----

----

| x   | Annual      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of      1934 for the fiscal year ended December 31, 2007  or |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | * | Transition      Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of      1934 for the transition period from __________ to    __________ |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   Delaware                                                               |            |                                            |       83-0221517    |
|------------------------------------------------------------------------------------|--------------------------------------------------------------|-------------------------------------------------|---------------------------------------------------|
|   (State      ofIncorporation)        |                      |                                            |    (I.R.S.      Employer I.D. No.) |
|                                                                               |                                                         |                                            |                                              |
|  2600 Stemmons      Freeway, Suite 176, Dallas,      TX                       |                                                         |        75207 |
|  (Address of      Principal Executive Offices)                      |                                                         |   (Zip      Code)                     |
|                                                                               |                                                         |                                            |                                              |
|                                                                               |                                                         |                                            |                                              |

----

|  Part    I                                              |                                                                                                 |  Page |
|--------------------------------------------------------------|------------------------------------------------------------------------------------------------------|------------|
|    Item    1.                       |  Description of      Business                                                                   |  2    |
|    Item 2.                               |  Description of      Property                                                                   |  28   |
|    Item      3.           |  Legal      Proceedings                                                                         |  28   |
|    Item      4.      |  Submission of      Matters to a Vote of Security Holders                                       |  28   |
|                                                         |                                                                                                 |       |
|  Part    II                                             |                                                                                                 |       |
| Item      5.                                       |  Market for      Common Equity and Related Stockholder Matters                                  |  30   |
| Item      7.                                            |  Management’s      Discussion and Analysis or Plan of Operation                           |  33   |
| Item      8.                             |  Financial      Statements                                                                      |  41   |
|          Item 9.                              |  Changes In and      Disagreements With Accountants on Accounting and Financial      Disclosure |  41   |
| Item      9A(T)                                              |  Controls and      Procedures                                                                   |  41   |
|          Item 9B.                             |  Other      Information                                                                         |  41   |
|                                                         |                                                                                                 |       |
|  Part    III                                            |                                                                                                 |       |
|    Item 10.                                   |  Directors,      Executive Officers, Promoters, Control Persons and Corporate      Governance;  |       |
|                                                         |  Compliance      With Section 16(A) of the Exchange Act                                    |  42   |
|    Item    11.                      |  Executive      Compensation                                                                    |  42   |
|    Item 12.                              |  Security      Ownership of Certain Beneficial Owners and Management andRelated                 |       |
|                                                         |  Stockholder      Matters                                                                       |  42   |
|    Item    13.                      |  Certain      Relationships and Related Transactions and Director Independence                  |  42   |
|    Item      14.               |  Principal      Accountant Fees and Services                                                    |  42   |
|    Item      15.          |   Exhibits                                                                       |  43   |
|                                                         |                                                                                                 |       |
|  Signatures                                             |                                                                                                 |  45   |

----

| ·   | MuGard™      is our approved product for the management of oral mucositis, a frequent      side-effect of cancer therapy for which there is no established treatment.      The market for mucositis treatment is estimated to be in excess of US$1      billion world-wide. MuGard, a proprietary nanopolymer formulation, has      received marketing allowance in the U.S. from the Food & Drug      Administration (“FDA”). |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our      lead development candidate for the treatment of cancer is ProLindac™, a      nanopolymer DACH-platinum prodrug. ProLindac is currently in a Phase 2      clinical trial being conducted in the EU in patients with ovarian cancer.      The DACH-platinum incorporated in ProLindac is the same active moiety as      that in oxaliplatin (Eloxatin; Sanofi-Aventis), which has sales in excess      of $2.0 billion. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Pre-clinical      development of Cobalamin™, our proprietary nanopolymer oral drug delivery      technology based on the natural vitamin B12 uptake mechanism. We are      currently developing a product for the oral delivery  of      insulin. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Pre-clinical      development of Angiolix®, a humanized monoclonal antibody which acts as an      anti-angiogenesis factor and is targeted to cancer cells, notably breast,      ovarian and colorectal cancers. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Pre-clinical      development of Prodrax®, a non-toxic prodrug which is activated in the      hypoxic zones of solid tumors to kill cancer  cells. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Pre-clinical      development of Alchemix®, a chemotherapeutic agent that combines multiple      modes of action to overcome drugresistance. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Pre-clinical      development of Cobalamin-mediated targeted  delivery. |
|--------------------|-------------------------------------------------------------------------|

| ·   | Phenylbutyrate      (“PB”), an HDAC inhibitor and a differentiating agent, is a Phase 2      clinical candidate  being developed in collaboration with Virium      Pharmaceuticals. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Compound                                                                     |   | Originator                            |   |  Technology                  |   | Indication |   | ClinicalStage (1)                       |
|------------------------------------------------------------------------------|--------|---------------------------------------|--------|-----------------------------------|--------|------------|--------|-----------------------------------------|
|                                                                         |   |                                  |   |                              |   |       |   |                                    |
| MuGard™                                                                |   | Access                                |   | Mucoadhesiveliquid                |   | Mucositis  |   | Marketing      clearance received  |
| ProLindacTM      (Polymer   Platinate,      AP5346) (2)  |   | Access      – U London          |   | Syntheticpolymer                  |   | Cancer     |   | Phase      2                            |
| Phenylbutyrate      (PB)                                                |   | NationalInstituteof      Health  |   | Smallmolecule                     |   | Cancer     |   | Phase      2                            |
| Oral      Insulin                                                       |   | Access                                |   | Cobalamin                         |   | Diabetes   |   | Pre-clinical                            |
| Oral      Delivery System                                               |   | Access                                |   | Cobalamin                         |   | Various    |   | Pre-clinical                            |
| Angiolix®                                                          |   | Immunodex,Inc.                   |   | Humanizedmonoclonalantibody  |   | Cancer     |   | Pre-clinical                            |
| Prodrax®                                                           |   | UnivLondon                       |   | Smallmolecule                     |   | Cancer     |   | Pre-clinical                            |
| Alchemix®                                                          |   | DeMontfordUniv                   |   | Smallmolecule                     |   | Cancer     |   | Pre-clinical                            |
| Cobalamin-Targeted      Therapeutics                                         |   | Access                                |   | Cobalamin                         |   | Anti-tumor |   | Pre-clinical                            |
|                                                                         |   |                                  |   |                              |   |       |   |                                    |

| (1)   | For      more information, see “Government Regulation” for description of clinical      stages. |
|-----------------|-------------------------------------------------------------------------------------------------------------|

| (2)   | Licensed      from the School of Pharmacy, The University of London. Subject to a 1%      royalty and milestone payments onsales. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

----

----

----

|   | Sodium      Phenylbutyrate |
|--------|----------------------------|

----

|   | • |   | A      patent covering a method of inhibiting rapid tumor growth issued in the      U.S. that expires on March 14, 2014 with foreign counterparts in      Austria, Australia, Canada, Germany, European Union, Spain, Israel, New      Zealand and South Africa; |
|--------|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | A      patent covering a method of treating brain cancer, leukemia, prostate      cancer, breast cancer, skin cancer and non-small cell lung cancer issued      in the U.S. that expires on June 3, 2014 with foreign counterparts in      Austria, Australia, Canada, Germany, European Union, Spain, Israel, Japan,      New Zealand, Portugal and SouthAfrica; |
|--------|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | A      patent covering a method of treating brain cancer, skin cancer, benign      enlarged prostate and a cervical infection issued in the U.S. that expires      on February 25, 2014 with foreign counterparts in Austria, Australia,      Canada, Germany, European Union, Spain, Israel, Japan, New Zealand,      Portugal and South Africa; |
|--------|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | A      patent covering a method of inducing the production of TGF alpha (which      slows the growth of cancer cells) issued in the U.S. that expires on      January 13, 2015 with foreign counterparts in Austria, Australia, Canada,      Germany, European Union, Spain, Israel, Japan, New Zealand, Portugal and      South Africa; |
|--------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | A      patent covering a pharmaceutical composition for treating or preventing a      cancerous condition issued in the U.S. that expires on January 20, 2015      with foreign counterparts in Austria, Australia, Canada, Germany, European      Union, Spain, Israel, Japan, New Zealand, Portugal and South      Africa; |
|--------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | A      patent covering a method of inducing the differentiation of a cell issued      in the U.S. that expires on June 3, 2014 with foreign counterparts in      Austria, Australia, Canada, Germany, European Union, Spain, Israel, Japan,      New Zealand, Portugal and SouthAfrica; |
|--------|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | A      patent covering a method of treating brain cancer, non-small cell lung      cancer, prostate cancer, skin cancer, brain tumors, cancers of the blood,      lung cancer and breast cancer issued in the U.S. that expires on August      26, 2014 with foreign counterparts in Austria, Australia, Canada, Germany,      European Union, Spain, Israel, Japan, New Zealand, Portugal and South      Africa; |
|--------|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | A      patent covering a method of inhibiting the growth of rapidly growing      nonmalignant or malignant tumor cells issued in the U.S. that expires on      March 2, 2016 with foreign counterparts in Austria, Australia, Canada,      Germany, European Union, Spain, Israel, Japan, New Zealand, Portugal and      South Africa; |
|--------|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | A      patent covering a method of sensitizing a subject to radiation therapy or      chemotherapy and a method of treating brain cancer, leukemia, non-small      cell lung cancer, skin cancer, cancers of the blood, lung cancer, or renal      cancer issued in the U.S. that expires on December 1, 2015 with foreign      counterparts in Austria, Australia, Canada, Germany, European Union,      Spain, Israel, Japan, New Zealand, Portugal and South    Africa; |
|--------|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | A      patent covering a method of treating brain cancer, non-small cell lung      cancer, prostate cancer, skin cancer, cancers of the blood, breast cancer,      benign prostate enlargement, cervical infection, bladder cancer, kidney      cancer, colon cancer, or nose cancer issued in the U.S. that expires on      March 16, 2016 with foreign counterparts in Austria, Australia, Canada,      Germany, European Union, Spain, Israel, Japan, New Zealand, Portugal and      South Africa; |
|--------|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | A      patent covering a method of inducing the production of hemoglobin (blood)      and a method of treating a pathology associated with abnormal hemoglobin      (blood) activity issued in the U.S. that expires on January 27, 2015 with      foreign counterparts in Austria, Australia, Canada, Germany, European      Union, Spain, Israel, Japan, New Zealand, Portugal and South      Africa; |
|--------|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | A      patent covering a method of preventing prostate cancer, brain cancer, skin      cancer, cancers of the blood, breast cancer, non-small cell lung cancer,      or renal cancer issued in the U.S. that expires on August 5, 2014 with      foreign counterparts in Austria, Australia, Canada, Germany, European      Union, Spain, Israel, Japan, New Zealand, Portugal and South Africa;      and |
|--------|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | A      patent covering a method of inhibiting the production of cancer in a cell      issued in the U.S. that expires on March 14, 2011, June 3, 2013 or March      7, 2014, depending on the subject matter disclosed in the priority      applications with foreign counterparts in Austria, Australia, Canada,      Germany, European Union, Spain, Israel, Japan, New Zealand, Portugal and      South Africa. |
|--------|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| ·   | Synthetic      Polymer Targeted Drug DeliveryTechnology; |
|--------------------|----------------------------------------------------------|

