`UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(Mark One)

|X|    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE OF
       1934

                For the quarterly period ended September 30, 2005

|_|    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

     For the transition period from __________________ to __________________

                       Commission file number: 333-105793

                               CEPTOR CORPORATION
--------------------------------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

           Delaware                                         11-2897392
--------------------------------------------------    --------------------------
(State or Other Jurisdiction of Incorporation or         (I.R.S. Employer
          Organization)                                 Identification No.)

             200 International Circle, Suite 5100
                    Hunt Valley, Maryland                      21030
--------------------------------------------------    --------------------------
(Address of Principal Executive Offices)                     (Zip Code)

Issuer's Telephone Number: (410) 527-9998

                Check  whether the issuer (1) filed all  reports  required to be
filed by Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or
for such shorter  period that the registrant was required to file such reports),
and (2) has been subject to such filing  requirements  for the past 90 days.
Yes |X| No |_|

                Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

                As of  November 14,  2005,  there were  10,950,303 shares of the
issuer's common equity outstanding.

                Transitional  Small Business  Disclosure Format (Check one):
Yes |_| No |X|







                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
Part I        FINANCIAL INFORMATION

     Item 1.  Financial Statements (Unaudited)...........................    1

              Condensed Balance Sheets - September 30, 2005 and
              December 31, 2004

              Condensed Statements of Operations for the three months
              ended September 30, 2005 and 2004, for the nine months
              ended September 30, 2005 and 2004 and for the period from
              August 11, 1986 (date of inception) to September 30, 2005

              Condensed Statement of Changes in Stockholders' Deficiency
              for the nine months ended September 30, 2005

              Condensed Statements of Cash Flows for the nine months
              ended September  30, 2005 and 2004 and for the  period
              from August 11, 1986 (date of inception) to September 30,
              2005

              Notes to Condensed Financial Statements

     Item 2.  Management's Discussion and Analysis or Plan of Operation..  20

     Item 3.  Controls and Procedures....................................  22

Part II       OTHER INFORMATION

     Item 1.  Legal Proceedings........................................... 23

     Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds. 23

     Item 4.  Submission of Matters to a Vote of Security Holders......... 23

     Item 6.  Exhibits.................................................... 24

                                       i



                                                       PART I
                                                FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

                                                 CEPTOR CORPORATION
                                            (A DEVELOPMENT STAGE COMPANY)
                                              CONDENSED BALANCE SHEETS


                                                                               SEPTEMBER 30, 2005     DECEMBER 31, 2004
                                                                                  (UNAUDITED)
                                                                               ------------------     -----------------
ASSETS

Current Assets:
    Cash and cash equivalents                                                      $    149,174        $  1,331,513
    Prepaid expenses and other current assets                                           115,001             107,729
                                                                                   -------------       -------------
     Total current assets                                                               264,175           1,439,242

Property and equipment, net                                                              60,206              60,615
Security deposit                                                                         18,511              18,511
                                                                                   -------------       -------------

TOTAL ASSETS                                                                       $    342,892        $  1,518,368
                                                                                   =============       =============

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
    Accounts payable                                                               $  1,012,007        $     58,266
    Accrued expenses                                                                  1,545,764             315,237
    Convertible notes                                                                   343,708                --
    Common stock subject to repurchase under variable shares put right                     --             1,637,325
                                                                                   -------------       -------------
      Total current liabilities                                                       2,901,479           2,010,828

Convertible notes                                                                          --                56,821

                                                                                   -------------       -------------
TOTAL LIABILITIES                                                                     2,901,479           2,067,649
                                                                                   -------------       -------------

Commitments and contingencies

Stockholders' Deficiency:
    Preferred stock, $0.0001 par value; authorized 20,000,000 shares, issued and
      outstanding - 254.15 and 145.07  shares of Series A Convertible  Preferred
      Stock  at  September 30, 2005 and December 31, 2004, respectively;
      liquidation preference - $6,353,750 and $3,626,750, respectively                6,353,750           3,626,750
    Common stock, $0.0001; authorized 100,000,000 shares, issued and
      outstanding - 10,552,944 at September 30, 2005 and 10,539,161, net
      of 401,305 shares subject to put right at December 31, 2004                         1,055               1,054
    Subscriptions receivable on common stock                                               --                  (303)
    Deferred compensation                                                              (404,532)           (624,750)
    Additional paid-in capital                                                       25,533,697          12,294,648
    Treasury stock, 145,070 shares, at December 31, 2004, at cost                          --              (362,675)
    Deficit accumulated during the development stage                                (34,042,557)        (15,484,005)
                                                                                   -------------       -------------
      Total stockholders' deficiency                                                 (2,558,587)           (549,281)
                                                                                   -------------       -------------

TOTAL LIABILITIES AND STOCKHOLDERS'
    DEFICIENCY                                                                     $    342,892        $  1,518,368
                                                                                   =============       =============
(See Notes to Condensed Financial Statements)

                                                         1



                                                 CEPTOR CORPORATION
                                            (A DEVELOPMENT STAGE COMPANY)
                                         CONDENSED STATEMENTS OF OPERATIONS
                                                     (UNAUDITED)

                                                                                                              CUMULATIVE
                                                                                                               AUGUST 11,
                                                                                                                  1986
                                                        THREE MONTHS ENDED           NINE MONTHS ENDED          (DATE OF
                                                           SEPTEMBER 30,               SEPTEMBER 30,          INCEPTION) TO
                                                ---------------------------     --------------------------    SEPTEMBER 30,
                                                    2005             2004            2005           2004          2005
                                                -----------     -----------     ------------    ----------   ----------------
REVENUES:

   Other income                                 $          -    $          -    $          -   $         -      $     75,349

OPERATING EXPENSES:
   Research and development                        3,309,554         508,749       6,123,918       785,810         8,717,774
   In-process research and development                     -               -               -     5,034,309         5,034,309
   General and administrative                        987,247         430,848       2,957,701     3,030,980         9,510,334
   Gain on extinguishment of debt                          -               -        (311,281)            -          (311,281)
   Non-cash interest expense                         186,007         386,000         598,168       643,333         1,916,743
   Interest expense, net of interest income           19,651          29,089          25,546        57,023            60,997
                                                ------------     -----------     -----------   -----------      -----------
   Total operating expenses                        4,502,459       1,354,686       9,394,052     9,551,455        24,928,876
                                                ------------     -----------     -----------   -----------      -----------

NET LOSS                                          (4,502,459)     (1,354,686)     (9,394,052)   (9,551,455)      (24,853,527)

   Deemed preferred stock dividends                        -              -       (9,164,500)            -       (10,100,616)
                                                ------------     -----------    ------------   -----------      ------------
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS       $ (4,502,459)    $(1,354,686)   $(18,558,552)  $(9,551,455)     $(34,954,143)
                                                ============     ===========    ============   ===========      ============

   Basic and diluted loss per common share      $      (0.46)    $     (0.31)   $      (1.76)   $    (2.28)

   Weighted-average common shares outstanding      9,786,241       4,440,642      10,515,243     4,180,829


(See Notes to Condensed Financial Statements)

                                                         2



                                                         CEPTOR CORPORATION
                                                    (A DEVELOPMENT STAGE COMPANY)
                                     CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
                                                             (UNAUDITED)


                                                              PREFERRED STOCK            COMMON STOCK        SUBSCRIP-    DEFERRED
                                                             -----------------        -------------------      TION        COMPEN-
                                                             SHARES     AMOUNT        SHARES       AMOUNT    RECEIVABLE    SATION
                                                             ------     ------        ------       ------    ----------    ------

BALANCE, JANUARY 1, 2005                                  145.07       $3,626,750   10,539,161     $1,054     $(303)     $(624,750)

Preferred stock and warrants issued pursuant to
   units sold on January 5, 2005 in a private
   placement ($25,000)                                     48.35        1,208,750
Deemed dividend of beneficial conversion feature
   of units sold January 5, 2005 in private
   placement
Acquisition January 5, 2005 of treasury stock
   under put right ($2.50)
Preferred stock and warrants issued pursuant to
   units sold on January 18, 2005 in a private
   placement ($25,000)                                     76.25        1,906,250
Deemed dividend of beneficial conversion feature
   of units sold January 18, 2005 in private
   placement
Acquisition January 18, 2005 of treasury stock
   under put right ($2.50)
Common stock issued January 2005 in connection
   with payment of legal fees ($3.04)                                                  23,000          2
Common stock issued January 2005 pursuant to
   amendment of placement agent agreement ($2.50)                                     150,000         15
Common stock issued February 2005 to advisors for
   past services ($6.25)                                                                7,500          1
Preferred stock and warrants issued pursuant to
   units sold on February 3, 2005 in a private
   placement ($25,000)                                    224.48        5,612,000
Deemed dividend of beneficial conversion feature
   of units sold February 3, 2005 in private
   placement
Acquisition February 3, 2005 of treasury stock
   under put right ($2.50)
Preferred stock and warrants issued pursuant to
   units sold on February 11, 2005 in a private
   placement ($25,000)                                     17.50          437,500
Deemed dividend of beneficial conversion feature
   of units sold February 11, 2005 in private
   placement
Acquisition February 11, 2005 of treasury stock
   under put right ($2.50)
Common stock issued February 2005 pursuant to
   cashless exercise of option ($3.05)                                                100,191        10
Common stock issued March 2005 upon conversion of
   preferred shares ($2.50)                               (44.00)      (1,100,000)    440,000        44


(See Notes to Consolidated Financial Statements)

                                                                 3



                                                         CEPTOR CORPORATION
                                                    (A DEVELOPMENT STAGE COMPANY)
                                     CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
                                                             (UNAUDITED)

                                                                                                   DEFICIT
                                                                                                 ACCUMULATED
                                                          ADDITIONAL      TREASURY STOCK         DURING THE        TOTAL
                                                           PAID-IN      -------------------      DEVELOPMENT    STOCKHOLDERS'
                                                           CAPITAL      SHARES      AMOUNT         STAGE         DEFICIENCY
                                                           -------      ------      ------         -----           ------

BALANCE, JANUARY 1, 2005                                  $12,294,648  145,070    $(362,675)   $(15,484,005)  $   (549,281)

Preferred stock and warrants issued pursuant to
   units sold on January 5, 2005 in a private
   placement ($25,000)                                       (159,359)                                           1,049,391
Deemed dividend of beneficial conversion feature
   of units sold January 5, 2005 in private
   placement                                                1,208,750                            (1,208,750)             -
Acquisition January 5, 2005 of treasury stock
   under put right ($2.50)                                              48,350     (120,875)                      (120,875)
Preferred stock and warrants issued pursuant to
   units sold on January 18, 2005 in a private
   placement ($25,000)                                       (252,624)                                           1,653,626
Deemed dividend of beneficial conversion feature
   of units sold January 18, 2005 in private
   placement                                                1,906,250                            (1,906,250)             -
Acquisition January 18, 2005 of treasury stock
   under put right ($2.50)                                              76,250     (190,625)                      (190,625)
Common stock issued January 2005 in connection
   with payment of legal fees ($3.04)                          69,998                                               70,000
Common stock issued January 2005 pursuant to
   amendment of placement agent agreement ($2.50)                 (15)                                                   -
Common stock issued February 2005 to advisors for
   past services ($6.25)                                       46,874                                               46,875
Preferred stock and warrants issued pursuant to
   units sold on February 3, 2005 in a private
   placement ($25,000)                                       (851,447)                                           4,760,553
Deemed dividend of beneficial conversion feature
   of units sold February 3, 2005 in private
   placement                                                5,612,000                             (5,612,000)            -
Acquisition February 3, 2005 of treasury stock
   under put right ($2.50)                                             224,480     (561,200)                      (561,200)
Preferred stock and warrants issued pursuant to
   units sold on February 11, 2005 in a private
   placement ($25,000)                                       (234,626)                                             202,874
Deemed dividend of beneficial conversion feature
   of units sold February 11, 2005 in private
   placement                                                  437,500                               (437,500)            -
Acquisition February 11, 2005 of treasury stock
   under put right ($2.50)                                              17,500      (43,750)                       (43,750)
Common stock issued February 2005 pursuant to
   cashless exercise of option ($3.05)                            (10)                                                   -
Common stock issued March 2005 upon conversion of
   preferred shares ($2.50)                                 1,099,956                                                    -


(See Notes to Consolidated Financial Statements)                                                                       (continued)


                                                                 3a



                                                         CEPTOR CORPORATION
                                                    (A DEVELOPMENT STAGE COMPANY)
                                     CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
                                                             (UNAUDITED)


                                                              PREFERRED STOCK            COMMON STOCK        SUBSCRIP-    DEFERRED
                                                             -----------------        -------------------      TION        COMPEN-
                                                             SHARES     AMOUNT        SHARES       AMOUNT    RECEIVABLE    SATION
                                                             ------     ------        ------       ------    ----------    ------

