UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K

(Mark One) 
R
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2004
2005
 
or
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period fromto


Commission file number: 000-26648


eXegenics Inc.
(Exact name of registrant as specified in its charter)

Delaware
75-2402409
Delaware75-2402409
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
  
1250 Pittsford-Victor Rd
14534
Pittsford, NY
(Zip Code)
(Address of principal executive offices)
 


Registrant’s telephone number, including area code:
(585) 218-4375


Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Name of each exchange on which registered
N/AN/A


Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value Per Share
(Title of Class)


Indicate by checkmark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No x

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. Yesþx Noo


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 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.o


Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check One).
Large Accelerated Filer £
Accelerated Filer £
Non-accelerated Filer T

Indicate by check mark whether the registrant is an accelerated filera shell company (as defined in Exchange Act Rule 12b-2). Yeso  Noþx


The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) on June 30, 20042005 was $9,785,964,$4,827,613 based on the last sale price as reported by OTC Bulletin Board.

As of April 7, 2005,March 29, 2006 the registrant had 16,266,55316,878,090 shares of common stock outstanding.
 


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FORWARD-LOOKING STATEMENTS


This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify such forward-looking statements by the words “expects”, “intends,” “plans,” “projects,” “believes,” “estimates,” “likely,” “goal,” “assume” and similar expressions. In the normal course of business, eXegenics Inc. (“eXegenics” or the “Company”), in an effort to help keep its stockholders and the public informed about the Company’s operations may, from time to time, issue such forward-looking statements, either orally or in writing. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies, or projections involving anticipated revenues, earnings or other aspects of operating results. eXegenics bases the forward-looking statements on its current expectations, estimates and projections. eXegenics cautions you that these statements are not guarantees of future performance and involve risks, uncertainties and assumptions that eXegenics cannot predict. In addition, eXegenics has based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Therefore, the actual results of the future events described in such forward-looking statements in this Annual Report, or elsewhere, could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are the risks and uncertainties discussed in this Annual Report, including, without limitation, factors discussed in Item 1, “Business” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including the factors discussed under the caption “Factors That May Affect Financial Condition and Future Results,” beginning on Page 5.

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TABLE OF CONTENTS

PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
SIGNATURES
Exhibit 23.1
Exhibit 23.2
Exhibit 31.1
Exhibit 32.1


PART I


Item 1.Business


General

eXegenicsInc., formerly known as Cytoclonal Pharmaceutics Inc. (the “Company”), was previously involved in the research, creation, and development of drugs for the treatment and/or prevention of cancer and infectious diseases. During 2004, the Company completed the termination of all research activities. All scientific staff and administrative positions have been eliminated and all of the Company’s research, license and royalty agreements have been terminated.

     On December 5, 2003, our then current Board of Directors: Dr. Joseph M. Davie, Robert J. Easton, Dr. Ronald L. Goode, Dr. Walter M. Lovenberg and Gordon F. Martin, (collectively referred to as the “Prior Board”) were removed by a majority vote of our stockholders via a proxy consent solicitation. They were replaced by the following slate of new Directors: John A. Paganelli, Robert A. Baron, Robert Benou, John J. Huntz, Jr., and Dr. David Lee Spencer, collectively referred to as the “New Board”. On February 23, 2004, Dr. Ronald L. Goode, the President and Chief Executive Officer of the Company resigned, thereby terminating his employment agreement with the Company that was to expire on March 21, 2004 (See Item 11. Executive Compensation). On June 22, 2004, John J. Huntz resigned as a member of the Company’s Board of Directors. On September 8, 2004, the board of directors of the Company appointed David Lee Spencer to serve as the third independent director of the audit committee. Currently, we have one employee, David E. Riggs, who serves as our President, Chief Executive Officer and Chief Financial Officer.

We havehistorically operated as a drug discovery company, exploiting new enabling technologies to advance and shorten the new drug development cycle. Our Company has been unsuccessful at advancingWe completed the termination of all research programs. activities. All scientific staff and administrative positions were eliminated and all of our research and development activities were terminated.

Our New Board and management are focused on redeploying the remaining residual assets of the Company. On September 8, 2004 the Company entered into an Intellectual Property Assignment Agreement to license the Company’s QCT drug discovery technology to NLC Pharma, Inc. The New Board has established a committee to study strategic direction and identify potential business opportunities and the Company’s objective continues to be to redeploy its assets and actively pursue new business opportunities.

     In 2003,

On June 29, 2005 the Company recognized an aggregate of $2,233,000 in expenses related to merger, tender offer and consent solicitation activities which included $1,375,000 in legal fees, $398,000 in fees to a financial advisor, $360,000 in other fees for audit, printingDavid E. Riggs mutually agreed that Mr. Riggs would relinquish his duties as President, Chief Executive and investor relations services and $100,000 for reimbursement of certain expenses triggered in connection with the terminationChief Financial Officer of the Agreement and planCompany. Chairman of Merger were paid to AVI Biopharma (see Note E in Notes tothe Board, John A. Paganelli, assumed the role of Interim Chief Executive Officer. On July 1, 2005 David Hostelley was named Chief Financial Statements).

     In 2004,Officer of the Company did not incur any expenses in connection with merger, tender offer and consent solicitation.

Company.

Patents, Licenses and Proprietary Rights


Prior to the termination of all of our research and development programs, our policy was to protect technology that we consider important in the development of our business by, among other things, filing patent applications for such technology. In addition to filing patent applications in the U.S.,As we have filed patent applications in certain foreign countries. Although a patent has a statutory presumption of validity in the U.S., the issuance of a patent is not conclusive as to such validity or as to the enforceable scope of the claims of the

3


patent. There can be no assurance that our issued patents or any patents subsequently issued to us, or licensed by us, will not be successfully challenged in the future. The validity or enforceability of a patent after its issuance by the U.S. Patent and Trademark Office can be challenged in litigation. If the outcome of the litigation is adverse to the owner of the patent, third parties may then be able to use the invention covered by the patent, in some cases without payment. There can be no assurance that patents in whichterminated all drug discovery operations we have not incurred expenses in maintaining any of our prior patents. Thus any of our patents may be subject to challenge and we may lose our rights will not be infringed or successfully avoided through design innovation.

     Costs associated with our patent portfolio were approximately $15,000 into such.


License Agreements

During 2004 and $220,000 in 2003. We do2005 we did not expect to incur significant new patent expenses related to drug discovery research operations.

     There can be no assurance that patent applications owned by us or licensed to us will result in patents being issued or thatreceive any such patents will afford protection against competitors with similar technology. It is also possible that third parties may obtain patent or other proprietary rights that may be needed by us. In cases where third parties arerevenues from the first to invent a particular product or technology, it is possible that those parties will obtain patents that will be sufficiently broad so as to prevent us from using certain technology or from further developing or commercializing certain products. If licenses from third parties are necessary but cannot be obtained, commercialization of the related products would be delayed or prevented. We are aware of patent applications and issued patents belonging to competitors but we are uncertain whether any of these, or patent applications filed of which we may not have any knowledge, will require us to alter our potential products or processes, pay licensing fees or cease certain activities.

     No assurance can be given that others will not independently develop substantially equivalent information and techniques or otherwise gain access to our technology or disclose such technology, or that we can effectively protect our rights in such unpatented technology, trade secrets and information.

License Agreements

     On September 8, 2004 we entered into an Intellectual Property Assignment Agreement to license the Company’s QCT drug discovery technology towith NLC Pharma, Inc. Pursuant to the Agreement theThe Company will receive moniesdid not earn any revenue under this agreement during 2005, nor does it anticipate receiving any revenues from royalties, licenses or the sale of QCT technology to third parties that are generated by NLC Pharma. NLC Pharma, Inc. is a Delaware corporation basedthis agreement in Israel, led by Dr. Dorit Aradfuture years.


Competition
As we have terminated all research and focused on rational drug design using the QCT technology. QCT is a rational drug design technology that is based on quantum chemistry, proprietary computational software and molecular modelling. The Quantum Mechanism Based drug creation technique combines quantum mechanics and physical organic chemistry to project estimates of essential biochemical reactions that occur at an atomic rather than molecular level. Looking at “core mechanisms” in this way could produce a wide range of drug leads. Between 1998 and 2001, the eXegenics scientific team identified a number a leads that are a part of the licensing agreement with NLC Pharma. The QCT technology first took form in 1998 when Dr. Arad joined the Company as Vice President of Drug Design. Dr. Arad had been a research associate of Dr. John Pople, a Noble Prize winner and a former consultant of the company. Dr. Arad led the group of eXegenics scientists who investigated and expanded the company’s focus on drug candidates into a number of therapeutic areas. In late 2001 the board of directors of eXegenics ceased further research of the QCT technology because of limited capital resources.

Competition

4


     Anydevelopment programs we do not anticipate developing any potential products that might come from our remaining intellectual property may face competition from existing therapies.

products.

3

Insurance


We have indemnification agreements with our former directors, in addition to the rights to indemnification afforded such individuals in our bylaws. The indemnification agreements require us to maintain directors’directors' and officers’officers' liability insurance covering at the then current levels of coverage for these individuals for a period from the date of such agreements until six years after the last date on which the individual ceases to be a director, officer, employee, agent or fiduciary of the Company. There can be no assurance that we will be able to obtain, maintain or increase our insurance coverage in the future on acceptable terms or that any claims against us will not exceed the amount of such coverage.

Employees

On March 30, 2004,June 29, 2005 the Company and David E. Riggs was appointed President in addition tomutually agreed that Mr. Riggs would relinquish his roleduties as Chief Financial Officer. As of December 31, 2004, we have one full-time employee, David E. Riggs, who serves as the President, Chief Executive Officer and Chief Financial Officer of the Company. Chairman of the Board, John A. Paganelli, assumed the role of Interim Chief Executive Officer. On July 1, 2005 David Hostelley was named Chief Financial Officer of the Company.
We engage independent contractors and temporary employees to perform certain administrative tasks. Although we believe that we have been successful to date in attracting skilled, highly qualified personnel, competition for personnel is intense and we cannot assure that we will be able to attract and retain highly qualified personnel. OurWe do not expect any future employees are notto be governed by any collective bargaining agreement, however, Mr. Riggs has an employment contract with the Company.

     On February 23, 2004, Dr. Ronald L. Goode resigned his positions with the Company as President and Chief Executive Officer, thereby terminating his employment agreement with the Company that was to expire on March 21, 2004.

agreement.

Factors That May Affect Financial Condition and Future Results


We completed the wind down of our drug discovery operations. We continuedcontinue to be focused on resolving outstanding liabilities and redeploying the remaining residual assets of the Company. The following cautionary statements discuss important factors that could cause actual results to differ materially from the projected results contained in the forward-looking statements in this report.

Liquidity and Capital Resources

At December 31, 20042005 we had cash, cash equivalents and investments of approximately $8,734,000, plus restricted cash of $175,000. Restricted cash was pledged as collateral in support of leased laboratory equipment. In connection with the termination of our drug discovery research programs, we repurchased equipment subject to a capital lease agreement. In January 2004, in conjunction with this December 2003 repurchase, the lessor of this equipment released $375,000 of the held collateral.$8,901,000. Our future capital needs are uncertain. The Company may or may not need additional financing in the future to fund operations,any potential transaction the Company may enter into, a determination to be made when the Company implements its new business strategy. We do not know whether additional financing will be available when needed, or that, if available, we will obtain financing on terms favorable to our stockholders.

5


Our Stock

The market price of our stock may be negatively affected by market volatility. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our securities:

•  announcements we make concerning new business development activities;
•  announcements we make concerning our use of cash to maintain our dormant operations;
•  regulatory developments in the United States and foreign countries;
•  

- announcements we make concerning new business development activities;

- announcements we make concerning our use of cash to maintain our dormant operations;

- regulatory developments in the United States and foreign countries;

- our common stock being quoted on the OTC Bulletin Board;
•  current and new litigation requiring further use of our cash; or
•  economic and other external factors or other disasters or crises.

     On or about October 2004 the Company’s securities were delisted from the Nasdaq Small Cap Stock Market, due to concerns under Nasdaq Marketplace Rule 4330. As such the Company’s securities were thereafter immediately quoted for trading on the Pink Sheets. Shortly thereafter our common stock was quoted on the OTC Bulletin Board.

Board;


- current and new litigation requiring further use of our cash; or

- economic and other external factors or other disasters or crises.

4

Research and Development Activities

     We incurred

As we have terminated all research and development activities we did not incur any research and development expenses during fiscal 2005 and 2004 respectively.
Item 1A. Risk Factors

The risks described below are not the only ones we face. Additional risks that we do not yet know of $154,000or that we currently think are immaterial may also impair our business operations. If any of the following risks actually occur, our business, operating results or financial condition could be materially harmed. Investors should also refer to the other information set forth in this Form 10-K, including the financial statements and $3,948,000the notes thereto.
We May in the Future make Acquisitions, which Involve Numerous Risks      
Our objective continues to be to redeploy our assets and actively pursue new business opportunities. As such, we will be subject to numerous risks, including the following:
The benefits of any potential business opportunity not materializing as planned or not materializing within the time periods or to the extent anticipated;
The possibility that the Company will pay more than the value it derives from any potential business opportunity;
The assumption of certain known and unknown liabilities of any potential business opportunity;
Risks of entering markets in which the Company has no or limited direct prior experience; and
Any business opportunity we pursue will involve a high degree of business and financial risk, which can result in substantial losses for us. There is generally going to be no publicly available information about the companies which we intend to pursue, and we rely significantly on the diligence of our employees and agents to obtain information. If we are unable to identify all material information about these companies, among other factors, we may fail to receive the value we had expected. In addition, these businesses may have short operating histories, narrow product lines, small market shares and less experienced management than their competition and may be more vulnerable to customer preferences, market conditions, loss of key personnel, or economic downturns. Depending upon the ultimate structure of any such transaction, we may be subject to the risk that such a company may make a business decision that does not prove to be profitable for the fiscal years 2003Company.
Our search for new business opportunities also may be affected by current and future market conditions. In addition, significant changes in the capital markets could have an effect on the valuations of companies and on the potential for liquidity events involving such companies.
5

The Business Opportunity We Pursue Could Materially and Adversely Affect Our Results of Operations and Our Stock Price.
Even if we locate a business opportunity, the closing of any such transaction will be subject to certain conditions, including us obtaining shareholder approval. We cannot provide assurance that the necessary approvals will be obtained, or that we will be able to successfully consummate such transaction.
If we do not successfully locate a suitable business opportunity:

the market price of our common stock may decline;
we will continue to incur costs, including legal, accounting, financial advisory and other costs relating to us being a public company and our ongoing search for a suitable business opportunity; and
we may experience a negative reaction if we do not locate a suitable business opportunity, or if the Board of Directors does recommend a proposal to our shareholders which is not approved, or if such transaction is approved by our shareholders and does not produce anticipated results.
The occurrence of any of these events individually or in combination could have a material adverse effect on our results of operations and our stock price.
Any Business Opportunity We Pursue May Result in a Change of Control and Our Current Management May not Have Any Power to Influence Us After the Closing of any such Transaction
Any transaction that we engage may result in the owners and management of such company having actual or effective operating control of us. The owners and management of such company will have the right to appoint their own officers and directors, and our current management will have no ability to influence future business decisions.
Currently, There is No Agreement for Any Potential Transaction and No Minimum Guidelines Have Been Established

The Company has no current arrangement, agreement or understanding with respect to engaging in a transaction with any specific entity. We cannot guarantee that the Company will be successful in identifying and evaluating any suitable business opportunities or in concluding a transaction. We have not selected any particular industry or specific business within an industry as a potential target company. The Company has not established any criteria, including a specific length of operating history or a specified level of earnings, assets, and/or net worth, which it will require a company to have achieved, or without which the Company would not consider a transaction with such business entity. Accordingly, the Company may enter into a transaction with a business entity having no significant operating history, losses, limited or no potential for immediate earnings, limited assets, negative net worth or other negative characteristics. We cannot guarantee you that the Company will be able to negotiate a transaction on terms favorable to the Company.
Any Business Opportunity We Pursue Will Possibly Dilute the Value of the Company’s Securities.
Any transaction we pursue will involve the issuance of a significant number of additional shares of the Company's common stock. Depending upon the value of the business, the per share value of the Company's common stock may increase or decrease, perhaps significantly. Any transaction involving the issuance of the Company's common stock may result in shareholders of a target company obtaining a controlling interest in the Company.

6

Any Transaction We Pursue May Result in Unfavorable Taxation to the Company

Federal and state tax consequences will, in all likelihood, be major considerations in any business opportunity we may pursue. Currently, such transactions may be structured so as to result in tax-free treatment to both companies, pursuant to various federal and state tax provisions. The Company intends to structure any transaction so as to minimize the federal and state tax consequences to the Company. However, there can be no assurance that such business opportunity will meet the statutory requirements of a tax-free reorganization or that the parties will obtain the intended tax-free treatment upon a transfer of stock or assets. A non-qualifying reorganization could result in the imposition of both federal and state taxes which may have an adverse effect on both parties to the transaction and their shareholders.
Certain of the Company’s Charter Provisions and Delaware Law May Prevent or Deter Potential Business Opportunities
The Company’s Certificate of Incorporation, as amended and restated (the “Certificate of Incorporation”), Bylaws (“Bylaws”) Shareholders Rights Agreement, and certain provisions of Delaware law contain certain provisions that may have the effect of discouraging, delaying or preventing us from pursuing a potential business opportunity proposal that a stockholder might consider favorable. The anti-takeover effect of these provisions may also have an adverse effect on the public trading price of the Company’s common stock.

Section 404 and Other Recently Enacted Regulatory Changes Have Caused, and Will Continue to Cause the Company to Incur Increased Costs and Operating Expenses and May Make it More Difficult for the Company to Successfully Pursue New Business Opportunities

The Sarbanes-Oxley Act of 2002 respectively. No research and development expenses were incurredrecently enacted rules of the SEC have caused the Company to incur significant increased costs as it implements and responds to new requirements. In particular, the rules governing the standards that must be met for management to assess its internal controls over financial reporting under Section 404 are new and complex, and require significant documentation, testing and possible remediation. This ongoing process of reviewing, documenting and testing the Company’s internal controls over financial reporting has resulted in, 2004. None of our 2003 research and development activities relatedwill likely continue to customer-sponsored development programs.

Item 2.Properties

     In December, 2003, we vacated approximately 19,300 square feet of officeresult in, a significant strain on the Company’s management, information systems and laboratory space at 2110 Research Row, Dallas, Texas, previously occupiedresources. Furthermore, achieving and maintaining compliance with Sarbanes-Oxley and other new rules and regulations has required the Company to hire additional personnel and has and will continue to require it to use additional outside legal, accounting and advisory services.

Any new business opportunity pursued by the Company sincewill also put a significant strain on its inceptionmanagement, information systems and relocatedresources, which will require implementation of any changes necessary to maintain effective internal controls over financial reporting.
Changes in, or Interpretations of, Accounting Rules and Regulations Could Result in Unfavorable Accounting Charges
The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the CompanyUnited States of America. These principles are subject to interpretation by the Securities and Exchange Commission (the “SEC”) and various bodies formed to interpret and create appropriate accounting policies. A change in these policies can have a significant effect on the Company’s reported results and may even retroactively affect previously reported transactions.
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Our Common Stock Price May be Volatile, Which Could Result in Substantial Losses for Stockholders
The market price of shares of the Company’s common stock has been and is likely to continue to be highly volatile and may be significantly affected by factors such as the following:
Actual or anticipated fluctuations in its operating results;
Changes in the economic and political conditions in the United States and abroad;
Terrorist attacks, war or the threat of terrorist attacks and war;
Developments in ongoing litigation;
Failure to comply with the requirements of Section 404 of the Sarbanes-Oxley Act;
Price and volume fluctuations in the stock market;

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

Our corporate offices are located at 1250 Pittsford-Victor Road, Building 200, Suite 280, Pittsford, New York 14534. In January 2004, theThe Company entered into a lease agreement forleases this office space withfrom RFG Associates, an entity in which John A. Paganelli, chairman of the Board of Directors, and Interim Chief Executive Officer of the Company, is an equity owner. The lease provides for a monthlyMonthly rent ofis $625 and is cancelable by either party upon thirty (30) days notice. During fiscal 2004 weWe incurred rent expensesexpense and of approximately $20,000.$10,000 in 2005 and $20,000 in 2004, respectively.

