions in our industry, we cannot assure you that our products or technology will not be found to infringe upon the intellectual property or proprietary rights of others. Third parties may claim that our products or technology infringe on their patents, copyrights, trademarks or other proprietary rights and demand that we cease development or marketing of those products or technology or pay license fees. We may not be able to avoid costly patent infringement litigation, which will divert the attention of management away from the development of new products and the operation of our business. We cannot assure investors that we would prevail in any such litigation. If we are found to have infringed on a third party's intellectual property rights, we may be liable for money damages, encounter significant delays in bringing products to market or be precluded from manufacturing particular products or using particular technology.

Other parties have challenged certain of our foreign patent applications. If such parties are successful in opposing our foreign patent applications, we may not gain the protection afforded by those patent applications in particular jurisdictions and may face additional proceedings with respect to similar patents in other jurisdictions, as well as related patents. The loss of patent protection in one jurisdiction may influence our ability to maintain patent protection for the same technology in another jurisdiction.

If we do not accurately predict demand for our products when deciding to invest in the development of new products, we will likely incur substantial expenditures that will not benefit our business.

Research and development, clinical testing and obtaining regulatory approvals for new drug delivery systems takes a significant amount of time and requires significant investment in skilled engineering and scientific personnel and in expensive equipment. Furthermore, manufacturing our lidocaine delivery system requires expensive, custom-built machinery. We have made these investments, and intend to continue to make such investments, for our LidoSite product based on internal projections of the potential market for that system and of our potential profit margins on sales of that system. If those projections are inaccurate, we may not be able to obtain an acceptable return on our investment in the development of our LidoSite product. If our projections of the prospects of new products are inaccurate, we may make investments in the development, testing and approval of those products that may result in unsatisfactory returns.

We may be unable to hire and retain skilled engineers and scientists in a tight labor market, in which case we will be severely hampered in our product development efforts and in our ability to attract marketing and distribution partners.

Skilled employees in our industry are in great demand. We are competing for employees against companies located near our headquarters that are more established than we are and have the ability to pay more cash compensation than we do. We have been required, as a result of our lack of liquidity, to lay-off skilled personnel; even if we recruit new personnel, this experience is likely to make it more difficult to hire replacements in the future. We require scientific and engineering personnel in many fields, some of which are addressed by relatively few companies. As a result, we may continue to experience difficulty in hiring and retaining highly skilled employees, particularly engineers and scientists. If we are unable to hire and retain skilled engineers and scientists, our business, financial condition, operating results and future prospects could be materially adversely affected.

If we are unable to develop products or technologies that will be marketable, we will not be able to remain in business.

We may not be able to develop drug delivery products or technologies that will be marketable. Even if we are able to develop marketable drug delivery products or technologies, we may not be able to develop them or obtain patent protection, successful clinical trial results or regulatory approval for them. Our research and development efforts may be hampered by a variety of factors, many of which are outside of our control. Sustained development failures could materially adversely impact our business.

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We face substantial competition for our LidoSite product and any future products that we may develop, as well as for strategic partner transactions. Our failure to adequately compete could have a material adverse effect on our ability to develop, market and sell our products and meet our financial projections.

There is substantial competition to develop alternative drug delivery solutions from both drug delivery technology and pharmaceutical companies, most of which are much larger and have far greater resources than we do. Further, the drug delivery, pharmaceutical and biotechnology industries are highly competitive and rapidly evolving. We expect that significant developments in those industries will continue at a rapid pace. Our success will depend on our ability to establish and maintain a strong competitive position for our LidoSite product while developing new products that are effective and safe. We cannot assure you that any of our products will have advantages over alternative products and technologies that may be developed later and that may be significant enough to cause health care providers to prefer those products or technologies over ours.

In our drug delivery segment, which is focused on the process of actively delivering drugs through the skin, we are aware of several companies that are also developing or marketing products based on this process. We also face competition from companies that are currently testing or already marketing delivery systems or products for lidocaine or similar topical anesthetics. We face indirect competition from companies that are actively involved in the development and commercialization of modified drug delivery technologies, including oral, pulmonary, bucal, nasal and needle-less injections, as well as companies working on processes that passively deliver drugs through the skin. We also expect to compete with other drug delivery companies and technologies in the establishment of strategic partnering arrangements with large pharmaceutical companies to assist in the development or marketing of products. Competition is expected to intensify as more companies enter the field.

Most of our competitors have substantially greater financial, technical, research and other resources, are more experienced in research and development, manufacturing, pre-clinical and clinical testing, and obtaining regulatory approvals, and are larger, more established and have more collaborative partners than we do. In addition, those other entities may offer broader product lines and have greater name recognition than we do. Those other entities may succeed in developing competing technologies and obtaining regulatory approvals and market share more rapidly than we can. Some of those companies have competing products that have already been approved by the FDA and foreign authorities, or are further along in development than is our LidoSite product. We cannot assure you that those competitors will not succeed in developing or marketing products that are more effective or more commercially acceptable than our lidocaine delivery system or any future product. We cannot assure you that we will have the financial resources, technical or management expertise or manufacturing and sales capability to compete in the future.

Increased competition may result in price cuts, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition, results of operations and future prospects.

If Becton Dickinson develops competing technologies, our ability to maintain our current market position will be particularly vulnerable.

Becton Dickinson has substantial insight into the potential applications of our drug delivery technologies, and our business model, as we were operated as a division of Becton Dickinson for over ten years. Further, Becton Dickinson is in the business of developing alternative drug delivery technologies and we may compete in the future with alternative technologies developed or acquired by Becton Dickinson. Becton Dickinson has developed drug delivery technology employing "micro-needles,” tiny needles that deliver compounds into the first few hundred microns of the skin. This technology, which has not yet been commercialized, may compete directly with our current technology. Given its size, access to capital and familiarity with our business, Becton Dickinson could make substantial inroads into our business prospects if it decides to compete directly with us.

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We may not be able to license complementary drug technologies or drug reformulations to expand our product offerings, in which case we will be significantly limited in our product offerings.

In order to enhance our platform technology, strengthen our intellectual property portfolio and expand our overall market opportunity beyond that for our LidoSite product, we may seek to acquire or license rights to additional drug delivery technologies or reformulations of FDA-approved drugs that compliment our core drug delivery platform. We may not be able to acquire or license such other technologies or drug reformulations on terms that are acceptable to us, if at all. Further, efforts to identify such technologies and attempts to negotiate the terms of such acquisitions or licenses may divert the attention of our management away from the internal development of new applications for our existing technology and from the operation of our business.

If any of our products injure a user, we could be subject to product liability exposure in excess of amounts for which we are insured, which could have a material adverse effect on our business, financial condition, results of operations and future prospects.

Our LidoSite product or any other drug delivery system we may develop or manufacture in the future may result in injuries to persons using those products as a result of mislabeling, misuse or product failure. While we carry product liability insurance with respect to the now-completed clinical trials and for the commercial sale of our LidoSite product, there can be no assurance that our coverage will be adequate to protect us against future liability claims. Furthermore, we cannot assure you that we can afford to maintain the insurance that we have obtained. Product liability insurance is expensive and there can be no assurance that this insurance will be available to us in the future for the commercial sale of our lidocaine delivery system or for any new products, on terms satisfactory to us, if at all. A successful product liability claim or series of claims brought against us in excess of our insurance coverage could have a material adverse effect on our business, financial condition, results of operations and future prospects.

In connection with certain registration obligations, we are required to make liquidated damages payments to certain stockholders who, if paid in cash, would materially affect our financial condition.

We previously filed a registration statement with the SEC relating to the resale of 12,960,174 shares of our Common Stock. Since the registration statement was not declared effective by the SEC by February 25, 2005, we were obligated to pay to certain stockholders an amount equal to 1% of the purchase price paid by such stockholders for the shares owned by such stockholders which are covered by that registration statement, and for each month, or portion of a month, in which such delay continued, an amount equal to 2% of such purchase price, until we cured the delay, with an overall cap on such liquidated damages of 10% of the aggregate purchase price paid by such stockholders for such shares. That registration statement was initially declared effective on May 12, 2005, resulting in an obligation to pay liquidated damages of approximately $1.4 million, payment of which, if made in cash, would have materially adversely affected our financial condition. Interest accrues after May 19, 2005 on the amount of liquidated damages at the rate of 18% per annum. At June 30, 2007, our total liability for unpaid liquidated damages plus unpaid interest thereon was approximately $2.0 million. While we plan to offer to pay this liability in shares of our common stock rather than cash, the holders of the rights to such payments have no obligation to accept such offer and we cannot assure you that any or all of such holders will accept our offer. We may be subject to additional penalties should the use of that prospectus or other registration statements we have filed become suspended in the future.

Our compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes Oxley Act”) and SEC rules concerning internal controls is time-consuming, difficult and costly for us.

It is time-consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. Thus, we may need to hire additional financial reporting, internal controls and other finance staff in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, we may not be able to obtain the independent accountant certifications that the Sarbanes-Oxley Act requires publicly-traded companies to obtain. If we are deemed to be an “accelerated filer” pursuant to the general rules and regulations promulgated under the Securities Exchange Act of 1934, the accelerated filing requirements will divert significant time, resources, and money from the day-to-day operations of the Company.

Our largest stockholder may take actions that conflict with your interests.

Kevin Kimberlin, through his majority ownership of STSG (a related party to Spencer Trask Ventures, Inc.) and related parties, is our largest stockholder. As of June 30, 2007, Mr. Kimberlin and related parties beneficially own more than 19.3% of our voting common stock. Accordingly, Mr. Kimberlin has substantial control over us and has substantial power to elect directors and to generally approve all actions requiring the approval of the holders of our voting stock, including adopting amendments to our articles of incorporation and bylaws and approving mergers, certain acquisitions or sales of all or substantially all of our assets, which could delay or prevent someone from acquiring or merging with us or limit the ability of our other stockholders to approve transactions that they may deem to be in their best interest.

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We may be unable to list our Common Stock the Nasdaq or any other securities exchange, in which case an investor may find it difficult to dispose of shares or obtain accurate quotations as to the market value of our Common Stock.

Although we may apply to list our common stock on Nasdaq or the American Stock Exchange in the future when and if we have stabilized our liquidity concerns, we may not be able to meet the initial listing standards, including the minimum per share price and minimum capitalization requirements, of either of those or any other stock exchange, and we not be able to maintain a listing of our common stock on either of those or any other stock exchange. If we are unable to list our common stock on Nasdaq, the American Stock Exchange or another stock exchange, or to maintain that listing, we expect that our common stock will continue to trade on the OTC Bulletin Board maintained by Nasdaq, or possibly another over-the-counter quotation system or on the "pink sheets," where an investor may find it difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, we are subject to an SEC “penny stock” rule that imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. Consequently, such rule may deter broker-dealers from recommending or selling our common stock, which may adversely affect the liquidity of our Common Stock. It also makes it more difficult for us to raise additional capital.

Our common stock is considered a “penny stock” and may be difficult to sell.

Our common stock is considered to be a “penny stock” since it meets one or more of the definitions in Rule 3a51-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These include but are not limited to the following: (i) the stock trades at a price less than $5.00 per share; (ii) it is not traded on a “recognized” national exchange; (iii) it is not quoted on the NASDAQ Stock Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company with net tangible assets less than $2.0 million, if in business more than a continuous three years, or with average revenues of less than $6.0 million for the past three years.  The principal result or effect of being designated a “penny stock” is that securities broker-dealers cannot recommend the stock but must trade in it on an unsolicited basis.  Section 15(g) of the Exchange Act and Rule 15g-2 promulgated thereunder by the SEC require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account.

Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be “penny stock.”  Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor.  This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives.  Compliance with these requirements may make it more difficult for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

Standards for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain, and if we fail to comply in a timely manner, our business could be harmed and our stock price could decline.

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Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting, and attestation of the assessment by our independent registered public accountants.  This requirement for management’s assessment of our internal control over financial reporting will first apply to our annual report for fiscal 2007 and the requirement for our auditor’s attestation will first apply to our annual report for fiscal 2008.  The standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards.  We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting.  In addition, the attestation process by our independent registered public accountants is new and we may encounter problems or delays in completing the implementation of any requested improvements and receiving an attestation of the assessment by our independent registered public accountants.  If we cannot assess our internal control over financial reporting as effective, or our independent registered public accountants are unable to provide an unqualified attestation report on such assessment, investor confidence and share value may be negatively impacted.  We expect to incur additional accounting related expenses associated with compliance with Section 404.

We may not be able to attract the attention of brokerage firms, which could have a material adverse impact on the market value of our Common Stock.

Security analysts of brokerage firms have not provided, and may not provide in the future, coverage of our common stock since there is limited incentive to brokerage firms to produce research reports and recommend the purchase of our common stock. To date, we have not been able to attract the attention of brokerage firms and securities analysts. The absence of such attention limits the likelihood that an active market will develop for our common stock. It also will likely make it more difficult to attract new investors at times when we require additional capital.

Sales of a significant number of shares of our common stock, warrants or the exercise of stock options could depress the market price of our stock.

We sold a total of 23,000,000 shares of common stock and 11,500,000 warrants in private placements on October 5, 2006 and November 8, 2006. In addition we sold a total of 7,053,638 shares of common stock in private placements in December 2006. We also sold a total of 12,110,640 shares of common stock in private placements in the first quarter of 2007, as well as issuing warrants convertible into approximately 1,211,064 shares of common stock in connection therewith. We are also obligated to register these shares for sale.

As of June 30, 2007, we had stock options to purchase 8,127,819 shares of our common stock outstanding, of which options to purchase 1,592,249 shares were exercisable. Also outstanding as of the same date were warrants exercisable for 36,157,472 shares of common stock. Exercise of any outstanding stock options or warrants could harm the market price of our common stock.

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ITEM 3. CONTROLS AND PROCEDURES

(a) Our Chief Executive Officer (CEO) and Principal Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon the evaluation, they concluded that the disclosure controls and procedures are effective in ensuring all required information relating to Vyteris is included in this quarterly report.

We also maintain a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

(b) Changes in internal controls. During our most recent fiscal quarter, there have been no changes in our internal control over financial reporting that occurred that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Section 404 of the Sarbanes-Oxley Act requires us to provide an assessment of the effectiveness of our internal control over financial reporting as of the end of fiscal year 2007. We are in the process of performing the system and process documentation, evaluation and testing necessary to make its assessment. We have not completed this process or its assessment. In the process of evaluation and testing, we may identify deficiencies that will require remediation.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In September of 2004, Alza filed an opposition in the EPO against European Patent No. 0 971 769, entitled “Circuit and Method for Automatically Turning Off an Iontophoretic System”, which we refer to as the “’769 patent”. In the opposition, Alza has alleged that the “769 Patent” should be revoked because each of the claims lacks novelty or an inventive step over the prior art. Vyteris filed an initial response to the opposition, including amended claims, on July 14, 2005. A preliminary opinion of the EPO, issued on November 7, 2005, indicated that the amended claims were novel and inventive over the prior art and scheduled oral arguments for March 2006. On December 23, 2005, Alza indicated that it will no longer contest the opposition, provided that the EPO maintains the patent based on the amended claims. In January of 2006, we filed amendments to the specification to conform to the amended claims. Alza objected to the specification amendments. The EPO indicated in March of 2006 that it was inclined to accept our specification amendments, but invited additional comments on the matter. Vyteris filed comments with EPO in May of 2006. On September 13, 2006, the EPO issued a decision upholding the patent as amended by Vyteris. Alza did not file a timely appeal of the EPO’s decision to uphold the patent. Accordingly, that decision is now final. Vyteris is now in the process of revalidating the patent in the relevant European states. Administrative formalities are concluding.

From time to time, we are involved in other lawsuits, claims, investigations and proceedings, including pending opposition proceedings involving patents that arise in the ordinary course of business. There are no matters pending that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows.

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

In 2007, we raised a total of $9.1 million pursuant to which we issued to investors a total of 12,110,640 shares of common stock at $0.75 per share. In connection with the 2007 Financings, we paid finders fees to Wolverine and to STVI, in the amount of $0.9 million and $0.04 million, respectively, representing 10% of the gross proceeds raised. In addition, we issued to Wolverine and STVI warrants to purchase up to 1,161,664 and 49,400 shares of our common stock, respectively, representing 10% of the common stock issued to investors. Each warrant may be exercised for five years from the date of issuance to purchases share of common stock for $0.75 per share. The transaction calls for filing of a registration statement to cover the resale of the common stock and the amount of common shares underlying the warrants issued to Wolverine and STVI pursuant to their agreements with the Company. Net proceeds were $8.1 million, with finders fees and other legal costs of $1.0 million recorded as a reduction of equity as a cost of the transaction.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Special Meeting of Shareholders, on May 1, 2007

On May 1, 2007, the Company held its Special Meeting of Shareholders, as set forth in its Definitive Schedule 14A, filed with the Securities and Exchange Commission on March 30, 2007, and mailed to shareholders on or about March 30, 2007. At the Special Meeting, shareholders approved the following:

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1. A proposal to amend the Company’s Articles of Incorporation to increase the number of authorized shares of the Company’s common stock, par value $0.001 per share, from 100,000,000 shares to 200,000,000 shares; and

2. A proposal to amend the Company’s Articles of Incorporation to change the name of the Company from Vyteris Holdings (Nevada), Inc. to Vyteris, Inc.

The Inspector of Elections reported that the number of shares outstanding as of the record date, March 27, 2007, and present at the meeting was as follows:

	Outstanding		Present at Meeting
Common Stock		71,738,507		41,242,419
Class B Convertible Preferred Stock		1,047,500		1,047,500
Total		72,786,007		42,289,919

The amendments to the Articles were both passed by the following votes:

	For		Against		Abstain
Amendment to increase the number of authorized		42,101,857		169,206		18,856
Amendment to change the name of the corporation		42,268,048		13,491		8,380

On May 2, 2007, the Company accordingly filed an amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada which amended the Articles of Incorporation effecting the amendments set forth in the two approved proposals.

Annual Meeting of Shareholders

On June 13, 2007, the Company held its Annual Meeting of Shareholders. The Inspector of Elections reported that the number of shares outstanding as of the record date, May 2, 2007, and present at the meeting was as follows:

	Outstanding		Present at Meeting
Common Stock		79,250,453		41,344,488
Class B Convertible Preferred Stock		2,095,000		2,044,321
Total:		81,345,453		43,388,809

All five of the Company’s directors were reelected as follows:

Name	For	Against	Abstain
David DiGiacinto	43,290,960	97,849	-
Donald F. Farley	43,290,960	97,849	-
Gregory B. Lawless	43,301,435	87,374	-
Timothy J. McIntyre	43,290,960	97,849	-
Russell O. Potts	43,290,960	97,849	-

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Item 6(a)	Exhibits
3.4	Amendment to the Articles of Incorporation of Vyteris Holdings (Nevada), Inc., dated May 2, 2007.
10.133	Product Marketing Agreement between Vyteris, Inc. and Laboratory Corporation of America Holdings, dated June 5, 2007.
10.134	2007 Outside Director Cash Compensation and Stock Incentive Plan.
10.135	2007 Stock Option Plan.
10.136	International Capital Advisory, Inc., Consulting Agreement dated July 25, 2007, as assigned to Wolverine International Holdings, on July 25, 2007.
10.137	Agreement to Engage Viking Investment Group II Inc. as a Financial Consultant dated July 26, 2007.
10.138	Consulting Sales and Promotion Agreement with Caswood Group, Inc., dated May 11, 2007
10.139	Employment Agreement between Vyteris, Inc. and Anthony Cherichella, dated as of August 1, 2007
31.1	Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2	Certification by the Principal Accounting Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1	Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2	Certification by the Principal Accounting Officer pursuant to 18 U.S.C. Section 1350.

SIGNATURE

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

Date: August 14, 2007	Vyteris, Inc.
	/s/     Timothy J. McIntyre
	Timothy J. McIntyre
	Chief Executive Officer

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EXHIBIT INDEX

Item Description

3.4	Amendment to the Articles of Incorporation of Vyteris Holdings (Nevada), Inc., dated May 2, 2007.
10.133	Product Marketing Agreement between Vyteris, Inc. and Laboratory Corporation of America Holdings, dated June 5, 2007.
10.134	2007 Outside Director Cash Compensation and Stock Incentive Plan.
10.135	Amendment to the 2005 Stock Option Plan.
10.136	International Capital Advisory, Inc., Consulting Agreement dated July 25, 2007.
10.137	Agreement to Engage Viking Investment Group II Inc. as a Financial Consultant dated July 26, 2007.
10.138	Consulting Sales and Promotion Agreement with Caswood Group, Inc., dated May 11, 2007
10.139	Employment Agreement between Vyteris, Inc. and Anthony Cherichella, dated as of August 1, 2007
31.1	Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2	Certification by the Principal Accounting Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1	Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2	Certification by the Principal Accounting Officer pursuant to 18 U.S.C. Section 1350.

61

EX-3.4

EXHIBIT 3.4

EXHIBIT A

FORM OF

AMENDMENT TO THE ARTICLES OF INCORPORATION

OF VYTERIS HOLDINGS (NEVADA), INC.

 

    Important: Read attached instructions before completing

Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)
-Remit in Duplicate-
1. Name of corporation:	VYTERIS HOLDINGS (NEVADA), INC.
2. The articles have been amended as follows (provide article numbers, if available):
A. Article I of the corporation's articles of incorporation is amended to provide as follows:
"Name. The name of the corporation is Vyteris, Inc. (hereinafter, the "Corporation)."
B. Article IV of the corporation's articles of incorporation is amended to provide as follows:
"Common Stock. The Corporation shall have the authority to issue Two Hundred Million (200,000,000) shares of common stock having a par value of $.001 per share
("Common Stock"). Fully paid Common Stock of the Corporation shall not be liable for further call or assessment. The authorized shares of Common Stock shall be issued at the
discretion of the Board of Directors of the Corporation."
3. The vote by which the stockholders holding shares in the corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation have voted in favor of the amendment is: Majority     *
4. Officer Signature (Required):

/s/

* If any proposed amendment would alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series affected by the amendment regardless of limitations or restrictions on the voting power thereof.
IMPORTANT: Failure to include any of the above information and remit the proper fees may cause this filing to be rejected.

