10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT UNDER SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-27409

AKESIS PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Nevada	84-1409219
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

4370 La Jolla Village Drive

Suite 685

San Diego, California 92122

(858) 646-0789

(Address, including zip code, or registrant’s principal executive offices and

telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 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 x    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b-2 of Act).    Yes ¨    No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates was approximately $30,347,184 computed by reference to the last sales price of $3.00 as reported by the O-T-C Bulletin Board Market, as of the last business day of the Registrant’s most recently completed second fiscal quarter, June 30, 2004. This calculation does not reflect a determination that certain persons are affiliates of the Registrant for any other purpose.

The number of shares outstanding of the Registrant’s common stock on February 28, 2005 was 14,992,552 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for its 2005 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed with the Securities and Exchange Commission, are incorporated by reference to Part III of this Annual Report on Form 10-K.

AKESIS PHARMACEUTICALS, INC.

FORM 10-K

Year Ended December 31, 2004

INDEX

		Page
PART I
Item 1.	Business	3
Item 2.	Properties	16
Item 3.	Legal Proceedings	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	17
Item 6.	Selected Financial Data	18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	35
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	49
Item 9A.	Controls and Procedures	49
Item 9B.	Other Information	49
PART III
Item 10.	Directors and Officers of the Registrant	50
Item 11.	Executive Compensation	50
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	50
Item 13.	Certain Relationships and Related Transactions	50
Item 14.	Principal Accountant Fees and Services	50
PART IV
Item 15.	Exhibits and Financial Statement Schedules	51
Signatures		52

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PART I

This document contains forward-looking statements that are based upon current expectations within the meaning of the Private Securities Reform Act of 1995. It is our intent that such statements be protected by the safe harbor created thereby and we disclaim any duty or obligation to update. Forward-looking statements involve risks and uncertainties and our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Examples of such forward-looking statements include, but are not limited to, statements about:

• Our capital requirements and resources;

• Our strategy;

• Development of new products;

• Our intent to develop and sell products and services to companies in the pharmaceutical industry;

• Technological change and uncertainty of new and emerging technologies;

• Potential competitors or products;

• Future employment of our key employees;

• Development of strategic relationships;

• Statements about potential future dividends;

• Statements about protection of our intellectual property; and

• Possible changes in legislation.

Such forward-looking statements are inherently subject to risks and uncertainties, (including those discussed in “Risk Factors” below and other sections of this document) and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements.

Item 1. Business

The Company

We are an early stage biopharmaceutical company engaged in the discovery, development and commercialization of complementary and alternative therapies for the treatment of three principal forms of carbohydrate intolerance – Type 2 diabetes, Syndrome X, and impaired glucose tolerance (“IGT”), and their associated complications. We have been granted patents and filed patent applications for a number of proprietary formulations and combination therapies, including formulations with existing diabetes medications, for use in the treatment of Type 2 diabetes. We intend to use our proprietary formulations to develop prescription treatments for Type 2 diabetes and related metabolic disorders. These products are in an early stage of development and no regulatory filings to commercialize our products have yet been made with the United States Food and Drug Administration, or FDA, or any similar state or foreign authorities.

We have undertaken an initial clinical trial of one of our specific product formulations, which demonstrated a consistent improvement in glycated hemoglobin levels (A1_c), compared to base line, after three months of treatment in a diabetic population. These formulations are covered by our issued patents as set forth below. This was a small (81 individual) open-label study; open-label studies are generally considered to be less reliable than double blind placebo controlled studies and are not accepted by the FDA. The observed reduction in A1_c, (which is an established long-term measure of blood glucose), in this open-label study was in excess of 2% for all treatment groups. This reduction

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contemplates an average improvement in excess of 20% in blood glucose parameters in this patient population. This included patients taking the initial product candidate as monotherapy, as well as with concomitant medications. We believe that this trial may suggest that Akesis’ formulations show the potential for enhancing currently available oral antidiabetic therapeutic agents. We intend to conduct follow-on feasibility clinical trials with one or more of our formulations with a goal of confirming and extending the results of our initial clinical study. We believe that the successful completion of these feasibility trials could lead to partnering opportunities in the pharmaceutical industry. We are not currently in discussions with the FDA regarding the specific requirements for approval and we have not commenced any FDA-approved clinical trials.

Diabetes

Diabetes is a major health problem and is the fifth leading cause of death by disease in the United States. Diabetes is characterized by poor control of glucose levels in the blood, and is often associated with severe long-term complications, such as heart, eye, kidney and peripheral vascular diseases.

It is estimated that over 194 million people worldwide have diabetes. Of that population, approximately 18 million have type 1 diabetes, also known as juvenile-onset diabetes, and approximately 159 million have type 2 diabetes, also known as adult-onset diabetes. In the United States alone, in 2002 there were approximately 13 million people diagnosed with diabetes, and approximately 1.3 million new cases of diabetes are diagnosed each year. CDC estimates that in 2005 direct and indirect costs related to diabetes will be in excess of 150 billion dollars.

For people suffering from diabetes, poor control of blood glucose concentrations has been shown to result in severe long-term complications. For instance, damage to small blood vessels due to diabetes may result in disorders such as retinopathy, nephropathy, neuropathy, and peripheral vascular disease.

Weight control and obesity are also major problems for patients with diabetes, particularly for those people using insulin as part of their treatment regimen. Other metabolic complications resulting from diabetes and associated metabolic disorders include high blood pressure and dyslipidemia, the abnormal metabolism of fat. These undesired metabolic effects may result in additional complications involving large blood vessels, which can lead to heart attacks, strokes and amputations of lower extremities. Further, patients with diabetes frequently have wide fluctuations in blood sugar following meals. These fluctuations in blood sugar can significantly affect a patient’s quality of life. Collectively, these complications and associated metabolic disorders can lead to increased pain, suffering, reduced quality of life and early death.

The most widely accepted measure of long-term blood glucose is glycated hemoglobin, or A1_c. A person’s A1_c level is a recognized indicator of that individual’s average blood glucose concentrations over a 3 to 4-month period. Lower A1_c levels indicate better blood glucose control, on average. A1_c levels in people without diabetes are usually less than 6%. The American Diabetes Association’s Clinical Practice Recommendations suggest that people with diabetes should aim for an A1_c level that is lower than 7%. Only a minority of people diagnosed with diabetes in the United States are able to achieve the American Diabetes Association’s recommended target A1_c level, even with available drug therapies. Additionally, aggressive use of insulin and other available therapies to achieve target glucose control can be associated with an increased risk of hypoglycemia and weight gain. Consequently, there is a pressing need to develop new treatment strategies that improve the overall health profile of patients with diabetes and reduce the risk of complications without increased pain and suffering.

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In 1993, a landmark study in patients with type 1 diabetes, called the Diabetes Control and Complications Trial, showed that improved glucose control — as measured by any reduction in an individual’s A1_c level — reduced the incidence of long-term complications. In 1998, a similar landmark study in patients with type 2 diabetes, the United Kingdom Prospective Diabetes Study, reported similar conclusions for type 2 diabetes. Unfortunately, both of these studies showed that available therapies cannot mitigate the progressive nature of diabetes and long-term complications are to be expected.

Product Description

The initial product we developed is a patented combination of micronutrients, the individual components of which have been used widely for many years. It is consumable in tablet form. It includes components that are believed to address (i) immediate health needs, (ii) longer-term health-maintenance issues, and (iii) aspects of general health and well-being. The product candidate has to date been sold as a dietary supplement under the 1994 Dietary Supplement Health and Education Act (“DSHEA”). Preliminary evidence suggests that it may be effective at promoting diabetic health and wellness when used as a stand-alone product, as well as when used as an adjunct to prescription anti-diabetic products, both oral and insulin.

It is contemplated that our new product formulations will be derived from the more recent patent issuances. We plan to evaluate metformin containing compositions for the treatment of diabetes. This will be an Rx combination of metformin, chromium, vanadium, and magnesium. The product will be taken orally, once or BID in tablet form. Our second product to be evaluated through the proposed feasibility study will be a combination of glimepride, chromium and vanadium. This product will also be considered for prescription use and be taken orally in tablet form.

The product candidates under consideration are being developed in response to the increasing number of cases of diabetes to attempt to improve health and wellness without requiring substantial lifestyle changes. It does so by delivering a core micronutrient offering that appears to be important for maintaining good diabetic control.

The anchor components of the initial product candidate are intended to mitigate insulin resistance, and include chromium (from its polynicotinate complex), magnesium (as highly-bioavailable salts) and vanadium (as its sulfate). These anchor components are supported by additional micronutrients that may support longer-term health and focus on cardiovascular benefits, specifically aspirin source and vitamin E (in its natural isomeric form).

The initial patented product formulation which had been tested by us is presented below:

Ingredient	Amount	Daily Value
Biotin	300 µg	100%
Calcium (from calcium carbonate/phosphate)	150 mg	15%
Chromium (from polynicotinate complex)	333 µg	278%
Copper (from copper chelate)	2 mg	100%
Folic Acid	400 µg	100%
Iodine (from sea kelp)	150 µg	100%
Magnesium (from citrate/fumarate/malate/glutarate/succinate complex)	46 mg	12%
Manganese (from manganese sulfate)	11 mg	550%
Molybdenum (from citrate/fumarate/malate/glutarate/succinate complex)	75 µg	100%
Niacinamide	20.1 mg	101%

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Ingredient	Amount	Daily Value
Pantothenic Acid (as calcium pantothenate)	10 mg	100%
Phosphorous (from calcium phosphate)	115 mg	12%
Riboflavin	3.6 mg	212%
Selenium (from citrate/fumarate/malate/glutarate/succinate complex)	60 µg	86%
Standardized Willow/Willow Bark Complex (aspirin source)	160 mg	N/A
Thiamine (mononitrate)	3 mg	200%
Vandyl Sulfate (hydrate)	100 mg	N/A
Vitamin A	5000 IU	100%
Vitamin B-6 (as pyridoxine·HCl)	23.1 mg	1155%
Vitamin B-12	48 µg	800%
Vitamin C (ascorbic acid)	60 mg	100%
Vitamin D-3	400 IU	100%
Vitamin E (natural)	400 IU	1333%
Zinc	15 mg	100%

Chromium and vanadium supplements in diabetes treatment

The first studies to suggest that chromium supplementation, (with chromium picolinate) could have beneficial effects on body mass and glucose metabolism were published in 1989. Chromium supplementation has been proposed to help with weight loss, glycemic control in diabetes, athletic performance, controlling hypercholesterolemia, corticosteroid-induced hyperglycemia and improving lean muscle mass. However many subsequent studies of chromium picolinate have failed to support these earlier findings.

There is now reasonable evidence to suggest that chromium deficiency may be associated with the development, or progression of diabetes, and that supplementation with chromium can exert positive effects on insulin sensitivity, blood glucose levels and glycosylated hemoglobin levels in diabetic patients. However, there is as of yet no clear picture of whether populations susceptible to diabetes are chromium deficient, or what long term dosing is appropriate to treat or prevent diabetes, or what the long term side effects of chromium supplementation may arise.

The most commonly used form of chromium in health supplements is chromium picolinate, and this is significantly more bioavailable than elemental chromium. It is rapidly absorbed in the stomach, and subsequently absorbed into tissues, where it rapidly distributes within cells. Pharmacokinetic models predict that ingested chromium will accumulate and be retained in human tissues if the supplement is taken for extended periods of time; however this prediction has not been experimentally confirmed.

Accurate estimates of chromium levels in humans are difficult to determine, and tissue chromium levels do not necessarily correlate with serum chromium levels. The U.S. Food and Nutrition Board of the National Academy of Sciences concluded in 2001 that there was not enough existing evidence to set Recommended Daily Allowances (RDAs) for chromium and, instead set Adequate Intakes (AI’s) based on the amount of chromium that normal healthy people currently consume. Based on that data, the Institute of Medicine recommended AI’s of chromium of 25-35 micrograms per day (µg or mcg).

The nutritional biochemistry and mechanism of action of chromium in the body is still poorly understood. No enzymes have been formally identified that require chromium for activity, and no chromium dependent co-factors have been biochemically characterized. Chromium has been shown to activate the tyrosine kinase activity of insulin activated insulin receptor and to activate a membrane phosphotyrosine phosphatase in adipocyte membranes. The physiological actions of chromium on

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insulin sensitivity and diabetes may also be mediated through the interaction of chromium on the transport, storage and intracellular uptake of iron. Chromium supplementation competes with iron for transport through transferrin and acts to reduce iron storage in the body. Excess iron accumulation has been linked to diabetes, and insulin insensitivity in some studies, suggesting that the beneficial effects of chromium supplementation may be related to the short term reduction of iron accumulation, particularly in the elderly.

Chromium is considered safe up to doses of 1000 µg (1 mg) per day. However, the use of chromium picolinate has been associated with toxicity, especially at high doses in vitro, possibly through the release of the picolinate ligand, which can independently act as an oxidant.

In March 2003 the Expert Group on Vitamins and Minerals of the U.K. Joint Food Standards and Safety Group requested that the health supplement industry should voluntarily withdraw chromium picolinate containing products while also consulting on a ban on the use and sale of chromium picolinate in the U.K. Currently the U.S. Food and Drug Administration, working with the U.S. National Academy of Sciences, is studying the potential regulation of chromium picolinate.

In summary, the long term biological effects of chromium accumulation in humans are poorly understood, and there have not yet been any long term studies on the effects of chromium supplementation. There is no conclusive proof, as evidenced by a large long-term controlled clinical trial, demonstrating that the benefits of high dose chromium supplementation for the treatment of diabetes significantly outweigh the risk of chromium toxicity. Because of insufficient information on the use of chromium to treat diabetes, no recommendations for supplementation yet exists in the U.S. for diabetes treatment.

Vanadium does not appear to be an essential element, there are no disorders in humans associated with vanadium deficiency and the government has not established a recommended daily allowance (RDA). The normal diet contains 10-30 micrograms (µg or mcg) of vanadium per day. The reported Tolerable Upper limit (ULs) for vanadium is approximately 1.8 mg/day for an adult.

Sodium vanadate was first reported to be effective for treating diabetes in 1899, almost 100 years before the discovery of chromium picolinate. Many subsequent studies have shown that a number of vanadium compounds have insulin mimicking actions both in vitro and in vivo. Treatment with vanadium compounds such as vanadium sulfate resulted in the development of a modest increase in insulin sensitivity and decreased insulin requirements.

Vanadium has been proposed to act through at least three mechanisms, 1) a direct insulin-mimetic action, 2) an enhancement of insulin sensitivity, and 3), a prolongation of insulin biological response. The insulin mimetic action appears to be mediated by direct binding of vanadium, or vanadium complexes with low molecular serum proteins to the insulin receptor. The synergistic enhancement of insulin sensitivity and prolongation of insulin response appear to be mediated via an inhibitory action of vanadate on phosphoprotein tyrosine phosphatases (PTPs) which would otherwise act to switch off the intracellular effects of insulin within the cell.

Vanadium salts such as vanadyl sufate appear to be poorly absorbed through the gastrointestinal tract, with less than 5% of the absorbed dose being taken up. The use of enteric coated vanadyl sufate capsules has been shown to increase the uptake of vanadate sulfate by approximately 2 fold. Absorbed vanadate has been shown to bind to transferrin and ferritin in plasma and other body fluids. Absorbed vanadium is mainly excreted in the urine in both high and low molecular weight complexes. Long term administration of vanadium results in the accumulation of vanadium in bone.

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There is currently limited data on the long term toxicity of vanadium in humans. Vanadate appears to accumulate in bones and in clinical trials gastrointestinal side effects increase above doses of 75 mg / day. In one clinical trial, gastrointestinal side effects were experienced in 75% of the subjects in the first week, but well tolerated after that. In another study 12 subjects were given 13.5 mg daily for 2 weeks, followed by 22.5 mg daily for 5 months. Five developed gastrointestinal symptoms – nausea, vomiting, diarrhea, cramps – and five developed green tongues.

We believe, based on our initial studies, that chromium and vanadium supplementation may provide synergistic effects when administered in combination with other diabetes therapeutics, potentially making many existing therapeutic strategies for treating diabetes more effective.

Target Markets

The initial product is targeted at individuals with the three principal forms of carbohydrate intolerance – Type 2 diabetes, Syndrome X, and impaired glucose tolerance (“IGT”). Collectively, these conditions are found in one of every five or six individuals, and they are regarded by some analysts as significant growth engines for the human-health industry. All three of these market segments have clear needs and have articulated demands for product offerings that deliver benefits such as those that may be available through the product candidates.

Type 2 diabetes is endemic in modern industrialized countries and, by many estimates, represents >95% of the diabetic population. There are an estimated 15 million or more individuals with Type 2 diabetes in the US and upward of 150 million individuals worldwide. General agreement exists that this population will more than triple during the next 25 years. Annual sales of oral anti-diabetic agents currently are on the order of $10 billion.

Syndrome X is intermediate between Type 2 diabetes and IGT, and may represent a market of at least 30 million individuals in the US. Some recent studies have suggested that this condition is linked to 13 million or more cardiovascular disease cases, which would implicate Syndrome X in at least half of those reported.

Impaired glucose tolerance is an even larger market segment, as this condition affects at least 35 million individuals in the US. It has become an increasing area of focus by the American Diabetes Association (“ADA”), which has advocated the identification and intensive management of the health and wellness of individuals with IGT.

At a more general level, the product candidate is tied to health-management trends that are (or are becoming) mainstream. It is aligned perfectly with an aging consumer population that cares more than ever about staying healthy and active.

Safety Findings

All components in the product candidate are found in food articles that either are part of standard diets or are found in widely-available dietary supplements that are legally marketed and sold, and that have extensive clinical and/or safety-in-use histories. Safe consumption of individual and combination micronutrients at levels equivalent to and in excess of those found in the product candidate is documented over decades and, in some cases, centuries. No consistent reports specifically linking any of the product candidate’s components to adverse events are found in reports deposited with FDA and other regulatory bodies responsible for maintaining such data.

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For consumers with aspirin sensitivities or allergies, it should be noted that the initial product candidate contains a standardized willow/willow bark (“willow”) complex that is metabolized to acetylsalicylic acid, the active ingredient in aspirin. Willow is used in the initial product candidate at an equivalent of 20 mg aspirin to confer long-term cardioprotective benefits, which are advocated for people with diabetes by the ADA and the American Heart Association.

Reports of gastrointestinal upset have been made about individual micronutrients in the initial product candidate; however they generally are ameliorated or eliminated by concomitant food consumption or after a brief adaptation period.

We used WIL Laboratories, a contract toxicology organization, to perform a preliminary animal safety study with its product. The results from a good laboratory practices (GLP) 14-day rat toxicology study (n = 70 rats) showed a clean profile when it was administered at levels up to 20X those intended for humans, a regimen recommended by the professional staff at WIL as providing an appropriate margin of safety. Specifically, the results from this study indicated that the product candidate was taken up by study animals and that no adverse observations were noted in a comprehensive examination of tissues, organs, and fluids. Furthermore, all histopathological examinations were completely normal.

Based on the foregoing, we do not anticipate any safety issues related to the product candidate. However, the precise combination of micronutrients in the product candidate has not been clinically tested in humans. Accordingly, there can be no guarantee that toxicity issues will not arise or that results of human clinical trials of the product candidate will be consistent with the results obtained to date.

Preliminary Clinical Data

We performed a small (81 individual), 12-week open-label human study of our initial product, which provided preliminary but encouraging insight about its efficacy. This study was conducted over Thanksgiving and Christmas holidays, a period during which many diabetic individuals experience significant deteriorations of their diabetic control. Participants added the product candidate to their daily treatment regimen while making no changes to existing medications, diets, or exercise regimens.

Open-label studies can be used to make initial assessments about product efficacy, and are performed with prior physician and participant understanding that a product is being used that is expected to deliver health benefits. They differ from double-blind placebo-controlled trials, which are the industry-standard approach for testing prescription drugs and in which neither physicians nor patients know whether patients are taking a placebo or the product under investigation.

Open-label studies are generally considered to be less reliable than double blind placebo controlled trials, and are not accepted by the FDA.

Participants for this study came from hospitals and physician practices in La Jolla, CA; Pittsburgh, PA; Las Vegas, NV; and Chicago, IL. Summary participant information is presented below:

Number of Participants	81
Study Duration (Weeks)	12
Average Age (Range)	61 (26 – 81)
Gender (M/F)	41/40
Average Disease Duration (Range)	7 (0 – 24)
Type 2 / Type 1 Diabetes	81 / 0
Taking concomitant medications	88%

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The endpoint measured in the open-label study was hemoglobin A_1c (“HbA_1c”), which is the generally accepted standard against which diabetic control is evaluated. It provides a measure of average blood glucose readings throughout the previous 90 days. A generally accepted HbA_1c range for the non-diabetic population is 4.5% – 7.5%. Values above 10.0% (correlating to an average blood glucose of 250 mg/dL) are observed in a large part of the diabetic population, and values above even 8.0% typically are precursors to serious micro-and macro-vascular complications.