Item 3.Legal Proceedings

     We are not a party to any litigation in any court, and management is not aware of any contemplated proceeding by any governmental authority or individual against us except as described below.

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Weiss Litigation

Labidi Proceeding. On May 15, 2003, The M&B Weiss Family Limited Partnership of 1996 filed a lawsuitOctober 5, 2005, in the Delaware Courtmatter brought by Abdel Hakim Labidi (one of Chancery, purportedly as a class action on behalf of all other similarly situated stockholders of the Company,our former employees) against the Company, as a nominal defendant,jury ruled in favor of Dr. Labidi determining that the Company converted certain biological research materials owned by Dr. Labidi, and former directors: Joseph M. Davie, Robert J. Easton, Ronald L. Goodethe Company committed theft of biological materials owned by Dr. Labidi. The jury awarded Dr. Labidi a total of $600,000. Dr. Labidi has moved the Court to award attorney fees and Walter Lovenberg, (collectively referredinterest on the jury’s award. We await a decision from the Court on this motion. The Company is reviewing this matter to asdetermine the “Individual Defendants”), and purportedly as a derivative action on behalfvalidity of appealing the decision of the Company against the Individual Defendants (the “Weiss Litigation”).jury. The complaint alleges, among other things, that the Individual Defendants have mismanaged the Company, have made unwarranted and wasteful loans and payments to certain directors and third parties, have disseminated a materially false and misleading proxy statement in connection with the 2003 annual meeting of our stockholders, and have breached their fiduciary duties to act in the best interests of our Company and its stockholders. The plaintiffs are seeking an award of costs and attorneys’ fees and expenses. The defendants in the Weiss litigation filed a joint motion with the Delaware Court of Chancery to dismiss the complaint for failure to state a claim and for failure to make the statutorily required demand onfinal amount due by the Company to assertDr. Labidi under such judgment is likely to be between $250,000 and $750,000, however the subject claims.Company has provided for a reserve of $250,000 in the financial statements.
Weiss Litigation. On April 12, 2005 the judge, in a ruling from the bench, dismissed the matterlawsuit filed by The M& B Weiss Family Limited Partnership of 1996 with prejudice. We are awaiting a formal written order to that effect to be filed.

Labidi Proceeding. In April 2002, Dr. Labidi, one of our former employees, made certain allegations against us regarding discrimination. Dr. Labidi initially filed an employment discrimination charge with the Equal Employment Opportunity Commission (“EEOC”) alleging that he was harassed and discriminated against. The EEOC dismissed this charge because it found no substantial evidence to support Dr. Labidi’s claims. Dr. Labidi subsequently filed a timely federal court lawsuit against eXegenics in the United States District Court for the Northern District of Texas. In the lawsuit, Dr. Labidi reasserted his harassment and discrimination claims. In addition, Dr. Labidi alleged that we wrongfully converted certain biological research materials that Dr. Labidi claims belong to him. At this point, we are in the midst of formal discovery. We believe we have meritorious defenses with respect to these allegations, all of which we intend to pursue vigorously.

2110 Research Row, Ltd. Proceeding. On December 31, 2003, the termination date of our lease agreement, we vacated 19,300 square feet of office and laboratory space that we occupied at 2110 Research Row, Dallas, Texas. 2110 Research Row, Ltd. (the “Landlord”) acquired this property in April 2002. The Landlord contends he is owed payments that we believe to be outside the terms of the lease agreement or waived by the previous landlord. In October 2003, we filed suit against the Landlord and 9000 Harry Hines, Inc., in a Dallas County District Court. The Company, as tenant, and the Landlord were parties to a lease agreement (“Lease Agreement”) dated October 1, 1991, as amended. On March 19, 2004, we entered into a settlement agreement with the Landlord, whereby we made a $33,000 payment to the Landlord, dismissed the suit with prejudice and entered into a mutual release of any and all claims by all parties. On April 9, 2004, the Landlord and the Company filed an Agreed Order Of Dismissal With Prejudice in The District Court, 134th Judicial District, Dallas County Texas.


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

     On December 16, 2004,

During the Company held its Annual Meetingfourth quarter of Stockholders, with stockholders holding 249,134 shares of our Series A Preferred Stock and 12,685,941 shares of common stock voting together

7


as a single class (representing 75.23% of the total number of shares outstanding and entitled to vote) present in person or by proxy at the meeting. Proxies for the meeting were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934. John Paganelli, Robert Baron, Dr. David Spencer and Robert Benou were listed as management’s nominees in the proxy statement and were elected as directors at the meeting. The votes for each nominee were as follows:

         
Name Number of Affirmative Votes  Number of Votes Withheld 
John Paganelli  12,738,085   196,990 
Robert Benou  12,738,085   196,990 
Robert Baron  12,738,185   196,890 
Dr. David Spencer  12,744,585   190,490 

     At the meeting, the Company also sought the ratification of BDO Seidman, LLP as independent auditors of the Company for the fiscal year ended December 31, 2004. This proposal was approvedrepresented by 12,860,275 affirmative votes inthis report, the aggregate. There were an aggregate of 69,400 negative votes and 5,400 abstentions.

     We called a special meeting of stockholders for June 29, 2004Company did not present any matters to consider and actbe voted upon a proposal to affect a one-for-two reverse stock split of our common stock. This meeting was adjourned prior to consideration of the proposal in order to provide more time to obtain a quorum. The meeting was reconvened at July by its shareholders.

8 2004 at which time we failed to obtain the requisite votes to obtain a quorum and thus hold such special meeting of shareholders.

PART II

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

     On or about October 2004 our securities were delisted from the Nasdaq Small Cap


Common Stock Market, due to concerns under Nasdaq Marketplace Rule 4330. As such our securities were thereafter immediately quoted
Our Common Stock is listed for trading on the Pink Sheets. Shortly thereafter our common stock was quoted onOver the OTCCounter Bulletin Board and our common stock is currently trading on the OTC Bulletin Board.

     On January 2, 2004, the Nasdaq Listings Qualification Panel notified us that we were entitled to an extension (until July 25, 2004) to regain compliance with a $1.00 minimum share price for continued listing on the Nasdaq SmallCap Market. During this period, it was necessary for the Company’s common stock to trade at or above $1.00 per share for a minimum of 10 consecutive trading days to remain listed on the Nasdaq SmallCap Market. The Nasdaq Panel’s determination was, in part, based on the Company’s commitment to seek shareholder approval of a reverse stock split of our Common Stock. A reverse stock split is one possible solution to rectifying the Company’s deficiency as it relates to the $1.00 minimum share price issue. On January 28, 2004 the Nasdaq internal staff review concluded that the New Board and its Audit committee satisfy the independent composition requirements as set forth in Nasdaq Marketplace Rules 4350(c) and 4350(d)(2), respectively.

8


     We called a special meeting of stockholders for June 29, 2004 to consider and act upon a proposal to affect a one-for-two reverse stock split of our common stock. This meeting was adjourned prior to consideration of the proposal in order to provide more time to obtain a quorum. The meeting was reconvened at July 8, 2004 at which time we failed to obtain the requisite votes to hold such special meeting of shareholders.

     On or about July 2004 Nasdaq Stock Market informed the Company that we were not in compliance with the minimum $1.00 closing bid price per share requirement, as set forth in NASD Marketplace Rule 4310(c)(4) and our common stock was subject to delisting from the Nasdaq SmallCap Market effective August 4, 2004. The delisting was stayed pending an oral hearing to be held before a Nasdaq Listing Qualifications Panel on September 9, 2004. On September 1, 2004, we received a letter from Nasdaq stating that, in addition to the bid price deficiency, the Company was no longer in compliance with Nasdaq independent director and audit committee requirements rule, as set forth in Nasdaq Marketplace Rules 4350-1(c) and 4350-1(d)(2) due to the resignation of John Huntz. The letter also stated that the Nasdaq listings qualifications staff has raised public interest concerns in accordance with Nasdaq Marketplace Rules 4300 and 4330(a)(3).

Common Stock

The following table shows the highest and lowest actual trades of our common stock, on a per share basis, during each quarterly period within the two most recent fiscal years, as reported by the National Association of Securities Dealers. Such prices reflect inter-dealer quotations, without adjustment for any retail markup, markdown or commission.

         
  High  Low 
2003:        
First Quarter $0.84  $0.28 
Second Quarter  0.90   0.27 
Third Quarter  0.85   0.35 
Fourth Quarter  1.20   0.39 
2004:        
First Quarter $1.09  $0.68 
Second Quarter  1.32   0.55 
Third Quarter  0.85   0.35 
Fourth Quarter  0.70   0.21 

  
High 
 
Low 
 
2004:     
First Quarter $1.09 $0.68 
Second Quarter  1.32  0.55 
Third Quarter  0.85  0.35 
Fourth Quarter  0.70  0.21 
2005:       
First Quarter $0.45 $0.32 
Second Quarter  0.47  0.35 
Third Quarter  0.44  0.36 
Fourth Quarter  0.46  0.39 

On April 7, 2005March 29, 2006 the last sale price of our common stock was $0.47.

$0.41.


Stockholders


As of April 7, 2005,March 28, 2006, there were approximately 148151 holders of record of our common stock and, according to our estimates, approximately 3,7002,997 beneficial owners of our common stock.

Dividends


We have not paid cash dividends to our common stockholders since our inception and do not plan to pay cash dividends in the foreseeable future. We currently intend to retain earnings, if any.

Recent Sales of Unregistered Securities

9


During the year ended December 31, 20042005 we granted options to purchase an aggregate of 165,00080,000 shares of common stock to employees and directors with a weighted average exercise price of $0.82$0.40 per share. All options issued during 20042005 were granted with an exercise price equal to the fair market value of our common stock on the date of grant.

9

Equity Compensation Plan Information
As of December 31, 2005
Plan Category 
  
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) 
  
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
(b) 
  
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a)) (c) 
 
Equity compensation plans approved by security holders  905,000 
$
3.37
  3,345,000 
Equity compensation plans not approved by security holders (1)  290,000 
$
0.75
  N/A 

(1) Consists of the following warrants: Roan-Meyers dated August 13, 2002 to purchase 125,000 shares of our common stock; Roan-Meyers warrants, dated August 13, 2002 to purchase 125,000 shares of our common; and Petkevich & Partners, LLC warrants, to purchase 40,000 shares of our common stock.
We have authorized the issuance of equity securities under the compensation plans described below without the approval of stockholders. No additional options, warrants or rights are available for issuance under any of these plans, except for additional shares which may become purchasable under warrants with anti-dilution protection as noted below. We have either already registered or agreed to register for resale the common stock underlying all of these plans.
Roan-Meyers warrants, dated August 13, 2002: provided common stock purchase warrants in connection with financial advisory services, to purchase 125,000 shares of our common stock at a purchase price of $1.00 per share, with an expiration date of August 13, 2007.
Roan-Meyers warrants, dated August 13, 2002: provided common stock purchase warrants in connection with financial advisory services to purchase 125,000 shares of our common stock at a purchase price of $0.55 per share, with an expiration date of August 13, 2007.
Petkevich & Partners, LLC warrants, dated March 5, 2003, provided common stock purchase warrants in connection with financial advisory services to purchase 40,000 shares of our common stock at a purchase price of $0.58 per share, with an expiration date of March 5, 2008.

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Item 6.Selected Financial Data

The selected financial data set forth below is derived from our audited financial statements. Such information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and with such financial statements and the notes thereto contained elsewhere in this report.


eXegenics Inc.
SELECTED FINANCIAL DATA
                     
  Year Ended December 31, 
  2004  2003  2002  2001  2000 
Statement of Operations Data Revenue $  $13,000  $562,000  $1,333,000  $865,000 
                
Research and development     154,000   3,948,000   4,843,000   3,681,000 
General and administrative expenses  2,051,000   2,938,000   4,770,000   6,448,000   5,788,000 
Expenses related to strategic redirection     653,000   864,000   560,000    
Merger, tender offers and consent solicitation expenses     2,233,000   2,010,000       
                
Operating loss  (2,051,000)  (5,965,000)  (11,030,000)  (10,518,000)  (8,604,000)
Gain on disposition        4,000   274,000    
Interest income  127,000   174,000   686,000   1,383,000   1,543,000 
Interest expense  (2,000)  (2,000)  (18,000)  (6,000)  (9,000)
                
Loss before tax benefit and cumulative effect of a change in accounting principle  (1,926,000)  (5,793,000)  (10,358,000)  (8,867,000)  (7,165,000)
Tax benefit           82,000    
Net loss  (1,926,000)  (5,793,000)  (10,358,000)  (8,785,000)  (7,165,000)
                
Preferred Stock Dividend  (223,000)  (207,000)  (169,000)  (180,000)  (180,000)
                
Net loss attributable to common stockholders $(2,149,000) $(6,000,000) $(10,527,000) $(8,965,000) $(7,345,000)
                
Basic and diluted loss per common share $(0.13) $(0.38) $(0.67) $(0.57) $(0.51)
                
                     
  December 31, 
  2004  2003  2002  2001  2000 
Balance Sheet Data                    
Total assets $10,071,000  $11,342,000  $17,515,000  $27,625,000  $37,378,000 
Working capital  9,829,000   10,296,000   15,924,000   24,949,000   35,050,000 
Royalties payable — less current portion              750,000 
Stockholders’ equity $9,832,000  $10,304,000  $16,074,000  $26,121,000  $35,775,000 

  
Year Ended December 31, 
 
  
2005 
 
2004 
 
2003 
 
2002 
 
2001 
 
Statement of Operations Data           
Revenue $ $ $13,000 $562,000 $1,333,000 
Research and development      154,000  3,948,000  4,843,000 
General and administrative expenses  1,438,000  2,051,000  2,938,000  4,770,000  6,448,000 
Expenses related to strategic redirection      653,000  864,000  560,000 
Merger, tender offers and consent solicitation expenses      2,233,000  2,010,000   
Operating loss  (1,438,000) (2,051,000) (5,965,000) (11,030,000) (10,518,000)
Gain on disposition        4,000  274,000 
Gain on sale of investments (net)  1,064,000         
Interest income  190,000  127,000  174,000  686,000  1,383,000 
Interest expense  (2,000) (2,000) (2,000) (18,000) (6,000)
Loss before tax benefit and cumulative effect of a change in accounting principle  (186,000) (1,926,000) (5,793,000) (10,358,000) (8,867,000)
Tax benefit          82,000 
Net Loss  (186,000) (1,926,000) (5,793,000) (10,358,000) (8,785,000)
Preferred Stock                
Dividend  (234,000) (223,000) (207,000) (169,000) (180,000)
Net loss attributable to common stockholders $(420,000)$(2,149,000)$(6,000,000)$(10,527,000)$(8,785,000)
Basic and diluted loss per common share $(0.03)$(0.13)$(0.38)$(0.67)$(0.57)



  
December 31, 
 
  
2005 
 
2004 
 
2003 
 
2002 
 
2001 
 
Balance Sheet Data           
Total assets $9,000,000 $10,071,000 $11,342,000 $17,515,000 $27,625,000 
Working capital  8,723,000  9,829,000  10,296,000  15,924,000  24,949,000 
Stockholders’ equity $8,723,000 $9,832,000 $10,304,000 $16,074,000 $26,121,000 
11

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


In this section, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to “we,” “us,” “our,” and “ours” refer to eXegenics Inc.

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The following discussion should be read in conjunction with, and is qualified in its entirety by, the Financial Statements and the Notes thereto included in this report. This discussion contains certain forward-looking statements that involve substantial risks and uncertainties. When used in this report the words “anticipate,” “believe,” “estimate,” “expect” and similar expressions as they relate to our management or us are intended to identify such forward-looking statements. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Historical operating results are not necessarily indicative of the trends in operating results for any future period.

     On December 5, 2003, our Prior Board was removed by a majority vote of our stockholders via a proxy consent solicitation. They were replaced by our New Board.

Our New Board is focused on redeploying the remaining residual assets of the Company. The New Board and management have established a committee to study strategic direction and identify potential business opportunities. On February 23, 2004, Dr. Ronald L. Goode, the President and Chief Executive Officer of the Company resigned, thereby terminating his employment agreement with the Company that was to expire on March 21, 2004 (See Item 11. Executive Compensation). On June 22, 2004, John J. Huntz resigned as a member of the Company’s Board of Directors. On September 8, 2004, the board of directors of the Company appointed David Lee Spencer to serve as the third independent director of the audit committee. Currently, we have one employee, David E. Riggs, who serves as the President, Chief Executive Officer and Chief Financial Officer.

     On May 15, 2003,The lawsuit filed by The M&B Weiss Family Limited Partnership of 1996 filed a lawsuit inwas dismissed on April 12, 2005. The Company faces potential liability of at least $600,000 (exclusive of interest and legal fees, which have been requested by Dr. Labidi, but not yet determined by the Delaware Court of Chancery, purportedly as a class action on behalf of all other similarly situated stockholders of the Company, against the Company, as a nominal defendant, and former directors: Joseph M. Davie, Robert J. Easton, Ronald L. Goode and Walter Lovenberg, (collectively referred to as the “Individual Defendants”), and purportedly as a derivative action on behalf of the Company against the Individual Defendants (the “Weiss Litigation”). The complaint alleges, among other things, that the Individual Defendants have mismanaged the Company, have made unwarranted and wasteful loans and payments to certain directors and third parties, have disseminated a materially false and misleading proxy statementCourt) in connection with the 2003 annual meeting of our stockholders, and have breached their fiduciary duties to actjudgment rendered against the Company in the best interests of ourlawsuit filed by Dr. Labidi. On June 29, 2005 the Company and its stockholders. The plaintiffs are seeking an award of costsDavid E. Riggs mutually agreed that Mr. Riggs would relinquish his duties as President, Chief Executive and attorneys’ fees and expenses. The defendants in the Weiss litigation filed a joint motion with the Delaware Court of Chancery to dismiss the complaint for failure to state a claim and for failure to make the statutorily required demand on the Company to assert the subject claims. On April 12, 2005 the judge, in a ruling from the bench, dismissed the matter with prejudice. We are awaiting a formal written order to that effect to be filed.

     In 2003, the Company recognized an aggregate of $2,233,000 in expenses related to merger, tender offer and consent solicitation activities which included $1,375,000 in legal fees, $398,000 in fees to the financial advisor, $360,000 in other fees for audit, printing and investor relations services and $100,000 for reimbursement of certain expenses triggered in connection with the terminationChief Financial Officer of the Agreement and PlanCompany. Chairman of Merger which were paid to AVI Biopharma.

the Board John A. Paganelli, assumed the role of Interim Chief Executive Officer. On July 1, 2005 Dave Hostelley was named Chief Financial Officer of the Company. Our objective in 20052006 is to redeploy our assets and actively pursue new business opportunities. WeAfter taking into account the interest earned on our investments ($25,000 to $30,000 per month) we expect to use between $100,000$40,000 and $125,000$55,000 per month in 20052006 in furtherance of these objectives.

This calculation includes $250,000 in the potential liability faced by the Company in the judgment rendered against the Company in the suit filed by Dr. Labidi.

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of

11


contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to investments, intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.


12

Critical Accounting Policies

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.

The Company considers all non-restrictive, highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. Investments consist of equity securities and are classified as available for sale and reported at their fair values. The realized gains and losses from these investments are reported in current earnings. Unrealized gains and losses from these securities are reported as a separate component of stockholders’ equity and excluded from current earnings.

The Company has elected to continue to account for its stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value based method defined in Statement of Financial Accounting Standards, No. 123, “Accounting for Stock Based Compensation” had been applied. Under the provisions of APB No. 25, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s common stock at the date of the grant over the amount an employee must pay to acquire the stock.

Revenue from research support agreements is recognized ratably over the length of the agreements. Revenue resulting from contracts or agreements with milestones is recognized when the milestone is achieved. Amounts received in advance of services to be performed, or the achievement of milestones, are recorded as deferred revenue. Payments to third parties in connection with nonrefundable license fees are being recognized over the period of performance of related research and development activities.