| ·   | Cobalamin™-Mediated      Oral Delivery Technology; |
|--------------------|----------------------------------------------------------|

| ·   | Cobalamin™-Mediated      Targeted Delivery Technology; |
|--------------------|--------------------------------------------------------------|

| ·   | Angiolix®; |
|--------------------|-----------------|

| ·   | Prodrax®;      and |
|--------------------|-------------------------|

| ·   | Alchemix®. |
|--------------------|-----------------|

----

----

|   | •           passive tumor targeting involves transporting anti-cancer agents through      the bloodstream to tumor cells using a “carrier” molecule. Many different      carrier molecules, which can take a variety of forms (micelles,      nanoparticles, liposomes and polymers), are being investigated as each      provides advantages such as specificity and protection of the anti-cancer      drug from degradation due to their structure, size (molecular weights) and      particular interactions with tumor cells. Our polymer platinate program is      a passive tumor targetingtechnology. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | •           active tumor targeting involves attaching an additional fragment to the      anticancer drug and the carrier molecule to create a new “targeted” agent      that will actively seek a complementary surface receptor to which it binds      (preferentially located on the exterior of the tumor cells). The theory is      that the targeting of the anti-cancer agent through active means to the      affected cells should allow more of the anti-cancer drug to enter the      tumor cell, thus amplifying the response to the treatment and reducing the      toxic effect on bystander, normaltissue. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

| -   | the      use of vitamin B12 to target the transcobalamin II receptor which is      upregulated in numerous diseases including cancer, rheumatoid arthritis,      certain neurological and autoimmune disorders with two U.S. patents and      three U.S. and four European patent applications;  and |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | oral      delivery of a wide variety of molecules which cannot otherwise be orally      administered, utilizing the active transport mechanism which transports      vitamin B12 into the systemic circulation with six U.S. patents and two      European patents and one U.S. and one European patent      application. |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Mucoadhesive      technology in 2021, |
|--------------------|---------------------------------------|

| ·   | ProLindac™      in 2021, |
|--------------------|--------------------------------|

| ·   | Phenylbutyrate      between 2011 and 2016, |
|--------------------|--------------------------------------------|

| ·   | Angiolix®      in 2015, |
|--------------------|------------------------------|

| ·   | Alchemix®      in 2015, |
|--------------------|------------------------------|

| ·   | Cobalamin      mediated technology between 2008 and2019 |
|--------------------|---------------------------------------------------------|

----

----

| •  | American      Pharmaceutical Partners, Cell Therapeutics, Daiichi, and Enzon are      developing alternate drugs in combination with      polymers and other drug delivery  systems. |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|   | • |   | unanticipated      issues in integrating information, communications and other      systems; |
|--------|---------|--------|----------------------------------------------------------------------------------------------|

|   | • |   | retaining      key employees; |
|--------|---------|--------|-------------------------------|

|   | • |   | consolidating      corporate and administrativeinfrastructures; |
|--------|---------|--------|-----------------------------------------------------------------|

|   | • |   | the      diversion of management’s attention from ongoing business concerns;      and |
|--------|---------|--------|---------------------------------------------------------------------------------------------|

|   | • |   | coordinating      geographically separateorganizations. |
|--------|---------|--------|---------------------------------------------------------|

| ·   | some      or all of its drug candidates may be found to be unsafe or ineffective or      otherwise fail to meet applicable regulatory standards or receive      necessary regulatory clearances; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | its      drug candidates, if safe and effective, may be too difficult to develop      into commercially viable drugs; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

| ·   | it      may be difficult to manufacture or market its drug candidates on a large      scale; |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | proprietary      rights of third parties may preclude it from marketing its drug      candidates; and |
|--------------------|-------------------------------------------------------------------------------------------------------|

| ·   | third      parties may market superior or equivalentdrugs. |
|--------------------|------------------------------------------------------------|

----

| ·   | A      mucoadhesive liquid technology product, MuGard™, has received marketing      approval by the FDA. |
|--------------------|----------------------------------------------------------------------------------------------------------------|

| ·  | ProLindac™      is currently in a Phase 2 trial inEurope. |
|--------------|-----------------------------------------------------------------|

| ·  | ProLindac™      has been approved for an additional Phase 1 trial in the US by the      FDA. |
|--------------|----------------------------------------------------------------------------------------------------|

| ·  | Phenylbutrate      is in planning stage for a Phase 2 trial in the United    States. |
|--------------|--------------------------------------------------------------------------------------|

| ·   | Cobalamin™      mediated delivery technology is currently in the pre-clinical      phase. |
|--------------------|-------------------------------------------------------------------------------------------------|

| ·   | Angiolix®      is currently in the pre-clinicalphase. |
|--------------------|------------------------------------------------------------|

| ·   | Prodrax®      is currently in the pre-clinicalphase. |
|--------------------|-----------------------------------------------------------|

| ·   | Alchemix®      is currently in the pre-clinicalphase. |
|--------------------|------------------------------------------------------------|

| ·   | Access      also has other products in the preclinical  phase. |
|--------------------|----------------------------------------------------------------|

----

----

|   | •     American      Pharmaceutical Partners, Cell Therapeutics, Daiichi, and Enzon are      developing alternate drugs in combination with polymers  and |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |            other drug delivery systems                                                                                                                         |

----

|   | • | Exclusive      Patent and Know-how Sub-license Agreement between Somanta and      Immunodex, Inc. dated August 18, 2005, as amended;                                                                         |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                   |
|   | • | Patent      and Know-how Assignment and License Agreement between Somanta and De      Montfort University dated March 20, 2003;                                                                              |
|   |    |                                                                                                                                                                                                                   |
|   | • | Patent      and Know-how Assignment and License Option Agreement between Somanta      and The School of Pharmacy, University of London dated March 16,      2004, as amended on September 21, 2005; and |
|   |    |                                                                                                                                                                                                                   |
|   | • | The      Phenylbutyrate Co-Development and Sublicense Agreement      between Somanta and Virium Pharmaceuticals, Inc. dated      February 16, 2005, as amended.                                              |

----

| ·   | third-party      payers' increasing challenges to the prices charged for medical products      and services; |
|--------------------|--------------------------------------------------------------------------------------------------------------|

| ·   | the      trend toward managed health care in the United States and the concurrent      growth of HMOs and similar organizations that can control or significantly      influence the purchase of healthcare services and products;      and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | legislative      proposals to reform healthcare or reduce government insurance      programs. |
|--------------------|-----------------------------------------------------------------------------------------------|

----

| ·   | Mucoadhesive      technology in 2021, |
|--------------------|---------------------------------------|

| ·   | ProLindac™      in 2021, |
|--------------------|--------------------------------|

| ·   | Phenylbutyrate      between 2011 and 2016, |
|--------------------|--------------------------------------------|

| ·   | Angiolix®      in 2015, |
|--------------------|------------------------------|

| ·   | Alchemix®      in 2015, |
|--------------------|------------------------------|

| ·   | Cobalamin      mediated technology between 2008 and2019 |
|--------------------|---------------------------------------------------------|

----

----

----

----

|                                     |   | Common Stock |   |
|------------------------------------------|--------|--------------|--------|
|                                     |   | High         |   |   | Low |   |
| Fiscal Year Ended December 31,      2007 |   |         |   |   |   |   |
| First      quarter                       |   | $            | 10.66  |   |   | $ | 2.50 |   |
| Second      quarter                      |   |         | 6.75   |   |   |   | 4.30 |   |
| Third      quarter                       |   |         | 5.16   |   |   |   | 2.10 |   |
| Fourth      quarter                      |   |         | 4.48   |   |   |   | 2.10 |   |
|                                     |   |         |   |   |   |   |   |   |
| Fiscal Year Ended December 31,      2006 |   |         |   |   |   |   |   |   |
| First      quarter                       |   | $            | 2.65   |   |   | $ | 0.80 |   |
| Second      quarter                      |   |         | 1.50   |   |   |   | 0.10 |   |
| Third      quarter                       |   |         | 1.30   |   |   |   | 0.45 |   |
| Fourth      quarter                      |   |         | 3.00   |   |   |   | 1.05 |   |