The table below presents summary results of the improved diabetic control (as measured by reductions in HbA_1c) that was delivered by the product candidate across various cross-sections of open-label study groups:

Population	Change in HbA1c
Entire	-1.7	%
Those with starting HbA1c > 8.0%	-2.2	%
Those taking only the Akesis product candidate	-2.0	%
Those taking one concomitant prescription anti-diabetic	-2.1	%
Those taking three concomitant prescription anti-diabetics	-1.3	%

To provide context for these results, the following table compares the improvements in diabetic control delivered by the product candidate in the open-label study, when taken as the only product for diabetic control (as monotheraphy), with those delivered by prescription anti-diabetics taken as monotheraphy. Data for these prescriptions agents are taken from much larger and sometimes longer double-blind placebo-controlled studies. Accordingly, the data from these other studies is much more likely to be accurate than the data from our study. Further trials will need to be done to verify that the results with the product candidate are valid in larger populations and in longer-duration studies.

Product	Study Duration (Weeks)	Change in HbA1c
Akesis product candidate	12	-2.0	%
Glucophage®	29	-1.4	%
Rezulin®	26	-1.0	%
	12	-0.8	%
Avandia®	26	-0.7	%
	26	-0.6	%
Prandin™	12	-0.6	%

The small size of the participant population for our study, combined with its being an open-label protocol, make it difficult to draw broad, statistically-significant conclusions. However, the Company believes the Akesis study indicates the following:

1. The product candidate may be efficacious, with activity that may be comparable to those delivered by prescription anti-diabetics.

2. The product candidate may be equally efficacious across all demographics (e.g., age, gender, weight, duration of condition, starting HbA1c, number/type of concomitant anti-diabetic medications).

3. The product candidate appears to be most effective in populations that are of greatest interest to the health- and managed-care industries – younger individuals, those with more recent onsets of diabetes, and individuals with higher baseline HbA1cs.

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In order to test the product candidate under more demanding conditions, a randomized, double-blind, placebo-controlled, good clinical practices (GCP) human trial was conducted at Duke University on a pilot scale (n = 18 patients). The study evaluated the addition of the product candidate to an otherwise-unchanged diabetes-control program. Results from this trial were interpreted by Clinimetrics, an independent contract-research organization. Although this study was small by design, the Company believes the results may warrant undertaking larger similar studies.

Specifically, this blinded, placebo-controlled study made a stronger statement than trend-line information that generally is obtained from pilot trials. The treatment arm showed appreciably-improved HbA_1c values v. placebo (median improvement 1.0%, mean improvement 1.2%), although this improvement was not statistically significant (p = 0.07) due to the small sample size.

In summary, based on this preliminary clinical data, the Company believes that consumption of the Akesis Product may be an effective approach to improving the health of individuals with various manifestations of carbohydrate intolerance. However, there can be no assurance that the results of more extensive human studies will be consistent with those obtained thus far.

Patents, Proprietary Rights, and Licenses

We believe that patents and other proprietary rights are important to our business. Our policy is to file patent applications to protect technology, inventions and improvements that may be important to the development of our business. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position. We plan to enforce our issued patents and our rights to proprietary information and technology.

Our core technology is covered by four issued U.S. patents, and we have one additional patent application pending. Each of these patents consist of method and composition claims. A summary of our intellectual property is as follows:

Patent No.	Title	Application Date	Approval Date	Summary	Target Market
US 5,962,030	Dietary Supplement and method of treatment for diabetic control	11/05/97	5/10/99	Claims dietary supplements for improving glucose metabolism comprising chromium, magnesium, and vanadium and at least one other ingredient	Over the Counter Supplement market
US 6,203,819	Dietary Supplement and method of treatment for diabetic control	3/19/99	3/20/2001	Claims dietary supplements for improving glucose metabolism comprising chromium, vanadium and aspirin	Over the Counter Supplement market

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Patent No.	Title	Application Date	Approval Date	Summary	Target Market
US 6,376,549	Metformin- containing compositions for the treatment of diabetes	10/17/1998	4/23/2002	Claims compositions for the treatment of diabetes comprising metformin, magnesium, chromium and vanadium	Prescription diabetes market, particularly combination therapy approaches
US 6,852,760	Compositions and methods for treatment of glucose metabolism disorders	10/17/99	2/8/05	Claims compositions for the treatment of diabetes comprising a sulfonylurea class of drug, chromium and vanadium	Prescription diabetes market, particularly combination therapy approaches

Government Regulation

Drugs. The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture, marketing and distribution of drugs. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of our drug candidates.

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FFDCA, and implementing regulations. The process required by the FDA before our drug candidates may be marketed in the United States generally involves the following:

• completion of extensive preclinical laboratory tests, preclinical animal studies and formulation studies; all performed in accordance with the FDA’s good laboratory practice, or GLP, regulations;

• submission to the FDA of an IND application which must become effective before clinical trials may begin;

• performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product candidate for each proposed indication;

• submission of a NDA to the FDA;

• satisfactory completion of an FDA preapproval inspection of the manufacturing facilities at which the product is produced to assess compliance with current GMP, or cGMP, regulations; and

• FDA review and approval of the NDA prior to any commercial marketing, sale or shipment of the drug.

The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our drug candidates will be granted on a timely basis, if at all.

Preclinical tests include laboratory evaluation of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animals. The results of preclinical tests, together with manufacturing information and analytical data, are submitted as part of an IND application to the FDA.

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The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Our submission of an IND, or those of our collaborators, may not result in FDA authorization to commence a clinical trial. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development, and the FDA must grant permission before each clinical trial can begin. Further, an independent institutional review board, or IRB, for each medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that center and it must monitor the study until completed. The FDA, the IRB, or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive Good Clinical Practice, or GCP, regulations and regulations for informed consent.

Clinical Trials. For purposes of NDA submission and approval, clinical trials are typically conducted in the following three sequential phases, which may overlap:

• Phase I: Studies are initially conducted in a limited population to test the drug candidate for safety, dose tolerance, absorption, metabolism, distribution and excretion in healthy humans or, on occasion, in patients, such as cancer patients. In some cases, particularly in cancer trials, a sponsor may decide to run what is referred to as a “Phase Ib” evaluation, which is a second safety-focused Phase I clinical trial typically designed to evaluate the impact of the drug candidate in combination with currently approved drugs.

• Phase II: Studies are generally conducted in a limited patient population to identify possible adverse effects and safety risks, to determine the efficacy of the drug candidate for specific targeted indications and to determine dose tolerance and optimal dosage. Multiple Phase II clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive Phase III clinical trials. In some cases, a sponsor may decide to run what is referred to as a “Phase IIb” evaluation, which is a second, confirmatory Phase II clinical trial that could, if positive and accepted by the FDA, serve as a pivotal clinical trial in the approval of a drug candidate.

• Phase III: These are commonly referred to as pivotal studies. When Phase II clinical trials demonstrate that a dose range of the drug candidate is effective and has an acceptable safety profile, Phase III clinical trials are undertaken in large patient populations to further evaluate dosage, to provide substantial evidence of clinical efficacy and to further test for safety in an expanded and diverse patient population at multiple, geographically dispersed clinical trial sites.

In some cases, the FDA may condition approval of an NDA for a drug candidate on the sponsor’s agreement to conduct additional clinical trials to further assess the drug’s safety and effectiveness after NDA approval. Such post-approval trials are typically referred to as Phase IV clinical trials.

New Drug Application. The results of drug candidate development, preclinical testing and clinical trials are submitted to the FDA as part of an NDA. The NDA also must contain extensive manufacturing information. Once the submission has been accepted for filing, by law the FDA has 180 days to review the application and respond to the applicant. The review process is often significantly extended by FDA requests for additional information or clarification. The FDA may refer the NDA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it

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generally follows such recommendations. The FDA may deny approval of an NDA if the applicable regulatory criteria are not satisfied, or it may require additional clinical data or an additional pivotal Phase III clinical trial. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical trials are not always conclusive and FDA may interpret data differently than we or our collaborators interpret data. Once issued, the FDA may withdraw drug approval if ongoing regulatory requirements are not met or if safety problems occur after the drug reaches the market. In addition, the FDA may require testing, including Phase IV clinical trials, and surveillance programs to monitor the effect of approved products which have been commercialized, and the FDA has the power to prevent or limit further marketing of a drug based on the results of these post-marketing programs. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved label. Further, if there are any modifications to the drug, including changes in indications, labeling, or manufacturing processes or facilities, we may be required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require us to develop additional data or conduct additional preclinical studies and clinical trials.

Satisfaction of FDA regulations and requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease. Typically, if a drug candidate is intended to treat a chronic disease, as is the case with some of the drug candidates we are developing, safety and efficacy data must be gathered over an extended period of time. Government regulation may delay or prevent marketing of drug candidates for a considerable period of time and impose costly procedures upon our activities. The FDA or any other regulatory agency may not grant approvals for new indications for our drug candidates on a timely basis, if at all. Even if a drug candidate receives regulatory approval, the approval may be significantly limited to specific disease states, patient populations and dosages. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a drug may result in restrictions on the drug or even complete withdrawal of the drug from the market. Delays in obtaining, or failures to obtain, regulatory approvals for any of our drug candidates would harm our business. In addition, we cannot predict what adverse governmental regulations may arise from future United States or foreign governmental action.

Other regulatory requirements. Any drugs manufactured or distributed by us or our collaborators pursuant to FDA approvals are subject to continuing regulation by the FDA, including recordkeeping requirements and reporting of adverse experiences associated with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMPs, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Failure to comply with the statutory and regulatory requirements can subject a manufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing, seizure of product, injunctive action or possible civil penalties. We cannot be certain that we or our present or future third-party manufacturers or suppliers will be able to comply with the cGMP regulations and other ongoing FDA regulatory requirements. If our present or future third-party manufacturers or suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, require us to recall a drug from distribution, or withdraw approval of the NDA for that drug.

The FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the Internet. A company can

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make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the drug’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers’ communications regarding off-label use.

Dietary Supplements. The FDA regulates dietary supplements under the Dietary Supplement Health and Education Act of 1994, or DSHEA. DSHEA describes a dietary supplement as:

• a product (other than tobacco) that is intended to supplement the diet that bears or contains one or more of the following dietary ingredients: a vitamin, a mineral, an herb or other botanical, an amino acid, a dietary substance for use by man to supplement the diet by increasing the total daily intake, or a concentrate, metabolite, constituent, extract, or combinations of these ingredients.

• intended for ingestion in pill, capsule, tablet, or liquid form.

• not represented for use as a conventional food or as the sole item of a meal or diet.

• labeled as a “dietary supplement.”

Under DSHEA, a manufacturer is not required to establish that a dietary supplement is safe or effective before the product can be marketed and the FDA does not have preapproval authority and does not scrutinize a dietary supplement before it enters the market. The FDA is permitted to restrict the sale of a dietary supplement or dietary ingredient if it poses a “significant and unreasonable risk” under the conditions of use on the label or as commonly consumed.

Dietary supplement manufacturers are not allowed to make claims that the product is intended for use in the diagnosis, cure, mitigation, treatment or prevention of disease. Claims that suggest such an intended use subject the dietary supplement to regulation as a drug. Such a product becomes illegal if it fails to comply with all drug requirements, including the requirements for FDA approval of an NDA prior to marketing. Failure to comply with the requirements of DSHEA can subject a manufacturer to possible legal and regulatory action, such as warning letters, suspension of manufacturing, seizure of product, injunctive action or possible civil and criminal penalties.

Competition

Biotechnology and pharmaceutical companies are highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in the research and development of products that may compete with our products. A number of our largest competitors, including Bristol-Myers Squibb Company, GlaxoSmithKline plc, Eli Lilly and Company, Merck & Co., Novartis AG, Novo Nordisk A-S and Takeda Pharmaceuticals, are pursuing the development of, or are marketing, pharmaceuticals that target the same diseases that we are targeting, and it is possible that the number of companies seeking to develop products and therapies for the treatment of diabetes, obesity, and cardiovascular disease will increase. A number of supplement makers including Nutrition 21, have developed, or are developing similar products to ours. The government, through the National Center for Complementary and

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Alternative Medicine (NCCAM) funds a variety of private, and for-profit, and academic groups to conduct trials on chromium supplementation and related alternative approaches to treat diabetes.

Many of these and other existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and market products. These companies may develop and introduce products and processes competitive with or superior to ours. In addition, other technologies or products may be developed that have an entirely different approach or means of accomplishing the intended purposes of our products, which might render our technology and products noncompetitive or obsolete.

If approved for marketing, our proprietary formulations may compete with established therapies for market share. In addition, many companies are pursuing the development of novel pharmaceuticals that target diabetes. These companies may develop and introduce products competitive with or superior to our proprietary formulations. Such competitive or potentially competitive products include: acarbose, nateglinide, metformin, miglitol, pioglitazone, repaglinide, rosiglitazone, sulfonyureas, and symlin.

Employees

As of January 31, 2005, we had 4 employees. All of these employees are in general and administrative positions. All of our management employees and members of our Board of Directors have prior experience with pharmaceutical and biotechnology companies. None of our employees is covered by collective bargaining agreements, and our management considers relations with our employees to be good.

Facilities

We lease in aggregate approximately 1,000 square feet of office space located in San Diego, California, and Carefree, Arizona pursuant to two leases each on a month-to-month basis. The Arizona lease is sublet from our CEO at his cost, and the San Diego office space is sublet from Avalon Ventures. One of our directors, Kevin Kinsella, is a general partner of Avalon, and the Board of Directors has determined that the rent charged to us for both leases is fair and reasonable.

Item 2. Properties

We lease in aggregate approximately 1,000 square feet of office space located in San Diego, California, and Carefree, Arizona pursuant to two leases each on a month-to-month basis. The Arizona lease is sublet from our CEO at his cost, and the San Diego office space is sublet from Avalon Ventures. One of our directors, Kevin Kinsella, is a general partner of Avalon, and the Board of Directors has determined that the rent charged to us for both leases is fair and reasonable.

Item 3. Legal Proceedings

We are not a party to any legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

On December 8, 2004, our shareholders approved the acquisition by us of Akesis Pharmaceuticals, Inc., a Delaware corporation, by written consent in lieu of a special meeting. Holders of an aggregate of 10,000,000 shares voted for such acquisition.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the O-T-C Bulletin Board Market under the symbol “AKES.OB.” The following table presents quarterly information on the price range of high and low sales prices for our common stock for the periods indicated since January 1, 2003. These sales prices reflect the 20 for 1 reverse stock split on May 3, 2004 prior to our acquisition of Akesis Delaware. (See Item 7.)

	High		Low
2004
First Quarter	$	3.00	$	2.00
Second Quarter		12.00		3.00
Third Quarter		4.25		1.75
Fourth Quarter		6.25		4.00
2003
First Quarter	$	1.20	$	0.40
Second Quarter		1.80		1.60
Third Quarter		1.20		1.20
Fourth Quarter		7.60		2.00

As of February 16, 2005, there were approximately 395 stockholders of record of our common stock with approximately 15,000,000 shares outstanding. We have never declared or paid any dividends and do not expect to pay any dividends in the foreseeable future. We did not repurchase any securities of the Company in the fourth quarter of 2004.

The following table summarizes the securities authorized for issuance under our equity compensation plans as of December 31, 2004.

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by stockholders	0	$	0	0
Equity compensation plans not approved by stockholders*	0	$	0	0
Warrants issued	0	$	0	0
Total	0	$	0	0

 * Options to purchase an aggregate of 1,062,499 shares of our common stock, the exercise price per share of which is $1.50, were granted by the board of directors in January 2005. Such options were granted pursuant to employment offer letters executed by the Company dated December 13, 2004 to two of our employees.

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Item 6. Selected Financial Data

The following table shows selected financial data. The selected financial data has been derived from our audited consolidated financial statements for fiscal years 2002 through 2004 and unaudited financial information for 2000 and 2001 and is qualified by reference to, and should be read in conjunction with, the Consolidated Financial Statements, and Notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included elsewhere in this report:

	Years Ended December 31,
	2004			2003			2002			2001			2000
Consolidated Statement of Operations Data:
Revenues	$	-0	-	$	4,785		$	26,621		$	19,512		$	28,097
Operating expenses		1,517,691			28,480			152,283			83,009			132,562
Loss from operations		(1,517,691	)		(25,397	)		(130,726	)		(70,070	)		(104,548	)
Net loss		(1,525,539	)		(31,291	)		(132,687	)		(69,004	)		(113,179	)
Net loss per common share—basic and diluted	$	(0.24	)	$	(0.01	)	$	(0.02	)	$	(0.01	)	$	(0.02	)
Weighted average common shares outstanding—basic and diluted		6,341,604			5,377,466			5,377,466			5,377,466			5,377,466
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	1,234,250		$	-0	-	$	1,747		$	28,889		$	90,970
Working capital		1,267,814			(29,621	)		(20,814	)		32,957			94,305
Total assets		1,350,250			-0	-		5,697			41,293			94,525
Stockholder loan		-0	-		92,930			70,716			-0	-		-0	-
Shareholders’ equity (deficit)	$	1,267,814		$	(122,551	)	$	(91,530	)	$	32,957		$	94,305

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis should be read in conjunction with our audited financial statements and accompanying notes included elsewhere in this report. Operating results are not necessarily indicative of results that may occur in future periods.

Introduction

Liberty Mint, Ltd. (“Liberty” or “we” or “us”), a Nevada corporation, was initially incorporated in Nevada on May 26, 1999 as a wholly owned subsidiary of Liberty Mint, Ltd., a Colorado corporation. Liberty Mint, Ltd., a Colorado corporation, was originally incorporated in the state of Colorado on March 15, 1990 as St. Joseph Corp. VI. In July 1993, the name was changed to Petrosavers International, Inc., in September 1996 the name was changed to Hana Acquisitions Inc. and on June 9, 1997, the name was changed to Liberty Mint, Ltd. In June of 1997, Liberty acquired a 90% majority interest in Liberty Mint, Inc., (“LMI”) a Utah corporation. Before the acquisition of LMI, Liberty had not engaged in any material operations. Then in 1998 Liberty formed a wholly owned subsidiary, Liberty Mint Marketing, Inc., a Utah corporation, which became SCCS, Inc. (“SCCS”) in 2001. In 1999 Liberty formed another wholly owned subsidiary, The Great Western Mint, Inc., (“GWM”) a Utah corporation. On October 8, 1999, Liberty filed articles of merger with the states of Colorado and Nevada, effecting a change of domicile from Colorado to the state of Nevada. On September 23, 1999, Liberty sold its 90% interest in LMI. On December 31, 2001, Liberty sold SCCS and GWM.

Effective December 9, 2004, pursuant to the Agreement and Plan of Merger and Reorganization, dated as of September 27, 2004, (the “Merger Agreement”), among Liberty, Akesis Pharmaceuticals, Inc. (“Akesis Delaware”) and Ann Arbor Acquisition Corporation, a wholly-owned subsidiary of Liberty (“MergerSub”), MergerSub merged with and into Akesis Delaware, with Akesis Delaware as the surviving corporation. Immediately prior to the closing of the merger, all of Akesis Delaware’s preferred shares were converted into common shares. In connection with the merger, the stockholders of Akesis Delaware received 3.292327 shares of Liberty common stock for each share of Akesis Delaware common stock that they held (on an as-converted basis).

Although we acquired Akesis Delaware as a result of the transaction, Akesis Delaware stockholders held approximately 70% of our common stock following the transaction and our pre-merger stockholders held the remaining 30%. Accordingly, for accounting purposes, the acquisition was a “reverse acquisition” and Akesis Delaware was the “accounting acquiror.” Further, since we discontinued our legacy business in 2001, we were a non-operating public shell with no continuing operations, and no intangible assets associated with us were purchased by Akesis Delaware. Accordingly, the transaction was accounted for as a recapitalization of Akesis Delaware and recorded based on the fair value of our net tangible assets acquired by Akesis Delaware, with no goodwill or other intangible assets being recognized. Post-merger there are approximately 15 million shares of common stock outstanding. Effective January 11, 2005, Liberty changed its name to Akesis Pharmaceuticals, Inc. and the trading symbol was changed to AKES.OB.

Since Akesis Delaware is the surviving entity, the “Selected Financial Data” in Item 6 above and the “Financial Statements and Supplementary Data,” elsewhere in this Form 10-K reflect Akesis Delaware’s historical results of operations prior to its acquisition by us. Management’s Discussion and Analysis of Financial Condition and Results of Operations that follows is a discussion and analysis of that financial data. The accounts of Liberty and Akesis Delaware have been consolidated as of December 9, 2004, the effective date of the acquisition.