The Company periodically evaluates the collectability of the subscription receivable and adjusts an allowance sufficient to ensure that the net balance is equal to the value of the underlying collateral.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize deferred tax assets in the future in excess of its net recorded amount, an adjustment to the net deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the net deferred tax asset would be charged to income in the period such determination was made.


13

Results of Operations


Fiscal Year Ended December 31, 2005 Compared to Fiscal Year Ended December 31, 2004

Revenues
We recognized $0 from license, research and development revenues during fiscal 2005 and 2004. There was no license, research and development revenue as a result of the Company exiting the drug discovery business and termination of related research and development activities. There were no operations in 2005.
Research and Development Expenses

We incurred research and development expenses of $0 during fiscal 2005 and fiscal 2004. This was a result of the Company exiting the drug discovery business and termination of related research and development activities.

General and Administrative Expenses
General and administrative expenses for fiscal 2005 were $1,438,000 compared to $2,051,000 for fiscal 2004, a decrease of $613,000 or 42%. General and administrative expenses decreased primarily as a result of the termination of drug discovery operations. Significant variances in fiscal 2005, compared to fiscal 2004, were as follows: professional consulting fees declined by $60,000, headcount related expenses, primarily salaries, travel and entertainment, health insurance, employee relations and office expenses declined by $210,000, investor and public relations expense declined by $44,000 and insurance, primarily directors and officers liability insurance expense declined by $435,000, tax expense, mainly franchise tax declined by $49,000, legal fees declined by $61,000, leased equipment declined by $60,000, Board of Directors fees and travel expenses declined by $110,000, audit fees declined by $35,000, an increase of $250,000 for the reserve established in connection with the pending lawsuit with Dr. Labidi, and an increase of $201,000 for the allowance recorded against the subscriptions receivable.

Merger, Tender Offers and Consent Solicitation Expenses

In 2005 and 2004, we recognized an aggregate of $0 in expenses related to merger, tender offers and consent solicitation activities.
Expenses Related to Strategic Redirection

As a result of our decision to redirect our business strategy, we incurred $0 and $5,000 in costs associated with expenses from operations terminated in fiscal 2005 and 2004, respectively. Cash disbursements made during fiscal 2004 against a previously established restructuring reserve included $90,000 for severance payments, $87,000 for terminated operating lease obligations, and $16,000 for equipment and facilities relocation. No expenses were recognized in 2005 or 2004 for the Company’s Strategic Redirection.
14

Interest Income
Interest income for fiscal 2005 was $190,000 as compared to $127,000 for fiscal 2004, an increase of $63,000 or 50%. The increase in interest income was due to higher interest rates and increased investable balances resulting from the appreciation in value and ultimate sale of Javelin Pharmaceuticals, Inc. common stock.
Other Income and Expenses
Other Income and expenses was a profit of $1,062,000 during fiscal year 2005 and $2,000 during fiscal year 2004. The increase was due to the appreciation and sale, by the Company, of Javelin Pharmaceuticals, Inc. common stock.
Net Loss
We incurred net losses of $186,000 during fiscal 2005 and $1,926,000 during fiscal 2004. The decrease in net loss of $1,740,000 or 90% is a result of the aforementioned sale of investments. Net loss per common share for fiscal 2005 was $0.03 and for fiscal 2004 was $0.13.

Fiscal Year Ended December 31, 2004 Compared to Fiscal Year Ended December 31, 2003


Revenues

12



We recognized $0 from license, research and development revenues during fiscal 2004, compared to $13,000 for fiscal 2003, a decrease of $13,000 or 100%. The decrease was a result of the Company exiting the drug discovery business and termination of related research and development activities. We do not anticipate recognizing revenues from licenses in 2005.

Research and Development Expenses

We incurred research and development expenses of $0 during fiscal 2004 and $154,000 during fiscal 2003, a year-to-year decrease of $ 154,000$154,000 or 100%. The decrease was a result of the Company exiting the drug discovery business and termination of related research and development activities. Significant contributions to the overall decrease were as follows: $92,000 decrease in research salaries and payroll, $3,000 decrease in expenses for research consultants, $29,000 decline in lease expenses, maintenance and depreciation, $382,000 decrease in research services and materials, $16,000 decrease in travel and entertainment, health insurance and other headcount related expenses and $14,000 decline in laboratory supplies.

General and Administrative Expenses

General and administrative expenses for fiscal 2004 were $2,051,000 compared to $2,938,000 for fiscal 2003, a decrease of $887,000 or 30%. General and administrative expenses decreased primarily as a result of the termination of drug discovery operations. Significant variances in fiscal 2004, compared to fiscal 2003, were as follows: professional consulting fees declined by $410,000, headcount related expenses, primarily salaries, travel and entertainment, health insurance, employee relations and office expenses declined by $85,000, investor and public relations expense declined by $517,000 and insurance, primarily directors and officers liability insurance expense increased by $125,000. We expect to incur expenses of between $100,000 and $125,000 per month during 2005.


Merger, Tender Offers and Consent Solicitation Expenses


In 2004, we recognized an aggregate of $0 in expenses related to merger, tender offers and consent solicitation activities. This compares to $2,233,000 in expenses related to merger activities during 2003.

15

Expenses Related to Strategic Redirection


As a result of our decision to redirect our business strategy, we recognizedincurred costs of $5,000 in expenses from operations terminated in fiscal 2004.2004, Cash disbursements made during fiscal 2004 against a previously established restructuring reserve included $90,000 for severance payments, $87,000 for terminated operating lease obligations, and $16,000 for equipment and facilities relocation. We recognized $653,000$0 in expenses related to Strategic Redirection in 2003 and no expenses were recognized in 2004.


Interest Income

Interest income for fiscal 2004 was $127,000 as compared to $174,000 for fiscal 2003, a decrease of $47,000 or 27%. The decrease in interest income was due to lower interest rates and declining investable balances as disbursements were made.

Net Loss

13



We incurred net losses of $1,926,000 during fiscal 2004 and $5,793,000 during fiscal 2003. The decrease in net loss of $3,867,000 or 67% is a result of the aforementioned changes in our operations. Net loss per common share for fiscal 2004 was $0.13 and for fiscal 2003 was $0.38.

Fiscal Year Ended December 31, 2003 Compared to Fiscal Year Ended December 31, 2002

Revenues

     Revenues for 2003 and 2002 were attributable to license and research and development payments. We recognized revenues of $13,000 during fiscal 2003, compared to $562,000 for fiscal 2002, a decrease of $549,000 or 98%. The decrease was a result of the Company exiting the drug discovery business and termination of related research and development activities

Research and Development Expenses

     We incurred research and development expenses of $154,000 during fiscal 2003 and $3,948,000 during fiscal 2002, a year-to-year decrease of $3,794,000 or 96%. The decrease was a result of the Company exiting the drug discovery business and termination of related research and development activities. Significant contributions to the overall decrease were as follows: $1,249,000 decrease in research salaries and payroll, $718,000 decrease in expenses for research consultants, $625,000 decrease in payments and reimbursements made under sponsored university research agreements, $536,000 decline in lease expenses, maintenance and depreciation, $382,000 decrease in research services and materials, $168,000 decrease in travel and entertainment, health insurance and other headcount related expenses and $99,000 decline in laboratory supplies.

General and Administrative Expenses

     General and administrative expenses for fiscal 2003 were $2,938,000 compared to $4,770,000 for fiscal 2002, a decrease of $1,832,000 or 38%. General and administrative expenses decreased primarily as a result of the termination of drug discovery operations. Significant variances in fiscal 2003, compared to fiscal 2002, were as follows: patents and intellectual property expenses declined by $1,028,000, professional consulting fees declined by $357,000, headcount related expenses, primarily salaries, travel and entertainment, health insurance, employee relations and office expenses declined by $481,000, inventory and public relations expense declined by $154,000 and insurance, primarily directors and officers liability insurance expense increased by $232,000.

Merger, Tender Offers and Consent Solicitation Expenses

     In 2003, we recognized an aggregate of $2,233,000 in expenses related to merger, tender offers and consent solicitation activities, which included $1,375,000 in legal fees, $398,000 in fees to a financial advisor, $360,000 in other fees for audit, printing and investor relations services and a $100,000 termination fee paid to AVI Biopharma. This compares to $2,010,000 in expenses related to merger activities during 2002.

14


Expenses Related to Strategic Redirection

     As a result of our decision to redirect our business strategy, we recognized $653,000 in expenses from operations terminated in fiscal 2003, net of $284,000 reimbursement from Bristol Meyers Squibb (“BMS”). These expenses included $467,000 for severance payments, $221,000 for research and legal fees related to intellectual property and $126,000 for the write down of laboratory equipment, net of recoveries from the sale of equipment, to its estimated resale value. In addition, there were charges of $123,000 for other expenses of terminated scientific programs. We recognized $864,000 in expenses related to Strategic Redirection in 2002.

Other Income

     Other income for fiscal 2003 was $0 as compared to $4,000 during fiscal 2002.

Interest Income

     Interest income for fiscal 2003 was $174,000 as compared to $686,000 for fiscal 2002, a decrease of $512,000 or 75%. The decrease in interest income was due to lower interest rates and declining investable balances as disbursements were made.

Net Loss

     We incurred net losses of $5,793,000 during fiscal 2003 and $10,358,000 during fiscal 2002. The decrease in net loss of $4,565,000 or 44% is a result of the aforementioned changes in our operations. Net loss per common share for fiscal 2003 was $0.38 and for fiscal 2002 was $0.67.

Liquidity and Capital Resources

At December 31, 20042005 we had cash, cash equivalents and investments of approximately $8,734,000 plus restricted cash of $175,000.$8,901,000. During 2004,2005, we used approximately $1,503,000$1,000,000 to fund our operating activities, principally related to a net loss of $1,926,000 for the year. Net sales of equipment provided approximately $0 of cash. We used $92,000 to pay our operating lease obligations.activities. Restricted cash was pledged as collateral in support of leases of laboratory equipment. In connection with the termination of our drug discovery research programs, we repurchased equipment subject to a capital lease agreement. In January 2004,August 2005, in conjunction with this repurchase,the return of remaining lease obligations, the lessor of this equipment released $375,000$175,000 of the held collateral. In addition, in 20042005 the Company received proceeds of approximately $192,000$1,064,000 from the exercisesale of optionsJavelin Pharmaceuticals, Inc shares of common stock.
The Company faces potential liability of at least $600,000 (exclusive of interest and legal fees, which have been requested by certain holders.

     We forecastDr. Labidi, but not yet determined by the Court) in 2006 in connection with the judgment rendered against the Company in the lawsuit filed by Dr. Labidi. In connection with this potential liability the Company has recorded a reserve for $250,000.

After taking into account the interest earned on our cash usage during 2005investments ($25,000 to be approximately $100,000-$125,000$30,000 per month) we expect to use between $40,000 and $55,000 per month assuming that we make no new investments or engagein 2006 in furtherance of these objectives. This calculation includes $250,000 in the operation of a new business.potential liability faced by the Company in the judgment rendered against the Company in the suit filed by Dr. Labidi. Our future capital needs are uncertain. The Company may or may not need additional financing in the future to fund operations, a determination to be made when the Company adopts its new business strategy. We do not know whether additional financing will be available when needed, or that, if available, we will obtain financing on terms favorable to our stockholders.

Recent Accounting Pronouncement


We believe that the adoption of the following accounting standard will not have a material impact on our financial statements.

15

16

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”, which replaces123R, “Share-based Payment.” SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock Based Compensation”, and supersedes APB Opinion No. 25. Among other items, SFAS No. 123 (R)123R eliminates the use of APB 25 and the intrinsic value method of accounting, and requires all share-based paymentscompanies to employees, including grantsrecognize the cost of employee stock options,services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. The effective date of SFAS 123R is January 1, 2006, for calendar year companies.
SFAS 123R permits companies to beadopt its requirements using either a “modified prospective” method, or a “modified retrospective” method. Under the “modified prospective” method, compensation cost recognized in the financial statements based on their fair values, beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. In addition, SFAS No. 123 (R) will cause unrecognized expense (basedeffective date, based on the fair values determined for the pro forma footnote disclosure, adjusted for estimated forfeitures) related to options vesting after the date of initial adoption to be recognized as a charge to results of operations over the remaining vesting period. The Company is required to adopt SFAS No. 123 (R) in its third quarter of 2005, beginning July 1, 2005. Under SFAS No. 123 (R), the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition alternatives include the modified prospective or the modified retrospective adoption methods. Under the modified retrospective method, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The modified prospective method requires that compensation expense be recorded for all unvested stock options and share awards at the beginning of the first quarter of adoption of SFAS No. 123 (R), while the modified retrospective methods would record compensation expense for all unvested stock options and share awards beginning with the first period restated. The Company is evaluating the requirements of SFAS No. 123 (R)123R for all share-based payments granted after that date, and expects thatbased on the adoptionrequirements of SFAS No. 123 (R) will have a material impactfor all unvested awards granted prior to the effective date of SFAS 123R. Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method, but also permits entities to restate financial statements of previous periods based on our statement of operations and earnings per share. proforma disclosures made in accordance with SFAS 123.

Off Balance Sheet Arrangements
The Company cannot yet estimate the effect of adopting SFAS No. 123 (R) as it has not yet selected the method of adoption or an option pricing model and it has not yet finalized estimates of our expected forfeitures.no off balance sheet arrangements.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk


Our exposure to financial market risk, including changes in interest rates, relates primarily to our marketable security investments. We generally place our marketable security investments in high credit quality instruments, primarily U.S. government obligations and corporate obligations with contractual maturities of less than one year. We do not believe that a 100 basis point increase or decrease in interest rates would significantly impact our business. We do not have any derivative instruments. We operate only in the United States and all our transactions have been made in U.S. dollars. We do not have any material exposure to changes in foreign currency exchange rates.

Item 8.Financial Statements and Supplementary Data


The response to this item is submitted in Item 15 of this report.

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


In September 2005 the Company replaced its then current Independent Registered Public Accounting Firm BDO Seidman, LLP with Rotenberg & Co., LLP. There were no changes in or disagreements with our accountantsIndependent Registered Public Accounting Firm’s accounting and financial disclosure for the period covered by this Report.

Item 9A.Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures


(a)
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out by the Company’s sole officer, who is the PresidentCompany's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s “Disclosure"Disclosure Controls and Procedures”Procedures". We have exited the

16


biotechnology-drug discovery business and all employees have been terminated except the PresidentThe Chief Executive Officer and Chief Financial Officer. He hasOfficer have concluded that, given our limited operations, our Disclosure Controls and Procedures were effective. As such term is used above, the Company’s Controls and Procedures are controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’sCommission's rules and forms. Disclosure Controls and Procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’sCompany's management, including its sole officerofficers as appropriate to allow timely decisions regarding required disclosure.

(b) Changes

17

(b)
Internal Control Over Financial Reporting

There are no changes in our Internal Control Over Financial Reporting

     In December 2003, our New Board established procedures relating during the fourth quarter of 2005.


Item 9B. Other Information.

There is no information required to be disclosed in a report on Form 8-K during the control and disbursement of cash and cash equivalents, which represents approximately 87% of our total assets as of December 2004. The Chairmanfourth quarter of the Board and Chairman of the Audit Committee have access to and control over substantially all of our cash and cash equivalents. The Chairman of the Board of Directors or the Chairman of the Audit Committee may authorize disbursements up to $50,000 on his sole authority. Both the Chairman of the Board and the Chairman of the Audit Committee are required to authorize expenditures above $50,000. The Chief Financial Officer is authorized to incur expenditures on behalf of the Company up to $10,000 on his own authority and must obtain approval from the Board above that level.fiscal year covered by this Form 10-K but not reported.

PART III

Item 10.Directors and Executive Officers of the Registrant

The


Board of Directors

Set forth below are the names of the persons currently serving as a director, their ages, their offices in the Company, if any, their principal occupations or employment for the past five years, the length of their tenure as directors and the names of other public companies in which such persons hold directorships.

Name  
NameAge Position with the Company
John A. Paganelli 7071 Director, Chairman of the Board, Interim Chief Executive Officer
Robert A. Baron 6465 Director
Robert Benou 7071 Director
David Lee Spencer, M.D. 6061 Director


John A. Paganelliwas President and Chief Executive Officer of Transamerica Life Insurance Company of New York from 1992 to 1997. Since 1987, Mr. Paganelli has been a partner in RFG Associates, a financial planning organization. Mr. Paganelli is the ManagerManaging Partner of Pharos Systems Partners, LLC, a company formed to raise capital to purchase the controlling interest in Pharos Systems International, a software development company. Mr. Paganelli is Chairman of the Board of Pharos Systems International. He was Vice President and Executive Vice President of PEG Capital Management, an investment advisory organization, from 1987 until 2000. From 1980 to January 2003, Mr. Paganelli was an officer and director-shareholder of Mike Barnard Chevrolet, Inc., an automobile dealership. Mr. Paganelli has beenwas on the Board of Directors of Mid Atlantic

17


Medical Services, Inc. since 1999.from 1999 until 2005. Mid Atlantic iswas listed on the New York Stock Exchange and through its wholly owned subsidiaries is in the business of selling various forms of health insurance. Mr. Paganelli is also on the Board of Directors of Mid Atlantic’sAtlantic's subsidiary, MAMSI Life and Healthy Insurance Company. Mr. Paganelli holds an A.B. from Virginia Military Institute.

In 2005 Mid Atlantic Medical Services, Inc. was acquired by UnitedHealth Group, Inc.

Robert A. Baronhas been was the President of Cash City, Inc. since 1999. Cash City is a payday advance and check cashing business. Since November 2004 Mr. Baron has been a director of Hemobiotech, Inc. From 1997 to 1999 Mr. Baron was the President of East Coast Operations for CSS/TSC, Inc., a distributor of blank t-shirts and fleece and accessories and a subsidiary of Tultex, Inc., a publicly held company. From 1986 to 1997, Mr. Baron was the chairman of T shirt City, Inc., a privately held company. From 1993 to 1997, Mr. Baron was a member of the Board of Directors of Suburban Bank Corp. When Mr. Baron was on Suburban’s board, its common stock was traded on Nasdaq. Mr. Baron has a B.S. in Business from Ohio State University.

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Robert S. Benouhas been a director of Conolog Corporation, a publicly held company that provides engineering technical personnel placement and manufactures a line of digital signal processing systems, since 1968 and served as its President from 1968 until May 2001 when he was elected Conolog’s Chairman and Chief Executive Officer. Mr. Benou has also been a member of the Board of Directors of Diversified Security Solutions, Inc., since June 2001. Diversified Security Solutions, Inc. is a publicly held company that is a single-source/turn-key provider of technology-based security solutions for medium and large companies and government agencies. Mr. Benou is also a member of Diversified Security Solutions’Solutions' audit committee. Mr. Benou is a graduate of Victoria College and holds a BS degree from Kingston College, England and a BSEE from Newark College of Engineering, in addition to industrial management courses at Newark College of Engineering.

David Lee Spencer, M.D.has been an orthopedic surgeon since 1977. Dr. Spencer has been a Clinical Associate in orthopedic surgery at the University of Illinois since 1999. Dr. Spencer is also an attending surgeon at the University of Illinois Hospital Medical Center and Lutheran General Hospital. Dr. Spencer received his B.A. and M.D. degrees from the University of Iowa.

     On or about June 2004 John Huntz resigned as a member of the Board of Directors and all associated committees. Such resignation was not due to any dispute or disagreement.


Committees of the Board of Directors and Meetings


Committee Structure. During fiscal 2004,2005, the Board of Directors had three permanent committees (Audit Committee, Compensation Committee and Nominating Committee) and one ad hoc committee (Business Opportunities Search Committee).

Meeting Attendance.During the fiscal year ended December 31, 2004,2005, there were 10seven meetings of our Board, and the various committees met formally a total of fivefour times. All directors attended all meetingsa majority of the Board and of committees of the Board on which he served during fiscal 2004.

2005.