----

----

|                |                                     |                                             |    Number of      securities           |
|---------------------|------------------------------------------|--------------------------------------------------|-------------------------------------------------------|
|                |                                     |                                             |  remaining      available                        |
|                |                                     |                                             |  for future      issuance                        |
|                |  Number of Securities to            |  Weighted-average                           |  underequity                                     |
|                |  be issued upon      exercise  |  exercise price      of                |     compensation      plans       |
|                |  of outstanding      options        |  outstanding      options              |   (excluding      securities                |
|  Plan Category |  warrants and      rights           |    warrants and      rights  |     reflected in column      (a)) |

| Equity compensation      plans                     |   |   |      |   |   |   |   |   |   |
|---------------------------------------------------------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|
|  approved by      security holders                 |   |   |      |   |   |   |   |   |   |
| 2005 Equity      Incentive Plan                    |   |   | 926,386   |   |   | $      | 1.59   |   |   |   | 717,328 |   |
|  1995 Stock      Awards Plan             |   |   | 162,417   |   |   |   | 15.53  |   |   |   | - |   |
|  2001      Restricted Stock Plan    |   |   | -         |   |   |   | -      |   |   |   | 52,818 |   |
|                                                    |   |   |      |   |   |   |   |   |   |   |   |   |
|  Equity      compensation plans                    |   |   |      |   |   |   |   |   |   |   |   |   |
|  not approved      by security holders             |   |   |      |   |   |   |   |   |   |   |   |   |
|  2007 Special      Stock Option Plan               |   |   | 100,000   |   |   |   |   |   |   |   |   |   |
| Total                                              |   |   | 1,188,803 |   |   | $      | 3.60   |   |   |   | 1,120,146 |   |

----

| ITEM      7. | MANAGEMENT'S      DISCUSSION AND ANALYSIS OR PLAN OFOPERATIONS |
|--------------|----------------------------------------------------------------|

| ·   | MuGard™      is our approved product for the management of oral mucositis, a frequent      side-effect of cancer therapy for which there is no established treatment.      The market for mucositis treatment is estimated to be in excess of US$1      billion world-wide. MuGard, a proprietary nanopolymer formulation, has      received marketing allowance in the U.S. from the Food & Drug      Administration (“FDA”). |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our      lead development candidate for the treatment of cancer is ProLindac™, a      nanopolymer DACH-platinum prodrug. ProLindac is currently in a Phase 2      clinical trial being conducted in the EU in patients with ovarian cancer.      The DACH-platinum incorporated in ProLindac is the same active moiety as      that in oxaliplatin (Eloxatin; Sanofi-Aventis), which has sales in excess      of $2.0 billion. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Pre-clinical      development of Cobalamin™, our proprietary nanopolymer oral drug delivery      technology based on the natural vitamin B12 uptake mechanism. We are      currently developing a product for the oral delivery  of      insulin. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Pre-clinical      development of Angiolix®, a humanized monoclonal antibody which acts as an      anti-angiogenesis factor and is targeted to cancer cells, notably breast,      ovarian and colorectal cancers. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Pre-clinical      development of Prodrax®, a non-toxic prodrug which is activated in the      hypoxic zones of solid tumors to kill cancer  cells. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Pre-clinical      development of Alchemix®, a chemotherapeutic agent that combines multiple      modes of action to overcome drugresistance. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Pre-clinical      development of Cobalamin-mediated targeted  delivery. |
|--------------------|-------------------------------------------------------------------------|

| ·   | Phenylbutyrate      (“PB”), an HDAC inhibitor and a differentiating agent, is a Phase 2      clinical candidate  being developed in collaboration with Virium      Pharmaceuticals. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Compound                                                                     |   | Originator                            |   |  Technology                  |   | Indication |   | ClinicalStage (1)                       |
|------------------------------------------------------------------------------|--------|---------------------------------------|--------|-----------------------------------|--------|------------|--------|-----------------------------------------|
|                                                                         |   |                                  |   |                              |   |       |   |                                    |
| MuGard™                                                                |   | Access                                |   | Mucoadhesiveliquid                |   | Mucositis  |   | Marketing      clearance received  |
| ProLindacTM      (Polymer   Platinate,      AP5346) (2)  |   | Access      – U London          |   | Syntheticpolymer                  |   | Cancer     |   | Phase      2                            |
| Phenylbutyrate      (PB)                                                |   | NationalInstituteof      Health  |   | Smallmolecule                     |   | Cancer     |   | Phase      2                            |
| Oral      Insulin                                                       |   | Access                                |   | Cobalamin                         |   | Diabetes   |   | Pre-clinical                            |
| Oral      Delivery System                                               |   | Access                                |   | Cobalamin                         |   | Various    |   | Pre-clinical                            |
| Angiolix®                                                          |   | Immunodex,Inc.                   |   | Humanizedmonoclonalantibody  |   | Cancer     |   | Pre-clinical                            |
| Prodrax®                                                           |   | UnivLondon                       |   | Smallmolecule                     |   | Cancer     |   | Pre-clinical                            |
| Alchemix®                                                          |   | DeMontfordUniv                   |   | Smallmolecule                     |   | Cancer     |   | Pre-clinical                            |
| Cobalamin-Targeted      Therapeutics                                         |   | Access                                |   | Cobalamin                         |   | Anti-tumor |   | Pre-clinical                            |
|                                                                         |   |                                  |   |                              |   |       |   |                                    |

| (1)   | For      more information, see “Government Regulation” for description of clinical      stages. |
|-----------------|-------------------------------------------------------------------------------------------------------------|

| (2)   | Licensed      from the School of Pharmacy, The University of London. Subject to a 1%      royalty and milestone payments onsales. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

| ·   | costs      for product manufacturing for a new ProLindac clinical trial expected to      start in mid 2008 ($230,000); |
|--------------------|------------------------------------------------------------------------------------------------------------------------|

| ·   | higher      salary and related cost due to the hiring of additional scientific staff      ($225,000); |
|--------------------|-------------------------------------------------------------------------------------------------------|

| ·   | higher      scientific consulting expenses($179,000); |
|--------------------|-------------------------------------------------------|

| ·   | higher      salary related expenses due to stock option expenses ($23,000);      and |
|--------------------|--------------------------------------------------------------------------------------|

| ·   | other      net increases ($10,000). |
|--------------------|-------------------------------------|

| ·   | higher      salary related expenses due to stock option expenses      ($785,000); |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | higher      investor relations expenses ($476,000) due to our increased investor      relations efforts; |
|--------------------|----------------------------------------------------------------------------------------------------------|

| ·   | higher      franchise taxes ($48,000); |
|--------------------|----------------------------------------|

| ·   | higher      travel expenses ($39,000) due to business development activities;      and |
|--------------------|----------------------------------------------------------------------------------------|

| ·   | other      net increases ($87,000). |
|--------------------|-------------------------------------|

| ·   | lower      patent expenses ($43,000); and |
|--------------------|-------------------------------------------|

| ·   | lower      professional fees ($129,000). |
|--------------------|------------------------------------------|

----

| ·   | the      successful development and commercialization of ProLindac™, MuGard™ and      our other product candidates; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|

| ·   | the      ability to convert, repay or restructure our outstanding convertible notes      and debentures; |
|--------------------|----------------------------------------------------------------------------------------------------------|

----

| ·   | the      ability to integrate Somanta Pharmaceuticals, Inc. assets and programs      with ours; |
|--------------------|-------------------------------------------------------------------------------------------------|

| ·   | the      ability to establish and maintain collaborative arrangements with      corporate partners for the research, development and commercialization of      products; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | continued      scientific progress in our research and development    programs; |
|--------------------|---------------------------------------------------------------------------------|

| ·   | the      magnitude, scope and results of preclinical testing and clinical      trials; |
|--------------------|----------------------------------------------------------------------------------------|

| ·   | the      costs involved in filing, prosecuting and enforcing patent      claims; |
|--------------------|----------------------------------------------------------------------------------|

| ·   | the      costs involved in conducting clinicaltrials; |
|--------------------|-------------------------------------------------------|

| ·   | competing      technological developments; |
|--------------------|--------------------------------------------|

| ·   | the      cost of manufacturing and scale-up; |
|--------------------|----------------------------------------------|

| ·   | the      ability to establish and maintain effective commercialization arrangements      and activities; and |
|--------------------|--------------------------------------------------------------------------------------------------------------|

| ·   | successful      regulatory filings. |
|--------------------|-------------------------------------|

| (in      thousands)                                       |   | Twelve      Months endedDecember 31, |   |   | Inception      ToDate (1) |   |
|-----------------------------------------------------------|--------|--------------------------------------|--------|--------|---------------------------|--------|
| Project                                                   |   | 2007                                 |   |   | 2006                      |   |   |   |   |
| Polymer      Platinate (ProLindac™)            |   | $                                    | 2,563  |   |                      | $      | 2,043 |   |   | $ | 22,217 |   |
| Mucoadhesive      Liquid  Technology      (MLT) |   |                                 | 21     |   |                      |   | 10 |   |   |   | 1,511 |   |
| Others      (2)                                           |   |                                 | 18     |   |                      |   | - |   |   |   | 5,062 |   |
| Total                                                     |   | $                                    | 2,602  |   |                      | $      | 2,053 |   |   | $ | 28,790 |   |
|                                                      |   |                                 |   |   |                      |   |   |   |   |   |   |   |

| (1)   | Cumulative      spending from inception of the Company or project through December 31,      2007. |
|-----------------|---------------------------------------------------------------------------------------------------|

| (2)   | Includes:  Vitamin      Mediated Targeted Delivery, carbohydrate targeting, amlexanox cream and      gel and other related projects. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                           |   | Payment Due by Period |      |
|--------------------------------|--------|-----------------------|-----------|
|                           |   | Total                 |      |   | Less Than 1 Year |   |   | 1-4 Years |   |
| Long-Term      DebtObligations |   | $                     | 5,564,000 |   |   | $ | 64,000 |   |   | $ | 5,500,000 |   |
| Interest                       |   |                  | 1,697,000 |   |   |   | 426,000 |   |   |   | 1,271,000 |   |
| Lease      Obligations         |   |                  | 121,000   |   |   |   | 92,000 |   |   |   | 29,000 |   |
| Total                          |   | $                     | 7,382,000 |   |   | $ | 582,000 |   |   | $ | 6,800,000 |   |