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On February 14, 2005, the Company filed a Form 8-K with the Securities and Exchange Commission that presented an unaudited pro forma condensed consolidated balance sheet as of September 30, 2004 as if the acquisition had been effective September 30, 2004. Also presented in the Form 8-K were unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2004 and 2003 and for the year ended December 31, 2003 as if the acquisition had been effective January 1, 2003.

Akesis Delaware was incorporated on April 27, 1998, for the purpose of marketing an established over-the-counter product for lowering blood glucose levels in the treatment of diabetes. The product was initially developed and marketed through Diabetes Pro Health, Inc. which was merged into the Company. The product was sold primarily through direct sales to consumers.

The following discussion of results of operations, liquidity and capital resources contains forward-looking statements that involve risks and uncertainties. As described in Part I, our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause or contribute to such differences include those discussed below and in the section entitled “Risk Factors” immediately following this section of the report.

Major Research and Development Projects

We are an early stage biopharmaceutical company engaged in the discovery, development and commercialization of complementary and alternative therapies for the treatment of three principal forms of carbohydrate intolerance – Type 2 diabetes, Syndrome X, and impaired glucose tolerance, and their associated complications. We have been granted patents and filed patent applications for a number of proprietary formulations and combination therapies, including formulations with existing diabetes medications, for use in the treatment of Type 2 diabetes. We intend to use our proprietary formulations to develop prescription treatments for diabetes and related metabolic disorders. These products are in an early stage of development and no regulatory filings to commercialize our products have yet been made with the United States Food and Drug Administration, or FDA or any similar state or foreign authorities. We have completed an initial clinical study of a specific formulation and demonstrated a consistent improvement in glycated hemoglobin levels (A1c), compared to base line, after three months of treatment in a diabetic population. The observed reduction in A1c, (which is an established long-term measure of blood glucose), in this open-label study was in excess of 2% for all treatment groups. This included patients taking the initial product candidate as monotherapy, as well as with concomitant medications. We believe that these clinical studies may suggest that Akesis’ formulations show the potential for enhancing currently available oral antidiabetic therapeutic agents. We intend to conduct follow-on feasibility clinical trials with one or more of our formulations with a goal of confirming and extending the results of our initial clinical studies. We believe that the successful completion of these feasibility trials could lead to partnering opportunities in the pharmaceutical industry. We are not currently in discussions with the FDA regarding the specific requirements for approval of our products.

The risks and uncertainties associated with completing the development of our products on schedule, or at all, include the following, as well the other risk factors described in this report:

• Our products may not be shown to be safe and efficacious in the clinical trials;

• We may be unable to obtain regulatory approval of our products or be unable to obtain such approval on a timely basis;

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• We may be unable to recruit enough patients to complete the clinical trials in a timely manner; and

• We may not have adequate funds to complete the development of our products even if we secure the additional amount of capital we have targeted if we have underestimated the cost of the clinical trials.

If our products fail to achieve statistically significant results in the clinical trials, or we do not complete the clinical trials on a timely basis, our operations, financial position and liquidity could be severely impaired, including as follows:

• It could make it more difficult for us to consummate partnering opportunities in the pharmaceutical industry, or at all.

• Our reputation among investors might be harmed, which could make it more difficult for us to obtain equity capital on attractive terms, or at all.

Because of the many risks and uncertainties relating to the completion of clinical trials, consummation of partnering opportunities in the pharmaceutical industry, receipt of marketing approvals and acceptance in the marketplace, we cannot predict the period in which material cash inflows from our products will commence, if ever.

Results of Operations for the Years Ended December 31, 2004 and 2003

Year Ended December 31, 2004 Compared with December 31, 2003

Total operating expenses increased to $1.5 million for the year ended December 31, 2004, from $28,480 for the same time period in 2003. Total operating expenses for the year ended December 31, 2004 included a non-cash stock-based compensation charge of approximately $1.1 million, which was determined in accordance with the provisions of SFAS No. 123R. The stock-based compensation charge recognized the expense for options to acquire our common stock that was issued to Edward B. Wilson, our CEO, and John T. Hendrick, our CFO. Both individuals joined us in December 2004 immediately after the acquisition of Akesis Delaware by us. Additionally, we incurred approximately $159,000 in legal and accounting fees during 2004 that were primarily related to the cost of our initial audit, patent legal fees and corporate governance and related disclosure matters. We also compensated two of our directors, Kevin J. Kinsella and John F. Steel IV, and an outside consultant a total of $166,000 for their efforts on our behalf. The compensation was a non-cash charge for the issuance of a total of 1,366,316 shares of our common stock to those individuals for the services rendered by them. Finally, after completion of the acquisition in December 2004, we incurred approximately $74,000 in operating expenses for payroll, insurance and other operating expenses.

Year Ended December 31, 2003 Compared with December 31, 2002

Total operating expenses decreased 81% to $28,480 for the year ended December 31, 2003, from $152,283 for the same time period in 2002. As a result of operating losses incurred since inception in April 1998, we had exhausted most of our cash resources by the end of 2001. In 2002, we decided to undertake a major business development effort to evaluate our strategic options. That business development effort constitutes most of our operating expenses during 2002, and was primarily financed

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through loans from Messrs. Kinsella and Steel. We suspended those business development activities early in 2003 due to a lack of financial resources.

Liquidity and Capital Resources

We have financed our operations primarily through the sale of equity securities, stockholder loans and limited revenues from the sale of our over-the-counter products. We invest excess cash in investment securities that will be used to fund future operating costs. Cash, cash equivalents and investment securities totaled $1,234,250 at December 31, 2004, compared to zero at December 31, 2003. We primarily fund current operations with our existing cash and investments. Cash used in operating activities for 2004 totaled $501,224. We had no revenues or other income sources in 2004 to cover operating expenses, and we do not expect any revenues in the foreseeable future. Our current cash resources should enable us to continue operations based on our current level of commitments through the first half of 2006.

Two of the conditions of closing of the Akesis Delaware acquisition were that as of the closing on December 9, 2004, all of Liberty’s debt would be paid or extinguished and it would have $1.5 million of unrestricted cash on hand. In addition, during the fourth quarter of 2004 Akesis Delaware optionees exercised stock options for Akesis Delaware common stock with a cumulative exercise price of $134,354. Also, in September 2004, Akesis Delaware exchanged stockholder loans with a principal balance of $115,461, in return for 288,653 shares of Akesis Delaware Series C preferred stock at $0.40 per share. Immediately, preceding the acquisition by Liberty, Akesis Delaware converted its Series A, B and C preferred stock into common stock.

As of December 31, 2004, we have no long-term financial commitments. However, in order to finance additional feasibility trials to further validate our products, we will need to raise a significant amount of capital. We will also need to raise additional capital to finance our future operating cash needs. We may seek to raise capital through the sale of equity or debt securities or the development of other funding mechanisms. In addition, we may seek to form a strategic partnership for the development and commercialization of our products.

We believe that minimum proceeds of $3.2 million of additional capital will be required to enable us to fund at least one clinical feasibility study as well as all of our general and administrative expenses for approximately the next twelve to eighteen months. Each additional clinical study will cost us approximately $1.5 million and if as much as $6.4 million of proceeds in additional capital are realized, then we anticipate conducting a total of three clinical studies over the next 18 months.

If we are successful in raising additional capital, the first clinical feasibility study that we intend to initiate with the proceeds from this private placement is the one related to our metformin combination product. If we realize sufficient proceeds from future sources of capital, then we also plan to conduct clinical studies related to our sulfonyurea combination product and thalidazione combination product.

Our actual capital requirements will depend upon numerous factors, including:

• the rate of progress and costs of our clinical trial and research and development activities;

• actions taken by the FDA and other regulatory authorities;

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• the timing and amount of milestone or other payments we might receive from potential strategic partners;

• our degree of success in commercializing our product candidates;

• the emergence of competing technologies and products, and other adverse market developments; and

• the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights.

There can be no assurance that we will be able to obtain needed additional capital or enter into relationships with corporate partners on a timely basis, on favorable terms, or at all. Conditions in the capital markets in general, and the life science capital market specifically, may affect our potential financing sources and opportunities for strategic partnering.

Critical Accounting Policies

Basis of Revenue Recognition: To date, we do not have any significant ongoing revenue sources.

Stock-based compensation: We have adopted SFAS No. 123R, Accounting for Share-Based Compensation, effective in 2004. Stock-based compensation for 2004 was approximately $1.1 million.

Effect of new accounting standards

In December, 2004 the FASB issued SFAS No. 123R, “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. Statement 123R supersedes APB Opinion No. 125, “Accounting for Stock Issued to Employees”, and amends SFAS No. 95, “Statement of Cash Flows”. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an acceptable alternative. The Company has elected to early adopt SFAS No. 123R as of December 9, 2004 which resulted in stock-based compensation of approximately $1,077,000.

In December, 2004 the FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets, an Amendment of APB Opinion No. 29, which is effective for non-monetary exchanges occurring in fiscal periods beginning after June 15, 2005. SFAS No. 153 amends APB Opinion No. 29, “Accounting for Non-monetary Transactions” to eliminate exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The Company does not expect SFAS No. 153 to affect the Company’s financial condition or results of operations.

In September, 2004, the EITF (Emerging Issues Task Force) reached consensus on EITF Issue 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share”, which provides guidance on when the dilutive effect of contingently convertible debt securities with a market price trigger should be included in diluted earnings per share. The guidance is effective for all periods ending after December 15, 2004. The Company’s adoption of EITF 04-8 did not have an impact on the Company’s loss per share calculation for 2004 and is not expected to have an impact in the future.

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In April, 2004 the FASB issued FASB Staff Position (FSP) SFAS No. 129-1, “Disclosure Requirements under FASB Statement No. 129, Disclosure of Information about Capital Structure, Relating to Contingently Convertible Securities”. Effective April, 2004 this FSP did not have an impact on the Company’s financial position or results of operations.

In March, 2004 the EITF finalized its consensus on EITF Issue No. 03-06, “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share”. This EITF clarifies what constitutes a participating security and requires the use of the two-class method for computing basic earnings per share when participating securities exist. Effective for reporting periods beginning after March 31, 2004, this EITF did not have an impact on the Company’s financial position or results of operations.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting and Research Bulletin No. 51” (“FIN 46”). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. In December 2003, FASB issued FIN 46R, a revision to FIN 46. FIN 46R provides a broad deferral of the latest date by which all public entities must apply FIN 46 to certain variable interest entities to the first reporting period ending after March 15, 2004. The adoption of FIN 46 had no impact on the Company’s financial statements.

In December 2003, FASB issued a revision to Statement of Financial Accounting Standard No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits-an amendment of SFAS No. 87, 88, and 106” (“SFAS No. 132”). SFAS No. 132 revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions, No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The revised Statement retains the disclosure requirements contained in SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” which it replaces. It requires additional disclosures to those in the original SFAS No. 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. SFAS 132 is effective for fiscal years ending after December 15, 2003. The adoption of SFAS 132 had no impact on the Company’s financial statements.

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RISK FACTORS

Our future operating results may vary substantially from anticipated results due to a number of factors, many of which are beyond our control. The following discussion highlights some of these factors and the possible impact of these factors on future results of operations. You should carefully consider these factors before making an investment decision. If any of the following factors actually occur, our business, financial condition or results of operations could be harmed. In that case, the price of our common stock could decline, and you could experience losses on your investment.

We have a history of operating losses, anticipate future losses, may not generate revenues from product sales and may never become profitable.

We have experienced significant operating losses in each period since our inception. As of December 31, 2004, we have incurred total losses of $2.7 million. We expect these losses to continue and it is uncertain when, if ever, we will become profitable. These losses have resulted principally from costs incurred in conducting the initial open-label clinical trials, stock-based compensation for our executive officers and from general and administrative costs associated with operations. We expect to incur increasing operating losses in the future as a result of expenses associated with clinical trials (see the Liquidity and Capital Resources section of this report immediately preceding this section) as well as general and administrative costs. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

We will require future capital and are uncertain of the availability or terms of additional funding, and if additional capital is not available or not available on acceptable terms, we may have to reduce the size of our operations.

As of December 31, 2004, we have no long-term financial commitments. However, we are actively seeking to raise a minimum of $3.2 million through a private placement of our common stock and warrants to acquire our common stock in order to finance additional feasibility clinical trials to further validate our products, which we anticipate will only last into the first half of 2006. If we do raise the maximum amount of $6.4 million we are seeking in the private placement, we intend to use the additional cash to conduct more extensive clinical trials of our proposed products. See the Liquidity and Capital Resources section of this report immediately preceding this section. We would expect the proceeds from the maximum amount of $6.4 million to last into the second half of 2006. However, there can be no assurance that we will be able to raise the minimum amount of additional financing we are seeking, or any additional financing. If we are unable to raise any additional financing, our current cash resources should enable us to continue operations based on our current level of commitments through the first half of 2006.

We will require substantial additional capital to finance future growth and fund ongoing operations through the remainder of 2005 and beyond. In particular, we may issue up to 2,000,000 additional shares and warrants to raise additional financing in the first half of 2005 and we have little control over the timing of any resales of such shares. As a result, the market price of our common stock may fall if a large portion of those shares is sold in the public market. We may raise additional funds through public or private financing, strategic relationships or other arrangements. We cannot be certain that the funding will be available on attractive terms, or at all. Furthermore, any additional equity financing may be dilutive to shareholders, and debt financing, if available, may involve restrictive covenants. Strategic arrangements, if necessary to raise additional funds, may require us to relinquish

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our rights to certain of our technologies or products. If we fail to raise capital when needed, our business will be negatively affected, which could cause the price of our common stock to decline.

We are currently assessing various prospective product formulations. We will require additional capital to fund the development and commercialization of our specific formulations. Our future capital requirements will depend on many factors, including:

• progress with our preclinical studies and toxicity studies;

• the time and costs involved in obtaining regulatory approvals for the marketing of any of our specific formulations;

• the costs of manufacturing any of our specific formulations;

• our ability, and the ability of any partner, to effectively market, sell and distribute product, subject to obtaining regulatory approval;

• our ability to establish one or more marketing, distribution or other commercialization arrangements

• the cost of any potential licenses or acquisitions; and

• the costs involved in preparing, filing, prosecuting, maintaining and enforcing patents or defending ourselves against competing technological and market developments.

You should be aware that:

• we may not be able to obtain additional financial resources in the necessary time frame or on terms favorable to us, if at all;

• any available additional financing may not be adequate; and

• we may be required to use a portion of future financing to repay indebtedness to future creditors.

If adequate funds are not available, we may have to delay, scale back or eliminate one or more of our development programs, or obtain funds by entering into more arrangements with collaborative partners or others that may require us to relinquish rights to certain of our specific formulations or technologies that we would not otherwise relinquish.

In the event we are unable to obtain additional financing on acceptable terms, we may not have the financial resources to continue research and development of any of our other proprietary formulations and we could be forced to curtail or cease our operations.

We may be unable to obtain regulatory clearance to market our proprietary formulations in the United States or foreign countries on a timely basis, or at all.

Our proprietary formulations are subject to extensive government regulations related to development, clinical trials, manufacturing and commercialization. The process of obtaining FDA and other regulatory approvals is costly, time consuming, uncertain and subject to unanticipated delays.

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The FDA may refuse to approve an application for approval of a specific formulation if it believes that applicable regulatory criteria are not satisfied. The FDA may also require additional testing for safety and efficacy. Moreover, if the FDA grants regulatory approval of a product, the approval may be limited to specific indications or limited with respect to its distribution, which could limit our revenues. Foreign regulatory authorities may apply similar limitations or may refuse to grant any approval.

No diabetes product using our technologies has been approved for marketing. Consequently there is no precedent for the successful commercialization of products based on our technologies. In addition, members of our management team have had only limited experience in filing and pursuing applications necessary to gain regulatory approvals for pharmaceutical products. This may impede our ability to obtain timely approvals from the FDA or foreign regulatory agencies. We will not be able to commercialize our proprietary products until we obtain regulatory approval, and consequently any delay in obtaining, or inability to obtain regulatory approvals could harm our business.

If we violate regulatory requirements at any stage, whether before or after marketing approval is obtained, we may be fined, forced to remove a product from the market or experience other adverse consequences, including delay, which would materially harm our financial results. Additionally, we may not be able to obtain the labeling claims necessary or desirable for product promotion.

Moreover, manufacturing facilities operated by the third-party manufacturers with whom we may contract to manufacture our proprietary formulations may not pass an FDA or other regulatory authority pre-approval inspection. Any failure or delay in obtaining these approvals could prohibit or delay us or any of our business partners from marketing our formulations.

On August 27, 1998, Diabetes Pro Health, a predecessor entity, received a warning letter from the United States Department of Health and Human Services. The warning letter was written in reference to our marketing and distribution of the products Diabetes Pro Health, DPH and Pro Health Pak for use as a dietary supplement. The Department of Health & Human Service concluded that the labeling associated with the product made therapeutic claims which caused the product to be considered a drug requiring prior approval by the FDA prior to commercialization. Diabetes Pro Health, working with the FDA, modified the labeling in order to be in compliance with the Dietary Supplement Health and Education Act, or DSHEA, and implementing regulations.

Delays in the conduct or completion of our clinical trials, the analysis of the data from our clinical trials, or our manufacturing scale-up activities may result in delays in our planned filings for regulatory approvals, and may adversely affect our ability to enter into new collaborative arrangements.

We cannot predict whether we will encounter problems with any of our completed, or planned clinical studies that will cause us or regulatory authorities to delay or suspend planned clinical studies. If the results of our planned clinical studies for our proprietary formulations are not available when we expect or if we encounter any delay in the analysis of data from our clinical studies or if we encounter delays in our ability to scale-up our manufacturing processes, we may have to delay our planned filings seeking regulatory approval of our proprietary formulations. Additionally we may not have the financial resources to continue research and development of any of our proprietary formulations; and we may not be able to enter into additional collaborative arrangements relating to any proprietary formulations subject to delay in clinical studies or delay in regulatory filings.

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Any of the following could delay the completion of our planned clinical studies:

• failure of the FDA or comparable foreign authorities to approve the scope or design of our clinical trials;

• delays in enrolling volunteers;

• insufficient supply or deficient quality of specific formulation materials or other materials necessary for the performance of clinical trials;

• negative results of clinical studies; or

• serious side effects experienced by study participants relating to a specific formulation.

Even if we obtain approval to commercialize our proprietary products, we will be subject to continuing regulatory requirements.

Even if we or our business partners are able to obtain regulatory approval for our proprietary products in the United States or other countries, the approvals will be subject to continual review, and newly discovered or developed safety issues may result in revocation of the regulatory approvals. Moreover, if we obtain marketing approval in the United States, the marketing of the product will be subject to extensive regulatory requirements administered by the FDA and other regulatory bodies, including adverse event reporting requirements and the FDA’s general prohibition against promoting products for unapproved uses. The manufacturing facilities for our products are also subject to continual review and periodic inspection and approval of manufacturing modifications. Domestic manufacturing facilities are subject to inspections by the FDA and must comply with the FDA’s current Good Manufacturing Practices (cGMP) regulations. The FDA stringently applies regulatory standards for manufacturing. In complying with these regulations, manufacturers must spend funds, time and effort in the areas of production, record keeping, personnel and quality control to ensure full technical compliance. Failure to comply with any of these post-approval requirements can, among other things, result in warning letters, product seizures, recalls, fines, injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal prosecutions. Any of these enforcement actions or any unanticipated changes in existing regulatory requirements or the adoption of new requirements could adversely affect our ability to market products and generate revenues and thus adversely affect our ability to continue our business.

The manufacturers of our product candidates also are subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and hazardous substance disposal. In the future, our manufacturers may incur significant costs to comply with those laws and regulations, which could increase our manufacturing costs and reduce our ability to operate profitably.

We have not commenced FDA trials and may not ever commence FDA trials.

We have not commenced FDA trials of any of our prescription formulations. There are a number of requirements that we must satisfy in order to begin FDA trials. These requirements will require substantial time, effort and financial resources. There can be no assurance that we will complete the steps necessary to reach FDA trials.

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Our ability to enter into third-party relationships is important to our successful development and commercialization of our specific formulations and our potential profitability.

To market any of our products in the United States or elsewhere, we must develop internally or obtain access to sales and marketing forces with technical expertise and with supporting distribution capability in the relevant geographic territory.