Payments received for common stock issued December
   2004 pursuant to exercise of options granted
   under spinoff agreement                                                                                      303
Common stock issued March 2005 pursuant to
   exercise of warrants ($1.25)                                                          5,000          1
Common stock issued April 2005 upon conversion of
   preferred shares ($2.50)                               (15.00)        (375,000)     150,000         15
Common stock issued May 2005 pursuant to financing
   letter agreement ($3.00)                                                             25,000          2
Common stock issued May 2005 upon conversion of
   preferred shares ($2.50)                               (41.00)      (1,025,000)     410,000         41
Common stock issued June 2005 upon conversion of
   preferred shares ($2.50)                               (29.00)        (725,000)     290,000         29
Capital contribution for repurchase of common
   stock pursuant to Stock Purchase Agreement
Common stock repurchased June 2005 pursuant to
   Stock Repurchase Agreement ($0.80)
Common stock issued July 2005 pursuant to
   Regulatory Milestone Plan ($2.70)                                                   100,000         10
Common stock issued July 2005 upon conversion of
   preferred shares ($2.50)                              (20.00)         (500,000)     200,000         20
Common stock issued August 2005 upon conversion of
   preferred shares ($2.50)                              (83.50)       (2,087,500)     835,000         84
Common stock issued September 2005 upon conversion
   of preferred shares ($2.50)                           (25.00)         (625,000)     250,000         25
Common stock issued September 2005 pursuant to
   Stock Purchase Agreement ($0.90)                                                     25,000          2
Retirement of treasury shares                                                       (3,398,213)      (340)
Reverse common stock subject to repurchase under
   variable shares put right at December 31, 2004                                      401,305         40
Stock option-based compensation for investor
   relation services rendered                                                                                              (620,700)
Stock option-based compensation for employees and
   directors                                                                                                               (293,231)
Fair value adjustment of stock options previously
   granted to non-employees                                                                                                 318,400
Amortization of deferred compensation                                                                                       815,749
Net loss
                                                       -------        ----------  ----------    --------     --------    -----------
BALANCE, SEPTEMBER 30, 2005                             254.15        $6,353,750  10,552,944    $  1,055     $      -    $ (404,532)
                                                       =======        ==========  ==========    ========     ========    ===========
(See Notes to Condensed Financial Statements)

                                                                 4


                                                         CEPTOR CORPORATION
                                                    (A DEVELOPMENT STAGE COMPANY)
                                     CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
                                                             (UNAUDITED)

                                                                                                   DEFICIT
                                                                                                 ACCUMULATED
                                                          ADDITIONAL      TREASURY STOCK         DURING THE        TOTAL
                                                           PAID-IN      -------------------      DEVELOPMENT    STOCKHOLDERS'
                                                           CAPITAL      SHARES      AMOUNT         STAGE         DEFICIENCY
                                                           -------      ------      ------         -----         ----------

Payments received for common stock issued December
   2004 pursuant to exercise of options granted
   under spinoff agreement                                                                                                303
Common stock issued March 2005 pursuant to
   exercise of warrants ($1.25)                                 6,249                                                   6,250
Common stock issued April 2005 upon conversion of
   preferred shares ($2.50)                                   374,985                                                       -
Common stock issued May 2005 pursuant to financing
   letter agreement ($3.00)                                    74,998                                                  75,000
Common stock issued May 2005 upon conversion of
   preferred shares ($2.50)                                 1,024,959                                                       -
Common stock issued June 2005 upon conversion of
   preferred shares ($2.50)                                   724,971                                                       -
Capital contribution for repurchase of common
   stock pursuant to Stock Purchase Agreement                 424,818                                                 424,818
Common stock repurchased June 2005 pursuant to
   Stock Repurchase Agreement ($0.80)                                      2,886,563  (2,734,068)                  (2,734,068)
Common stock issued July 2005 pursuant to
   Regulatory Milestone Plan ($2.70)                          269,990                                                 270,000
Common stock issued July 2005 upon conversion of
   preferred shares ($2.50)                                   499,980                                                       -
Common stock issued August 2005 upon conversion of
   preferred shares ($2.50)                                 2,087,416                                                       -
Common stock issued September 2005 upon conversion
   of preferred shares ($2.50)                                624,975                                                       -
Common stock issued September 2005 pursuant to
   Stock Purchase Agreement ($0.90)                            22,498                                                  22,500
Retirement of treasury shares                              (4,012,853)    (3,398,213)  4,013,193                            -
Reverse common stock subject to repurchase under
   variable shares put right at December 31, 2004           1,637,285                                               1,637,325
Stock option-based compensation for investor
   relation services rendered                                 620,700                                                       -
Stock option-based compensation for employees and
   directors                                                  293,231                                                       -
Fair value adjustment of stock options previously
   granted to non-employees                                  (318,400)                                                      -
Amortization of deferred compensation                                                                                 815,749
Net loss                                                                                            (9,394,052)    (9,394,052)
                                                        -------------      ---------   --------   ------------    -----------
BALANCE, SEPTEMBER 30, 2005                               $25,533,697              -   $      -   $(34,042,557)   $(2,558,587)
                                                        =============      =========   ========   ============    ===========
(See Notes to Condensed Financial Statements)

                                                                 4a



                                                CEPTOR CORPORATION
                                          (A DEVELOPMENT STAGE COMPANY)
                                        CONDENSED STATEMENT OF CASH FLOWS
                                                   (UNAUDITED)

                                                                                                          CUMULATIVE
                                                                                                       AUGUST 11, 1986
                                                                       FOR THE NINE MONTHS ENDED     (DATE OF INCEPTION)
                                                                              SEPTEMBER 30,                  TO
                                                                      ----------------------------      SEPTEMBER 30,
                                                                          2005            2004             2005
                                                                      ------------    ------------     --------------

CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss                                                              $ (9,394,052)   $ (9,551,455)   $(24,853,527)
Adjustments to reconcile net (loss) to net cash
used in operating activities:
   Depreciation and amortization                                            13,432           7,586          26,715
   Write-off of in-process research and development                              -       5,034,309       5,034,309
   Charge for stock option issued pursuant to spinoff agreement                  -       2,082,500       2,082,500
   Stock-based compensation to employees and directors                      98,449               -          98,449
   Stock-based compensation to nonemployees                              1,109,175               -       4,021,606
   Stock-based component of payment of legal fees                           70,000               -          70,000
   Stock-based component of litigation settlement                                -               -         422,000
   Gain on extinguishment of debt                                         (311,281)              -        (311,281)
   Non-cash interest expense                                               598,168         643,334       1,916,743
   Changes in assets and liabilities:
     Prepaid expenses & other current assets                            15,228        (201,596)        (92,501)
     Other assets                                                                -         (18,511)        (18,511)
     Accounts payable and accrued expenses                               2,184,268         264,209       2,581,429
                                                                     --------------    ------------    ------------
     Net cash used in operating activities                              (5,616,613)     (1,739,624)     (9,022,069)
                                                                     --------------    ------------    ------------

CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment                                        (13,023)        (68,769)        (86,921)
                                                                     --------------    ------------    ------------

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuances of common stock                                      6,250         929,231       1,136,502
Collections of subscriptions receivable                                        303               -             303
Net proceeds from issuances of preferred stock                           7,666,444               -      10,470,684
Acquisition of treasury stock under put right                             (916,450)              -      (1,279,125)
Acquisition of treasury stock under purchase agreement                  (2,309,250)              -      (2,309,250)
Distribution to shareholders                                                     -               -          (4,260)
Capital contributed by Xechem International, Inc.                                -         300,310         350,310
Proceeds from issuance of bridge loans                                           -       1,100,000       1,375,000
Expense of issuance of long term debt                                            -        (132,000)       (132,000)
Principal payments on bridge loans                                               -            --          (350,000)
                                                                     --------------    ------------    ------------
     Net cash provided by financing activities                           4,447,297       2,197,541       9,258,164
                                                                     --------------    ------------    ------------

Net increase in cash and cash equivalents                               (1,182,339)        389,148         149,174

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD                     1,331,513          68,374               -
                                                                     --------------    ------------    ------------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD                        $    149,174     $   457,522     $   149,174
                                                                     ==============    ============    ============

(See Notes to Condensed Financial Statements)

                                                                  5





                                               CEPTOR CORPORATION
                                          (A DEVELOPMENT STAGE COMPANY)
                                       CONDENSED STATEMENTS OF CASH FLOWS
                                                   (UNAUDITED)

                                                                                                   CUMULATIVE
                                                                                                  AUGUST 11, 1986
                                                                   FOR THE NINE MONTHS ENDED     (DATE OF INCEPTION)
                                                                          SEPTEMBER 30,                 TO
                                                                   -------------------------        SEPTEMBER 30,
                                                                      2005            2004             2005
                                                                   -----------   -----------     ------------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Deemed dividend of the beneficial conversion feature
     of units sold in private placement                            $ 9,164,500   $         -        $10,100,616
   Issuance of 2,575,000 shares of common stock upon
     conversion of preferred shares                                  6,437,500             -          6,437,500
   Issuance of 100,000 shares of common stock pursuant
     to stock plan                                                     270,000             -            270,000
   Issuance of 25,000 shares of common stock as
     compensation for future financial planning                         22,500             -             22,500
   Issuance of 7,500 shares of common stock as
     compensation for past services                                     46,875             -             46,875
   Issuance of 25,000 shares of common stock as
     compensation for financial planning                                75,000             -             75,000
   Issuance of 23,000 shares of common stock in
     payment of accrued legal fees                                      70,000             -             70,000
   Capital contribution for repurchase of common stock
      pursuant to Stock Purchase Agreement                             424,818             -            424,818
   Issuance of 36,000 shares of common stock as debt
      issuance costs                                                         -             -             90,000
   Issuance of 451,597 shares of common stock to
     bridge loan investors and placement agent                               -             -            550,000
   Issuance of 167,610 shares up on conversion of
     convertible notes                                                       -             -            209,512
   Issuance of convertible notes in exchange for bridge
     loans and long-term debt plus accrued interest                          -             -          1,111,240


(See Notes to Condensed Financial Statements)

                                                        6



NOTE 1 - BASIS OF INTERIM FINANCIAL STATEMENT PRESENTATION

The accompanying  unaudited Condensed Financial Statements of CepTor Corporation
have been prepared in accordance with accounting  principles  generally accepted
in the United States for interim  financial  information and the instructions to
Form 10-QSB. Accordingly,  they do not include all the information and footnotes
required by accounting  principles  generally  accepted in the United States for
complete  financial  statements.  In the opinion of management  all  adjustments
(which include only normal  recurring  adjustments)  necessary to present fairly
the financial  position,  results of  operations  and cash flows for all periods
presented have been made.  The results of operations  for the nine-month  period
ended September 30, 2005 are not necessarily indicative of the operating results
that may be expected for the entire year ending December 31, 2005.

NOTE 2 - THE COMPANY

ORGANIZATION
The  financial  statements  presented  are  those  of  CepTor  Corporation  (the
"Company"),  incorporated  in  August  1986 in the  state  of  Delaware.  CepTor
Corporation  is  a  biopharmaceutical   company  engaged  in  the  research  and
development of therapeutic  products for  neuromuscular,  neurodegenerative  and
other  diseases with a focus on orphan  diseases  (defined as those which affect
less than  200,000  people).  Since its  inception,  the Company has devoted its
efforts and resources to the development of its receptor mediated drug-targeting
platform for neuromuscular and  neurodegenerative  diseases,  and to raising the
funds necessary to continue this research.

The Company is a development  stage  enterprise  which has a limited  history of
operations and has not generated any material revenues since its inception.  The
Company  has  received  a  limited   amount  of  funding   through   grants  and
collaborative  research efforts in connection with developing its products.  The
Company does not have any products that are approved for commercial distribution
at the present time. As a development stage  enterprise,  the Company is subject
to all of the risks and uncertainties  that are associated with developing a new
business.

MERGER OF XECHEM INTERNATIONAL, INC. AND CEPTOR CORPORATION
On January 27, 2004, the former  shareholders of the Company  received shares of
preferred stock of Xechem International,  Inc. ("Xechem") in connection with the
merger of the Company into a  wholly-owned  subsidiary of Xechem.  For financial
reporting  purposes,  the effective date of the merger was designated January 1,
2004.  The  results of  operations  from  January 1 to January 27, 2004 were not
significant.  The merger was accomplished  through a reverse  triangular  merger
whereby  CepTor  Acquisition,  Inc., a  wholly-owned  subsidiary of Xechem,  was
merged into the Company and the Company was the surviving entity.

Following the  acquisition  of the Company by Xechem,  the board of directors of
Xechem determined that Xechem lacked the resources to fully fund the development
and regulatory approval of the Company's  technology.  As a result, the board of
directors  of Xechem  determined  that is was in the best  interest  of Xechem's
stockholders  to effect a spin-off of the Company  from  Xechem,  providing  the
Company  with an  independent  platform  to obtain  financing  and  develop  its
technology.  As a result the Company, Xechem, and William Pursley,  Chairman and
CEO of the Company, entered into an agreement dated March 31, 2004, amended July
23, 2004 and November 17, 2004,  (the "Spinoff  Agreement"),  to provide for the
separation of the Company from Xechem.  The Spinoff  Agreement  provided for the
Company's  separation from Xechem under a transaction  structured to include (i)
the  Company's  redemption  of a portion of it shares  held by Xechem out of the
proceeds of future  financing under the Redemption  Variable Shares Put Right as
described below in Note 7, (ii) the issuance and allocation of additional shares
of common stock to Mr.  Pursley under the Founders' Plan and (iii) the Company's
reverse  merger into a public  shell.  The  spin-off of the Company  from Xechem
concurrent  with Mr.  Pursley's  exercise of his stock option and the  Company's
reverse merger into Medallion was completed on December 8, 2004.

MERGER OF MEDALLION CREST MANAGEMENT, INC. AND CEPTOR CORPORATION
Medallion Crest Management,  Inc., a Florida corporation  ("Medallion") acquired
all of the common  stock of the Company on December  8, 2004.  Medallion  was an
inactive  public shell at the time of  acquisition.  The Company's  shareholders
prior to the merger  became the majority  shareholders  of  Medallion  after the
merger; accordingly the transaction was accounted for as a recapitalization. The
accompanying  financial  statements  preceding the date of the acquisition  have
been retroactively restated to give effect to this transaction.