----

----

----

| a.   | Financial      Statements.  The following financial statements are      submitted as part of this report: |
|----------------|---------------------------------------------------------------------------------------------------------------------|

| Report of Registered      Independent Public Accounting Firm                     | F-1 |
|----------------------------------------------------------------------------------|-----|
| Consolidated Balance Sheets at      December 31, 2007 and 2006                   | F-2 |
| Consolidated Statements of      Operations for 2007 and 2006                     | F-3 |
| Consolidated Statements of      Stockholders' Equity (Deficit) for 2007 and 2006 | F-4 |
| Consolidated Statements of      Cash Flows for 2007 and 2006                     | F-5 |
| Notes to Consolidated      Financial Statements                                  | F-6 |

|   | Exhibit      Number |
|--------|---------------------|

| 2.1 | Amended      and Restated Agreement of Merger and Plan of Reorganization between Access      Pharmaceuticals, Inc. and Chemex Pharmaceuticals, Inc., dated as of      October 31, 1995 (Incorporated by reference to Exhibit A of the our      Registration Statement on Form S-4 dated December 21, 1995, Commission      File No. 33-64031) |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.2 | Agreement      and Plan of Merger, by and among Access Pharmaceuticals, Inc., Somanta      Acquisition Corporation, Somanta Pharmaceuticals, Inc. Somanta      Incorporated and Somanta Limited, dated April 18, 2007. (Incorporated by      reference to Exhibit 2.1 to our Form 8-K dated April 18,    2007) |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.0 | Articles      of incorporation and bylaws |
|-----|-------------------------------------------|

| 3.1 | Certificate      of Incorporation (Incorporated by Reference to Exhibit 3(a) of our Form      8-B dated July 12, 1989, Commission File Number  9-9134) |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.3 | Certificate      of Merger filed January 25, 1996. (Incorporated by reference to Exhibit E      of our Registration Statement on Form S-4 dated December 21, 1995,      Commission File No. 33-64031) |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.4 | Certificate      of Amendment of Certificate of Incorporation filed January 25, 1996.      (Incorporated by reference to Exhibit E of our Registration Statement on      Form S-4 dated December 21, 1995, Commission File No.      33-64031) |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.5 | Certificate      of Amendment of Certificate of Incorporation filed July 18, 1996.      (Incorporated by reference to Exhibit 3.8 of our Form 10-K for the year      ended December 31, 1996) |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.6 | Certificate      of Amendment of Certificate of Incorporation filed June 18, 1998.      (Incorporated by reference to Exhibit 3.8 of our Form 10-Q for the quarter      ended June 30, 1998 |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.7 | Certificate      of Amendment of Certificate of Incorporation filed July 31, 2000.      (Incorporated by reference to Exhibit 3.8 of our Form 10-Q for the quarter      ended March 31, 2001) |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.8 | Certificate      of Designations of Series A Junior Participating Preferred Stock filed      November 7, 2001 (Incorporated by reference to Exhibit 4.1.h of our      Registration Statement on Form S-8, dated December 14, 2001, Commission      File No. 333-75136) |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.9 | Amended      and Restated Bylaws (Incorporated by reference to Exhibit 3.1 of our Form      10-Q for the quarter ended June 30,1996) |
|-----|--------------------------------------------------------------------------------------------------------------------------------------|

| 3.10 | Certificate      of Designation of Series A Cumulative Convertible Preferred Stock filed      November 9, 2007 |
|------|----------------------------------------------------------------------------------------------------------------|

| 10.1* | 1995      Stock Option Plan (Incorporated by reference to Exhibit F of our      Registration Statement on Form S-4 dated December 21, 1995, Commission      File No. 33-64031 |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.2* | Amendment      to 1995 Stock Option Plan (Incorporated by reference to Exhibit 10.25 of      our Form 10-K for the year ended December 31,  2001) |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.3 | Lease      Agreement between Pollock Realty Corporation and us dated July 25, 1996      (Incorporated by reference to Exhibit 10.19 of our Form 10-Q for the      quarter ended September 30, 1996) |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.4 | Platinate      HPMA Copolymer Royalty Agreement between The School of Pharmacy,      University of London and the Company dated November 19, 1996 (Incorporated      by reference to Exhibit 10.11 of our Form 10-K for the year ended December      31, 1996) |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 10.5* | Employment      Agreement of David P. Nowotnik, PhD (Incorporated by reference to Exhibit      10.19 of our Form 10-K for the year ended December 31,    1999) |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.6* | 401(k)      Plan (Incorporated by reference to Exhibit 10.20 of our Form 10K for the      year ended December 31, 1999) |
|-------|-------------------------------------------------------------------------------------------------------------------------|

| 10.7 | Form      of Convertible Note (Incorporated by reference to Exhibit 10.24 of our      Form 10-Q for the quarter ended September 30,  2000) |
|------|--------------------------------------------------------------------------------------------------------------------------------------------|

| 10.8 | Rights      Agreement, dated as of October 31, 2001 between the us and American Stock      Transfer & Trust Company, as Rights Agent (incorporated by reference      to Exhibit 99.1 of our Current Report on Form 8-K dated October 19,      2001) |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.9 | Amendment      to Rights Agreement, dated as of February 16, 2006 between us and American      Stock Transfer & Trust Company, as Rights Agent  (2) |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.10 | Amendment      to Rights Agreement, dated as of November 9, 2007 between us and American      Stock Transfer & Trust Company as Rights  Agent |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.11* | 2001      Restricted Stock Plan (Incorporated by reference to Appendix A of our      Proxy Statement filed on April 16,2001) |
|--------|------------------------------------------------------------------------------------------------------------------------------|

| 10.12* | 2005      Equity Incentive Plan (Incorporated by reference to Exhibit 1 of our Proxy      Statement filed on April 18, 2005(2) |
|--------|--------------------------------------------------------------------------------------------------------------------------------|

| 10.13* | Employment      Agreement, dated as of June 1, 2005 by and between us and Stephen B.      Thompson (1) |
|--------|--------------------------------------------------------------------------------------------------------|

| 10.15 | Amendment      to Asset Sale Agreement, dated as of December 8, 2006, between us and      Uluru, Inc. (3) |
|-------|-----------------------------------------------------------------------------------------------------------|

| 10.17 | Form      of Warrant, dated February 16, 2006, issued by us to certain Purchasers      (2) |
|-------|--------------------------------------------------------------------------------------------|

| 10.18 | Form      of Warrant, dated October 24, 2006, issued by us to certain Purchasers      (3) |
|-------|-------------------------------------------------------------------------------------------|

| 10.19 | Form      of Warrant, December 6, 2006, issued by us to certain Purchasers      (3) |
|-------|-------------------------------------------------------------------------------------|

| 10.20* | 2007      Special Stock Option Plan and Agreement, dated January 4, 2007, by and      between us and Stephen R. Seiler, President and Chief Executive Officer      (4) |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.21 | Note      Purchase Agreement dated April 26, 2007 between us and Somanta      Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.42 of our      Form 10-Q for the quarter ended June 30,2007) |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.22 | Preferred      Stock and Warrant Purchase Agreement, dated November 7, 2007, between us      and certain Purchasers (5) |
|-------|-------------------------------------------------------------------------------------------------------------------------|

| 10.23 | Investor      Rights Agreement, dated November 10, 2007, between us and certain      Purchasers (5) |
|-------|-----------------------------------------------------------------------------------------------------|

| 10.24 | Form      of Warrant Agreement dated November 10, 2007, between us and certain      Purchasers (5) |
|-------|----------------------------------------------------------------------------------------------------|

| 10.25 | Board      Designation Agreement, dated November 15, 2007, between us and SCO Capital      Partners LLC (5) |
|-------|-------------------------------------------------------------------------------------------------------------|

| 10.26 | Amendment      and Restated Purchase Agreement, dated February 4, 2008 between us and      certain Purchasers (5) |
|-------|-------------------------------------------------------------------------------------------------------------------|

| 10.27 | Amended      and Restated Investor Rights Agreement, dated February 4, 2008 between us      and certain Purchasers (5) |
|-------|------------------------------------------------------------------------------------------------------------------------|

| 10.28* | Employment      Agreement, dated January 4, 2008 between us and Jeffrey B. Davis      (5) |
|--------|-------------------------------------------------------------------------------------------|

| 21 | Subsidiaries      of the registrant |
|----|-------------------------------------|

| 31.1 | Chief      Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as      Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of      2002 |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 31.2 | Chief      Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as      Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of      2002 |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 32 | Chief      Executive Officer Certification Chief Financial Officer Certification      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of      the Sarbanes-Oxley Act of 2002 |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| * | [Management      contract or compensatory plan required to be filed as an Exhibit to this      Form pursuant to Item 15(c) of thereport.] |
|---|-------------------------------------------------------------------------------------------------------------------------------------------|

| (1)   | Incorporated      by reference to our Form 10-K for the year ended December 31,      2005. |
|-----------------|--------------------------------------------------------------------------------------------|

| (2)   | Incorporated      by reference to our Form 10-Q for the quarter ended March 31,      2006. |
|-----------------|--------------------------------------------------------------------------------------------|

| (3)   | Incorporated      by reference to our Form 10-K for the year ended December 31,      2006. |
|-----------------|--------------------------------------------------------------------------------------------|

| (4)   | Incorporated      by reference to our Form 10-Q for the quarter ended March 31,      2007. |
|-----------------|--------------------------------------------------------------------------------------------|

| (5)   | Incorporated      by reference to our Form S-1,333-149633. |
|-----------------|------------------------------------------------------------|