We may not be able to enter into marketing and distribution arrangements or find a corporate partner for our specific formulation or our other specific formulations, and we are not likely to be able to market and distribute our products ourselves. If we are not able to enter into a marketing or distribution arrangement or find a corporate partner who can provide support for commercialization of our specific formulations as we deem necessary, we may not be able to commercialize our products successfully. Moreover, any new marketer or distributor or corporate partner for our specific formulations, with whom we choose to contract may not establish adequate sales and distribution capabilities or gain market acceptance for our products, if any.

Our ability to generate revenues will be diminished if we fail to obtain acceptable prices or an adequate level of reimbursement for our products from third-party payors.

The requirements governing product licensing, pricing and reimbursement vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after product licensing approval is granted. As a result, we may obtain regulatory approval for a product in a particular country, but then be subject to price regulations that reduce our revenues from the sale of the product. Also, in some foreign markets, pricing of prescription pharmaceuticals is subject to continuing governmental control even after initial marketing approval. If we succeed in bringing a specific formulation to market, we cannot be certain that the products will be considered cost effective and that reimbursement will be available or, if available, will be sufficient to allow us to sell the products on a competitive basis.

The continuing efforts of government and third-party payors to contain or reduce the costs of healthcare through various means, including efforts to increase the amount of patient co-pay obligations, may limit our commercial opportunity. For example, in some foreign markets, pricing and profitability of prescription pharmaceuticals are subject to government control. In the United States, we expect that there will continue to be a number of federal and state proposals to implement similar government control. In addition, increasing emphasis on managed care in the United States will continue to put pressure on the rate of adoption and pricing of pharmaceutical products. Cost control initiatives could decrease the price that any of our collaborators or we would receive for any products in the future. Further, cost control initiatives could adversely affect our collaborators’ ability to commercialize our products, our ability to realize revenues from this commercialization, and our ability to fund the development of future specific formulations.

Our ability to commercialize pharmaceutical products, alone or with collaborators, may depend in part on the extent to which adequate reimbursement for the products will be available from governmental and health administration authorities, private health insurers, and other third-party payors.

Significant uncertainty exists as to the reimbursement status of newly approved health care products. Third-party payors, including Medicare, are challenging the prices charged for medical products and services. Government and other third-party payors increasingly are attempting to contain

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health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval. Third-party insurance coverage may not be available to patients for any products we discover and develop, alone or with collaborators. If government and other third-party payors do not provide adequate coverage and reimbursement levels for our products, the market acceptance of these products may be reduced.

We do not manufacture our own specific formulations and rely on third-party manufacturers to provide the components necessary for our specific formulations.

We do not manufacture our own specific formulations and may not be able to obtain adequate supplies, which could cause delays or reduce profit margins. The manufacturing of sufficient quantities of new specific formulations is a time-consuming and complex process. We have no manufacturing capabilities. In order to continue to develop our proprietary formulations, apply for regulatory approvals and ultimately commercialize additional products, we need to contract or otherwise arrange for the necessary manufacturing.

If any of our existing or future manufacturers cease to manufacture or are otherwise unable to deliver any of the components of our specific formulations in either bulk or dosage form, or other product components, we may need to engage additional manufacturers. The cost and time to establish manufacturing facilities would be substantial. As a result, using a new manufacturer could disrupt our ability to supply our products and/or reduce our profit margins. Any delay or disruption in the manufacturing of bulk product, the dosage form of our products or other product components, including pens for delivery of our products, could harm our ability to generate product sales, harm our reputation and require us to raise additional funds.

We have not selected any third-party contract manufacturers for our proprietary formulations.

We have not yet selected manufacturers for our proprietary formulations and we cannot be certain that we will be able to obtain long-term supplies of those materials on acceptable terms. We do not currently have established quality control and quality assurance programs, including a set of standard operating procedures, analytical methods and specifications, designed to ensure that proprietary formulations are manufactured in accordance with current good manufacturing practices and other domestic and foreign regulations.

If our patents are determined to be unenforceable or if we are unable to obtain new patents based on current patent applications or for future inventions, we may not be able to prevent others from using our intellectual property.

Our success will depend in part on our ability to obtain and expand patent protection for our specific formulations and technologies both in the United States and other countries. We cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us. Alternatively, a third party may successfully circumvent our patents. Our rights under any issued patents may not provide us with sufficient protection against competitive products or otherwise cover commercially valuable products or processes. In addition, because patent applications in the United States are maintained in secrecy for eighteen months after the filing of the applications, and publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we cannot be sure that the inventors of subject matter covered by our patents and patent applications were the first to invent or the first to file patent applications for these inventions. In the event that a

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third party has also filed a patent on a similar invention, we may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine priority of invention, which could result in a loss of our patent position. Furthermore, we may not have identified all U.S. and foreign patents that pose a risk of infringement.

Litigation regarding patents and other proprietary rights may be expensive, cause delays in bringing products to market and harm our ability to operate.

Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Legal standards relating to the validity of patents covering pharmaceutical and biotechnological inventions and the scope of claims made under these patents are still developing. As a result, our ability to obtain and enforce patents is uncertain and involves complex legal and factual questions. Third parties may challenge or infringe upon existing or future patents. In the event that a third party challenges a patent, a court may invalidate the patent or determine that the patent is not enforceable. Proceedings involving our patents or patent applications or those of others could result in adverse decisions about:

• the patentability of our inventions and products relating to our specific formulations; and/or

• the enforceability, validity or scope of protection offered by our patents relating to our specific formulations.

The use of our technologies could potentially conflict with the rights of others.

The manufacture, use or sale of any of our proprietary formulations may infringe on the patent rights of others. If we are unable to avoid infringement of the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In such case, we may be required to alter our products, pay licensing fees or cease activities. If our products conflict with patent rights of others, third parties could bring legal actions against us claiming damages and seeking to enjoin manufacturing and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in order to continue to manufacture or market the affected products. We may not prevail in any legal action and a required license under the patent may not be available on acceptable terms.

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

In order to protect our proprietary technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

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Competition in the biotechnology and pharmaceutical industries may result in competing products, superior marketing of other products and lower revenues or profits for us.

There are many companies that are seeking to develop products and therapies for the treatment of diabetes and other metabolic disorders. Our competitors include multinational pharmaceutical and chemical companies, specialized biotechnology firms and universities and other research institutions. A number of our largest competitors, including Bristol-Myers Squibb Company, Aventis, Eli Lilly and Company, GlaxoSmithKline, Merck & Co., Novartis, Novo Nordisk and Takeda Pharmaceuticals, are pursuing the development or marketing of pharmaceuticals that target the same diseases that we are targeting, and it is possible that the number of companies seeking to develop products and therapies for the treatment of diabetes and other metabolic disorders will increase. The government, through the National Center for Complementary and Alternative Medicine (NCCAM) funds a variety of private, and for-profit, and academic groups to conduct trials on chromium supplementation and related alternative approaches to treat diabetes.

Many of our competitors have substantially greater financial, technical, human and other resources than we do. In addition, many of these competitors have significantly greater experience than we do in undertaking preclinical testing and human clinical studies of new pharmaceutical products and in obtaining regulatory approvals of human therapeutic products. Accordingly, our competitors may succeed in obtaining FDA approval for products more rapidly than we do, which would provide these competitors with an advantage for the marketing of products with similar potential uses. Furthermore, if we are permitted to commence commercial sales of products, we may also be competing with respect to manufacturing and product distribution efficiency and sales and marketing capabilities, areas in which we have limited or no experience as an organization.

Our target patient population for our proprietary formulations is people with type 2 diabetes. Other products are currently in development or exist in the market that may compete directly with the products that we are seeking to develop and market. Various products are available to treat type 2 diabetes, including, sulfonyureas, metformin, insulin, glinides, alpha-glucosidase inhibitors, and thiazolidinediones.

In addition, several companies are developing various approaches to improve treatments for type 1 and type 2 diabetes. We cannot predict whether our proprietary formulations, even if successfully tested and developed, will have sufficient advantages over existing products to cause health care professionals to adopt them over other products or that our specific formulations will offer an economically feasible alternative to existing products.

We may not be able to keep up with the rapid technological change in the biotechnology and pharmaceutical industries, which could make our products obsolete and reduce our revenues.

Biotechnology and related pharmaceutical technologies have undergone and continue to be subject to rapid and significant change. Our future will depend in large part on our ability to maintain a competitive position with respect to these technologies. Any products that we develop may become obsolete before we recover expenses incurred in developing those products, which may require that we raise additional funds to continue our operations.

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Our future success depends on our ability to retain our chief executive officer and other key executives.

Our success largely depends on the skills, experience and efforts of our key personnel, including our Chief Executive Officer, Edward B. Wilson. We have entered into a written employment agreement with Mr. Wilson that can be terminated at any time by us or by Mr. Wilson. The loss of Mr. Wilson, or our failure to retain other key personnel, would jeopardize our ability to execute our strategic plan and materially harm our business.

Our future success depends on our ability to hire additional employees.

We currently have only four employees. If we are unable to hire additional employees, our likelihood of success could decrease significantly.

Our business has a substantial risk of product liability claims, and insurance may be expensive or unavailable.

Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing and marketing of human therapeutic products. Product liability claims could result in a recall of products or a change in the indications for which they may be used.

We currently have limited product liability insurance, including clinical trial insurance, and will seek additional coverage prior to initiating clinical trials and marketing any of our specific formulations.

We cannot assure you that our insurance will provide adequate coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may not be able to maintain current amounts of insurance coverage, obtain additional insurance or obtain insurance at a reasonable cost or in sufficient amounts to protect against losses that could have a material adverse effect on us.

Our predecessor management did not file any income tax returns for Liberty’s previous fiscal years and as a result we may be subject to de minimis monetary penalties from applicable federal and state tax authorities.

Following the acquisition by Liberty of Akesis Delaware, present management discovered in early 2005 that Liberty had not filed any federal and state income tax returns for its previous fiscal years. As a result, we may be subject to de minimis monetary penalties from applicable federal and state tax authorities. However, based on a review of the Form 10-K’s Liberty filed via EDGAR with the Securities and Exchange Commission in prior years, Liberty generated substantial losses in each of the years indicated in those Form 10-K’s. Accordingly, we do not believe that Liberty’s failure to file tax returns represents a material liability for unpaid federal and state income taxes. Our present management is in the process of completing those tax returns for as many of Liberty’s prior years as practical and we may incur additional expenses in the preparation and filing of those returns.

Akesis Delaware, the company that was acquired by Liberty in December 2004, is current on all of its required federal and state income tax filings.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We do not use derivative financial instruments for trading or speculative purposes. However, we regularly invest excess cash in short-term investments that are subject to changes in short-term interest rates. We believe that the market risk arising from holding these financial instruments is minimal.

Because we have minimal debt, our exposure to market risks associated with changes in interest rates arise from increases or decreases in interest income earned on our investment portfolio. We attempt to ensure the safety and preservation of invested funds by limiting default risks, market risk, and reinvestment risk. We mitigate default risk by investing in short-term investments. A hypothetical 100 basis point decrease in interest rates along the entire interest rate yield curve would not materially affect the fair value of our interest sensitive financial instruments at December 31, 2004.

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Item 8. Financial Statements and Supplementary Data

AKESIS PHARMACEUTICALS, INC.

(A Development Stage Company)

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	36
Consolidated Balance Sheets	37
Consolidated Statements of Operations	38
Consolidated Statements of Stockholders’ Equity (Deficit)	39
Consolidated Statements of Cash Flows	40
Notes to Consolidated Financial Statements	41

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Akesis Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheets of Akesis Pharmaceuticals, Inc., a Delaware corporation and a development stage company, as of December 31, 2004 and 2003 and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2004, and the period from April 27, 1998 (date of inception of Akesis Pharmaceuticals, Inc., a Delaware corporation) to December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2004 and 2003 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004 and the period from April 27, 1998 (date of inception of Akesis Pharmaceuticals, Inc., a Delaware corporation) to December 31, 2004, in conformity with United States generally accepted accounting principles.

SWENSON ADVISORS, LLP

Independent Registered Public Accounting Firm

San Diego, California

March 21, 2005

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Akesis Pharmaceuticals, Inc.

(a Development Stage Company)

Consolidated Balance Sheets

As of December 31, 2004 and 2003

	December 31,
	2004			2003
Assets
Current assets:
Cash and cash equivalents	$	1,234,250		$	—
Prepaid insurance and other current assets		116,000			—
Total assets	$	1,350,250		$	—
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	82,436		$	29,621
Total current liabilities		82,436			29,621
Stockholder loan		—			92,930
Total liabilities		82,436			122,551
Commitments and contingencies (Note 4)		—			—
Stockholders’ equity (deficit):
Convertible preferred stock, $0.001 par value, 10,000,000 shares authorized, including 500,000 for Series A, 500,000 for Series B, and 500,000 for Series C:
Series A: Zero and 404,444 shares issued and outstanding at December 31, 2004 and December 31, 2003, respectively		—			404
Series B: Zero and 166,022 shares issued and outstanding at December 31, 2004 and December 31, 2003, respectively		—			166
Common stock, $0.001 par value, 50,000,000 shares authorized:
14,992,552 and 5,377,466 shares issued and outstanding at December 31, 2004 and December 31, 2003, respectively		14,993			1,633
Additional paid-in capital		3,998,049			1,094,935
Deficit accumulated during the development stage		(2,745,228	)		(1,219,689	)
Total stockholders’ equity (deficit)		1,267,814			(122,551	)
Total liabilities and stockholders’ equity (deficit)	$	1,350,250		$	—

See accompanying notes.

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Akesis Pharmaceuticals, Inc.

(a Development Stage Company)

Consolidated Statements of Operations

For the Years Ended December 31, 2004, 2003, and 2002, and For the Cumulative Period from April 27, 1998 (date of inception of Akesis Pharmaceuticals, Inc., a Delaware corporation) to December 31, 2004

	Year Ended December 31,									Cumulative Period from April 27, 1998 Through December 31,
	2004			2003			2002			2004
Revenue	$	—		$	4,785		$	26,621		$	226,884
Cost of goods sold		—			1,702			5,064			62,314
Gross margin		—			3,083			21,557			164,570
Operating costs and expenses:
Selling, general and administrative		1,517,691			28,480			152,283			2,645,683
Research and development		—			—			—			256,944
Total expenses		1,517,691			28,480			152,283			2,902,627
Loss from operations		(1,517,691	)		(25,397	)		(130,726	)		(2,738,057	)
Interest income/(expense), net		(6,248	)		(5,894	)		(1,961	)		4,246
Other expense, net		—			—			—			(9,817	)
Loss before income taxes		(1,523,939	)		(31,291	)		(132,687	)		(2,743,628	)
Provision for income taxes		1,600			—			—			1,600
Net loss	$	(1,525,539	)	$	(31,291	)	$	(132,687	)	$	(2,745,228	)
Net loss per common share - basic and diluted	$	(0.24	)	$	(0.01	)	$	(0.02	)	$	(0.52	)
Weighted-average common shares outstanding - basic and diluted		6,341,604			5,377,466			5,377,466			5,275,861

See accompanying notes.

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Akesis Pharmaceuticals, Inc.

(a Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficit)

For the Years Ended December 31, 2004, 2003, and 2002, and For the Cumulative Period from

April 27, 1998 (date of inception of Akesis Pharmaceuticals, Inc., a Delaware corporation) to December 31, 2004

	Convertible Preferred Stock																		Additional Paid-In Capital		Deficit Accumulated During the Development Stage
	Series A					Series B					Series C					Common Stock
	Shares		Amount			Shares		Amount			Shares		Amount			Shares	Amount
Balance at April 27, 1998	—		$	—		—		$	—		—		$	—		—	$	—	$	—	$	—
Issuance of preferred stock - series A	404,444			404		—			—		—			—		—		—		227,096		—
Issuance of preferred stock - series B	—			—		135,217			135		—			—		—		—		583,476		—
Issuance of common stock	—			—		—			—		—			—		3,777,030		1,147		2,495		—
Stock-based compensation	—			—		—			—		—			—		—		—		4,877		—
Net loss	—			—		—			—		—			—		—		—		—		(353,806	)
Balance at December 31, 1998	404,444			404		135,217			135		—			—		3,777,030		1,147		817,944		(353,806	)
Issuance of preferred stock - series B	—			—		13,205			13		—			—		—		—		91,665		—
Issuance of common stock	—			—		—			—		—			—		1,600,436		486		7,485		—
Stock-based compensation	—			—		—			—		—			—		—		—		35,743		—
Net loss	—			—		—			—		—			—		—		—		—		(519,722	)
Balance at December 31, 1999	404,444			404		148,422			148		—			—		5,377,466		1,633		952,837		(873,528	)
Issuance of preferred stock - series B	—			—		17,600			18		—			—		—		—		87,982		—
Stock-based compensation	—			—		—			—		—			—		—		—		37,990		—
Net loss	—			—		—			—		—			—		—		—		—		(113,179	)
Balance at December 31, 2000	404,444			404		166,022			166		—			—		5,377,466		1,633		1,078,809		(986,707	)
Stock-based compensation	—			—		—			—		—			—		—		—		7,655		—
Net loss	—			—		—			—		—			—		—		—		—		(69,004	)
Balance at December 31, 2001	404,444			404		166,022			166		—			—		5,377,466		1,633		1,086,464		(1,055,711	)
Stock-based compensation	—			—		—			—		—			—		—		—		8,201		—
Net loss	—			—		—			—		—			—		—		—		—		(132,687	)
Balance at December 31, 2002	404,444			404		166,022			166		—			—		5,377,466		1,633		1,094,665		(1,188,398	)
Stock-based compensation	—			—		—			—		—			—		—		—		270		—
Net loss	—			—		—			—		—			—		—		—		—		(31,291	)
Balance at December 31, 2003	404,444			404		166,022			166		—			—		5,377,466		1,633		1,094,935		(1,219,689	)
Issuance of preferred stock - series C	—			—		—			—		288,653			289		—		—		129,326		—
Issuance of common stock	—			—		—			—		—			—		1,366,316		415		165,585		—
Conversion of preferred stock-series A	(404,444	)		(404	)	—			—		—			—		1,331,562		404		—		—
Conversion of preferred stock-series B	—			—		(166,022	)		(166	)	—			—		546,599		166		—		—
Conversion of preferred stock-series C	—			—		—			—		(288,653	)		(289	)	950,340		289		—		—
Exercise of stock options	—			—		—			—		—			—		927,702		282		134,072		—
Merger with Liberty Mint, Ltd.	—			—		—			—		—			—		4,492,567		11,804		1,386,631		—
Stock-based compensation	—			—		—			—		—			—		—		—		1,087,500		—
Net loss	—			—		—			—		—			—		—		—		—		(1,525,539	)
Balance at December 31, 2004	—		$	—		—		$	—		—		$	—		14,992,552	$	14,993	$	3,998,049	$	(2,745,228	)

See accompanying notes.

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Akesis Pharmaceuticals, Inc.

(a Development Stage Company)

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2004, 2003, and 2002, and

For the Cumulative Period from April 27, 1998 (date of inception of Akesis Pharmaceuticals, Inc., a Delaware corporation) to December 31, 2004

	Year Ended December 31,									Cumulative Period from April 27, 1998 Through December 31,
	2004			2003			2002			2004
Cash flows from operating activities:
Net loss	$	(1,525,539	)	$	(31,291	)	$	(132,687	)	$	(2,745,228	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		—			—			—			7,498
Stock-based compensation		1,087,500			270			8,201			1,182,236
Changes in assets and liabilities:
Other current assets		(116,000	)		3,950			8,454			(116,000	)
Other assets		—			—			—			(815	)
Accounts payable		52,815			3,109			18,175			82,436
Net cash used in operating activities		(501,224	)		(23,962	)		(97,857	)		(1,589,873	)
Cash flows from investing activities:
Purchase of property and equipment		—			—			—			(6,684	)
Net cash used in investing activities		—			—			—			(6,684	)
Cash flows from financing activities:
Proceeds from Series A preferred stock issuances		—			—			—			227,500
Proceeds from Series B preferred stock issuances		—			—			—			763,290
Proceeds from Series C preferred stock issuances		129,615			—			—			129,615
Proceeds from common stock issuances		1,698,789			—			—			1,710,402
(Payment) proceeds-shareholder loan		(92,930	)		22,215			70,715			—
Net cash provided by financing activities		1,735,474			22,215			70,715			2,830,807
Net increase (decrease) in cash and cash equivalents		1,234,250			(1,747	)		(27,142	)		1,234,250
Cash and cash equivalents at beginning of period		—			1,747			28,889			—
Cash and cash equivalents at end of year	$	1,234,250		$	—		$	1,747		$	1,234,250

See accompanying notes.

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Akesis Pharmaceuticals, Inc.