                                       7



NOTE 3 - LIQUIDITY AND FINANCIAL CONDITION

The  Company's  net loss for the  nine-month  period  ended  September  30, 2005
amounted to $9,394,052,  which includes  $1,564,511 of non-cash  special charges
primarily  associated  with the  Company's  issuance  of stock and common  stock
purchase  warrants  and options for  services  rendered  and  non-cash  interest
expense, offset by gain on the extinguishment of debt. The Company used net cash
flows in its operating  activities of $5,616,613  during the  nine-month  period
ending September 30, 2005. The Company's  development stage accumulated  deficit
amounted to $34,042,557  at September 30, 2005. The Company  expects to continue
incurring losses for the foreseeable future due to the inherent uncertainty that
is  related  to  establishing  the  commercial   feasibility  of  pharmaceutical
products. The Company will require substantial additional funding to support the
development of its proposed  products and fund its operations while it continues
its  efforts to  execute  its  business  plan.  The  Company  estimates  that it
currently  does not have  sufficient  liquidity  to  sustain  operations  beyond
December 31, 2005.

The Company's  working  deficit at September  30, 2005  amounted to  $2,637,304.
During the nine-month  period ended September 30, 2005, the Company received net
proceeds of $4,447,297  from  financing  activities,  including  (i)  $7,666,444
(gross  proceeds of $9,164,500 net of transaction  expenses of $1,498,056)  from
the sale of preferred  stock and common stock purchase  warrants  ("Units") in a
private  placement  transaction  (see Note 10), (ii) $6,250 from the exercise of
warrants,  and  (iii)  $303  from  subscriptions   receivable  pursuant  to  the
restricted  shares issued under the  Company's  Founders'  Plan during  December
2004.  From the net proceeds of the sale of the Units,  the Company  repurchased
3,253,143  shares of its common  stock,  par value $0.0001 per share from Xechem
for $3,225,700  comprised of (i) $916,450 for 366,580 shares of its common stock
pursuant  to the  terms  of a  redemption  obligation  (see  Note  7)  and  (ii)
$2,734,068  which  includes  $2,309,250 in cash and the  forfeiture of an option
held by the  Company's  CEO to  purchase  43 million  shares of common  stock of
Xechem with a fair value of $424,818,  for an additional 2,886,563 shares of its
common stock.

For the foreseeable  future, the Company's primary efforts will be on moving its
lead product,  Myodur,  into phase I/II clinical trials for Duchenne's  muscular
dystrophy. The Company plans to use its available cash resources to continue the
pre-clinical  development  of its  technologies,  which  primarily  includes the
manufacture of Myodur,  conducting  pre-clinical  tests and toxicology  studies,
compiling,  drafting and  submitting  an  investigational  new drug  application
("IND") for Myodur,  and initiating phase I/II human clinical trials, if allowed
by the Food and Drug Administration ("FDA"). As resources allow, the Company may
also fund other working capital needs. The Company  presently  expects to submit
its IND for Myodur in January  2006,  and  initiate  human  clinical  trials for
Myodur early in the second quarter of 2006.

The  Company  does  not  have,  and  does  not  intend  to  establish,  its  own
manufacturing  facilities to produce its product  candidates in the  foreseeable
future. The Company has outsourced the manufacturing of its proposed products to
contract  manufacturers.  In April 2005,  the Company  entered into an exclusive
manufacture  and supply  agreement  with Bachem AG ("Bachem")  whereby Bachem is
entitled to receive  royalty  payments in the amount of the lesser of 5% of "net
sales" (as defined in the agreement) or $10 million,  $15 million or $25 million
in the  first,  second  and  third  (and  thereafter)  years  of the  agreement,
respectively. During the nine-month period ended September 30, 2005, the Company
incurred  approximately  $3.0 million for the costs of the proposed  product and
related  materials of which  approximately  $1.3 million remains  unpaid.  As of
September  30,  2005,  the Company has  sufficient  materials  required  for the
Company's pre-clinical studies and initial toxicology programs and initial human
clinical trials.

The Company may incur significant expenditures during the next twelve months for
the cost to manufacture  the Company's  product Myodur for use in additional and
follow-on  clinical,  toxicology  and other  testing.  Further,  if the  Company
receives  regulatory  approval for any of its  products in the United  States or
elsewhere,  it will incur  substantial  expenditures  to develop  manufacturing,
sales, and marketing  capabilities  and/or to subcontract or joint venture these
activities  with others.  There can be no  assurance  that the Company will ever
recognize revenue or profit from any such products. In addition, the Company may
encounter   unanticipated   problems,   including   developmental,   regulatory,
manufacturing,  or  marketing  difficulties,  some of which  may be  beyond  its
ability to resolve.  The Company may lack the  capacity to produce its  products
in-house and there can be no assurances that it will be able to locate or retain
suitable  contract  manufacturers  or be able to have them  produce  products at
satisfactory prices.

                                       8


As  described  in Note  10,  the  Company  entered  into a  Securities  Purchase
Agreement  with  Xechem  on June  17,  2005  pursuant  to which  it  elected  to
repurchase  2,886,563  shares of its common  stock from  Xechem,  for a purchase
price of $2,309,250  effectively reducing the total outstanding shares of common
stock of the Company.  As  additional  consideration  for the  transaction,  the
Company's  CEO  agreed to  forfeit an option to  purchase  43 million  shares of
Xechem,  which the Company has recorded as a contribution  of capital and a cost
of the treasury  shares.  Xechem retained  500,000 shares of common stock of the
Company  but agreed  that it would only sell such  shares  subject to the volume
restrictions of Rule 144,  regardless of whether or not such volume  limitations
are applicable at the time of such sale.  Additionally,  the Securities Purchase
Agreement terminated the Spinoff Agreement.

Due to the substantial amounts that the Company has expended for the manufacture
of its proposed product and the repurchase of shares of its common stock on June
17,  2005  from  Xechem,  the  Company  determined  that its  available  capital
resources as of September  30, 2005 were not  sufficient  to sustain its planned
operations  beyond  December  31,  2005.  In order  to  address  this  liquidity
situation,  on October 7, 2005 the Company  entered into a common stock purchase
agreement with Fusion Capital Fund II, LLC ("Fusion Capital"), pursuant to which
Fusion Capital has agreed, under certain conditions, to purchase on each trading
day $25,000 of the  Company's  common stock up to an  aggregate,  under  certain
conditions,   of  $20  million  over  a  40-month  period,  subject  to  earlier
termination  at the  discretion of the Company.  The Company is required to file
and  have  declared  effective  a  registration  statement  with  the  SEC  as a
precondition to receipt of any funds with respect to this transaction. There can
be no assurance that the SEC will declare the registration  statement effective.
The  inability  of the  Company to obtain  financing  through  this or any other
transaction  would have a material  adverse  effect on the  Company's  financial
condition and its ability to sustain operations.

Additionally,  on October 27, 2005,  the Company  entered into a stock  purchase
agreement for the sale of approximately 265,600 shares of its common stock under
its Founders' Plan and received  $167,250  during  October 2005.  (See Note 11 -
Subsequent Events.)

The Company is continuing to seek  additional  capital  through  equity and debt
offerings,  collaborative partnerships,  joint ventures and strategic alliances,
both  within  the  United  States  and  abroad in an effort  to  accelerate  the
development of its proposed products.

There can be no assurance that management's plans to obtain additional financing
to fund operations will be successful which raises  substantial  doubt about the
Company's  ability to continue as a going concern.  The financial  statements do
not  include  any  adjustments   that  may  result  from  the  outcome  of  this
uncertainty.

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
The Company is a  development  stage  enterprise.  Accordingly,  the Company has
included its  cumulative  statements of operations and cash flows for the period
of August 11, 1986 (date of inception) to September 30, 2005 in accordance  with
Statement of Financial  Accounting  Standards  ("SFAS")  No. 7  "Accounting  and
Reporting by Development Stage Enterprises."

The  Company's  net loss  available  to common  shareholders  as reported in its
statement of operations for the period of August 11, 1986 (date of inception) to
September 30, 2005 is  $34,954,143  whereas the deficit  accumulated  during its
development  stage as  reported on its balance  sheet at  September  30, 2005 is
$34,042,557.  The  difference is a result of the  acquisition  of the Company by
Xechem and the  restatement of its assets and  liabilities to fair value,  which
resulted  in the  Company's  accumulated  deficit,  net of  distributions,  from
inception through December 31, 2003 (the date of merger for financial  reporting
purposes) being  reclassified  to additional  paid-in  capital,  net of a deemed
dividend to the preferred shareholders.

ACCOUNTING FOR STOCK BASED COMPENSATION
As permitted  under SFAS No. 148  "Accounting  for  Stock-Based  Compensation  -
Transition  and  Disclosure,"   which  amended  SFAS  No.  123  "Accounting  for
Stock-Based  Compensation,"  the Company has elected to use the intrinsic  value
method of accounting for its stock-based compensation arrangements as defined by
Accounting  Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued
to  Employees,"  and  related  interpretations  including  Financial  Accounting
Standards  Board  ("FASB")   Interpretation   No.  44  "Accounting  for  Certain
Transactions Involving Stock Compensation," an interpretation of APB No. 25.

The cost of stock-based compensation awards issued to non-employees for services
are  recorded  at  either  the fair  value of the  services  rendered  or of the
instruments  issued in exchange  for such  services,  whichever  is more readily
determinable,  using the  measurement  date  guidelines  enumerated  in Emerging

                                       9


Issues Task Force ("EITF") Issue No. 96-18,  "Accounting for Equity  Instruments  That
Are Issued to Other Than  Employees for  Acquiring,  or in  Conjunction  with Selling,
Goods or Services."

The following  table  summarizes  the pro forma  operating  results of the Company had
compensation  expense  for stock  options  granted to  employees  been  determined  in
accordance  with the fair market  value based method  prescribed  by SFAS No. 123. The
Company has presented the following disclosures in accordance with SFAS No. 148.

                                                      For the Three-Month Period Ended
                                                               September 30,
                                                      --------------------------------
                                                           2005             2004
                                                      -------------   ----------------

Net loss available to common stockholders              $(4,502,459)     $  (1,354,686)
Adjust: Stock-based employee compensation
        determined under the fair value method             (15,485)                 -
                                                       ------------   ---------------
        Pro forma net loss                             $(4,517,944)     $  (1,354,686)
                                                       ============   ===============

Net loss per share available to common stockholders:
         Basic and diluted, as reported                $     (0.46)     $       (0.31)
         Basic and diluted, pro forma                  $     (0.46)     $       (0.31)
                                                       ============   ================

                                                      For the Nine-Month Period Ended
                                                               September 30,
                                                      -------------------------------
                                                           2005             2004
                                                      ---------------  --------------

Net loss available to common stockholders              $(18,558,552)    $  (9,551,455)
Adjust:  Stock-based employee compensation
         determined under the fair value method
                                                            (44,285)       (5,497,358)
                                                       -------------- ---------------
         Pro forma net loss                            $(18,602,837)    $ (15,048,813)
                                                       ============== ===============

Net loss per share available to common stockholders:
         Basic and diluted, as reported                $      (1.76)    $       (2.28)
         Basic and diluted, pro forma                  $      (1.77)    $       (3.60)


The pro forma amounts that are  disclosed in accordance  with SFAS No. 123 reflect the
portion of the estimated fair value of awards that were earned for the three-month and
nine-month periods ended September 30, 2005.

ACCOUNTING FOR WARRANTS ISSUED IN CONNECTION WITH SALE OF UNITS

The Company  accounts  for the issuance of common stock  purchase  warrants  issued in
connection with sales of its Units in accordance with the provisions of EITF Issue No.
00-19  "Accounting for Derivative  Financial  Instruments  Indexed to, and Potentially
Settled in, a Company's Own Stock."  Based on the  provisions of EITF Issue No. 00-19,
the Company classifies as equity any contracts that (i) require physical settlement or
net-share  settlement  or (ii) gives the  company a choice of net-cash  settlement  or
settlement  in its own shares  (physical  settlement  or  net-share  settlement).  The
Company  classifies as assets or liabilities  any contracts that (i) require  net-cash
settlement (including a requirement to net-cash settle the contract if an event occurs
and if that event is outside the control of the Company) or (ii) give the counterparty
a choice of net-cash  settlement  or  settlement  in shares  (physical  settlement  or
net-share settlement).

NET (LOSS) PER SHARE
Net loss per share is presented  under SFAS No. 128  "Earnings  Per Share." Under SFAS
No. 128, basic net loss per share is computed by dividing net loss per share available
to common  stockholders by the weighted average shares of common stock outstanding for

                                       10



the period and  excludes  any  potential  dilution.  Diluted  earnings per share
reflect the potential  dilution that would occur upon the exercise or conversion
of all dilutive  securities into common stock. The computation of loss per share
for the  three-month  and nine-month  periods ended  September 30, 2005 excludes
potentially dilutive securities because their inclusion would be anti-dilutive.