EX-10.133

Exhibit 10.133

LABORATORY CORPORATION OF AMERICA HOLDINGS

and

VYTERIS, INC.

PRODUCT MARKETING AGREEMENT 

This Agreement between Vyteris, Inc. (“Vyteris”) and Laboratory Corporation of America Holdings and its subsidiaries, (“LabCorp”) is entered into effective as of June 5, 2007 and sets forth the terms and conditions upon which Vyteris and LabCorp will work together on the marketing of Vyteris’s LidoSiteÒ product (the “Product”) to certain markets as further described herein. The parties agree as follows:

A.	The specific terms and conditions of Phase I (also referred to as the “Market Uptake Phase”) of the business relationship contemplated by this Agreement are set forth in Exhibit A attached hereto. Additional terms and conditions applicable to Phase II (also referred to as the “Expanded Market Phase”) of the business relationship contemplated by this Agreement are subject to negotiation by both parties during the negotiation period described in Exhibit A. Any such additional terms and conditions will set forth in an Addendum to this Agreement or other written agreement signed by authorized representatives of both parties.
B.	Neither party shall assign or transfer this Agreement without the consent of the other party, which consent shall not be unreasonably withheld or delayed.
C.	Notices and other communications permitted or required under this Agreement will be deemed to be properly given if in writing and either delivered by hand or mailed by First Class U.S. Mail, postage prepaid, addressed to the parties as follows:

Vyteris :	Vyteris, Inc.
	13-01 Pollitt Drive
	Fair Lawn, New Jersey 07410
	Attention: Timothy J. McIntyre
LabCorp:	Laboratory Corporation of America Holdings
	430 South Spring Street
	Burlington, North Carolina 27215
	Attention: Law Department

D.	This Agreement may not be amended or modified except by written agreement of both of the parties.
E.	Neither party will be liable for any failure to perform under this Agreement due to strikes, fire, explosion, flood, riot, lock-out, injunction, interruption of transportation, unavoidable accidents, inability to obtain supplies at reasonable prices necessary to produce the Product or other reasons beyond the reasonable control of such party.
F.	Vyteris guarantees that the Product shall not be adulterated or misbranded within the meaning of the U.S. Food, Drug, and Cosmetic Act.
G.	If any terms of this Agreement are materially breached by either party and the parties cannot agree on a resolution, the non-breaching party may terminate this Agreement upon thirty (30) days prior, written notice to the breaching party, unless such breach has been cured to the reasonable satisfaction of the non-breaching party within such thirty (30) day period.

Page 1 of 12

LABORATORY CORPORATION OF AMERICA HOLDINGS

VYTERIS, INC.

H.	Vyteris warrants that during their applicable shelf life, the Product will conform with the Specifications set forth in the package insert. Furthermore, Vyteris hereby represents and warrants that, to its knowledge, the practice of any technology or patents licensed hereunder is and will be free of any infringement of patents of other persons. Vyteris hereby represents and warrants that, to its knowledge, the use or sale of any Product covered by this agreement is and will be free of any infringement of patents of other persons. Except as expressly set forth in this Agreement, neither party makes any representations or warranties with respect to the Product or otherwise in connection with this Agreement, and hereby expressly disclaims any implied warranties of merchantability and fitness for a particular purpose.
I.	Vyteris shall give LabCorp a 90 day written notification of any Product changes (or if such notice is not feasible, as much notice as is practicable under the circumstances).
J.	Vyteris agrees to defend, indemnify, and hold LabCorp and subsidiaries, directors, officers, employees, and agents wholly harmless from and against third-party claims, losses, lawsuits, settlements, demands, causes, judgments, expenses, and cost (including reasonable attorney fees), in each case in connection with any third party claims to the extent arising under or in connection with this Agreement in the event that such cost and liabilities are caused by a) Vyteris’ breach of any of its warranties in this Agreement, b) the failure of the Product to function in accordance with any written materials provided therewith or c) any negligence or willful misconduct of Vyteris. However, the foregoing rights to indemnity shall not apply to the extent that such claim, loss, lawsuit, or settlement results from LabCorp’s negligence or willful misconduct including, without limitation, the negligence of LabCorp’s employees, or from the modification of any Product of Vyteris by a third party not within Vyteris’ control or without Vyteris’ permission. In the event of a lawsuit or other action in connection with which LabCorp is seeking indemnification from Vyteris hereunder, LabCorp agrees to give timely notice of the lawsuit or action to Vyteris and to cooperate with Vyteris in the defense of the lawsuit or action.
K.	LabCorp agrees to defend, indemnify, and hold Vyteris and subsidiaries, directors, officers, employees, and agents wholly harmless from and against third-party claims, losses, lawsuits, settlements, demands, causes, judgments, expenses, and cost (including reasonable attorney fees), in each case in connection with any third party claims to the extent arising under or in connection with this Agreement in the event that such cost and liabilities are caused by a) LabCorp’s breach of any of its warranties in this Agreement, or b) negligence or willful misconduct of LabCorp. However, the foregoing rights to indemnity shall not apply to the extent that such claim, loss, lawsuit, or settlement results from Vyteris’s negligence or willful misconduct including, without limitation, the negligence of Vyteris’s employees, or from the modification of any Product of LabCorp by a third party not within LabCorp’s control or without LabCorp’ permission. In the event of a lawsuit or other action in connection with which Vyteris is seeking indemnification from LabCorp hereunder, Vyteris agrees to give timely notice of the lawsuit or action to LabCorp and to cooperate with LabCorp in the defense of the lawsuit or action.
L.	Either party may issue a press release or make public statements regarding this Agreement and the relationship between the parties. The parties shall mutually agree on the content of any press release. The initial press release to be issued by Vyteris upon signing of this Agreement is attached as Exhibit B, which press release has been approved by LabCorp. Any public statements made by either party shall generally match the content of an approved press release; to the extent that a public statement is to be made prior to approval of a press release, or if a public statement will differ materially from the content of an approved press release, the parties shall make good-faith efforts to reach prior agreement as to the content of such public statement.

Page 2 of 12

LABORATORY CORPORATION OF AMERICA HOLDINGS

VYTERIS, INC.

M.

NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY (NOR TO ANY PERSON CLAIMING RIGHTS DERIVED FROM SUCH OTHER PARTY’S RIGHTS) FOR CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES OF ANY KIND (INCLUDING WITHOUT LIMITATION LOST REVENUES OR PROFITS, LOSS OF USE, LOSS OF COST OR OTHER SAVINGS OR LOSS OF GOODWILL OR REPUTATION) WITH RESPECT TO ANY CLAIMS BASED ON CONTRACT, TORT OR OTHERWISE (INCLUDING NEGLIGENCE AND STRICT LIABILITY) ARISING FROM OR RELATING TO THE PRODUCT, OR OTHERWISE ARISING FROM OR RELATING TO THIS AGREEMENT, REGARDLESS OF WHETHER SUCH PARTY WAS ADVISED, HAD OTHER REASON TO KNOW, OR IN FACT KNEW OF THE POSSIBILITY THEREOF.

N.

Unless otherwise agreed to by the parties in writing, neither party transfers or licenses to the other party any rights in or to its patents, patent applications, copyrights, trademarks, trade secrets or other intellectual property rights.

LABORATORY CORPORATION OF AMERICA HOLDINGS and its subsidiaries		VYTERIS, INC.
By: /s/ Benjamin R. Miller		By: /s/ Timothy J. McIntyre
	Benjamin R. Miller		Timothy J. McIntyre
Title:	Executive Vice President, Sales, Marketing and Managed Care	Title:	President and CEO
Date: 6/5/2007		Date: 6/5/2007

Page 3 of 12

LABORATORY CORPORATION OF AMERICA HOLDINGS

VYTERIS, INC.

Exhibit A - Terms and Conditions for Phase I - Market Uptake Phase

Certain Definitions	“M.D. Office Market” means all medical doctor’s offices located in the Territory. Notwithstanding the foregoing, the M.D. Office Market does not include: (i) the offices of dermatologists, rheumatologists, oncologists, or orthopedic surgeons, (ii) ambulatory care centers or (iii) the in-patient hospital market. The M.D. Office Market also includes facilities which provide blood collection services (“Contracted Draw Sites”) but which are not physician’s offices or in-patient hospitals, to the extent that applicable regulations permit such facilities to administer the Product. LabCorp Rights Re: Rheumatology and Oncology Office Markets: During Phase I (as defined below), LabCorp may include any rheumatology or oncology office in its specific assessment areas. Any such office will be “carved out” of any Vyteris commercial arrangement during Phase I. If Vyteris receives a bona fide commercial offer with respect to the rheumatology or oncology office market during Phase I, Vyteris will offer LabCorp a “matching offer” option with 30 day trigger. Rights to this market will be mutually agreed to by the parties for Phase II. “Territory” means the United States and its territories and possessions.
Overview	LabCorp will represent, market, and facilitate the selling of the Product in the M.D. Office Market for the indicated use of the Product as a local anesthetic prior to blood draws and/or venipuncture. LabCorp will receive reimbursement for its time, energy and efforts to introduce the Product to the M.D. Office Market as provided herein. This Agreement provides for an initial “Market Uptake Phase” (also referred to as “Phase I”). Subject to mutual agreement, the parties may enter into an addendum to this Agreement covering a “Phase II” term (also referred to as the “Expanded Market Phase”), which will provide for an expanded marketing and supply arrangement to commence upon termination of Phase I.
Term and Termination	Phase I will have a term ending May 31, 2008, which term may be extended by mutual agreement of the parties. The term of Phase II, and any renewals thereof, will be subject to the mutual agreement of the parties. The parties will have reciprocal rights to terminate this Agreement in the event of material breach by the other party, following written notice and opportunity to cure.

Page 4 of 12

LABORATORY CORPORATION OF AMERICA HOLDINGS

VYTERIS, INC.

Phase I (Market Uptake Phase)

The primary purpose of the Phase I is to allow for mutual evaluation of the “in-market” clinical experience, projected full market demand, and reimbursement rates of the Product in the M.D. Office Market. Attached hereto as Exhibit A-1 is the timetable of Phase I activities that is currently contemplated by the parties (the “Phase I Timetable”). Pursuant to the Phase I Timetable, the parties will introduce the Product into specific segments of the M.D. Office Market, selected by LabCorp. The parties will cooperate in good faith regarding any necessary adjustments to the Phase I Timetable; provided, however, that in no event will Phase I extend beyond May 31, 2008 unless agreed to by the parties in writing in their sole discretions. The parties will capture and measure key metrics during Phase I, as outlined in Exhibit A-2 attached hereto (the “Phase I Metrics”), to predict future market adoption and penetration rates, and aid in determining Phase II commercial options and terms, in particular exclusivity minimums. Promptly after the date of this Agreement, the parties will work together to develop the methodology for collecting and measuring the Phase I Metrics, with the plan to be finalized in accordance with the timelines set forth in Exhibit A-1. [*]

Phase II (Expanded Market Phase)

Upon compilation and review of all relevant Phase I Metrics and other Phase I data [*], the parties will enter into a 60 day negotiation period for the terms and conditions of an addendum to this Agreement covering Phase II with the following options: (i) terminate commercial activity, (ii) trigger a market exclusivity arrangement based on minimum purchases of Product or (iii) continue with a non-exclusive arrangement, subject to mutual agreement as to terms and conditions. [*] The parties acknowledge that this model may be in the form of a licensing arrangement, or an arrangement whereby LabCorp purchases the product from Vyteris for distribution to its clients and/or PSCs, subject to relevant regulatory and legal guidelines.

* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Page 5 of 12

LABORATORY CORPORATION OF AMERICA HOLDINGS

VYTERIS, INC.

  M.D. Office Market Exclusivity     Phase I Exclusivity. During Phase I, Vyteris will not permit any third party to market the Product in the M.D. Office Market.   § Vyteris Specialty Sales Initiative. For the avoidance of doubt, Vyteris’s in-house sales force will be free to conduct marketing and sales activity in accordance with Vyteris’s Specialty Sales Initiative (consisting of approximately 12 sales people covering: (i) medical specialties not included in the M.D. Office Market and/or (ii) geographical areas not covered by LabCorp sales representatives in Phase I. Vyteris will keep LabCorp informed of any leads in the M.D. Office Market for LabCorp services in geographical areas covered by Vyteris sales representatives, and will provide LabCorp with the opportunity to follow up on such leads. Vyteris will share data with LabCorp regarding its Specialty Sales Initiative experiences during Phase I as an additional data point for consideration by the parties in their negotiations regarding Phase II.   Phase II Exclusivity. If the parties enter into an exclusive relationship for Phase II, LabCorp will maintain full exclusivity in the M.D. Office Market, subject to LabCorp committing to certain annual purchase order amounts and paying certain license fees, all to be specified in an Addendum to this Agreement to be agreed to by the parties in writing (the “Exclusivity Conditions”). [*]  If exercised, the exclusivity would continue on a year-to-year basis, subject to non-renewal by Vyteris each year if LabCorp has failed to meet the Exclusivity Conditions applicable to the preceding year. LabCorp may also elect to not renew exclusivity. If either party elects to non-renew exclusivity, it shall provide written notice to the other party not less than thirty (30) days prior to the anniversary renewal date. LabCorp will not have any rights to reinstate exclusivity in the event exclusivity is not renewed.   General. The parties agree and understand that exclusivity will only apply to the marketing of the Product in and to the M.D. Office Market, and that Vyteris will not enter into a Market Evaluation or Marketing and Supply Agreement with any other individual or entity for the Product for the M.D. Office Market.  

* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Page 6 of 12

LABORATORY CORPORATION OF AMERICA HOLDINGS

VYTERIS, INC.

Option to Add PSC Market Exclusivity

In addition to the M.D. Office Market,at such time as applicable regulations permit, LabCorp may elect to exercise an option for the exclusive right to offer the Product to the Patient Service Center market (the “PSC Market”) and to Contracted Draw Sites which would be permitted to administer the device pursuant to applicable regulations. This option will expire unless LabCorp elects to exercise the option by written notice to Vyteris on or before the end of the 60 day negotiation period for Phase II terms (noted above), (the “PSC Market Option End Date”), even if the required regulatory approvals have not been obtained by that date. [*]

LabCorp Responsibilities

During Phase I: ·      LabCorp will provide Vyteris with adequate commitment, management support, and resources to insure an initial market entry program to enable a proper evaluation of a potential full market roll out. ·      LabCorp will assign a member of the LabCorp Executive Committee (Executive Vice President Sales and Marketing or delegate) to work with the Vyteris President (or delegate) co-chairing monthly operational reviews of the project and its progress. ·      LabCorp will identify medical doctor office practices which LabCorp sales management indicate are viable locations for use and evaluation of the Product (“Market Evaluation Sites”). ·      LabCorp sales staff and, where applicable, in-office phlebotomists, will work with Vyteris to introduce the Product to the Market Evaluation Sites and to facilitate the use and evaluation of the Product in those sites. The parties agree and acknowledge that LabCorp’s in-office phlebotomists will not administer the Product, but will work with the office staff to incorporate the Product into the specimen collection process. ·      LabCorp will regularly communicate with Vyteris re: customer inquiries, feedback from customers and third-party payors and other issues relevant to distribution and use of the Product.

* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Page 7 of 12

LABORATORY CORPORATION OF AMERICA HOLDINGS

VYTERIS, INC.

  Vyteris Responsibilities     During Phase I:   ·      Vyteris will provide the Product to the Market Evaluation Sites.   ·      All distribution, billing, and customer service will be provided by a 3^rd party distribution company under Vyteris management.   ·     Vyteris will provide commercially reasonable training and support of LabCorp phlebotomists and sales force and applicable office practice staff in the Market Evaluation Sites, consisting of:   -“Live” training sessions,   -In-practice training sessions,   -Evaluation Packets of the Product to Market Evaluation Sites, which will contain a limited supply of Product samples, and   -Support Website with training videos.   ·       Vyteris will provide a 24/7 support hotline for LabCorp phlebotomists, LabCorp sales force, office practice staff, and consumers.   ·      Vyteris will provide all FDA required support and reporting (ADR’s), sample tracking, etc.   ·      Vyteris will maintain product liability insurance coverage in the amount of $5,000,000 per incident.   ·      Vyteris will regularly communicate with LabCorp re: customer inquiries, feedback from customers and third-party payors and other issues relevant to distribution and use of the Product.   ·      Vyteris will provide a reimbursement “hotline” to triage reimbursement questions and issues, and will be responsible for guidance to Market Evaluation Sites on such issues.   ·      Vyteris will provide “on the ground” executive management support on each of the regions to work with LabCorp regional management.  

Page 8 of 12

LABORATORY CORPORATION OF AMERICA HOLDINGS

VYTERIS, INC.

Product Pricing; Distribution	·      Estimated Market Pricing:                [*] ·     Sales Effort Fee Reimbursement to LabCorp: LabCorp will receive a payment of [*] for each physician office that agrees to participate in the Phase I Market Uptake evaluation, to compensate it for the time, effort and energy expended  [*]  The parties agree that this fee represents the Fair Market Value for such efforts by LabCorp. ·      Distribution: To be handled by third party distributor (e.g., Cardinal Health), per terms of agreement between Vyteris and the distributor. ·     Practice Billing for Product Provided in Evaluation Packet: Vyteris will provide guidance to Market Evaluation Sites regarding billing for administration of Product that was provided in the Evaluation Packet
Training and Promotional Materials	Vyteris will pay for all base creative and training material creation and for direct costs of out-of-pocket reproduction of materials for phlebotomists, sales force, and/or any M.D. office materials with LabCorp brand. These budgets will be agreed to by LabCorp and Vyteris management committee before being expended.
Branding	The Product will be Vyteris-branded. . LabCorp retains rights and option to elect LabCorp branding or co-branding with Vyteris if LabCorp moves to an exclusive status in Phase II.
Confidentiality of Terms	The financial terms of this Agreement shall remain confidential, except as disclosure may be required by applicable laws or to outside advisers with a reasonable need to know such information.

* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Page 9 of 12

LABORATORY CORPORATION OF AMERICA HOLDINGS

VYTERIS, INC.

Exhibit A-1

Phase I Timetable

May 16, 2007: First Joint Sales/Operational Team Meeting

May 15 - June 15, 2007: Sales Advisory Meetings (Personal)

June 15: Assessment Accounts and Areas Identified

July 1: Metric Methodology Plan Finalized

July 15, 2007: Initial Product Distribution Stocking

August 1, 2007: Official MD Office Program Kick-off

[*]

May 1, 2008 - Execution of Phase II agreement, commencement of Expanded Market Penetration Phase (or sooner upon completion of Phase II agreement)

* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Page 10 of 12

LABORATORY CORPORATION OF AMERICA HOLDINGS

VYTERIS, INC

Exhibit A-2

Phase I Metrics

The parties will work together to mutually agree on the methodology to identify and collect the quantitative data (“Metrics”) needed to fully evaluate the use and acceptance of the Product by the Market Evaluation Sites to determine whether and how to move forward into Phase II.

·	Phase I Metrics:
		[*]

* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Page 11 of 12

LABORATORY CORPORATION OF AMERICA HOLDINGS

VYTERIS, INC.

Exhibit B

Initial Vyteris Press Release

[To be finalized by mutual agreement of the parties]

Page 12 of 12

EX-10.134

Exhibit 10.134

137VYTERIS, INC.

2007 OUTSIDE DIRECTOR CASH COMPENSATION AND STOCK INCENTIVE PLAN

1. Purpose of the Plan. The purpose of this plan ("Plan"), to be known as the "2007 Outside Director Cash Compensation and Stock Incentive Plan", is to attract qualified personnel to accept positions of responsibility as outside directors with Vyteris, Inc., a Nevada corporation, and its successors (collectively, the "Company"), and to provide incentives for qualified persons to remain on the Board of Directors of the Company as outside (non-management) directors. Following the effective date of this Plan, the Company shall not grant any awards of cash, stock, or options pursuant to the Company’s 2005 Outside Director Stock Incentive Plan.

2. Definitions. As used in the Plan, unless the context requires otherwise, the following terms shall have the following meanings:

"Administrator" shall mean the Compensation Committee of the Board, and if there is no designated Compensation Committee, then the Board.

“Annual Meeting” shall mean an annual meeting of the Company’s stockholders. “Annual Meeting Date” shall mean each date on which an Annual Meeting is held, commencing with the Annual Meeting conducted during 2007; provided, however, that if the Annual Meeting is not conducted by July 1 in any calendar year, the term “Annual Meeting Date” for such calendar year shall be July 1 of such calendar year.

"Board" shall mean the Board of Directors of the Company.

“Cash Award” shall mean a cash award made pursuant to Section 15 of the Plan.

"Common Stock" shall mean the Company's common stock, par value $0.001 per share, or if, pursuant to the adjustment provisions of Section 11 hereof, another security is substituted for such common stock, such other security.

"Existing Director" shall mean each member of the Board on the date of adoption of this Plan other than Timothy J. McIntyre.

"Fair Market Value" on any date means the average of the high and low sales prices of a share of Common Stock on such date on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading, or, if such shares are not so listed or admitted to trading, the closing sales price of a share of Common Stock on the National Association of Securities Dealers Automated Quotation System (“NASDAQ”) on such date, or if such closing price is not available, the arithmetic mean of the per share closing bid price and per share closing asked price of a share of Common Stock on such date as quoted on NASDAQ or such other quotation system in which such prices are regularly quoted, or, if there have been no such published bid or asked quotations with respect to a share of Common Stock on such date, or if such shares are not publicly traded, the Fair Market Value shall be the fair market value established by the Administrator.

"Option" shall mean the right, granted pursuant to Section 7 of the Plan, to purchase one or more shares of Common Stock.

"Optionee" shall mean a person to whom an Option has been granted pursuant to the Plan.

“Outside Director” shall mean (i) each Existing Director and (ii) each person who, at the time that such person first is appointed or elected to the Board, is not, and has not been during the twelve months prior to such appointment or election, an employee of the Company or any of its subsidiaries; provided, however, that a person shall cease to be an Outside Director if he or she becomes an employee of the Company or any of its subsidiaries.