----

----

----

|                           ASSETS |  December 31, 2007 |  December 31,2006 |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|------------------------|

| Current      assetsCash and cash      equivalents   Short      term investments, at cost   Receivables   Receivables due from Somanta      Pharmaceuticals   Prepaid      expenses and other current assets |   | $     | 159,0006,762,00035,000931,000410,000 |   |   | $     |  1,194,0003,195,000  359,000-283,000 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|--------------------------------------|--------|--------|---------------------------|-----------------------------------------------------|--------|
|   Total      current assets                                                                                                                                                                                                                              |   |                      | 8,297,000                       |   |   |                      | 5,031,000                                      |   |

|                                                                                                |   |   |      |   |   |   |      |   |
|-----------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|
| Property      and equipment, net                                                                    |   |   | 130,000   |   |   |   | 212,000   |   |
|                                                                                                |   |   |      |   |   |   |      |   |
| Debt      issuance costs, net                                                                       |   |   | -         |   |   |   | 158,000   |   |
|                                                                                                |   |   |      |   |   |   |      |   |
| Patents,      net                                                                                   |   |   | 710,000   |   |   |   | 878,000   |   |
|                                                                                                |   |   |      |   |   |   |      |   |
| Licenses,      net                                                                                  |   |   | -         |   |   |   | 25,000    |   |
|                                                                                                |   |   |      |   |   |   |      |   |
| Other      assets                                                                                   |   |   | 12,000    |   |   |   | 122,000   |   |
|             Total      assets           |   | $      | 9,149,000 |   |   | $      | 6,426,000 |   |
|                                                                                                |   |   |      |   |   |   |      |   |
|         LIABILITIES      AND STOCKHOLDERS' EQUITY (DEFICIT) |   |   |      |   |   |   |      |   |

| Current      liabilities  Accounts      payable and accrued expenses  Accrued      interest payable  Current      portion of deferred revenue  Current      portion long-term debt, net of discount $0 at December 31,      2007      and      $2,062,000 at December 31, 2006 |   | $     |  1,796,000130,00068,000  64,000 |   |   | $      | 1,226,000581,000173,000  8,833,000 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|------------------------------------------------|--------|--------|---------------------------------|----------------------------------------------|--------|

|  Total      current liabilities               |   |   | 2,058,000  |   |   |   | 10,813,000  |   |
|----------------------------------------------------|--------|--------|-----------------|--------|--------|--------|------------------|--------|
|                                               |   |   |            |   |   |   |             |   |
|          Long-term deferred revenue |   |   | 910,000    |   |   |   |             |   |
| Long-term      debt                                |   |   | 5,500,000       |   |   |   | 5,500,000        |   |
|                                               |   |   |            |   |   |   |             |   |
|  Total      liabilities                       |   |   | 8,468,000       |   |   |   | 16,313,000       |   |

|  Commitments      and contingencies |   |   |
|------------------------------------------|--------|--------|

|  Stockholders'      equity (deficit)  Preferred      stock - $.01 par value; authorized 2,000,000 shares;     3,227.3617      issued at December 31, 2007; none issued at     December      31, 2006  Common      stock - $.01 par value; authorized 100,000,000 shares;     issued,      3,585,458 at December 31, 2007; issued 3,535,108      at      December 31, 2006  Additional      paid-in capital  Notes      receivable from stockholders  Treasury      stock, at cost – 163 shares  Accumulated      deficit |    -  36,000116,018,000(1,045,000)(4,000)(114,324,000) |    -  35,00068,799,000(1,045,000)(4,000)(77,672,000) |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|-------------------------------------------------------------------------------|

|  Total      stockholders' equity (deficit) | 681,000 | (9,887,000)  |
|-------------------------------------------------|---------|-------------------|
|                                            |    |              |

|             Total      liabilities and stockholders' equity (deficit) |   | $ | 9,149,000 |   |   | $ | 6,426,000 |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|---|-----------|--------|--------|---|-----------|--------|

----

|                                                                                                   |   | 2007   |        |   | 2006   |   |
|--------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Revenues                                                                                               |   |   |        |   |   |   |
| Licenserevenues                                                                                        |   | $      | 23,000      |   |   | $      | - |   |
| Sponsored research and      development                                                                |   |   | 34,000      |   |   |   | - |   |
| Total revenues                                                                                         |   |   | 57,000      |   |   |   | - |   |
|                                                                                                   |   |   |        |   |   |   |   |   |
| Expenses                                                                                               |   |   |        |   |   |   |   |   |
| Research and      development                                                                          |   |   | 2,602,000   |   |   |   | 2,053,000 |   |
| General and      administrative                                                                        |   |   | 4,076,000   |   |   |   | 2,813,000 |   |
| Depreciation and      amortization                                                                     |   |   | 279,000     |   |   |   | 309,000 |   |
| Total expenses                                                                                         |   |   | 6,957,000   |   |   |   | 5,175,000 |   |
|                                                                                                   |   |   |        |   |   |   |   |   |
| Loss      from operations                                                                              |   |   | (6,900,000  | )      |   |   | (5,175,000 | ) |
|                                                                                                   |   |   |        |   |   |   |   |   |
| Interest      and miscellaneous income                                                                 |   |   | 125,000     |   |   |   | 294,000 |   |
| Interest      and other expense                                                                        |   |   | (3,514,000  | )      |   |   | (7,436,000 | ) |
| Loss      on extinguishment of debt                                                                    |   |   | (11,628,000 | )      |   |   | - |   |
| Unrealized      loss on fair value of warrants and beneficial   conversion      feature |   |   | -           |   |   |   | (1,107,000 | ) |
|                                                                                                   |   |   | (15,017,000 | )      |   |   | (8,249,000 | ) |
| Loss      before discontinued operations and before tax benefit                                        |   |   | (21,917,000 | )      |   |   | (13,424,000 | ) |
| Income      tax benefit                                                                                |   |   | 61,000      |   |   |   | 173,000 |   |
| Loss      from continuing operations                                                                   |   |   | (21,856,000 | )      |   |   | (13,251,000 | ) |
|                                                                                                   |   |   |        |   |   |   |   |   |
|  Less      preferred stock dividends                                                              |   |   | (14,908,000 | )      |   |   | -  |   |
|  Loss      from continuing operations allocable to common stockholders                            |   |   | (36,764,000 | )      |   |   | (13,251,000 | ) |
|                                                                                                   |   |   |        |   |   |   |   |   |
| Discontinued      operations, net of taxes of $61,000 in 2007 and $173,000      in 2006           |   |   | 112,000     |   |   |   | 377,000 |   |
| Net      loss allocable to common stockholders                                                         |   | $      | (36,652,000 | )      |   | $      | (12,874,000 | ) |
|                                                                                                   |   |   |        |   |   |   |   |   |
| Basic      and diluted loss per common share                                                           |   |   |        |   |   |   |   |   |
|     Loss      from continuing operations allocable to commonstockholders           |   | $      | (10.35      | )      |   | $      | (3.76 | ) |
|     Discontinued      operations                                                   |   |   | 0.03        |   |   |   | 0.11 |   |
|     Net      loss allocable to common stockholders                                 |   | $      | (10.32      | )      |   | $      | (3.65 | ) |
|                                                                                                   |   |   |        |   |   |   |   |   |
| Weighted      average basic and diluted common shares    outstanding               |   |   | 3,552,006   |   |   |   | 3,531,934 |   |
|                                                                                                   |   |   |        |   |   |   |   |   |