Audit Committee.Our Audit Committee met fivefour times during fiscal 2004.2005. This committee consistedconsists of three members, Robert Benou, Robert Baron and Dr. David Spencer (as of June 2004). John Huntz was a member of the Audit Committee until his resignation from the Board of Directors in June 2004.Spencer. Our Audit Committee reviews the engagement of our independent accountants, reviews annual financial statements, considers matters

18


relating to accounting policy and internal controls and reviews the scope of annual audits. Mr. Benou, Mr. Baron and Dr. Spencer are “independent” as defined by current National Association of Securities Dealers’ listing standards. The Board has determined that Robert Benou is qualified as a financial expert serving on our Audit Committee.

Compensation Committee.Our Compensation Committee held no meetings during fiscal 2004.2005. Robert Baron served as Chairman and Dr. David Spencer and John Huntz (until his resignation from the Board of Directors in June 2004) served as committee members. The Compensation Committee reviews, approves and makes recommendations regarding our compensation policies, practices and procedures to ensure that legal and fiduciary responsibilities of the Board of Directors are carried out and that such policies, practices and procedures contribute to our success.

Nominating Committee.During fiscal year 20042005 our Nominating Committee held no meetings. The committee’s role, following consultation with all other members of the Board of Directors, was to make recommendations to the full Board as to the size and composition of the Board and to make recommendations as to particular nominees. The Nominating Committee has one sitting member at this time, Dr. David Spencer (John Huntz was a member of the Nominating Committee until his resignation from the Board of Directors in June 2004).Spencer. Given there was one member of the Nominating Committee the entire Board of Directors served in the capacity of the Nominating Committee during 2004.

2005.

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Compensation Committee Interlocks and Insider Participation.None of the members of our current Compensation Committeeserve as a member of the Board of Directors or Compensation Committee of any entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

Code of Ethics

We have adopted a code of ethics that applies to our directors and executive officer. If we make any substantive amendment to our code of ethics or grant any waiver from a provision of the code of ethics to our Chief Executive Officer or Chief Financial Officer, including an implicit waiver, we intend to satisfy the information disclosure requirements under Item 10 of Form 8-K regarding such amendment or waiver. No such waivers or amendments were granted during 2004.

2005.

Compliance with Section 16(a) of the Securities Exchange Act of 1934


Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers and directors, and persons who own more than ten percent of the Company’s common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”). Officers, directors, and greater than ten percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. The following is a list of persons who were, during the 20042005 fiscal year, a director, officer, beneficial owner of more than ten percent of any class of equity securities of the registrant registered pursuant to section 12 of the Exchange Act (based solely on a review of the copies of such reports furnished to the Company): John Paganelli, Robert Benou, Robert Baron, Dr. David Spencer, John HuntzDavid Hostelley (part of fiscal 2004), Dr. Ronald Goode2005) and David Riggs (part of fiscal 2004), and David Riggs.2005). Based solely on a review of the copies of such reports furnished to the Company, the Company believes all Section 16(a) filing requirements applicable to all such persons were complied with during the fiscal year covered by this report except: Mr.except that each of Messrs. Paganelli, filed two

19


late reports; Mr. Benou, filed two late reports; Mr. Baron filed three late reports; Dr.and Spencer filed twofour late reports, Mr. Huntz filed one late report; and Mr. Riggs filed one late report.

reports.

Compensation of Directors

     In December 2003, the new Directors agreed to a new compensation plan. Directors receive $6,250 per quarter, due the day after the commencement of each calendar quarter for their service.

The Chairman of the Board receives a fee of $18,750 per quarter, due the day after the commencement of each calendar quarter for his service.

     During As of July 1, 2005 for assuming additional responsibilities for being the second quarter 2004,Chairman of the Business Opportunities Search Committee, Robert Baron is to receive an additional $6,250 per quarter. For additional services provided by Robert Benou and Dr. David Spencer, both directors are to receive an additional $1,250 per quarter. John A. Paganelli, Chairman of the Board, of Directors adopted a resolution revising the Prior Boards Board compensation, by providingis to receive an additional $6,250 per quarter for assuming additional responsibilities for serving as Interim Chief Executive Officer for the issuance of shares of the Company’s common stock and the granting of stock options as part of compensation paid to directors for their service to the Company. 

Upon joining the Board, directors are issued 25,000 shares of common stock. The chairman of the Board receives an additional 25,000 shares at the time he assumes this role. Members of the Board of Directors are granted an option to purchase 5,000 shares of the Company’s common stock on the first day of each calendar quarter, with an exercise price equal to the closing trading price of the Company’s common stock on the date of grant. InOn March 22, 2005, the second quarter 2004,Board of Directors approved the Chairmangrant to each of Messrs. Paganelli and Baron 50,000 shares of Common Stock upon the closing of a transaction which results in a change of control, provided each such recipient is a member of the Board was issued 50,000 shares of common stock, Directors were issued 25,000 shares. In the aggregate, 150,000 shares of common stock were issued and recorded at their fair value on the date of grant, which resulted in the Company expensing approximately $133,000. such time. For the 12 months ended December 31, 2005 and December 31, 2004, stock options totaling 80,000 and 90,000 shares of common stock were granted to directors pursuant to the Board resolution for services provided by directors.

directors, respectively.


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Executive Officer

On June 29, 2005 the Company and David E. Riggsis 53 years old. mutually agreed that Mr. Riggs joined us in March 2003would relinquish his duties as Vice President, Chief Business Officer and Chief Financial Officer. On March 30, 2004, Mr. Riggs was named the President and Chief Executive Officer in addition to his role as Chief Financial Officer. Mr. Riggs most recently was Founder and President of EMLIN Bioscience (founded in 2000). From 2000 to 2001 he was Senior Vice President and Chief Financial Officer of Celera Genomics Group (previously Axys Pharmaceuticals, Inc. — NASDAQ: AXPH). From 1992 to 2000 hethe Company. Chairman of the Board, John A. Paganelli, assumed the role of Interim Chief Executive Officer. On July 1, 2005 Dave Hostelley was with Unimed Pharmaceuticals, Inc. (previously NASDAQ: UMED) where he was Senior Vice President of Business Operations and prior to that, Chief Financial Officer and Secretary. Mr. Riggs also served asnamed Chief Financial Officer of NeoPharm, Inc. (NASDAQ: NEOL). the Company.

John A. Paganelli, Interim Chief Executive Officer

See discussion contained above.

Dr. David F. Hostelley, Chief Financial Officer
Dr. Hostelley is a CPA in the states of Ohio and New York. In 1984 he earned his Ph.D. in management while a lecturer in the MBA Program of Baldwin-Wallace College. He currently lectures in Accounting and Management for Myers University, Cleveland, Ohio.
He has held financial management positions at Fujisawa Healthcare, Inc. structured numerous acquisitions in the fields of printing, oil and gas development, private schools, insurance agencies, hotels, manufacturing, debit card issuance, health clubs and service entities. In his capacity of trainer in the field of Project Management, Dr. Hostelley has taught the executives of: Ford Motor Company, Westinghouse, National Fuel Gas, General Electric, Stromberg-Carlson, Doehler-Jarvis, Marvin Windows, Progressive Insurance, EDI Engineering, Sun Exploration, Tennessee Valley Authority, SPX Corporation, The Venezuelan Oil Ministry, Ford Museum in Greenfield Village, and Trans Ohio Savings and Loan. He has lectured in South Africa, Venezuela, Canada, and the United States.
He is a certified public accountantnow serving as interim president and earned a B.S. fromboard member of the Universityfollowing companies: Allied Energy, Inc. (Symbol AGYP.PK); First American Railways, Inc. (SymbolFTRJ.PK); and IDViews, Inc. (Symbol IDVW.PK). He currently serves on the Executive Committee of Illinois and an M.B.A. from DePaul University.the Cleveland Chapter of the Muscular Dystrophy Association.

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Item 11.Executive Compensation


Summary Compensation Table


The following Summary Compensation Table sets forth summary information as to compensation received by our former Chiefthe named Executive OfficerOfficers and each of our other most highly compensated executive officers who were employed by us at the end of fiscal 20042005 for services rendered to us in all capacities during the three fiscal years ended December 31, 2005, 2004 2003 and 2002,2003, and who earned in excess of $100,000 for services rendered to us during fiscal 2004.

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2005.


                     
                  Long-Term 
                  Compensation 
  Annual Compensation  Securities 
              Other Annual  Underlying 
Name and Principal Position Year  Salary  Bonus (4)  Compensation  Options(#) 
David E. Riggs  2004  $235,000         75,000 
President, Chief Executive Officer,  2003  $190,561         225,000 
Chief Financial Officer & Secretary (3)  2002             
                     
Ronald L. Goode, Ph.D.  2004  $95,751          
former President, CEO (2)  2003  $405,000  $105,000  $12,000(1)   
   2002  $373,333  $105,000  $12,000(1)  400,000 
   
SUMMARY COMPENSATION TABLE 
 
      
Annual compensation 
  
Long-term compensation 
 
         
Awards 
  
Payouts 
    
Name and principal position 
  
Year 
  
Salary 
  
Bonus (1) 
  
Other annual compensation 
  
Restricted
stock
award(s) 
  
Securities
underlying
options/
SARs 
  
LTIP
payouts 
  
All other
compensation 
 
John A. Paganelli, Interim CEO (2)  2005 $12,500   $75,000    20,000     
   2004 $75,000   $75,000    20,000     
   2003               
Dr. David Hostelley, CFO (3)  2005 $15,000             
   2004               
   2003               
David E. Riggs Former President, CEO, CFO and Secretary (4)  2005 $244,000             
   2004 $235,000        75,000     
   2003 $190,561        225,000     
Ronald L. Goode, Ph.D. Former President, CEO (5)  2005               
   2004 $95,751             
   2003 $405,000 $105,000 $12,000 (6)        

(1)Bonuses paid in the year reported were earned and accrued in the previous year.
(2)Mr. Paganelli is Chairman of the Board of the Company. Mr. Paganelli became Interim Chief Executive Officer of the Company on June 29, 2005. Compensation stated in Table under Other Annual Compensation reflects compensation earned by Mr. Paganelli as the Chairman of the Board of Directors of the Company.
(3)Mr. Hostelley became Chief Financial Officer of the Company on July 1, 2005.
(4)Mr. Riggs served as our President and Chief Executive Officer until June 29, 2005.
(5)Dr. Goode served as our President and Chief Executive Officer until February 23, 2004.
(6)Other annual compensation for Dr. Goode during fiscal 2003 consisted of a $12,000 car allowance.
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(1) Other annual compensation for Dr. Goode during fiscal 2003 and fiscal 2002 consisted of a $12,000 car allowance.

(2) Dr. Goode served as our President and Chief Executive Officer until February 23, 2004.

(3) Mr. Riggs joined the Company March 10, 2003 at an initial annual base salary of $235,000. Mr. Riggs was named President and Chief Executive Officer of the Company on or about March 30, 2004.

(4) Bonuses paid in the year reported were earned and accrued in the previous year.

Option Grants in Our Last Fiscal Year


The following table shows grants of stock options that we made during the fiscal year ended December 31, 20042005 to each of our executive officers named in the Summary Compensation Table, above.
                         
       
  Individual Grants   
  Number of              Potential Realizable 
  Securities  % of Total          Value at Assumed 
  Underlying  Options          Annual Rates of Stock 
  Options  Granted to  Exercise or      Price Appreciation for 
  Granted  Employees in  Base Price  Expiration  Option Term (2) 
Name (#)  Fiscal Year  ($/Share)  Date  5%  10% 
David E. Riggs (1)  75,000   100% $0.84  March 29, 2014 $102,750  $163,500 


      
Individual Grants 
       
               
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Option Term (2)  
 
Name 
  
Number of
Securities
Underlying
Options
Granted
(#) 
  
% of Total
Options
Granted to
Employees in Fiscal Year 
  
Exercise or
Base Price($/Share) 
  
Expiration
Date 
  
5% 
  
10%
 
John A. Paganelli  20,000  20%$.40  Jan. 2015 thru Oct. 2015 $13,031  $20,750 

(1)The options are non-qualified stock options, granted pursuant to the Company’s Amended and Restated 2000 Stock Option Plan. Options to purchase 75,00020,000 shares of Common Stock, at an average exercise price of $0.84$0.40 per share, vest annually in three equal installments commencingimmediately on the grant date of grant.that ranges from January 1, 2005 through October 1, 2005. These options were granted pursuant to the amendment to Mr. Riggs employment agreement dated March 30, 2004.Paganelli as a member of the Board of Directors of the Company.


(2)In accordance with the rules of the SEC, we show in these columns the potential realizable value over the term of the option (the period from the grant date to the expiration date). We calculate this assuming that the fair market value of our common stock on the date of grant appreciates at the indicated annual rate, 5% and 10% compounded annually, for the entire term of the option and that the option is exercised and sold on the last day of its term for the appreciated stock price. These amounts are based on assumed rates of appreciation and do not represent an estimate of our future stock price. Actual gains, if any, on stock option exercises will depend on the future performance of our common stock, the option holder’s continued employment with us through the option exercise period, and the date on which the option is exercised.


Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

The following table shows information regarding exercises of options to purchase our common stock by each former executive officer named in the Summary Compensation Table during the fiscal year ended December 31,

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2004 2005.The table also shows the aggregate value of options held by each executive officer named in the Summary Compensation Table as of December 31, 2004.2005. The value of the unexercised in-the-money options at fiscal year end is based on a value of $0.34$0.41 per share, the closing price of our stock on the OTC Bulletin Board on December 30, 20042005 (the last trading day prior to the fiscal year end), less the per share exercise price.

                         
          Number of Securities    
          Underlying Unexercised  Value of the Unexercised 
  Shares      Options at Fiscal  In-The-Money Options 
  Acquired on  Value  Year-End  at Fiscal Year-End 
Name Exercise  Realized(1)  Exercisable  Unexercisable  Exercisable  Unexercisable 
Ronald L. Goode, Ph.D  200,000  $86,000         N/A   N/A 
David E. Riggs     N/A   175,000   125,000   N/A   N/A 


         
Number of Securities
Underlying Unexercised
Options at
Fiscal Year-End 
  
Value of the Unexercised
In-The-Money Options
at Fiscal Year-End 
 
Name   
Shares
Acquired on Exercise 
  
Value
Realized(1) 
  
Exercisable 
  
Unexercisable 
  
Exercisable 
  
Unexercisable 
 
John A. Paganelli    N/A  40,000   $500  N/A 
David E. Riggs    N/A  50,000  25,000  N/A  N/A 

(1)Amounts shown in this column do not necessarily represent actual value realized from the sale of the shares acquired upon exercise of the option because in many cases the shares are not sold on exercise but continue to be held by the executive officer exercising the option. The amounts shown represent the difference between the option exercise price and the market price on the date of exercise, which is the amount that would have been realized if the shares had been sold immediately upon exercise.


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Employment Contracts, Termination of Employment and Change-in-Control Arrangements


David E. Riggs entered into an employment agreement with us on March 10, 2003 to serve as our Vice President, Chief Business Officer, Chief Financial Officer and Secretary until March 9, 2006, to be automatically renewed for additional one-year periods, unless sooner terminated. The employment agreement provides for the payment to Mr. Riggs of a base salary of $235,000 per year with an annual bonus payment of up to 30% of Mr. Riggs’s base salary, at the discretion of the Board of Directors. The employment agreement provides that in the event Mr. Riggs’s employment is terminated by us without cause or by Mr. Riggs for good reason, Mr. Riggs shall receive severance payments of equal monthly installments at the then current base rate until either (i) the expiration of 12 months following the date of termination, if such date is prior to March 10, 2004, (ii) the expiration of nine months following the date of termination, if such date is before March 10, 2005, (iii) the expiration of six months following the date of termination, if such date is before March 9, 2006, or (iv) the expiration of six months following the date of termination, if such date is during a renewal period. The employment agreement contains a one-year post-termination non-compete, non-solicitation and non-disclosure agreement. On or about March 2004 we amended Mr. Riggs employment agreement (the “Amendment”) to reflect his new title of President and Chief Executive Officer. Pursuant to the Amendment Mr. Riggs was granted an option to purchase 75,000 shares of the Company’s Common Stock. This Option granted vests in three equal installments: The first immediately upon the grant date, the second on the first anniversary of that date and the final upon the second anniversary of that date.

     Ronald L. Goode, Ph.D. Effective June 30, 2005 the Company and David E. Riggs mutually agreed that Mr. Riggs would relinquish his duties as President, Chief Executive and Chief Financial Officer of the Company, and the Company entered into an employmenta Separation Agreement with Mr. Riggs. Chairman of the Board, John A. Paganelli, assumed the role of Interim Chief Executive Officer. On July 1, 2005 David Hostelley was named Chief Financial Officer of the Company. The Company’s agreement with usMr. Hostelley calls for him to receive $2,500 per month, and is terminable by either side upon 30 days written notice.


PERFORMANCE TABLE

 The following table compares the annual percentage change in our cumulative total stockholder return on March 21,our common stock during a period commencing on December 31, 2001 to serve asand ending on December 31, 2005 (as measured by dividing (A) the sum of the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and the difference between our Presidentshare price at the end and Chief Executive Officer until March 21, 2004. On December 18, 2003, the New Board notified Dr. Goode that his employment agreement would not be renewed. The employment agreement contains a two-year post-termination non-compete, non-solicitation and non-disclosure agreement. On February 23, 2004, Dr. Goode resigned, thereby terminating his employment agreementbeginning of the measurement period; by (B) our share price at the beginning of the measurement period) with the Company that was to expirecumulative total return of the Nasdaq Stock Market our peer group (Nasdaq Biotech Index) during such period. We have not paid any dividends on March 21, 2004.our common stock, and we do not include dividends in the representation of our performance. The stock price performance on the graph below does not necessarily indicate future price performance.

COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG
EXEGENICS INC.
NASDAQ MARKET INDEX AND SIC CODE INDEX
(PERFORMANCE TABLE)
            
  2001 2002 2003 2004 2005 
EXEGENICS INC $100.00 $10.51 $27.03 $10.21 $12.31 
NASDAQ Market Index $100.00 $68.47 $102.72 $111.54 $113.07 
Nasdaq Biotech Index $100.00 $54.67 $79.68 $84.57 $86.96 
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Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The table below shows the number of shares of our common stock and series A preferred stock

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beneficially owned as of April 7, 2005March 28, 2006 by the following persons:


each stockholder known by us to beneficially own more than 5% of the outstanding shares of either the common stock or series A preferred stock;


each current member of the Board of Directors;


our Interim Chief Executive Officer and our single highly compensated executive officers who earned more than $100,000 during the fiscal year ended December 31, 2004,2005 referred to below as our named executive officer; and,


all directors and named executive officer as a group.


To our knowledge and unless otherwise indicated, each person in the table has sole voting power and investment power, or shares such power with his or her spouse, with respect to all shares of capital stock listed as owned by such person.

The Company is not aware of any arrangements which may at a subsequent date result in a change of control of the Company.

The number of shares beneficially owned by each stockholder is determined under the rules promulgated by the SEC. The information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and any shares as to which the individual has the right to acquire beneficial ownership within 60 days after April 7, 2005March 21, 2006 through the exercise of any option, warrant or other right. The inclusion in the following table of those shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of those shares.
                     
  Common Stock  Series A Preferred Stock    
      Percent      Percent  Percent of all 
Name and Address of Beneficial Owner (1) Number  of Class (2)  Number  of Class (3)  Voting Securities (4) 
Bruce Meyers (5)(10)  1,329,983   8.18%  39,051   3.83%  7.92%
Melvin Weiss (6)(10)  602,850   3.71%        3.49%
Michael Stone (10)(11)  269,257   1.66%        1.56%
J. Morton Davis (16)  892,500   5.49%        5.16%
John A. Paganelli (12)  75,000   *         * 
Robert A. Baron (13)  94,800   *         * 
Robert Benou (14)  50,000   *         * 
David Lee Spencer, M.D (15)  824,100   5.07%        4.77%
Ronald L. Goode, Ph.D. (7)  311,700   1.92%        1.80%
David E. Riggs (8)  282,200   1.73%        1.63%
Directors and executive officers as a group (5 persons) (9)  1,326,100   8.15%        7.67%


* Less than One Percent.
   
