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, 2005
 
or
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                                  to

Commission file number: 000-26648

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

Delaware
75-2402409
(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/A
N/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. Yes x No o

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 a shell company (as defined in Exchange Act Rule 12b-2). Yes o  No x

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, 2005 was $4,827,613 based on the last sale price as reported by OTC Bulletin Board.
 
As of March 29, 2006 the registrant had 16,878,090 shares of common stock outstanding.
 


 
1

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.
 
 
2

PART I

Item 1. Business

General
 
eXegenics Inc., 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. We have historically operated as a drug discovery company, exploiting new enabling technologies to advance and shorten the new drug development cycle. We completed the termination of all research activities. All scientific staff and administrative positions were eliminated and all of our research and development activities were terminated.
 
Our Board and management are focused on redeploying the remaining residual assets of the Company. The 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.
 
On June 29, 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. 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.
 
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. As we have terminated 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 to such.

License Agreements

During 2004 and 2005 we did not receive any revenues from the Intellectual Property Assignment Agreement with NLC Pharma, Inc. The Company did not earn any revenue under this agreement during 2005, nor does it anticipate receiving any revenues from this agreement in future years.

Competition
 
As we have terminated all research and development programs we do not anticipate developing any potential 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' and 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 June 29, 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. 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. We do not expect any future employees to be governed by any collective bargaining agreement.
 
Factors That May Affect Financial Condition and Future Results

We completed the wind down of our drug discovery operations. We continue to be focused on 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, 2005 we had cash, cash equivalents and investments of approximately $8,901,000. Our future capital needs are uncertain. The Company may or may not need additional financing in the future to fund 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.
 
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;

- 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.

 
4

Research and Development Activities
 
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 or 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 the 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 Company.
 
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 and recently 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, and will likely continue to result in, a significant strain on the Company’s management, information systems and resources. 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 will also put a significant strain on its management, information systems and resources, 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 United 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.
 
7

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. The Company leases this office space from 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. Monthly rent is $625 and is cancelable by either party upon thirty (30) days notice. We incurred rent expense and of approximately $10,000 in 2005 and $20,000 in 2004, respectively.

Item 3. Legal Proceedings

Labidi Proceeding. On October 5, 2005, in the matter brought by Abdel Hakim Labidi (one of our former employees) against the Company, a jury ruled in favor of Dr. Labidi determining that the Company converted certain biological research materials owned by Dr. Labidi, and the 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 interest on the jury’s award. We await a decision from the Court on this motion. The Company is reviewing this matter to determine 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 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 lawsuit filed by The M& B Weiss Family Limited Partnership of 1996 with prejudice.   

Item 4. Submission of Matters to a Vote of Security Holders
 
During the fourth quarter of the fiscal year represented by this report, the Company did not present any matters to be voted upon by its shareholders.
 
8

PART II

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

Common Stock
 
Our Common Stock is listed for trading on the Over the Counter Bulletin Board. 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 
 
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 March 29, 2006 the last sale price of our common stock was $0.41.

Stockholders

As of March 28, 2006, there were approximately 151 holders of record of our common stock and, according to our estimates, approximately 2,997 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
 
During the year ended December 31, 2005 we granted options to purchase an aggregate of 80,000 shares of common stock to employees and directors with a weighted average exercise price of $0.40 per share. All options issued during 2005 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.

10

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, 
 
 
 
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.
 
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.
 
Our Board is focused on redeploying the remaining residual assets of the Company. The Board and management have established a committee to study strategic direction and identify potential business opportunities. The lawsuit filed by The M&B Weiss Family Limited Partnership of 1996 was 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 Court) in connection with the judgment rendered against the Company in the lawsuit filed by Dr. Labidi. On June 29, 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. Chairman of 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 2006 is to redeploy our assets and actively pursue new business opportunities. After taking into account the interest earned on our investments ($25,000 to $30,000 per month) we expect to use between $40,000 and $55,000 per month in 2006 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 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

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.
 