Shares of common stock  issuable upon the  conversion or exercise of potentially
dilutive securities are as follows:

                                                   September 30,
                                               2005             2004
                                             ---------       ----------

           Series A Preferred Stock          2,541,500                -
           Warrants                          4,399,900                -
           Options                             646,695        3,031,943
           Convertible Notes                 1,299,476                -
                                             ---------       ----------
           Total                             8,887,571        3,031,943
                                             =========       ==========

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest  Entities"  ("FIN 46").  This  interpretation  of  Accounting
Research Bulletin ("ARB") No. 51, "Consolidated  Financial Statements," provides
guidance for  identifying a controlling  interest in a variable  interest entity
("VIE")  established by means other than voting  interest.  FIN 46 also required
consolidation of a VIE by an enterprise that holds such controlling interest. In
December  2003,  the FASB  completed  its  deliberations  regarding the proposed
modifications to FIN 46 and issued Interpretation Number 46R,  "Consolidation of
Variable  Interest  Entities - an  Interpretation  of ARB 51" ("FIN  46R").  The
decisions  reached  included a deferral of the effective date and provisions for
additional scope exceptions for certain types of variable interests. Application
of FIN 46R is required in  financial  statements  of public  entities  that have
interests  in VIEs or potential  VIEs  commonly  referred to as  special-purpose
entities for periods ending after December 15, 2003. Application by public small
business  issuers'  entities is  required  in all  interim and annual  financial
statements for periods ending after December 15, 2004.

The  adoption  of this  pronouncement  did not have an effect  on the  Company's
financial statements.

In December  2004,  the FASB issued SFAS No. 123R,  "Share Based  Payment." This
statement is a revision of SFAS Statement No. 123,  "Accounting  for Stock-Based
Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related implementation guidance. SFAS No. 123R addresses all
forms of share based  payment  ("SBP")  awards  including  shares  issued  under
employee  stock  purchase  plans,  stock  options,  restricted  stock  and stock
appreciation  rights. Under SFAS No. 123R, SBP awards result in a cost that will
be  measured at fair value on the awards'  grant  date,  based on the  estimated
number  of  awards  that are  expected  to vest and will  result  in a charge to
operations for stock-based  compensation expense. SFAS No. 123R is effective for
public  entities that file as small business  issuers as of the beginning of the
first interim or annual reporting period that begins after December 15, 2005.

The  Company is  currently  in the  process of  evaluating  the effect  that the
adoption of this pronouncement will have on its financial statements.

In  December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Nonmonetary
Assets."  SFAS No. 153 amends APB Opinion No. 29 to eliminate  the exception for
nonmonetary  exchanges  of  similar  productive  assets and  replaces  it with a
general  exception  for  exchanges  of  nonmonetary  assets  that  do  not  have
commercial  substance.  A nonmonetary  exchange has commercial  substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange.  The  provisions of SFAS No. 153 are effective for  nonmonetary
asset  exchanges  occurring  in fiscal  periods  beginning  after June 15, 2005.
Earlier  application is permitted for nonmonetary  asset exchanges  occurring in
fiscal periods beginning after December 16, 2004. The provisions of SFAS No. 153
should be applied prospectively.

The  adoption  of this  pronouncement  did not have an effect  on the  Company's
financial statements.

                                       11


In EITF Issue No. 04-8, "The Effect of Contingently  Convertible  Instruments on
Diluted  Earnings  Per Share," the EITF  reached a consensus  that  contingently
convertible  instruments,  such as contingently  convertible debt,  contingently
convertible  preferred  stock,  and other such securities  should be included in
diluted earnings per share (if dilutive)  regardless of whether the market price
trigger has been met. The consensus is effective for  reporting  periods  ending
after December 15, 2004.

The  Company's  adoption  of this  pronouncement  did not have an  effect on the
Company's financial statements.

In September 2005, the FASB ratified the Emerging  Issues Task Force's  ("EITF")
Issue No. 05-7,  "Accounting for Modifications to Conversion Options Embedded in
Debt Instruments and Related Issues",  which addresses whether a modification to
a  conversion  option that  changes its fair value  affects the  recognition  of
interest  expense for the associated debt instrument  after the modification and
whether a borrower should recognize a beneficial  conversion feature, not a debt
extinguishment, if a debt modification increases the intrinsic value of the debt
(for example,  the  modification  reduces the conversion  price of the debt). In
September  2005,  the FASB also ratified the EITF's Issue No. 05-8,  "Income Tax
Consequences of Issuing Convertible Debt with a Beneficial  Conversion Feature",
which  discusses  whether the  issuance of  convertible  debt with a  beneficial
conversion  feature  results in a basis  difference  arising from the  intrinsic
value of the  beneficial  conversion  feature on the  commitment  date (which is
recorded in  shareholder's  equity for book  purposes,  but as a  liability  for
income tax purposes)  and, if so,  whether that basis  difference is a temporary
difference under FASB Statement No. 109,  "Accounting for Income Taxes". Both of
these issues are effective for fiscal periods beginning after December 15, 2005.

The  Company is  currently  in the  process of  evaluating  the effect  that the
adoption of these pronouncements will have on its financial statements.

NOTE 5 - PREPAID EXPENSES AND GRANT RECEIVABLE

Prepaid expenses and grant receivable primarily consists of unamortized premiums
paid  to  carriers  for  insurance  policies,  amounts  due  from  the  National
Institutes of Health for amounts  expended by the Company for work on its grant,
and  the  fair  value  of  common  stock  and  nonrefundable  retainer  paid  as
compensation for ongoing financial consulting.

NOTE 6 - ACCRUED EXPENSES

Accrued expenses at September 30, 2005 are as follows:

           Clinical development expenses                           $ 1,253,873
           Financial investor relations fees                           188,277
           Interest on convertible notes                                72,879
           Research expenses, miscellaneous                             28,386
           Other                                                         2,349
                                                                   -----------
           Total                                                   $ 1,545,764
                                                                   ===========

In  connection  with the sale of Units in a private  placement,  pursuant to the
placement agent agreement, the Company had agreed to spend up to 3% of the gross
proceeds from its private placement on financial investor relations  activities,
all of which was accrued and charged to  additional  paid-in  capital  upon each
closing of the private placement.

NOTE 7 - COMMON  STOCK  REPURCHASED  UNDER  VARIABLE  SHARES PUT RIGHT AND SHARE
PURCHASE AGREEMENT

On January 27, 2004, the former  shareholders of the Company  received shares of
preferred  stock of Xechem in  connection  with the merger of the Company into a
wholly-owned  subsidiary of Xechem.  Following the acquisition of the Company by
Xechem,  the board of  directors  of Xechem  determined  that Xechem  lacked the
resources to fully fund the development and regulatory  approval  process of the
Company's  technology.  As a result, the board of directors of Xechem determined
that it was in the best interest of Xechem's  stockholders  to effect a spin-off
of the Company from Xechem,  providing the Company with an independent  platform
to obtain financing and develop its technology. As a result the Company, Xechem,
and William Pursley,  Chairman and CEO of the Company, entered into an agreement
dated March 31, 2004,  as amended  July 23, 2004 and  November  17,  2004,  (the
"Spinoff Agreement"), to provide for the separation of the Company from Xechem.

The Spinoff  Agreement,  as amended,  provides for the Company to redeem, out of
the proceeds of future  financing  transactions,  an aggregate of  $2,000,000 in
shares of common stock of the Company held by Xechem (the  "Variable  Shares Put
Right").  Pursuant to the terms of the Variable Shares Put Right, the Company is
obligated  to use the  first  25%  (adjusted  to 10% of the  proceeds  from  the
Company's private placement initiated in December 2004 and concluded in February
2005) of the gross proceeds received in such financing transactions to redeem an
equivalent number of shares of common stock held by Xechem,  derived by dividing
such proceeds by the then price per share of the Company's common stock. Through
February 11, 2005, the Company  redeemed  511,650 shares of its common stock for
$1,279,125, which represents 10% of the gross proceeds that the Company received
from the sale of Units in the private placement transactions that were initiated
in December 2004 and completed February 11, 2005.

                                       12


On June 17, 2005, the Company entered into a Securities  Purchase Agreement with
Xechem  pursuant to which the  Company  repurchased  2,886,563  shares of common
stock  from  Xechem,   for  a  purchase  price  of  $2,309,250.   As  additional
consideration,  William  Pursley,  the  Company's  Chairman and Chief  Executive
Officer,  agreed to surrender  options to purchase  43,000,000  shares of common
stock of Xechem for which the Company  recorded as a contribution to capital and
which was included in the cost of the treasury stock.  Xechem  retained  500,000
shares of common  stock of the  Company  but agreed that it would only sell such
shares subject to the volume  restrictions of Rule 144, regardless of whether or
not  such  volume   limitations  are  applicable  at  the  time  of  such  sale.
Additionally,   the  Securities   Purchase  Agreement   terminated  the  Spinoff
Agreement.

The  Company  accounted  for its  redemptions  of the  aforementioned  shares as
treasury  stock  transactions,  at cost.  Effective  June 17, 2005,  the Company
retired  the  shares  of common  stock it held in  treasury  acquired  under the
Variable  Shares Put Right and  purchased  pursuant to the  Securities  Purchase
Agreement.

NOTE 8 - CONVERTIBLE NOTES

Pursuant to an offer dated October 22, 2004 as amended  November 15, 2004,  made
to the holders of the Company's convertible notes, the Company issued $1,111,240
of its convertible  notes due December 8, 2005 which are convertible into shares
of the  Company's  common  stock at $1.25  per  share  in  amounts  equal to the
outstanding  principal under the notes  cancelled,  plus accrued interest at 10%
through the date of conversion (the "Convertible  Notes").  Since the fair value
of the Company's  common stock on the date of exchange was $2.50 per share,  the
Company recorded an original issuance discount equal to the principal balance of
the notes,  which  represents the intrinsic value of this beneficial  conversion
feature.  The intrinsic  value of the  beneficial  conversion  feature was being
amortized as non-cash  interest  expense over the term of the Convertible  Notes
through  December 8, 2005.  During the three-month and nine-month  periods ended
September 30, 2005, the Company amortized $32,116 and $254,460, respectively, of
the intrinsic  value of the beneficial  conversion  feature which is included in
non-cash interest expense in the accompanying statement of operations.

In April 2005, the Company  renegotiated  certain terms of the Convertible Notes
(the  "Amended  Notes") to extend  the  maturity  date  until  July 3, 2006.  In
exchange the Company (1) increased the contractual  interest rate on the Amended
Notes  effective  December 8, 2005 to 12% and (2) reduced the conversion rate to
$0.75 from $1.25 per share. In addition, the Company's right to call the Amended
Notes was  eliminated.  The Company  accounted  for the  issuance of the Amended
Notes in  accordance  with the  guidelines  enumerated  in EITF Issue No.  96-19
"Debtor's  Accounting for a Modification or Exchange of Debt  Instruments." EITF
96-19  provides  that a  substantial  modification  of terms in an existing debt
instrument  should be accounted for like, and reported in the same manner as, an
extinguishment of debt. Further, EITF 96-19 indicates that the modification of a
debt  instrument by a debtor and a creditor in a non-troubled  debt situation is
deemed to have been  accomplished  with debt instruments that are  substantially
different if the present value of the cash flows under the terms of the new debt
instrument  is at least 10  percent  different  from  the  present  value of the
remaining  cash flows under the terms of the original  instrument at the date of
the modification.

The Company evaluated its issuance of the Amended Notes to determine whether the
increase in interest rate,  extension of the maturity date, and reduction in the
conversion  price  resulted in the issuance of a  substantially  different  debt
instrument.  The Company  determined  that after giving effect to the changes in
these features, including the substantial increase in the intrinsic value of the
beneficial  conversion  feature that resulted from reducing the conversion price
that it had issued a substantially  different debt instrument that resulted in a
constructive  extinguishment of the original debt instrument.  Accordingly,  the
Company recorded a gain on the  extinguishment of debt in the amount of $311,281
that is included in the accompanying statements of operations for the nine-month
period ended September 30, 2005.

Since the fair value of the Company's  common stock on the date of amendment was
$4.00 per share, the Company recorded an original issuance discount equal to the
intrinsic value of this beneficial conversion feature,  limited to the principal
balance of the Amended Notes.  The intrinsic value of the beneficial  conversion
feature is being  amortized  as non-cash  interest  expense over the term of the
Amended  Notes  through  July 3, 2006.  During the  three-month  and  nine-month
periods ended September 30, 2005, the Company  amortized  $186,007 and $343,708,
respectively,  of the intrinsic value of the beneficial conversion feature which
is  included in  non-cash  interest  expense in the  accompanying  statement  of
operations.

                                       13



NOTE 9 - COMMITMENTS AND CONTINGENCIES

MANUFACTURING AND SUPPLY AGREEMENT Effective April 11, 2005, the Company entered
into an  exclusive  manufacture  and supply  agreement  to purchase  its product
requirements from Bachem. The Company intends to use these clinical materials to
conduct  pre-clinical  studies,  toxicology tests and human clinical trials. The
agreement also provides for Bachem to receive royalty  payments in the amount of
the lesser of 5% of "net sales" (as defined in the  agreement)  or $10  million,
$15  million or $25  million,  in the first,  second and third (and  thereafter)
years of the agreement,  respectively.  Through  September 30, 2005, the Company
has incurred  approximately  $3.9 million of costs to produce materials required
to complete  the  pre-clinical  and  toxicology  studies  necessary  to file its
investigational  new drug  application  and complete its initial human  clinical
trials.

Through  September  30,  2005,  the Company  has made  payments to Bachem in the
aggregate of approximately $2.5 million and as of September 30, 2005 the Company
has unpaid  amounts of  approximately  $1.3  million.  The  Company  charged the
aforementioned  amounts to research  and  development  expenses  during the year
ended December 31, 2004  (approximately  $0.8 million) and the nine-month period
ended September 30, 2005 (approximately $3.0 million).

The  Company  will need to spend  substantially  more in order to  complete  the
pre-clinical and toxicology studies and additional human trials in order to file
for approval to market its proposed product.

NOTE 10 - EQUITY TRANSACTIONS

During the  nine-month  period ended  September 30, 2005, the Company issued the
following securities.