(a Development Stage Company)

Notes to Consolidated Financial Statements

As of December 31, 2004 and 2003, For the Years Ended December 31, 2004, 2003 and 2002, and For the Cumulative Period from April 27, 1998 (date of inception of Akesis Pharmaceuticals, Inc., a Delaware corporation) to December 31, 2004

1. The Company and Recapitalization

Liberty Mint, Ltd. (the “Company” or “Liberty”), a Nevada corporation, was initially incorporated in Nevada on May 26, 1999 as a wholly owned subsidiary of Liberty Mint, Ltd., a Colorado corporation. Liberty Mint, Ltd., a Colorado corporation, was originally incorporated in the state of Colorado on March 15, 1990 as St. Joseph Corp. VI. In July 1993, the name was changed to Petrosavers International, Inc., in September 1996 the name was changed to Hana Acquisitions Inc. and on June 9, 1997, the name was changed to Liberty Mint, Ltd. In June of 1997, Liberty acquired a 90% majority interest in Liberty Mint, Inc., (“LMI”) a Utah corporation. Before the acquisition of LMI, Liberty had not engaged in any material operations. In 1998 Liberty formed a wholly owned subsidiary, Liberty Mint Marketing, Inc., a Utah corporation, which became SCCS, Inc. (“SCCS”) in 2001. In 1999 Liberty formed another wholly owned subsidiary, The Great Western Mint, Inc., (“GWM”) a Utah corporation. On October 8, 1999, Liberty filed articles of merger with the states of Colorado and Nevada, effecting a change of domicile of Liberty to the state of Nevada. On September 23, 1999, Liberty sold its 90% interest in LMI. On December 31, 2001, Liberty sold SCCS and GWM. Effective January 11, 2005, Liberty changed its name to Akesis Pharmaceuticals, Inc. and the trading symbol was changed to AKES.OB.

Effective December 9, 2004, pursuant to the Agreement and Plan of Merger and Reorganization, dated as of September 27, 2004, (the “Merger Agreement”), among Liberty, Akesis Pharmaceuticals, Inc. (“Akesis Delaware”) and Ann Arbor Acquisition Corporation, a wholly-owned subsidiary of Liberty (“MergerSub”), MergerSub merged with and into Akesis Delaware, with Akesis Delaware as the surviving corporation. Immediately prior to the closing of the merger, all of Akesis Delaware’s preferred shares were converted into common shares. In connection with the merger, the stockholders of Akesis Delaware received 3.292327 shares of Liberty common stock for each share of Akesis Delaware common stock that they held (on an as-converted basis). All references in the consolidated financial statements, and notes thereto, to number of shares and per share amounts reflect the exchange ratio.

Although Liberty acquired Akesis Delaware as a result of the transaction, Akesis Delaware stockholders held approximately 70% of Liberty following the transaction. Accordingly, for accounting purposes, the acquisition was a “reverse acquisition” and Akesis Delaware was the “accounting acquiror.” Further, since Liberty discontinued its legacy business in 2001, Liberty was a non-operating public shell with no continuing operations, and no intangible assets associated with Liberty were purchased by Akesis Delaware. Accordingly, the transaction was accounted for as a recapitalization of Akesis Delaware and recorded based on the fair value of Liberty’s net tangible assets acquired by Akesis Delaware. No goodwill or other intangible assets were recorded.

Two of the conditions of closing of the Akesis Delaware acquisition were that as of the closing, all of Liberty’s debt would be paid or extinguished, and it would have $1.5 million of unrestricted cash on hand. Costs incurred by Akesis Delaware directly related to the transaction, amounting to

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$101,565, were charged to additional paid-in capital. The conversion of all of Akesis Delaware preferred stock into common stock resulted in an additional 2,828,501 shares of Akesis Delaware common stock outstanding and the merger resulted in the issuance of 10,499,985 Liberty common shares to Akesis Delaware’s pre-merger shareholders (on an as-converted basis).

On February 14, 2005, the Company filed a Form 8-K with the Securities and Exchange Commission that presented an unaudited pro forma condensed consolidated balance sheet as of September 30, 2004 as if the acquisition of Akesis Delaware by Liberty had been effective September 30, 2004. Also presented in the Form 8-K were unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2004 and 2003 and for the year ended December 31, 2003 as if the merger had been effective January 1, 2003.

Akesis Delaware was incorporated on April 27, 1998, for the purpose of marketing an established over-the-counter product for lowering blood glucose levels in the treatment of diabetes. The product was initially developed and marketed through Diabetes Pro Health, Inc. which was merged into the Akesis Delaware. The product was sold primarily through direct sales to consumers.

Akesis Delaware is considered to be in the development stage as defined in Statement of Financial Accounting Standards No. 7, “Accounting and Reporting by Developing Stage Enterprises” (“SFAS No. 7”) and since inception has devoted substantially all of its efforts to developing its products, raising capital and recruiting personnel.

2. Summary of Significant Accounting Policies

Principles of consolidation

The acquisition of Akesis Delaware by Liberty has been accounted for as a reorganization as described in Note 1. Since Akesis Delaware is the surviving entity, the accompanying consolidated financial statements reflect its historical results of operations prior to the acquisition. The accounts of Liberty and Akesis Delaware have been consolidated as of December 9, 2004, the effective date of the acquisition.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. Actual results could differ from those estimates.

Business risk and concentrations of credit risk

Akesis Delaware’s business is in the healthcare industry and sells products that may not be successful in the marketplace. Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, including money market accounts.

Fair value of financial instruments

The carrying amounts of cash and cash equivalents, prepaid assets and accounts payable approximate fair market value because of the short maturity of those instruments.

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Cash and cash equivalents

Cash equivalents consist of highly liquid investment with original maturities of three months or less when purchased.

Income taxes

Income taxes are accounted for in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effects for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Revenue recognition

Akesis Delaware recognizes product sales upon shipment to the customer and when payment is probable or collected immediately.

Research and development

Research and development costs are expensed as incurred. Such costs include personnel costs, supplies, and clinical trials.

Stock-based compensation

In December 2004 the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values and does not allow the previously permitted pro forma disclosure as an alternative to financial statement recognition. SFAS No. 123R supersedes APB 25 and related interpretations and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123R is required to be effective beginning in the third quarter of fiscal 2005. However, the Company has decided to adopt SFAS No. 123R effective with the acquisition of Akesis Delaware by Liberty. The adoption of the SFAS No. 123R fair value method resulted in a non-cash stock-based compensation charge of $1,077,000 on the Company’s reported results of operations for the year ended December 31, 2004.

Prior to the adoption of SFAS No. 123R, no stock options had been issued by Akesis Delaware to employees. However, stock options were issued prior to the recapitalization to non-employees and were recorded at their fair value in accordance with SFAS No. 123 and EITF 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” Such stock options to non-employees were periodically re-measured as the stock options vested, and no re-measurement issues having a material impact on the financial statements were identified.

The fair value of options granted during the year ended December 31, 2004 was $4,505,500, and the fair value is amortized over the vesting period of the option using the multiple option methodology in accordance with the provisions of SFAS No. 123R. No options were granted during the year ended December 31, 2003. The value of options granted during the year ended December 31, 2002 was zero. The fair value for the options granted during the years ended

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December 31, 2004 and 2002 was estimated at the date of grant using the Black-Scholes method for option pricing with the following assumptions: Risk-free interest rate ranging from 1.9% to 3.4%, volatility of 85%, dividend yield of 0%, and annual termination rate of 5%. Compensation expense for the years ended December 31, 2004, 2003, 2002, and for the cumulative period from April 27, 1998 (date of inception) to December 31, 2004, was $1,087,500, $270, $8,201, and $1,182,237, respectively.

Net loss per share

Basic and diluted net loss per share is computed in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share.” Basic loss per share includes no dilution and is computed by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted loss per share reflects the potential dilution of securities that could share in the Company’s earnings, such as common stock equivalents which may be issued upon exercise of outstanding common stock options. Diluted loss per share is identical to basic loss per share for all periods reported because inclusion of common stock equivalents would be anti-dilutive.

Effect of new accounting standards

In December, 2004 the FASB issued SFAS No. 123R, “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. Statement 123R supersedes APB Opinion No. 125, “Accounting for Stock Issued to Employees”, and amends SFAS No. 95, “Statement of Cash Flows”. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an acceptable alternative. The Company has elected to early adopt SFAS No. 123R as of December 9, 2004 which resulted in stock-based compensation of approximately $1,077,000.

In December, 2004 the FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets, an Amendment of APB Opinion No. 29, which is effective for non-monetary exchanges occurring in fiscal periods beginning after June 15, 2005. SFAS No. 153 amends APB Opinion No. 29, “Accounting for Non-monetary Transactions” to eliminate exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The Company does not expect SFAS No. 153 to affect the Company’s financial condition or results of operations.

In September, 2004, the EITF (Emerging Issues Task Force) reached consensus on EITF Issue 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share”, which provides guidance on when the dilutive effect of contingently convertible debt securities with a market price trigger should be included in diluted earnings per share. The guidance is effective for all periods ending after December 15, 2004. The Company’s adoption of EITF 04-8 did not have an impact on the Company’s loss per share calculation for 2004 and is not expected to have an impact in the future.

In April, 2004 the FASB issued FASB Staff Position (FSP) SFAS No. 129-1, “Disclosure Requirements under FASB Statement No. 129, Disclosure of Information about Capital Structure, Relating to Contingently Convertible Securities”. Effective April, 2004 this FSP did not have an impact on the Company’s financial position or results of operations.

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In March, 2004 the EITF finalized its consensus on EITF Issue No. 03-06, “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share”. This EITF clarifies what constitutes a participating security and requires the use of the two-class method for computing basic earnings per share when participating securities exist. Effective for reporting periods beginning after March 31, 2004, this EITF did not have an impact on the Company’s financial position or results of operations.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting and Research Bulletin No. 51” (“FIN 46”). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. In December 2003, FASB issued FIN 46R, a revision to FIN 46. FIN 46R provides a broad deferral of the latest date by which all public entities must apply FIN 46 to certain variable interest entities to the first reporting period ending after March 15, 2004. The adoption of FIN 46 had no impact on the Company’s financial statements.

In December 2003, FASB issued a revision to Statement of Financial Accounting Standard No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits-an amendment of SFAS No. 87, 88, and 106” (“SFAS No. 132”). SFAS No. 132 revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions, No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The revised Statement retains the disclosure requirements contained in SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” which it replaces. It requires additional disclosures to those in the original SFAS No. 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. SFAS 132 is effective for fiscal years ending after December 15, 2003. The adoption of SFAS 132 had no impact on the Company’s financial statements.

3. Stockholder Loans

Akesis Delaware received working capital contributions from two related-party lenders. Included in these balances was a convertible promissory note effective April 4, 2002 with the related-party lenders. The notes were due and payable to the related-party lenders at the earlier of 18 months from the effective date, Akesis Delaware closing a minimum financing by qualified investors in excess of $1,000,000, execution of a licensing agreement that would provide sufficient cash flow to repay the note, or a sale of all or substantially all of the Company’s assets. Interest accrues at 8% per annum based on a 360 day period. The note, including principal and accrued interest, may be converted to stock of Akesis Delaware at any time, including Series B Preferred Stock with a conversion price of $5.00 or the same security from the closing of a minimum financing transaction by qualified investors in excess of $1,000,000. Akesis Delaware had the right to prepay the note with a 20 day written notice to the lender in either cash or stock. If no election was made by the lender within 10 days of notice, the prepayment would have been made in cash.

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In September 2004, the holders of the loans and the Akesis Delaware Board of Directors agreed to convert stockholder loan principal balances of $115,461 into Series C Preferred Stock at $0.40 per share for a total of 288,653 shares. The principal balances converted into Series C Preferred Stock as of September 30, 2004. Additionally, Akesis Delaware recorded imputed interest of $14,154 as of September 30, 2004. However, interest was forgiven by the lenders, not paid upon conversion of the loans, and accordingly was recorded as additional paid-in capital.

4. Commitments, Contingencies and Related Party Transactions

The Company leases in aggregate approximately 1,000 square feet of office space located in San Diego, California, and Carefree, Arizona pursuant to two leases each on a month-to-month basis. The Arizona lease is sublet from the Company’s CEO at his cost, and the San Diego office space is sublet from Avalon Ventures. One of the Company’s directors, Kevin Kinsella, is a general partner of Avalon, and the Board of Directors has determined that the rent charged to the Company for both leases is fair and reasonable. The Company recorded rent expense during the years ended December 31, 2004, 2003, and 2002 of $5,500, zero and zero, respectively.

5. Stock-based Compensation

Immediately following the acquisition of Akesis Delaware by Liberty in December 2004, two executive officers became entitled, through their respective employment offer letters, to nonstatutory stock options with a term of 10 years to acquire a total of 1,062,499 shares of common stock at an exercise price of $1.50 per share. Twenty percent of the shares of common stock subject to the options vested as of the effective date of the officers’ employment immediately following the acquisition of Akesis Delaware by Liberty and one-forty eighth (1/48th) of the remaining shares subject to the options will vest each month following the effective date of the officers’ employment, subject to the officers’ continued employment with the Company on any such date. In addition, in the event of a change of control of the Company, then the officers shall fully vest in and have the right to exercise the options as to all of the shares of common stock subject to the options as to which the officers would not otherwise be vested or exercisable.

1998 Stock Option Plan

Akesis Delaware adopted the 1998 Incentive Stock Plan and terminated such immediately prior to the acquisition by Liberty of Akesis Delaware. All then outstanding options and rights were terminated immediately prior to the acquisition by Liberty of Akesis Delaware. Under the plan, nonstatutory stock options and stock purchase rights were granted to service providers, and incentive stock options were granted to employees. The fair market value of the shares was determined on the date of the option grant.

The term of each option was 10 years unless sooner terminated or amended by the Board. In the case of an incentive stock option granted to an optionee who, at the time of the grant, owned more than 10% of the voting power of all classes of stock, the term of the option was five years from the date of grant or as provided on the option agreement.

The exercise price of an option was determined by the Administrator with the following exceptions: For an incentive stock option granted to an employee who owned more than 10% percent of the voting power of all classes of stock, the exercise price was no less than 110% of the fair market value per share on the date of grant. The exercise price for employees was no less than

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100% of the fair market value on the date of grant. For nonstatutory stock options, the service provider who owned more than 10% percent of the voting power of all classes of stock, the exercise price was no less than 110% of the fair market value per share on the date of grant. The exercise price for other service providers was no less than 85% of the fair market value on the date of grant.

Options vested at a rate of no less than 20% per year over five years from the date of grant, except for options granted to officers, directors, and consultants.

The following are summaries of the status of options under the 1998 Incentive Stock Plan as of certain dates:

	Options Outstanding		Weighted- Average Exercise Price
Balance at December 31, 2001	812,745		$	0.15
Granted	65,847		$	0.15
Exercised	—			—
Cancelled	—			—
Balance at December 31, 2002	878,592		$	0.15
Granted	—			—
Exercised	—			—
Cancelled	—			—
Balance at December 31, 2003	878,592		$	0.15
Granted	115,233		$	0.12
Exercised	(927,714	)	$	0.14
Cancelled	(66,111	)	$	0.11
Balance at December 31, 2004	—			—

2005 Stock Plan

The Board of Directors of Liberty authorized and reserved 1,500,000 shares of Liberty common stock pursuant to a 2005 Stock Plan in January 2005 for option grants to Liberty’s employees, directors and consultants. As of March 21, 2005, no options have been granted pursuant to such 2005 Stock Plan.

6. Income Taxes

Significant components of Akesis Delaware’s net deferred tax assets at December 31, 2004 and 2003 are shown below. A valuation allowance of $835,000 and $397,000 has been established to offset the net deferred tax assets at December 31, 2004 and 2003, respectively, as realization of such assets is uncertain.

	December 31,
	2004			2003
Noncurrent Net Operating Loss Carryforwards	$	787,000		$	345,000
Other noncurrent		35,000			39,000
Total noncurrent		822,000			384,000
Other current		13,000			13,000
Total deferred tax assets		835,000			397,000
Deferred tax asset valuation allowance		(835,000	)		(397,000	)
Net deferred taxes	$	—		$	—

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At December 31, 2004, Akesis Delaware had no federal income tax expense or benefit but did have federal tax net operating loss carryforwards of approximately $2.2 million. The federal net operating loss carryforwards will begin to expire in 2018, unless previously utilized. Pursuant to Internal Revenue Code Section 382 and 383, use of Akesis Delaware’s net operating loss carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within a three-year period. No assessment has been made as to whether such a change in ownership has occurred. The Company incurred $1,600 of statutory minimum state expense for 2004. Prior to 2004 the Company was not subject to statutory minimum state tax expense.

Liberty (formerly known as Hana Acquisitions, Inc., Petrosavers International, Inc., and St. Joseph Corp. VI) has not filed any tax returns. Akesis Delaware has filed all required tax returns. Based on a review of the Form 10-K’s filed via EDGAR by Liberty with the Securities and Exchange Commission, Liberty has generated substantial losses in each of the years indicated in such Form 10-K’s. Accordingly, the Company does not believe that the failure to file tax returns represents a material liability. Since Liberty has not filed tax returns, it is not possible to determine the amount of net operating loss carryforwards that may be available. However, since the acquisition of Akesis Delaware resulted in a change of Liberty ownership of more than 50%, use of Liberty’s net operating loss carryforwards is limited pursuant to Internal Revenue Code Section 382 and 383.

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of disclosure controls and procedures. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

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PART III

Item 10. Directors and Officers of the Registrant

The information regarding our directors and executive officers is incorporated by reference from “Directors and Executive Officers” in our Proxy Statement for our 2005 Annual Meeting of Stockholders.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires the Company’s executive officers and directors and persons who own more than ten percent (10%) of a registered class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission, or SEC, and the National Association of Securities Dealers, Inc. Executive officers, directors and greater than ten percent (10%) stockholders are required by Commission regulation to furnish us with copies of all Section 16(a) forms they file. We believe all of our executive officers and directors complied with all applicable filing requirements during the fiscal year ended December 31, 2004.

Item 11. Executive Compensation

The information required by this Item is incorporated by reference from our definitive Proxy Statement referred to in Item 10 above under the heading “Executive Compensation and Other Matters.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item regarding security ownership of certain beneficial owners and management is incorporated by reference from our definitive Proxy Statement referred to in Item 10 above where it appears under the heading “Security Ownership of Certain Beneficial Owners and Management.” The information required by this Item regarding equity compensation plans is incorporated by reference from Item 5 of this Annual Report on Form 10-K.

Item 13. Certain Relationships and Related Transactions

The information required by this Item is incorporated by reference from our definitive Proxy Statement referred to in Item 10 above where it appears under the heading “Certain Relationships and Related Transactions.”

Item 14. Principal Accountant Fees and Services

The information required by this Item is incorporated by reference from our definitive Proxy Statement referred to in Item 10 above where it appears under the heading “Principal Accountant Fees and Services.”

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Form 10-K:

(1) Consolidated Financial Statements (included in Part II of this report):

• Report of Swenson Advisors, LLP

• Consolidated Balance Sheets

• Consolidated Statements of Operations

• Consolidated Statement of Stockholders’ Equity (Deficit)

• Consolidated Statements of Cash Flows

• Notes to Consolidated Financial Statements

(2) Consolidated Financial Statement Schedules:

All consolidated financial statement schedules are omitted because the information is inapplicable or presented in the notes to the financial statements.

