CASI Pharmaceuticals (CASI) 8-K/A Financial Statements and Exhibits

Exhibit 99.2

CONSOLIDATED FINANCIAL STATEMENTS

MIIKANA THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)

June 30, 2005 And 2004

Miikana Therapeutics, Inc.
(A Development Stage Company)

TABLE OF CONTENTS

	Page
INDEPENDENT AUDITORS’ REPORT		1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS		2
CONSOLIDATED STATEMENTS OF OPERATIONS		3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT		4
CONSOLIDATED STATEMENTS OF CASH FLOWS		5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		6

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors
Miikana Therapeutics, Inc. (A Development Stage Company)

     We have audited the accompanying consolidated balance sheets of Miikana Therapeutics, Inc. (A Development Stage Company) as of June 30, 2005 and 2004 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended and for the period July 22, 2002 (date of inception) to June 30, 2005. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Miikana Therapeutics, Inc. (A Development Stage Company) as of June 30, 2005 and 2004, and the results of their operations, changes in stockholders’ deficit and their cash flows for the years then ended and for the period July 22, 2002 (date of inception) to June 30, 2005, in conformity with accounting principles generally accepted in the United States of America.

     The Company entered into an agreement in January 2006 to sell its stock to EntreMed, Inc., as further described in note 10 to the consolidated financial statements.

/s/ Reznick Group, P.C.
Vienna, Virginia
February 9, 2006

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Miikana Therapeutics, Inc.
(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

June 30, 2005 and 2004

	2005			2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,190,730		$	1,081,413
Prepaid and other assets		235,139			71,960
		1,425,869			1,153,373
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $73,260 and $9,716		199,372			194,574
OTHER ASSETS, net of accumulated amortization of $694		4,306			—
Total assets	$	1,629,547		$	1,347,947
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft	$	26,265		$	—
Accounts payable and accrued expenses		3,507,451			520,936
Due to related parties		18,168			17,112
Note payable		1,844,134			—
Accrued interest payable		10,227			—
Capital lease obligation		9,920			28,122
		5,416,165			566,170
COMMITMENTS AND CONTINGENCIES		—			—
STOCKHOLDERS’ EQUITY (DEFICIT)
Series A convertible preferred stock, $.0001 par value, 33,900,000 shares authorized; 33,100,000 and 17,000,000 issued and outstanding.		3,310			1,700
Common stock; $.0001 par value; 46,300,000 shares authorized; 9,082,250 and 5,800,000 issued and outstanding.		908			580
Treasury stock (299,988 shares, at cost)		(300	)		—
Additional paid-in capital		8,388,357			4,279,498
Accumulated other comprehensive loss		(138,813	)		(157,209	)
Deficit accumulated during the development stage		(12,040,080	)		(3,342,792	)
Total stockholders equity (deficit)		(3,786,618	)		781,777
Total liabilities and stockholders’ equity (deficit)	$	1,629,547		$	1,347,947
See notes to consolidated financial statements

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Miikana Therapeutics, Inc.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended June 30, 2005 and 2004 and for the
period July 22, 2002 (date of inception) through June 30, 2005

							For the period
							July 22, 2002
							(date of inception)
	2005			2004			through June 30, 2005
Revenue	$	—		$	—		$	—
Operating Expenses:
General and administrative		1,461,387			1,573,373			3,194,524
Research and development		7,364,676			1,525,976			9,075,998
Total operating expenses		8,826,063			3,099,349			12,270,522
Loss from operations		(8,826,063	)		(3,099,349	)		(12,270,522	)
Other income (expense)
Interest income		18,435			11,758			32,702
Interest expense		(121,261	)		—			(121,261	)
Other		—			1,779			1,779
Loss before income taxes		(8,928,889	)		(3,085,812	)		(12,357,302	)
Provision for income taxes		231,601			85,621			317,222
Net loss	$	(8,697,288	)	$	(3,000,191	)	$	(12,040,080	)

See notes to consolidated financial statements

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Miikana Therapeutics, Inc.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the years ended June 30, 2005 and 2004 and for the
period July 22, 2002 (date of inception) through June 30, 2005