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 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.

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 incurred costs of $5,000 in expenses from operations terminated in fiscal 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 $0 in expenses related to Strategic Redirection 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

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.
 
Liquidity and Capital Resources
 
At December 31, 2005 we had cash, cash equivalents and investments of approximately $8,901,000. During 2005, we used approximately $1,000,000 to fund our operating 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 August 2005, in conjunction with the return of remaining lease obligations, the lessor of this equipment released $175,000 of the held collateral. In addition, in 2005 the Company received proceeds of approximately $1,064,000 from the sale of Javelin 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 Dr. 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 investments ($25,000 to $30,000 per month) we expect to use between $40,000 and $55,000 per month in 2006 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 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.
 
16

In December 2004, the FASB issued SFAS No. 123R, “Share-based Payment.” SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock Based Compensation”, and supersedes APB 25. Among other items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of accounting, and requires companies to recognize the cost of employee 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 adopt 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 beginning with the effective date, based on the requirements of SFAS 123R for all share-based payments granted after that date, and based on the requirements of SFAS 123 for 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.

Off Balance Sheet Arrangements
 
The Company has 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 disagreements with our Independent 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
 
An evaluation was carried out by the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s "Disclosure Controls and Procedures". The Chief Executive Officer and Chief Financial Officer 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'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's management, including its officers as appropriate to allow timely decisions regarding required disclosure.
 
 
17

 
(b)
Internal Control Over Financial Reporting

There are no changes in our Internal Control Over Financial Reporting 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 fourth quarter of the fiscal year covered by this Form 10-K but not reported.

PART III

Item 10. Directors and Executive Officers of the Registrant

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 
 
Age 
 
Position with the Company
John A. Paganelli
 
71
 
Director, Chairman of the Board, Interim Chief Executive Officer
Robert A. Baron
 
65
 
Director
Robert Benou
 
71
 
Director
David Lee Spencer, M.D.
 
61
 
Director

 John A. Paganelli was 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 Managing 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 was on the Board of Directors of Mid Atlantic Medical Services, Inc. from 1999 until 2005. Mid Atlantic was 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'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. Baron 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.
 
18

Robert S. Benou has 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' 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.

Committees of the Board of Directors and Meetings

  Committee Structure. During fiscal 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, 2005, there were seven meetings of our Board, and the various committees met formally a total of four times. All directors attended a majority of the Board and of committees of the Board on which he served during fiscal 2005.
 
Audit Committee. Our Audit Committee met four times during fiscal 2005. This committee consists of three members, Robert Benou, Robert Baron and Dr. David Spencer. Our Audit Committee reviews the engagement of our independent accountants, reviews annual financial statements, considers matters 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 2005. Robert Baron served as Chairman and Dr. David Spencer 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 2005 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. Given there was one member of the Nominating Committee the entire Board of Directors served in the capacity of the Nominating Committee during 2005.
 
19

Compensation Committee Interlocks and Insider Participation. None of the members of our current Compensation Committee serve 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 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 2005 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, David Hostelley (part of fiscal 2005) and David Riggs (part of fiscal 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 that each of Messrs. Paganelli, Benou, Baron and Spencer filed four late reports.
 
Compensation of Directors
 
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. As of July 1, 2005 for assuming additional responsibilities for being the 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, is to receive an additional $6,250 per quarter for assuming additional responsibilities for serving as Interim Chief Executive Officer for 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. On March 22, 2005, the Board of Directors approved the grant 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 at 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, respectively.

20

Executive Officer
 
On June 29, 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. Chairman of 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.

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 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 now serving as interim president and board member of the following companies: Allied Energy, Inc. (Symbol AGYP.PK); First American Railways, Inc. (Symbol FTRJ.PK); and IDViews, Inc. (Symbol IDVW.PK). He currently serves on the Executive Committee of the Cleveland Chapter of the Muscular Dystrophy Association.