PRIVATE PLACEMENT
On January 5, 2005 and January 18, 2005 the Company  held  closings  pursuant to
the terms of a Confidential Private Placement Memorandum dated October 22, 2004,
as supplemented  November 16, 2004 and received gross proceeds of $1,208,750 and
$1,906,250,  respectively,  from the sale of 48.35 and 76.25  Units to 75 and 34
investors,  respectively.  On January 31, 2005 and  February 3, 2005 the Company
held  additional  closings under the Private  Placement and sold an aggregate of
224.48 Units to 86 investors and received gross  proceeds of $5,612,000,  and on
February 11, 2005 sold 17.50 Units to 4 investors and received gross proceeds of
$437,500.  Each Unit  consists  of one share of Series A  Preferred  Stock and a
three-year  warrant to purchase common stock, par value $0.0001 per share of the
Company  at  $2.50  per  share.  Each  share  of  Series  A  Preferred  Stock is
convertible  into 10,000  shares of common stock and each  warrant  entitles the
holder to purchase 5,000 shares of common stock.

The Company issued  warrants to purchase  1,832,900  shares of common stock as a
component of the Unit. The Company determined that the 366.58 shares of Series A
Preferred  Stock issued during the quarter ended March 31, 2005, was issued with
an  effective  beneficial  conversion  feature  for  which  it  recorded  deemed
dividends of $9,164,500 based upon an allocation of the proceeds to the relative
fair  values of the  Series A  Preferred  Stock and the  warrants.  The  Company
calculated the fair value of the warrants using an option pricing model.

Pursuant to the placement agent agreement,  the Company issued 150,000 shares of
common stock and  warrants to purchase up to an  aggregate of 366,580  shares of
common stock to the  placement  agent in connection  with the private  placement
transactions  closed  during the quarter  ended  March 31,  2005.  Each  warrant
entitles the  placement  agent to purchase the stated number of shares of common
stock at an  exercise  price of $1.25 per share and will expire five years after
its issue date.

The Company  accounts for the issuance of common stock purchase  warrants issued
in connection  with sales of its Units in accordance with the provisions of EITF
Issue No. 00-19 "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock".

The Company issued the  aforementioned  warrants with registration  rights which
provide, among other things, that the Company will file a registration statement
under the  Securities  Act on or  before a date  which is sixty  days  after the
closing  time.  The Company  filed a "resale"  registration  statement  with the
Securities  and Exchange  Commission  on February 11, 2005,  within the required

                                       14



timeframe.  Substantially  all of the Company's  warrants are exercisable by the
holders at any time irrespective of whether the registration  statement has been
declared  effective.  In addition,  the Company is not (and never is)  precluded
from delivering  unregistered stock to any warrant holder who elects to exercise
their  warrants  in the event that the  Company's  registration  statement  with
respect to the stock  issuable  pursuant to such  warrants has not been declared
effective.

Since the Company (i) is not precluded from issuing  unregistered  shares in the
event of its failure to cause a registration statement to be declared effective,
(ii) is  permitted  to net share  settle its  warrants  by issuing  unregistered
shares,  and (iii) has met all of the other  criteria for equity  classification
under  EITF  Issue  No.  00-19,   it  has  classified  its  warrants  as  equity
instruments.

COMMON STOCK ISSUED UPON CONVERSION OF SERIES A PREFERRED STOCK
During the nine month  period ended  September  30,  2005,  2,575,000  shares of
common stock were issued upon  conversion  of 257.5 shares of Series A Preferred
Stock.

ISSUANCES OF WARRANTS
On March 16,  2005,  as a result of an  amendment  to the private  placement  to
increase the maximum  offering  amount to $12.0 million from $6.0  million,  the
Company granted the original  shareholders of Medallion Crest  Management,  Inc.
five-year  warrants  to  purchase  925,000  shares of common  stock at $1.25 per
share.

On August 16, 2005, the Company issued  three-year  warrants to purchase 160,000
shares  of  common  stock  to  two  consulting  firms  for  previous   financial
assistance.  The Company  recorded a $180,800  charge to operations for the fair
value of these warrants.

OPTIONS AND WARRANTS GRANTED PURSUANT TO 2004 INCENTIVE STOCK PLAN
During  November 2004, the Company  granted an option to an employee to purchase
shares  of  common  stock  in an  amount  equal  to  1/2%  of its  common  stock
outstanding upon the closing of the Company's private placement. Pursuant to the
terms of the 2004  Incentive  Stock Plan under which these options were granted,
the options have an exercise price of $2.50 per share,  the fair market value on
the date of grant and such options vest over four years.  Upon completion of the
Company's  private  placement on February 11, 2005, the Company  determined that
78,195 shares of common stock were subject to this option. The Company accounted
for this option using  variable plan  accounting  in accordance  with APB No. 25
since the number of shares of common stock  subject to this option was not known
at the date of grant. Accordingly, the Company recorded deferred compensation of
$293,231  for the excess of the fair value of the common stock over the exercise
price of which $67,199 was amortized through September 30, 2005.

On  February  10,  2005,  the  Company  issued a  fully-vested,  non-forfeitable
five-year  warrant to purchase  37,500  shares of its common  stock at $6.50 per
share for 12,500  shares,  $8.00 per share for 12,500 shares and $9.50 per share
for 12,500 shares,  to an investor  relations firm for services  provided during
the  three-month  period ended March 31, 2005.  The Company's  common stock must
trade at or above  $8.00  per share  for ten  consecutive  days in order for the
holder to exercise their right to purchase the shares underlying the warrant. In
addition, if the Company's common stock trades at less than $0.67 per share, the
holder  of the  warrants  may  request  a buyout  of the  warrant  for a $10,000
payment. The Company recorded a $172,750 charge to operations for the fair value
of these warrants.

On February 11, 2005, the Company issued an option to purchase  12,000 shares of
its  common  stock for $6.25  per  share to one of its  directors.  The right to
exercise this option vests as to 25% on the six-month  anniversary of award,  as
to 25%  on the  one-year  anniversary  of  award  and as to 25% on  each  of the
two-year and three-year anniversaries of award.

On March 7, 2005,  the Company  issued a three-year  warrant to purchase  50,000
shares of its common stock at $4.75 per share to a financial  relations firm for
services  provided during March 2005. The Company  recorded a $205,500 charge to
operations for the fair value of this warrant.

                                       15



On March 7, 2005,  the Company  issued a three-year  warrant to purchase  15,000
shares of its common stock at $5.00 per share to a financial  relations firm for
services  provided  during March 2005. The Company  recorded a $61,650 charge to
operations for the fair value of this warrant.

On July 20, 2005, the Company issued an option to purchase  10,000 shares of its
common stock for $2.70 per share to one of its directors.  The right to exercise
this option vests as to 25% on the six-month  anniversary of award, as to 25% on
the  one-year  anniversary  of award and as to 25% on each of the  two-year  and
three-year anniversaries of award.

On August 15, 2005,  the Company  issued to an employee  upon hire, an option to
purchase 25,000 shares of its common stock for $1.71 per share, and such options
vest over four years.

On September 13, 2005,  the Company issued an option to purchase 2,000 shares of
its common stock for $1.02 per share to each of its two outside  directors.  The
right to exercise  this option vests as to 25% on the six-month  anniversary  of
award,  as to 25% on the one-year  anniversary of award and as to 25% on each of
the two-year and three-year anniversaries of award.

COMMON STOCK ISSUED UPON CASHLESS EXERCISE OF WARRANTS
On February 15, 2005, a warrant holder exercised their right to purchase 187,500
shares of the  Company's  common  stock at $3.05 per  share  through a  cashless
exercise  whereby in exchange  for the exercise  price of $571,875,  the Company
withheld from issuing  87,309  shares of common stock  issuable upon exercise of
this  warrant  based upon a fair market  value of $6.55 per share on the date of
exercise. Consequently, the Company issued 100,191 shares of common stock to the
warrant holder.

COMMON STOCK ISSUED IN PAYMENT OF LEGAL FEES
On January 10, 2005,  as payment for $70,000 of certain legal fees in connection
with its private placement,  the Company issued 23,000 shares of common stock to
its law firm.

COMMON STOCK ISSUED TO ADVISORS FOR PAST SERVICES
On February 11, 2005 the Company issued 2,500 shares of restricted  common stock
to a former  director and 5,000 shares of restricted  common stock to a director
of the Company as  compensation  for past  services to the Company.  The Company
recorded  a  $46,875  charge  to  operations  for the  intrinsic  value of these
restricted  shares of common stock. The  restrictions  lapse six months from the
date of issuance.

COMMON STOCK ISSUED UPON EXERCISE OF WARRANTS
On March 15, 2005, the Company issued 5,000 shares of common stock upon exercise
of a warrant at an exercise price of $1.25 per share.

COMMON STOCK ISSUED FOR FINANCIAL SERVICES
Pursuant to a letter  agreement  dated May 20, 2005,  the Company  issued 25,000
shares of common stock as initial compensation for financial consulting services
to be provided the Company.  The fair value of these  shares,  which  amounts to
$75,000 at date of issuance, was initially characterized as a prepaid expense in
the balance sheet at June 30, 2005,  and has been charged to  operations  during
the three-month period ended September 30, 2005.

Pursuant to a letter  agreement  dated  September 14, 2005,  the Company  issued
25,000 shares of common stock as initial  compensation for financial  consulting
services to be  provided  the  Company.  The fair value of these  shares,  which
amounts to $22,500 at date of issuance, is characterized as a prepaid expense in
the accompanying balance sheet at September 30, 2005.

TREASURY SHARES  ACQUIRED AND RETIRED  Pursuant to the Variable Shares Put Right
obligation   contained  in  the  Spinoff  Agreement  with  Xechem,  the  Company
repurchased   366,580  shares  of  its  common  stock  from  Xechem  during  the
three-month  period ended March 31, 2005. In addition,  pursuant to a Securities
Purchase Agreement entered into with Xechem effective June 17, 2005, the Company
repurchased  2,886,563  shares of its common stock from Xechem for $2,309,250 in
cash and the  forfeiture  of an option  held by the  Company's  Chief  Executive
Officer to  purchase  43 million  shares of common  stock of Xechem  with a fair
value of $424,818. The Company accounted for these share repurchases as treasury
stock transactions, at cost. Xechem retained 500,000 shares of common stock of

                                       16


the Company but agreed that it would only sell such shares subject to the volume
restrictions of Rule 144,  regardless of whether or not such volume  limitations
are applicable at the time of such sale.  Additionally,  the Securities Purchase
Agreement terminated the Spinoff Agreement.

Effective June 17, 2005, the Company retired all 3,398,213  shares of its common
stock held in treasury.

CONTINGENT CONSIDERATION
Pursuant to the terms of the acquisition of the Company by Xechem, Xechem agreed
to the future payment of additional  consideration  in shares of stock of Xechem
to the  original  shareholders  of the Company  upon the  attainment  of certain
defined  development  milestones.  In  connection  with the  Spinoff  Agreement,
substantially  all of the  obligations  for the issuance of shares as additional
consideration  to the original  shareholders of the Company have been assumed by
the Company, and Xechem has been released therefrom.

The Company  obtained  from  substantially  all of the original  shareholders  a
waiver of their rights with respect to the contingent  consideration and release
of the Company from its obligations thereunder and on July 20, 2005, the Company
issued a total of 100,000 shares in satisfaction of this obligation. The Company
recorded a $270,000  charge to operations  for the charge to operations  for the
fair value of these shares.

NOTE 11 - SUBSEQUENT EVENTS

COMMON STOCK ISSUED UPON CONVERSION OF SERIES A PREFERRED STOCK
Subsequent  to September  30, 2005,  the Company  issued 20,000 shares of common
stock upon conversion of 2 shares of Series A Preferred Stock.

LEGAL PROCEEDINGS
On July 26, 2005 Xmark  Opportunity  Fund, L.P. and Xmark Opportunity Fund, Ltd.
(collectively,  "Xmark") filed an action in the United States District Court for
the  Southern  District  of New York (No.  05-CV-6696)  against  the Company and
William  Pursley,  the Company's  Chief  Executive  Officer,  alleging breach of
contract,  breach  of the  implied  covenant  of good  faith  and fair  dealing,
detrimental  reliance,  and  quantum  meruit/unjust  enrichment  related  to the
Company's  registration of Common Stock to be offered for sale by the plaintiffs
and  seeking  damages  under  the  Securities  Exchange  Act of  1934,  specific
performance of  plaintiff's  subscription  agreement  entered into in connection
with the Company's  private  placement of  securities  completed on February 11,
2005, damages in an unspecified amount, punitive damages,  interest,  costs, and
expenses.  On  September  24,  2005,  Xmark  filed a  stipulation  and  order of
dismissal with prejudice dismissing the action.

STOCK  PURCHASE  AGREEMENT  - FUSION  CAPITAL On October  7, 2005,  the  Company
entered into a common stock purchase agreement ("Stock Purchase Agreement") with
Fusion Capital Fund II, LLC ("Fusion Capital"), pursuant to which Fusion Capital
has agreed,  under  certain  conditions as outlined  below,  to purchase on each
trading day $25,000 of the  Company's  common  stock up to an  aggregate,  under
certain  conditions,  of $20 million over a 40-month period,  subject to earlier
termination  at the  Company's  discretion.  If the market price of common stock
increases to certain levels, then in the Company's  discretion,  the Company may
elect to sell more common stock to Fusion Capital than the minimum daily amount.
The purchase  price of the shares of common stock will be calculated  based upon
the future  market price of the common stock  without any fixed  discount to the
market  price.  Fusion  Capital  does not have the  right or the  obligation  to
purchase  shares of common  stock in the event that the price of common stock is
less than $0.50 per share.  The Company is  required  to file and have  declared
effective a registration  statement with the SEC as a precondition to receipt of
any funds with respect to this  transaction.  There can be no assurance that the
SEC will declare any such registration statement effective. The inability of the
Company to obtain financing  through this or any other  transaction would have a
material adverse effect on the Company's  financial condition and its ability to
sustain operations.