																			Additional
	Series A													Additional					Other
	Preferred Stock				Common Stock				Treasury stock					paid-in		Accumulated			Comprehensive
	Shares		Amount		Shares		Amount		Shares		Amount			capital		deficit			loss			Total
Issuance of common stock		—	$	—		4,000,000	$	400		—	$	—		$	3,600	$	—		$	—		$	4,000
Issuance of preferred stock		1,000,000		100											1,001,559								1,001,659
Foreign currency translation adjustment																				(12,961	)		(12,961	)
Net loss																	(342,601	)					(342,601	)
Balance, June 30, 2003		1,000,000		100		4,000,000		400		—		—			1,005,159		(342,601	)		(12,961	)		650,097
Issuance of common stock						1,800,000		180							1,620								1,800
Issuance of preferred stock		16,000,000		1,600											3,248,400								3,250,000
Stock option compensation															24,319								24,319
Foreign currency translation adjustment																				(144,248	)		(144,248	)
Net loss																	(3,000,191	)					(3,000,191	)
Balance, June 30, 2004		17,000,000		1,700		5,800,000		580		—		—			4,279,498		(3,342,792	)		(157,209	)		781,777
Exercise of stock options						3,282,250		328							15,927								16,255
Repurchase of common stock										299,988		(300	)		—								(300	)
Issuance of preferred stock		16,100,000		1,610											4,023,390								4,025,000
Warrants issued with note payable															65,920								65,920
Stock option compensation															3,622								3,622
Foreign currency translation adjustment																				18,396			18,396
Net loss																	(8,697,288	)					(8,697,288	)
Balance, June 30, 2005		33,100,000	$	3,310		9,082,250	$	908		299,988	$	(300	)	$	8,388,357	$	(12,040,080	)	$	(138,813	)	$	(3,786,618	)

See notes to consolidated financial statements

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Miikana Therapeutics, Inc.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended June 30, 2005 and 2004 and for the
period July 22, 2002 (date of inception) through June 30, 2005

							For the period
							July 22, 2002
							(date of inception)
	2005			2004			through June 30, 2005
Cash flows from operating activities	$	(8,697,288	)	$	(3,000,191	)	$	(12,040,080	)
Net loss
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		64,238			9,716			73,954
Stock compensation expense		3,622			24,319			27,941
Amortization of debt discount		10,987			—			10,987
Changes in operating assets and liabilities
Prepaids and other assets		(163,179	)		(40,140	)		(235,139	)
Accounts payable and accrued expenses		2,986,515			489,741			3,507,451
Due to related parties		1,056			17,112			18,168
Accrued interest		10,227			—			10,227
Net cash used in operating activities		(5,783,822	)		(2,516,555	)		(8,626,491	)
Cash flows from investing activities
Purchase of property and equipment		(68,342	)		(176,168	)		(244,510	)
Repurchase of treasury stock		(300	)		—			(300	)
Net cash used in investing activities		(68,642	)		(176,168	)		(244,810	)
Cash flows from financing activities Bank overdraft		26,265			—			26,265
Proceeds from issuance of common stock		16,255			1,800			22,055
Proceeds from issuance of preferred stock		4,025,000			3,250,000			8,276,659
Proceeds from note payable		2,000,000			—			2,000,000
Principal payments on note payable		(100,933	)		—			(100,933	)
Debt issuance costs		(5,000	)		—			(5,000	)
Payments on capital lease obligations		(18,202	)		—			(18,202	)
Net cash provided by financing activities		5,943,385			3,251,800			10,200,844
Effect of exchange rates on cash		18,396			(144,248	)		(138,813	)
Net change in cash and cash equivalents		109,317			414,829			1,190,730
Cash and cash equivalents at beginning of the year		1,081,413			666,584			—
Cash and cash equivalents at end of the year	$	1,190,730		$	1,081,413		$	1,190,730
Interest paid	$	110,227		$	—		$	110,227
Significant non cash investing and financing activities:
Property and equipment acquired via capital lease obligation	$	—		$	28,122		$	28,122
Fair value of warrants recorded as debt discount	$	—		$	65,920		$	65,920