(3) Exhibits:

Exhibit         Number		Description
2.1	*	Agreement and Plan of Merger and Reorganization dated September 27, 2004 by and among the Registrant, Ann Arbor Acquisition Corporation, and Liberty Mint, Ltd.
3.1		Articles of Incorporation, as amended, of the Registrant
3.2		Bylaws of the Registrant
10.1		Employment Offer Letter dated December 13, 2004 for Edward B. Wilson, President and CEO of the Registrant
10.2		Employment Offer Letter dated December 13, 2004 for John T. Hendrick, CFO of the Registrant
10.3		Stand-Alone Stock Option Agreement dated January 24, 2005 for Edward B. Wilson, President and CEO of the Registrant
10.4		Stand-Alone Stock Option Agreement dated January 24, 2005 dated for John T. Hendrick, CFO of the Registrant
10.5		2005 Stock Plan of the Registrant
23.1		Consent of Swenson Advisors, LLP
24.1		Power of Attorney (see page 52).
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Incorporated by reference to the Registrant’s Form 8-K as filed with the SEC on September 28, 2004.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AKESIS PHARMACEUTICALS, INC.
By:	/s/ Edward B. Wilson
	Edward B. Wilson,
	President, Chief Executive Officer and Director

Dated: March 23, 2005

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Edward B. Wilson and John T. Hendrick, and each of them, his true and lawful attorneys-in-fact, each with full power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Edward B. Wilson Edward B. Wilson	President, Chief Executive Officer and Director (Principal Executive Officer)	March 23, 2005
/s/ John T. Hendrick John T. Hendrick	Chief Financial Officer (Principal Financial and Accounting Officer)	March 23, 2005
/s/ Kevin J. Kinsella Kevin J. Kinsella	Director	March 23, 2005
/s/ Kevin Sayer Kevin Sayer	Director	March 23, 2005
/s/ John F. Steel, IV John F. Steel, IV	Director	March 23, 2005

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EXHIBIT INDEX

Exhibit     Number		Description
2.1	*	Agreement and Plan of Merger and Reorganization dated September 27, 2004 by and among the Registrant, Ann Arbor Acquisition Corporation, and Liberty Mint, Ltd.
3.1		Articles of Incorporation, as amended, of the Registrant
3.2		Bylaws of the Registrant
10.1		Employment Offer Letter dated December 13, 2004 for Edward B. Wilson, President and CEO of the Registrant
10.2		Employment Offer Letter dated December 13, 2004 for John T. Hendrick, CFO of the Registrant
10.3		Stand-Alone Stock Option Agreement dated January 24, 2005 for Edward B. Wilson, President and CEO of the Registrant
10.4		Stand-Alone Stock Option Agreement dated January 24, 2005 dated for John T. Hendrick, CFO of the Registrant
10.5		2005 Stock Plan of the Registrant
23.1		Consent of Swenson Advisors, LLP
24.1		Power of Attorney (see page 52).
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Incorporated by reference to the Registrant’s Form 8-K as filed with the SEC on September 28, 2004.

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EX-3.1

Exhibit 3.1

ARTICLES OF INCORPORATION

OF

LIBERTY MINT, LTD.

THE UNDERSIGNED, having associated ourselves together for the purpose of forming a corporation for the transaction of business and the promotion and conduct of the objects and purposes hereinafter stated, under the provisions of and subject to the requirements of the laws of the State of Nevada, do make, record, and file these Articles of Incorporation, in writing, and we do hereby certify:

ARTICLE I

NAME

The name of this Corporation shall be:        Liberty Mint, Ltd.

ARTICLE II

PURPOSE

The purpose for which said Corporation is formed and the nature of the objects proposed to be transacted and carried on by it is to engage in any and all other lawful activity, as provided by the laws of the State of Nevada.

ARTICLE III

CAPITAL STOCK

The authorized amount of Capital Stock of the Corporation shall be Fifty Million (50,000,000) shares of Common Stock at $.001 par value per share, there shall also be Ten Million (10,000,000) shares of Preferred Stock at $.001 par value per share, which shares shall be issued at the discretion of the Board of Directors. The Capital Stock may be increased or decreased from time to time in accordance with the provisions of the laws of the State of Nevada.

ARTICLE IV

GOVERNING BOARD

The members of the Governing Board of the Corporation are styled Directors. The initial board of directors shall consist of five (5) members. The names and post office addresses of the First Board of Directors are as follows:

FIRST BOARD OF DIRECTORS

Name	Address
William C. Schmidt	88 NE 5th Ave Del Ray Beach, Florida 33483
John Pennington	88 NE 5th Ave Del Ray Beach, Florida 33483
Robert Joyce	3255 Sunset Blvd. #2200 Hollywood, California 90028
Daniel Southwick	651 Columbia Avenue Provo, Utah 84604
Creed Law	P.O. Box 575 Jackson Hole, Wyoming 83001

ARTICLE V

INCORPORATOR

The name and address of the incorporator signing these Articles of Incorporation, who is above the age of eighteen (18) years, is as follows:

Name	Address
Cletha A. Walstrand	136 East South Temple, Suite 1700-A Salt Lake City, Utah 84111

2

ARTICLE VI

RESIDENT AGENT

The name and address of the Resident Agent is as follows:

Name	Address
Gateway Enterprises, Inc.	3230 East Flamingo Road, Suite 156 Las Vegas, Nevada 89121

and Gateway Enterprises, Inc., does hereby certify that on the 24th day of May, 1999, they accepted the appointment as Resident Agent of the Corporation in accordance with Section 78.090, N.R.S.

ARTICLE VII

INDEMNIFICATION

No director or officer of the Corporation shall be personally liable to the Corporation or any of its stockholders for damages for breach of fiduciary duty as a director or officer; provided, however, that the foregoing provision shall not eliminate or limit the liability of a director or officer (i) for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or (ii) the payment of dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any repeal or modification of an Article by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation of the personal liability of a director or officer of the Corporation for acts or omissions prior to such repeal or modification.

3

ARTICLE VIII

CONTROLLING INTEREST

The provisions of NRS 78.378 to 78.3793, inclusive shall not be applicable to any acquisition of a controlling interest in the Corporation.

IN WITNESS WHEREOF, I have hereunto subscribed my name this 21st day of May, 1999.

Cletha A. Walstrand

State of Utah                    )

                                          :ss.

County of Salt Lake         )

On the 21st day of May, 1999, personally appeared before me, a notary public (or judge or other authorized person, as the case may be), duly commissioned and sworn, Cletha A. Walstrand, personally known or proven to me on the basis of satisfactory evidence to be the person whose name is subscribed to the foregoing instrument and who acknowledged that she executed the instrument.

IN WITNESS WHEREOF, I have executed this notary and affixed my official seal.

NOTARY SEAL

NOTARY PUBLIC

My Commission Expires:

4

DEAN HELLER Secretary of State 204 North Carson Street, Suite 1 Carson City, Nevada 89701-4299 (775) 684 5708 Website: secretaryofstate.blz FILED: C13001-99 MAR 23, 2004    

Certificate of Amendment

(PURSUANT TO NRS 78.385 and 78.390)

Important: Read attached instructions before completing form. ABOVE SPACE IS FOR OFFICE USE ONLY

Certificate of Amendment to Articles of Incorporation

For Nevada Profit Corporations

(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)

1. Name of corporation:

Liberty Mint, Ltd.

2. The articles have been amended as follows (provide article numbers, if available):

The following amendment of the Articles of Incorporation Article III was adopted by a majority vote of the shareholders of the Corporation on March 19, 2004. The shareholders consented to a reverse split on a 1 to 20 basis of the Company’s common stock.

The number of shares of the corporation outstanding at the time of adoption of the foregoing was 11,991,000; and the number of shares entitled to vote thereon were the same.

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: 11,000,000

4. Effective date of filing (optional): 3/22/04

5. Officer Signature (required):                                                                                                                                                                    

* 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 submit the proper fees may cause this filing to be rejected.

This form must be accompanied by appropriate fees. See attached fee schedule.	Nevada Secretary of State Form 78.385 Amend 2003
	Revised on: 11/03/03

DEAN HELLER Secretary of State 204 North Carson Street, Suite 1 Carson City, Nevada 89701-4299 (775) 684 5708 Website: secretaryofstate.blz FILED: C13001-99 JAN 11, 2005    

Certificate of Amendment

(PURSUANT TO NRS 78.385 and 78.390)

Important: Read attached instructions before completing form. ABOVE SPACE IS FOR OFFICE USE ONLY

Certificate of Amendment to Articles of Incorporation

For Nevada Profit Corporations

(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)

1. Name of corporation:

Liberty Mint, Ltd.

2. The articles have been amended as follows (provide article numbers, if available):

Article I- Liberty Mint, Ltd changed to Akesis Pharmaceuticals, Inc.

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: 10,000,000

4. Effective date of filing (optional): 12/13/04

5. Officer Signature (required):

* 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 submit the proper fees may cause this filing to be rejected.

This form must be accompanied by appropriate fees. See attached fee schedule.	Nevada Secretary of State Form 78.385 A
	Revised on: 11/03/03

EX-3.2

Exhibit 3.2

AKESIS PHARMACEUTICALS, INC.

(FORMERLY KNOWN AS LIBERTY MINT, LTD.)

BY-LAWS

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TABLE OF CONTENTS

	Page
ARTICLE I -OFFICES	1
Section 1.1 Principal Office	1
Section 1.2 Other Offices	1
ARTICLE II -SHAREHOLDERS	1
Section 2.1 Annual Meeting	1
Section 2.2 Special Meetings	1
Section 2.3 Notice of Meetings	1
Section 2.4 Quorum	2
Section 2.5 Organization	2
Section 2.6 Conduct of Business	2
Section 2.7 Proxies and Voting	2
Section 2.8 Shareholder Action By Written Consent	3
Section 2.9 Stock List	3
Section 2.10 Meetings by Telecommunication	3
ARTICLE III -BOARD OF DIRECTORS	3
Section 3.1 Number and Term of Office	3
Section 3.2 Vacancies	4
Section 3.3 Regular Meetings	4
Section 3.4 Special Meetings	4
Section 3.5 Quorum	4
Section 3.6 Participation in Meetings by Conference Telephone	5
Section 3.7 Conduct of Business	5
Section 3.8 Powers	5
Section 3.9 Compensation of Directors	6
Section 3.10 Interested Directors	6
Section 3.11 Loans	6
ARTICLE IV -COMMITTEES	6
Section 4.1 Committees of the Board of Directors	6
Section 4.2 Conduct of Business	7
ARTICLE V -OFFICERS	7
Section 5.1 Generally	7
Section 5.2 President	7
Section 5.3 Vice-president	8
Section 5.4 Treasurer	8
Section 5.5 Secretary	8
Section 5.6 General Manager	8
Section 5.7 Delegation of Authority	8

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TABLE OF CONTENTS

(Continued)

	Page
Section 5.8 Removal	8
Section 5.9 Action with Respect to Securities of Other Corporation	9
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS	9
Section 6.1 Generally	9
Section 6.2 Expenses	10
Section 6.3 Determination by Board of Directors	10
Section 6.4 Non-exclusive Right	10
Section 6.5 Insurance	10
Section 6.6 Violation of Law	11
Section 6.7 Coverage	11
ARTICLE VII - STOCK	11
Section 7.1 Certificates of Stock	11
Section 7.2 Transfers of Stock	11
Section 7.3 Record Date	11
Section 7.4 Lost, Stolen or Destroyed Certificates	12
Section 7.5 Regulations	12
ARTICLE VIII - NOTICES	12
Section 8.1 Notices	12
Section 8.2 Waivers	12
ARTICLE IX - MISCELLANEOUS	12
Section 9.1 Facsimile Signatures	12
Section 9.2 Corporate Seal	12
Section 9.3 Reliance upon Books, Reports and Records	13
Section 9.4 Fiscal Year	13
Section 9.5 Time Periods	13
ARTICLE X - AMENDMENTS	13
Section 10.1 Amendments	13

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ARTICLE I-OFFICES

Section 1.1 Principal Office

The principal executive office of the corporation shall be such location as deemed necessary from time to time by the Board of Directors.

Section 1.2 Other Offices

The corporation may also have such other offices, either within or without the State of Nevada, as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II-SHAREHOLDERS

Section 2.1 Annual Meeting

An annual meeting of the shareholders, for the selection of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at the principal office of the corporation on the second Monday of January or, if such date shall fall on a holiday, the next business day thereafter. The Board of Directors may change the date or elect to have no annual meeting for a particular year. If the election of directors is not held on the day designated for any annual meeting of the shareholders or at any adjournment of the meeting, the Board of Directors shall call for the election to be held at a special meeting of the Shareholders as soon thereafter as possible.

Section 2.2 Special Meetings

Special meetings of the shareholders, for any purpose or purposes prescribed in the notice of the meeting, may be called by the Board of Directors, the president, the chief executive officer, or the holders of not less than one-tenth of all the shares entitled to vote at the meeting, and shall be held at such place, on such date, and at such time as they or he shall fix.

Section 2.3 Notice of Meetings

Written notice of the place, date and time of all meetings of the shareholders shall be given, not less than ten nor more than fifty days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the corporation statutes of the State of Nevada, as contained in Chapter 78 of Nevada Revised Statutes, or the Articles of Incorporation).

When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than

thirty days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.

Section 2.4 Quorum

At any meeting of the shareholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law.

If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of the stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date or time.

If a notice of any adjourned special meeting of shareholders is sent to all shareholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting.

Section 2.5 Organization

Such person as the Board of Directors may have designated or, in the absence of such a person, the highest ranking officer of the corporation who is present shall call to order any meeting of the shareholders and act as chairman of the meeting. In the absence of the Secretary of the corporation, the secretary of the meeting shall be the person the chairman appoints.

Section 2.6 Conduct of Business

The chairman of any meeting of shareholders shall determine the order of business, and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him in order.

Section 2.7 Proxies and Voting

At any meeting of the shareholders, every shareholder entitled to vote may vote in person or by proxy authorized by an instrument in writing filed in accordance with the procedure established for the meeting.

Each shareholder shall have one vote for every share of stock entitled to vote which is registered in his name on the record date for the meeting, except as otherwise provided herein or required by law.

All voting, except on the election of directors and where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a shareholder entitled to vote or

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his proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the shareholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting.

If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater number or voting by class is required by law, the Articles of Incorporation, or these By-laws.

Section 2.8 Shareholder Action By Written Consent

Any action which may be taken at a meeting of the Shareholders may be taken by written consent without a meeting if such action is taken in conformance with the Nevada Corporations Code.

Section 2.9 Stock List

A complete list of shareholders entitled to vote at any meeting of shareholders, arranged in alphabetical order for each class of stock and showing the address of each such shareholder and the number of shares registered in his name, shall be open to the examination of any such shareholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held.

The Stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such shareholder who is present. This list shall presumptively determine the identity of the shareholders entitled to vote at the meeting and the number of shares held by each of them.

Section 2.10 Meetings by Telecommunication

Any meeting of the shareholders may be conducted through the use of any means of communication which allows persons participating in the meeting to hear one another.

ARTICLE III-BOARD OF DIRECTORS

Section 3.1 Number and Term of Office

The Board of Directors shall consist of a minimum of one director. Each director shall be selected for a term of one year and until his successor is elected and qualified, except as otherwise provided herein or required by law.

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Whenever the authorized number of directors is increased between annual meetings of the shareholders, a majority of the directors then in office shall have the power to elect such new directors for the balance of a term and until their successors are elected and qualified. Any decrease in the authorized number of directors shall not become effective until the expiration of the term of the directors then in office unless, at the time of such decrease, there shall be vacancies on the board which are being eliminated by the decrease.

Section 3.2 Vacancies

Vacancies in the board of directors may be filled by a majority vote of the remaining directors, though less than a quorum, by a sole remaining director, or by the shareholders. Each director so elected shall hold office until a successor is elected at an annual or a special meeting of the shareholders.

A vacancy in the board of directors shall be deemed to exist in case of the death, resignation or removal of any director; if the authorized number of directors is increased; or if the shareholders fail to elect the full authorized number of directors.

The shareholders may elect a director at any time to fill any vacancy not filled by the directors. If the board of directors accepts the resignation of a director tendered to take effect at a future time, the board or the shareholders shall have power to elect a successor to take office when the resignation is to become effective.

No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of the director’s term of office.

Section 3.3 Regular Meetings

Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required.

Section 3.4 Special Meetings

Special meetings of the Board of Directors may be called by one-third of the directors then in office or by the chief executive officer and shall be held at such place, on such date and at such time as they or he shall fix. Notice of the place, date and time of each such special meeting shall be given by each director by whom it is not waived by mailing written notice not less than three days before the meeting or by telegraphing the same not less than eighteen hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.

Section 3.5 Quorum

At any meeting of the Board of Directors, a majority of the total number of the whole board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date or time, without further notice or waiver thereof.

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Section 3.6 Participation in Meetings by Conference Telephone

Members of the Board of Directors or of any committee thereof, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment that enables all persons participating in the meeting to hear each other. Such participation shall constitute presence in person at such meeting.

Section 3.7 Conduct of Business

At any meeting of the Board of Directors, business shall be transacted in such order and manner as the board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors.

Section 3.8 Powers

The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the corporation, including, without limiting the generality of the foregoing, the unqualified power:

(a) To declare dividends from time to time in accordance with law;

(b) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine;

(c) To remove any officer of the corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being;

(d) To confer upon any officer of the corporation the power to appoint, remove and suspend subordinate officers and agents;

(e) To adopt from time to time such stock option, stock purchase, bonus or other compensation plans for directors, officers and agents of the corporation and its subsidiaries as it may determine;

(f) To adopt from time to time such insurance, retirement and other benefit plan for directors, officers and agents of the corporation and its subsidiaries as it may determine; and

(g) To adopt from time to time regulations, not inconsistent with these By-laws, for the management of the corporation’s business and affairs,

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Section 3.9 Compensation of Directors

Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the directors.

Section 3.10 Interested Directors

1. No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers, are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if;

i. The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or

ii. The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or

iii. The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee or the shareholders.

2. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

Section 3.11 Loans

The corporation shall not lend money to or use its credit to assist its officers, directors or other control persons without authorization in the particular case by the shareholders, but may lend money to and use its credit to assist any employee, excluding such officers, directors or other control persons of the corporation or of a subsidiary, if such loan or assistance benefits the corporation.

ARTICLE IV-COMMITTEES

Section 4.1 Committees of the Board of Directors

The Board of Directors, by a vote of a majority of the whole board, may from time to time designate committees of the board, with such lawfully powers and duties as it thereby confers, to serve at the pleasure of the board and shall, for those committees and any others provided for herein,

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elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternative members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend or to authorize the issuance of stock if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member.

Section 4.2 Conduct of Business

Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provisions shall be made for notice to members of all meetings; a majority of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee.

ARTICLE V-OFFICERS

Section 5.1 Generally

The officers of the corporation shall consist of a president, one or more vice-presidents, a secretary, a treasurer and such other subordinate officers as may from time to time be appointed by the Board of Directors. Officers shall be elected by the Board of Directors, which shall consider that subject at its first meeting after every annual meeting of shareholders. Each officer shall hold his office until his successor is elected and qualified or until his earlier resignation or removal. Any number of offices may be held by the same person.

Section 5.2 President

The President shall be the chief executive officer of the corporation, except as set forth in Section 5.6 of this Article. Subject to the provisions of these By-laws and to the direction of the Board of Directors, he shall have the responsibility for the general management and control of the affairs and business of the corporation and shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are delegated to him by the Board of Directors. He shall have power to sign all stock certificates, contracts and other instruments of the corporation which are authorized. He shall have general supervision and direction of all of the other officers and agents of the corporation.

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Section 5.3 Vice-president

Each vice-president shall perform such duties as the Board of Directors shall prescribe. In the absence or disability of the President, the vice-president who has served in such capacity for the longest time shall perform the duties and exercise the powers of the President.

Section 5.4 Treasurer

The treasurer shall have the custody of the monies and securities of the corporation and shall keep regular books of account. He shall make such disbursements of the funds of the corporation as are proper and shall render from time to time an account of all such transactions and of the financial condition of the corporation.

Section 5.5 Secretary

The secretary shall issue all authorized notices for, and shall keep minutes of, all meetings of the shareholders and the Board of Directors and shall have charge of the corporate books.

Section 5.6 General Manager

The Board of Directors may employ and appoint a general manager who may, or may not, be one of the officers or directors of the corporation. If employed by the Board of Directors he shall be the chief operating officer of the corporation and, subject to the directions of the Board of Directors, shall have general charge of the business operations of the corporation and general supervision over its employees and agents. He shall have the exclusive management of the business of the corporation and of all of its dealings but at all times subject to the control of the Board of Directors. Subject to the approval of the Board of Directors or a committee, he shall employ all employees of the corporation, or delegate such employment to subordinate officers, or division officers, or division chiefs, and shall have authority to discharge any person so employed. He shall make a report to the President and directors quarterly, or more often if required to do so, setting forth the results of the operations under his charge, together with suggestions regarding the improvement and betterment of the condition of the corporation, and shall perform such other duties as the Board of Directors shall require.

Section 5.7 Delegation of Authority

The Board of Directors may, from time to time, delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.

Section 5.8 Removal

Any officer of the corporation may be removed at any time, with or without cause, by the Board of Directors.

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Section 5.9 Action with Respect to Securities of Other Corporation

Unless otherwise directed by the Board of Directors, the president shall have power to vote and otherwise act on behalf of the corporation, in person or by proxy, at any meeting of shareholders of or with respect to any action of shareholders of any other corporation in which this corporation may hold securities and otherwise to exercise any and all rights and powers which this corporation may possess by reason of its ownership of securities in such other corporation.

ARTICLE VI-INDEMNIFICATION OF DIRECTORS,

OFFICERS AND OTHERS

Section 6.1 Generally

The corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or items equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was lawful.

The corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorney’s fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.

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Section 6.2 Expenses

To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 6.1 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorney’s fees) actually and reasonably incurred by him in connection therewith. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized in the manner provided in Section 6.3 of this Article upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in this Article.