“Retirement” shall mean a director’s resignation from, or the act of foregoing election to, the Board as a result of any mandatory retirement provisions applicable to such director.

3. Stock Subject to the Plan. There will be reserved for use upon the exercise of Options granted from time to time pursuant to the Plan an aggregate of 5,000,000 shares of Common Stock, subject to adjustment as provided in Section 11 hereof. The Administrator shall determine from time to time whether all or part of such 5,000,000 shares shall be authorized but unissued shares of Common Stock or issued shares of Common Stock which shall have been reacquired by the Company and which are held in its treasury. If any Option granted under the Plan should expire or terminate for any reason without having been exercised in full, the unpurchased shares shall become available for the grant of Options under the Plan.

4. Administration of the Plan. The Plan shall be administered by the Administrator. Subject to the provisions of the Plan, the Administrator shall have full discretion:

(a) To determine the exercise price of Options granted hereunder in accordance with Section 7 hereof;

(b) To interpret the Plan;

(c) To promulgate, amend and rescind rules and regulations relating to the Plan, provided, however, that no such rules or regulations shall be inconsistent with any of the terms of the Plan;

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(d) To subject any Option and Cash Awards to such additional restrictions and conditions (not inconsistent with the Plan) as may be specified when granting the Option or Cash Award; and

(e) To make all other determinations in connection with the administration of the Plan in a manner consistant with the Plan.

5. Eligibility. The only persons who shall be eligible to receive Options or Cash Awards under the Plan shall be Outside Directors.

6. Term. No Option or Cash Award shall be granted under the Plan after July 1, 2017.

7. Grant of Stock Options. The following provisions shall apply with respect to Options granted hereunder:

(a) Automatic Grants.

(i) Initial Grants. The Company shall grant options to purchase 50,000 shares to each non-employee director upon the date of his initial election to the Board (“Initial Grants”)

(ii) Annual Grants. On each Annual Meeting Date (or, in 2007, on the fifth business day after the Plan is adopted by the Board), the Company shall grant to each Outside Director Options to purchase thirty thousand (30,000) shares of Common Stock (subject to adjustment pursuant to Section 11 hereof) (“Annual Grants”).

(b) Option Price. The price at which shares of Common Stock shall be purchased upon exercise of an Option granted hereunder shall be equal to the Fair Market Value of such shares on the date of grant of such Option.

(c) Expiration. Except as otherwise provided in Section 10 hereof, each Option granted hereunder shall cease to be exercisable ten years after the date on which it is granted.

8. Exercise of Options. Unless the exercise date of an Option granted hereunder is accelerated pursuant to Section 12 hereof, the following provisions shall apply with respect to the exercise of such Option, unless the Administrator determines otherwise at the time of grant:

(a) Initial Grants shall vest during the first two years following the date of grant (6,250 shares at the end of each three month period following the date of grant) but if a director is not reelected for a second term then all remaining unvested options in the Initial Grant shall vest automatically on the one year anniversary of the grant date;

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(b) Annual Grants shall vest during the first year following the date of grant (7,500 shares at the end of each three month period following the date of grant);

(c) In the event that an Outside Director is appointed to fill a vacancy on the Board, the Administrator shall determine the amount of the Annual Grant appropriate to provide such Outside Director for the period such Outside Director will so serve for the remainder of the term; and

(d) All vesting of Options shall cease if the Outside Director resigns from the Board or otherwise ceases to serve as an Outside Director, unless the Administrator determines that the circumstances warrant continuation of vesting.

9. Method of Exercise. To the extent permitted by Section 8 hereof, Optionees may exercise their Options from time to time by giving written notice to the Company. The date of exercise shall be the date on which the Company receives such notice. Such notice shall be on a form furnished by the Company and shall state the number of shares to be purchased and the desired closing date, which date shall be at least fifteen days after the giving of such notice, unless an earlier date shall have been mutually agreed upon. At the closing, the Company shall deliver to the Optionee (or other person entitled to exercise the Option) at the principal office of the Company, or such other place as shall be mutually acceptable, a certificate or certificates for such shares against payment in full of the Option price for the number of shares to be delivered, such payment to be by a certified or bank cashier's check and/or, if permitted by the Administrator in its discretion, by transfer to the Company of capital stock of the Company having a Fair Market Value (as determined pursuant to Section 2) on the date of exercise equal to the excess of the purchase price for the shares purchased over the amount (if any) of the certified or bank cashier's check. If the Optionee (or other person entitled to exercise the Option) shall fail to accept delivery of and pay for all or any part of the shares specified in his or her notice when the Company shall tender such shares to such Optionee, such Optionee’s right to exercise the Option with respect to such unpurchased shares may be terminated.

10. Termination of Board Status. In the event that an Optionee ceases to serve on the Board for any reason other than cause, death, disability, resignation or Retirement, such Optionee's Options shall automatically terminate three months after the date on which such service terminates, but in any event not later than the date on which such Options would terminate pursuant to Section 7(c). In the event that an Optionee resigns or is removed from the Board by means of a resolution which recites that the Optionee is being removed solely for cause, such Optionee's Options shall automatically terminate on the date such removal is effective. In the event that an Optionee ceases to serve on the Board by reason of death, disability or Retirement, an Option exercisable by such Optionee shall terminate one year after the date of death, disability or Retirement of the Optionee, but in any event not later than the date on which such Options would terminate pursuant to Section 7(c). During such time after death, an Option may only be exercised by the Optionee's personal representative, executor or administrator, as the case may be. No exercise permitted by this Section 10 shall entitle an Optionee or such Optionee’s personal representative, executor or administrator to exercise any portion of any Option beyond the extent to which such Option is exercisable pursuant to Section 8 hereof on the date such Optionee ceases to serve on the Board. In the event that an Outside Director accepts employment by the Company or its subsidiaries after becoming an Outside Director, such individual shall cease to be an Outside Director and thus shall not be eligible to receive Options under this Plan thereafter, but such individual shall not be deemed to have ceased serving on the Board for purposes of this Section 10 merely by virtue of such employment.

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11. Changes in Capital Structure. In the event that, by reason of a stock dividend, recapitalization, reorganization, merger, consolidation, reclassification, stock split-up, combination of shares, exchange of shares, or comparable transaction, the outstanding shares of Common Stock of the Company are hereafter increased or decreased, or changed into or exchanged for a different number or kind of shares or other securities of the Company or of any other corporation, then appropriate adjustments shall be made by the Administrator to the number and kind of shares reserved for issuance under the Plan upon the grant and exercise of Options and the number and kind of shares subject to the automatic grant provisions of Section 7(a) and Section 15. In addition, the Administrator shall make appropriate adjustments to the number and kind of shares subject to outstanding Options, and the purchase price per share under outstanding Options shall be appropriately adjusted consistent with such change. In no event shall fractional shares be issued or issuable pursuant to any adjustment made under this Section 11. The determination of the Administrator as to any such adjustment shall be final and conclusive.

12. Mandatory Exercise. Notwithstanding anything to the contrary set forth in the Plan, in the event that (x) the Company should adopt a plan of reorganization pursuant to which (i) it shall merge into, consolidate with, or sell substantially all of its assets to, any other corporation or entity or (ii) any other corporation or entity shall merge with the Company in a transaction in which the Company shall become a wholly-owned subsidiary of another entity, or (y) the Company should adopt a plan of complete liquidation, then (I) all Options granted hereunder shall be deemed fully exercisable fifteen days prior to the scheduled consummation of such event and (II) the Company may give an Optionee written notice thereof requiring such Optionee either (a) to exercise his or her Options within ten days after receipt of such notice, including all installments whether or not they would otherwise be exercisable at the date, (b) in the event of a merger or consolidation in which shareholders of the Company will receive shares of another corporation, to agree to convert his or her Options into comparable options to acquire such shares, (c) in the event of a merger or consolidation in which shareholders of the Company will receive cash or other property (other than capital stock), to agree to convert his or her Options into such consideration (in an amount representing the appreciation over the exercise price of such Options) or (d) to surrender such Options or any unexercised portion thereof.

13. Option Grant. Each grant of an Option under the Plan will be evidenced by a document in such form as the Administrator may from time to time approve. Such document will contain such provisions as the Administrator may in its discretion deem advisable, including without limitation additional restrictions or conditions upon the exercise of an Option, provided that such provisions are not inconsistent with any of the provisions of the Plan. The Administrator may require an Optionee, as a condition to the grant or exercise of an Option or the issuance or delivery of shares upon the exercise of an Option or the payment therefor, to make such representations and warranties and to execute and deliver such notices of exercise and other documents as the Administrator may deem consistent with the Plan or the terms and conditions of the option agreement. Not in limitation of any of the foregoing, in any such case referred to in the preceding sentence the Administrator may also require the Optionee to execute and deliver documents (including the investment letter described in Section 14) containing such representations, warranties and agreements as the Administrator or counsel to the Company shall deem necessary or advisable to comply with any exemption from registration under the Securities Act of 1933, as amended, any applicable State securities laws, and any other applicable law, regulation or rule.

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14. Investment Letter; Requirements of Law.

(a) If required by the Administrator, each Optionee shall agree to execute a statement directed to the Company, upon each and every exercise by such Optionee of any Options, that shares issued thereby are being acquired for investment purposes only and not with a view to the redistribution thereof, and containing an agreement that such shares will not be sold or transferred unless either (1) registered under the Securities Act of 1933, as amended, or (2) exempt from such registration in the opinion of Company counsel. If required by the Administrator, certificates representing shares of Common Stock issued upon exercise of Options shall bear a restrictive legend summarizing the restrictions on transferability applicable thereto.

(b) The granting of Options, the issuance of shares upon the exercise of an Option, and the delivery of shares upon the payment therefor shall be subject to compliance with all applicable laws, rules, and regulations. Without limiting the generality of the foregoing, the Company shall not be obligated to sell, issue or deliver any shares unless all required approvals from governmental authorities and stock exchanges shall have been obtained and all applicable requirements of governmental authorities and stock exchanges shall have been complied with.

(c) The Company shall have the right but not the obligation to file a resale registration statement on behalf of one or more Optionees with respect to shares underlying options on Form S-8 or other applicable registration statement.

15. Cash Awards. The following provisions shall govern the grant of Cash Awards pursuant to the Plan:

(a)Each Outside Director will receive a $25,000 per annum retainer to cover general availability and participation in meetings and conference calls of our Board of Directors;

(b)Each Outside Director Audit Committee member will receive a $5,000 per annum retainer to cover general availability and participation in Audit Committee conference calls and meetings;

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(c)Each Outside Director Corporate Governance Committee member will receive a $5,000 per annum retainer to cover general availability and participation in Corporate Governance Committee conference calls and meetings;

(d)Each Outside Director Compensation Committee member will receive a $5,000 per annum retainer to cover general availability and participation in Compensation Committee conference calls and meetings;

(e)The Chairman of the Board, if an Outside Director, will receive an additional $15,000 per annum retainer. The Chairmen of each of the Audit Committee, Corporate Governance Committee, and Compensation Committee will receive an additional $5,000 annually;

(f)The Company will reimburse each Outside Director for his reasonable out-of-pocket travel expenses, to cover preparation for attendance at and participation in the Board Meetings;

(g)Each Outside Director shall receive $1,000 per day for any Board approved and designated activities on behalf of the Company other than Board or committee meetings;

(h) In the event that an Outside Director is appointed to fill a vacancy on the Board, any committee of the Board, or the Chairman of the Board, the Board of Directors will determine the amount of cash compensation appropriate to provide such director for the period such director will so serve for the remainder of the term; and

(i)For purposes of administrative convenience, unless otherwise determined by the Administrator, cash payments required by this Section 15 shall be made quarterly in arrears as soon as practicable, but not later than 10 days after the last day of each calendar quarter. The first such payments shall be made for the quarter ending June 30, 2007.

16. Tax Withholding. The Company, as and when appropriate, shall have the right to withhold any federal, state, or local taxes required by law to be withheld.

17. Nonassignability. No Option shall be assignable or transferable by an Optionee except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended (the "Code"), or Title I of the Employee Retirement Income Security Act ("ERISA") or the rules thereunder, in which event the terms of this Plan, including all restrictions and limitations set forth herein, shall continue to apply to the transferee. Except as otherwise provided in the immediately preceding sentence, during an Optionee's lifetime, no person other than the Optionee may exercise his or her Options.

18. Optionee's Rights as Shareholder; Participant’s and Board Member.

(a) An Optionee shall have no rights as a shareholder of the Company with respect to any shares subject to an Option until the Option has been exercised and the certificate with respect to the shares purchased upon exercise of the Option has been duly issued and registered in the name of the Optionee.

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(b) Nothing in the Plan shall be deemed to give an Outside Director any right to a continued position on the Board nor shall it be deemed to give any person any other right not specifically and expressly provided in the Plan.

19. Termination and Amendment. The Board may at any time terminate or amend the Plan as it may deem advisable, except that (i) the provisions of the Plan relating to the amount of shares covered by Options, the exercise price of Options or the timing and amount of Option grants or exercises shall not be amended more than once every six months, other than to comport with changes required by the Code, ERISA or the rules thereunder; and (ii) no such termination or amendment shall adversely affect any Outside Director with respect to any right which has accrued under the Plan in regard to any Option or Cash Award granted prior to such termination or amendment. Any termination of this Plan will terminate the obligation of the Company to grant any Option or Cash Award scheduled to be granted after the date of such termination.

20. Sunday or Holiday. In the event that the time for the performance of any action or the giving of any notice is called for under the Plan within a period of time which ends or falls on a Sunday or legal holiday, such period shall be deemed to end or fall on the next date following such Sunday or legal holiday which is not a Sunday or legal holiday.

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EX-10.135

Exhibit 10.135

VYTERIS, INC.

2007 STOCK OPTION PLAN

ARTICLE I

PURPOSE AND ADOPTION OF THE PLAN

1.01  Purpose. The purpose of the Vyteris, Inc. 2007 Stock Option Plan, which is an amendment and restatement of the 2005 Vyteris, Inc. Stock Option Plan (as amended and restated, hereinafter referred to as the “Plan”) i5 s to assist the Company (as defined below) in attracting and retaining highly competent employees and to act as an incentive in motivating selected officers and other employees of the Company and its subsidiaries, and directors and consultants of the Company and its subsidiaries, to achieve long-term corporate objectives. The purpose also is to provide for options granted under the Plan to date and to reflect amendments in the number of shares available under the Plan made as of December 31, 2006 and on May 31, 2007.

1.02  Adoption and Term. The Plan has been approved by the Board of Directors and shareholders of the Company. The Plan is effective from the date approved by the shareholders of the Company (the “Effective Date”) and shall remain in effect until terminated by action of the Board; provided, however, that no Option (as defined below) or Stock Purchase Right (as defined below) may be granted hereunder after the tenth anniversary of the Effective Date.

ARTICLE II

DEFINITIONS

For the purpose of this Plan, the following capitalized terms shall have the following meanings:

2.01  Applicable Laws means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan.

2.02  Beneficiary means an individual, trust or estate who or which, by a written designation of the Participant filed with the Company or by operation of law, succeeds to the rights and obligations of the Participant under the Plan and the Option Agreement or Restricted Stock Purchase Agreement upon the Participant’s death.

2.03  Board means the Board of Directors of the Company.

2.04 Code means the Internal Revenue Code of 1986, as amended. References to a section of the Code shall include that section and any comparable section or sections of any future legislation that amends, supplements or supersedes said section

2.05 Committee means the Committee defined in Section 3.01.

2.06 Company means Vyteris, Inc.., a Nevada corporation, and its successors.

2.07 Common Stock means the Common Stock of the Company, par value $.001 per share.

2.08 Date of Grant means the date designated by the Committee as the date as of which it grants an Option or Stock Purchase Right, which shall not be earlier than the date on which the Committee approves the granting of such Option or Stock Purchase Right; provided, however, with respect to Options or Grant Rights issued to replace options or Stock Purchase Rights which initially were granted by Vyteris and subsequently assumed by the Company, the Date of Grant as provided for in the Vyteris, Inc. 2001 Stock Option Plan (the “Predecessor Plan”)

2.09 Exchange Act means the Securities Exchange Act of 1934, as amended.

2.10 Fair Market Value means, as of any applicable date, the fair market value of the Common Stock as determined by the Board based upon such evidence as it may think necessary or desirable.

2.11 Incentive Stock Option means a stock option within the meaning of Section 422 of the Code.

2.12 Merger means any merger, reorganization, consolidation, exchange, transfer of assets or other transaction having similar effect involving the Company.

2.13 Nonstatutory Stock Option means a stock option which is not an Incentive Stock Option.

2.14 Option Agreement means a written agreement between the Company and a Participant, specifically setting forth the terms and conditions of an Option granted under the Plan, substantially in the form of Exhibit A attached hereto or such other form as shall be determined from time to time by the Committee; provided, however, that with respect to options granted by Vyteris, the term Option Agreement shall mean the option agreement entered into by the applicable optionee with Vyteris, as it may be supplemented by the Company.

2.15 Option Price, with respect to Options, shall have the meaning set forth in Section 6.01(b).

2.16 Option Term means, with respect to an Option, the period of time set forth in the Option Agreement during which the Option may be exercised.

2.17 Options means all Nonstatutory Stock Options and Incentive Stock Options granted at any time under the Plan or the Predecessor Plan.

2.18 Participant means a person designated to receive an Option or Stock Purchase Right under the Plan in accordance with Section 4.03 or a person designated to receive an option or stock purchase right pursuant to the predecessor Plan.

2.19 Plan means the Treasure Mountain Holdings, Inc. 2005 Stock Option Plan as described herein, as the same may be amended from time to time.

2.20 Restricted Stock means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Article V of the Plan or shares of Vyteris’ common stock acquired pursuant to a grant of stock purchase rights under Article V of the Predecessor Plan.

2.21 Restricted Stock Purchase Agreement means a written agreement between the Company and an Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right; provided, however, that with respect to stock purchase rights granted by Vyteris, the term Restricted Stock Purchase Agreement shall mean the restricted stock purchase agreement entered into by the applicable optionee with Vyteris, as it may be supplemented by the Company Each Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and shall be substantially in the form of Exhibit B attached hereto or such other form as shall be determined from time to time by the Committee.

2.22 Stock Purchase Right means the right to purchase Common Stock pursuant to Article V of the Plan, as evidenced by a notice of grant included within the applicable Restricted Stock Purchase Agreement (the “Notice of Grant”) or, if applicable, a right to purchase Vyteris’ common stock pursuant to Article V of the Predecessor Plan.

2.23 Ten Percent Shareholder means any individual who, at the time an Option is granted, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company.

ARTICLE III

ADMINISTRATION

The Plan shall be administered by the Board or, in the discretion of the Board, by a committee of the Board (the “Committee”) comprised of at least two persons. The Committee or Board shall have exclusive and final authority in each determination, interpretation or other action affecting the Plan and its Participants. The Board or

Committee shall have the sole discretionary authority to interpret the Plan, to establish and modify administrative rules for the plan, to impose such conditions and restrictions on Options and Stock Purchase Rights as it determines appropriate, and to take such steps in connection with the Plan and Options and Stock Purchase Rights granted hereunder as it may deem necessary or advisable. The Board or Committee may delegate such of its powers and authority under the Plan as it deems appropriate to designated officers or employees of the Company. In the event of such delegation of authority or exercise of authority by the Board or Committee, references in the Plan to the Committee shall be deemed to refer to the delegate of the Board or the Committee as the case may be. For purposes of this Plan, references to the Committee shall be deemed references to the Board to the extent that the Board has not appointed a Committee to administer the Plan.

ARTICLE IV

SHARES AND PARTICIPATION

4.01 Number of Shares Issuable. The total number of shares initially authorized to be issued under the Plan shall be 14,901,902 shares of Common Stock. The number of shares available for issuance under the Plan shall be further subject to adjustment in accordance with Section 7.06. The shares to be offered under the Plan shall be authorized and unissued Common Stock, or issued Common Stock which shall have been reacquired by the Company,

4.02 Shares Subject to Terminated Options and Stock Purchase Rights. Common Stock covered by any unexercised portions of terminated Options and Stock Purchase Rights (including canceled Options and Stock Purchase Rights) granted under Articles V and VI of the Plan or the Predecessor Plan and Common Stock subject to any Options and Stock Purchase Rights which are otherwise surrendered by a Participant may again be subject to new Options and Stock Purchase Rights under the Plan.

4.03 Participation. Participants in the Plan shall be such consultants, directors, officers and other employees of the Company and its subsidiaries as the Committee, in its sole discretion, may designate from time to time. The Committee’s designation of a Participant in any year shall not require the Committee to designate such person to receive Options, Stock Purchase Rights or grants in any other year. The Committee shall consider such factors as it deems pertinent in selecting Participants and in determining the type and amount of their respective Options and Stock Purchase Rights.

ARTICLE V

STOCK PURCHASE RIGHTS

5.01 Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash

awards made outside of the Plan. After the Committee determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Restricted Stock Purchase Agreement, of the terms, conditions and restrictions related to the offer, including the number of shares of Common Stock that the offeree shall be entitled to purchase and the price to be paid for such shares. The offer shall be accepted by execution of the Restricted Stock Purchase Agreement.

5.02 Repurchase Option. Unless the Committee determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or “Permanent Disability” (as defined in Section 6.03)). The purchase price for shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Committee. In the event that the Restricted Stock Purchase Agreement does not provide for a lapsing schedule, the restrictions shall lapse as to (a) one third of the shares subject to the Restricted Stock Purchase Agreement on the first anniversary of the grant of the Stock Purchase Right, (b) one third of the shares subject to the Restricted Stock Purchase Agreement on the second anniversary of the grant of the Stock Purchase Right and (c) one third of the shares subject to the Restricted Stock Purchase Agreement on the third anniversary of the grant of the Stock Purchase Right.

5.03 Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion.

5.04 Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised; provided, however, that Participants are entitled to share adjustments to reflect capital changes under Section 7.06.