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Miikana Therapeutics, Inc.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2005 and 2004

NOTE 1 — OPERATIONS

Nature of Business

Miikana Therapeutics Inc. (the “Company”), a development stage company, is a clinical-stage biopharmaceutical company headquartered in Fremont, California with research laboratories in Toronto, Canada. The Company was formed in Ontario, Canada on July 26, 2002 and changed its state of incorporation to the state of Delaware on July 1, 2004. Miikana Development Corporation, a wholly-owned subsidiary of Miikana Therapeutics, Inc., was incorporated in the state of Delaware on August 21, 2003. Since its formation, the Company has built an oncology pipeline through a strategy that included both in-licensing clinical and preclinical compounds with distinct mechanisms of action, and generating medicinal chemistry-driven internal discovery projects based on specific established targets. In executing this strategy, the Company received an exclusive worldwide license to develop, manufacture, and commercializes MKC-1 from F. Hoffmann-La Rouche, and utilized its internal discovery capabilities to develop two proprietary preclinical drug candidates, an aurora kinase inhibitor and an HDAC inhibitor.

The Company is a development stage company. Since inception, the Company has not generated any revenue from operations.

In January 2006, EntreMed, Inc., a clinical-stage pharmaceutical company headquartered in Rockville, Maryland, acquired the stock of the Company (see note 10)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Miikana Development Corporation. Intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of the financial statements, in conformity with accounting principles generally accepted in the United States of America, requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to income taxes, and contingencies. The Company bases its estimates on

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historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions.

Cash and Cash Equivalents

The Company considers all highly-liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains cash and cash equivalents with one bank. During the year, cash balances may exceed the federally insured limit. The Company does not believe it is exposed to any significant credit risk on cash and cash equivalents.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from one to ten years. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the improvements or the term of the lease, whichever is shorter.

Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized and depreciated over the remaining useful lives of the asset. When assets are retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.

Impairment of Long-Lived Assets

Long-lived assets, primarily property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company does not perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amounts and estimated fair value. The Company determined that no adjustments for impairment were required as of June 30, 2005 or 2004.

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Research and Development

Research and development expenditures are expensed as incurred including costs incurred in filing patents.

Stock-Based Compensation

The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25 (“APB 25”),Accounting for Stock Issued to Employees,and related interpretations including FASB Interpretation No. 44 (“FIN 44”),Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB 25, issued in March 2000, to account for its fixed-plan stock options. Under this method, compensation expense is recorded only if the current market price of the underlying stock exceeded the exercise price on the date of the grant. (“SFAS 123”),Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS 123 as amended by Statement of Financial Accounting Standards No. 148,Accounting for Stock-Based Compensation—Transition and Disclosure, Amendment of SFAS 123(“SFAS 148”).

Stock options and warrants granted to non-employees are accounted for using the fair value method in accordance with the SFAS No. 123 and EITF 96-18,Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. The following table illustrates the pro forma effect on net income as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation:

	2005			2004
Proforma net loss:
As reported	$	(8,697,288	)	$	(3,000,191	)
Deduct: Total employee noncash stock compensation expense determined under fair value based method for all awards		30,819			(35,995	)
Proforma net loss:	$	(8,666,469	)	$	(3,036,186	)

The effect of applying SFAS No. 123 on a proforma net loss as stated above is not necessarily representative of the effects on reported net loss for future years due to, among other things, the vesting period of the stock options and the fair value of additional options to be granted in the future years.

The fair value of each option grant is estimated on the date of the grant using the Black - Scholes option — pricing model with the following assumptions: 0% dividend yield; 0% volatility; 4% average risk-free rate and expected term of 10 years.

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Organization costs

Costs incurred organizing the Company have been expensed as incurred.

Income Taxes

The Company accounts for income taxes utilizing the liability method of accounting. Under the liability method, deferred taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.

Foreign Currency Translation

The consolidated balance sheet of the Miikana Development Corporation was translated from Canadian Dollars to U.S. Dollars at the exchange rate in effect at the applicable balance sheet date, while its consolidated statements of operations were translated using the average exchange rates in effect for the periods presented. The related translation adjustments are reported as other comprehensive income (loss) within shareholders’ equity.