Section 6.3 Determination by Board of Directors

Any indemnification under Section 6.1 of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 6.1 of this Article. Such determination shall be made by the Board of Directors by a majority vote of a quorum of the directors, or by the shareholders.

Section 6.4 Non-exclusive Right

The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of shareholders or interested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 6.5 Insurance

The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article.

The corporation’s indemnity of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be reduced by any amounts such person may collect as indemnification (i) under any policy of insurance purchased and maintained on his behalf by the corporation or (ii) from such other corporation, partnership, joint venture, trust or other enterprise.

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Section 6.6 Violation of Law

Nothing contained in this Article, or elsewhere in these By-laws, shall operate to indemnify any director or officer if such indemnification is for any reason contrary to law, either as a matter of public policy, or under the provisions of the Federal Securities Act of 1933, the Securities Exchange Act of 1934, or any other applicable state or federal law.

Section 6.7 Coverage

For the purposes of this Article, references to “the corporation” include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such a constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity.

ARTICLE VII-STOCK

Section 7.1 Certificates of Stock

Each shareholder shall be entitled to a certificate signed by, or in the name of the corporation by, the President or a vice-president, and by the secretary or an assistant secretary, or the treasurer or an assistant treasurer, certifying the number of shares owned by him. Any of or all the signatures on the certificate may be facsimile.

Section 7.2 Transfers of Stock

Transfers of stock shall be made only upon the transfer books of the corporation kept at an office of the corporation or by transfer agents designated to transfer shares of the stock of the corporation. Except where a certificate is issued in accordance with Section 7.4 of this Article, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor.

Section 7.3 Record Date

The Board of Directors may fix a record date, which shall not be more than fifty nor less than ten days before the date of any meeting of shareholders, nor more than fifty days prior to the time for the other action hereinafter described, as of which there shall be determined the shareholders who are entitled: to notice of or to vote at any meeting of shareholders or any adjournment thereof; to express consent to corporate action in writing without a meeting; to receive payment of any dividend of other distribution or allotment of any rights; or to exercise any rights with respect of any change, conversion or exchange of stock or with respect to any other lawful action.

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Section 7.4 Lost, Stolen or Destroyed Certificates

In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity.

Section 7.5 Regulations

The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish.

ARTICLE VIII-NOTICES

Section 8.1 Notices

Whenever notice is required to be given to any shareholder, director, officer, or agent, such requirement shall not be construed to mean personal notice. Such notice may in every instance be effectively given by depositing a writing in a post office or letter box, in a postpaid, sealed wrapper, or by dispatching a prepaid telegram, addressed to such shareholder, director, officer, or agent at his or her address as the same appears on the books of the corporation. The time when such notice is, dispatched shall be the time of the giving of the notice.

Section 8.2 Waivers

A written waiver of any notice, signed by a shareholder, director, officer or agent, whether before or after the time of the event for which notice is given, shall be deemed equivalent to the notice required to be given to such shareholder, director, officer or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver.

ARTICLE IX-MISCELLANEOUS

Section 9.1 Facsimile Signatures

In addition to the provisions for the use of facsimile signatures elsewhere specifically authorized in these By-laws, facsimile signatures of any officer or officers of the corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.

Section 9.2 Corporate Seal

The Board of Directors may provide a suitable seal, containing the name of the corporation, which seal shall be in the charge of the secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the treasurer or by the assistant secretary or assistant treasurer.

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Section 9.3 Reliance upon Books, Reports and Records

Each director, each member of any committee designated by the Board of Directors, and each officer of the corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the corporation, including reports made to the corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care.

Section 9.4 Fiscal Year

The fiscal year of the corporation shall be as fixed by resolution of the Board of Directors.

Section 9.5 Time Periods

In applying any of these By-laws which require that an act be done or not done a specified number of days prior to any event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded and the day of the event shall be included.

ARTICLE X-AMENDMENTS

Section 10.1 Amendments

These By-laws, or any portion hereof, may be amended or repealed by the Board of Directors at any meeting or by the shareholders at any meeting.

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EX-10.1

Exhibit 10.1

Liberty Mint, Ltd.

December 13, 2004

Edward B. Wilson

Re:      Offer of Employment with Liberty Mint, Ltd.

Dear Edward:

On behalf of Liberty Mint, Ltd., a Nevada corporation (the “Company”), I am pleased to invite you to join the Company as its President and Chief Executive Officer. In this position, you will be expected to devote sufficient business time, attention and energies to perform your duties with the Company, recognizing that you have other business activities not involving the Company; provided, however, that any such other business activities shall be approved by the Board of Directors of the Company. The effective date of your employment will be December 13, 2004, or such other date as you and the Company mutually agree in writing.

The terms of this offer of employment are as follows:

1. At-Will Employment. You should be aware that your employment with the Company is for no specified period and constitutes “at-will” employment. As a result, you are free to terminate your employment at any time, for any reason or for no reason. Similarly, the Company is free to terminate your employment at any time, for any reason or for no reason.

2. Compensation. The Company will pay you a salary at the rate of $12,500 per month payable in accordance with the Company’s standard payroll policies, including compliance with applicable withholding. The first and last payment by the Company to you will be adjusted, if necessary, to reflect a commencement or termination date other than the first or last working day of a pay period.

3. Stock Option. Subject to approval by the Company’s Board of Directors, which the Company agrees to seek as promptly as possible after the date of this letter, you will be granted an option to purchase 862,499 shares of the Company’s Common Stock at an exercise price per share of $1.50. 172,499 shares subject to your option shall be fully vested as of the effective date of your employment and one-forty eighth (1/48^th) of the remaining 690,000 shares subject to your option will vest each month following the effective date of your employment, subject to your continued employment with the Company on any such date. In addition, in the event of a Change of Control of the Company, then you shall fully vest in and have the right to exercise the option as to all of the 862,499 shares of Common Stock, including shares of Common Stock as to which you would not otherwise be vested or exercisable.

(a) For purposes herein, “Change of Control” means the occurrence of any of the following events: (i) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; (ii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation (provided that the sale by the Company of its securities for the purposes of raising additional funds shall not constitute a Change of Control hereunder); or (iii) the consummation of the sale or disposition by the Company for aggregate gross proceeds to the Company of no less than $50,000,000 of (a) one of the two issued RX patents held by the Company as of the date hereof, or (b) the pending RX patent held by the Company as of the date hereof, as approved by the Company’s board of directors.

4. Benefits. During the term of your employment, you will be entitled to the Company’s standard vacation and benefits covering employees at your level, as such may be in effect from time to time. The Company does not currently grant any benefits.

5. Immigration Laws. For purposes of federal immigration laws, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided within 3 business days of the effective date of your employment, or your employment relationship with the Company may be terminated.

6. Employee Proprietary Information Agreement. As a condition of this offer of employment, you will be required to complete, sign and return the Company’s standard form of employee proprietary information agreement (the “EPIA”).

7. Parachute Payments. If any payment or benefit you would receive pursuant to a Change of Control from the Company or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be equal to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in your receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order unless you elect in writing a different order (provided, however, that such election shall be subject to Company approval if made on or after the effective date of the event that triggers the Payment): reduction of cash payments; cancellation of accelerated vesting of stock options; reduction of employee benefits. In the event that acceleration of vesting of the stock options is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of your stock options (i.e., earliest granted stock option cancelled last) unless you elect in writing a different order for cancellation.

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8. General. This offer letter, the EPIA and the stock option agreement (if approved by the Board of Directors) covering the grant described in paragraph 3, when signed by you, set forth the terms of your employment with the Company and supersede any and all prior representations and agreements, whether written or oral. In the event of a conflict between the terms and provisions of this offer letter and the EPIA and the stock option agreement, the terms and provisions of the EPIA and the stock option agreement will control. Any amendment of this offer letter or any waiver of a right under this offer letter must be in a writing signed by you and an officer of the Company. California law will govern this offer letter.

We look forward to you joining the Company. If the foregoing terms are agreeable, please indicate your acceptance by signing this offer letter in the space provided below and returning it to me, along with your completed and signed EPIA.

Sincerely,
Liberty Mint, Ltd.
By:
	John F. Steel IV, Director

AGREED TO AND ACCEPTED:

“Employee”

Edward B. Wilson

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EX-10.2

Exhibit 10.2

Liberty Mint, Ltd.

December 13, 2004

John T. Hendrick

Re: Offer of Employment with Liberty Mint, Ltd.

Dear John:

On behalf of Liberty Mint, Ltd., a Nevada corporation (the “Company”), I am pleased to invite you to join the Company as its Chief Financial Officer. In this position, you will be expected to devote sufficient business time, attention and energies to perform your duties with the Company, recognizing that you have other business activities not involving the Company; provided, however, that any such other business activities shall be approved by the Board of Directors of the Company. The effective date of your employment will be December 13, 2004, or such other date as you and the Company mutually agree in writing.

The terms of this offer of employment are as follows:

1. At-Will Employment. You should be aware that your employment with the Company is for no specified period and constitutes “at-will” employment. As a result, you are free to terminate your employment at any time, for any reason or for no reason. Similarly, the Company is free to terminate your employment at any time, for any reason or for no reason.

2. Compensation. The Company will pay you a salary at the rate of $8,333.33 per month payable in accordance with the Company’s standard payroll policies, including compliance with applicable withholding. The first and last payment by the Company to you will be adjusted, if necessary, to reflect a commencement or termination date other than the first or last working day of a pay period. Upon the start of your employment, the Company will also pay you a signing bonus of $15,250.00, subject to applicable withholding.

3. Stock Option. Subject to approval by the Company’s Board of Directors, which the Company agrees to seek as promptly as possible after the date of this letter, you will be granted an option to purchase 200,000 shares of the Company’s Common Stock at an exercise price per share of $1.50. 40,000 shares subject to your option shall be fully vested as of the effective date of your employment and one-forty eighth (1/48^th) of the remaining 160,000 shares subject to your option will vest each month following the effective date of your employment, subject to your continued employment with the Company on any such date. In addition, in the event of a Change of Control of the Company, then you shall fully vest in and have the right to exercise the option as to all of the 200,000 shares of Common Stock, including shares of Common Stock as to which you would not otherwise be vested or exercisable.

(a) For purposes herein, “Change of Control” means the occurrence of any of the following events: (i) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; (ii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation (provided that the sale by the Company of its securities for the purposes of raising additional funds shall not constitute a Change of Control hereunder); or (iii) the consummation of the sale or disposition by the Company for aggregate gross proceeds to the Company of no less than $50,000,000 of (a) one of the two issued RX patents held by the Company as of the date hereof, or (b) the pending RX patent held by the Company as of the date hereof, as approved by the Company’s board of directors.

4. Benefits. During the term of your employment, you will be entitled to the Company’s standard vacation and benefits covering employees at your level, as such may be in effect from time to time. The Company does not currently grant any benefits. You will not be required to receive Company health insurance benefits or participate in any Company-sponsored health insurance plan without your prior written consent.

5. Immigration Laws. For purposes of federal immigration laws, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided within 3 business days of the effective date of your employment, or your employment relationship with the Company may be terminated.

6. Employee Proprietary Information Agreement. As a condition of this offer of employment, you will be required to complete, sign and return the Company’s standard form of employee proprietary information agreement (the “EPIA”).

7. Parachute Payments. If any payment or benefit you would receive pursuant to a Change of Control from the Company or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be equal to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in your receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order unless you elect in writing a

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different order (provided, however, that such election shall be subject to Company approval if made on or after the effective date of the event that triggers the Payment): reduction of cash payments; cancellation of accelerated vesting of stock options; reduction of employee benefits. In the event that acceleration of vesting of the stock options is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of your stock options (i.e., earliest granted stock option cancelled last) unless you elect in writing a different order for cancellation.

8. General. This offer letter, the EPIA and the stock option agreement (if approved by the Board of Directors) covering the grant described in paragraph 3, when signed by you, set forth the terms of your employment with the Company and supersede any and all prior representations and agreements, whether written or oral. In the event of a conflict between the terms and provisions of this offer letter and the EPIA and the stock option agreement, the terms and provisions of the EPIA and the stock option agreement will control. Any amendment of this offer letter or any waiver of a right under this offer letter must be in a writing signed by you and an officer of the Company. California law will govern this offer letter.

We look forward to you joining the Company. If the foregoing terms are agreeable, please indicate your acceptance by signing this offer letter in the space provided below and returning it to me, along with your completed and signed EPIA.

Sincerely,
Liberty Mint, Ltd.
By:
	John F. Steel IV, Director

AGREED TO AND ACCEPTED:

“Employee”

John T. Hendrick

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EX-10.3

Exhibit 10.3

AKESIS PHARMACEUTICALS, INC.

STAND-ALONE STOCK OPTION AGREEMENT

I. NOTICE OF STOCK OPTION GRANT

Name:	Edward B. Wilson
Address:

You have been granted a Nonstatutory Stock Option to purchase Common Stock of the Company, subject to the terms and conditions of this Agreement, as follows:

Date of Grant	January 24, 2005
Vesting Commencement Date	December 13, 2004
Exercise Price per Share	$1.50
Total Number of Shares Granted	862,499
Total Exercise Price	$1,293,748.50
Term/Expiration Date:	January 24, 2015

Vesting Schedule:

This Option will vest and may be exercised, in whole or in part, in accordance with the following schedule:

20% of the Shares subject to the Option will vest as of December 13, 2004 (“the Vesting Commencement Date”), and 1/48th of the remaining Shares subject to the Option will vest each month thereafter, so that the Option will be fully vested four (4) years from the Vesting Commencement Date, subject to the Optionee continuing to be a Service Provider on such dates.

Notwithstanding the foregoing, 100% of the Shares subject to this Option will fully vest and become exercisable upon a Change of Control as defined in the Offer of Employment Letter entered into between Optionee and the Company and dated December 13, 2004.

Termination Period

Subject to the provisions of Section 10(c) of the Agreement, this Option may be exercised for three (3) months after Optionee ceases to be a Service Provider in accordance with Section 7 of this Agreement. Upon the death or Disability of the Optionee, this Option may be exercised for one (1) year after the Optionee ceases to be a Service Provider in accordance with Sections 8 and 9 of this Agreement. In no event will this Option be exercised later than the Term/Expiration Date provided above.

II. AGREEMENT

1. Definitions. As used herein, the following definitions will apply:

(a) “Agreement” means this stock option agreement between the Company and Optionee evidencing the terms and conditions of this Option.

(b) “Applicable Laws” means the requirements relating to the administration of stock options 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 that may apply to this Option.

(c) “Board” means the Board of Directors of the Company or any committee of the Board that has been designated by the Board to administer this Agreement.

(d) “Change of Control” means the occurrence of any of the following events:

(1) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities;

(2) the approval by the stockholders of the Company of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets;

(3) the approval by stockholders of the Company of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation.

(e) “Code” means the Internal Revenue Code of 1986, as amended.

(f) “Common Stock” means the common stock of the Company.

(g) “Company” means Akesis Pharmaceuticals, Inc., a Nevada corporation.

(h) “Consultant” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

(i) “Director” means a member of the Board.

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(j) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.

(k) “Employee” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. An Employee will not cease to be such 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, its Parent, any Subsidiary, or any successor. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.

(l) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(m) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value will be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(2) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value will be the mean between the high bid and low asked prices for the Common Stock on the day of determination; or

(3) In the absence of an established market for the Common Stock, the Fair Market Value thereof will be determined in good faith by the Board.

(n) “Nonstatutory Stock Option” means an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(o) “Notice of Grant” means a written notice, in Part I of this Agreement, evidencing certain terms and conditions of this Option grant. The Notice of Grant is part of the Option Agreement.

(p) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(q) “Option” means this stock option.

(r) “Optioned Stock” means the Common Stock subject to this Option.

(s) “Optionee” means the person named in the Notice of Stock Option Grant or such person’s successor.

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(t) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

(u) “Service Provider” means an Employee, Director or Consultant.

(v) “Share” means a share of the Common Stock, as adjusted in accordance with Section 11 of this Agreement.

(w) “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

2. Grant of Option. The Board hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement the Option to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”), subject to the terms and conditions of this Agreement.

3. Exercise of Option.

(a) Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of this Agreement.

(b) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the “Exercise Notice”), which will state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company. The Exercise Notice will be completed by the Optionee and delivered to the Human Resources Specialist of the Company or such other person as the Company may designate. The Exercise Notice will be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option will be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.

(c) Legal Compliance. No Shares will be issued pursuant to the exercise of this Option unless such issuance and exercise comply with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares will be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.

4. Method of Payment. Payment of the aggregate Exercise Price will be by any of the following, or a combination thereof, at the election of the Optionee:

(a) cash or check; or,

(b) with the Board’s consent, consideration received by the Company under a cashless exercise program implemented by the Company.

5. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of this Agreement will be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

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6. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the terms of this Agreement.

7. Termination of Relationship as a Service Provider. If the Optionee ceases to be a Service Provider (other than for death or Disability), this Option may be exercised for a period of three (3) months after the date of such termination (but in no event later than the expiration date of this Option as set forth in the Notice of Grant) to the extent that the Option is vested on the date of such termination. To the extent that the Optionee does not exercise this Option within the time specified herein, the Option will terminate.

8. Disability of Optionee. If the Optionee ceases to be a Service Provider as a result of the Optionee’s Disability, this Option may be exercised for a period of twelve (12) months after the date of such termination (but in no event later than the expiration date of this Option as set forth in the Notice of Grant) to the extent that the Option is vested on the date of such termination. To the extent that Optionee does not exercise this Option within the time specified herein, the Option will terminate.

9. Death of Optionee. If the Optionee dies while a Service Provider, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration date of this Option as set forth in the Notice of Grant), by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, after death, the Optionee’s estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option will terminate.

10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Board, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under this Option, may (in its sole discretion) adjust the number, class, and Exercise Price of Shares covered by this Option.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Board will notify Optionee as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed

(c) Change of Control. In the event of a Change of Control, the Option will be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee will fully vest in and have the right to exercise the Option as to all of

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the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If the Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a Change of Control, the Board will notify the Optionee in writing or electronically that the Option will be fully exercisable for a period of time determined by the Board, and the Option will terminate upon the expiration of such period. For the purposes of this paragraph, the Option will be considered assumed if, following the Change of Control, the option confers the right to purchase or receive, for each Share subject to the Option immediately prior to the Change of Control, the consideration (whether stock, cash, or other securities or property) received in the Change of Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change of Control is not solely common stock of the successor corporation or its Parent, the Board may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Change of Control.

11. Notices. Any notice to be given to the Company hereunder will be in writing and will be addressed to the Company at its then current principal executive office or to such other address as the Company may hereafter designate to the Optionee by notice as provided in this Section. Any notice to be given to the Optionee hereunder will be addressed to the Optionee at the address set forth beneath his signature hereto, or at such other address as the Optionee may hereafter designate to the Company by notice as provided herein. A notice will be deemed to have been duly given when personally delivered or mailed by registered or certified mail to the party entitled to receive it.

12. Withholding Taxes. Optionee agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state, and local income and employment tax withholding requirements applicable to the Option exercise. Optionee acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

13. Entire Agreement; Governing Law. This Agreement and the Offer of Employment Letter entered into between Optionee and the Company and dated December 13, 2004 constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California.

14. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO

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NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

By Optionee’s signature and the signature of the Company’s representative below, Optionee and the Company agree that this Option is granted under and governed by the terms and conditions of this Agreement. Optionee has reviewed this Agreement in its entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions relating to this Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below.

OPTIONEE	AKESIS PHARMACEUTICALS, INC.
Signature	By
Print Name	Title
Residence Address

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EXHIBIT A

AKESIS PHARMACEUTICALS, INC.

EXERCISE NOTICE

Akesis Pharmaceuticals, Inc.

[Address]

Attention:

1. Exercise of Option. Effective as of today,                     , 20    , the undersigned (“Purchaser”) hereby elects to purchase                      shares (the “Shares”) of the Common Stock of Akesis Pharmaceuticals, Inc. (the “Company”) under the option (the “Option”) represented by the Stock Option Agreement dated January 24, 2005 (the “Option Agreement”).

2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price for the Shares together with any required withholding taxes to be paid in connection with the exercise of the Option.

3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Option Agreement and agrees to abide by and be bound by its terms and conditions.

4. Rights as Shareholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired will be issued to the Purchaser as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 11 of the Option Agreement.

5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser’s purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.

6. Successors and Assigns. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this Exercise Notice will inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Notice will be binding upon the Purchaser and his or her heirs, executors, administrators, successors and assigns.

7. Interpretation. Any dispute regarding the interpretation of this Exercise Notice will be submitted by the Purchaser or by the Company forthwith to the Board, which will review such dispute at its next regular meeting. The resolution of such a dispute by the Board will be final and binding on all parties.