----

|   | Common Stock | Preferred Stock |  Additionalpaid-incapital | Notes      receivable from stockholders |   Treasury      stock |   Accumulated      deficit |
|--------|--------------|-----------------|--------------------------------|-----------------------------------------|---------------------------------|--------------------------------------|
|   | Shares       | Amount          | Shares                         | Amount                                  |

|                                                                                               |   |   |      |   |   |   |     |   |   |   |       |   |   |   |     |   |   |   |             |   |   |   |       |   |
|----------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|----------|--------|--------|--------|------------|--------|--------|--------|----------|--------|--------|--------|------------------|--------|--------|--------|------------|--------|
| Balance,      December 31,   2005                                                   |   |   | 3,528,000 |   |   | $      | 35,000   |   |   |   | -          |   |   | $      | -        |   |   | $      | 62,942,000       |   |   | $      | (1,045,000 | )      |   | $ | (4,000 | ) |   | $ | (66,165,000 | ) |
| Common      stock issued for   compensation                                         |   |   | 7,000     |   |   |   | -        |   |   |   | -          |   |   |   | -        |   |   |   | 77,000           |   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Warrants      issued                                                                               |   |   | -         |   |   |   | -        |   |   |   | -          |   |   |   | -        |   |   |   | 100,000          |   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Stock      option   compensation      expense                                       |   |   | -         |   |   |   | -        |   |   |   | -          |   |   |   | -        |   |   |   | 248,000          |   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Issuance      of convertibledebt with    warrants                                                  |   |   | -         |   |   |   | -        |   |   |   | -          |   |   |   | -        |   |   |   | 5,432,000        |   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Cumulative      effect of   change      in accounting   principle    |   |   |   -  |   |   |   |   - |   |   |   |   -   |   |   |   |   - |   |   |   |   -         |   |   |   |   -   |   |   |   |   - |   |   |   |   1,367,000 |   |
| Net      loss                                                                                      |   |   | -         |   |   |   | -        |   |   |   | -          |   |   |   | -        |   |   |   | -                |   |   |   | -          |   |   |   | - |   |   |   | (12,874,000 | ) |
| Balance,      December 31,   2006                                                   |   |   | 3,535,000 |   |   |   | 35,000   |   |   |   |  -    |   |   |   | -        |   |   |   |  68,799,000 |   |   |   | (1,045,000 | )      |   |   | (4,000 | ) |   |   | (77,672,000 | ) |
|                                                                                               |   |   |      |   |   |   |     |   |   |   |       |   |   |   |     |   |   |   |             |   |   |   |       |   |   |   |   |   |   |   |   |   |
| Common      stock issued for  services                                                   |   |   | 19,000    |   |   |   | -        |   |   |   | -          |   |   |   | -        |   |   |   | 83,000           |   |   |   | -          |   |   |   | - |   |   |   | - |   |
|    Options      exercised                                                           |   |   | 31,000    |   |   |   | 1,000    |   |   |   | -          |   |   |   | -        |   |   |   | 35,000           |   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Stock      option   compensation      expense                                       |   |   | -         |   |   |   | -        |   |   |   | -          |   |   |   | -        |   |   |   | 1,048,000        |   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Preferred      stock issuances                                                                     |   |   | -         |   |   |   | -        |   |   |   | 954.0001   |   |   |   | -        |   |   |   | 5,560,000        |   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Warrants      issued with   preferred      stock                                    |   |   | -         |   |   |   | -        |   |   |   | -          |   |   |   | -        |   |   |   | 3,980,000        |   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Costs      of stock issuances                                                                      |   |   |      |   |   |   |     |   |   |   |       |   |   |   |     |   |   |   | (868,000         | )      |   |   | -          |   |   |   | - |   |   |   | - |   |
| Beneficial      conversion   Feature                                                |   |   | -         |   |   |   | -        |   |   |   | -          |   |   |   | -        |   |   |   | 14,648,000       |   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Preferred      stock dividend   beneficial      conversion   feature |   |   |   -  |   |   |   |   - |   |   |   |   -   |   |   |   |   - |   |   |   |   -         |   |   |   |   -   |   |   |   |   - |   |   |   | (14,648,000 | ) |
| Conversion      of convertible   debt      into preferred stock                     |   |   | -         |   |   |   | -        |   |   |   | 2,273.3616 |   |   |   | -        |   |   |   | 6,472,000        |   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Warrants      issued with   preferred      stock                                    |   |   | -         |   |   |   | -        |   |   |   | -          |   |   |   | -        |   |   |   | 4,633,000        |   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Loss      on extinguishment  of      debt – preferred stock                        |   |   | -         |   |   |   | -        |   |   |   | -          |   |   |   | -        |   |   |   | 6,777,000        |   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Loss      on extinguishment  of      debt – warrants                               |   |   | -         |   |   |   | -        |   |   |   | -          |   |   |   | -        |   |   |   | 4,851,000        |   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Preferred      dividends                                                                           |   |   | -         |   |   |   | -        |   |   |   | -          |   |   |   | -        |   |   |   | -                |   |   |   | -          |   |   |   | - |   |   |   | (260,000 | ) |
| Net      loss                                                                                      |   |   | -         |   |   |   | -        |   |   |   | -          |   |   |   | -        |   |   |   | -                |   |   |   | -          |   |   |   | - |   |   |   | (21,744,000 | ) |
| Balance,      December 31,   2007                                                   |   |   | 3,585,000 |   |   | $      | 36,000   |   |   |   | 3,227.3617 |   |   | $      | -        |   |   | $      | 116,018,000      |   |   | $      | (1,045,000 | )      |   | $ | (4,000 | ) |   | $ | (114,324,000 | ) |

----

|                                                                                                     |   | Year ended December      31, |            |
|----------------------------------------------------------------------------------------------------------|--------|------------------------------|-----------------|
|                                                                                                     |   |  2007                   |            |   |  2006 |   |
|                                                                                                     |   |                         |            |   |   |   |
|  Cash flows      from operating activities:                                                         |   |                         |            |   |   |   |
|  Net      loss                                                                                 |   | $                            | (21,744,000     | )  |   | $ | (12,874,000 | ) |
|  Adjustments to      reconcile net loss to net cash used                                            |   |                         |            |   |   |   |   |   |
|  in operating      activities:                                                                      |   |                         |            |   |   |   |   |   |
|  Unrealized      loss                                                      |   |                         | -               |   |   |   | 1,107,000 |   |
|  Loss on      extinguishment of debt                                                      |   |                         | 11,628,000      |   |   |   | - |   |
|  Stock option      expense                                            |   |                         | 1,048,000       |   |   |   | 248,000 |   |
|  Stock issued      for compensation/services                                              |   |                         | 83,000          |   |   |   | 77,000 |   |
|               Depreciation and amortization                 |   |                         | 279,000         |   |   |   | 309,000 |   |
|  Amortization      of debt costs and      discounts         |   |                         | 2,316,000       |   |   |   | 6,749,000 |   |
|  Loss (gain) on      sale of assets                                                  |   |                         | 2,000           |   |   |   | (550,000 | ) |
|  Change in      operating assets and liabilities:                                                   |   |                         |            |   |   |   |   |   |
|  Receivables                                                                         |   |                         | (607,000        | )   |   |   | 4,129,000 |   |
|  Prepaid      expenses and other current assets                                           |   |                         | (127,000        | )     |   |   | 14,000 |   |
|  Other      assets                                                                             |   |                         | 14,000          |   |   |   | 127,000 |   |
|  Accounts      payable and accrued expenses                                                    |   |                         | 310,000         |   |   |   | (1,657,000 | ) |
|  Accrued      interest payable                                                       |   |                         | 1,150,000       |   |   |   | 363,000 |   |
|  Deferred      revenues                                                                   |   |                         | 805,000         |   |   |   | - |   |
| Net cash used in      operating activities                                                               |   |                         | 4,843,000       |   |   |   | (1,958,000 | ) |
|                                                                                                     |   |                         |            |   |   |   |   |   |
| Cash      flows from investing activities:                                                               |   |                         |            |   |   |   |   |   |
|  Capital      expenditures                                                                     |   |                         | (18,000         | )  |   |   | (3,000 | ) |
|  Proceeds from      sale of equipment                                                     |   |                         | 13,000          |   |   |   | - |   |
|  Proceeds from      sale of oral/topical care assets                                           |   |                         | -               |   |   |   | 550,000 |   |
|  Purchases of      short-term investments                                                           |   |                         |            |   |   |   |   |   |
|  and      certificates of deposit, net                                                         |   |                         | (3,567,000      | ) |   |   | (3,070,000 | ) |
|  Net cash used      in investing activities                                                    |   |                         | (3,572,000      | )     |   |   | (2,523,000 | ) |
|                                                                                                     |   |                         |            |   |   |   |   |   |
| Cash      flows from financing activities:                                                               |   |                         |            |   |   |   |   |   |
|  Payments of      notes payable                                       |   |                         | (1,327,000      | ) |   |   | (106,000 | ) |
|  Proceeds from      secured convertible notes payable                                               |   |                         | -               |   |   |   | 5,432,000 |   |
|  Exercise of      stock options                                                           |   |                         | 35,000          |   |   |   | - |   |
|  Proceeds from      preferred stock issuances, net of costs                                         |   |                         | 8,672,000       |   |   |   | - |   |
|  Net cash      provided by financing activities                                           |   |                         | 7,380,000       |   |   |   | 5,326,000 |   |
|                                                                                                     |   |                         |            |   |   |   |   |   |
|  Net increase      (decrease) in cash and cash equivalents                                |   |                         | (1,035,000      | )  |   |   | 845,000 |   |
|  Cash and cash      equivalents at beginning of year                                      |   |                         | 1,194,000       |   |   |   | 349,000 |   |
|  Cash and cash      equivalents at end of year                                                      |   | $                            | 159,000         |   |   | $ | 1,194,000 |   |
|                                                                                                     |   |                         |            |   |   |   |   |   |
|  Cash paid for      interest                                                              |   | $                            | 34,000          |   |   | $ | 315,000 |   |
|                                                                                                     |   |                         |            |   |   |   |   |   |
|  Supplemental disclosure of      noncash transactions                                               |   |                         |            |   |   |   |   |   |
|  Common stock issued for SEDA      and                                                              |   |                         |            |   |   |   |   |   |
|  Debt issuance      costs                                                                      |   |                         | -               |   |   |   | 568,000 |   |
|  Accrued interest      capitalized                                                             |   |                         | 511,000         |   |   |   | 433,000 |   |
|  Warrants issued per      professional agreement                                                    |   |                         |            |   |   |   |   |   |
|   of consulting      services                                                                  |   |                         | -               |   |   |   | 100,000 |   |
|  Cumulative change of      accounting principle                                      |   |                         | -               |   |   |   |  1,367,000 |   |
|  Issuance of convertible debt      with warrants                                               |   |                         | -               |   |   |   | 5,432,000 |   |
|  Preferred stock      dividends                                                                     |   |                         | 260,000         |   |   |   | - |   |
|  Debt exchanged for preferred      stock                                                            |   |                         | 10,015,000      |   |   |   | - |   |
|  Accrued interest exchanged for      preferred stock                                                |   |                         |  1,090,000 |   |   |   | - |   |