NOTE 3 — PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of June 30, 2005 and 2004:

	2005			2004
Computers and equipment	$	272,632		$	204,290
Less accumulated depreciation		(73,260	)		(9,716	)
Total property and equipment	$	199,372		$	194,574

Depreciation expense, including depreciation on equipment under capital leases, was $63,544 and $9,716 for the years ended June 30, 2005 and 2004, respectively.

As of June 30, 2005 and 2004, the Company had $28,122 of equipment financed through capital leases.

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NOTE 4 — NOTES PAYABLE

On October 1, 2004, the Company entered into a loan agreement with Venture Lending and Leasing IV, Inc. (VLL), a shareholder, whereby VLL committed to make term loans to the Company initially in the aggregate amount of $2 million and an additional $5.5 million in the aggregate contingent upon certain events. In connection with the agreement, the Company issued 800,000 warrants to purchase Series A preferred stock at an exercise price of $0.25 per share. The warrants vested immediately at the borrowing date and expire on December 31, 2014. In December 2004, the Company borrowed $2,000,000, bearing interest at 13.439%, compounded monthly and maturing in January 2008. In connection with the borrowing, the Company recorded the fair value of the warrants of $65,920 as a cost of the financing, which is being amortized over the term of the loan as additional interest expense. During the year ended June 30, 2005, the Company recorded interest expense related to financing costs totaling $10,987. At June 30, 2005, $1,844,134, exclusive of accrued interest of $10,227, is recorded as outstanding under the loan agreement on the accompanying consolidated financial statements.

As of June 30, 2005, future maturities for notes payable were as follows:

2006	$	717,761
2007		820,387
2008		360,919
	$	1,899,067

NOTE 5 — LICENSE AGREEMENT

F. Hoffman-La Rouche, Ltd

On April 20, 2005, the Company entered into a license agreement with F. Hoffman-La Rouche Ltd. (Hoffman-La Rouche), a Swiss Corporation, for the license to intellectual property owned by Hoffman-La Rouche for $3 million in cash, payable the earlier of the closing of the Company’s Series B financing or September 30, 2005 and the issuance of 4,000,000 shares of Series A Preferred Stock. The agreement requires nonrefundable milestone payments to Hoffman-La Rouche subject to such events as the commencement of Phase 3, NDA filing, commercial sales and sales targets. Under the agreement, royalty payments to Hoffman-La Rouche are at rates based on specific sales volume. The Company has recorded the transaction based on fair value of the preferred stock of $0.25 per share and the cash consideration as additional research and development costs during fiscal 2005.

ProPharma International Partners, Inc.

In January 2004, the Company entered into a licensing consulting agreement with ProPharma International Partners, Inc. (“ProPharma”) to help indentify and evaluate third-party technology related to pre-clinical or clinical stage anti-cancer products. The agreement, as amended, provides, on a monthly basis, for payments by the Company to ProPharma of $5,000 and the issuance of 2,500 options of the Company’s common stock. The agreement expired on March 31, 2005 and was extended on a month-to-month basis. As of June 30, 2005, the Company has issued 121,250 options at an exercise price of $0.02 per share.

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NOTE 6 — RELATED PARTY TRANSACTIONS

A shareholder of the Company provides certain services on behalf of the Company including providing research facilities, supplies and payroll services. During the years ended June 30, 2005 and 2004, the Company incurred expenses totaling approximately $56,000 and $52,000, respectively, in connection with these services. At June 30, 2005 and 2004, $18,168 and $17,112 is payable to the shareholder.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

Leases

The Company leases its office and research facilities, and equipment under various operating and capital leases. Lease terms range from one to approximately three years. Minimum annual rental and lease commitments for leases at June 30, 2005, are as follows:

	Operating leases		Capital leases
Year ending June 30, 2006	$	61,164	$	10,263
Total minimum lease payments		61,164		10,263
Less amount representing interest				343
Present value of capital lease obligation				9,920
Less current portion				9,920
			$	—

Rent expense was $151,360 and $96,145 for the years ended June 30, 2005 and 2004, respectively.