8. Entire Agreement; Governing Law. The Option Agreement is incorporated herein by reference together with any documents incorporated by reference therein. This Agreement, and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser’s interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California.

Submitted by:	Accepted by:
OPTIONEE	AKESIS PHARMACEUTICALS, INC.
Signature
Print Name
Address	Address
	[ADDRESS]
	Date Received:

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EX-10.4

Exhibit 10.4

AKESIS PHARMACEUTICALS, INC.

STAND-ALONE STOCK OPTION AGREEMENT

I. NOTICE OF STOCK OPTION GRANT

Name:	John T. Hendrick
Address:

You have been granted a Nonstatutory Stock Option to purchase Common Stock of the Company, subject to the terms and conditions of this Agreement, as follows:

Date of Grant	January 24, 2005
Vesting Commencement Date	December 13, 2004
Exercise Price per Share	$1.50
Total Number of Shares Granted	200,000
Total Exercise Price	$300,000.00
Term/Expiration Date:	January 24, 2015

Vesting Schedule:

This Option will vest and may be exercised, in whole or in part, in accordance with the following schedule:

20% of the Shares subject to the Option will vest as of December 13, 2004 (“the Vesting Commencement Date”), and 1/48th of the remaining Shares subject to the Option will vest each month thereafter, so that the Option will be fully vested four (4) years from the Vesting Commencement Date, subject to the Optionee continuing to be a Service Provider on such dates.

Notwithstanding the foregoing, 100% of the Shares subject to this Option will fully vest and become exercisable upon a Change of Control as defined in the Offer of Employment Letter entered into between Optionee and the Company and dated December 13, 2004.

Termination Period

Subject to the provisions of Section 10(c) of the Agreement, this Option may be exercised for three (3) months after Optionee ceases to be a Service Provider in accordance with Section 7 of this Agreement. Upon the death or Disability of the Optionee, this Option may be exercised for one (1) year after the Optionee ceases to be a Service Provider in accordance with Sections 8 and 9 of this Agreement. In no event will this Option be exercised later than the Term/Expiration Date provided above.

II. AGREEMENT

1. Definitions. As used herein, the following definitions will apply:

(a) “Agreement” means this stock option agreement between the Company and Optionee evidencing the terms and conditions of this Option.

(b) “Applicable Laws” means the requirements relating to the administration of stock options 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 that may apply to this Option.

(c) “Board” means the Board of Directors of the Company or any committee of the Board that has been designated by the Board to administer this Agreement.

(d) “Change of Control” means the occurrence of any of the following events:

(1) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities;

(2) the approval by the stockholders of the Company of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets;

(3) the approval by stockholders of the Company of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation.

(e) “Code” means the Internal Revenue Code of 1986, as amended.

(f) “Common Stock” means the common stock of the Company.

(g) “Company” means Akesis Pharmaceuticals, Inc., a Nevada corporation.

(h) “Consultant” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

(i) “Director” means a member of the Board.

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(j) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.

(k) “Employee” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. An Employee will not cease to be such 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, its Parent, any Subsidiary, or any successor. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.

(l) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(m) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value will be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(2) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value will be the mean between the high bid and low asked prices for the Common Stock on the day of determination; or

(3) In the absence of an established market for the Common Stock, the Fair Market Value thereof will be determined in good faith by the Board.

(n) “Nonstatutory Stock Option” means an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(o) “Notice of Grant” means a written notice, in Part I of this Agreement, evidencing certain terms and conditions of this Option grant. The Notice of Grant is part of the Option Agreement.

(p) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(q) “Option” means this stock option.

(r) “Optioned Stock” means the Common Stock subject to this Option.

(s) “Optionee” means the person named in the Notice of Stock Option Grant or such person’s successor.

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(t) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

(u) “Service Provider” means an Employee, Director or Consultant.

(v) “Share” means a share of the Common Stock, as adjusted in accordance with Section 11 of this Agreement.

(w) “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

2. Grant of Option. The Board hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement the Option to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”), subject to the terms and conditions of this Agreement.

3. Exercise of Option.

(a) Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of this Agreement.

(b) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the “Exercise Notice”), which will state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company. The Exercise Notice will be completed by the Optionee and delivered to the Human Resources Specialist of the Company or such other person as the Company may designate. The Exercise Notice will be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option will be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.

(c) Legal Compliance. No Shares will be issued pursuant to the exercise of this Option unless such issuance and exercise comply with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares will be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.

4. Method of Payment. Payment of the aggregate Exercise Price will be by any of the following, or a combination thereof, at the election of the Optionee:

(a) cash or check; or,

(b) with the Board’s consent, consideration received by the Company under a cashless exercise program implemented by the Company.

5. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of this Agreement will be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

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6. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the terms of this Agreement.

7. Termination of Relationship as a Service Provider. If the Optionee ceases to be a Service Provider (other than for death or Disability), this Option may be exercised for a period of three (3) months after the date of such termination (but in no event later than the expiration date of this Option as set forth in the Notice of Grant) to the extent that the Option is vested on the date of such termination. To the extent that the Optionee does not exercise this Option within the time specified herein, the Option will terminate.

8. Disability of Optionee. If the Optionee ceases to be a Service Provider as a result of the Optionee’s Disability, this Option may be exercised for a period of twelve (12) months after the date of such termination (but in no event later than the expiration date of this Option as set forth in the Notice of Grant) to the extent that the Option is vested on the date of such termination. To the extent that Optionee does not exercise this Option within the time specified herein, the Option will terminate.

9. Death of Optionee. If the Optionee dies while a Service Provider, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration date of this Option as set forth in the Notice of Grant), by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, after death, the Optionee’s estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option will terminate.

10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Board, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under this Option, may (in its sole discretion) adjust the number, class, and Exercise Price of Shares covered by this Option.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Board will notify Optionee as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed

(c) Change of Control. In the event of a Change of Control, the Option will be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee will fully vest in and have the right to exercise the Option as to all of

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the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If the Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a Change of Control, the Board will notify the Optionee in writing or electronically that the Option will be fully exercisable for a period of time determined by the Board, and the Option will terminate upon the expiration of such period. For the purposes of this paragraph, the Option will be considered assumed if, following the Change of Control, the option confers the right to purchase or receive, for each Share subject to the Option immediately prior to the Change of Control, the consideration (whether stock, cash, or other securities or property) received in the Change of Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change of Control is not solely common stock of the successor corporation or its Parent, the Board may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Change of Control.

11. Notices. Any notice to be given to the Company hereunder will be in writing and will be addressed to the Company at its then current principal executive office or to such other address as the Company may hereafter designate to the Optionee by notice as provided in this Section. Any notice to be given to the Optionee hereunder will be addressed to the Optionee at the address set forth beneath his signature hereto, or at such other address as the Optionee may hereafter designate to the Company by notice as provided herein. A notice will be deemed to have been duly given when personally delivered or mailed by registered or certified mail to the party entitled to receive it.

12. Withholding Taxes. Optionee agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state, and local income and employment tax withholding requirements applicable to the Option exercise. Optionee acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

13. Entire Agreement; Governing Law. This Agreement and the Offer of Employment Letter entered into between Optionee and the Company and dated December 13, 2004 constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California.

14. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO

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NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

By Optionee’s signature and the signature of the Company’s representative below, Optionee and the Company agree that this Option is granted under and governed by the terms and conditions of this Agreement. Optionee has reviewed this Agreement in its entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions relating to this Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below.

OPTIONEE	AKESIS PHARMACEUTICALS, INC.
Signature	By
Print Name	Title
Residence Address

-7-

EXHIBIT A

AKESIS PHARMACEUTICALS, INC.

EXERCISE NOTICE

Akesis Pharmaceuticals, Inc.

[Address]

Attention:

1. Exercise of Option. Effective as of today,                     , 20        , the undersigned (“Purchaser”) hereby elects to purchase                      shares (the “Shares”) of the Common Stock of Akesis Pharmaceuticals, Inc. (the “Company”) under the option (the “Option”) represented by the Stock Option Agreement dated January 24, 2005 (the “Option Agreement”).

2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price for the Shares together with any required withholding taxes to be paid in connection with the exercise of the Option.

3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Option Agreement and agrees to abide by and be bound by its terms and conditions.

4. Rights as Shareholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired will be issued to the Purchaser as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 11 of the Option Agreement.

5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser’s purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.

6. Successors and Assigns. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this Exercise Notice will inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Notice will be binding upon the Purchaser and his or her heirs, executors, administrators, successors and assigns.

7. Interpretation. Any dispute regarding the interpretation of this Exercise Notice will be submitted by the Purchaser or by the Company forthwith to the Board, which will review such dispute at its next regular meeting. The resolution of such a dispute by the Board will be final and binding on all parties.

8. Entire Agreement; Governing Law. The Option Agreement is incorporated herein by reference together with any documents incorporated by reference therein. This Agreement, and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser’s interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California.

Submitted by:	Accepted by:
OPTIONEE	AKESIS PHARMACEUTICALS, INC.
Signature
Print Name
Address	Address
	[ADDRESS]
	Date Received:

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EX-10.5

Exhibit 10.5

AKESIS PHARMACEUTICALS, INC.

2005 STOCK PLAN

1. Purposes of the Plan. The purposes of this 2005 Stock Plan are:

• to attract and retain the best available personnel for positions of substantial responsibility,

• to provide additional incentive to Employees, Directors and Consultants, and

• to promote the success of the Company’s business.

Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan

2. Definitions. As used herein, the following definitions shall apply:

(a) “Administrator” means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan.

(b) “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.

(c) “Board” means the Board of Directors of the Company.

(d) “Change in Control” means the occurrence of any of the following events:

(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or

(ii) A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the Directors are Incumbent Directors. “Incumbent Directors” will mean Directors who either (A) are Directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of Directors to the Company); or

(iii) The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; or

(iv) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

(e) “Code” means the Internal Revenue Code of 1986, as amended.

(f) “Committee” means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan.

(g) “Common Stock” means the common stock of the Company.

(h) “Company” means Akesis Pharmaceuticals, Inc., a Nevada corporation.

(i) “Consultant” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

(j) “Director” means a member of the Board.

(k) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.

(l) “Employee” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider 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, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three (3) months following the 91^st day of such leave, any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(n) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price

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for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator.

(o) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(p) “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

(q) “Notice of Grant” means a written or electronic notice evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement.

(r) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(s) “Option” means a stock option granted pursuant to the Plan.

(t) “Option Agreement” means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.

(u) “Optioned Stock” means the Common Stock subject to an Option or a Stock Purchase Right.

(v) “Optionee” means the holder of an outstanding Option or Stock Purchase Right granted under the Plan.

(w) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

(x) “Plan” means this 2005 Stock Plan.

(y) “Restricted Stock” means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan or pursuant to the early exercise of an Option.

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(z) “Restricted Stock Purchase Agreement” means a written agreement between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant.

(aa) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

(bb) “Section 16(b)” means Section 16(b) of the Exchange Act.

(cc) “Securities Act” means the Securities Act of 1933, as amended.

(dd) “Service Provider” means an Employee, Director or Consultant.

(ee) “Share” means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan.

(ff) “Stock Purchase Right” means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

(gg) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

3. Stock Subject to the Plan. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be subject to Options or Stock Purchase Rights and sold under the Plan is 1,500,000. The Shares may be authorized, but unissued, or reacquired Common Stock.

If an Option or a Stock Purchase Right expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan.

4. Administration of the Plan.

(a) Procedure.

(i) Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may administer the Plan.

(ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Options or Stock Purchase Rights granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two (2) or more outside Directors within the meaning of Section 162(m) of the Code.

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(iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3.

(iv) Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which Committee shall be constituted to satisfy Applicable Laws.

(b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion:

(i) to determine the Fair Market Value;

(ii) to select the Service Providers to whom Options and Stock Purchase Rights may be granted hereunder;

(iii) to determine the number of shares of Common Stock to be covered by each Option or Stock Purchase Right granted hereunder;

(iv) to approve forms of agreement for use under the Plan;

(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

(vi) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan;

(vii) to establish, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;

(viii) to modify or amend each Option or Stock Purchase Right (subject to Section 15(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options or Stock Purchase Rights longer than is otherwise provided for in the Plan;

(ix) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable;

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(x) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator;

(xi) to correct any defect, supply any omission, or reconcile any inconsistency in the Plan, or in any Option Agreement or Restricted Stock Purchase Agreement, in a manner and to the extent it shall deem necessary, all of which determinations and interpretations made by the Administrator shall be conclusive and binding on all Optionees, any other holders of Options or Stock Purchase Rights and on their legal representatives and beneficiaries; and

(xii) except to the extent prohibited by, or impermissible in order to obtain treatment desired by the Administrator under, applicable law or rule, to allocate or delegate all or any portion of its powers and responsibilities to any one or more of its members or to any person(s) selected by it, subject to revocation or modification by the Administrator of such allocation or delegation.

(xiii) to make all other determinations deemed necessary or advisable for administering the Plan.

(c) Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights.

5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.

6. Limitations.

(a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

(b) The following limitations will apply to grants of Options and Stock Appreciation Rights:

(i) No Service Provider will be granted, in any calendar year, Options to purchase more than 300,000 Shares.

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(ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 500,000 Shares, which will not count against the limit set forth in Section 6(a)(2)(ii)(1) above.

(iii) The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 13.

(iv) If an Option, as applicable, is cancelled in the same calendar year in which it was granted (other than in connection with a transaction described in Section 13), the cancelled Option will be counted against the limits set forth in subsections (1) and (2) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option.

(c) Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee’s relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee’s right or the Company’s right to terminate such relationship at any time, with or without cause.

7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 15 of the Plan.

8. Term of Option. The term of each Option shall be stated in the Option Agreement, provided, however, that the term shall be no more than ten (10) years from the date of the grant thereof. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement.

9. Option Exercise Price and Consideration.

(a) Exercise Price. The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following:

(i) In the case of an Incentive Stock Option

(1) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.

(2) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

(ii) In the case of a Nonstatutory Stock Option

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(1) granted to a Service Provider who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.

(2) granted to any other Service Provider, the per Share exercise price shall be no less than eighty-five percent (85%) of the Fair Market Value per Share on the date of grant.

(iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above in accordance with and pursuant to a transaction described in Section 424 of the Code.

(b) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions that must be satisfied before the Option may be exercised.

(c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist of (without limitation):

(i) cash;

(ii) check;

(iii) other Shares, provided Shares acquired directly or indirectly from the Company, (A) have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised;

(iv) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan;

(v) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee’s participation in any Company-sponsored deferred compensation program or arrangement;

(vi) any combination of the foregoing methods of payment; or

(vii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws.

10. Exercise of Option.

(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the

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Administrator provides otherwise, vesting of Options granted hereunder shall be suspended during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. Except in the case of Options granted to Officers, Directors and Consultants, Options shall become exercisable at a rate of no less than twenty percent (20%) per year over five (5) years from the date the Options are granted.

An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse or in the name of a family trust of which the Optionee is a trustee. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised; provided that if the Company shall be advised by counsel that certain requirements under the Federal, state or foreign securities laws must be met before Shares may be issued under this Plan, the Company shall notify all persons who have been issued Options, and the Company shall have no liability for failure to issue Shares under any exercise of Options because of delay while such requirements are being met or the inability of the Company to comply with such requirements. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan.

Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

(b) Termination of Relationship as a Service Provider. . If an Optionee ceases to be a Service Provider, such Optionee may exercise his or her Option within thirty (30) days of termination, or such longer period of time as specified in the Option Agreement, to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee’s termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee’s Disability, the Optionee may exercise his or her Option within six (6) months of termination, or such longer period of time as specified in the Option Agreement, to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option

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Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee’s termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised following the Optionee’s death within six (6) months of termination, or such longer period of time as specified in the Option Agreement, to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement), by the Optionee’s designated beneficiary, provided such beneficiary has been designated prior to the Optionee’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Optionee, then such Option may be exercised by the personal representative of the Optionee’s estate or by the person(s) to whom the Option is transferred pursuant to the Optionee’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee’s death. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

11. Stock Purchase Rights.

(a) 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 Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The terms of the offer shall comply in all respects with Section 260.140.42 of Title 10 of the California Code of Regulations. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator.

(b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable within ninety (90) days of the voluntary or involuntary termination of the purchaser’s service with the Company for any reason (including death or Disability). Unless the Administrator provides otherwise, 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 such rate as the Administrator may determine. Except with respect to Shares purchased by Officers, Directors and Consultants, the repurchase option shall in no case lapse at a rate of less than twenty percent (20%) per year over five (5) years from the date of purchase.

(c) 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 Administrator in its sole discretion.

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(d) Rights as a Stockholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a stockholder, and shall be a stockholder 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, except as provided in Section 13 of the Plan.

12. Transferability of Options and Stock Purchase Rights. Unless determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator, in its sole discretion, makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right may only be transferred (i) by will, (ii) by the laws of descent and distribution, or (iii) to family members (within the meaning of Rule 701 of the Securities Act) through gifts or domestic relations orders as permitted by Rule 701 of the Securities Act.

13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Change in Control.

(a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive, provided, however, that the Board shall make such adjustments to the extent required by Section 25102(o) of the California Corporations Code.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option or Stock Purchase Right until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option or Stock Purchase Right would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action.

(c) Merger or Change in Control. In the event of a merger of the Company with or into another corporation, or a Change in Control, each outstanding Option or Stock Purchase

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Right shall be treated as the Administrator determines, including, without limitation, that each Option or Stock Purchase Right be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. The Administrator shall not be required to treat all Options and Stock Purchase Rights similarly in the transaction.

In the event that the successor corporation not assume or substitute for the Option or Stock Purchase Right, unless the Administrator determines otherwise, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right that is not assumed or substituted for as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If the Administrator determines that an Option or Stock Purchase Right that is not assumed or substituted in connection with a merger or Change in Control shall fully vest, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of time the Administrator determines, and the Option or Stock Purchase Right shall terminate upon the expiration of such period for no consideration, unless the Administrator determines otherwise.

For the purposes of this subsection (c), the Option or Stock Purchase Right shall be considered assumed if, following the merger or Change in Control, the option or right confers the right to purchase or receive, for each Share subject to the Option or Stock Purchase Right immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control.

14. Date of Grant. The date of grant of an Option or Stock Purchase Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant.

15. Amendment and Termination of the Plan.

(a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.

(b) Stockholder Approval. The Board shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws and Section 15(c) below.

(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan or any Option shall impair the rights of any Optionee, unless mutually

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agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Options or Stock Purchase Rights granted under the Plan prior to the date of such termination.

16. Conditions Upon Issuance of Shares.

(a) Legal Compliance. Shares 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 Administrator 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 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.

17. 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 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.

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

19. Stockholder Approval. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the manner and to the degree required under Applicable Laws.

20. Information to Optionees. The Company shall provide to each Optionee and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Optionee has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information.

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

We hereby consent to the application of our report dated March 21, 2005, included in this Form 10-K of Akesis Pharmaceuticals, Inc. relating to their consolidated financial statements for the years ended December 31, 2004, 2003 and 2002 and the period from April 27, 1998 (date of inception of Akesis Pharmaceuticals, Inc. a Delaware corporation) to December 31, 2004.

Swenson Advisors, LLP

San Diego, California

March 23, 2005

EX-31.1

Exhibit 31.1

CEO CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Edward B. Wilson, certify that:

1. I have reviewed this Report on Form 10-K of Akesis Pharmaceuticals, 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(s) 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 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. 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

c. 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(s) 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.

By:	/s/ Edward B. Wilson
	Edward B. Wilson,
	President, Chief Executive Officer and Director

Date: March 23, 2005

EX-31.2

Exhibit 31.2

CFO CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John T. Hendrick, certify that:

1. I have reviewed this Report on Form 10-K of Akesis Pharmaceuticals, 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(s) 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 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. 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

c. 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(s) 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.

By:	/s/ John T. Hendrick
	John T. Hendrick,
	Chief Financial Officer

Date: March 23, 2005

EX-32.1

Exhibit 32.1

CEO and CFO CERTIFICATIONS PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. Section 1350)

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Edward B. Wilson, President and Chief Executive Officer, and John T. Hendrick, Chief Financial Officer, of Akesis Pharmaceuticals, Inc. (the “Company”), hereby certify that to the best of our knowledge:

1. The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and to which this certification is attached as Exhibit 32.1 (the “Periodic 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 this Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Edward B. Wilson
	Edward B. Wilson,
	President, Chief Executive Officer and Director
By:	/s/ John T. Hendrick
	John T. Hendrick,
	Chief Financial Officer

Date: March 23, 2005