----

|   | NOTE      1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING      POLICIES |
|--------|----------------------------------------------------------------------------------------|

----

|   | NOTE      1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -      Continued |
|--------|----------------------------------------------------------------------------------------------------|

----

|   | Two      years ended December 31, 2007 |
|--------|----------------------------------------|

|                                                   |   | December 31, 2007  |                       |   | December 31, 2006       |   |
|--------------------------------------------------------|--------|--------------------|----------------------------|--------|-------------------------|--------|
|                                                   |   | Grosscarryingvalue |                       |   | Accumulatedamortization |   |   | Grosscarryingvalue |   |   | Accumulatedamortization |   |
| Amortizable      intangible assetsPatentsLicensesTotal |   | $                  |  1,680500$ 2,180 |   |                    | $      |  970500$1,470 |   |   | $ |  1,680500$ 2,180 |   |   | $ |  802475$ 1,277 |   |

|  2008       |   | $      | 168    |   |
|------------------|--------|--------|--------|--------|
|  2009       |   |   | 168    |   |
|  2010       |   |   | 168    |   |
|  2011       |   |   | 168    |   |
|  Thereafter |   |   | 38     |   |
|             |   |   |   |   |
|  Total      |   | $      | 710    |   |

----

|   | Two      years ended December 31, 2007 |
|--------|----------------------------------------|

|                                                                                                                                                                                                    | 2007                 | 2006                 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------|----------------------|
| Expected      volatility assumption was based upon a combination of historical stock      price volatility measured on a twice a month basis and is a reasonable      indicator of expected volatility. |  136%           |  127%           |
| Risk-free      interest rate assumption is based upon U.S. Treasury bond interest rates      appropriate for the term of the Company’s employee stock      options.                               |  4.65%          |  4.85%          |
| Dividend      yield assumption is based on our history and expectation of dividend      payments.                                                                                                       |  None           |  None           |
| Estimated      expected term (average of number years) is based on employee exercise      behavior.                                                                                                     |  5.7      years |  1.6      years |
|                                                                                                                                                                                                    |                 |                 |

----

|   | Two      years ended December 31, 2007 |
|--------|----------------------------------------|

|                                                                                        |   | Year      endedDecember      31, 2007 |   |   | Year      endedDecember 31,2006 |   |
|---------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------|---------------------------------|--------|
| Research      and development                                                               |   | $                                     | 91     |   |                            | $      | 68 |   |
| General      and administrative                                                             |   |                                  | 957    |   |                            |   | 180 |   |
|     Stock-based      compensation expense included in operating expense |   |                                  | 1,048  |   |                            |   | 248 |   |
|                                                                                        |   |                                  |   |   |                            |   |   |   |
| Total      stock-based compensation expense                                                 |   |                                  | 1,048  |   |                            |   | 248 |   |
| Tax      benefit                                                                            |   |                                  | -      |   |                            |   | - |   |
|     Stock-based      compensation expense, net of tax                   |   | $                                     | 1,048  |   |                            | $      | 248 |   |
|                                                                                        |   |                                  |   |   |                            |   |   |   |

----

|   | Two      years ended December 31, 2007 |
|--------|----------------------------------------|

|  Year |   | ConsultingFees |   |   | ExpenseReimbursement |   |
|------------|--------|----------------|--------|--------|----------------------|--------|
|  2007 |   | $              | 70,000 |   |                 | $      | 2,000 |   |
|  2006 |   |           | 69,000 |   |                 |   | 5,000 |   |

|  Year |   | Consulting      Fee |    |   | Office Expenses |   |   | Office Reimbursement |   |   | Fair      Valueof Options |   |
|------------|--------|---------------------|---------|--------|-----------------|--------|--------|----------------------|--------|--------|---------------------------|--------|
|  2007 |   | $                   | 153,000 |   |            | $      | 15,000 |                 |   | $      | 12,000                    |   |   | $ | 99,000  |   |

| Year       |   | ConsultingFees |                           |   | ExpenseReimbursement |   |
|------------|--------|----------------|--------------------------------|--------|----------------------|--------|
|  2007 |   | $              |     29,000 |   |                 | $      | $    13,000 |   |

----

|  Property and      equipment consists of the following:             |   | December 31, |    |
|-------------------------------------------------------------------------------|--------|--------------|---------|
|                                                                          |   | 2007         |    |   | 2006 |   |
|  Laboratory      equipment                                               |   | $            | 824,000 |   |   | $ | 1,090,000 |   |
|  Laboratory and      building improvements      |   |         | 58,000  |   |   |   | 167,000 |   |
|  Furniture and      equipment                   |   |         | 40,000  |   |   |   | 134,000 |   |
|                                                                          |   |         | 922,000 |   |   |   | 1,391,000 |   |
|  Less      accumulated depreciation and amortization                     |   |         | 792,000 |   |   |   | 1,179,000 |   |
|  Net property      and equipment                                         |   | $            | 130,000 |   |   | $ | 212,000 |   |

----

----

| FutureMaturities     |   | Debt      |
|------------------------------------------|--------|-----------|
| 2008                                     |   | 64,000    |
| 2011                                     |   | 5,500,000 |

----

----

|  Summary of Warrants                                                                  |   |   | Warrants Outstanding |   |   |   |  Exercise Price  |   |  ExpirationDate |
|------------------------------------------------------------------------------------------------------|--------|--------|---------------------------|--------|--------|--------|---------------------------------|--------|----------------------|
|  2007 preferred      stock offering (a)                                                         |   |   | 3,649,880                 |   |   | $      | 3.50                            |   |  11/10/13       |
|  2006      convertible note (b)                                                       |   |   | 3,863,634                 |   |   |   | 1.32                            |   |  2/16/12        |
|  2006      convertible note (b)                                                       |   |   | 386,364                   |   |   |   | 1.32                            |   |  10/24/12       |
|  2006      convertible note (b)                                                       |   |   | 386,364                   |   |   |   | 1.32                            |   |  12/06/12       |
|  2006 investor      relations advisor (c)                                                       |   |   | 50,000                    |   |   |   | 2.70                            |   |  12/27/11       |
|  2004 offering      (d)                                           |   |   | 89,461                    |   |   |   | 35.50                           |   |  2/24/09        |
|  2004 offering      (d)                                                               |   |   | 31,295                    |   |   |   | 27.00                           |   |  2/24/09        |
|  2003 financial      advisor (e)                                                      |   |   | 14,399                    |   |   |   | 19.50                           |   |  10/30/08       |
|  2002      scientific consultant (f)                                                            |   |   | 2,000                     |   |   |   | 24.80                           |   |  2/01/09        |
|  2001      scientific consultant      (g)          |   |   | 3,000                     |   |   |   | 15.00                           |   |  1/1/08         |
|  Total                                                                                     |   |   | 8,476,397                 |   |   |   |                            |   |                 |

| a)   | In      connection with the preferred stock offering in November 2007, warrants to      purchase a total of 3,649,880 shares of common stock were issued. All of      the warrants are exercisable immediately and expire five years from date      of issue. The fair value of the warrants was $2.50 per share on the date      of the grant using the Black-Scholes pricing model with the following      assumptions: expected dividend yield 0.0%, risk-free interest rate 3.84%,      expected volatility 114% and a term of 5years. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b)   | In      connection with the convertible note offerings in 2006, warrants to      purchase a total of 4,636,362 shares of common stock were issued. All of      the warrants are exercisable immediately and expire six years from date of      issue. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c)   | During      2006, an investor relations advisor received warrants to purchase 50,000      shares of common stock at an exercise price of $2.70 per share at any time      from December 27, 2006 until December 27, 2011, for investor relations      consulting services to be rendered in 2007. All of the warrants are      exercisable. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d)   | In      connection with offering of common stock in 2004, warrants to purchase a      total of 120,756 shares of common stock were issued. All of the warrants      are exercisable and expire five years from date of    issuance. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e)   | During      2003, financial advisors received warrants to purchase 14,399 shares of      common stock at any time until October 30, 2008, for financial consulting      services rendered in 2003 and 2004. All the warrants are      exercisable. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| f)   | During      2002, a director who is also a scientific advisor received warrants to      purchase 2,000 shares of common stock at an exercise price of $24.55 per      share at any time until February 1, 2009, for scientific consulting      services rendered in 2002. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g)   | During      2001, a director who is also a scientific advisor received warrants to      purchase 3,000 shares of common stock at an exercise price of $15.00 per      share at any time until January 1, 2008, for scientific consulting      services rendered in 2001. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                      |   | Options |    |    |  Weighted- average  exercise Price |   |
|----------------------------------------------------------------------|--------|---------|---------|---------|-------------------------------------------------------------|--------|
|  Outstanding      options at January 1, 2006          |   |    | 50,000  |    |                                                        | $      | 5.45 |   |
|  Granted, fair      value of $ 0.36 per share    |   |    | 753,872 |    |                                                        |   | 1.32 |   |
|  Forfeited                                                 |   |    | (1,200  | )       |                                                        |   | 3.15 |   |
|  Outstanding      options at December 31, 2006             |   |    | 802,672 |    |                                                        |   | 1.04 |   |
|                                                                 |   |    |    |    |                                                        |   |   |   |
|  Granted, fair      value of $ 3.27 per share         |   |    | 230,000 |    |                                                        |   | 3.62 |   |
|  Exercised                                                      |   |    | (31,286 | )  |                                                        |   | 1.11 |   |
|  Forfeited                                       |   |    | (75,000 | )       |                                                        |   | 2.14 |   |
|  Outstanding      options at December 31, 2007             |   |    | 926,386 |    |                                                        |   | 1.59 |   |
|                                                                 |   |    |    |    |                                                        |   |   |   |
|  Exercisable at      December 31, 2007           |   |    | 698,081 |    |                                                        |   | 1.38 |   |