21

Item 11. Executive Compensation

Summary Compensation Table

  The following Summary Compensation Table sets forth summary information as to compensation received by the named Executive Officers and each of our other most highly compensated executive officers who were employed by us at the end of fiscal 2005 for services rendered to us in all capacities during the three fiscal years ended December 31, 2005, 2004 and 2003, and who earned in excess of $100,000 for services rendered to us during fiscal 2005.
 
     
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.
 
22

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, 2005 to each of our executive officers named in the Summary Compensation Table, above.
 
           
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 20,000 shares of Common Stock, at an average exercise price of $0.40 per share, vest immediately on the grant date that ranges from January 1, 2005 through October 1, 2005. These options were granted to Mr. 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, 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, 2005. The value of the unexercised in-the-money options at fiscal year end is based on a value of $0.41 per share, the closing price of our stock on the OTC Bulletin Board on December 30, 2005 (the last trading day prior to the fiscal year end), less the per share exercise price.
 
                 
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.

 
23

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 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. 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 a 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 Mr. 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 our common stock during a period commencing on December 31, 2001 and 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 share price at the end and the beginning of the measurement period; by (B) our share price at the beginning of the measurement period) with the cumulative total return of the Nasdaq Stock Market our peer group (Nasdaq Biotech Index) during such period. We have not paid any dividends on 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
 
 
 
24

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 beneficially owned as of March 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, 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 March 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 
       
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/o eXegenics Inc., 1250 Pittsford-Victor Road, Pittsford, New York 14534.
 
(2)
Calculated on the basis of 16,367,090 shares of common stock issued and outstanding as of 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 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 1,015,028 shares of series A preferred stock outstanding as of March 28, 2006. 
 
(4)
Calculated on the basis of an aggregate of 16,367,090 shares of common stock and 1,015,028 shares of series A preferred stock issued and outstanding as of 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.
 
(5)
Mr. 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'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'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. Beneficial ownership information taken from Schedule 14A file number 03896368 filed September 15, 2003.
  (6)  Beneficial ownership information and the information under this footnote taken from Schedule 13G filed February 7, 2006. 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"), and (ii) 1,305,900 shares owned by Rosalind Davidowitz (Mr. Davis’ wife). Mr. Davis' business address is 44 Wall Street, New York, New York 10005. Ms. Davidowitz's address is 7 Sutton Place South, Lawrence, New York 11559. As of December 31, 2005 Rosalind Davidowitz may be deemed to beneficially own 1,305,900 shares of common stock owned directly by Rosalind Davidowitz, and 248,000 shares of common stock owned by Blair 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. 
  (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. 
 
(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.
 
(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.
 
(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
 
Since the beginning of fiscal 2005, the Company is not a party to any transaction or series of transactions in an amount exceeding $60,000 in which any 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 indebted to the Company in an amount in excess of $60,000.
 
There is no disclosable business relationship with any Director under Item 404(b) of Regulation S-K

26

Item 14. Principal Accounting Fees and Services
 
The following represents fees for professional audit services rendered by Rotenberg & Company, LLP for the audit of our annual financial statements for the years ended December 31, 2005 and BDO Seidman, LLP for the period ending December 31, 2004 and December 31, 2003 (BDO Seidman, LLP and Rotenberg & Company, LLP are collectively “our principal accountants”).

Audit Fees
 
Our principal accountants billed us an aggregate of $29,000 and $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, 2005 and 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 related services that are reasonably related to the performance of the audit of our financial statements and not included above, for the calendar years ended December 31, 2005 and 2004, respectively.