Common Stock 
  
Series A Preferred Stock 
    
Name and Address of Beneficial Owner (1) 
  
Number 
  
Percent
of Class (2) 
  
Number  
  
Percent
of Class (3) 
  
Percent of all
Voting Securities (4) 
 
Bruce Meyers (5)  1,224,277  7.35% 39,051  3.85% 7.20%
J. Morton Davis and Rosalind Davidowitz (6) .  1,553,900  9.49%     8.99%
John A. Paganelli (7).  95,000  *      * 
Robert A. Baron (8)  114,800  *      * 
Robert Benou (9)  70,000  *      * 
David Lee Spencer, M.D (10).  844,100  5.14%     4.88%
David E. Riggs (11)  82,200  *      * 
David Hostelley    *          
Directors and executive officers as a group (5 persons) (12)  
1,131,100
  
6.84
%
 
  
  
6.54
%


*Less than One Percent.
 (1)
Except as otherwise indicated, the address of each beneficial owner is c/oeXegenics Inc., 1250 Pittsford-Victor Road, Pittsford, New York 14534.
 (2)Calculated on the basis of 16,266,55316,367,090 shares of common stock issued and outstanding as of April 7, 2005March 28, 2006 except that shares of common stock underlying options and warrants exercisable within 60 days of the date hereof are deemed to be outstanding for purposes of calculating the beneficial ownership of securities of the holder of such options or warrants. This calculation excludes shares of common stock issuable upon the conversion of series A preferred stock.
25

 (3) Calculated on the basis of 1,020,3121,015,028 shares of series A preferred stock outstanding as of April 7, 2005.March 28, 2006. 
 (4)Calculated on the basis of an aggregate of 16,266,55316,367,090 shares of common stock and 1,020,3121,015,028 shares of series A preferred stock issued and outstanding as of April 7, 2005,March 28, 2006, except that shares of common stock underlying options and warrants exercisable within 60 days of the date hereof are deemed to be outstanding for purposes of calculating beneficial ownership of securities of the holder of such options or warrants.

23


of securities of the holder of such options or warrants.

 (5)Mr. Meyers’Meyers' address is c/o Meyers Associates, L.P., 45 Broadway, New York, New York 10006. The amount shown for Mr. Meyers includes: 859,645 shares owned by Mr. Meyers; 4,740 shares owned by the Bruce Meyers Keogh; 33,800 shares of the Company’sCompany's common stock owned by the Joseph Rita and Bruce Meyers Foundation for Life Inc. (Mr. Meyers is the Chairman of the Board of the Joseph Rita and Bruce Meyers Foundation for Life), 39,051 shares of the Company’sCompany's common stock issuable upon the conversion of 39,051 shares of preferred stock owned by Bruce Meyers; and the following securities owned by Meyers Associates, L.P. of which Mr. Meyers, is an executive officer, the sole shareholder and director of the general partner of Meyers Associates, L.P.; 76,092 shares of common stock, and 250,000 shares of common stock issuable upon the exercise of currently exercisable five-year warrants issued in 2002 to Meyers Associates, L.P. A portion of the shares beneficially owned by Mr. Meyers were obtained for services provided by Meyers Associates, L.P. a registered broker dealer. The services provided by Meyers Associates, L.P. included acting as financial advisor, placement agent and/or underwriter to the Company. The percent of the class of common stock of the Company owned by Mr. Meyers is Based on the Company’s having 16,516,553 shares of common stock outstanding, which assumes the conversion of currently exercisable warrants issued to Meyers Associates, L.P. into 250,000 shares of the Company’s common stock. As of September 5, 2003, Mr. Meyers beneficially owned 1,329,983 shares of the Company’s common stock.
(6)  This includes 4,400 shares of the Company’s common stock owned by The M&B Weiss Family Limited Partnership of 1996 and 20,000 shares of the Company’s common stock owned by the M&B Weiss Family Foundation, Inc. (the “Foundation”). Mr. Weiss’ wife and children are also officers of the Foundation and members of its board. Mr. Weiss’ business address is Milberg Weiss Bershad Hynes & Lerach LLP, One Pennsylvania Plaza, New York, New York 10119.
(7)  Ownership consists of 311,700 shares of common stock, 200,000 of which were acquired upon Dr. Goode’s exercise of options in May 2004. Dr. Goode’s address is 3701 Cragmont Avenue, Dallas, Texas 75205. Beneficial ownership information taken from Dr. Goode’s disclosure to the Company.
(8)  Ownership consists of 7,200 shares of common stock and options to purchase 275,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof. Does not include options to purchase 25,000 shares of common stock not exercisable within 60 days of the date hereof.
(9)  Ownership consists of 951,100 shares of common stock and options to purchase an aggregate of 375,000 shares of common stock, which are currently exercisable or exercisable within 60 days of the date hereof. Does not include options to purchase 25,000 shares of common stock not exercisable within 60 days of the date hereof.
(10)  Beneficial ownership information taken from Schedule 14A file number 03896368 filed September 15, 2003.
 (11)  Mr. Stone’s business address is c/o North American Pharmacy, 16129 Cohasset, Van Nuys, California 91406.
(12)  Ownership consists of 50,000 shares of common stock and options to purchase 25,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof.
(13)  Ownership consists of 69,800 shares of common stock and options to purchase 25,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof.
(14)  Ownership consists of 25,000 shares of common stock and options to purchase 25,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof.
(15)  Ownership consists of 799,100 shares of common stock and options to purchase 25,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof.
(16)(6) Beneficial ownership information and the information under this footnote taken from Schedule 13G file number 005-51671 filed AprilFebruary 7, 2005. Includes2006. As of December 31, 2005 Mr. Davis may be deemed beneficially own: (i) 248,000 shares of common stock owned by D.H. Blair Investment Banking Corp. (“("Blair Investment”Investment"), and (ii) 644,5001,305,900 shares owned by Rosalind Davidowitz (Mr. Davis’ wife). Mr. Davis’Davis' business address is 44 Wall Street, New York, New York 10005. Mrs. Davidowitz’sMs. Davidowitz's address is 7 Sutton Place South, Lawrence, New York 11559. As of April 5,December 31, 2005 Rosalind Davidowitz may be deemed to beneficially own 892,5001,305,900 shares of common stock (644,500 shares owned directly by Rosalind Davidowitz, and 248,000 shares of common stock owned by Blair Investment).Investment. Mr. Davis has sole power to vote or to direct the vote, to dispose or to direct the disposition of those shares owned by Blair Investment. Ms. Davidowitz has sole power to vote or to direct the disposition of those shares owned directly by her. Each of Ms. Davidowitz and Mr. Davis do not deem the filing of the aforementioned Schedule 13G as an admission by each of beneficial ownership of the securities owned by the other.

24


(7) Ownership consists of 50,000 shares of common stock and options to purchase 45,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof. 

Equity Compensation Plan Information

Equity Compensation Plan Information
As of December 31, 2004

             
          Number of Securities 
          Remaining Available for 
  Number of Securities to be  Weighted-Average  Future Issuance Under 
  Issued Upon Exercise of  Exercise Price of  Equity Compensation Plans 
  Outstanding Options,  Outstanding Options,  (Excluding Securities 
  Warrants and Rights  Warrants and Rights  Reflected in Column(a)) 
Plan Category (a)  (b)  (c) 
Equity compensation plans approved by security holders  1,100,000  $3.02   2,742,600 
Equity compensation plans not approved by security holders (1)  290,000  $0.75   N/A 
(8)Ownership consists of 69,800 shares of common stock and options to purchase 45,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof.


(1)  Consists of the following warrants: Roan-Meyers dated August 13, 2002 to purchase 125,000 shares of our common stock; Roan-Meyers warrants, dated August 13, 2002 to purchase 125,000 shares of our common; and Petkevich & Partners, LLC warrants, to purchase 40,000 shares of our common stock.
(9)Ownership consists of 25,000 shares of common stock and options to purchase 45,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof.

     We have authorized the issuance of equity securities under the compensation plans described below without the approval of stockholders. No additional options, warrants or rights are available for issuance under any of these plans, except for additional shares which may become purchasable under warrants with anti-dilution protection as noted below. We have either already registered or agreed to register for resale the common stock underlying all of these plans.

•      Roan-Meyers warrants, dated August 13, 2002: provided common stock purchase warrants in connection with financial advisory services, to purchase 125,000 shares of our common stock at a purchase price of $1.00 per share, with an expiration date of August 13, 2007.

•      Roan-Meyers warrants, dated August 13, 2002: provided common stock purchase warrants in connection with financial advisory services to purchase 125,000 shares of our common stock at a purchase price of $0.55 per share, with an expiration date of August 13, 2007.

•      Petkevich & Partners, LLC warrants, dated March 5, 2003, provided common stock purchase warrants in connection with financial advisory services to purchase 40,000 shares of our common stock at a purchase price of $0.58 per share, with an expiration date of March 5, 2008.

(10)Ownership consists of 799,100 shares of common stock and options to purchase 45,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof.

(11)Ownership consists of 7,200 shares of common stock and options to purchase 75,000 shares of common stock currently exercisable or exercisable within 60 days of the date hereof. Does not include options to purchase 25,000 shares of common stock not exercisable within 60 days of the date hereof.
(12) Ownership consists of 951,100 shares of common stock and options to purchase an aggregate of 180,000 shares of common stock, which are currently exercisable or exercisable within 60 days of the date hereof. 
Item 13.Certain Relationships and Related Transactions

John Paganelli

     In January 2004,

Since the beginning of fiscal 2005, the Company entered intois not a lease agreement for office space with RFG Associates,party to any transaction or series of transactions in an entityamount exceeding $60,000 in which John A. Paganelli, chairman of the Board of Directorsany Director or Executive Officer of the Company has a direct or indirect interest.
Since the beginning of fiscal 2005 none of the Company’s Directors or Executive Officers is an equity owner. The lease provides for a monthly rent of $625 and is cancelable by either party upon thirty (30) days notice.

Meyers Associates, L.P.

     On August 13, 2002 we entered into an agreement with Meyers Associates, L.P. (formerly Roan/Meyers Associates, L.P., a security holder who is knownindebted to the Company to ownin an amount in excess of record or beneficially more than five percent

25

$60,000.


There is no disclosable business relationship with any Director under Item 404(b) of any class of the Company’s voting securities) for financial advisory services. Pursuant to the terms of this agreement, we paid Meyers Associates, L.P. $57,000 in 2003. In addition, we issued them warrants to purchase 125,000 shares of our common stock at a purchase price of $1.00 per share, with an expiration date of August 13, 2007, and additional warrants to purchase 125,000 shares of our common stock at a purchase price of $0.55 per share, with an expiration date of August 13, 2007. In connection with the Meyers Group consent solicitation, we reimbursed Meyers Associates, L.P. $14,000 for out-of-pocket expenses incurred in 2003.

Milberg Weiss Bershad Hynes & Lerach LLP

     Melvyn I. Weiss (a security holder who is known to the Company to own of record or beneficially more than five percent of any class of the Company’s voting securities) is an attorney and senior partner of Milberg Weiss Bershad Hynes & Lerach LLP (“Milberg Weiss”). Milberg Weiss represents The M&B Weiss Family Limited Partnership of 1996 in connection with its lawsuit against the Company (as a nominal defendant) and Ronald L. Goode, Joseph M. Davie and Walter Lovenberg. Milberg Weiss also represents Bruce Meyers, The M&B Weiss Family Limited Partnership of 1996, Melvyn I. Weiss and Michael Stone in connection with this consent solicitation. Mr. Weiss’ business address is Milberg Weiss Bershad Hynes & Lerach LLP, One Pennsylvania Plaza, New York, New York 10119. In 2004, in connection with the Meyers Group consent solicitation, we paid Milberg Weiss approximately $177,000, substantially all of which was recognized as a legal expense in 2003.Regulation S-K


26

Item 14.Principal Accounting Fees and Services

The following represents fees for professional audit services rendered by BDO Seidman,Rotenberg & Company, LLP for the audit of our annual financial statements for the years ended December 31, 20042005 and December 31, 2003, and Ernst & YoungBDO Seidman, LLP for the period ending December 31, 2002 (Ernst & Young2004 and December 31, 2003 (BDO Seidman, LLP and BDO Seidman,Rotenberg & Company, LLP are collectively “our principal accountants”).


Audit Fees

Our principal accountants billed us an aggregate of $62,000$29,000 and $113,000$62,000 in fees and expenses for professional services rendered in connection with the audits of our financial statements for the calendar years ended December 31, 20042005 and 2003,2004, respectively, and reviews of the financial statements included in our quarterly reports on Form 10-Q during such calendar years.


Audit Related Fees

Our principal accountants billed us an aggregate of $23,000 and $31,000 for assurance and $48,000 inrelated services that are reasonably related to the performance of the audit related feesof our financial statements and not included above, for the calendar years ended December 31, 2005 and 2004, and 2003, respectively.


Tax Fees

Our principal accountants billed us an aggregate of $20,000$15,000 and $15,000$20,000 in fees and expenses for tax compliance, tax advice and tax planning during calendar years ended December 31, 2005 and 2004, and 2003, respectively.


All Other Fees

26


Our principal accountants did not bill us any additional fees that are not disclosed under audit fees, audit related fees or tax fees in each of the last two calendar years.


Audit Committee Pre-Approval Process, Policies and Procedures

     During 2003,

On January 6, 2006, the Audit Committee of the Board and full Board approved the appointment of BDO Seidman,Rotenberg & Company, LLP as the replacement auditors to Ernst & YoungBDO Seidman, LLP. Our principal auditorsaccountants have performed their audit procedures in accordance with pre-approved policies and procedures established by our Audit Committee.  Our principal auditors have informed our Audit Committee of the scope and nature of each service provided.  With respect to the provisions of services other than audit, review, or attest services, our principal accountants brought such services to the attention of our Audit Committee, or one or more members of our Audit Committee for the members of our Board of Directors to whom authority to grant such approval had been delegated by the Audit Committee, prior to commencing such services.  Such services primarily consisted of due diligence and tax related services.

PART IV


Item 15.Exhibits, Financial Statement Schedules.

(a)(1) Report of Rotenberg & Company, LLP, Independent Registered Public Accounting Firm

Report of BDO Seidman, LLP, Independent Registered Public Accounting Firm

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm


27

Balance Sheets as of December 31, 20042005 and 2003

2004


Statements of Operations for the years ended December 31, 2005, 2004 2003 and 2002

2003


Statements of Changes in Stockholders’ Equity for years ended December 31, 2005, 2004 2003 and 2002

2003


Statements of Cash Flows for the years ended December 31, 2005, 2004 2003 and 2002

2003


Notes to Financial Statements


(2)Financial Statement Schedules


All schedules have been omitted because the required information is included in the financial statements or notes thereto or because they are not required.


28

(3)Exhibits
   
3.1Certificate of Incorporation, as amended(l)
3.2By-laws(l)
3.3
Certificate of Correction to the Certificate of Amendment to the Certificate of Incorporation ofeXegenicsInc. filed with the Delaware Secretary of State on July 14, 2003 (10)
4.1Specimen certificates representing Class C Warrants, Class D Warrants and Common Stock(l)
4.3
Form of Unit Purchase Option in connection witheXegenicsInc.’s Initial Public Offering(l)
4.4Warrant Certificate issued to the Washington State University Research Foundation(4)

27


4.5
Stockholders Rights Agreement, dated June 9, 2003, betweeneXegenicsInc. and American Stock Transfer & Trust Company, which includes as Exhibit A the Form of Certificate of Designations of Series B Junior Participating Preferred Stock, as Exhibit B the Form of Rights Certificate and as Exhibit C the Summary of Rights to Purchase Preferred Stock(11)
4.6
Amendment to Stockholders Rights Agreement entered into as of July 16, 2003, by and betweeneXegenics Inc. and American Stock Transfer & Trust Company, as Rights Agent (10)
4.7
Form of Warrant Agreement between eXegenics Inc. and Gruntal & Co., LLC (15)
4.8
Form of Warrant Agreement between eXegenics Inc. and Roan Meyers Associates LP (15)
4.9
Form of Warrant Agreement between eXegenics Inc. and Petkevich & Partners, LLC (15)
10.1
Employment Agreement dated March 1, 1992 betweeneXegenicsInc. and Arthur P. Bollon, Ph.D., as amended(1)
10.21992 Stock Option Plan, as amended(l)
10.3Form of Stock Option Agreement(l)
10.4
Lease Agreement dated October 1, 1991 betweeneXegenicsInc. and J.K. and Susie Wadley Research Institute and Blood Bank, as amended(l)
10.5
Security Agreement dated October 10, 1991 betweeneXegenicsInc. and Wadley(l)
10.6
License Agreement dated June 10, 1993 betweeneXegenicsInc. and Research & Development Institute, Inc. (“RDI”), as amended, relating to the Paclitaxel Fermentation Production System(l)
10.7
Research and Development Agreement effective June 10, 1993 betweeneXegenicsInc. and RDI, as amended(l)
10.8
License Agreement dated February 22, 1995 betweeneXegenicsInc. and RDI, as amended, relating to FTS-2(l)
10.9
Agreement effective June 30, 1992 betweeneXegenicsInc. and University of Texas at Dallas (“UTD”), as amended(l)
10.10Extension Agreement with RDI dated June 5, 1995(l)
10.11Third Amendment to Lease Agreement dated April 30, 1995(l)
10.12September 25, 1995 RDI Extension(l)
10.13October 25, 1995 RDI Extension(1)
10.14
Amendment to License Agreement dated June 10, 1993, as amended, and Research and Development Agreement effective June 10, 1993, as amended, both agreements betweeneXegenicsInc. and RDI(2)
29

10.15
License Agreement No. W960206 effective February 27, 1996 betweeneXegenicsInc. and The Regents of the University of California(2)
10.16
License Agreement No. W960207 effective February 27, 1996 betweeneXegenicsInc. and The Regents of the University of California(2)
10.17License Agreement with the Washington State University, dated July 2, 1996(3)*
10.18
Amendment to Agreement, effective June 30, 1992, as amended, betweeneXegenicsInc. and the University of Texas at Dallas(3)
10.191996 Stock Option Plan and Amendment No. 1 thereto(7)
10.20
Patent License Agreement, dated August 4, 1998, between The Regents of the University of California andeXegenicsInc. for Peptide Anti-estrogen for Breast Cancer Therapy(5)*
10.21
Master License Agreement, dated as of June 12, 1998, betweeneXegenicsInc. and Bristol-Myers Squibb Company(6)*
10.22
Sublicense Agreement, dated May 27, 1998, betweeneXegenicsInc. and Bristol-Myers Squibb under The Research & Development Institute, Inc. License Agreement, as amended, dated June 10, 1998(6)*
10.23
Sublicense Agreement, dated May 19, 1998, betweeneXegenicsInc. and Bristol-Myers Squibb Company under the Washington State University Research Foundation License Agreement, dated June 8, 1996(6)*
10.24
Amended and Restated License Agreement, dated June 3, 1998, between the Washington State University Research Foundation andeXegenicsInc.(6)*
10.25
Amendment, dated May 27, 1998, to the License Agreement, dated June 10, 1993, between The Research and Development Institute, Inc. andeXegenicsInc.(6)*
10.26Amended and Restated 2000 Stock Option Plan(7)
10.27
Employment Agreement dated March 21, 2001, betweeneXegenicsInc. and Ronald L. Goode, Ph.D.(8)
10.28
Employment Agreement dated March 13, 2003, betweeneXegenicsInc. and David E. Riggs(13)
10.29
Termination Agreement dated November 25, 2002 betweeneXegenicsInc., Innovative Drug Delivery Systems, Inc., and IDDS Merger Corp(9)
10.30
Amendment, dated September 9, 2003, to Employment Agreement dated March 20, 2001, betweeneXegenics Inc. and Ronald L. Goode, Ph.D(12)
10.31
Amendment, dated October 16, 2003, to Employment Agreement dated March 20, 2001, betweeneXegenics Inc. and Ronald L. Goode, Ph.D(12)
10.32
Form of Indemnification Agreement by and amongeXegenicsand certain of its current and former directors and officers (10).
10.33
Promissory Note and Pledge Agreement betweeneXegenicsInc. and Ronald L. Goode, Ph.D. (14).