ARTICLE VI

STOCK OPTIONS

6.01 Option Awards.

(a) General. The Committee may grant, to such Participants as the Committee may select, Options entitling the Participant to purchase shares of Common Stock from the Company in such number, at such price, and on such terms and subject to such conditions, not inconsistent with the terms of this Plan, as may be established by the Committee. The terms of any Option granted under this Plan shall be set forth in an Option Agreement.

(b) Purchase Price of Options. The Option Price of each share of Common Stock which may be purchased upon exercise of any Option granted under the Plan shall be determined by the Committee; provided, however, that (i) with respect to Incentive Stock Options, the Option Price per share shall in all cases be equal to or greater than the Fair Market Value of a share of Common Stock on the Date of Grant as required under Section 422 of the Code, and (ii) with respect to any Incentive Stock Option granted to any Ten Percent Shareholder, the Option Price per share shall in all cases be equal to or greater than 110 percent of the Fair Market Value of a share of Common Stock on the Date of Grant as required under Section 422 of the Code.

(c) Designation of Options. Except as otherwise expressly provided in the Plan, the Committee may designate, at the time of the grant of each Option, the Option as an Incentive Stock Option or a Nonstatutory Stock Option.

(d) Incentive Stock Option Limitations. No Participant may be granted Incentive Stock Options under the Plan (or any other plans of the Company), which would result in shares with an aggregate Fair Market Value (measured on the Date of Grant) of more than $100,000 first becoming exercisable in any one calendar year. No Participant may be granted Incentive Stock Options under the Plan (or any other plans of the Company) unless the Participant is an employee of the Company or its Subsidiaries. An individual shall not cease to be an employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company and its subsidiaries. For purposes of an Option initially granted as an Incentive Stock Option, if a leave of absence of more than three months precludes such Option from being treated as an Incentive Stock Option under the Code, such Option thereafter shall be treated as a Nonstatutory Stock Option for purposes of this Plan. Neither service as a director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

(e) Rights as a Shareholder. A Participant or a transferee of an Option pursuant to Section 7.04 shall have no rights as a shareholder with respect to Common Stock covered by an Option until the Participant or transferee shall have become the holder of record of any such shares, and no adjustment shall be made for dividends in cash or other property or distributions or other rights with respect to any such Common Stock for which the record date is prior to the date on which the Participant or a transferee of the Option shall have become the holder of record of any such shares covered by the Option; provided, however, that Participants are entitled to share adjustments to reflect capital changes under Section 7.06.

(f) Vesting. In the event that an Option Agreement does not provide for a vesting schedule, the Options covered thereby shall become exercisable as to (a) one third of the shares subject to the Option Agreement on the first anniversary of the grant of the Option, (b) one third of the shares subject to the Option on the second anniversary of the grant of the Option and (c) one third of the shares subject to the Option on the third anniversary of the grant of the Option.

6.02 Terms of Stock Options.

(a) Conditions on Exercise. An Option Agreement with respect to Options may contain such waiting periods, exercise dates and restrictions on exercise (including, but not limited to, periodic installments) as may be determined by the Committee as of the Date of Grant.

(b) Duration of Options. Options shall terminate after the first to occur of the following events:

(i) Expiration of the Option as provided in the Option Agreement;

(ii)           Termination of the Option as provided in Section 6.03, following the Participant’s termination of employment; or

(iii)         Ten years from the Date of Grant (five years from the Date of Grant in the case of any Incentive Stock Option granted to a Ten Percent Shareholder).

(c) Acceleration of Exercise Time. The Committee, in its sole discretion, shall have the right (but shall not in any case be obligated), exercisable at any time after the Date of Grant, to permit the exercise of any Option prior to the time such Option would otherwise become exercisable under the terms of the Option Agreement.

(d) Extension of Exercise Time. The Committee, in its sole discretion, shall have the right (but shall not in any case be obligated), exercisable on or at any time after the Date of Grant, to permit any Option granted under this Plan to be exercised after its expiration date, subject, however, to the limitation described in Section 6.02(b)(iii).

6.03 Exercise of Options upon Termination of Employment.

(a) General. In the event of the termination of employment of the Participant by the Participant or the Company and its subsidiaries for any reason whatsoever other than death, Permanent Disability (as defined in Section 6.03(b)) or retirement after attainment of age 65, (i) any Options that were not vested prior to the date of such termination of employment shall terminate on such date and (ii) any Options that were vested prior to the date of such termination of employment (and which were not previously exercised) shall terminate on the ninetieth (90th) day following the date of such termination of employment or the last day of the Option Term, whichever is earlier.

(b) Death, Permanent Disability or Retirement. In the event of the termination of the employment of the Participant by reason of death, Permanent Disability or retirement after attainment of age 65, any Options that were vested prior to the date of such termination (and which were not previously exercised), together with any other Options designated by the Committee, shall terminate on the earlier of (i) the first anniversary of the date of such termination and (ii) the last day of the Option Term. Any Options that were not vested prior to the date of such termination and do not become vested pursuant to the immediately preceding sentence shall terminate as of the date of such termination. As used in this Plan, the term “Permanent Disability” means the Participant being deemed to have suffered a disability that makes the Participant eligible for immediate benefits under any long-term disability plan of the Company, as in effect from time to time.

(c) Termination of Employment. For purposes of the Plan, there shall have been a termination of employment of a Participant if such Participant is no longer an employee, consultant, director or officer of the Company or of any of its subsidiaries.

6.04 Exercise Procedures. Each Option granted under the Plan shall be exercised by written notice to the Company which must be received by the officer or employee of the Company designated in the Option Agreement on or before the close of business on the expiration date of the Option. The Option Price of shares purchased upon exercise of an Option granted under the Plan shall be paid in full in cash by the Participant pursuant to the Option Agreement; provided, however, that the Committee may (but shall not be required to) permit payment to be made by delivery to the Company of either (a) Common Stock (which may include shares otherwise issuable in connection with the exercise of the Option, subject to such rules as the Committee deems appropriate), (b) any combination of cash and Common Stock, or (c) such other consideration as the Committee deems appropriate. In the event that any Common Stock shall be transferred to the Company to satisfy all or any part of the Option Price, the part of the Option Price deemed to have been satisfied by such transfer of Common Stock shall be equal to the product derived by multiplying the Fair Market Value of a share of Common Stock as of the date of exercise times the number of shares of Common Stock transferred to the Company. The Participant may not transfer to the Company in satisfaction of the Option Price any fractional share of Common Stock. Any part of the Option Price paid in cash upon the exercise of any Option shall be added to the general funds of the Company and may be used for any proper corporate purpose. Unless the Committee shall otherwise determine, any Common Stock transferred to the Company as payment of all or part of the Option Price upon the exercise of any Option shall be held as treasury shares.

ARTICLE VII

MISCELLANEOUS

7.01 Plan Provisions Control Option and Stock Purchase Right Terms. The terms of the Plan shall govern all Options and Stock Purchase Rights granted under the Plan, and in no event shall the Committee have the power to grant any option or stock purchase right under the Plan which is contrary to any of the provision of the Plan. In the event any provision of any Options or Stock Purchase Rights granted under the Plan shall conflict with any term in the Plan as constituted on the Date of Grant of such Option or Stock Purchase Right, the term in the Plan as constituted on the Date of Grant of such Option or Stock Purchase Right shall control. Except as provided in Section 7.03 and Section 7.06, the terms of any Option or Stock Purchase Right granted under the Plan may not be changed after the Date of Grant of such Option or Stock Purchase Right so as to materially decrease the value of the Option or Stock Purchase Right without the express written approval of the holder.

7.02 Option Agreement. No person shall have any rights under any Option granted under the Plan unless and until the Company and the Participant to whom such Option shall have been granted shall have executed and delivered an Option Agreement or received any other Option acknowledgment authorized by the Committee expressly granting the Option to such person and containing provisions setting forth the terms of the Option.

7.03 Modification of Option After Grant. No Option or Stock Purchase Right granted under the Plan to a participant may be modified (unless such modification does not materially decrease the value of the Option or Stock Purchase Right) after the Date of Grant except by express written agreement between the Company and the Participant, provided that any such change (a) shall not be inconsistent with the terms of the Plan, and (b) shall be approved by the Committee.

7.04 Limitation on Transfer. Unless determined otherwise by the Committee, a Participant’s rights and interest under the Plan may not be assigned or transferred other than by will or the laws of descent and distribution, and during the lifetime of a Participant, only the Participant personally (or the Participant’s personal representative) may exercise rights under the Plan. The Participant’s Beneficiary may exercise the Participant’s rights to the extent they are exercisable under the Plan following the death of the Participant. In the event that the Committee makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Committee deems appropriate.

7.05 Taxes. The Company shall be entitled, if the Committee deems it necessary or desirable, to withhold (or secure payment from the Participant in lieu of withholding) the amount of any withholding or other tax required by law to be withheld or paid by the Company with respect to any amount payable and/or shares issuable with respect to such Participant’s Option or Stock Purchase Right, or with respect to any

income recognized upon a disqualifying disposition of shares received pursuant to the exercise of an Incentive Stock Option, and the Company may defer payment or issuance of shares upon exercise of an Option or Stock Purchase Right unless indemnified to its satisfaction against any liability for any such tax. The amount of such withholding or tax payment shall be determined by the Committee and shall be payable by the Participant at such time as the Committee determines. The Participant shall meet his or her withholding requirement by direct payment to the Company in cash of the amount of any taxes required to be withheld with respect to such Option or Stock Purchase Right; provided, however, that the Committee may (but shall not be required to) permit the Participant to meet his or her withholding requirement by (i) having withheld from such Option or Stock Purchase Right at the appropriate time that number of shares of Common Stock, rounded up to the next whole share, whose Fair Market Value is equal to the amount of withholding taxes due, or (ii) a combination of shares and cash.

7.06 Adjustments to Reflect Capital Changes.

(a) Recapitalization. The number and kind of shares subject to outstanding Options or Stock Purchase Rights, the Option Price for such shares, the number and kind of shares available for Options and Stock Purchase Rights subsequently granted under the Plan and the maximum number of shares in respect of which Options can be granted to any Participant in any calendar year shall be appropriately adjusted to reflect any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other change in capitalization with a similar substantive effect upon the Plan or the Options or Stock Purchase Rights granted under the Plan. The Committee shall have the power and sole discretion to determine the amount of the adjustment to be made in each case.

(b) Merger. After any Merger in which the Company is the surviving corporation, each Participant shall, at no additional cost, be entitled upon any exercise of an Option or Stock Purchase Right to receive (subject to any required action by shareholders), in lieu of the number of shares of Common Stock receivable or exercisable pursuant to such Option or Stock Purchase Right, the number and class of shares or other securities to which such Participant would have been entitled pursuant to the terms of the Merger if, at the time of the Merger, such participant had been the holder of record of a number of shares equal to the number of shares receivable or exercisable pursuant to such Option or Stock Purchase Right. Comparable rights shall accrue to each Participant in the event of successive Mergers of the character described above. In the event of a Merger in which the Company is not the surviving corporation, the surviving, continuing, successor, or purchasing corporation, as the case may be (the “Acquiring Corporation”), shall either assume the Company’s rights and obligations under outstanding Options and Stock Purchase Rights or substitute comparable options and stock purchase rights in respect of the Acquiring Corporation’s stock for such outstanding Options and Stock Purchase Rights. In the event the Acquiring Corporation elects not to assume or substitute comparable options and stock purchase rights for such outstanding Options and Stock Purchase Rights, the Board shall provide that any unexercisable and/or unvested portion of the outstanding Options and Stock Purchase Rights shall be

immediately exercisable and vested as of a date prior to such Merger or consolidation, as the Board so determines. The exercise and/or vesting of any Option and any Stock Purchase Right that was permissible solely by reason of this Section 7.07(b) shall be conditioned upon the consummation of the Merger or consolidation. Any Options and Stock Purchase Rights which are neither assumed by the Acquiring Corporation nor exercised as of the date of the Merger shall terminate effective as of the effective date of the Merger.

For purposes of the Plan, all outstanding Options and Stock Purchase Rights will be considered assumed if, following the consummation of the Merger, the option or stock purchase rights confers the right to purchase or receive, for each share of stock subject to the Option or Stock Purchase Right immediately prior to the consummation of the Merger, the consideration (whether stock, cash, or other securities property) received in the Merger by holders of Common Stock for each share of the Company’s Common Stock held on the effective date of the transaction (and if holders were offered a choice of consideration, the type chosen by the holders of a majority of the outstanding shares of the Company’s Common Stock); provided, however, that if such consideration received in the Merger is not solely common stock of the successor corporation or its parent, the Committee may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each share of stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its parent or subsidiary equal in fair market value to the per share consideration received by holders of the Company’s Common Stock in the Merger.

Any outstanding Option which is assumed or replaced in the event of a Merger and does not otherwise accelerate at that time will automatically accelerate in the event that the Participant’s service terminates through an “Involuntary Termination” effected within eighteen (18) months following the effective date of such Merger. Any Option so accelerated will remain exercisable until the earlier of (i) the expiration of the Option Term or (ii) the end of the one-year period measured from the date of the Involuntary Termination.

An Involuntary Termination will be deemed to occur upon (i) the Participant's involuntary dismissal or discharge by the Company or its subsidiaries or their successors for reasons other than cause or (ii) such individual’s voluntary resignation following (A) a reduction in his or her level of compensation (including base salary, fringe benefits and any corporate-performance based bonus or incentive programs) by more than ten percent or (B) a relocation of such individual’s place of employment by more than fifty (50) miles, provided and only if such reduction or relocation is effected by the Company or its subsidiaries or their successor without the Participant’s written consent.

(c) Options to Purchase Shares of Stock of Acquired Companies. After any Merger in which the Company shall be a surviving corporation, the Committee may grant substituted options outside of the terms of this Plan, pursuant to

Section 424 of the Code, replacing old options granted under a plan of another party to the Merger whose shares or stock subject to the old options may no longer be issued following the Merger. The foregoing manner of application of the foregoing provisions shall be determined by the Committee in its sole discretion. Any such application may provide for the elimination of any fractional shares, which might otherwise become subject to any Options.

7.07 No Right to Employment. No employee or other person shall have any claim of right to be granted an Option under this Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the employ of the Company or any of its subsidiaries.

7.08 Options Not Includable for Benefit Purposes. Common Stock received by a Participant pursuant to the provisions of the Plan shall not be included in the determination of benefits under any pension, group insurance or other benefit plan applicable to the Participant, which is maintained by the Company, except as may be provided under the terms of such plans or determined by the Board.

7.09 Governing Law. All determinations made and actions taken pursuant to the Plan shall be governed by the laws of the State of New Jersey and construed in accordance therewith (except where the law of the state of incorporation of the Company controls).

7.10 NoStrict Construction. No rule of strict construction shall be implied against the Company, the Board, the Committee, or any other person in the interpretation of any of the terms of the Plan, any Option or Stock Purchase Right granted under the Plan or any rule or procedure established by the Committee.

7.11 Captions. The captions (i.e., all Section headings) used in the Plan are for convenience only, do not constitute a part of the Plan, and shall not be deemed to limit, characterize or affect in any way any provisions of the Plan, and all provisions of the Plan shall be construed as if no captions have been used in the Plan.

7.12 Severability. Whenever possible, each provision in the Plan and every Option and Stock Purchase Right at any time granted under the Plan shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Plan or any Option or Stock Purchase Right at any time granted under the Plan shall be held to be prohibited by or invalid under applicable law, then (a) such provision shall be deemed amended to accomplish the objectives of the provision as originally written to the fullest extent permitted by law and (b) all other provisions of the Plan and every other Option and Stock Purchase Right at any time granted under the Plan shall remain in full force and effect.

7.13 Amendment and Termination.

(a) Amendment. The Board shall have complete power and authority to amend the Plan at any time. No termination or amendment of the Plan may, without the consent of the Participant to whom any Option or Stock Purchase Right shall theretofore have been granted under the Plan, adversely affect the right of such individual under such Option or Stock Purchase Right.

(b) Termination. The Board shall have the right and the power to terminate the Plan at any time; provided, however, that the Plan shall terminate no later than ten years after the adoption of the Plan by the Board. No Option or Stock Purchase Right shall be granted under the Plan after the termination of the Plan, but the termination of the Plan shall not have any other effect and any Option or Stock Purchase Right outstanding at the time of the termination of the Plan may be exercised after termination of the Plan at any time prior to the expiration date of such Option or Stock Purchase Right to the same extent such Option or Stock Purchase Right would have been exercisable had the Plan not terminated.

7.14 Limitations. The following limitations shall apply to grants of Options:

(i)         No Participant shall be granted, in any fiscal year of the Company, Options to purchase more than 1,000,000 shares of Common Stock, other than grants made to the chief executive officer of the Company pursuant to an employment agreement approved by the Board of Directors of the Company, in which case the maximum number of shares covered by Options granted to such officer in any fiscal year shall not exceed 5% of the Company’s outstanding common stock, calculated on a fully diluted basis.

(ii)        The foregoing limitation shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 7.06(b).

(iii)       If an Option is canceled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 7.06(b)), the canceled Option will be counted against the limits set forth in subsections (i) and (ii) above.

7.15 Conditions Upon Issuance of Shares.

(a) Legal Compliance. Shares of Common Stock shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.

(b) Investment Representations. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the shares of Common Stock are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required.

(c) Additional Conditions. The Committee shall have the authority to condition the grant of any Option or Stock Purchase Right in such other manner that the Committee determines to be appropriate, provided that such condition is not inconsistent with the terms of the Plan. Such conditions may include, among other things, obligations of Optionees to execute lock-up agreements and shareholder agreements in the future.

(d) Other. The Company shall have the right but not the obligation to file a resale registration statement on behalf of one or more Optionees with respect to shares underlying options on Form S-8 or other applicable registration statement.

7.16. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any shares of Common Stock hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.

7.17. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of shares of Common Stock as shall be sufficient to satisfy the requirements of the Plan.

EX-10.136

Exhibit 10.136

INTERNATIONAL CAPITAL ADVISORY INC.

CONSULTING AGREEMENT

THIS AGREEMENT is made this 25th day of July, 2007 by and between International Capital AdvisoryInc.,(hereinafter referred to as “ICA”) and VYTERIS HOLDINGS(NEVADA), Inc. (hereinafter referred to as “VYHN” or “Company”).

Whereas, VYHN is seeking consulting services and strategic relationships for both the capital markets and pharmaceutical industry and desires that ICA provide such services to Company with respect to the same; and

Whereas, VYHN and ICA desire to enter into an agreement for such services on the terms and conditions described herein.

NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, VYHN and ICA agree as follows:

I.	DEFINITIONS:
	A.	“Strategic Relationships” shall mean those persons and entities that provide either capital market strategies or pharmaceutical companies .
	B.	“Fee” is the amount paid to ICA as set forth in Section III herein.
II.	SERVICES

Services: VYHN hereby retains ICA. The function of the relationship will be to:

a) ICA shall aid Vyteris in developing a capital market strategy and introduce Vyteris to investment dealers, analysts, corporate finance representatives, institutional investors and retail brokers throughout North America and Europe when appropriate. ICA shall work with the Company’s US Investor Relations firm and Vyteris’s internal investor relations department on a regular basis to develop a long-term North American program to enhance Vyteris’ presence in the capital markets. This will include setting up road shows and dealer presentations throughout North America and Europe.

b) ICA shall aid Vyteris in identifying potential acquisition targets in Canada, the US and Europe. ICA will seek Vyteris’ approval before approaching any companies. As part of a potential M&A transaction, ICA may introduce Vyteris to parties who can facilitate a possible M&A financing.

c) ICA shall aid Vyteris in sourcing, negotiating and/or facilitating possible joint-ventures with pharmaceutical companies and medical device companies to enhance its distribution capabilities, product pipeline or licensing initiatives .

d) Exclusivity: The relationship between the parties is non-exclusive.

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III.	CONSULTING FEES
	Fees: In consideration for the consulting services rendered by ICA, VYHN agrees to pay ICA the following Fee :
		1.	$500,000 plus 5,250,000 warrants with a strike price of $1.50 per share, five year term and cashless exercise, with a 9.9% “blocker” provision. This shall constitute the consulting fee for the one year term of the agreement and shall be payable within 48 hours of execution of the Agreement.
IV.	TERM AND TERMINATION
	A.	Term: This Agreement is for a term of 360 days commencing on the date this Agreement is executed by the Company (“Initial Period”) and thereafter, this Agreement shall continue month-to-month in accordance with the terms set forth herein until terminated. After expiration of the Initial Period, this Agreement may be terminated at any time by either party with or without cause upon thirty (30) days’ notice of termination. In the event of a material breach by ICA or VYHN, or for cause, as described in Section IV B. hereof, either party may terminate this Agreement by first providing a ten (10) day notice to cure and if the defaulting party has not cured within said period, then the non-defaulting party may terminate this Agreement.
V.	DOCUMENTS, INFORMATION & REFERRALS
	A.	VYHN agrees to provide ICA with all documents and information, including but not limited to, financial information, summary and full business plans, whether confidential or not, reasonably necessary or required by ICA. ICA agrees to maintain the confidentiality of such information, which may constitute material, nonpublic information, and to require any Tagged Party to whom confidential information is disclosed to execute an appropriate nondisclosure agreement. ICA shall notify VYHN of its intention to disclose confidential information to a Third party for prior approval by VYHN, which may be withheld for any reason by VYHN. VYHN agrees to use reasonable efforts to make directors and officers available for meetings upon reasonable notice by ICA in connection with the presentation of documents connected with the activities of ICA.
	B.	Both parties will keep confidential and not disclose to any third party any confidential information of either party made available to other pursuant to this Agreement and will use the confidential information only in connection with the execution of the obligations and duties contemplated by this Agreement. “Confidential Information” shall include all information concerning either party that is deemed confidential through marking, in writing or memorandum, or that by its nature, should be considered confidential, excluding any information that is generally available to the public, or any information which becomes available to either party on a non-confidential basis from a third party who is not known by either party to be bound by a confidentiality obligation of this Agreement: provided however, that such confidential information may be disclosed (i) to either party’s officers, directors, employees, counsel and accountants in connection with its engagement hereunder, who shall be informed of the confidential nature of the information and that such information is subject to a confidentiality agreement: (ii) to any person with the written consent of the disclosing party, subject to execution of an appropriate nondisclosure agreement; or (iii) if, upon the advice of counsel, either party is compelled to disclose such information (in which case the party compelled to disclose shall, to the extent permitted by applicable law, rule or regulation, and practicable under the circumstances, advise the other party in writing prior to such disclosure and shall consult with the other party with respect to the form and timing of disclosure). ICA agrees that it will not trade nor allow any of its officers, directors, principals, consultants, employees or affiliates which receive Confidential Information to trade in the Company’s stock until three trading days after any material nonpublic information in such party’s possession or to such party’s knowledge is made public, or the Company has otherwise notified such party in writing that the information is moot.