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

All Other Fees
 
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
 
On January 6, 2006, the Audit Committee of the Board and full Board approved the appointment of Rotenberg & Company, LLP as replacement auditors to BDO Seidman, LLP. Our principal accountants 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

27

Balance Sheets as of December 31, 2005 and 2004

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

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

Statements of Cash Flows for the years ended December 31, 2005, 2004 and 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 
     
3.1
Certificate of Incorporation, as amended(l)
3.2
By-laws(l)
3.3
Certificate of Correction to the Certificate of Amendment to the Certificate of Incorporation of eXegenics Inc. filed with the Delaware Secretary of State on July 14, 2003 (10)
4.1
Specimen certificates representing Class C Warrants, Class D Warrants and Common Stock(l)
4.3
Form of Unit Purchase Option in connection with eXegenics Inc.’s Initial Public Offering(l)
4.4
Warrant Certificate issued to the Washington State University Research Foundation(4)
4.5
Stockholders Rights Agreement, dated June 9, 2003, between eXegenics Inc. 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 between eXegenics 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 between eXegenics Inc. and Arthur P. Bollon, Ph.D., as amended(1)
10.2
1992 Stock Option Plan, as amended(l)
10.3
Form of Stock Option Agreement(l)
10.4
Lease Agreement dated October 1, 1991 between eXegenics Inc. and J.K. and Susie Wadley Research Institute and Blood Bank, as amended(l)
10.5
Security Agreement dated October 10, 1991 between eXegenics Inc. and Wadley(l)
10.6
License Agreement dated June 10, 1993 between eXegenics Inc. 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 between eXegenics Inc. and RDI, as amended(l)
10.8
License Agreement dated February 22, 1995 between eXegenics Inc. and RDI, as amended, relating to FTS-2(l)
10.9
Agreement effective June 30, 1992 between eXegenics Inc. and University of Texas at Dallas (“UTD”), as amended(l)
10.10
Extension Agreement with RDI dated June 5, 1995(l)
10.11
Third Amendment to Lease Agreement dated April 30, 1995(l)
10.12
September 25, 1995 RDI Extension(l)
10.13
October 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 between eXegenics Inc. and RDI(2)
 
 
29

 
10.15
License Agreement No. W960206 effective February 27, 1996 between eXegenics Inc. and The Regents of the University of California(2)
10.16
License Agreement No. W960207 effective February 27, 1996 between eXegenics Inc. and The Regents of the University of California(2)
10.17
License Agreement with the Washington State University, dated July 2, 1996(3)*
10.18
Amendment to Agreement, effective June 30, 1992, as amended, between eXegenics Inc. and the University of Texas at Dallas(3)
10.19
1996 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 and eXegenics Inc. for Peptide Anti-estrogen for Breast Cancer Therapy(5)*
10.21
Master License Agreement, dated as of June 12, 1998, between eXegenics Inc. and Bristol-Myers Squibb Company(6)*
10.22
Sublicense Agreement, dated May 27, 1998, between eXegenics Inc. 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, between eXegenics Inc. 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 and eXegenics Inc.(6)*
10.25
Amendment, dated May 27, 1998, to the License Agreement, dated June 10, 1993, between The Research and Development Institute, Inc. and eXegenics Inc.(6)*
10.26
Amended and Restated 2000 Stock Option Plan(7)
10.27
Employment Agreement dated March 21, 2001, between eXegenics Inc. and Ronald L. Goode, Ph.D.(8)
10.28
Employment Agreement dated March 13, 2003, between eXegenics Inc. and David E. Riggs(13)
10.29
Termination Agreement dated November 25, 2002 between eXegenics Inc., Innovative Drug Delivery Systems, Inc., and IDDS Merger Corp(9)
10.30
Amendment, dated September 9, 2003, to Employment Agreement dated March 20, 2001, between eXegenics Inc. and Ronald L. Goode, Ph.D(12)
10.31
Amendment, dated October 16, 2003, to Employment Agreement dated March 20, 2001, between eXegenics Inc. and Ronald L. Goode, Ph.D(12)
10.32
Form of Indemnification Agreement by and among eXegenics and certain of its current and former directors and officers (10).
10.33
Promissory Note and Pledge Agreement between eXegenics Inc. and Ronald L. Goode, Ph.D. (14).
10.34
Amendment, dated March 30, 2004, to Employment Agreement dated March 13, 2003, between eXegenics Inc. and David E. Riggs (14).
10.35
Termination Letter dated April 10, 2003 by and between eXegenics Inc. and Dorit Arad (14).
10.36
Termination Letter Agreement dated April 30, 2003 by and between eXegenics Inc. and Joan Gillett (14).
10.37
Separation from Employment Letter Agreement dated January 10, 2003 by and between eXegenics Inc. 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).
23.1
Consent of BDO Seidman, LLP
31.1
Certification 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 2002.
31.2
Certification 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.
32.1
Certification 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
32.2
Certification 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 to eXegenics Inc.’s Registration Statement on Form SB-2 (File No. 33-91802) and are incorporated by reference herein.
(2)
Previously filed as an exhibit to eXegenics Inc.’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 to eXegenics Inc.’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 to eXegenics Inc.’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 to eXegenics Inc.’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 to eXegenics Inc.’s Current Report on Form 8-K (File No. 000-26078) and is incorporated by reference herein.
(7)
Previously filed as an appendix to eXegenics Inc.’s Schedule 14-A (File No. 000-26078) and is incorporated by reference herein.
(8)
Previously filed as an exhibit to eXegenics Inc.’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 to eXegenics Inc.’s Current Report on Form 8-K (File No. 000-26078) and is incorporated by reference herein.
(10)
Previously filed as an exhibit to eXegenics Inc.’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 to eXegenics Inc.’s Current Report on Form 8-K (File No. 000-26078), filed June 9, 2003.
(12)
Previously filed as an exhibit to eXegenics Inc.’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 to eXegenics Inc.’s Annual Report on Form 10-K (File No. 000-26078) for the year ended December 31, 2002.
(14)
Previously filed as an exhibit to eXegenics Inc.’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.
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, 2006 By:   /s/ JOHN A. PAGANELLI 
 