NOTE 8 — STOCKHOLDERS’ EQUITY

Series A Convertible Preferred Stock

The Company was initially funded through a series of capital raises beginning on November 15, 2002 when the Company issued 4,000,000 shares of Series A Preferred Stock to to an investor for gross consideration of $1,000,000. Subsequent to this initial financing, in August 2003, the Company issued 13,000,000 additional shares of Series A Preferred Stock to a group of institutional investors for proceeds of $3,250,000. The Series A Preferred Stock is convertible into equal shares of the Company’s common stock.

In July 2004, the Company entered into a Series A Preferred Stock Purchase Agreement with the same investor group for the sale of Series A Preferred Stock. In connection with this agreement, the Company issued 12,100,000 shares of Series A Preferred Stock for proceeds of $3,025,000.

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In October 2004 the Company entered into a loan agreement with Venture Lending and Leasing IV, Inc. to make term loans to the Company initially in the amount of $2 million with provisions for additional loans contingent upon certain events (see note 4). In connection with the agreement, the Company issued 800,000 warrants to purchase Series A Preferred Stock at an exercise price of $0.25. In December 2004, the Company borrowed $2,000,000. No additional loans have been made under the agreement.

In April 2005, the Company entered into a Licensing Agreement with F. Hoffman-La Rouche, Ltd. In connection with the agreement, the Company issued 4,000,000 shares of Series A Preferred Stock to Hoffman- La Rouche as a component of the initial licensing fee consideration (see note 5).

2003 Stock Option Plan

Under the 2003 Stock Incentive Plan of Miikana Therapeutics, Inc. (the “2003 Plan”), there are 4,098,000 shares reserved for issuance under the Plan. Under the terms of the 2003 Plan, non-qualified and incentive stock options may be granted to the Company’s employees, independent contractors and directors, to purchase shares of common stock. Options become exercisable ratably over a vesting period, as determined by the Board of Directors, and expire over terms not exceeding 10 years from the date of grant. The Board of Directors determines the pricing of options. For all options, the option price is required to be no less than the par value per share of common stock. All options available under the 2003 Plan have been issued or exercised.

2004 Equity Incentive Plan

Under the 2004 Stock Incentive Plan of Miikana Therapeutics, Inc. (the “2004 Plan”), there are 2,500,000 shares reserved for issuance under the 2004 Plan. Under the terms of the Plan, non-qualified and incentive stock options may be granted to the Company’s employees, independent contractors and directors, to purchase shares of common stock. Options become exercisable ratably over a vesting period, as determined by the Board of Directors, and expire over terms not exceeding 10 years from the date of grant. The Board of Directors determines the pricing of options. For all options, the option price is required to be no less than the par value per share of common stock. As of June 30, 2005, 952,249 options remain available for future issuance.

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A summary of the activity related to the Company’s stock options, including stock options issued outside the plans, for the years ended June 30, 2005 and 2004 and for the period ended June 30,, 2003:

	Number of
	Options			Exercise price
Granted		30,000		$	.02
Exercised		—			—
Cancelled/forfeited		—			—
Outstanding, June 30, 2003		30,000			.02
Granted		4,160,499			.001-.02
Exercised		—			—
Cancelled/forfeited		(37,500	)		.02
Outstanding, June 30, 2004		4,152,949			.001-.02
Granted		1,101,750			.02
Exercised		(3,282,249	)		.001 -02
Cancelled/forfeited		(7,749	)		.02
Outstanding, June 30, 2005		1,964,751		$	.02

There are no assumptions made in calculating fair value to account for vesting provisions or for the non-transferability or risk of forfeiture.