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VI.	GENERAL PROVISIONS
	A.	The validity, performance, construction and affect of this Agreement shall be governed by the laws of the State of New York, without regard to conflicts of law rules. Any disputes arising under this Agreement shall be submitted to arbitration before a single arbitrator in accordance with such rules as the parties jointly agree, to be conducted in New York. If the parties are unable to agree on arbitration procedures, arbitration shall be conducted in accordance with the then applicable Commercial Arbitration Rules of the American Arbitration Association. Judgment upon the award rendered by the Arbitrator may be entered in any court having jurisdiction. The prevailing party shall be entitled to reasonable attorney’s fees.
	B.	All notices, requests, demands and other communications required or that may be given hereunder shall be in writing and shall be deemed to have been duly given when received, if delivered in person or sent by certified mail, postage prepaid, return receipt requested or sent by nationally recognized overnight courier service, and addressed to the last known address of the parties hereto.
	C.	This Agreement may be executed in one or more counterparts, which taken together shall constitute one instrument. Each party has cooperated in the drafting and preparation of this Agreement. In any construction to be made of this Agreement, the same shall not be construed against any party on the basis that the party was the drafter.
	D.	Nothing contained herein shall be construed to create an employer-employee, partnership or joint venture relationship between the parties, it being understood that ICA, while acting under the terms of this Agreement, is an independent contractor.
	E.	The parties understand that ICA does not guarantee that any transaction will occur nor any terms that may be offered by other parties to a transaction. It is understood that ICA is not acting in the capacity of a licensed securities broker or dealer, and shall have no authority to enter into any commitments on the behalf of VYHN, or negotiate the terms of financing which responsibility shall be of VYHN, or to hold any funds or securities in connection with financing or to perform any act which would require ICA to become licensed as a securities broker or dealer or perform in accordance with such licensure. It is further acknowledged that ICA is not acting as a part of any “group” as such term is defined under the Securities Exchange Act of 1934, as amended . ICA shall not be entitled to acquire VYHN stock or exercise any warrant on an exercise date, in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by ICA and its affiliates on an exercise or purchase date, and (ii) the number of shares of Common Stock issuable upon the exercise of the warrant or to be purchased with respect to which the determination of this limitation is being made on an exercise or purchase date, which would result in beneficial ownership by ICA and its affiliates of more than 9.9% of the outstanding shares of Common Stock on such date. For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. The restriction described in this paragraph may be waived, in whole or in part, upon 70 days prior notice from ICA to VYHN.

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F.	VYHN agrees to defend, indemnify and hold ICA harmless from any and all claims, liabilities, debts, actions, judgments and/or settlements, including reasonable attorneys’ fees, which may arise as a result of gross negligence with respect to VYHN’s business, securities offerings and dealings, or from material breach of obligations, representations and warranties under this Agreement, to the extent that ICA is not contributorily negligent in causing such claims, etc. ICA agrees to defend, indemnify and hold VYHN harmless from any and all claims, liabilities, debts, actions, judgments and/or settlements, including reasonable attorneys’ fees, arising from ICA’s gross negligence or willful misconduct in performance of its obligations hereunder. ICA agrees to comply with all federal, state and Candian laws in performance of services pursuant hereto.
G.	During the term of this Agreement, VYHN shall maintain its books and records in accordance with generally accepted accounting principles and shall comply with all applicable federal and state securities laws and rules and regulations promulgated with respect thereto. This Agreement, including any Exhibits and documents referred to in this Agreement or attached hereto, constitutes the entire understanding of parties with respect to its subject matter and there are no oral or written representations, understandings or agreements relating to the subject matter of this Agreement which are not fully expressed herein. This Agreement may
only be amended by a writing signed by authorized representatives of both parties.

IN WITNESS WHEREOF, the parties have executed this instrument as of the dates set forth below:

International Capital Advisory Inc.

/s/ Morrie Tobin	7/25/07
Morrie Tobin , Vice-President	Date
VYTERIS, INC.
/s/ Timothy J. McIntyre	7/25/07
Timothy J. McIntyre , CEO	Date

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EX-10.137

Exhibit 10.137

AGREEMENT TO ENGAGE VIKING INVESTMENT GROUP II INC

AS A FINANCIAL CONSULTANT

Viking Investment Group II Inc (“VIG” or the “Consultant”) hereby submits to Vyteris Holdings(Nevada), Inc., (“VYHN” or the “Company’) this Financial Consulting Agreement (the “Agreement”) outlining the terms pursuant to which VIG would be willing to act as Financial Consultant.

I.	ENGAGEMENT
	VYHN hereby engages and retains VIG as Financial Consultant to perform the Services (as that term is hereinafter defined) and VIG hereby accepts such appointment on the terms and subject to the conditions hereinafter set forth and agrees to use its best efforts in providing such services.
II.	INDEPENDENT CONTRACTOR
	VIG shall be, and in all respects be deemed an independent contractor in the performance of its duties hereunder, any law of any jurisdiction to the contrary notwithstanding.
	A.	VIG shall be solely responsible for making all payments to and on behalf of its employees, subcontractors, including those required by law, and VYHN shall in no event be liable for any debts or other liabilities of VIG.
	B.	VIG shall not, by reason of this Agreement or the performance of the Services, be or be deemed to be, an employee, agent, partner, co-venturer or controlling person of VYHN, and VIG shall have no power to enter into any agreement on behalf of, or otherwise bind VYHN. Without limiting the foregoing, VIG shall not enter into any contract or commitment on behalf of VYHN.
	C.	Subject to Section II D hereof, VIG shall not have or be deemed to have, fiduciary obligations or duties to VYHN and shall be free to pursue, conduct and carry on for its own account (or for the account of others) such activities, employments, ventures, businesses and other pursuits as VIG in its sole, absolute and unfettered discretion, may elect.
	D.	Notwithstanding the above, no activity, employment, venture, business or other pursuit of VIG during the term of this agreement shall conflict with VYHN’s obligations under this Agreement or be adverse to VYHN’s interests during the term of this Agreement.
III.	SERVICES
	VIG agrees to serve as Financial Consultants to VYHN and to provide and/or perform the following, hereafter collectively referred to as the “Services”:
	A.	Complete an analysis of VYHN’s business and industry, and follow with a comprehensive background report that summarizes VYHN’s corporate and financial profile (the “Corporate Profile”) that shall be available for distribution to potential investors, underwriters, business partners, or others, as VYHN shall deem appropriate.
	B.	Work with VYHN, its counsel or other representatives to revise and/or draft any other documents that may be necessary in VYHN’s efforts to secure additional equity participants or to seek M&A candidates to increase its business.
	C.	Assist VYHN in efforts to seek additional business relationships that will be of benefit to VYHN. Advise VYHN and/or any of its affiliates in its negotiations in pursuing a form of business combination, such as joint venture, licensing agreement, products sales, and/or marketing distribution.

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	D.	VIG shall devote such time and effort, as it deems commercially reasonable and adequate under the circumstances to the affairs of VYHN to render the consulting services contemplated by this agreement. VIG is not responsible for the performance of any services, which may be rendered hereunder without VYHN providing the necessary information in writing prior thereto, nor shall VIG include any services that constitute the rendering of any legal opinions or performance of work that is in the ordinary purview of the Certified Public Accountant. VIG cannot guarantee results on behalf of VYHN, but shall pursue all reasonable avenues available through its network of contacts. At such time as an interest is expressed by a third party in VYHN’s needs, VIG shall notify VYHN and advise it as to the source of such interest and any terms and conditions of such interest. The acceptance and consumption of any transaction is subject to acceptance of the terms and conditions by VYHN in its sole discretion. It is understood that a portion of the compensation paid hereunder is being paid by VYHN to have VIG remain available to advise it on transactions on an as-needed basis.
	E.	In conjunction with the Services, VIG agrees to:
		1.	Make itself available to the officers of VYHN at a mutually agreed upon place during normal business hours for reasonable periods of time, subject to reasonable advance notice and mutually convenient scheduling, for the purpose of advising VYHN in the preparation of such reports, summaries, corporate and/or transaction profiles, due diligence packages and/or other material and documentation (“Documentation”) as shall be necessary, in the opinion of VIG, to properly present VYHN to other entities and individuals that could be of benefit to VYHN.
		2.	Make itself available for telephone conferences with the principal financial sales and/or operating officer(s) of VYHN during normal business hours.
		3.	Advise VYHN regarding company operations, staffing, strategy, and other issues related to building shareholder value as VYHN may reasonably request, consistent with the provisions of this Agreement.
IV.	EXPENSES
	A.	It is expressly agreed and understood that each party shall be responsible for its own normal and reasonable out-of-pocket expenses which shall include: accounting, long distance communication, and the printing and mailing of materials between the parties hereto.
V.	COMPENSATION
	Fees: In consideration for the services rendered by VIG, VYHN agrees to pay VIG the following Fee ::
		4.	$500,000 plus 5,250,000 warrants, with a strike price of $1.50 per share, five year term and cashless exercise, with a 9.9% “blocker” provision. This shall constitute the consulting fee for the one year term of the agreement and shall be payable within 48 hours of execution of the Agreement.
VI.	REPRESENTATIONS, WARRANTIES AND COVENANTS
	SEC & Legal Compliance. VIG hereby represents that it has in place policies and procedures relating to, and addressing, with the commercially reasonable intent to ensure compliance with, applicable securities laws, rules and regulations, including, but not limited to:
		1.	The use, release or other publication of forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act
		2.	Disclosure requirements outlined in Section 17B of the Exchange Act regarding the required disclosure of the nature and terms of VIG’s relationship with VYHN in any and all VIG literature or other communication(s) relating to VYHN, including, but not limited to: Press Releases, letters to investors and telephone or other personal communication(s) with potential or current investors.
	B.	Both parties will keep confidential and not disclose to any third party any confidential information of either party made available to other pursuant to this Agreement and will use the confidential information only in connection with the execution of the obligations and duties contemplated by this Agreement. “Confidential Information” shall include all information concerning either party that is deemed confidential through marking, in writing or memorandum, or that by its nature, should be considered confidential, excluding any information that is generally available to the public, or any information which becomes available to either party on a non-confidential basis from a third party who is not known by either party to be bound by a confidentiality obligation of this Agreement: provided however, that such confidential information may be disclosed (i) to either party’s officers, directors, employees, counsel and accountants in connection with its engagement hereunder, who shall be informed of the confidential nature of the information and that such information is subject to a confidentiality agreement: (ii) to any person with the written consent of the disclosing party, subject to execution of an appropriate nondisclosure agreement; or (iii) if, upon the advice of counsel, either party is compelled to disclose such information (in which case the party compelled to disclose shall, to the extent permitted by applicable law, rule or regulation, and practicable under the circumstances, advise the other party in writing prior to such disclosure and shall consult with the other party with respect to the form and timing of disclosure). VIG agrees that it will not trade nor allow any of its officers, directors, principals, consultants, employees, or affiliates which receive Confidential Information to trade in the Company’s stock until three trading days after any material nonpublic information in such party’s possession or to such party’s knowledge is made public, or the Company has otherwise notified such party in writing that the information is moot.

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	3.	It is understood that VIG is not acting in the capacity of a licensed securities broker or dealer, and shall have no authority to enter into any commitments on the Company’s behalf, or to negotiate the terms of a financing, which responsibility shall be of the Company, or to hold any funds or securities in connection with financing or to perform any act which would require VIG to become licensed as a securities broker or dealer or perform in accordance with such licensure. It is further acknowledged that VIG is not acting as part of any “group” as such term is defined under the Securities Exchange Act of 1934, as amended , and neither VIG or any third-party who may acquire common stock shall be claimed by the Company to be acting in concert with respect to such common stock, nor shall VIG (or such persons) be claimed by the Company to be an “affiliate” of the Company or of each other. VIG agrees to comply with all federal and state laws in performance of its services with respect hereto.
C.	Execution. The execution, delivery and performance of this Agreement, in the time and manner herein specified, will not conflict with, result in a breach of, or constitute a default under any existing agreement, indenture, or other instrument to which either VYHN or VIG is a party or by which either entity may be bound or affected.
D.	Non-Circumvention. VYHN hereby irrevocably agrees not to circumvent, avoid, bypass, or obviate, directly or indirectly, the intent of this Agreement, to avoid payment of fees in any transaction with any corporation, partnership or individual introduced by VIG to VYHN, in connection with any project, any loans or collateral, or other transaction involving any products, transfers or services, or addition, renewal extension, rollover, amendment, renegotiations, new contracts, parallel contracts/agreements, or third party assignments thereof.
E.	Timely Apprisals. VYHN shall use its commercially reasonable efforts to keep VIG up to date and apprised of all business, market and legal developments related to VYHN and its operations and management.
	1.	Accordingly, VYHN shall provide VIG with copies of all amendments, revisions and changes to its business and marketing plans, bylaws, articles of incorporation, private placement memoranda, key contracts, employment and consulting agreements and other operational agreements.
	2.	VYHN shall promptly notify VIG of all new contracts, agreements, joint ventures or filings with any state, federal or local administrative agency, including without limitation, the SEC, NASD or any state agency, and shall provide all related documents, including copies of the exact documents filed, to VIG, including without limitation, all annual reports, quarterly reports and notices of change of events, and registration statements filed with the SEC and any state agency, directly to VIG.
	3.	VYHN shall also provide directly to VIG current financial statements, including balance sheets, income statements, cash flows and all other documents provided or generated by VYHN in the normal course of its business and requested by VIG from time to time.
	4.	VIG shall keep all documents and information supplied to it hereunder confidential as described in the section below titled, “CONFIDENTIAL DATA”.

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	F.	Corporate Authority. Both VYHN and VIG have full legal authority to enter into this Agreement and to perform the same in the time and manner contemplated.
		1.	The individuals whose signatures appear below are authorized to sign this Agreement on behalf of their respective corporations.
		2.	VYHN will cooperate with VIG, and will promptly provide VIG with all pertinent materials and requested information in order for VIG to perform its Services pursuant to this Agreement.
		3.	When delivered, the shares of VYHN’s common stock shall be duly and validly issued, fully paid and non-assessable.
		4.	VIG represents and warrants to VYHN that a) it has the experience and ability as may be necessary to perform all the required Services with a high standard of quality, b) all Services will be performed in a professional manner, and c) all individuals it provides to perform the Services will be appropriately qualified and subject to appropriate agreements concerning the protection of trade secrets and confidential information of VYHN which such persons may have access to over the term of this Agreement
		5.	Until termination of the engagement, VYHN will notify VIG promptly of the occurrence of any event, which might materially affect the condition (financial or otherwise), or prospects of VYHN.
VII.	TERM
	The term of this Agreement shall be 365 days from the date of execution.
VIII.	CONFIDENTIAL DATA
	A.	VIG shall not divulge to others, any trade secret or confidential information, knowledge, or data concerning or pertaining to the business and affairs of VYHN, obtained by VIG as a result of its engagement hereunder, unless authorized, in writing by VYHN. VIG represents and warrants that it has established appropriate internal procedures for protecting the trade secrets and confidential information of VYHN, including, without limitation, restrictions on disclosure of such information to employees and other persons who may be engaged in rendering services to any person, firm or entity which may be a competitor of VYHN.
	B.	VYHN shall not divulge to others, any trade secret or confidential information, knowledge, or data concerning or pertaining to the business and affairs of VIG, obtained as a result of its engagement hereunder, unless authorized, in writing, by VIG.
	C.	VIG shall not be required in the performance of its duties to divulge to VYHN, or any officer, director, agent or employee of VYHN, any secret or confidential information, knowledge, or data concerning any other person, firm or entity (including, but not limited to, any such person, firm or entity which may be a competitor or potential competitor of VYHN which VIG may have or be able to obtain other than as a result of the relationship established by this Agreement.

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IX.	OTHER MATERIAL TERMS AND CONDITIONS:
	A.	Indemnity. The parties hereto agree to provide indemnification to each other with regard to claims made against the other due to a party’s gross negligence or willful misconduct with respect to performance of its duties hereunder.
	B.	Provisions. Neither termination nor completion of the assignment shall affect the provisions of this Agreement, and the Indemnification Provisions, which are incorporated herein, which shall remain operative and in full force and effect.
	C.	Additional Instruments. Each of the parties shall from time to time, at the request of others, execute, acknowledge and deliver to the other party any and all further instruments that may be reasonably required to give full effect and force to the provisions of this Agreement.
	D.	Entire Agreement.Each of the parties hereby covenants that this Agreement, together with the exhibits attached hereto as earlier referenced, is intended to and does contain and embody herein all of the understandings and agreements, both written or oral, of the parties hereby with respect to the subject matter of this Agreement, and that there exists no oral agreement or understanding or expressed or implied liability, whereby the absolute, final and unconditional character and nature of this Agreement shall be in any way invalidated, empowered or affected. There are no representations, warranties or covenants other than those set forth herein
	E.	Laws of the State of New York. This Agreement shall be deemed to be made in, governed by and interpreted under and construed in all respects in accordance with the laws of the State of New York, irrespective of the country or place of domicile or residence of either party.
	F.	Assignments. The benefits of the Agreement shall inure to the respective successors and assignees of the parties hereto and of the indemnified parties hereunder and their successors and assigns and representatives, and the obligations and liabilities assumed in this Agreement by the parties hereto shall be binding upon their respective successors and assigns, provided that the rights and obligations of either party under this Agreement may not be assigned or delegated without the prior written consent of the other party, and any such purported assignment shall be null and void. Notwithstanding the foregoing, VIG may assign any portion of its Compensation as outlined herein to its employees, affiliates, sub-contractors or subsidiaries in its sole discretion.
	G.	Originals. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed an original and constitute one and the same agreement. Facsimile copies with signatures shall be given the same legal effect as an original.
	H.	Addresses of Parties.Each party shall at all times keep the other informed of its principal place of business if different from that stated herein, and shall promptly notify the other of any change, giving the address of the new place of business or residence.
	I.	Modification and Waiver.A modification or waiver of any of the provisions of this Agreement shall be effective only if made in writing and executed with the same formality as this Agreement. The failure of any party to insist upon strict performance of any of the provisions of this Agreement shall not be construed as a waiver of any subsequent default of the same or similar nature or of any other nature.

APPROVED AND AGREED:
Viking Investment Group II Inc	Vyteris Holdings (Nevada) , Inc.
/s/ Ian Markofsky	/s/ Timothy J. McIntyre
By	By: Timothy J. McIntyre
	Its: CEO
7/25/07	7/26/07
Date of execution	Date of execution

Page 5

EX-10.138

Exhibit 10.138

CONSULTING AND SALES PROMOTION AGREEMENT

This Agreement is made effective as of May 11, 2007 by and between Vyteris, Inc., having an office at 13-01 Pollitt Drive, Fair Lawn, NJ 07410 (“Vyteris”) and the Caswood Group, Inc., 811 Ayrault Road, Suite 2, Fairport, New York 14450 (“Caswood”). The parties agree to the following terms and conditions:

1. Consulting and Sales Promotion:

(a) Vyteris hereby retains Caswood as its consultant for the marketing and promoting Vyteris’s pharmaceutical products (the “Products”) to designated physicians and other health care accounts in the Territory. As part of its consulting responsibilities, Caswood will hire a full-time sales force to work on Vyteris’s behalf as employees of Caswood, as more fully set forth herein and in the Proposal for Contract Sales, the Proposal for District Managers and the Proposal for In-Service Specialists (the “Proposals”) attached hereto as Exhibit A, Exhibit B and Exhibit C. All sales force employees will devote their full time working hours exclusively to detailing and making calls related to the Products.

(b) Caswood will perform the services for Vyteris described in the Proposals (the “Services”). However, should any terms and conditions of the Proposals conflict with the terms and conditions of this Agreement, the terms and conditions of this Agreement shall govern.

(c) As part of the Services and throughout the term of this Agreement, Caswood will recruit, interview, hire, train and supervise the sales representatives and district managers to work on behalf of Vyteris (the “Employees”). However, Vyteris may participate in the final decision-making process for the hiring, retention and termination, as applicable, of each Employee and will train each Employee on the Products, sales skills and applicable regulations.

(d) Caswood shall be solely responsible for paying its Employees all wages, bonuses and employment taxes, including FICA, Federal unemployment taxes and State unemployment taxes, and shall be solely responsible for withholding all amounts required by applicable law. Caswood shall be solely responsible for providing any and all benefits to its Employees and for all related compliance and reporting in connection with ERISA and the regulations promulgated thereunder.

(e) In accordance with the terms and conditions of this Agreement and the Exhibits hereto, and subject to the Federal Food, Drug and Cosmetic Act, as it may be amended (the “Act”), all regulations promulgated pursuant thereto and any and all applicable federal, state and local laws and regulations, Caswood Employees shall use diligent efforts to engage in Detailing (as defined herein) activities and make Calls (as defined herein) with respect to the Products to Target Prescribers (as defined herein) in the Territory. Caswood shall cause its Employees to comply in all material respects with all laws, regulations and guidelines, including but not limited to the Prescription Drug Marketing Act, the Federal Anti-Kickback Statute and AMA Guidelines. In connection with Detailing and making Calls, Caswood shall use only samples, Product promotion materials and package inserts provided by Vyteris. No Employee of Caswood shall make any representation, statement, warranty or guaranty with respect to any of the Products that is not consistent with applicable, current package inserts and labeling or Vyteris promotional materials provided to such Employee.