Name: John A. Paganelli
 
Title: Chairman of the Board
Interim Chief Executive Officer 

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 
           
By:
/s/ JOHN A. PAGANELLI
 
Director, Chairman of the Board
 
March 31, 2006
 
John A. Paganelli
 
Interim Chief Executive Officer
   
           
By:
/s/ DAVID HOSTELLEY
 
Chief Financial Officer
 
March 31, 2006
 
David Hostelley
       
           
By:
/s/ ROBERT A. BARON
 
Director
 
March 31, 2006
 
Robert A. Baron
       
           
By:
/s/ ROBERT S. BENOU
 
Director
 
March 31, 2006
 
Robert S. Benou
       
           
By:
/s/ DAVID LEE SPENCER   
 
Director
 
March 31, 2006
 
David Lee Spencer
       


32

eXegenics Inc.

CONTENTS

Financial Statements

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



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.

We have audited the accompanying balance sheets of eXegenics Inc. (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 of eXegenics Inc. 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-2

eXegenics Inc.

BALANCE SHEETS
 
 
   
 December 31,
 
   
2005 
 
2004  
 
ASSETS 
         
Current assets:
         
Cash and cash equivalents
 
$
8,901,000
 
$
8,734,000
 
Restricted cash
   
   
175,000
 
Marketable securities available for sale
   
   
1,124,000
 
Prepaid expenses and other current assets
   
99,000
   
35,000
 
Total current assets
   
9,000,000
   
10,068,000
 
Equipment, net
   
   
3,000
 
   
$
9,000,000
 
$
10,071,000
 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
             
               
Current liabilities:
             
Accounts payable and accrued expenses
 
$
277,000
 
$
239,000
 
               
Stockholders’ equity:
             
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
 
Subscriptions receivable, net of reserve
   
(101,000
)
 
(302,000
)
Accumulated deficit
   
(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
)
     
8,723,000
   
9,832,000
 
   
$
9,000,000
 
$
10,071,000
 

See notes to financial statements
F-3

eXegenics Inc.

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