28


10.34
Amendment, dated March 30, 2004, to Employment Agreement dated March 13, 2003, betweeneXegenicsInc. and David E. Riggs (14).
10.35
Termination Letter dated April 10, 2003 by and betweeneXegenicsInc. and Dorit Arad (14).
10.36
Termination Letter Agreement dated April 30, 2003 by and betweeneXegenicsInc. and Joan Gillett (14).
10.37
Separation from Employment Letter Agreement dated January 10, 2003 by and betweeneXegenicsInc. and Arthur P. Bollon (14).
10.38 
Sublease Agreement between eXegenics Inc. and RFG Associates dated as of January 1, 2004 (16).
10.39 
Intellectual Property Assignment Agreement between eXegenics Inc. and NLC Pharma, Inc. (17)
10.40
Separation Agreement between eXegenics Inc. and David Riggs dated July 26, 2005 (18).
10.41
Agreement between eXegenics Inc. and David Hostelley dated July 20, 2005 (18).
23.1Consent of BDO Seidman, LLP
23.231.1Consent of Ernst & Young LLP
31.1Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002.
31.2Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



*Confidential portions omitted and filed separately with the U.S. Securities and Exchange Commission pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.

30

(1)
Previously filed as an exhibit toeXegenicsInc.’s Registration Statement on Form SB-2 (File No. 33-91802) and are incorporated by reference herein.
(2)
Previously filed as an exhibit toeXegenicsInc.’s Annual Report on Form 10-KSB for the year ended December 31, 1995 and are incorporated by reference herein.
(3)
Previously filed as an exhibit toeXegenicsInc.’s Post-Effective Amendment No. 1 to Form SB-2 (File No. 33-91802) and are incorporated by reference herein.
(4)
Previously filed as an exhibit toeXegenicsInc.’s Registration Statement on Form SB-2 (File No. 333-13409) and is incorporated by reference herein.
(5)
Previously filed as an exhibit to the Post-Effective Amendment toeXegenicsInc.’s Registration Statement on Form SB-2 on Form S-3 (File No. 333-13409) and is incorporated by reference herein.
(6)
Previously filed as an exhibit toeXegenicsInc.’s Current Report on Form 8-K (File No. 000-26078) and is incorporated by reference herein.
(7)
Previously filed as an appendix toeXegenicsInc.’s Schedule 14-A (File No. 000-26078) and is incorporated by reference herein.
(8)
Previously filed as an exhibit toeXegenicsInc.’s Annual Report on Form 10-K (File No. 000-26078) for the year ended December 31, 2000 and is incorporated by reference herein.
(9)
Previously filed as an exhibit toeXegenicsInc.’s Current Report on Form 8-K (File No. 000-26078) and is incorporated by reference herein.
(10)
Previously filed as an exhibit toeXegenicsInc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (File No. 000-26078), filed August 14, 2003.
(11)
Previously filed as an exhibit toeXegenicsInc.’s Current Report on Form 8-K (File No. 000-26078), filed June 9, 2003.
(12)
Previously filed as an exhibit toeXegenicsInc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (File No. 000-26078), filed November 14, 2003.
(13)
Previously filed as an exhibit toeXegenicsInc.’s Annual Report on Form 10-K (File No. 000-26078) for the year ended December 31, 2002.
(14)
Previously filed as an exhibit toeXegenicsInc.’s Annual Report on Form 10-K (File No. 000-26078) for the year ended December 31, 2003.

(15)
Previously filed as an exhibit to eXegenics Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (File No. 000-26078), filed May 14, 2004.
(16)
Previously filed as an exhibit to eXegenics Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (File No. 000-26078), filed August 16, 2004
(17)
Previously filed as an exhibit to eXegenics Inc.’s Current Report on Form 8-K (File No. 000-26078), filed September 10, 2004.
(18)
Previously filed as an exhibit to eXegenics Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File No. 000-26078), filed August 15, 2005
(c)Refer to (a) 3 above.

29



31

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
   
 EXEGENICS INC.
 
 
 
 
Date: March 31, 2006By:      /s//s/ JOHN A. PAGANELLI
 
Name:John A. Paganelli
 
Title: Chairman of the Board
Interim Chief Executive Officer 

Date: April 20, 2005


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

 
Signatures
 
Title
 
Date
SignaturesTitleDate
      
By:/s/ JOHN A. PAGANELLI Director, Chairman of the Board April 20, 2005March 31, 2006
John A. PaganelliInterim Chief Executive Officer
      
By:/s/ DAVID HOSTELLEY John A. PaganelliChief Financial OfficerMarch 31, 2006
David Hostelley    
      
By:/s/ DAVID E. RIGGSPresident, Chief Executive OfficerApril 20, 2005
David E. Riggs(Chief Financial Officer)
By:/s/ ROBERT A. BARON Director April 20, 2005March 31, 2006
 Robert A. Baron    
      
By:/s/ ROBERT S. BENOU Director April 20, 2005March 31, 2006
 Robert S. Benou    
      
By:/s/ DAVID LEE SPENCER Director April 20, 2005March 31, 2006
 David Lee Spencer��   

30



32

eXegenics Inc.


CONTENTS


Financial Statements

 
Page
Report of Rotenberg & Company, LLP, Independent Registered Public Accounting FirmPageF-1
Report of BDO Seidman, LLP, Independent Registered Public Accounting FirmF-1
Report of Ernst & Young LLP, Independent Registered Public Accounting FirmF-2
Balance sheets as of December 31, 20042005 and 20032004F-3
Statements of operations for the years ended December 31, 2005, 2004 2003 and 20022003F-4
Statements of changes in stockholders’ equity for the years ended December 31, 2005, 2004 2003 and 20022003F-5
Statements of cash flows for the years ended December 31, 2005, 2004 2002 and 20022003F-6
Notes to financial statementsF-7

31




Report of Independent Registered Public Accounting Firm



To the Board of Directors
and Stockholders
eXegenics Inc.

We have audited the accompanying balance sheet of eXegenics Inc. as of December 31, 2005, and the related statements of operations, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of eXegenics Inc. as of December 31, 2005 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Rotenberg & Co., LLP

Rotenberg & Co., LLP
Rochester, New York
February 27, 2006

F-1

Report of Independent Registered Public Accounting Firm


Board of Directors and Stockholders
eXegenics Inc.

eXegenicsInc.

We have audited the accompanying balance sheets ofeXegenicsInc. (the Company) as of December 31, 2004 and 2003, and the related statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial statements referred to above present fairly, in all material respects, the financial position ofeXegenicsInc. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.



BDO Seidman, LLP
Dallas, Texas
February 18, 2005 except for Notes K and
N which are as of April 12, 2005

F-1


F-2

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

Board of Directors and Stockholders
eXegenicsInc.

     We have audited the accompanying statements of operations, changes in stockholders’ equity and cash flows ofeXegenicsInc. (the Company) for the year ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

     We conducted our audit 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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations ofeXegenicsInc. and its cash flows for the year ended December 31, 2002 in conformity with U.S. generally accepted accounting principles.

Ernst & Young LLP

Dallas, Texas
February 28, 2003

F-2


eXegenics Inc.


BALANCE SHEETS
          
 December 31,  
 December 31,
 
 2004 2003  
2005 
 
2004  
 
ASSETS
ASSETS
     
Current assets:      
Cash and cash equivalents $8,734,000 $10,132,000  $8,901,000 $8,734,000 
Restricted cash 175,000 600,000     175,000 
Marketable securities available for sale 1,124,000      1,124,000 
Prepaid expenses and other current assets 35,000 602,000   99,000  35,000 
     
Total current assets 10,068,000 11,334,000   9,000,000  10,068,000 
Equipment, net 3,000 8,000     3,000 
      $9,000,000 $10,071,000 
LIABILITIES AND STOCKHOLDERS’ EQUITY
       
 $10,071,000 $11,342,000        
     

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:        
Accounts payable and accrued expenses $239,000 $1,038,000  $277,000 $239,000 
            
 
Stockholders’ equity:        
Preferred stock — $.01 par value, 10,000,000 shares authorized; 935,332 and 890,564 shares of Series A convertible preferred issued and outstanding (liquidation value $2,338,000 and $2,226,000) 9,000 9,000 
Common stock — $.01 par value, 30,000,000 shares authorized; 16,869,031 and 16,314,779 shares issued 169,000 163,000 
Additional paid-in capital 68,385,000 68,061,000 
Preferred stock — $.01 par value, 10,000,000 shares authorized; 952,839 and 935,332 shares of Series A convertible
preferred issued and outstanding (liquidation value $2,382,000 and $2,338,000)
  10,000  9,000 
Common stock — $.01 par value, 30,000,000 shares authorized; 16,945,026 and 16,869,031 shares issued  169,000  169,000 
Additional paid in capital  68,384,000  68,385,000 
Accumulated other comprehensive income 1,124,000      1,124,000 
Subscriptions receivable  (302,000)  (302,000)
Subscriptions receivable, net of reserve  (101,000) (302,000)
Accumulated deficit  (56,216,000)  (54,290,000)  (56,402,000) (56,216,000)
Treasury stock, 611,200 and 611,200 shares of common stock, at cost  (3,337,000)  (3,337,000)  (3,337,000) (3,337,000)
       8,723,000  9,832,000 
 9,832,000 10,304,000  $9,000,000 $10,071,000 
     
 $10,071,000 $11,342,000 
     


See notes to financial statements


F-3


eXegenics Inc.


STATEMENTS OF OPERATIONS
               
 Year Ended December 31,  
Year Ended December 31, 
 
 2004 2003 2002  
2005 
 
2004 
 
2003 
 
Revenue:        
License and research fees $ $13,000 $562,000  $ $ $13,000 
       
Operating expenses:           
Research and development  154,000 3,948,000       154,000 
General and administrative 2,051,000 2,938,000 4,770,000   1,438,000  2,051,000  2,938,000 
Expenses related to strategic redirection  653,000 864,000       653,000 
Merger, tender offers and consent solicitation expenses  2,233,000 2,010,000       2,233,000 
         1,438,000  2,051,000  5,978,000 
 2,051,000 5,978,000 11,592,000 
       
 
Other (income) expenses:           
Gain on dispositions    (4,000)
Gain on sale of investments, net  (1,064,000)    
Interest income  (127,000)  (174,000)  (686,000)  (190,000) (127,000) (174,000)
Interest expense 2,000 2,000 18,000   2,000  2,000  2,000 
         (1,252,000) (125,000) (172,000)
  (125,000)  (172,000)  (672,000)
       
Loss before provision (benefit) for taxes  (1,926,000)  (5,793,000)  (10,358,000)  (186,000) (1,926,000) (5,793,000)
Provision (benefit) for taxes           
       
Net loss
  (1,926,000)  (5,793,000)  (10,358,000)
Net Loss
  
(186,000
)
 (1,926,000) (5,793,000)
Preferred stock dividend  (223,000)  (207,000)  (169,000)  (234,000) (223,000) (207,000)
       
Net loss attributable to common stockholders
 $(2,149,000) $(6,000,000) $(10,527,000) $(420,000)$(2,149,000)$(6,000,000)
       
 
Basic and diluted loss per common share:
 $(0.13) $(0.38) $(0.67) $(0.03)$(0.13)$(0.38)
       
Weighted average number of shares outstanding — basic and diluted
 16,050,000 15,690,000 15,672,000   16,271,000  16,050,000  15,690,000 
       


See notes to financial statements

F-4


eXegenics Inc.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
                                                 
                                  Accumulated       
  Convertible          Additional              Other       
  Preferred Stock  Common Stock  Paid in  Subscriptions  Unearned  Accumulated  Comprehensive  Treasury Stock    
  Shares  Amount  Shares  Amount  Capital  Receivable  Compensation  Deficit  Income (Loss)  Shares  Amount  Total 
Balance — January 1, 2002
  755,950  $8,000   16,180,935  $162,000  $67,025,000   ($360,000)  ($5,000)  ($38,139,000)     511,200   ($2,570,000) $26,121,000 
 
Preferred stock converted to common stock  (3,551)     3,551                            
 
Preferred dividend (stock)  75,624                                  
 
Net interest on Subscription Receivable                 8,000                  8,000 
 
Charge-off of Subscription Receivable                 51,000                  51,000 
 
Value assigned to warrants and options issued for professional services              247,000                     247,000 
 
Compensation related to grant of options to employees                    5,000               5,000 
 
Net loss for the year                       (10,358,000)           (10,358,000)
                                     
 
Balance — December 31, 2002
  828,023   8,000   16,184,486   162,000   67,272,000   (301,000)     (48,497,000)     511,200   (2,570,000)  16,074,000 
 
Preferred stock converted to common stock  (20,293)     20,293                            
 
Preferred dividend (stock)  82,834   1,000         (1,000)                     
 
Net interest on subscription receivable                 (1,000)                 (1,000)
 
Exercise of stock options        10,000      4,000                     4,000 
 
Issuance of shares previously recorded as issuance from Treasury Stock        100,000   1,000   766,000               100,000   (767,000)   
 
Value assigned to warrants and options issued for professional services              20,000                     20,000 
 
Net loss for the year                       (5,793,000)           (5,793,000)
                                     
 
Balance — December 31, 2003
  890,564  $9,000   16,314,779  $163,000  $68,061,000   ($302,000) $   ($54,290,000) $   611,200   ($3,337,000) $10,304,000 
                                     
Preferred stock converted to common stock  (44,252)  (500)  44,252   500                         
 
Preferred dividend (stock)  89,020   500         (500)                     
 
Exercise of stock options        360,000   4,000   188,000                     192,000 
Compensation related to grant of stock and options to board members        150,000   1,500   132,000                     133,500 
Value assigned to warrants and options issued for professional services              4,500                     4,500 
 
Comprehensive Income:                                                
 
Net Loss for the year                       (1,926,000)           (1,926,000)
Unrealized gain on available for sale securities                          1,124,000         1,124,000 
                                                
                                                 
Total comprehensive income                                   (802,000)
                                                
Balance — December 31, 2004
  935,332  $9,000   16,869,031  $169,000  $68,385,000   ($302,000) $   ($56,216,000) $1,124,000   611,200   ($3,337,000) $9,832,000 
                                     

              
Accumulated
Other
 
Treasury Stock
   
  
Convertible
Preferred Stock
 
Common Stock
 
Additional
Paid in
 
Subscriptions
 
Reserve on
 
Accumulated
 
Comprehensive
     
  
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Receivable
 
Subscp. Rec
 
Deficit
 
Income (Loss)
 
Shares
 
Amount
 
Total
 
Balance — January 1, 2003
  828,023 $8,000  16,184,486 $162,000  67,272,000  (301,000)   (48,497,000)   511,200  
($2,570,000
)
 16,074,000 
Preferred stock converted to common stock  (20,293)   20,293                
   
Preferred dividend (stock)  82,834  1,000      (1,000)           
   
Net interest on Subscription Receivable            (1,000)         
  (1,000)
Exercise of stock options      10,000    4,000            
  4,000 
Issuance of shares previously recorded as issuance from Treasury Stock      100,000  1,000  766,000          100,000  
(767,000
)
  
Value assigned to warrants and options issued for professional services          20,000            
  20,000 
Net loss for the year                (5,793,000)     
  (5,793,000)
Balance — December 31, 2003 
  890,564  9,000  16,314,779  163,000  68,061,000  (302,000)   (54,290,000)   611,200  
(3,337,000
)
 10,304,000 
Preferred stock converted to common stock  (44,252) (500) 44,252  500              
   
Preferred dividend (stock)  89,020  500      (500)           
   
Exercise of stock options      360,000  4,000  188,000            
  192,000 
Compensation related to grant of stock and options to board members      150,000  1,500  132,000            
  133,500 
Value assigned to warrants and options issued for professional services          4,500              4,500 
Comprehensive Income:                                     
Net Loss for the year                (1,926,000)     
  (1,926,000)
Unrealized gain on available for sale securities                  1,124,000    
  
1,124,000
 
Total comprehensive income                      
  (802,000)
Balance — December 31, 2004
  935,332 $9,000  16,869,031 $169,000 $68,385,000  ($302,000)   ($56,216,000)$1,124,000  611,200  ($3,337,000)$9,832,000 
Preferred stock converted to common stock  (75,995)   75,995                
   
Preferred dividend (stock)  93,502  1,000      (1,000)           
   
Accrued Interest on subscription receivable            (14,000)         
  
(14,000
)
Reserve on stock subscriptions receivable              215,000        
  215,000 
Comprehensive Income:                                     
Net Loss for the year                (186,000)     
  (186,000)
Realized gain on available for sale securities                  (1,124,000)   
  (1,124,000)
Total comprehensive income                      
  
 
Balance — December 31, 2005
  952,839 $10,000  16,945,026 $169,000 $68,384,000  ($316,000)$215,000  ($56,402,000)   611,200  ($3,337,000)$8,723,000 
See notes to financial statements

F-5


eXegenics Inc.


STATEMENTS OF CASH FLOWS
             
  Year Ended December 31, 
  2004  2003  2002 
Cash flows from operating activities:
            
Net loss $(1,926,000) $(5,793,000) $(10,358,000)
          
Adjustments to reconcile net loss to net cash used in operating activities:            
Depreciation and amortization  5,000   55,000   472,000 
Non-cash expenses relating to strategic redirection     171,000   726,000 
Value assigned to warrants, options and compensatory stock  138,000   20,000   251,000 
Interest accrual on subscriptions receivable  (2,000)  (1,000)  8,000 
Loss on write down of subscriptions receivable        51,000 
Changes in:            
Release of cash restricted for operating lease obligations  425,000       
Prepaid expenses and other current assets  569,000   (87,000)  154,000 
Payment of operating lease obligations  (87,000)      
Notes receivable — officer/shareholder        278,000 
Accounts payable and accrued expenses  (712,000)  (201,000)  (337,000)
Tax payable        (28,000)
Deferred revenue        (56,000)
��         
Net cash used in operating activities  (1,590,000)  (5,836,000)  (8,839,000)
          
Cash flows from investing activities:
            
Net sales of equipment     28,000   115,000 
Sales of investment securities     10,000,000    
           
Net cash provided by investing activities     10,028,000   115,000 
          
Cash flows from financing activities:
            
Proceeds from sale of common stock through exercise of options and warrants  192,000   4,000    
Payment of capital lease obligations     (202,000)  (83,000)
          
Net cash provided by (used in) financing activities  192,000   (198,000)  (83,000)
          
Net increase (decrease) in cash and cash equivalents
  (1,398,000)  3,994,000   (8,807,000)
Cash and cash equivalents at beginning of year  10,132,000   6,138,000   14,945,000 
          
Cash and cash equivalents at end of year
 $8,734,000  $10,132,000  $6,138,000 
          
Supplemental disclosures of cash flow information:
            
Cash paid for interest $2,000  $9,000  $18,000 
Taxes paid        14,000 
Noncash investing activities:            
Investment in Intrac, Inc.  1,124,000       

See notes to financial statements

  
Year Ended December 31, 
 
  
2005 
 
2004 
 
2003 
 
Cash flows from operating activities:
       
Net loss $(186,000)$(1,926,000)$(5,793,000)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization  3,000  5,000  55,000 
Non-cash expenses relating to strategic redirection      171,000 
Value assigned to warrants, options and compensatory stock    138,000  20,000 
Interest accrual on subscriptions receivable  (14,000) (2,000) (1,000)
Reserve for subscriptions receivable  215,000     
Gain on Sale of Investments, net  (1,064,000)    
Changes in:          
Release of cash restricted for operating lease obligations  175,000  425,000   
Prepaid expenses and other current assets  (64,000) 569,000  (87,000)
Payment of operating lease obligations    (87,000)  
Accounts payable and accrued expenses  38,000  (712,000) (201,000)
Net provided by (cash used) in operating activities  (897,000) (1,590,000) (5,836,000)
Cash flows from investing activities:
          
Net sales of equipment      28,000 
Sales of investment securities  1,064,000    10,000,000 
Net cash provided by investing activities  1,064,000    10,028,000 
Cash flows from financing activities:
          
Proceeds from sale of common stock through exercise of options and warrants    192,000  4,000 
Payment of capital lease obligations      (202,000)
Net cash provided by (used in) financing activities    192,000  (198,000)
Net increase (decrease) in cash and cash equivalents
  167,000  (1,398,000) 3,994,000 
Cash and cash equivalents at beginning of year  8,734,000  10,132,000  6,138,000 
Cash and cash equivalents at end of year
 $8,901,000 $8,734,000 $10,132,000 
Supplemental disclosures of cash flow information:
          
Cash paid for interest $2,000 $2,000 $9,000 
Cash paid for Income Taxes $36,000     
Noncash investing activities:          
Investment in Intrac, Inc.    1,124,000   

F-6


eXegenics Inc.