Pursuant to the Stock Purchase  Agreement,  the Company issued 377,359 shares of
its common stock to Fusion  Capital and a warrant to purchase  377,359 shares of
common  stock at $0.01 per share which  expires  December  31, 2010 (the "Fusion
Warrant"), as an initial commitment fee and as an additional commitment fee, the
Company is obligated to issue to Fusion Capital an additional 754,717 shares, on
a pro rata basis,  once Fusion  Capital has  acquired its initial $10 million of
common stock.  These shares,  upon issuance,  will be accounted for at par value
with a corresponding charge to paid-in capital. In addition,  the Company issued
25,000  shares to Fusion  Capital as an expense  reimbursement.

The Company has reserved  6,534,435  shares of common stock for this transaction
consisting of 5,000,000 shares subject to purchase by Fusion Capital pursuant to
the  Stock  Purchase  Agreement,  the  377,359  shares  and the  377,359  shares
underlying the warrant issued as the initial commitment, 754,717 shares issuable
on a pro rata basis as an additional commitment fee and the 25,000 shares issued
as an expense reimbursement.

                                       17


Under the Stock  Purchase  Agreement,  on each  trading day,  Fusion  Capital is
obligated to purchase a specified  dollar amount of the Company's  common stock.
Subject to the Company's  right to suspend such  purchases at any time,  and its
right to terminate the Stock Purchase Agreement at any time, Fusion Capital will
purchase on each trading day during the term of the Agreement  $25,000 of common
stock.  This daily purchase  amount may be decreased by the Company at any time.
The Company  also has the right to  increase  the daily  purchase  amount at any
time,  provided  however,  it may not increase the daily  purchase  amount above
$25,000  unless the price of the common  stock is above $1.60 per share for five
consecutive  trading days.  Specifically,  for every $0.10 increase in Threshold
Price above  $1.50,  the Company  has the right to increase  the daily  purchase
amount by up to an additional  $2,500.  For example,  if the Threshold  Price is
$1.70, the Company would have the right to increase the daily purchase amount up
to an aggregate of $30,000.  The  "Threshold  Price" is the lowest sale price of
the  common  stock  during  the five  trading  days  immediately  preceding  the
Company's notice to Fusion Capital to increase the daily purchase amount.  If at
any time during any trading day the sale price of the common  stock is below the
Threshold  Price,  the applicable  increase in the daily purchase amount will be
void.

In  addition  to the daily  purchase  amount,  the  Company may elect to require
Fusion Capital to purchase on any single trading day,  common stock in an amount
up to  $250,000,  provided  that the price is above  $2.00  during the ten prior
trading  days.  The price at which such shares  would be  purchased  will be the
lowest purchase price during the previous fifteen trading days prior to the date
that such  purchase  notice was  received  by Fusion  Capital.  The  Company may
increase  this amount to $500,000 if its common stock share price is above $4.00
during the five trading  days prior to its  delivery of the  purchase  notice to
Fusion  Capital.  This amount may also be increased to up to  $1,000,000  if the
price of the common  stock is above $6.00  during the five trading days prior to
delivery  of the  purchase  notice to Fusion  Capital.  The  Company may deliver
multiple  purchase  notices;  however at least ten trading days must have passed
since the most recent non-daily purchase was completed.

The purchase price per share is equal to the lesser of:

    o     the lowest sale price of the common stock on the purchase date; or

    o     the  average of the three  lowest  closing  sale  prices of the common
          stock during the twelve consecutive  trading days prior to the date of
          a purchase by Fusion Capital.

The purchase  price will be adjusted for any  reorganization,  recapitalization,
non-cash dividend,  stock split, or other similar  transaction  occurring during
the trading  days in which the closing bid price is used to compute the purchase
price.  Fusion  Capital may not purchase  shares of common stock under the Stock
Purchase  Agreement  if Fusion  Capital,  together  with its  affiliates,  would
beneficially own more than 9.9% of the Company's common stock outstanding at the
time of the purchase by Fusion Capital. Fusion Capital has the right at any time
to sell any shares  purchased  under the Stock  Purchase  Agreement  which would
allow it to avoid the 9.9% limitation.

Under the Stock Purchase Agreement, the Company has set a minimum purchase price
("floor  price") of $0.50 per share.  Fusion Capital will not have the right nor
the  obligation  to  purchase  any shares of Common  Stock in the event that the
purchase price is less than the floor price.

The Company has the unconditional right to suspend purchases at any time for any
reason  effective upon one trading day's notice.  Any suspension  will remain in
effect until the Company's revocation of the suspension.

Generally, Fusion Capital may terminate the Stock Purchase Agreement without any
liability or payment to the Company upon the  occurrence of any of the following
events of default:

    o     the effectiveness of the registration  statement lapses for any reason
          (including,  without  limitation,  the issuance of a stop order) or is
          unavailable to Fusion  Capital for sale of the Company's  common stock
          and  such  lapse  or  unavailability  continues  for a  period  of ten
          consecutive  trading  days or for more  than an  aggregate  of  thirty
          trading days in any 365-day period;

    o     suspension by a principal  market of the  Company's  common stock from
          trading for a period of three consecutive trading days;

                                       18



    o     the de-listing of the Company's  common stock from a principal  market
          provided the common stock is not immediately thereafter trading on the
          Nasdaq National Market,  the Nasdaq National SmallCap Market,  the New
          York Stock Exchange or the American Stock Exchange;

    o     the transfer  agent's failure for five trading days to issue to Fusion
          Capital  shares of common  stock which  Fusion  Capital is entitled to
          under the Stock Purchase Agreement ;

    o     any material breach of the  representations or warranties or covenants
          contained in the Stock  Purchase  Agreement or any related  agreements
          which has or which could have a material adverse affect on the Company
          subject to a cure period of ten trading days;

    o     any  participation  or  threatened   participation  in  insolvency  or
          bankruptcy proceedings by or against the Company; or

    o     a material adverse change in the Company's business.

The  Company  has the  unconditional  right at any time for any  reason  to give
notice to Fusion Capital terminating the Stock Purchase  Agreement.  Such notice
shall be effective one trading day after Fusion Capital receives such notice.

Under the terms of the Stock  Purchase  Agreement  Fusion  Capital has  received
377,359 shares of the Company's  common stock and the Fusion Warrant to purchase
up to 377,359 shares of common stock as an initial commitment fee. In connection
with each  purchase of common  stock after  Fusion  Capital  has  purchased  $10
million of common stock, the Company will issue up to 754,717  additional shares
of  common  stock to Fusion  Capital  as an  additional  commitment  fee.  These
additional  shares will be issued pro rata based on the proportion that a dollar
amount  purchased  by Fusion  bears to the $10  million  amount  under the Stock
Purchase Agreement. Unless an event of default occurs, these shares must be held
and may not be  transferred  or sold by Fusion  Capital until 40 months from the
date of the Stock Purchase Agreement or the date the Stock Purchase Agreement is
terminated.

Until the  termination of the Stock Purchase  Agreement,  the Company has agreed
not to issue,  or enter into any agreement  with respect to the issuance of, any
variable priced equity or variable priced  equity-like  securities unless it has
obtained Fusion Capital's prior written consent.

For a period of 40 months from October 7, 2005,  the date of the Stock  Purchase
Agreement, the Company has granted to Fusion Capital the right to participate in
the purchase of any New Securities (as defined below) that the Company may, from
time to  time,  propose  to  issue  and sell in  connection  with any  financing
transaction to a third party.  In particular,  Fusion Capital may purchase up to
25% of such New Securities at the same price and on the same terms as such other
investor,  provided  that in any  single  transaction,  Fusion  Capital  may not
purchase in excess of $5,000,000.  "New  Securities"  means any shares of common
stock,  preferred stock or any other equity securities or securities convertible
or exchangeable for equity  securities of the Company.  New Securities shall not
include,  (i) shares of common stock issuable upon conversion or exercise of any
securities  outstanding  as of the date of the Stock  Purchase  Agreement , (ii)
shares,  options or warrants for common stock granted to the Company's officers,
directors or employees  pursuant to stock option plans  approved by its board of
directors,   (iii)  shares  of  common  stock  or  securities   convertible   or
exchangeable  for common stock  issued  pursuant to the  acquisition  of another
company by consolidation, merger, or purchase of all or substantially all of the
assets of such company or (iv) shares of common stock or securities  convertible
or  exchangeable  into  shares  of common  stock  issued  in  connection  with a
strategic  transaction  involving  the  Company  and  issued  to an entity or an
affiliate  of such entity that is engaged in the same or  substantially  related
business as the Company. Fusion Capital's rights shall not prohibit or limit the
Company from selling any securities so long as it makes the same offer to Fusion
PlacementCapital.

COMMON STOCK PURCHASE AGREEMENT - FOUNDERS' PLAN SHARES
The  Company   entered  into  a  stock  purchase   agreement  for  the  sale  of
approximately  265,600  shares of its common stock under its Founders'  Plan and
received $167,250 during October 2005.

                                       19



ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The following  discussion of our plan of operation should be read in conjunction
with our  Financial  Statements  and Notes thereto  appearing  elsewhere in this
document.

OVERVIEW

We are a development-stage  biopharmaceutical  company engaged in the discovery,
development,  and  commercialization of proprietary,  cell-targeted  therapeutic
products for the treatment of neuromuscular and neurodegenerative  diseases with
a focus on orphan diseases. An orphan disease is defined in the United States as
a serious or life-threatening  disease that affects less than 200,000 people and
for which no definitive  therapy  currently  exists. We are seeking to create an
efficient   orphan  drug  platform  by  taking  advantage  of  the  legislative,
regulatory and commercial  opportunities common to these rare diseases. Our plan
of operation is to focus on developing and commercializing  domestic orphan drug
candidates   internally,   while   working   to  partner   product   development
opportunities  for non-orphan  drug  candidates and foreign  opportunities  with
third parties.  Presently our  activities  primarily  include three  proprietary
products,  Myodur,  Neurodur  and  C-301.  In  pre-clinical  studies  Myodur has
demonstrated efficacy in muscular dystrophy,  Neurodur has demonstrated efficacy
in multiple sclerosis, and C-301 has demonstrated efficacy in epilepsy.

CAPITAL RESOURCES AND CASH REQUIREMENTS

In  February  2005,  we  completed  our private  placement  of an  aggregate  of
approximately  $12.8  million of  securities  (approximately  $9.2 million after
expenses of approximately $2.3 million and following the required  repurchase of
common stock for  approximately  $1.3 million from our former parent as required
by our spinoff  agreement) through the sale of 511.65 Units at $25,000 per unit,
with  each  Unit  consisting  of one  share of  Series A  Preferred  Stock and a
detachable transferable,  three-year warrant to purchase shares of common stock.
Each share of Series A  Preferred  Stock is  convertible  initially  into 10,000
shares of common  stock at any time.  The Unit  warrants  entitled the holder to
purchase  5,000 shares of common stock  during the  three-year  period after the
date of issuance, at an exercise price of $2.50 per share.

In addition to 511,650 shares of Common Stock  repurchased  from Xechem pursuant
to our spinoff  agreement for  approximately  $1.3 million,  on June 17, 2005 we
elected  to  repurchase  an   additional   2,886,563   shares  from  Xechem  for
approximately  $2.3  million  which  reduced  the  number of shares  issued  and
outstanding at a per share price significantly below market value.

In April 2005 we entered  into a  manufacture  and supply  agreement  to provide
materials for both our pre-clinical  and toxicology  studies and to initiate and
complete our human clinical trials for our proposed  product,  Myodur,  to treat
muscular  dystrophy.  We do not have  sufficient  capital  to  purchase  all the
materials necessary to complete our long-term  toxicology studies or to complete
all of our human  clinical  trials in order to file for  approval  to market our
proposed  product,   Myodur.  In  addition,   our  planned  activities  for  the
foreseeable future will require us to engage additional consultants and contract
research  organizations  to  support  our  clinical  development  programs,  and
additional  personnel,  including  management,  with  expertise in areas such as
preclinical testing,  clinical trial design and management,  regulatory affairs,
manufacturing  and  marketing.  We will  need to  raise  substantial  additional
capital for these purposes and to continue funding the development of Myodur and
our other  products.  In the  absence  of the  availability  of  financing  from
additional  sales of our  securities  on a timely  basis,  we could be forced to
materially curtail, limit, or cease our operations.

After giving effect to our  repurchase of shares of our common stock from Xechem
and the  additional  commitments  associated  with our planned  activities,  our
current  capital  resources  are not  sufficient  to  allow  us to  execute  our
development plans without raising  substantial  additional funds. Theses matters
raise substantial doubt about our ability to continue as a going concern.