|                          |             |   | Number      of     |   |    | Weighted      average        |   |   | Number      of |   |   | Weighted      average |   |
|-------------------------------|------------------|--------|--------------------|--------|---------|------------------------------|--------|--------|----------------|--------|--------|-----------------------|--------|
| Range of exercise      prices |             |   | optionsoutstanding |   |    | Remaining      life in years |   |   | Exerciseprice  |   |   | optionsexcercisable   |   |   | Remaining      life in years |   |   | ExercisePrice |   |
| $                             | 0.63 -      0.63 |   |               |   | 666,750 |                         |   |   | 9.0            |   |   | $                     | 0.63   |   |   |   | 565,342 |   |   |   | 9.0 |   |   | $ | 0.63 |   |
| $                             | 2.90 -7.23       |   |               |   | 259,636 |                         |   |   | 9.4            |   |   |                  | 4.06   |   |   |   | 132,739 |   |   |   | 9.2 |   |   |   | 4.67 |   |
|                          |             |   |               |   | 926,386 |                         |   |   |           |   |   |                  |   |   |   |   | 698,081 |   |   |   |   |   |   |   |   |   |
|                          |             |   |               |   |    |                         |   |   |           |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                                      |   | Options |     |   | Weighted-averageexerciseprice |   |
|---------------------------------------------------------------------------|--------|---------|----------|--------|-------------------------------|--------|
|  Outstanding      options at January 1, 2006                    |   |    | 430,271  |   |                          | $      | 18.20 |   |
|  Forfeited                                            |   |    | (69,354  | )      |                          |   | 19.12 |   |
|  Outstanding      options at December 31, 2006                       |   |    | 18.03    |   |                          |   | 18.03 |   |
|                                                                      |   |    |     |   |                          |   |   |   |
|  Forfeited                                                      |   |    | (198,500 | )      |                          |   | 20.07 |   |
|  Exercisable at      December 31, 2007                |   |    | 162,417  |   |                          |   | 15.53 |   |
|                                                                      |   |    |     |   |                          |   |   |   |
|  Exercisable at      December 31, 2007      |   |    | 157,337  |   |                          |   | 15.64 |   |

|                          |                           |   | Number      of     |   |          | Weighted      average        |   |   | Number      of |   |   | Weighted      average |   |
|-------------------------------|--------------------------------|--------|--------------------|--------|---------------|------------------------------|--------|--------|----------------|--------|--------|-----------------------|--------|
| Range of exercise      prices |                           |   | optionsoutstanding |   |          | Remaining      life in years |   |   | Exerciseprice  |   |   | optionsexcercisable   |   |   | Remaining      life in years |   |   | ExercisePrice |   |
| $                             | 10.00 - 12.50             |   |               |   | 85,140   |                         |   |   | 5.3            |   |   | $                     | 11.42  |   |   |   | 80,238 |   |   |   | 5.1 |   |   | $ | 11.41 |   |
|                          | 14.05 -      18.65        |   |               |   | 48,717        |                         |   |   | 3.3            |   |   |                  | 16.33  |   |   |   | 48,717 |   |   |   | 3.3 |   |   |   | 16.33 |   |
| $                             | 20.25 –      29.25  |   |               |   | 28,560        |                         |   |   | 6.1            |   |   |                  | 26.42  |   |   |   | 28,382 |   |   |   | 6.1 |   |   |   | 26.41 |   |
|                          |                           |   |               |   | 162,417  |                         |   |   |           |   |   |                  |   |   |   |   | 157,337  |   |   |   |   |   |   |   |   |   |

----

|                                                                                                |   | 2007   |                                                                      |   | 2006   |   |
|-----------------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------|--------|--------|--------|
|  Income taxes      at U.S. statutory rate                                            |   | $      | (7,393,000                                                                | )      |   | $      | (4,378,000 | ) |
|  Change in      valuation allowance                                                            |   |   | 3,015,000                                                                 |   |   |   | 3,972,000 |   |
|  Change in      miscellaneous items                                                  |   |   | -                                                                         |   |   |   | (130,000 | ) |
|  Benefit of      foreign losses not recognized                                  |   |   | 56,000                                                                    |   |   |   | 58,000 |   |
|  Expenses not      deductible                                              |   |   | 3,957,000                                                                 |   |   |   | 240,000 |   |
|  Expiration of      net operating loss and general                                             |   |   |                                                                      |   |   |   |   |   |
|  business      credit carryforwards, net of      revisions       |   |   | 365,000                                                                   |   |   |   | 238,000 |   |
|                                                                                                |   |   |                                                                      |   |   |   |   |   |
|  Total tax      expense                                                                   |   | $      |                 -  |   |   | $      | -  |   |
|                                                                                                |   |   |                                                                      |   |   |   |   |   |

|                                                          |  December      31, |   |
|---------------------------------------------------------------|-------------------------|--------|
|                                                               |                    | 2007   |   |   | 2006 |   |
|  Deferred tax      assets                                |                    |   |   |   |   |   |   |   |
|  Net operating      loss carryforwards    |                    | $      | 25,693,000 |   |   | $ | 22,634,000 |   |
|  General      business credit carryforwards    |                    |   | 2,469,000 |   |   |   | 2,402,000 |   |
|  Property,      equipment and goodwill              |                    |   | 87,000 |   |   |   | 46,000 |   |
|                                                |                    |   |   |   |   |   |  |   |
|  Gross deferred      tax assets                |                    |   | 28,249,000 |   |   |   | 25,082,000 |   |
|  Valuation      allowance                                |                    |   |  (28,249,000 | ) |   |   | (25,082,000 | ) |
|                                                |                    |   |   |   |   |   |   |   |
|  Net deferred      taxes                       |                    | $      | -  |   |   | $ | -  |   |
|                                                          |                    |   |   |   |   |   |   |   |

|                   |   | Net      operatingloss      carryforwards |       |   | General      businesscredit      carryforwards |   |
|------------------------|--------|-------------------------------------------|------------|--------|------------------------------------------------|--------|
|  2008             |   | $                                         | 4,004,000  |   |                                           | $      | 138,000 |   |
|  2009             |   |                                      | 1,661,000  |   |                                           |   | 185,000 |   |
|  2010             |   |                                      | 2,171,000  |   |                                           |   | 140,000 |   |
|  2012             |   |                                      | 4,488,000  |   |                                           |   | 13,000 |   |
|  2013             |   |                                      | 4,212,000  |   |                                           |   | 77,000 |   |
|  Thereafter  |   |                                      | 59,032,000 |   |                                           |   | 1,916,000 |   |
|                   |   | $                                         | 75,568,000 |   |                                           | $      | 2,469,000 |   |

----

|   | 2007      Quarter Ended |
|--------|-------------------------|

|                                                             |   |                    | March 31  |   |   |   | June 30  |   |   |   | September 30  |   |   |   | December 31  |    |
|------------------------------------------------------------------|--------|-------------------------|----------------|--------|--------|--------|---------------|--------|--------|--------|--------------------|--------|--------|--------|-------------------|---------|
| Loss      from continuing operations                             |   | $                       | (4,127         | )      |   | $      | (2,109        | )      |   | $      | (1,957             | )      |   | $      | (13,663           | )       |
| Preferred      stock dividends                                   |   |                    |  -        |   |   |   | -             |   |   |   | -                  |   |   |   | (14,908           | )  |
| Discontinued      operations, net of tax                         |   |                    | -              |   |   |   | -             |   |   |   | -                  |   |   |   | 112               |    |
| Net      loss allocable to common    stockholders |   | $                       | (4,127         | )      |   | $      | (2,109        | )      |   | $      | (1,957             | )      |   | $      | (28,459           | )       |
| Basic      and diluted loss per  common      share     |   | $                       | (1.17          | )      |   | $      | (0.60         | )      |   | $      | (0.55              | )      |   | $      | (8.00             | )       |
|                                                             |   |                    |           |   |   |   |          |   |   |   |               |   |   |   |              |    |
|                                                             |   | 2006      Quarter Ended |           |

|                                                          |   |   | March      31  |   |   |   | June      30 |   |   |   | September 30 |   |   |   | December 31  |   |
|---------------------------------------------------------------|--------|--------|---------------------|--------|--------|--------|--------------|--------|--------|--------|--------------|--------|--------|--------|-------------------|--------|
| Loss      from continuing operations                          |   | $      | (4,856              | )      |   | $      | (3,331       | )      |   | $      | (2,015       | )      |   | $      | (3,049            | )      |
| Discontinued      operations, net of tax                      |   |   | -                   |   |   |   | -            |   |   |   | -            |   |   |   | 377               |   |
| Net      loss                                                 |   | $      | (4,856              | )      |   | $      | (3,331       | )      |   | $      | (2,015       | )      |   | $      | (2,672            | )      |
| Basic      and diluted loss per        common share |   | $      | (1.38               | )      |   | $      | (0.94        | )      |   | $      | (0.57        | )      |   | $      | (0.76             | )      |
|                                                          |   |   |                |   |   |   |         |   |   |   |         |   |   |   |              |   |
|                                                          |   |   |                |   |   |   |         |   |   |   |         |   |   |   |              |   |

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