(f) Caswood shall provide the necessary, experienced management and supervisory personnel to coordinate and support the activities of its Employees as reasonably appropriate to accomplish Caswood’s responsibilities under this Agreement.

(g) Caswood and Vyteris each warrant that it has obtained or will obtain when needed, the necessary state and federal licenses and registrations to enable the Employees to perform the Services covered by this Agreement.

(h) Caswood agrees that it will conduct drug screens on each Employee prior to that Employee’s being assigned to conduct activities under this Agreement. Any drug screen administered by or on behalf of Caswood is to be conducted in conformity with federal, state or local statutes and regulations.

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(i)Vyteris shall provide to the Employees at Vyteris’s expense, samples and Product promotional materials. Vyteris shall ship all samples and Product promotional materials, at Vyteris’s expense, directly to the Employees at addresses provided by Caswood. Upon termination of this Agreement, Caswood shall return all unused samples and Product promotional materials to Vyteris. Vyteris shall retain title to all samples and Product promotional materials shipped to the Employees and shall be liable for all sales/use and similar taxes, if applicable, with respect to all samples and Product promotional materials. Vyteris shall be solely responsible for the determination of the content of all Product promotional materials and shall ensure that all Product promotional materials and package inserts, comply with applicable laws and regulations, including without limitation the Act and all regulations thereunder.

(j)Caswood agrees to follow and adhere to Vyteris’s standard operating procedures with respect to sampling and with respect to handling all inquiries, reports of adverse drug experiences and complaints referring to the Products. If any such information relates to a life threatening condition or other serious adverse effect, Caswood will advise Vyteris by telephone at as soon as reasonably possible, but in no event longer than 72 hours after a Caswood Employee receives such information. Vyteris’s Medical Department shall handle all medical inquiries, reports of adverse drug experiences, and complaints concerning the Products.

(k)Prior to the start of Detailing or making Calls under this Agreement, Caswood/Vyteris shall conduct with Caswood a training program to educate Employees about the Products (the “Training Program”). Vyteris shall provide all the product information for the Training Program. The Training Program shall include appropriate “at home” study materials for instruction prior to the start of each Training Program. Before any Employee may begin Detailing or making Calls, he or she must demonstrate an understanding and in-depth knowledge about the Products, determined by testing methods (e.g., written exams) to be established by Caswood/Vyteris.

(l)Vyteris shall pay for the costs of all training materials, expenses of Caswood’s employees conducting the Training Program and the costs associated with renting a facility in which to conduct the Training Program. Vyteris shall pay all travel, lodging, meals and sundry expenses for the Employees to attend such Training Program and compensation to the Employees participating in such Training Program.

For the purposes of this Agreement, the following capitalized terms have the meaning ascribed to them as follows:

“Call” is defined to be a substantive, interactive, face-to-face discussion between an Employee and a Target Prescriber regarding a Product, which discussion has been documented by the Target Prescriber’s signature, whenever possible.

“Detailing” means promoting and selling a Product by explaining to, and discussing with physicians and other health care professionals, the Product, its approved uses, contraindications, side effects, warnings, precautions and other information about such Product, all as approved by Vyteris.

“Target Prescribers” means the physicians or health care professionals identified by Vyteris, as modified from time to time.

“Territory” means the United States, its territories and possessions, as it may be changed by Vyteris from time to time upon reasonable prior written notice to Caswood.

Compensation: For 12 (twelve) field sales representatives for the 6 months’ Services, Vyteris agrees to pay Caswood, an estimated cost of $950,000. The following payment will be due upon execution of LOI (Letter of Intent) or verbal agreement: $350,000.

The remaining balance of $600,000 will be paid in four equal installments of $150,000 each. The due dates for each installment will be as follows: July 15^th, August 15^th, September 15^th and October 15^th, 2007.

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For 4 (four) part-time district managers for the 6 months’ Services, Vyteris agrees to pay Caswood an estimated cost of $210,000. The following payment will be due upon execution of LOI (Letter of Intent) or verbal agreement: $50,000.

The remaining balance of $160,000 will be paid in four equal installments of $40,000 each. The due dates for each installment will be as follows: July 15^th, August 15^th, September 15^th and October 15^th, 2007.

For 5 (five) in-service specialists for the 6 months’ Services, Vyteris agrees to pay Caswood an estimated cost of $425,700. The following payment will be due upon execution of LOI (Letter of Intent) or verbal agreement: $125,700.

The remaining balance of $300,000 will be paid in four equal installments of $75,000 each. The due dates for each installment will be as follows: July 15^th, August 15^th, September 15^th and October 15^th, 2007.

In addition, Caswood will invoice Vyteris monthly for any and all reasonable additional costs (including, but not limited to, those outlined on Page 6 of the Proposal) incurred in connection with the provision of the Services, together with receipts for same. Any individual expense in excess of $250.00 shall be approved in writing by Vyteris prior to its incurrence by Caswood. Vyteris will pay each invoice within thirty (30) days from the date of such invoice.

3. Manner of Performance; Investigation: Caswood represents that Caswood has the requisite expertise, ability and legal right to render the Services and will perform the Services in an efficient manner. Caswood will abide by all laws, rules and regulations that apply to it in the performance of the Services, including applicable requirements regarding equal employment opportunity. Each of the Employees performing Services will have the expertise to perform assigned Services in an efficient manner.

Caswood represents and warrants that the Services will be provided in a professional, competent and ethical manner, and in accordance with all laws, regulations and guidelines.

Caswood shall maintain accurate records of all Detailing and Calls completed in a format to be agreed upon by Caswood and Vyteris, including all call planning and call tracking reports Caswood shall provide monthly Detailing and Call activity reports to Vyteris by not later than the last business day of the following month. Upon Vyteris’s request, Caswood’s management representatives shall consult from time to time with Vyteris as to the progress of Caswood’s efforts in making Calls and Detailing of the Products.

All Employees shall remain exclusively under the direct authority and control of Caswood. Nevertheless, in the event Vyteris reasonably determines that any Employee has not conducted his or her activities within the parameters of this Agreement, e.g., including, without limitation, failure to provide sufficient information during a Call, failure to provide adequate documentation for Vyteris to determine if a Call was made, promoting or discussing a Product in a way that is incomplete or inconsistent with applicable current package inserts and labeling or product promotional material provided to such Employee, or has otherwise acted to the detriment of Vyteris, Vyteris has the right to request that Caswood investigate the allegation immediately and provide Vyteris a plan of remedy, which may include removing the Employee from Detailing and making Calls if deemed necessary by Caswood. If Caswood removes any Employee from Detailing and making Calls, Caswood shall replace such Employee as soon as possible at Caswood’s sole cost and expense

4. Independent Contractor: Caswood is an independent contractor, not an employee or agent of Vyteris. Nothing in this Agreement shall render Caswood, or any of its subcontractors, agents or employees including the Employees, an employee or agent of Vyteris. Vyteris recognizes that Caswood retains all the rights and privileges of an employer, including but not limited to the right to hire, direct, discipline, compensate, and terminate the Employees and its other employees. The Employees will perform the Services under the primary direction and control of Caswood. Neither party shall be considered an agent or partner or joint venturer of the other party for any purposes. The parties intend that they shall not [?] be considered co-employers for workers’ compensation purposes. Caswood assumes any and all liabilities regarding Section 1706 of the Tax Reform Act of 1986 and Section 414(n) of the Internal Revenue Code of 1986, as amended. Caswood shall also be responsible for all obligations regarding the retention of the Employees, including but not limited to selecting, contracting, compensating, supervising, evaluating and terminating such sales representatives assigned to the Vyteris account, but such Caswood obligations shall be exercised with input and advice from Vyteris.

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5. Indemnity:

(a) Vyteris shall defend, indemnify and hold harmless Caswood and its officers, directors, employees, agents and subcontractors from and against all claims, liabilities, damages and expenses payable to third parties (including, but not limited to, reasonable attorneys’ fees and disbursements and court costs and any reasonable attorneys’ fees and disbursements and court costs incurred in establishing liability under and enforcing this indemnity) to the extent arising out of or resulting from (i) a breach of this Agreement by Vyteris, or (ii) any personal injury, death, malpractice, infringement of intellectual property, product liability or violation of law or regulation arising from the promotion, sale, or use of the Products. Except to the extent of Caswood’s indemnity obligations set forth below, Caswood shall not be responsible for Vyteris’s acts or failure to act or the acts or failure to act of Caswood’s employees, officers or agents while performing the Services whether on Caswood’s premises or elsewhere and Vyteris shall defend, indemnify and hold Caswood harmless from any and all liability for injuries to persons or property attributable to such acts. Caswood agrees that it will permit Vyteris to control the defense, select counsel and institute settlement of any such claims and will, at the expense of Vyteris, cooperate fully with Vyteris in the defense of any such claims; provided that Vyteris shall not settle any claim in a manner that would adversely affect, or impose any obligations on, Caswood without Caswood’s prior written consent (which consent shall not be withheld unreasonably).

(b) Caswood shall defend, indemnify and hold harmless Vyteris and its officers, directors and employees from and against all claims, liabilities, damages and expenses payable to third parties (including reasonable attorney’s fees and disbursements and court costs and any reasonable attorney’s fees incurred in establishing liability under and enforcing this indemnity) to the extent arising out of or resulting from the breach of this Agreement by Caswood, which includes but is not limited to promoting or making statements about the Products that are inconsistent with the language of the applicable package inserts, labeling or Product promotional materials, or the failure to follow and adhere to any material extent to the standard operating procedures that have been communicated by Vyteris to Caswood. Except to the extent of Vyteris’s indemnity obligations set forth above, Vyteris shall not be responsible for Caswood’s acts or failure to act or the acts or failure to act of Caswood’s employees, officers or agents while performing the Services whether on Vyteris’s premises or elsewhere and Caswood shall defend, indemnify and hold Vyteris harmless from any and all liability for injuries to persons or property attributable to such acts. Vyteris agrees that it will permit Caswood to control the defense, select counsel and institute settlement of any such claims, and will, at the expense of Caswood, cooperate fully with Caswood in the defense of any such claims; provided that Caswood shall not settle any claim in a manner that would adversely affect, or impose any obligations on, Vyteris without Vyteris’s prior written consent (which consent shall not be withheld unreasonably).

(c) Upon the final resolution of any claim, action or proceeding for which a party had not made a claim for indemnity under this section (whether resolved by judgment, settlement or otherwise), if and to the extent that it is thereafter determined that any such claim, liability, damage or expense related to or arose from the other party’s and/or its employees’, officers’ or agents’ breach of this Agreement, in whole or in part, the breaching party shall indemnify the other party in accordance with paragraphs (a) or (b) above, as applicable.

6. Debarment. By entering into this Agreement Caswood represents that neither it nor, to its knowledge, any of its employees, officers, directors or agents have been, or during the term of this Agreement will be debarred by the U.S. Food and Drug Administration and, if requested by Vyteris or the U.S. Food and Drug Administration, Caswood agrees to provide a written statement so certifying.

7. Publicity. Except as may be required by law or regulatory authorities, neither Vyteris nor Caswood shall release or generate any publicity concerning the transactions contemplated hereunder without the express consent of the other, which consent shall not be unreasonably withheld or delayed. The term “publicity” shall not include responses to press or trade or securities analyst inquiries or internal communications by either party directed solely to its employees, provided that such responses or communications do not describe the specific terms of the transactions contemplated hereunder in substantially greater detail than contained in a description of the transactions agreed to by both Vyteris and Caswood, and provided, further that each party will be free to provide employees with information required in the performance of their duties.

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8. Agreement Not Assignable: This Agreement is not assignable in whole or any part by Vyteris or Caswood without the prior written consent of the other.

9. Confidentiality: The parties acknowledge and agree that they are bound by a Confidentiality Agreement dated which remains in full force and effect throughout the term of this Agreement.

10. Force Majeure: The obligations of the parties hereunder shall be suspended by the occurrence of any unforeseeable event beyond the reasonable control of the parties, such as acts of God, war mobilization, riot, sabotage, explosion, fire or other casualty, power failure, labor disturbances, or law or regulation restricting performance; provided, however, that each party shall take reasonable measures to remove the disability and resume performance at the earliest possible date.

11. Miscellaneous: The headings used herein are for ease of reference only and are not to be used in the interpretation or construction of this Agreement. If any provision of this Agreement shall be held invalid under any applicable law, such invalidity shall not affect any other provision of this Agreement.

12. Agreement Inclusive: With respect to the subject matter hereof, this Agreement, including the attachments hereto and the Confidentiality Agreement between the parties, supersedes all previous agreements (including the letter of intent dated April 1, 2007) and/or negotiations of any kind between the parties and contains the complete final conclusive embodiment of the parties’ Agreement.

13. Notices: All notices or other communications provided for by this Agreement shall be made in writing and shall be deemed properly delivered when delivered (a) personally or (b) by the mailing of such notice to the party entitled thereto, registered or certified mail, postage pre-paid, at its address first set forth above (or to such other address as is designated in writing by that party to the other party).

14. Modification and Waiver: Any modification and/or waiver of any provisions of this Agreement shall be effective only if it is in writing and signed by both parties hereto. No previous course of dealing or performance or usage of trade not specifically set forth in this Agreement shall be admissible to explain, modify or contradict this Agreement.

15. Governing Law: This Agreement shall be construed in accordance with the laws of the State of New York.

16. Term and Termination: This Agreement may be terminated at any time by either party upon sixty (60) days written notice. Vyteris may terminate this Agreement upon sixty (60) days written notice, specifying in detail Caswood’s failure to perform, if within sixty (60) days after Caswood’s receipt of such notice Caswood has failed to cure its default. Such notice to Caswood will describe in detail Caswood’s failure to perform. If, however, within sixty (60) days of receipt of such notice Caswood cures its failure to perform the Services, then this Agreement shall continue in full force and effect. In the absence of termination, this Agreement shall continue for six (6) months from the date first set forth above with the option to extend the term. The parties acknowledge that any extension of this Agreement will be upon other terms and conditions acceptable to the parties. If Vyteris terminates this Agreement in the absence of Caswood’s failure to cure a default hereunder, Vyteris shall pay Caswood : (i) the full amount of payments already received (ii) any additional expenses not included in the estimated cost of the proposal, (iii) other fees and expenses incurred by Caswood prior to such termination, (iv) any scheduled payment due and payable within the 60 day notification period.

17. Sales Team Conversion Fees:If Vyteris hires any personnel from the sales team during the first six months of this Agreement, the cost will be 25% of the annual base salary plus bonuses.

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If Vyteris hires any personnel from the sales team after the initial six months of the Agreement or within three months of the termination of the contract, the cost will be $10,000 per sales representative or sales manager.

18. Signature Authority: Each signatory to this Agreement represents and warrants to the other that he or she has signature authority and is empowered on behalf of his or her respective party to execute this Agreement.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date written above.

VYTERIS, INC.   By:  Timothy McIntyre     Date:_________________________
Print Name:___________________Name: Isabel Casamayor Title: CEO & President   THE CASWOOD GROUP, INC.   By: /s/ Isabel Casamayor       Date:_________________________   Print Name: Isabel Casamayor
Title: President

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Exhibit A

The Caswood Group, Inc.

Proposal for Vyteris, Inc.

May 8, 2007

This proposal is valid for 120 days from the date written above.

Confidential

The document is provided on the understanding that the information contained in it remains the property of The Caswood Group, Inc. and that it shall be kept confidential and used only by the company, or person, to whom it is addressed.

A-1

Vyteris - Caswood

Proposal Contents

Executive Summary	3
Caswood Sales Force Project Cost Breakdown	4-6
Recruiting	7
Training	8
Incentive for Sales Representatives	9
Representatives Conversion Fees	10
Payment Structure	10
Term & Termination	11
Signature	11

A-2

Executive Summary

Vyteris, Inc., headquartered in Fair Lawn, New Jersey , specializes in the research, development and manufacturing of transdermal medication delivery products. Vyteris’ proprietary active transdermal drug delivery (iontophoresis) technology delivers drugs comfortably through the skin using low-level electrical energy.  Vyteris' first product, LidoSite®, which provides dermal analgesia prior to venipuncture (IV catheter insertions, blood draws, etc.) and superficial dermatological procedures, was the first FDA-approved active patch.  LidoSite is currently marketed to hospitals by B. Braun Medical, Inc.  The focus of Caswood’s contract sales project with Vyteris is to capture the physicans’ office market through a direct sales strategy.

The parameters for a 6 month pilot program are:

·   Twelve territories in major metropolitan areas

·   Target audience of high value offices

·   Six week call cycle

The total estimated cost for 12 field representatives is $950,000. This includes salaries, benefits and expenses for the sales team, recruiting, call reporting and project management.

This proposal assumes that the field representatives will work five days per week and will make, on average, eight (8) calls per day. The sales force will be exclusively dedicated to detailing Vyteris’s products on each call.

The full-time field representatives will be working exclusively for Vyteris and they will be Caswood employees (not independent contractors).

This Agreement reflects Caswood’s understanding of Vyteris’s needs.

A-3

Caswood Sales Force Project Cost Breakdown

Cost Calculation Assumptions

Included in Direct Field Expenses:

·   Salaries and bonuses (representatives)

·   Payroll and state taxes (unemployment/disability)

·   Workers compensation

·   Healthcare benefits

·   401K

·   Mileage, tolls, parking and car allowance

·   Payroll fees and state fees

·   Driving records (twice a year for sales team), drug tests, credit checks and professional reference checks (new representatives)

·   Office supplies, detail bags, rolling carts, business cards and forms.

·   Postage

·   Development of and updates to Sales Force Reference Book

·   Employee handbook (updated annually and distributed)

·   Climate Controlled storage units

A-4

Caswood Sales Force Project Cost Breakdown (Continued)

·   Recruitment and re-recruitment for vacancies, advertising expenses, contracts and letters of employment offer/termination to sales representatives

·   Training session with training team for replacement sales representatives hired for the duration of the project

·   Territory alignment/management; process of analyzing data and territory optimization for the purpose of targeting efficiencies

·   Quarterly territory updates; creating and distributing updated physician lists to sales team

·   Coordinating efforts with client’s supply chain for sample shipments

·   Programming expenses and management of call reporting and sample management reports

·   Call reporting forms

·   Data entry function

·   Updates to and maintenance of Web based reporting system

·   WebEx sessions as needed (training purposes)

·   Weekly/bi-weekly conference calls

Included in Management/Administrative/Overhead Expenses:

·   Salary, benefits, and payroll taxes for home office management support team

·   Project Management including one home office based manager, one payroll/expense coordinator, one administrative assistant, and one data entry specialist

·   Executive Senior Management strategic planning (on going policies/issues and planning meetings)

A-5

Caswood Sales Force Project Cost Breakdown (Continued)

·   Call reporting analysis, including time off territory, management of samples including shipments and disbursements to physicians and inventory reconciliations

·   HR manager/coordinator (responsible for HR issues disciplinary actions and hiring policies)

·   Sexual harassment training

·   Financing/Accounting - including taxes by state and liability insurance

·   Phone line with 800# for sales force and physicians requesting samples or requesting to contact the sales representative

Estimates of additional expenses to be billed at cost:

·   Cost of sales skills training to be conducted at the initial training meeting (cost to be determined)

·   Cost of travel, hotel and meals for sales team and Caswood team to attend training meetings (cost to be determined)

Not included in the project budget:

·   Cost of lunches and materials for Lunch and Learn programs

·   Cost of additional sales/training update meetings held throughout the year other than those specified as included in the project budget

·   Cost of samples, promotional materials, detail aids, training materials or premiums

·   Cost of shipping any of the above items to the sales team

·   Overnight travel expenses for the sales team

·   Cost of any year-end incentive program for the sales team provided by Vyteris

·   Cost of third party target list or additional data

·   Cost of laptop computers and cell phones

A-6

Recruiting Program

Upon execution of a LOI, Caswood will begin the process of screening and selecting sales personnel for territories.

Caswood will handle the initial recruitment and, if necessary, the re-recruitment to fill vacancies occurring for the duration of the project.

Qualifications

Final qualifications will be approved by Vyteris prior to the initiation of the recruitment phase for the sales representatives.

Recommended Profile for Vyteris Sales Representative:

·   Prior pharmaceutical sales experience

·   Knowledge of geographic locations of target audience

·   Ideally, the representative will have established working relationships with members of the target audience

·   Education - B.S., B.A. degree

·   Excellent communication and customer service skills

·   No concurrent work arrangement

·   Ability to grasp technical material

·   Ability to work independently

The candidates for the sales representative positions are selected as follows:

1.   Selection of resumes to determine if they are qualified for the territories available. The selection includes screening over the telephone (following the guidelines that Caswood/Vyteris have developed).

2.   Caswood managers will conduct the initial screening interviews and set up the face-to-face interviews for the Vyteris manager.

3.   Vyteris management will conduct follow up phone and face-to-face interviews and will select the candidates.

4.   Caswood makes an offer to the candidate.

A-7

Training

The initial training meeting (date and location to be determined) will focus on product training, sales skills training, and the Vyteris selling process. All sales representatives will also participate in a WebEx training session prior to the initial training meeting to cover administrative details as well as to review both the PhRMA guidelines and HR policies including training on sexual harassment. The cost of the initial training meeting has not been included in the budget and will be billed separately.

This Agreement assumes that on-going training for new products/selling materials will be accomplished through a combination of WebEx meetings and home study. The budget also includes the training of new sales representatives that are hired during the contract due to turnover (vacancy).

A-8

Incentive for Sales Team

The bonus plan should be designed as a key motivator for the sales team.

Caswood will work with Vyteris to develop the parameters of the incentive program keeping in mind that it is critical to have attainable and clear/easy to understand goals. Plus, the parameters and goals should be comparable to incentive programs in the industry.

Following are parameters that Caswood would recommend for an incentive program:

·   Quality and quantity of calls

·   Professionalism

·   Organization

·   Customer focus

·   Positive attitude

·   Knowledge

·   Relationship building

·   Profile records

·   Feedback from physicians

·   Increase in sales and/or recommendations

A-9

Sales Team Conversion Fees

If Vyteris hires any personnel from the sales team during the first six months of this Agreement, the cost will be 25% of the annual base salary plus bonuses.