We  continue  to seek  additional  capital  through  equity and debt  offerings,
collaborative  partnerships,  joint ventures and strategic alliances both within
the United States and abroad in an effort to accelerate  the  development of our
proposed  products.  Subsequent  to  September  30, 2005,  we initiated  several
programs to address our  liquidity  situation.  We entered  into a common  stock

                                       20



purchase agreement with Fusion Capital Fund II, LLC ("Fusion Capital"), pursuant
to which Fusion  Capital has agreed,  under certain  conditions,  to purchase on
each  trading  day  $25,000 of the our common  stock up to an  aggregate,  under
certain  conditions,  of $20 million over a 40-month period,  subject to earlier
termination  at our  discretion.  We are  required  to file  and  have  declared
effective a registration  statement with the SEC as a precondition to receipt of
any funds with respect to this  transaction.  There can be no assurance that the
SEC will declare any such  registration  statement  effective.  Our inability to
obtain  financing  through this or any other  transaction  would have a material
adverse  effect on our  financial  condition  and our  ability  to  sustain  its
operations.

To address our short term liquidity  shortage,  we entered into a stock purchase
agreement  for the sale of  approximately  265,600  shares of our  common  stock
available under our Founders' Plan and received $167,250 during October 2005. In
addition,  we entered into a letter  agreement  with a placement  agent to raise
capital on a best efforts basis.

There can be no assurance that our plans to obtain additional  financing to fund
operations  will be  successful  or that the  successful  implementation  of the
business plan will actually  improve our operating  results.  If these financing
programs  are not  successful  in raising  the capital we require to execute our
development  plans,  it may be necessary to curtail,  or cease entirely our plan
operations.

RESEARCH, DEVELOPMENT, AND MANUFACTURING

Currently our primary  efforts are moving our lead product,  Myodur,  into phase
I/II  clinical  trials for  Duchenne's  muscular  dystrophy.  We plan to use our
available cash to continue the  pre-clinical  development  of our  technologies,
which  primarily  includes the  manufacture of Myodur,  conducting  pre-clinical
tests and  toxicology  studies,  compiling,  drafting and  submitting an IND for
Myodur,  and preparing for  initiation  of Phase I/II human  clinical  trials in
2006,  if approved by the Food and Drug  Administration  ("FDA").  As  resources
permit,  we may also fund other working  capital needs.  We presently  expect to
submit our  investigational  new drug  application  ("IND")  for  Myodur  during
January 2006, and initiate our human clinical trials early in the second quarter
of 2006.

We do not have, and do not intend to establish, our own manufacturing facilities
to produce ours product  candidates in the near or mid-term.  We outsourced  the
manufacturing of our proposed  product,  Myodur, to contract  manufacturers.  On
April 18, 2005, we entered into an exclusive  manufacture  and supply  agreement
with Bachem AG  ("Bachem")  whereby  Bachem is, in  addition  to cash  payments,
entitled to receive  royalty  payments in the amount of the lesser of 5% of "net
sales" (as defined in the agreement) or $10 million,  $15 million or $25 million
in the  first,  second  and  third  (and  thereafter)  years  of the  agreement,
respectively. During the nine-month period ended September 30, 2005, we incurred
approximately  $3.0  million for the costs of the  proposed  product and related
materials of which  approximately  $1.3 million remains unpaid.  As of September
30, 2005, we have  sufficient  materials  for our  pre-clinical  and  toxicology
programs in support of our IND and our initial  human  clinical  trials.  We may
incur  significant  expenditures  for the  next  twelve  months  for the cost to
manufacture  our proposed  product in order to execute  additional  clinical and
other toxicology testing.

EMPLOYEES

As of  November  14,  2005,  we had ten  full-time  employees,  all of whom  are
full-time  employees,  one of  whom  focuses  on and  coordinates  our  research
program,  five that focus on and coordinate clinical and regulatory strategy and
operations, one in business and corporate development,  and three in management,
finance,  and administration.  Three of our employees have doctorate and/or M.D.
degrees.  As our current business strategy is primarily to coordinate  research,
clinical developments,  and manufacturing activities by third parties, we do not
anticipate  hiring a significant  number of additional  employees  over the next
twelve months.

PROPERTIES

We currently lease our executive offices in Hunt Valley,  Maryland consisting of
approximately 5,200 square feet for approximately $6,500 per month, subject to a
3% annual rent escalation clause. This lease expires on December 31, 2006 and we
believe it should provide  sufficient  space for our clinical,  regulatory,  and
other administrative functions during the remaining term of the lease.

                                       21



We plan to expand and secure laboratory facilities for our own internal research
activities.  Suitable laboratory facilities have been identified and efforts are
underway to negotiate the lease and purchase of research equipment  necessary to
continue our internal research activities.  We are currently conducting research
in various  third-party  commercial  and academic  settings.  Our plans  include
continuing  this  practice  in  addition  to  expanding  the use of  third-party
research organizations and facilities to meet specific needs.

ITEM 3.       CONTROLS AND PROCEDURES.

EVALUATION OF OUR DISCLOSURE CONTROLS AND INTERNAL CONTROLS

As of the end of the period covered by this Report, we carried out an evaluation
of the effectiveness of the design and operation of our disclosure  controls and
procedures  (as defined in Securities  Exchange Act of 1934 Rule  13-d-15(e) and
15d-15(e)).  Based  upon that  evaluation  and  management's  assessment  of the
potential effects of the material weakness  described below, our Chief Executive
Officer and Chief Financial Officer,  concluded that as of the end of the period
covered by this Report, our disclosure  controls and procedures were adequate to
enable us to record,  process,  summarize and report information  required to be
included in our periodic SEC filings within the required time period.

DISCLOSURE CONTROLS AND INTERNAL CONTROLS

Disclosure  controls  are  procedures  that are designed  with the  objective of
ensuring  that  information  required to be disclosed in our reports filed under
the  Securities  Exchange  Act of 1934,  as  amended,  such as this  Report,  is
recorded, processed,  summarized, and reported within the time periods specified
in the SEC's rules and forms.  Disclosure  controls are also  designed  with the
objective of ensuring that such  information is accumulated and  communicated to
our  management,  including  our Chief  Executive  Officer  and Chief  Financial
Officer,   as  appropriate,   to  allow  timely  decisions   regarding  required
disclosure.  Internal  controls  are  procedures  which  are  designed  with the
objective of providing  reasonable  assurance that our transactions are properly
authorized,  recorded,  and  reported  and our  assets are  safeguarded  against
unauthorized  or improper  use, and to permit the  preparation  of our financial
statements in conformity with generally accepted accounting principles.

Our company is not an  "accelerated  filer" (as defined in the Exchange Act) and
is not required to deliver  management's  report on control  over our  financial
reporting  until our fiscal  year ended  December  31,  2006.  Nevertheless,  we
consider the effectiveness of our internal controls over financial  reporting as
part of the quarterly evaluations of our procedures. In connection therewith, we
reported,  for the year ended  December  31, 2004 and through the quarter  ended
June 30, 2005, that we identified  certain matters that we believed  constituted
material weaknesses (as such term is defined under the Public Company Accounting
Oversight Board Auditing Standard No. 2) in our internal controls over financial
reporting.  The first such  material  weakness  related to our ability to ensure
that the accounting for our  equity-based  transactions is accurate and complete
and the second related to our limited segregation of duties.

With respect to the first material weakness,  we have adopted a policy of having
our Chief  Financial  Officer  review all of our  agreements  to ensure  that we
identify the  applicable  accounting  treatments  to evaluate any areas that may
involve the application of highly specialized  accounting  principles including,
but not necessarily  limited to, complex equity  transactions.  In circumstances
where we may become (or contemplate becoming) a party to transactions that would
involve the  application  of  accounting  principles  in which our  expertise is
limited, we would engage the services of outside specialists,  if necessary.  At
the current time however, we believe that we have gained  substantially  greater
experience  in these areas and that our  procedures  would  enable us to resolve
such issues within time frames needed to comply with our reporting obligations.

                                       22


With respect to the second material  weakness,  which relates to our segregation
of duties, we have re-evaluated our procedures and believe that due to our small
number of employees  (most of whom have  limited or no access to Company  assets
and/or  records that would  affect our  financial  reporting)  that our risks of
either  material  misstatement  or  misappropriation  of assets is  minimal.  In
addition,  substantially  all of our general  and  administrative  expenses  and
scientific research  expenditures are reviewed and approved by employees who are
knowledgeable  of those matters.  To date our procedures have also enabled us to
comply with our financial reporting  obligations within the time frames required
by the SEC.  Although  we  believe  our risks with  respect  to this  matter are
minimal,  we still  acknowledge  that it would be beneficial  for the Company to
segregate certain  procedures to a greater number of employees.  We believe that
our limited segregation of duties still constitutes a material deficiency in our
system.  However,  we currently  have  limited  financial  resources  and do not
believe that at this time,  it would be prudent for us to further  constrain our
liquidity by allocating resources to hiring additional employees as a corrective
measure.  We believe that the costs we would incur to increase our staff (solely
for this purpose) exceed the potential  reduction in risk. Our senior management
team is monitoring this situation to determine if these circumstances change. If
the situation changes and sufficient capital is secured,  it is our intention to
increase staffing within our general accounting and financial functions.

Other than our adoption of a policy of having our Chief Financial Officer evaluate
all proposed agreements for the purpose of identifying any applicable accounting
matters, particularly those that may involve accounting for equity transactions,
there have been no changes in our internal  controls  over  financial  reporting
during our most  recent  fiscal  quarter  that has  materially  affected,  or is
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.

                                     PART II
                                OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS

On July 26, 2005 Xmark  Opportunity  Fund, L.P. and Xmark Opportunity Fund, Ltd.
(collectively,  "Xmark") filed an action in the United States District Court for
the  Southern  District  of New York (No.  05-CV-6696)  against  our company and
William  Pursley,  our Chief  Executive  Officer,  alleging  breach of contract,
breach of the  implied  covenant  of good  faith and fair  dealing,  detrimental
reliance,  and quantum  meruit/unjust  enrichment related to our registration of
Common Stock to be offered for sale by the plaintiffs and seeking  damages under
the  Securities  Exchange  Act of  1934,  specific  performance  of  plaintiff's
subscription  agreement entered into in connection with our private placement of
securities  completed on February 11, 2005,  damages in an  unspecified  amount,
punitive damages,  interest,  costs, and expenses.  On September 24, 2005, Xmark
filed a stipulation and order of dismissal with prejudice dismissing the action.

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

During  the  period  covered by this  Report,  we have not  issued  unregistered
securities which have not been "previously reported" as defined in Rule 12b-2 of
the Exchange Act.

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

Not applicable.

                           FORWARD-LOOKING STATEMENTS

This Quarterly  Report on Form 10-QSB  contains  forward-looking  statements (as
defined in Section 27A of the  Securities  Act and Section 21E of the Securities
Exchange Act of 1934 (the  "Exchange  Act").  To the extent that any  statements
made in this Report contain information that is not historical, these statements
are essentially forward-looking. Forward-looking statements can be identified by
the use of  words  such as  "expects,"  "plans"  "will,"  "may,"  "anticipates,"
believes," "should," "intends," "estimates," and other words of similar meaning.
These statements are subject to risks and uncertainties that cannot be predicted
or quantified and consequently,  actual results may differ materially from those

                                       23



expressed  or  implied  by  such  forward-looking  statements.  Such  risks  and
uncertainties  include,  without  limitation,  our  ability to raise  capital to
finance the development of our products,  the  effectiveness,  profitability and
the  marketability  of those  products,  our ability to protect our  proprietary
information,   general   economic  and  business   conditions,   the  impact  of
technological  developments and competition,  including entry of newly-developed
alternative drug technologies,  our expectations and estimates concerning future
financial  performance  and  financing  plans,  adverse  results  of  any  legal
proceedings, the impact of current, pending or future legislation and regulation
on the  healthcare  industry,  our ability to satisfy  government and commercial
customers   using  our   technology,   our  ability  to  develop   manufacturing
capabilities or the inability to enter into acceptable relationships with one or
more contract  manufacturers for our products and key components and the ability
of such  contract  manufacturers  to  manufacture  products or  components of an
acceptable  quality on a  cost-effective  basis, the volatility of our operating
results and  financial  condition,  our  ability to attract or retain  qualified
senior  management  personnel,  including  sales and  marketing  and  scientific
personnel  and other risks  detailed  from time to time in our filings  with the
SEC. We do not undertake any obligation to publicly  update any  forward-looking
statements.  As  a  result,  you  should  not  place  undue  reliance  on  these
forward-looking statements.

We also use market data and industry  forecasts and projections  throughout this
prospectus,  which we have obtained  from market  research,  publicly  available
information and industry  publications.  These sources  generally state that the
information they provide has been obtained from sources believed to be reliable,
but that the accuracy and  completeness  of the  information are not guaranteed.
The forecasts and projections  are based on industry  surveys and the preparers'
experience  in the  industry,  and the  projected  amounts may not be  achieved.
Similarly,  although we believe that the surveys and market research others have
performed are reliable,  we have not  independently  verified this  information.
Forecasts and other forward-looking  information obtained from these sources are
subject to the same qualifications and the additional uncertainties accompanying
any estimates of future market size,  revenue and market  acceptance of products
and services.