NOTE 9 — INCOME TAXES

The provision (benefit) for income taxes for years ended June 30, 2005 and 2004 consists of the following:

	2005			2004
Current income taxes
Federal	$	—		$	—
State		—			—
Canadian tax credit received		(231,601	)		(85,621	)
		(231,601	)		(85,621	)
Deferred income taxes		—			—
	$	(231,601	)	$	(85,621	)

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The reconciliation of the reported estimated income tax expense (benefit) to the amount that would result by applying the U.S. federal statutory tax rate to the net loss for the years ended June 30, 2005 and 2004 is as follows:

	2005			2004
Federal	$	(2,948,500	)	$	(1,021,700	)
State		(433,600	)		(150,200	)
Permanent M-1s		2,500			1,000
Research and development credits		(179,500	)		(78,500	)
Canadian tax credit received		(231,601	)		(85,621	)
Change in valuation allowance		3,559,100			1,249,400
	$	(231,601	)	$	(85,621	)

Deferred income taxes reflect net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts reported for income tax purposes. Components of the Company’s deferred tax assets and liabilities as of June 30, 2005 and 2004 are as follows:

	2005			2004
Deferred tax assets:
Net operating loss carryforwards	$	2,819,500		$	1,129,200
Intangible assets		1,668,200			—
Research and development tax credit carryforwards		257,900			78,500
Accrued expenses		38,600			18,100
Amortization		13,100			16,600
Stock option compensation		10,900			9,500
Depreciation		6,200			—
		4,814,400			1,251,900
Less — valuation allowance		(4,808,500	)		(1,249,400	)
Net deferred tax assets		5,900			2,500
Deferred Tax Liabilities:
Prepaid expenses		(5,900	)		(2,500	)
Net deferred tax liabilities		(5,900	)		(2,500	)
Net deferred tax assets	$	—		$	—

As of June 30, 2005 and 2004, a valuation allowance has been recorded to reflect the amount that management expects is more likely than not to be realized in future taxable years.

The Company has available at June 30, 2005, approximately $7.2 million and $258,000 of unused operating loss carryforwards and research and development tax credit carryforwards, respectively, that expire in 2024 through 2025 if not utilized, and that may be applied against

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future taxable income. Utilization of these carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating loss and tax credit carryforwards before utilization.

NOTE 10 — SUBSEQUENT EVENTS (UNAUDITED)

Note and Warrant Purchase Agreements

On July 28, 2005, the Company entered into a Note and Warrant Purchase Agreement with certain shareholders in the aggregate amount of $1.5 million. Pursuant to the agreement, the notes are convertible into shares of Series A Preferred Stock upon the sale of securities by a specified date, upon sale of the Company or upon maturity. The notes bear interest at 8% and mature on September 30, 2005. At the two closings, on July 28, 2005 and August 15, 2005, the Company borrowed an aggregate $1.5 million and issued warrants to purchase 1,499,992 shares of common stock at $0.02 per share. On September 30, 2005, the Note plus accrued interest of $13,971 were converted into 6,055,875 shares of Series A Preferred Stock.

On October 28, 2005, the Company entered into a Note and Warrant Purchase Agreement with certain shareholders in the aggregate amount of $1,499,260. Pursuant to the agreement, the notes are convertible into shares of Series A Preferred Stock upon the sale of securities by a specified date, upon sale of the Company or upon maturity. The notes bear interest at 8% and mature on December 31, 2005. At the two closings, on October 28, 2005 and December 13, 2005, the Company borrowed an aggregate $1,499,260 and issued warrants to purchase 2,398,814 shares of common stock at $0.02 per share. The note remained outstanding on the maturity date and remained such until the Note, accrued interest, plus an amount equal to two times the outstanding principal were converted into equity coincidental with the Company being acquired in January 2006.

In December 2005, EntreMed advanced $1 million to the Company as evidenced by a note agreement which is non-interest bearing, subordinate only to the note payable to VLL (see note 4) and maturing the earlier of the sale of the Company or January 31, 2006.

Sale of the Company

In January 2006 EntreMed acquired the Company. Pursuant to the Merger Agreement EntreMed acquired all of the outstanding capital stock of the Company in exchange for 9.96 million shares of EntreMed common stock valued at approximately $21.2 million, based on the closing price of EntreMed’s common stock the day before the merger was announced. In addition, based on the success of the acquired pre-clinical programs, EntreMed may pay up to an additional $18 million upon the achievement of certain clinical and regulatory milestones. Such additional payments will be made in cash or shares of stock at EntreMed’s option.

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