If Vyteris hires any personnel from the sales team after the initial six months of the Agreement or within three months of the termination of the contract, the cost will be $10,000 per sales representative or sales manager.

Proposed Payment Structure

Annual agreement with an estimated cost of $950,000 for 12 field sales representatives for six months.

The following payment will be due upon execution of LOI (Letter of Intent) or verbal agreement: $350,000.

The remaining amount of $600,000 will be paid in four equal installments of $150,000 each. The due dates for each installment will coincide with the first four months of the project.

A-10

Term and Termination

This Agreement may be terminated at any time by either party upon sixty (60) days written notice. Vyteris may terminate this Agreement upon sixty (60) days written notice to Caswood for Caswood’s failure to perform the Services. Such notice to Caswood will describe in detail Caswood’s failure to perform. If within sixty (60) days of receipt of such notice from Vyteris, Caswood corrects its failure to perform the Services, then the Agreement shall continue in full force and effect. In the absence of termination, this Agreement shall continue for six (6) months with the option to extend the contract. The parties acknowledge that any extension of this Agreement will be upon such other terms and conditions acceptable to the parties.

Cancellation of the project and termination of this Agreement at any time after the date hereof and prior to the expiration of the term of the Agreement for any reason other than Caswood’s failure to perform the Services will entitle Caswood to (i) the full amount of payments already received (ii) any additional expenses not included in the estimated cost of the proposal, (iii) other fees and expenses incurred by Caswood prior to such termination, (iv) any scheduled payment due and payable within the 60 day notification period.

Signatures

ACCEPTED AND AGREED TO:

Vyteris, Inc.	The Caswood Group, Inc.
By:____________________	By:____________________
Date:___________________	Date:___________________

11

A-11

Exhibit B

The Caswood Group, Inc.

Proposal for Vyteris, Inc.

Addendum

to Proposal dated May 8, 2007

July 6, 2007

This proposal is valid for 120 days from the date written above.

Confidential

The document is provided on the understanding that the information contained in it remains the property of The Caswood Group, Inc. and that it shall be kept confidential and used only by the company, or person, to whom it is addressed.

B-1

Vyteris - Caswood

Addendum to Proposal

Executive Summary	3
Caswood Sales Force Project Cost Breakdown	4-5
Recruiting	6
Training	7
Incentive for Sales Managers	8
Managers Conversion Fees	8
Payment Structure	8
Term & Termination	9
Signature	9

B-2

Executive Summary

The purpose of this addendum is to provide Vyteris with a description of the costs associated with maintaining four full-time (5 days/week) district managers in the following locations:

·   NYC/New Jersey

·   Tampa, FL

·   Dallas, TX

·   Raleigh/Durham, NC

The district manager will be responsible for:

·   Direct management of Vyteris contract sales representatives;

·   Advisor to LabCorp sales teams;

·   Liaison with key LidoSite accounts;

This document identifies the cost and describes the services to be provided by Caswood for a 6-month pilot program.

The total estimated cost for 4 full-time (5 days/week) district sales managers during this 6-month period is $305,000. This amount includes salaries, benefits and expenses for the sales management team, recruiting, and project management.

The full-time district managers will be working exclusively for Vyteris and they will be Caswood employees (not independent contractors).

This Agreement reflects Caswood’s understanding of Vyteris’s needs.

B-3

Caswood Sales Force Project Cost Breakdown

Included in Direct Field Expenses:

·   Salaries and bonuses

·   Payroll and state taxes (unemployment/disability)

·   Workers compensation

·   Healthcare benefits

·   401K

·   Mileage, tolls, parking and car allowance

·   Payroll fees and state fees

·   Driving records (twice a year), drug tests, credit checks and professional reference checks

·   Office supplies, business cards and forms

·   Postage

·   Employee handbook (updated annually and distributed)

·   Recruitment and re-recruitment for vacancies, advertising expenses, contracts and letters of employment offer/termination to district managers.

·   Training session with training team for replacement district managers hired for the duration of the project

·   WebEx sessions as needed (training purposes)

·   Weekly/bi-weekly conference calls

Included in Management/Administrative/Overhead Expenses:

·   Salary, benefits, and payroll taxes for home office management support team

·   Executive Senior Management strategic planning (on going policies/issues and planning meetings)

B-4

Caswood Sales Force Project Cost Breakdown (Continued)

·   HR manager/coordinator (responsible for HR issues, disciplinary actions and hiring policies)

·   Sexual harassment training

·   Financing/Accounting - including taxes by state and liability insurance

Estimates of additional expenses to be billed at cost:

·   Cost of training to be conducted at the initial training meeting (cost to be determined)

·   Cost of travel, hotel and meals for sales team and Caswood team to attend training meetings (cost to be determined)

Not included in the project budget:

·   Cost of lunches and materials for in-service programs

·   Cost of additional sales/training update meetings held throughout the year other than those specified as included in the project budget

·   Cost of samples, promotional materials, detail aids, training materials or premiums

·   Cost of shipping any of the above items to the district managers

·   Overnight travel expenses for the district managers

·   Cost of any year-end incentive program for the district managers provided by Vyteris

·   Cost of laptop computers and cell phones

B-5

Recruiting Program

Upon execution of a LOI, Caswood will begin the process of screening and selecting the district managers.

Caswood will handle the initial recruitment and, if necessary, the re-recruitment to fill vacancies during the duration of the project.

Qualifications

Final qualifications will be approved by Vyteris prior to the initiation of the recruitment phase for the district managers.

Recommended Profile for Vyteris District Managers:

·   Track record of success as a district manager within the pharmaceutical industry

·   Prior experience serving as liaison with key accounts

·   Proven ability to influence the behavior of others without the direct authority to do so

·   Education - B.S., B.A. degree

·   Excellent communication and customer service skills

·   No concurrent work arrangement

·   Ability to grasp technical material and work independently

The candidates for the district manager positions are selected as follows:

1.   Selection of resumes to determine if they are qualified for the positions available. The selection includes screening over the telephone (following the guidelines that Caswood/Vyteris have developed).

2.   Caswood managers will conduct the initial screening interviews and set up the face-to-face interviews for the Vyteris V.P., Sales and Marketing.

3.   Vyteris management will conduct follow up phone and face-to-face interviews and will select the candidates.

4.   Caswood makes an offer to the candidate.

B-6

Training

The initial training meeting (date and location to be determined) will focus on orientation to Vyteris, product training, Vyteris selling process, and market dynamics (e.g. reimbursement, supply chain, regulatory restrictions, etc.) that are unique to the sales/distribution of LidoSite.

All district managers will also participate in a WebEx training session prior to the initial training meeting to cover administrative details as well as to review both the PhRMA guidelines and HR policies including training on sexual harassment. The cost of the initial training meeting has not been included in the budget and will be billed separately.

This Agreement assumes that on-going training for new products/selling materials will be accomplished through a combination of WebEx meetings and home study. The budget also includes the training of new district managers that are hired during the contract due to turnover (vacancy).

B-7

Incentive for Sales Managers

The bonus plan should be designed as a key motivator for the district managers.

Caswood will work with Vyteris to develop the parameters of the incentive program keeping in mind that it is critical to have attainable and clear/easy to understand goals. Plus, the parameters and goals should be comparable to incentive programs in the industry.

Sales Team Conversion Fees

If Vyteris hires any district manager during the first six months of this Agreement, the cost will be 25% of the annual base salary plus bonuses.

If Vyteris hires any district manager after the initial six months of the Agreement or within three months of the termination of the contract, the cost will be $10,000 per district manager.

Proposed Payment Structure

Estimated cost of $305,000 for 4 full-time district managers for six months.

The following payment will be due upon execution of LOI (Letter of Intent) or verbal agreement: $50,000.

The remaining amount of $255,000 will be paid in four equal installments of $63,750 each. The due dates for each installment will coincide with the first four months of the project.

B-8

Term and Termination

This Agreement may be terminated at any time by either party upon sixty (60) days written notice. Vyteris may terminate this Agreement upon sixty (60) days written notice to Caswood for Caswood’s failure to perform the Services. Such notice to Caswood will describe in detail Caswood’s failure to perform. If within sixty (60) days of receipt of such notice from Vyteris, Caswood corrects its failure to perform the Services, then the Agreement shall continue in full force and effect. In the absence of termination, this Agreement shall continue for six (6) months with the option to extend the contract. The parties acknowledge that any extension of this Agreement will be upon such other terms and conditions acceptable to the parties.

Cancellation of the project and termination of this Agreement at any time after the date hereof and prior to the expiration of the term of the Agreement for any reason other than Caswood’s failure to perform the Services will entitle Caswood to (i) the full amount of payments already received (ii) any additional expenses not included in the estimated cost of the proposal, (iii) other fees and expenses incurred by Caswood prior to such termination, (iv) any scheduled payment due and payable within the 60 day notification period.

Signatures

ACCEPTED AND AGREED TO:

Vyteris, Inc.	The Caswood Group, Inc.
By:____________________	By:____________________
Date:___________________	Date:___________________

9

B-9

Exhibit C

The Caswood Group, Inc.

Proposal for Vyteris, Inc.

Addendum

to Proposal dated May 8, 2007

In-Service Specialists

June 14, 2007

This proposal is valid for 120 days from the date written above.

Confidential

The document is provided on the understanding that the information contained in it remains the property of The Caswood Group, Inc. and that it shall be kept confidential and used only by the company, or person, to whom it is addressed.

C-1

Vyteris - Caswood

Addendum to Proposal

Executive Summary	3
Caswood Sales Force Project Cost Breakdown	4-5
Recruiting	6
Training	7
Incentive for In-Service Specialists	8
Specialists Conversion Fees	8
Proposed Payment Structure	8
Term & Termination	9
Signature	9

C-2

Executive Summary

The purpose of this addendum is to provide Vyteris with a description of the costs associated with maintaining five (5) full time in-service specialists in the following locations:

·   NYC/New Jersey(2)

·   Tampa, FL(1)

·   Dallas, TX(1)

·   Raleigh/Durham, NC(1)

The in-service specialists will be responsible for:

·   Helping LabCorp sales representatives attain factory sales quotas via the in-services and as a technical resource

·   Strong and on-going customer service and establishing public confidence in the company and its products

·   Attaining average number of in-services vs. objective

·   Staying within targeted expense parameters

·   Being a resource, as needed, for LabCorp reps during the duration of the contract

This document identifies the cost and describes the services to be provided by Caswood for a 6-month pilot program.

The total estimated cost for 5 full-time in-service specialists during this 6-month period is $425,700. This amount includes salaries, benefits and expenses for the in-service sales team, recruiting, and project management.

The in-service specialists will be working exclusively for Vyteris and they will be Caswood employees (not independent contractors).

This Agreement reflects Caswood’s understanding of Vyteris’s needs.

C-3

Caswood Sales Force Project Cost Breakdown

Included in Direct Field Expenses:

·   Salaries and bonuses

·   Payroll and state taxes (unemployment/disability)

·   Workers compensation

·   Healthcare benefits

·   401K

·   Mileage, tolls, parking and car allowance

·   Payroll fees and state fees

·   Driving records (twice a year), drug tests, credit checks and professional reference checks

·   Office supplies, business cards and forms

·   Postage

·   Employee handbook (updated annually and distributed)

·   Recruitment and re-recruitment for vacancies, advertising expenses, contracts and letters of employment offer/termination to in-service specialists

·   Training session with training team for replacement in-service specialists hired for the duration of the project

·   WebEx sessions as needed (training purposes)

·   Weekly/bi-weekly conference calls

Included in Management/Administrative/Overhead Expenses:

·   Salary, benefits, and payroll taxes for home office management support team

·   Executive Senior Management strategic planning (on going policies/issues and planning meetings)

C-4

Caswood Sales Force Project Cost Breakdown (Continued)

·   HR manager/coordinator (responsible for HR issues, disciplinary actions and hiring policies)

·   Sexual harassment training

·   Financing/Accounting - including taxes by state and liability insurance

Estimates of additional expenses to be billed at cost:

·   Cost of training to be conducted at the initial training meeting (cost to be determined)

·   Cost of travel, hotel and meals for sales team and Caswood team to attend training meetings (cost to be determined)

Not included in the project budget:

·   Cost of lunches and materials for in-service programs

·   Cost of additional sales/training update meetings held throughout the year other than those specified as included in the project budget

·   Cost of samples, promotional materials, detail aids, training materials or premiums

·   Cost of shipping any of the above items to the in-service specialists

·   Overnight travel expenses for the in-service specialists

·   Cost of any year-end incentive program for the in-service specialists provided by Vyteris

·   Cost of laptop computers and cell phones

C-5

Recruiting Program

Upon execution of a LOI, Caswood will begin the process of screening and selecting the in-service specialists.

Caswood will handle the initial recruitment and, if necessary, the re-recruitment to fill vacancies during the duration of the project.

Qualifications

Final qualifications will be approved by Vyteris prior to the initiation of the recruitment phase for the in-service specialists.

Recommended Profile for Vyteris In Service Specialists:

·   Track record of success as a sales representative

·   Prior experience serving as liaison with key accounts

·   Education - B.S., B.A. degree

·   Excellent communication and customer service skills

·   No concurrent work arrangement

·   Ability to grasp technical material and work independently

The candidates for the in-service positions are selected as follows:

1.   Selection of resumes to determine if they are qualified for the positions available. The selection includes screening over the telephone (following the guidelines that Caswood/Vyteris have developed).

2.   Caswood managers will conduct the screening interviews and the face-to-face interviews.

3.   Caswood management will select the candidates.

4.   Caswood will make an offer to the candidate.

C-6

Training

The initial training meeting (date and location to be determined) will focus on orientation to Vyteris, product training, Vyteris selling process, and market dynamics (e.g. reimbursement, supply chain, regulatory restrictions, etc.) that are unique to the sales/distribution of LidoSite.

All in-service specialists will also participate in a WebEx training session prior to the initial training meeting to cover administrative details as well as to review both the PhRMA guidelines and HR policies including training on sexual harassment. The cost of the initial training meeting has not been included in the budget and will be billed separately.

This Agreement assumes that on-going training for new products/selling materials will be accomplished through a combination of WebEx meetings and home study. The budget also includes the training of new in-service specialists that are hired during the contract due to turnover (vacancy).

C-7

Incentive for In-Service Specialists

The bonus plan should be designed as a key motivator for the in-service specialists.

Caswood will work with Vyteris to develop the parameters of the incentive program keeping in mind that it is critical to have attainable and clear/easy to understand goals. Plus, the parameters and goals should be comparable to incentive programs in the industry.

Sales Team Conversion Fees

If Vyteris hires any in-service specialist during the first six months of this Agreement, the cost will be 25% of the annual base salary plus bonuses.

If Vyteris hires any in-service specialist after the initial six months of the Agreement or within three months of the termination of the contract, the cost will be $10,000 per in-service specialist.

Proposed Payment Structure

Estimated cost of $425,700 for 5 full time in-service specialists for six months.

The following payment will be due upon execution of LOI (Letter of Intent) or verbal agreement: $125,700.

The remaining amount of $300,000 will be paid in four equal installments of $75,000 each. The due dates for each installment will coincide with the first four months of the project.

C-8

Term and Termination

This Agreement may be terminated at any time by either party upon sixty (60) days written notice. Vyteris may terminate this Agreement upon sixty (60) days written notice to Caswood for Caswood’s failure to perform the Services. Such notice to Caswood will describe in detail Caswood’s failure to perform. If within sixty (60) days of receipt of such notice from Vyteris, Caswood corrects its failure to perform the Services, then the Agreement shall continue in full force and effect. In the absence of termination, this Agreement shall continue for six (6) months with the option to extend the contract. The parties acknowledge that any extension of this Agreement will be upon such other terms and conditions acceptable to the parties.

Cancellation of the project and termination of this Agreement at any time after the date hereof and prior to the expiration of the term of the Agreement for any reason other than Caswood’s failure to perform the Services will entitle Caswood to (i) the full amount of payments already received (ii) any additional expenses not included in the estimated cost of the proposal, (iii) other fees and expenses incurred by Caswood prior to such termination, (iv) any scheduled payment due and payable within the 60 day notification period.

Signatures

ACCEPTED AND AGREED TO:

Vyteris, Inc.	The Caswood Group, Inc.
By:____________________	By:____________________
Date:___________________	Date:___________________

9

C-9

EX-10.139

Exhibit 10.139

DRAFT DATED JULY 31, 2007

Employment Agreement

EMPLOYMENT AGREEMENT, effective as of August 1, 2007, between Vyteris, Inc. (f/k/a Vyteris Holdings (Nevada), Inc.), a Nevada corporation (the “Company”), and Anthony J. Cherichella (“Employee”).

WHEREAS, the Company desires to employ Employee as Chief Financial Officer and principal accounting officer; and

WHEREAS, Employee is willing to accept such employment on the terms set forth herein,

NOW, THEREFORE, the Company and Employee hereby agree as follows:

1. Employment.

1.1 General. The Company hereby agrees to employ Employee in the capacity of Chief Financial Officer and principal accounting officer, and Employee hereby accepts such employment, upon the terms and subject to the conditions herein contained; provided, however, that the Employee shall not assume the responsibilities of Chief Financial Officer and principal accounting officer for the purposes of the Company’s filings to be made with the Securities and Exchange Commission until August 15, 2007 (and until such time, Joseph Himy shall remain as the Company’s principal accounting officer).

1.2 Duties and Authority. During the term of Employee’s employment hereunder, Employee shall serve as the Chief Financial Officer and principal accounting officer of the Company and shall have such responsibilities, duties and authority as may, from time to time, be assigned to him by the Company’s Chief Executive Officer and Board of Directors (the “Board”). During the term of this Agreement, Employee shall serve the Company, faithfully and to the best of Employee’s ability, and shall devote substantially all of Employee’s business time and efforts to the business and affairs of the Company (including its subsidiaries and affiliates) and the promotion of its interests. Employee shall be available to the Company at such times and places as the Company shall reasonably request during the term hereof. Notwithstanding the foregoing, Employee shall be entitled to pursue charitable and religious endeavors and to participate in professional organizations, provided that such activities do not interfere in any material respect with the performance by Employee of his duties hereunder.

2. Term of Employment. The term of this Agreement shall commence as of August 1, 2007, and shall continue through July 31, 2008. Thereafter, the term of this Agreement shall be automatically extended for successive and additional one-year periods, unless Employee or the Company shall provide a written notice of termination at least ninety (90) days prior to the end of the initial term or any extended term, as applicable. The term of this Agreement is subject to early termination in accordance with the provisions set forth in Section 4 hereof. The election by the Company or Employee to terminate this Agreement as of the expiration of the initial term, or as of the end of any one-year renewal period, as provided in this Section 2 shall not be deemed to be a termination by the Company under Sections 4.1.2 or 4.1.3 hereof or by Employee with Good Reason (as defined below), and in such event Employee shall only be entitled to the compensation set forth in Section 4.2.3 hereof

3. Compensation and Benefits.

3.1 Salary. Duringthe first twelve months of the term of this Agreement, the Company shall pay to Employee a base salary at the annual rate of $-------265,000.On each anniversary date of the commencement of employment, the Employee’s base salary shall be reviewed by the Board (or the compensation committee thereof (the “Compensation Committee”)) and may be increased to such rate as the Board (or the Compensation Committee), in its sole discretion, may hereafter from time to time determine. The salary payable pursuant to this Section 3.1 shall be payable on a bi-weekly basis and is referred to herein as the “Base Salary”.

3.2 Expenses. Employee shall be entitled to receive proper reimbursement from the Company for all reasonable out-of-pocket expenses incurred by Employee in performing services under this Agreement, according to the Company’s expense account and reimbursement policies and provided that Employee shall submit reasonable documentation with respect to such expenses.

3.4 Bonus.

  (a) During the term of this Agreement, Employee shall be entitled to receive an annual year-end target “Variable Bonus” in cash in an amount equal to up to forty percent (40%) of Base Salary (pro-rated for calendar year 2007).

  (b) Half of the Variable Bonus will be based upon successfully realizing the personal and performance objectives as determined by the Chief Executive Officer and the Compensation Committee, which for the first year of employment are defined in Exhibit A-I attached to this Agreement (the “A-I Objectives”).

  (c) Half of the Variable Bonus for the first year, and all of the Variable Bonus for any periods after the first year of employment, will be based upon successfully realizing the “KRA objectives” for each year as determined by the Company’s Chief Executive Officer and the Compensation Committee each year, and which are defined in Exhibit A-II attached to this Agreement for the first year of employment.

  (d) The Variable Bonus, if any, shall be payable within ninety (90) days after the last day of the year in which it is earned, notwithstanding any termination of this Agreement on or after the last day of such year. Qualification for the Variable Bonus payout shall be determined by the Board.

- 2 -

3.5 Stock Options.

  3.5.1 The Company hereby grants to the Employee options to purchase 750,000 shares of the Company’s common stock, vesting as described on Exhibit B.

  3.5.2 The options shall be issued pursuant to the Company’s 2005 Stock Option Plan; shall only be issued if approved by the Compensation Committee prior to grant; have an exercise price equal to the fair market value of one share of the Company’s common stock as determined by the Compensation Committee upon grant; and shall become fully vested and exercisable upon the sale of all or substantially all of the assets of the Company, the sale of all of the capital stock of the Company by the Company’s stockholders to a third party, or the merger or consolidation of the Company with another corporation or other entity (other than a merger or consolidation in which the owners of the Company’s capital stock immediately prior to the merger or consolidation own at least 35% of the capital stock of the surviving corporation or other entity in the merger or consolidation).

  3.5.3The Compensation Committee shall consider an additional grant of stock options no less than once each year (by March 31^st of each year commencing in 2008) (and shall target the grant of at least 750,000 options (as adjusted for stock splits or stock combinations) each year).

3.6 Other Benefits. Employee shall be entitled to the following additional benefits:

  3.6.1Employee shall be entitled to vacations, at such times as Employee shall reasonably determine, of at least four weeks each year of employment hereunder.