NOTES TO FINANCIAL STATEMENTS


Note A — The Company


eXegenicsInc., formerly known as Cytoclonal Pharmaceutics Inc. (“eXegenics” or the “Company”), was previously involved in the research, creation, and development of drugs for the treatment and/or prevention of cancer and infectious diseases. During 2004, the Company completed the termination of all research activities. All scientific staff and administrative positions have beenwere eliminated and all of the Company’s research agreements have beenactivities were terminated. Our objective in 2005 iscontinues to be to redeploy our assets and actively pursue new business opportunities.

     On December 5, 2003, our then current Board of Directors: Dr. Joseph M. Davie, Robert J. Easton, Dr. Ronald L. Goode, Dr. Walter M. Lovenberg and Gordon F. Martin, (collectively referred to as the “Prior Board”) were removed by a majority vote of our stockholders via a proxy consent solicitation. They were replaced by the following slate of new Directors: John A. Paganelli, Robert A. Baron, Robert Benou, John J. Huntz, Jr., and Dr. David Lee Spencer, collectively referred to as the “New Board”. The New Board is focused on redeploying the remaining residual assets of the Company. Our New Board has established a committee to study strategic direction and identify potential business opportunities. Currently, we have one employee, David E. Riggs, who serves as our President, Chief Executive Officer and Chief Financial Officer.


Note B — Summary of Significant Accounting Policies


Cash equivalents, restricted cash


The Company considers all non-restrictive, highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents, which amount to $8,734,000$8,901,000 and $10,132,000$8,734,000 at December 31, 20042005 and 2003,2004, respectively, consist principally of interest bearing cash deposits. Restricted cash, which amountsamounted to $175,000$0 at December 31, 2005, and $600,000$175,000 at December 31, 2004, and 2003, respectively, consistsconsisted of certificates of deposits that are used as collateral for equipment leases.

The Company maintains cash and cash equivalents at several financial institutions which periodically may exceed federally insured amounts. The Company has not experienced any loss in such accounts and believes it is not exposed to any significant risk on cash and cash equivalents.


Marketable Securities


The Company accounts for marketable securities in accordance with Statement of Financial Accounting Standards No. 115 “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”). SFAS 115 establishes the accounting and reporting requirements for all debt securities and for investments in equity securities that have readily determinable fair values. All marketable securities must be classified as one of the following: held-to-maturity, available-for-sale, or trading. The Company classifies its marketable securities as available-for sale and, as such, carries the investments at fair value, with unrealized holding gains and losses reported in stockholders’ equity as a separate component of accumulated other comprehensive income (loss).income. The cost of securities sold is determined based on the specific identification method. Realized gains and losses, and declines in value judged to be other than temporary, are included in investment income.

     Investments consist of equity securities and are classified as available for sale and reported at their fair values. The realized gains and losses from these investments are reported in current earnings. Unrealized gains and losses from these securities are reported as a separate component of stockholders equity and excluded from current earnings.

In 2001, the Company entered into a planned merger agreement that was subsequently terminated and as a part of a negotiated settlement, it received a convertible subordinated promissory note in the amount of $500,000. In September 2003, this note was converted to 339,736 shares of Innovative Drug Delivery System (“IDDS”) series C preferred stock and as of December 31, 2003, the Company had placed a full valuation allowance on the value of these securities. In late December 2004, the Company was informed that Intrac, Inc. acquired IDDS and all of the Company’s shares in IDDS were to be converted to 345,991 shares of Intrac, Inc. common stock. As of December 31, 2004, the Company’s investment in Intrac, Inc. stock was not fully tradable as we were still awaiting completion of a pending registration statement filed by Intrac. Intrac, Inc. stock is traded on the over the counter bulletin board under the symbol ITRD.OB. As of December 31, 2004 the fair value of the Company’s investment in these securities was equal to approximately $1,124,000 and a corresponding unrealized gain is included as a component of other comprehensive income. The
During 2005, the Company sold all of its marketable securities, realizing a gain on sale of approximately $1,064,000. These securities consisted of equity securities (common stock) in Javelin Pharmaceuticals, Inc. (formally known as Intrac, Inc.) and were classified as available for sale and reported at their fair values. Realized gains and losses from the sale of investments involveare reported in current earnings. Unrealized gains and losses from these securities are reported as a separate component of stockholders equity and excluded from current earnings. As of December 31, 2005 and December 31, 2004, the riskfair value of loss, price volatilitythe Company’s investments was equal to approximately $0 and $1,124,000 with corresponding unrealized gains in 2004 included as a component of other uncertainties and, as such, the results of operations can vary substantially each year.

comprehensive income.


Equipment

F-7


Equipment is stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which range from 3 to 5 years. Repairs and maintenance that do not increase the economic useful life of the asset are charged to expense as incurred.

The Company reviews its capital assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In performing the review, the Company uses the undiscounted cash flow method.

F-7

Revenue recognition

Revenue from research support agreements is recognized ratably over the length of the agreements. Revenue resulting from contracts or agreements with milestones is recognized when the milestone is achieved. Amounts received in advance of services to be performed or the achievement of milestones are recorded as deferred revenue.


Research and development


Research and development costs are charged to expense as incurred.


Loss per common share

Basic and diluted loss per common share is based on the net loss increased by dividends on preferred stock divided by the weighted average number of common shares outstanding during the year. No effect has been given to outstanding options, warrants or convertible preferred stock in the diluted computation, as their effects would be anti-dilutive. The number of potentially dilutive securities excluded from the computation of diluted loss per share was approximately 2,148,000, 2,325,000 3,739,000 and 5,495,0003,739,000 for the years ended December 31, 2005, 2004 and 2003, and 2002, respectively.


Stock-based compensation


The Company accounts for stock- based compensation according to Accounting Principles Board Opinion No. 25 and the related interpretations under Financial Accounting Standards Board (“FASB”("FASB") Interpretation No. 44, “Accounting"Accounting for Certain Transactions Involving Stock Compensation." The Company adopted the required disclosure provisions under Statement of Financial Accounting Standards No. 148 and continues to use the intrinsic value method of accounting for stock-based compensation.


Comprehensive Income


SFAS No. 130, “Reporting"Reporting Comprehensive Income," establishes standards for the reporting and display of comprehensive income and its components within the financial statements. Other comprehensive income is comprised of charges to stockholders’stockholders' equity, other than contributions from or distributions to stockholders, excluded from the determination of net income. The Company’sCompany's other
comprehensive income is comprised of unrealized gains on available for sale marketable securities.


Income Taxes


The Company has applied the provisions of SFAS No. 109, “Accounting"Accounting for Income Taxes," which requires the recognition of deferred income tax assets and liabilities for the consequences of temporary differences between amounts reported for financial reporting and income tax purposes, including net operating loss carryforwards. SFAS No. 109 requires recognition of a future tax benefit of net operating loss carryforwards and certain other temporary differences to the extent that realization of such benefit is more likely than not; otherwise, a valuation allowance is applied.


Fair value of financial instruments


The carrying value of cash equivalents, accounts payable and accrued expenses approximates their fair value due to the short period to maturity of these instruments.


Use of estimates

F-8



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.


F-8

Recent Accounting Pronouncement


In May 2005, the FASB issued Statement of Financial Statement Accounting Standards No. 154, “Accounting Changes and Error Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). This Statement replaces APB Opinion No. 20, “Accounting Changes,” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impractical to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also requires that a change in depreciation, amortization, or depletion method for long, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company believes that adoption of the provisions of SFAS 154 will not have a material effect on the Company’s consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”, which replaces123R, “Share-based Payment.” SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock Based Compensation”, and supersedes APB Opinion No. 25. Among other items, SFAS No. 123 (R)123R eliminates the use of APB 25 and the intrinsic value method of accounting, and requires all share-based paymentscompanies to employees, including grantsrecognize the cost of employee stock options,services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. The effective date of SFAS 123R is January 1, 2006, for calendar year companies.
SFAS 123R permits companies to beadopt its requirements using either a “modified prospective” method, or a “modified retrospective” method. Under the “modified prospective” method, compensation cost recognized in the financial statements based on their fair values, beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. In addition, SFAS No. 123 (R) will cause unrecognized expense (basedeffective date, based on the fair values determined for the pro forma footnote disclosure, adjusted for estimated forfeitures) related to options vesting after the date of initial adoption to be recognized as a charge to results of operations over the remaining vesting period. The Company is required to adopt SFAS No. 123 (R) in its third quarter of 2005, beginning July 1, 2005. Under SFAS No. 123 (R), the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition alternatives include the modified prospective or the modified retrospective adoption methods. Under the modified retrospective method, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The modified prospective method requires that compensation expense be recorded for all unvested stock options and share awards at the beginning of the first quarter of adoption of SFAS No. 123 (R), while the modified retrospective methods would record compensation expense for all unvested stock options and share awards beginning with the first period restated. The Company is evaluating the requirements of SFAS NO.123R for all share-based payments granted after that date, and based on the requirements of SFAS 123 (R) and expects thatfor all unvested awards granted prior to the effective date of SFAS 123R. Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method, but also permits entities to restate financial statements of previous periods based on proforma disclosures made in accordance with SFAS 123.
The Company currently utilizes a standard option pricing model (i.e., Black -Scholes) to measure the fair value of stock options granted to employees. While SFAS 123R permits entities to continue to use such a model, the standard also permits the use of a “lattice” model. The Company has not yet determined which model it will use to measure the fair value of employee stock options upon the adoption of SFAS No. 123 (R)123R.
SFAS 123R also requires that the benefits associated with the tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will have a materials impactreduce net operating cash flows and increase net financing cash flows in periods after the effective date. These future amounts cannot be estimated because they depend on, our statement of operations and earnings per share. The Company cannot yet estimate the effect of adopting SFAS No. 123 (R) as it has not yet selected the method of adoption or an option pricing model and it has not yet finalized estimates of our expected forfeitures.

among other things, when employees exercise stock options.


Note C — License Agreements


On September 8, 2004 wethe Company entered into an Intellectual Property Assignment Agreement to license the Company’s QCT drug discovery technology to NLC Pharma, Inc. (a Delaware corporation based in Israel). Pursuant to the Agreement the Company will receive monies from royalties, licenses or the sale of QCT technology to third parties that are generated by NLC Pharma Inc. For the year ended December 31, 2002, $556,000The Company did not earn any revenue under this agreement during 2005, nor does it anticipate receiving any revenues from research support was recognized under agreements with Bristol-Myers Squibb (“BMS”), whereby the Company agreed to sublicense to BMS two technologies. As of June 12, 2002, all activities related to this research and development agreement ceased. The Master License Agreement was terminated in March 2003.

future years.


Note D — Strategic Redirection

     During the year ended December 31, 2003, the Company recognized reorganization related expenses of $937,000 for severance benefits and legal and other expenses related to terminated scientific programs. These costs were partially offset by expense reimbursement from BMS of $284,000 received during the same period, resulting in a net charge of $653,000 for the year ended December 31, 2003. During the years ended December 31, 2003 and December 31, 2004, cash payments of $580,000 and $193,000, respectively were charged to restructuring expenses accrued at December 31, 2002. Accrued reorganization expenses are $0 and $193,000 at December 31, 2004 and 2003, respectively. Beginning in June 2001, the Company initiated efforts to strategically redirect the operations of the Company and terminated most of its research programs. In addition, scientific personnel associated with these programs and related administrative functions and support staff positions were also terminated. During the second quarter of 2002, the completion of funding related to the "Sponsored Research Agreement" with BMS necessitated the Company’s decision to concentrate on its strategic drug discovery programs, and the Company terminated both scientific and administrative employees. In the last quarter of 2002, the Company wrote down equipment no longer utilized to its estimated salvage value, resulting in a charge to operations of $240,000. Also, an expense of $326,000 was recognized for commitments under operating leases that will not provide any future benefit to the Company. Additional employees were terminated in December 2002 resulting in a charge of $298,000. Expenses related to the reorganization for 2002 totalled $864,000.

Note E — Merger, Tender Offer and Consent Solicitations

     In 2003 and 2002 respectively, the Company recognized an aggregate of $2,233,000 and $2,010,000, in expenses related to merger, tender offer and consent solicitation activities which included $1,375,000 and $496,000, in legal fees, $398,000 and $304,000, in fees to a financial advisor, $360,000 and $210,000, in other fees for audit, printing and investor relations services and a $100,000 and $500,000, in termination fees. In 2004, the Company did not incur any expenses in connection with merger, tender offer and consent solicitation activities.

Note F — Equipment


Equipment is summarized as follows:
         
  December 31, 
  2004  2003 
Office equipment $26,000  $26,000 
Less accumulated depreciation  (23,000)  (18,000)
       
Net $3,000  $8,000 
       

  
December 31, 
 
  
2005 
 
2004 
 
Office equipment $26,000 $26,000 
Less accumulated depreciation  (26,000) (23,000)
Net $ $3,000 
F-9


     In December 2003, the Company sold substantially all of its equipment and furniture at auction. The auction proceeds totaled approximately $66,000. The Company also sold certain assets during 2003 to employees and local research entities and universities for an additional $27,000.

     All capital leases were terminated in December 2003 (See

Note H).

Note GE — Accounts Payable and Accrued Expenses


Accounts payable and accrued expenses consist of the following:
         
  December 31, 
  2004  2003 
Professional fees $39,000  $616,000 
Accrued reorganization expense     193,000 
Payroll and related expenses     8,000 
Equipment Return Reserve  100,000    
Delaware Franchise Tax  32,000    
Licensors and contractors     133,000 
Real estate taxes     24,000 
Other  68,000   64,000 
       
  $239,000  $1,038,000 
       

  
December 31, 
 
  
2005 
 
2004 
 
Professional fees $23,000 $39,000 
Legal Reserve  250,000   
Equipment Return Reserve    100,000 
Delaware Franchise Tax    32,000 
Other  4,000  68,000 
  $277,000 $239,000 

Note HF — Capital Lease Obligations

     In December of 2003,


During 2005, the Company paid $120,000 to terminateterminated all remaining capital lease obligations. Commensurate with the payoff of those leases, the Company was able to reduce the collateral pledged against its leased equipment from $550,000obligations and $175,000 in January of 2004. The remainingas a result $175,000 in collateral is pledged against the continuing operating lease obligations of the Company.

was released from restriction.


Note IG — Stockholders’ Equity


Preferred stock


On January 6, 1992, the Board of Directors designated 4,000,000 shares of preferred stock as Series A convertible preferred stock. The holders of Series A preferred stock are entitled to (i) convert on a one-for-one basis to common stock subject to adjustment, as defined, (ii) voting rights equivalent to voting rights of common stockholders, (iii) receive dividends equal to $.25 per share payable on or about January 15 each year in cash or newly-issued shares of Series A preferred or a combination thereof (iv) liquidation preferences of $2.50 per preferred share. The Company, at its option, has the right to redeem all or any portion of the Series A convertible preferred stock at $2.50 per share plus accrued and unpaid dividends.

During January 2003, the Company elected to pay the required yearly dividend on its Series A convertible preferred stock by issuing additional shares of Series A convertible preferred.preferred stock. The Company issued 82,834 shares of Series A convertible preferred stock to satisfy the 10% dividend. In addition, during 2003, 20,293 shares of Series A convertible preferred stock were converted into 20,293 shares of common stock.

During January 2004, the Company elected to pay the required yearly dividend by issuing additional shares of Series A convertible preferred. The Company issued 89,020 shares to satisfy the 10% dividend. In addition, during 2004, 44,252 shares of Series A convertible preferred were converted into 44,252 shares of common stock

During January 2005, the Company elected to pay the required yearly dividend by issuing additional shares of Series A convertible preferred. The Company issued 93,502 shares to satisfy the 10% dividend. In addition, during 2005, 75,995 shares of Series A convertible preferred were converted into 75,995 shares of common stock.

Common Stock

During the second quarter 2004, the Board of Directors adopted a resolution revising the Prior Boards resolution, by providing for the issuance of shares of the Company’s common stock and the granting of stock options as part of compensation paid to directors for their service to the Company. Upon joining the Board, directors are issued 25,000 shares of common stock. The chairman of the Board receives an additional 25,000 shares at the time he assumes this role. Members of the Board of Directors are granted an option to purchase 5,000 shares of the Company’s common stock on the first day of each calendar quarter, with an exercise price equal to the

F-10


closing trading price of the Company’s common stock on the date of grant. In the second quarter 2004, the Chairman of the Board was issued 50,000 shares of common stock, Directors were issued 25,000 shares. In the aggregate, 150,000 shares of common stock were issued and recorded at their fair value on the date of grant.

No common stock was issued to the Board of Directors in 2005.

F-10

Stockholder Rights Plan


On June 9, 2003, the Priorthen current Board of Directors adopted a shareholders rights plan. Under the plan, each holder of the Company’s common stock as of the close of business on June 9, 2003 received, as a non-taxable dividend, one right for each share of common stock held. Each right entitles the holder to purchase from the Company one one-thousandth of a share of Series B Junior Participating Preferred Stock at an exercise price of $4.50, subject to adjustment. If a person or group acquires beneficial ownership of 15 percent or more of the Company’s common stock, each right will entitle its holder (other than the acquiring person or members of the acquiring group) to purchase, at the right’sright's then current exercise price (initially $4.50), a number of the Company’s shares of common stock having a market value of twice such price (initially $9.00).

In addition, if the Company is acquired in a merger or other business combination transaction after a person has acquired beneficial ownership of 15 percent or more of its common stock, each right will entitle its holder to purchase, at the rights’rights' then current exercise price (initially $4.50), a number of the acquiring company’scompany's shares of common stock having a market value of twice such price (initially $9.00). Following the acquisition by a person or group of beneficial ownership of 15 percent of the Company’s common stock and prior to an acquisition of beneficial ownership of 50 percent or more of its common stock the Board of Directors may exchange the rights (other than rights owned by such acquiring person or group, which will have become null and void and nontransferable), in whole or in part, at an exchange ratio of one share of common stock (or one-thousandth of a share of Series B Junior Participating Preferred Stock) per right. The Company may redeem the rights at a price of $.001 per right at any time prior to the time a person has become the beneficial owner of 15% or more of the Company’s outstanding common stock. The rights will expire on June 9, 2013, unless earlier exchanged or redeemed.

Treasury stock

     During 2003, it was determined that 100,000 shares of its treasury stock previously sold to the former CEO had never been issued via certificate. Accordingly, the company issued a 100,000-share certificate from its common stock share reserve to satisfy its responsibility to the shareholder. Subsequently, the Company determined that the 100,000 treasury shares had in fact been issued in certificate form but erroneously issued to the Company itself. Consequently, the Company returned the issued certificate back to Treasury Stock.


Subscriptions receivable


In May 2001, we sold 100,000 shares of common stock to our former President and Chief Executive Officer, Ronald L. Goode, Ph.D., for a purchase price of $3.25 per share, the fair market value at the time of the transaction. Dr. Goode paid the purchase price of $325,000 with $25,000 in cash and issued a $300,000 five-year promissory note to us bearing interest at a rate of 4.71% per annum, with interest payable semi-annually. The 100,000 shares sold to Dr. Goode, serve as collateral to secure the note. The note provides that in the event of a default on the note, as defined in the agreement, Dr. Goode’s obligation to the Company is limited to $65,000 and proceeds from the public sale of the collateralizing stock. Through December 31, 2004, and December 31, 2003, Dr. Goode has made $50,000 and $36,000$86,000 in interest payments, respectively.payments. A stock certificate for these shares was not issued to Dr. Goode until September 2003. In February 2004, Dr. Goode resigned, thereby terminating his employment agreement with the Company that was set to expire on March 21, 2004 however, Dr. Goode continuesand in 2005 he has failed to make $14,000 in interest payments onpayments. In the promissorysecond quarter 2005, the Company recorded a reserve against the subscription receivable balance so that the net balance is approximately equal to Dr. Goode’s obligation under the note.