ITEM 6.       EXHIBITS

Exhibit
Number             Description
------             -----------

   2.1             Certificate  of  Ownership  and Merger of CepTor  Corporation
                   into CepTor Research and Development Company (incorporated by
                   reference  herein to  Exhibit  2.1 to the  Company's  Current
                   Report on Form 8-K dated  January 31, 2005 (the "January 2005
                   8-K"))

   3.1             Amended and  Restated  Certificate  of  Incorporation,  dated
                   January 27, 2005 (incorporated herein by reference to Exhibit
                   3.1 to the January 2005 8-K)

   3.2             Certificate of Correction to Amended and Restated Certificate
                   of Incorporation (incorporated herein by reference to Exhibit
                   3.1 to the  Company's  Current  Report  on  Form  8-K,  dated
                   February 10, 2005)

   3.3             Amended  and  Restated   By-laws   (incorporated   herein  by
                   reference to Exhibit 3.2 to the January 2005 8-K)

   4.1             Form of  Common  Stock  Certificate  (incorporated  herein by
                   reference to Exhibit 4.1 to the  Company's  Annual  Report on
                   Form 10-KSB for the fiscal year ended  December 31, 2004 (the
                   "2004 10-KSB"))

   4.2             CepTor   Agreement,   dated  March  31,  2004  (the   "CepTor
                   Agreement"),  by and among  William  Pursley,  Xechem and the
                   Company  (incorporated  herein by reference to Exhibit 4.1 to
                   the Company's  Current  Report on Form 8-K, dated December 9,
                   2004 (the "2004 Form 8-K"))

   4.3             First Amendment to CepTor Agreement effective April 23, 2004,
                   by  and  among  William  Pursley,   the  Company  and  Xechem
                   (incorporated  herein by reference to Exhibit 4.2 to the 2004
                   8-K)

   4.4             Second Amendment to CepTor Agreement, dated December 9, 2004,
                   by  and  among  William  Pursley,   the  Company  and  Xechem
                   (incorporated by reference to Exhibit 4.3 to the 2004 8-K)

   4.6             Form of Unit  Warrant  (incorporated  by reference to Exhibit
                   4.4 to the Company's  Registration  Statement on Form SB-2 as
                   filed with the SEC on February 11, 2005 (the "Form SB-2"))

                                       24



   4.7             Form of Amended  and  Restated  Convertible  Promissory  Note
                   (incorporated  herein by reference to Exhibit 4.7 to the 2004
                   10-KSB)

   4.9             Form  of  Subscription  Agreement   (incorporated  herein  by
                   reference to Exhibit 4.6 to the Form SB-2)

  4.10             Securities  Purchase  Agreement,  dated June 17,  2005 by and
                   between the Company, Xechem and William Pursley (incorporated
                   herein by reference to Exhibit 99.01 to the Company's Current
                   Report on Form 8-K filed on June 20, 2005)

   4.11            Common  Stock  Purchase  Agreement,  dated  October  7, 2005,
                   between  the  Company  and  Fusion   Capital   Fund  II,  LLC
                   ("Fusion")  (incorporated herein by reference to Exhibit 10.1
                   to the Company's  Current  Report on Form 8-K,  filed October
                   11, 2005 (the "October 2005 8-K"))

   4.12            Registration Rights Agreement, dated October 7, 2005, between
                   the Company and Fusion  (incorporated  herein by reference to
                   Exhibit 4.2 to the October 2005 8-K)

   4.13            Common  Stock  Warrant  with  Fusion,  dated  October 7, 2005
                   (incorporated  by  reference  herein  to  Exhibit  4.1 to the
                   October 2005 8-K)

   4.14            Agreement between the Company and Brown Advisory  Securities,
                   LLC, dated May 20, 2005 (incorporated  herein by reference to
                   Exhibit 4.1 to the Company's  Registration  Statement on Form
                   SB-2 as filed with the SEC on October 17, 2005 (the  "October
                   2005 SB-2")

  10.1             Employment  Agreement,  dated March 31, 2004,  by and between
                   William H.  Pursley and the Company  (incorporated  herein by
                   reference to Exhibit 10.1 to the Form SB-2)

  10.2             Employment  Agreement,  dated April 26, 2004,  by and between
                   Norman A. Barton,  M.D., Ph.D. and the Company  (incorporated
                   herein by reference to Exhibit 10.2 to the Form SB-2)

  10.3             Employment  Agreement,  dated March 31, 2004,  by and between
                   Donald W.  Fallon  and the  Company  (incorporated  herein by
                   reference to Exhibit 10.3 to the Form SB-2)

  10.5             Amended and Restated Founders' Plan  (incorporated  herein by
                   reference to Exhibit 10.5 to the 2004 10-KSB)

  10.6             2004 Incentive Stock Plan  (incorporated  herein by reference
                   to Exhibit 10.6 to Form SB-2)

  10.7             Deferred Stock Plan for Non-Employee Directors under the 2004
                   Incentive  Stock Plan  (incorporated  herein by  reference to
                   Exhibit 10.7 to the 2004 10-KSB)

  10.8             Sublease  Agreement,  dated March 4, 2004, by and between the
                   Company   and   Millennium    Inorganic    Chemicals,    Inc.
                   (incorporated herein by reference to Exhibit 10.7 to the Form
                   SB-2)

  10.9             Exclusive  License  Agreement,   dated  September  15,  2004,
                   between  the Company and JCR  Pharmaceuticals  Company,  Ltd.
                   (incorporated herein by reference to Exhibit 10.8 to the Form
                   SB-2)

  10.10            Indemnification  Agreement,  dated  October 6,  2005,  by and
                   between  William H.  Pursley  and the  Company  (incorporated
                   herein by reference to Exhibit 10.9 to the October 2005 SB-2)

  10.11            Indemnification  Agreement,  dated  October 6,  2005,  by and
                   between Norman W. Barton and the Company (incorporated herein
                   by reference to Exhibit 10.10 to the October 2005 SB-2)

  10.12            Indemnification  Agreement,  dated  October 6,  2005,  by and
                   between Donald W. Fallon and the Company (incorporated herein
                   by reference to Exhibit 10.11 to the October 2005 SB-2)

  10.13            Indemnification Agreement, dated June 1, 2004, by and between
                   Leonard  A.  Mudry and the  Company  (incorporated  herein by
                   reference to Exhibit 10.12 to the October 2005 SB-2)

  10.14            Manufacture and Supply Agreement entered into as of April 18,
                   2005 by and among  Peninsula  Laboratories  Inc.,  Bachem AG,
                   Bachem  Americas and the Company  (incorporated  by reference
                   herein to Exhibit 10.14 to the Company's  Quarterly Report on
                   Form 10-QSB for the quarter ended March 31, 2005)

                                       25


  31.1*            Section 302 Certification of Principal Executive Officer

  31.2*            Section 302 Certification of Principal Financial Officer

  32.1*            Section 906 Certification of Principal Executive Officer

  32.2*            Section 906 Certification of Principal Financial Officer
-----------------
* Filed herewith.

                                       26



                                   SIGNATURES

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

                                            CEPTOR CORPORATION


Dated: November 15, 2005                    By: /s/ William H. Pursley
                                                ------------------------------
                                            William H. Pursley
                                            Chairman and Chief Executive Officer
                                            (Principal Executive Officer)


Dated: November 15, 2005                    By: /s/ Donald W. Fallon
                                                --------------------------------
                                            Donald W. Fallon
                                            Chief Financial Officer, Senior Vice
                                            President, Finance and Administration
                                            and Secretary (Principal Financial
                                            Officer and Principal Accounting
                                            Officer)

                                       27



                                 EXHIBIT INDEX

Exhibit
Number             Description
------             -----------

   2.1             Certificate  of  Ownership  and Merger of CepTor  Corporation
                   into CepTor Research and Development Company (incorporated by
                   reference  herein to  Exhibit  2.1 to the  Company's  Current
                   Report on Form 8-K dated  January 31, 2005 (the "January 2005
                   8-K"))

   3.1             Amended and  Restated  Certificate  of  Incorporation,  dated
                   January 27, 2005 (incorporated herein by reference to Exhibit
                   3.1 to the January 2005 8-K)

   3.2             Certificate of Correction to Amended and Restated Certificate
                   of Incorporation (incorporated herein by reference to Exhibit
                   3.1 to the  Company's  Current  Report  on  Form  8-K,  dated
                   February 10, 2005)

   3.3             Amended  and  Restated   By-laws   (incorporated   herein  by
                   reference to Exhibit 3.2 to the January 2005 8-K)

   4.1             Form of  Common  Stock  Certificate  (incorporated  herein by
                   reference to Exhibit 4.1 to the  Company's  Annual  Report on
                   Form 10-KSB for the fiscal year ended  December 31, 2004 (the
                   "2004 10-KSB"))

   4.2             CepTor   Agreement,   dated  March  31,  2004  (the   "CepTor
                   Agreement"),  by and among  William  Pursley,  Xechem and the
                   Company  (incorporated  herein by reference to Exhibit 4.1 to
                   the Company's  Current  Report on Form 8-K, dated December 9,
                   2004 (the "2004 Form 8-K"))

   4.3             First Amendment to CepTor Agreement effective April 23, 2004,
                   by  and  among  William  Pursley,   the  Company  and  Xechem
                   (incorporated  herein by reference to Exhibit 4.2 to the 2004
                   8-K)

   4.4             Second Amendment to CepTor Agreement, dated December 9, 2004,
                   by  and  among  William  Pursley,   the  Company  and  Xechem
                   (incorporated by reference to Exhibit 4.3 to the 2004 8-K)

   4.6             Form of Unit  Warrant  (incorporated  by reference to Exhibit
                   4.4 to the Company's  Registration  Statement on Form SB-2 as
                   filed with the SEC on February 11, 2005 (the "Form SB-2"))

   4.7             Form of Amended  and  Restated  Convertible  Promissory  Note
                   (incorporated  herein by reference to Exhibit 4.7 to the 2004
                   10-KSB)

   4.9             Form  of  Subscription  Agreement   (incorporated  herein  by
                   reference to Exhibit 4.6 to the Form SB-2)

  4.10             Securities  Purchase  Agreement,  dated June 17,  2005 by and
                   between the Company, Xechem and William Pursley (incorporated
                   herein by reference to Exhibit 99.01 to the Company's Current
                   Report on Form 8-K filed on June 20, 2005)

   4.11            Common  Stock  Purchase  Agreement,  dated  October  7, 2005,
                   between  the  Company  and  Fusion   Capital   Fund  II,  LLC
                   ("Fusion")  (incorporated herein by reference to Exhibit 10.1
                   to the Company's  Current  Report on Form 8-K,  filed October
                   11, 2005 (the "October 2005 8-K"))

   4.12            Registration Rights Agreement, dated October 7, 2005, between
                   the Company and Fusion  (incorporated  herein by reference to
                   Exhibit 4.2 to the October 2005 8-K)

   4.13            Common  Stock  Warrant  with  Fusion,  dated  October 7, 2005
                   (incorporated  by  reference  herein  to  Exhibit  4.1 to the
                   October 2005 8-K)

   4.14            Agreement between the Company and Brown Advisory  Securities,
                   LLC, dated May 20, 2005 (incorporated  herein by reference to
                   Exhibit 4.1 to the Company's  Registration  Statement on Form
                   SB-2 as filed with the SEC on October 17, 2005 (the  "October
                   2005 SB-2")

  10.1             Employment  Agreement,  dated March 31, 2004,  by and between
                   William H.  Pursley and the Company  (incorporated  herein by
                   reference to Exhibit 10.1 to the Form SB-2)

  10.2             Employment  Agreement,  dated April 26, 2004,  by and between
                   Norman A. Barton,  M.D., Ph.D. and the Company  (incorporated
                   herein by reference to Exhibit 10.2 to the Form SB-2)



  10.3             Employment  Agreement,  dated March 31, 2004,  by and between
                   Donald W.  Fallon  and the  Company  (incorporated  herein by
                   reference to Exhibit 10.3 to the Form SB-2)

  10.5             Amended and Restated Founders' Plan  (incorporated  herein by
                   reference to Exhibit 10.5 to the 2004 10-KSB)

  10.6             2004 Incentive Stock Plan  (incorporated  herein by reference
                   to Exhibit 10.6 to Form SB-2)

  10.7             Deferred Stock Plan for Non-Employee Directors under the 2004
                   Incentive  Stock Plan  (incorporated  herein by  reference to
                   Exhibit 10.7 to the 2004 10-KSB)

  10.8             Sublease  Agreement,  dated March 4, 2004, by and between the
                   Company   and   Millennium    Inorganic    Chemicals,    Inc.
                   (incorporated herein by reference to Exhibit 10.7 to the Form
                   SB-2)

  10.9             Exclusive  License  Agreement,   dated  September  15,  2004,
                   between  the Company and JCR  Pharmaceuticals  Company,  Ltd.
                   (incorporated herein by reference to Exhibit 10.8 to the Form
                   SB-2)

  10.10            Indemnification  Agreement,  dated  October 6,  2005,  by and
                   between  William H.  Pursley  and the  Company  (incorporated
                   herein by reference to Exhibit 10.9 to the October 2005 SB-2)

  10.11            Indemnification  Agreement,  dated  October 6,  2005,  by and
                   between Norman W. Barton and the Company (incorporated herein
                   by reference to Exhibit 10.10 to the October 2005 SB-2)

  10.12            Indemnification  Agreement,  dated  October 6,  2005,  by and
                   between Donald W. Fallon and the Company (incorporated herein
                   by reference to Exhibit 10.11 to the October 2005 SB-2)

  10.13            Indemnification Agreement, dated June 1, 2004, by and between
                   Leonard  A.  Mudry and the  Company  (incorporated  herein by
                   reference to Exhibit 10.12 to the October 2005 SB-2)

  10.14            Manufacture and Supply Agreement entered into as of April 18,
                   2005 by and among  Peninsula  Laboratories  Inc.,  Bachem AG,
                   Bachem  Americas and the Company  (incorporated  by reference
                   herein to Exhibit 10.14 to the Company's  Quarterly Report on
                   Form 10-QSB for the quarter ended March 31, 2005)

  31.1*            Section 302 Certification of Principal Executive Officer

  31.2*            Section 302 Certification of Principal Financial Officer

  32.1*            Section 906 Certification of Principal Executive Officer

  32.2*            Section 906 Certification of Principal Financial Officer
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* Filed herewith.`