  3.6.2Employee shall be entitled to such other benefits as shall be extended to any other senior executive officer of the Company during the initial term and any renewal period of this Agreement.

3.7 No Other Benefits. During the term of this Agreement or upon any termination hereof, the Company shall have no obligation to pay or provide, any compensation or benefits other than as set forth herein; provided, however, that Employee shall be entitled to all benefits available to senior Employees of the Company under the employee benefit plans, and the policies and practices, of the Company, determined in accordance with the applicable terms and provisions of such plans, policies and practices, in each case, as accrued to the date of termination of employment.

- 3 -

4.0 Termination ofEmployment.

4.1 Events of Termination. Employee’s employment hereunder shall terminate prior to the expiration of the term set forth in Section 2 hereof upon the occurrence of any one or more of the following events:

  4.1.1Death. In the event of Employee’s death, Employee’s employment shall terminate on the date of death.

  4.1.2Termination by the Company for Cause. The Companymay, at its option, terminate the Employee’s employment for “Cause” (as defined herein). For purposes hereof, “Cause” shall mean Employee’s (i) conviction of, guilty plea to or confession of guilt of a felony, (ii) commission of fraudulent, illegal or dishonest acts, (iii) willful misconduct or gross negligence which reasonably could be expected to be materially injurious to the business, operations or reputation of the Company (monetarily or otherwise) or (iv) after a written warning and a reasonable opportunity to cure non-performance, failure to perform Employee’s material duties as assigned to Employee pursuant to the terms of this Agreement from time to time or failure to cure any other material breach of this Agreement.

  4.1.3Without Cause By The Company. The Company may, at its option, terminate Employee’s employment for any reason whatsoever (other than for Cause) by giving ninety (90) days prior written notice of termination to Employee.

  4.1.4Termination by Employee. Employee may terminate Employee’s employment for any reason whatsoever by giving ninety (90) days prior notice of termination to the Company, except that Employee may terminate Employee’s employment for Good Reason by giving fifteen (15) days prior notice of termination. Employee shall be deemed to have terminated employment hereunder for “Good Reason” in the event that Employee terminates such employment after (i) the Company has breached any of its material obligations hereunder and fails to cure such breach promptly after receipt of written notice of such breach, or (ii) a Change in Control (as defined herein). For purposes of this Agreement, the term “Change in Control” shall mean the occurrence of any of the following events with respect to the Company:

(A) the consummation of any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company’s common stock (“Common Stock”) would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the shares of the Company’s Common Stock immediately prior to the merger own at least a majority of the outstanding common stock of the surviving corporation immediately after the merger; or

(B) the consummation of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, other than to a subsidiary or affiliate.

- 4 -

  4.1.5Disability. In the event of Employee’s Disability (as defined herein), the Company will have the option to terminate Employee’s employment by giving a written notice of termination to Employee. Such notice shall specify the date of termination, which date shall not be earlier than sixty (60) days after such notice is given. For purposes of this Agreement, “Disability” means the inability of Employee to substantially perform Employee’s duties hereunder for one hundred and thirty five (135) days out of two hundred and twenty five (225) consecutive days as a result of a physical or mental illness, all as determined in good faith by the Board.

4.2 Company’s Obligations Upon Termination. Following thetermination of Employee’s employment under the circumstances described below, the Company shall pay to Employee the following compensation and provide the following benefits in full satisfaction and final settlement of any and all claims and demands that Employee now has or hereafter may have under this Agreement:

  4.2.1Termination Without Cause by the Company or by the Employee with Good Reason. In the event that Employee’s employment shall be terminated by the Company pursuant to Section 4.1.3 or shall be terminated by the Employee for Good Reason pursuant to Section 4.1.4, (a) the Company shall pay Employee all Base Salary, any Variable Bonus, earned but unpaid through the date of termination, (b) the Company shall pay Employee twelve (12) months Base Salary then in effect on a monthly basis (provided, however, that if such termination is effective before April 30, 2008, the number of months of Base Salary payable as severance pursuant to this clause (b) shall be equal to the number of full months that Employee was employed by the Company before being terminated (which would be less than nine (9) months), rather than twelve (12) months), (c) all stock options granted to Employee by the Company shall remain exercisable for a period of one hundred and eighty days after such termination, and (d) a pro-rated target Variable Bonus for the year in which termination is effective, subject to the terms of such bonus. In addition, the Company shall reimburse Employee for any expenses incurred through the date of such termination in accordance with Section 3.3 hereof

  4.2.2Termination by Employee Without Good Reason or by the Company for Cause. In the event that Employee’s employment shall be terminated by Employee without Good Reason pursuant to Section 4.1.4 (or if Employee voluntarily resigns other than with Good Reason in accordance with such Section prior to the expiration of the then current term of this Agreement) or by the Company pursuant to Section 4.1.2, Employee shall be entitled to no further compensation or other benefits under this Agreement other than any Base Salary and any Variable Bonus earned on or prior to the date of such termination, but not yet paid, and such benefits as have accrued pursuant to any applicable employee benefit plans of the Company. In addition, the Company shall reimburse Employee for any expenses incurred through the date of such termination in accordance with Section 3.3 hereof

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  4.2.3Termination upon Expiration ofthe Employment Term. Upon expiration of the term of this Agreement, Employee shall be entitled to no further compensation or other benefits under this Agreement other than Base Salary earned, but unpaid, through the date of termination, and any Variable Bonus earned on or prior to the end of such term, but not yet paid and such benefits as have accrued pursuant to any applicable employee benefit plans of the Company. In addition, the Company shall reimburse Employee for any expenses incurred through the date of such termination in accordance with Section 3.3 hereof.

  4.2.4Termination Due to Death. In the event that Employee’s employment shall be terminated by the Company pursuant to Section 4.1.1, the Company shall pay Employee or Employee’s estate (a) all Base Salary earned but unpaid through the date of termination, and (b) any Variable Bonus earned on or prior to the date of termination, but not yet paid. In addition, the Company shall reimburse Employee for any expenses incurred through the date of termination in accordance with Section 3.3 hereof

  4.2.5Termination Due to Disability. In the event thatEmployee’s employment shall be terminated by the Company pursuant to Section 4.1.5, (a) the Company shall pay Employee all Base Salary earned but unpaid through the date of termination, (b) any Variable Bonus earned on or prior to the date of termination, but not yet paid,and (c) the Employee shall be entitled to all benefits under all employee benefit plans in which he is a participant. In addition, the Company shall reimburse Employee for any expenses incurred through the date of termination in accordance with Section 3.3 hereof

4.3 Nature of Payments. All amounts to be paid by the Company to Employee pursuant to this Section 4 (other than Base Salary or reimbursement of expenses or amounts paid pursuant to Section 4.2.4) shall be considered by the parties to be severance payments. In the event that such payments shall be treated as damages, it is expressly acknowledged by the parties that damages to Employee for termination of employment would be difficult to ascertain and the above amounts are reasonable estimates thereof and are not a penalty.

4.4Release. Any payments to be made or benefits to be provided by the Company pursuant to this Article 4 shall be subject to the Company’s receipt from Employee of an effective general release and agreement not to sue, in a written form reasonably satisfactory to the Company (the “Release”), pursuant to which Employee makes limited customary representations and warranties relating to the validity, enforceability and binding nature of such release and that Employee has the right to enter into and give such release and Employee agrees (i) to release all claims against the Company, its subsidiaries and affiliates and related parties, (ii) not to maintain any action, suit, claim or proceeding against the Company and the officers, directors, and successors thereof, solely with respect to the matters released, and (iii) to be bound by the confidentiality and mutual nondisparagement covenants specified therein. Notwithstanding anything to the contrary contained herein, Employee’s release shall expressly not apply to any claims Employee may have as a stockholder or option holder of the Company. Notwithstanding the due date of any payment hereunder requiring a Release, the Company shall not be obligated to make any such payment until after the expiration of any revocation period applicable to the Release.

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5. Non-Solicitation: Noncompetition.

5.1  During the term of this Agreement and for a period of one year thereafter (following termination for any reason, subject to the provisions of Section 5.2), Employee shall not:

  5.1.1induce or attempt to induce, directly or indirectly, any then current customer or client of the Company to cease doing business, in whole or in part, with the Company or solicit or divert, directly or indirectly, the business of any such customer or client, or any identified potential customer or client, for Employee’s own account or for the account of any other person or entity;

  5.1.2solicit or induce, directly or indirectly, any person or entity, including any third-party service provider, distributor or supplier of the Company, to terminate its relationship with the Company or otherwise interfere with such relationship;

  5.1.3for Employee’s own account or for the account of any other person or entity, solicit, interfere with or endeavor to cause, directly or indirectly, any employee or agent of the Company or induce or attempt to induce, directly or indirectly, any employee or agent of the Company to leave employment or terminate its agency with the Company or induce or attempt to induce, directly or indirectly, any such employee or agent to breach an employment or agency agreement or arrangement with the Company; or

  5.1.4except with respect to a less than 5% passive ownership interest in a publicly traded company, either for Employee or on behalf of any person or entity, directly or indirectly own, control or participate in the ownership or control of, or be employed by or on behalf of, any business which is similar to and is competitive with the business (as it exists or the date of termination) of the Company, within the United States of America or any country in which the Company then conducts or proposes to conduct business, without the express written consent of the Company.

5.2 Notwithstanding any provision hereunder to the contrary, the provisions of Sections 5.1.1, 5.1.2 and 5.1.4 shall not apply following the termination of Employee’s employment by the Company without Cause pursuant to Section 4.1.3 or by Employee for Good Reason pursuant to Section 4.1.4.

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6. Property Rights. With respect to information, inventions and discoveries developed, made or conceived of by Employee, either alone or with others, at any time during Employee’s employment by the Company and whether or not within working hours, arising out of such employment or pertinent to any field of business or research in which, during such employment, the Company is engaged or (if such is known to or ascertainable by Employee) is considering engaging, Employee agrees:

6.1 that all such information, inventions and discoveries, whether or not patented or patentable, shall be and remain the exclusive property of the Company;

6.2 to disclose promptly to an authorized representative of the Company all such information in Employee’s possession as to possible applications and uses thereof;

6.3 not to file any patent application relating to any such invention or discovery except with the prior written consent of an authorized officer of the Company;

6.4 that Employee hereby waives and releases any and all rights Employee may have in and to such information, inventions and discoveries and hereby assigns to the Company and/or its nominees all of Employee’s right, title and interest in them, and all Employee’s right, title and interest in any patent, patent application, copyright or other property right based thereon. Employee hereby irrevocably designates and appoints the Company and each of its duly authorized officers and agents as Employee’s agent and attorney-in-fact to act for Employee and in Employee’s behalf and stead to execute and file any document and to do all other lawfully permitted acts to further the prosecution, issuance and enforcement of any such patent, patent application, copyright or other property right with the same force and effect as if executed and delivered by Employee; and

6.5 at the request of the Company and without expense to Employee, to execute such documents and perform such other acts as the Company deems necessary or appropriate for the Company to obtain patents on such inventions in a jurisdiction or jurisdictions designated by the Company, and to assign to the Company or its designee such inventions and any patent applications and patents relating thereto.

7. Confidentiality. With respect to the information, inventions and discoveries referred to in Section 6 hereof, and also with respect to all other information, whatever its nature and form and whether obtained orally, by observation, from graphic materials or otherwise (except such as is generally available to the public or such as Employee shall be compelled by legal process to disclose), obtained by Employee during or as a result of Employee’s employment by the Company and relating to any invention, improvement, enhancement, product, know-how, formula, software, process, apparatus, design, concept or other creation of the Company, or to any use of any of them, or to materials, tolerances, specifications, costs (including, without limitation, manufacturing costs), prices, or any plans of the Company, or to any other trade secret or proprietary information of the Company, Employee agrees:

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7.1 to hold all such information, inventions and discoveries in strict confidence and not to publish or otherwise disclose any thereof to any person or entity other than the Company, except with the prior written consent of an authorized officer of the Company;

7.2 to take all reasonable precautions to assure that all such information, inventions and discoveries are properly protected from access by unauthorized persons;

7.3 to make no use of nor exploit in any way any such information, invention or discovery except as required in the performance of Employee’s employment duties for the Company; and

7.4 upon termination of Employee’s employment by the Company, or at any time upon request of the Company, to deliver to it all graphic materials and all substances, models, software, prototypes and the like containing or relating to any such information, invention or discovery, all of which graphic materials and other things shall be and remain the exclusive property of the Company.

For purposes of this Agreement, the term “graphic materials” includes, without limitation, letters, memoranda, reports, notes, notebooks, books of account, drawings, prints, specifications, formulae software, data print-outs, microfilms, magnetic tapes and disks and other documents and recordings, together with all copies, excerpts and summaries thereof

8. No Conflicts. Employee agrees and acknowledges that Employee’s employment by the Company and compliance with this Agreement do not and will not breach any agreement made by Employee to keep in confidence information acquired by Employee prior to or outside of Employee’s employment with the Company. Employee will comply with any and all valid obligations which Employee may now have to prior employers or to others relating to confidential information, inventions or discoveries which are the property of those prior employers or others, as the case may be. Employee has supplied or shall promptly supply to the Company upon its request a copy of each written agreement setting forth any such obligation. Employee hereby agrees and acknowledges that Employee has not brought and will not bring with Employee for use in the performance of duties at the Company any materials, documents or information of a former employer or any third party that are not generally available to the public, unless Employee has express written authorization from the owner thereof for possession and use or Employee otherwise has undisputed proprietary rights to such material documents or information.

9. Specific Performance. Without intending to limit the remedies available to the Company, Employee agrees that damages at law would be an inadequate remedy to the Company in the event that Employee shall breach or attempt to breach any of the provisions of Sections 5, 6, 7, 8 or 9 hereof and that the Company may apply for and, without the posting of any bond or other security, upon proof of breach or threatened breach of any of the covenants contained in such Sections, have injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of, or otherwise to enforce specifically, any of the covenants contained in such Sections. Such injunctive relief in such court shall be available to the Company in lieu of any arbitration proceeding pursuant to Section 11 hereof

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10. Survival. Theprovisions of Sections 5, 6, 7, 8, 9, 10, 11, and 12 shall survive any termination of this Agreement. In furtherance and not in limitation of the preceding sentence, Employee’s obligations under Sections 5, 6 and 7 hereof shall remain in effect throughout Employee’s employment by the Company, unaffected by any transfer to a subsidiary or affiliate of the Company.

11. Arbitration. Any controversy or claim based on, arising out of or relating to the interpretation and performance of this Agreement or any termination hereof shall be solely and finally settled by arbitration under the rules of the American Arbitration Association, and judgment on the award rendered in the arbitration may be entered in any court having jurisdiction thereof. Any such arbitration shall be in the State of New Jersey, and shall be submitted to a single arbitrator appointed by the mutual consent of the parties or, in the absence of such consent, by application of any party to the American Arbitration Association. A decision of the arbitrator shall be final and binding upon the parties, and the arbitrator shall be authorized to apportion fees and expenses (including counsel fees and expenses) as the arbitrator shall deem appropriate. In the absence of any such apportionment, the fees and expenses of the arbitrator shall be borne equally by each party, and each party will bear the fee and expenses of its own attorney. The parties agree that this clause has been included to rapidly and inexpensively resolve any disputes between them with respect to this Agreement and that this clause shall be grounds for dismissal of any court action commenced by either party with respect to this Agreement, other than (i) post-arbitration actions seeking to enforce an arbitration award and (ii) actions seeking appropriate equitable or injunctive relief pursuant to Sections 5, 6 and/or 7 hereof

12. Miscellaneous.

12.1Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without regard to principles of conflicts of laws.

12.2Entire Agreement; Amendment. This Agreement and the exhibits annexed hereto between the Company and Employee contain the complete understanding and agreement between the parties hereto with respect to the subject matter hereof, and supersede all prior understandings and agreements, written or oral, between the parties hereto relating to the subject matter hereof This Agreement may not be amended or modified except in a writing signed by the parties hereto.

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12.3Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, (i) the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law and (ii) any such invalidity or unenforceability shall be deemed replaced by a term or provision determined by the parties as coming closest to expressing the intention of the invalid or unenforceable term or provision.

12.4Notice. Any notice to be given hereunder shall be in writing and either delivered in person, by nationally recognized overnight courier, by facsimile or by registered or certified first class mail, postage prepaid with return receipt requested, addressed (a) if to the Company, to Vyteris, Inc., 13-01 Pollitt Drive, Fair Lawn, NJ 07419, attention: Chief Executive Officer, and with a copy to Lowenstein Sandler PC, 65 Livingston Avenue, Roseland, New Jersey 07068 Facsimile No.:(973) 597-2351, attention Peter H. Ehrenberg, Esq. and (b) if to the Employee, to Anthony J. Cherichella, 17 Brookwood Road, Montville Township, Towaco, New Jersey 07082. Notices delivered personally shall be deemed given as of actual receipt; notices sent via facsimile transmission shall be deemed given as of one business day following sender’s receipt from sender’s facsimile machine of written confirmation of transmission thereof, notices sent by overnight courier shall be deemed given as of one business day following sending; and notices mailed shall be deemed given as of five business days after proper mailing. Any party may change its address in a notice given to the other party in accordance with this Section 12.4.

12.5Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors (including, without limitation, any successor by merger or sale of all or substantially all assets) and permitted assigns.

12.6Further Assurances. Employee and the Company shall execute and deliver all instruments and other documents which, in the opinion of the Company or the Employee, may be necessary or appropriate to carry out the terms of this Agreement.

12.7Deadlines. The Section headings in this Agreement are for convenience of reference only and shall not affect its interpretation.

12.8Interpretation. For purposesof Sections 5, 6, 7, 8 and 9, the “Company” shall include any subsidiary or affiliate of the Company for which Employee renders services.

12.9Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same agreement.

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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto as of the date first above written.

/s/ Anthony J. Cherichella
	Anthony J. Cherichella

VYTERIS, INC.

By:	/s/ Timothy McIntyre
	Name:Timothy McIntyre
	Title:Chief Executive Officer

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Exhibit A-I

PERSONAL AND COMPANY PERFORMANCE OBJECTIVES FOR VARIABLE BONUS

*10% of entire Variable Bonus (4% of Base Salary) for completion of due diligence with respect to the acquisition of Lehigh Valley Technologies (LVT) and final resolution/execution of LVT acquisition as outlined in term sheet or as directed by the Board.

*20% of entire Variable Bonus (because this can only be earned, if at all, during calendar year 2007, the greater of 8% of Base Salary or $25,000) based upon the Company consummating a public offering of equity securities which results in net proceeds to the Company (net of underwriters’ discount) of at least $25 million, in a firm commitment underwriting led by an institutional securities underwriter, by October 1, 2007.

*20% of entire Variable Bonus (because this can only be earned, if at all, during calendar year 2007, the greater of 8% of Base Salary or $25,000) based upon the Company successfully listing its common stock for trading on either the American Stock Exchange (AMEX) or the Nasdaq Global Market, by December 31, 2007.

Exhibit A-II

KRA OBJECTIVES FOR VARIABLE BONUS

·   12.5% of entire Variable Bonus (5% of Base Salary) -- upgrade of information technology department to Chief Executive Officer’s satisfaction.

o   Plan by October 1, 2007

o   Upgrade Completed by December 15, 2007

·   12.5% of entire Variable Bonus (5% of Base Salary) - to lead, supervise, and execute securing a “second” level of key suppliers by November 1, 2007.

o   ID/Plan and budget impact - October 1, 2007

o   Securing second line - January 1, 2008

·   12.5% of entire Variable Bonus (5% of Base Salary) -- formal 2008 budget review process, completed to Chief Executive Officer’s satisfaction by October 31, 2007 and Board approved by December 15, 2007.

·   12.5% of entire Variable Bonus (5% of Base Salary) -- mentoring and development of Joseph Himy, to Chief Executive Officer’s satisfaction with Quarterly Reviews and subsequent filing with HR.

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Exhibit B

OPTION VESTING

	Milestones	Shares
1.	Prior to October 1, 2007, the Company engages institutional underwriter of national reputation to manage a public offering of equity securities.	100,000
2.	Prior to December 31, 2007, the Company successfully lists its common stock for trading on either the American Stock Exchange (AMEX) or the Nasdaq Global Market	150,000
3.	Prior to April 1, 2008, the Company consummate a public offering of equity securities which results in gross proceeds to the Company of at least $25 million, in a firm commitment underwriting led by an institutional securities underwriter.	100,000
4.	Prior to April 1, 2008, the Company consummate a public offering of equity securities which results in gross proceeds to the Company of at least $35 million, in a firm commitment underwriting led by an institutional securities underwriter.	150,000
5.	Prior to April 1, 2008, the Company consummate a public offering of equity securities which results in gross proceeds to the Company of at least $50 million, in a firm commitment underwriting led by an institutional securities underwriter.	200,000
6.	50,000 options that vest over time as follows - 25,000 options vest upon Employee’s first anniversary of employment with the Company (so long as he is then an employee of the Company) and 6,250 options vesting on the last day of each of the four calendar quarters commencing with September 30, 2008 (again, so long as he is then an employee of the Company)	50,000
		750,000

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Timothy J. McIntyre, Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Vyteris, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

August 14, 2007	/s/ Timothy J. McIntyre
	Timothy J. McIntyre
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Joseph N. Himy, Principal Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Vyteris, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

August 14, 2007	/s/ Joseph N. Himy
	Joseph N. Himy
	Principal Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of (the “Company”) on Form 10-QSB for the quarter ended June 30, 2007 as filed with the Securities and Exchange Commission (the “Report”), I, Timothy J. McIntyre, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and consolidated results of operations of the Company for the periods presented.

August 14, 2007	/s/ Timothy J. McIntyre
	Timothy J. McIntyre
	Chief Executive Officer

This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of (the “Company”) on Form 10-QSB for the quarter ended June 30, 2007 as filed with the Securities and Exchange Commission (the “Report”), I, Joseph N. Himy, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and consolidated results of operations of the Company for the periods presented.

August 14, 2007	/s/ Joseph N. Himy
	Joseph N. Himy
	Principal Financial Officer

This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.