Warrants


At December 31, 2004,2005, outstanding warrants to acquire shares of the Company’s common stock are as follows:follows:
Warrant
Type
  
Exercise
Price
  
Expiration
Dates
  
Number of
Warrant
Shares
TypeExercise PriceExpiration Dates
Reserved
 
Other $0.55to$1.000.55 to $1.00 July 2004-March 2008  290,000 


On August 13, 2002 the Company issued warrants to purchase 125,000 shares of its common stock at a purchase price of $1.00 per share, with an expiration date of August 13, 2007, and additional warrants to purchase 125,000 shares of our common stock at a purchase price of $0.55 per share, with an expiration date of August 13, 2007 to Roan/Meyers Associates, L.P. in exchange for

F-11


financial advisory services. In connection with this exchange, the Company recorded a charge of $91,000 to operations during 2002 using the Black-Scholes option-pricing model.

In March 2003, the Company entered into an agreement with Petkevich & Partners, LLC whereby the Company issued warrants to purchase 40,000 shares of common stock at $0.58 per share expiring on March 5, 2008. These warrants vested during 2003; the Company determined the fair value based on the Black-Scholes option pricing model of these warrants to be approximately $5,000, which was charged to operations during 2003.

     Warrant expense in 2003 includes $15,000 of expense related to warrants issued in prior years.

The Company did not incur any warrant related expenses in 2004.

2004 and 2005.


F-11

Stock options


During 1996, the Board of Directors and the stockholders of the Company approved the 1996 Stock Option Plan (the “1996 Plan”) that provides for the granting of incentive and nonstatutory options for up to 750,000 shares of common stock to officers, employees, directors and consultants of the Company. During 1998, the Board of Directors and the stockholders of the Company approved an amendment to the Plan to allow for the granting of an additional 750,000 options. At December 31, 2005 and 2004, 980,000 and 2003, 922,000, and 797,600, respectively, options were available for future grant under the 1996 Plan.

During 2000, the Board of Directors and the stockholders of the Company approved the 2000 Stock Option Plan (the “2000 Plan”), which provides for the granting of incentive and nonstatutory options for up to 1,500,000 shares of common stock to officers, employees, directors, independent contractors, advisors and consultants of the Company. The Company subsequently amended the 2000 plan to increase the options available for future grants by 1,250,000 shares and to change the vesting period. At December 31, 2005 and 2004, 2,365,000 and 2003, 1,820,000, and 1,262,000, respectively, options are available for grant under the 2000 Plan.

Options granted under the Plans are exercisable for a period of up to 10 years from date of grant at an exercise price which is not less than the fair value of the common stock on date of grant, except that the exercise period of options granted to a stockholder owning more than 10% of the outstanding capital stock may not exceed five years and their exercise price may not be less than 110% of the fair value of the common stock at date of grant. For the 1992 Plan and the 1996 Plan, options generally vest 40% after six months of employment and thereafter 20% annually on the anniversary date of the grant. For the 2000 Plan, as a result of an amendment approved by the stockholders in 2001, the vesting period changed from 50% annually on the anniversary date of the grant, to 33 1/3% annually on the anniversary date of the grant. Under the 2000 plan, the Board of Directors has authority to modify the vesting period. Non-employee director options are immediately exercisable on the date of grant.


Stock option activity under the Plans are summarized as follows:
                         
  Year Ended December 31, 
  2004  2003  2002 
      Weighted      Weighted      Weighted 
      Average      Average      Average 
      Exercise      Exercise      Exercise 
  Shares  Price  Shares  Price  Shares  Price 
Options outstanding at beginning of year  2,158,000  $3.02   3,286,855  $4.29   2,858,155  $4.94 
Granted  165,000   .82   455,000   0.51   788,000   1.46 
Exercised  (360,000)  .53   (10,000)  0.40       
Expired  (863,000)  3.64   (1,573,855)  5.06   (200,000)  1.65 
Canceled              (159,300)  5.43 
                      
Options outstanding at end of year  1,100,000   3.02   2,158,000   3.02   3,286,855   4.29 
                      
Options exercisable at end of year  971,660   3.32   1,932,000   3.26   2,688,410   4.69 
                      

   
Year Ended December 31, 
 
   
2005 
  
2004  
  
2003  
 
   
Shares  
  
Weighted
Average
Exercise
Price  
  
Shares  
  
Weighted
Average
Exercise
Price  
  
Shares  
  
Weighted
Average
Exercise
Price  
 
                    
Options outstanding at beginning of year  1,100,000 
$
3.02
  2,158,000 
$
3.02
  3,286,855 
$
4.29
 
Granted  80,000  .40  165,000  .82  455,000  0.51 
Exercised      (360,000) 0.53  (10,000) 0.40 
Expired  (275,000) 0.72  (863,000) 3.64  (1,573,855) 5.06 
Canceled             
Options outstanding at end of year  905,000  3.37  1,100,000  3.02  2,158,000  3.02 
Options exercisable at end of year  880,000  3.44  971,660  3.32  1,932,000  3.26 


The following table presents information relating to stock options outstanding under the plans as of December 31, 2004:

F-12

2005:


                     
  Options Outstanding  Options Exercisable 
      Weighted  Weighted      Weighted 
      Average  Average      Average 
Range of     Exercise  Remaining      Exercise 
Exercise Price Shares  Price  Life in Years  Shares  Price 
$0.40-$2.99  620,000  $1.29   5.9   491,666  $1.51 
$3.00-$4.99  325,000   4.29   1.4   325,000   4.29 
$5.00-$7.43  40,000   6.75   1.4   40,000   6.75 
$7.44-$9.88  115,000   7.45   1.4   115,000   7.45 
                   
   1,100,000           971,666     
                   

   
Options Outstanding  
  
Options Exercisable  
 
Range of
Exercise Price  
  
Shares  
  
Weighted
Average
Exercise
Price  
  
Weighted
Average
Remaining
Life in Years  
  
Shares  
  
Weighted
Average
Exercise
Price  
 
$0.40-$2.99  450,000 
$
1.49
  3.48  425,000 
$
1.45
 
$3.00-$4.99  305,000  4.27  0.20  305,000  4.27 
$5.00-$7.43  40,000  6.75  0.18  40,000  6.75 
$7.44-$9.88  110,000  7.45  0.09  110,000  7.45 
   905,000        880,000    

Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if we accounted for our stock option grants under the fair market value method as prescribed by such statement. The fair market value of our stock options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions.
       
  2004 2003 2002
Risk-free interest rates 2.9% to 3.6% 2.5% to 3.5% 3.3% to 6.7%
Expected option life in years 5 5 5
Expected stock price volatility 72% to 75% 89% to 105% 79% to 89%
Expected dividend yield 0% 0% 0%

  
2005 
 
2004 
 
2003 
Risk-free interest rates 3.6% to 4.3% 2.9% to 3.6% 2.5% to 3.5%
Expected option life in years 5 5 5
Expected stock price volatility 63% to 75% 72% to 75% 89% to 105%
Expected dividend yield 0% 0% 0%

F-12


The weighted average fair value at date of grant for options granted during 2005, 2004 and 2003 was $0.40, $0.81, and 2002 was $0.81, $0.09 and $0.46 per option, respectively. The Company accounts for stock- based compensation according to Accounting Principles Board Opinion No. 25 and the related interpretations under Financial Accounting Standards Board (“FASB”("FASB") Interpretation No. 44, “Accounting"Accounting for Certain Transactions Involving Stock Compensation." The Company adopted the required disclosure provisions under Statement of Financial Accounting Standards No. 148 and continues to use the intrinsic value method of accounting for stock-based compensation.
             
  Year Ended December 31, 
  2004  2003  2002 
Net loss attributable to common stockholders as reported $(2,149,000) $(6,000,000) $(10,527,000)
          
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects  (32,000)  (154,000)  (643,000)
          
Pro forma net income $(2,181,000) $(6,154,000) $(11,170,000)
          
Earnings per share:            
Basic and diluted-as reported $(0.13) $(0.38) $(0.67)
Basic and Diluted-pro forma $(0.14) $(0.39) $(0.71)

  
Year Ended December 31, 
 
  
2005 
 
2004 
 
2003 
 
Net loss attributable to common stockholders as reported $(420,000)$(2,149,000)$(6,000,000)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects
  (11,000) (32,000) (154,000)
Pro forma net income $(431,000)$(2,181,000)$(6,154,000)
Earnings per share:          
Basic and diluted-as reported $(0.03)$(0.13)$(0.38)
Basic and Diluted-pro forma $(0.03)$(0.14)$(0.39)

The Black-Scholes option valuation model was developed for use in estimating the fair market value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair market value estimates, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair market value of our stock options.


Note JH — Income Taxes


At December 31, 20042005 and 2003,2004, the Company had approximately $51,041,000$53,080,000 and $49,459,000$51,041,000 of net operating loss carry forwards and $521,000$491,000 and $521,000 of research and development credit carry forwards, respectively, for federal income tax purposes that expire in years 2006 through 2022.

At December 31, 20042005 and 2003,2004, the Company had a deferred tax asset of approximately $19,521,000$18,541,000 and $18,877,000$19,521,000 respectively, representing the benefits of its net operating loss and research and development credit carry forwards and certain expenses not currently deductible for tax purposes, principally related to the granting of stock options and warrants, and non-cash reorganization and merger expenses. The Company’s deferred tax asset has been fully reserved by a valuation allowance since realization of its benefit is uncertain. The difference between the statutory tax rate of 34% and the Company’s effective tax rate is principally due to the increase (decrease) in the valuation allowance of ($980,000) (2005), $644,000 (2004), and $1,902,000 (2003) and $3,522,000 (2002). The Company’s ability to utilize its carry forwards may be subject to an annual limitation in future periods pursuant to Section 382 of the Internal Revenue Code of 1986, as amended.

F-13



Note KI — Commitments and Other Matters


Leases

     At December 31, 2003, our lease of 19,300 square feet of office and laboratory space at 2110 Research Row, Dallas, Texas, terminated. Rent expense, prior to any reorganization expense, was approximately $20,000, $238,000 and $275,000 for the years ended December 31, 2004, 2003 and 2002, respectively. In January 2004, the


The Company entered into a lease agreement forleases office space withfrom RFG Associates, an entity in which John A. Paganelli, chairman of the Board of Directors of the Company is an equity owner. The lease provides for a monthly rent of $625 and is cancelable by either party upon thirty (30) days notice.

Rent expense, prior to any reorganization expense, was approximately $11,000, $20,000, and $238,000 for the years ended December 31, 2005, 2004 and 2003, respectively.


Legal Proceedings


Weiss Litigation.

On May 15, 2003, The M&B Weiss Family Limited Partnership of 1996 filed a lawsuit in the Delaware Court of Chancery, purportedly as a class action on behalf of all other similarly situated stockholders of the Company, against the Company, as a nominal defendant,and former directors: Joseph M. Davie, Robert J. Easton, Ronald L. Goode and Walter Lovenberg, (collectively referred to as the “Individual Defendants”), and purportedly as a derivative action on behalf of the Companyagainst the Individual Defendants (the “Weiss Litigation”). The complaint alleges, among other things, that the Individual Defendants have mismanaged the Company, have made unwarranted and wasteful loans and payments to certain directors and third parties, have disseminated a materially false and misleading proxy statement in connection with the 2003 annual meeting of our stockholders, and have breached their fiduciary duties to act in the best interests of our Company and its stockholders. The plaintiffs are seeking an award of costs and attorneys’ fees and expenses. The defendants in the Weiss litigation filed a joint motion with the Delaware Court of Chancery to dismiss the complaint for failure to state a claim and for failure to make the statutorily required demand on the Company to assert the subject claims. On April 12, 2005 the judge, in a ruling from the bench, dismissed the matter with prejudice. We are awaiting a formal written order to that effect to be filed.

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Labidi Proceeding.

     In April 2002, Dr.

On October 5, 2005, in the matter brought by Abdel Hakim Labidi one(one of our former employees, made certain allegationsemployees) against us regarding discrimination.the Company, a jury ruled in favor of Dr. Labidi initially filed an employment discrimination charge withdetermining that the Equal Employment Opportunity Commission (“EEOC”) alleging that he was harassed and discriminated against. The EEOC dismissed this charge because it found no substantial evidence to support Dr. Labidi’s claims. Dr. Labidi subsequently filed a timely federal court lawsuit against eXegenics in the United States District Court for the Northern District of Texas. In the lawsuit, Dr. Labidi reasserted his harassment and discrimination claims. In addition, Dr. Labidi alleged that eXegenics wrongfullyCompany converted certain biological research materials thatowned by Dr. Labidi, claims belongand the Company committed theft of biological materials owned by Dr. Labidi. The jury awarded Dr. Labidi a total of $600,000. The Company is reviewing this matter to him. At this point, we aredetermine the validity of appealing the decision of the jury. The final amount due by the Company to Dr. Labidi under such judgment is likely to be between $250,000 and $750,000, however the Company has recorded a provision of $250,000 in the midst of formal discovery. We believe we have meritorious defenses with respect to these allegations, all of which we intend to pursue vigorously.

financial statements.

2110 Research Row, Ltd. Proceeding.

On December 31, 2003, the termination date of our lease agreement, we vacated 19,300 square feet of office and laboratory space that we occupied at 2110 Research Row, Dallas, Texas. 2110 Research Row, Ltd. (the “Landlord”) acquired this property in April 2002. The Landlord contends he is owed payments that we believe to be outside the terms of the lease agreement or waived by the previous landlord. In October 2003, we filed suit against the Landlord and 9000 Harry Hines, Inc., in a Dallas County District Court. The Company, as tenant, and the Landlord were parties to a lease agreement (“Lease Agreement”) dated October 1, 1991, as amended.  On March 19, 2004, we entered into a settlement agreement with the Landlord, whereby we made a $33,000 payment to the Landlord, dismissed the suit with prejudice and entered into a mutual release of any and all claims by all parties. On April 9, 2004, the Landlord and the Company filed an Agreed Order Of Dismissal With Prejudice in The District Court, 134th Judicial District, Dallas County Texas.


Employment agreements


David E. Riggs entered into an employment agreement with us on March 10, 2003 to serve as our Vice President, Chief Business Officer,Hostelley
On July 1, 2005 David Hostelley was named Chief Financial Officer and Secretary until March 9, 2006, to be automatically renewed for additional one-year periods, unless sooner terminated. The employment agreement provides for the payment to Mr. Riggs of a base salary of $235,000 per year with an annual bonus payment of up to 30% of Mr. Riggs’s base salary, at the discretion of the Board of Directors.Company. The employmentCompany’s agreement provides that in the eventwith Mr. Riggs’sHostelley calls for him to receive $2,500 per month, and his employment is terminatedterminable by us without cause or by Mr. Riggs for good reason, Mr.

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Riggs shall receive severance payments of equal monthly installments at the then current base rate until either (i) the expiration of 12 months following the date of termination, if such date is prior to March 10, 2004, (ii) the expiration of nine months following the date of termination, if such date is before March 10, 2005, (iii) the expiration of six months following the date of termination, if such date is before March 9, 2006, or (iv) the expiration of six months following the date of termination, if such date is during a renewal period. The employment agreement contains a one-year post-termination non-compete, non-solicitation and non-disclosure agreement. On or about March 2004 we amended Mr. Riggs employment agreement (the “Amendment”) to reflect his new title of President and Chief Executive Officer. Pursuant to the Amendment Mr. Riggs was granted an option to purchase 75,000 shares of the Company’s Common Stock. This Option granted vests in three equal installments: The first immediatelyside upon the grant date, the second on the first anniversary of that date and the final upon the second anniversary of that date.

     Ronald L. Goode, Ph.D. entered into an employment agreement with us on March 21, 2001 to serve as our President and Chief Executive Officer until March 21, 2004. On December 18, 2003, the New Board notified Dr. Goode that his employment agreement would not be renewed. The employment agreement contains a two-year post-termination non-compete, non-solicitation and non-disclosure agreement. On February 23, 2004, Dr. Goode resigned, thereby terminating his employment agreement with the Company that was to expire on March 21, 2004.

written notice.


Related party transactions


John Paganelli

In January 2004, the Company entered into a lease agreement for office space with RFG Associates, an entity in which John A. Paganelli, chairman of the Board of Directors of the Company is an equity owner. The lease provides for a monthly rent of $625 and is cancelable by either party upon thirty (30) days notice.

Meyers Associates, L.P.

     On August 13, 2002 we entered into an agreement with Meyers Associates, L.P. (formerly Roan/Meyers Associates, L.P. (a security holder who is known to the Company to own of record or beneficially more than five percent of any class of the Company’s voting securities)) for financial advisory services. Pursuant to the terms of this agreement, we paid Meyers Associates, L.P. $57,000 in 2003. In addition, we issued them warrants to purchase 125,000 shares of our common stock at a purchase price of $1.00 per share, with an expiration date of August 13, 2007, and additional warrants to purchase 125,000 shares of our common stock at a purchase price of $0.55 per share, with an expiration date of August 13, 2007. In connection with the Meyers Group consent solicitation, we reimbursed Meyers Associates, L.P. $14,000 for out-of-pocket expenses incurred in 2003.

Milberg Weiss Bershad Hynes & Lerach LLP

     Melvyn I. Weiss (a security holder who is known to the Company to own of record or beneficially more than five percent of any class of the Company’s voting securities) is an attorney and senior partner of Milberg Weiss Bershad Hynes & Lerach LLP (“Milberg Weiss”). Milberg Weiss represents The M&B Weiss Family Limited Partnership of 1996 in connection with its lawsuit against the Company (as a nominal defendant) and Ronald L. Goode, Joseph M. Davie and Walter Lovenberg (See


Note N — Subsequent Events). Milberg Weiss also represents Bruce Meyers, The M&B Weiss Family Limited Partnership of 1996, Melvyn I. Weiss and Michael Stone in connection with this consent solicitation. Mr. Weiss’ business address is Milberg Weiss Bershad Hynes & Lerach LLP, One Pennsylvania Plaza, New York, New York 10119. In December 2003, in connection with the Meyers Group consent solicitation, we recognized expenses to be reimbursed to Milberg Weiss of $176,000 for legal expenses incurred in 2003.

Note LJ — 401(k) Plan


The Company had maintained a defined contribution 401(k) plan available to eligible employees but discontinued this plan during 2003. Employee contributions were voluntary and were determined on an individual basis, limited to the maximum amount allowable under federal tax regulations. The Company made no contributions during 2005, 2004, 2003 and 2002.

2003.


Note MK — Quarterly Results (Unaudited)

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Quarter Ended 
 
 Quarter Ended  
March 31 
 
June 30 
 
September 30 
 
December 31 
 
Total Year 
 
 March 31 June 30 September 30 December 31 Total Year 
2005
           
Revenues $ $ $ $ $ 
Net (loss) income  (290,000) (434,000) 870,000 (332,000) (186,000)
Loss per share — basic and diluted(a)  (0.03) (0.03) 0.05 (0.01) 0.03 
2004
             
Revenues $ $ $ $ $  $ $ $ $ $ 
Net loss  (739,000)  (531,000)  (368,000)  (288,000)  (1,926,000)  (739,000) (531,000) (368,000) (288,000) (1,926,000)
Loss per share — basic and diluted(a)  (0.06)  (0.03)  (0.02)  (0.02)  (0.13)  (0.06) (0.03) (0.02) (0.02) (0.13)
2003
 
Revenues $13,000 $ $ $ $13,000 
Net loss  (987,000)  (1,795,000)  (1,525,000)  (1,486,000)  (5,793,000)
Loss per share — basic and diluted(a)  (0.07)  (.011)  (0.10)  (0.09)  (0.38)



(a)Per common share amounts for the quarters and full year have been calculated separately. Accordingly, quarterly amounts may not add to the annual amount because of differences in the weighted average common shares outstanding during each period due to the effect of the Company’s issuing shares of its common stock during the year.

Note N — Subsequent Events

     On April 12, 2005 the judge, in a ruling from the bench, dismissed, with prejudice, the lawsuit filed by The M&B Weiss Family Limited Partnership of 1996 against the Company, as nominal defendant, and certain former directors of the Company. We are awaiting a formal written order to that effect to be filed.

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