----

----

**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-KSB**

| x  | Annual                Report pursuant to Section 13 or 15(d) of the Securities Exchange                Act of                1934 for the fiscal year ended December 31, 2006                or |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

**ACCESS      PHARMACEUTICALS, INC.**

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

|                            |  None                                                                |  |   |  None |  |
|---------------------------------|---------------------------------------------------------------------------|--|--------|------------|--|
| (Title                of Class) | (Name                of each exchange on which                registered) |

**DOCUMENTS      INCORPORATED BY REFERENCE:**

----

**TABLE      OF CONTENTS**

|  Part                I |                                                               |                                                                                                                 |  Page |
|-----------------------------|--------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------|------------|
|                        | Item                1.                                             |  Description                of Business                                                                         |            |  2 |
|                        | Item                2.                                             |  Description                  of                  Property                                                      |            |  21 |
|                        | Item                3.                                             |  Legal                  Proceedings                                                                             |       |  21 |
|                        | Item                4.                                             |  Submission              of Matters to a Vote of Security Holders                                               |            |  21 |
|                        |                                                               |                                                                                                                 |       |
|  Part              II  |                                                               |                                                                                                                 |       |
|                        | Item                5.                                             |  Market                for Common Equity, Related                Stockholder Matters and Small Business Issuer  |            |
|                        |  Purchases                of Equity                Securities |  22                                                                                                             |
|                        | Item                6.                                             |  Management’s              Discussion and Analysis or Plan of Operation                                   |       |  25 |
|                        | Item                7.                                             |  Financial              Statements                                                                              |       |  34 |
|                             | Item                8.                                             |  Changes              In and Disagreements With Accountants on Accounting and Financial              Disclosure |       |  34 |
|                        | Item                8A.                                            |  Controls              and Procedures                                                                           |       |  35 |
|                        | Item                8B.                                            |  Other              Information                                                                                 |       |  35 |
|                        |                                                               |                                                                                                                 |       |
|  Part              III |                                                               |                                                                                                                 |       |
|                        | Item                9.                                             |  Directors,              Executive Officers, Promoters, Control Persons and Corporate Governance;               |            |  |
|                             |                                                                    |  Compliance              With Section 16(A) of the Exchange Act                                                 |       |  36 |
|                        | Item                10.                                            |  Executive              Compensation                                                                            |       |  36 |
|                        | Item                11.                                            |  Security              Ownership of Certain Beneficial Owners and Management and Related                        |            |  |
|                             |                                                                    |  Stockholder              Matters                                                                               |            |  36 |
|                             | Item                  12.                                          |  Certain              Relationships and Related Transactions and Director              Independence             |       |  36 |
|                        | Item                  13.                                          | Exhibits                                                                                                             |       |  37 |
|                        | Item                14.                                            |  Principal              Accountant Fees and Services                                                            |       |  39 |
|                        |                                                               |                                                                                                                 |       |
|  Signatures            |                                                               |                                                                                                                 |  40   |

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*Table          Of          Contents*

**PART      I **

**ITEM      1. DESCRIPTION OF      BUSINESS**

**Business**

**Products**

----

*Table          of Contents*

**ACCESS      DRUG PORTFOLIO**

| **Compound**                                                                   |   | **Originator**                                  |   |  **Technology** |   | **Indication** |   | **FDA                Filing**          |   | **Clinical****Stage                (1)** |
|--------------------------------------------------------------------------------|--------|-------------------------------------------------|--------|----------------------|--------|----------------|--------|----------------------------------------|--------|------------------------------------------|
| Cancer                                                                         |   |                                            |   |                 |   |           |   |                                   |   |                                     |
| MuGard™                                                                  |   | Access                                          |   | Mucoadhesiveliquid   |   | Mucositis      |   | 510(k)                                 |   | Marketing                clearance       |
| ProLindacTM                (PolymerPlatinate,                AP5346) (2)  |   | Access                - U                London |   | Syntheticpolymer     |   | Cancer         |   | Clinical                Development(3) |   | Phase                II                  |
| Oral                Insulin                                               |   | Access                                          |   | Cobalamin            |   | Diabetes       |   | Research                               |   | Pre-Clinical                             |
| Oral                Delivery System                                       |   | Access                                          |   | Cobalamin            |   | Various        |   | Research                               |   | Pre-Clinical                             |
| Cobalamin-Targeted                Therapeutics                                 |   | Access                                          |   | Cobalamin            |   | Anti-tumor     |   | Research                               |   | Pre-Clinical                             |
|                                                                           |   |                                            |   |                 |   |           |   |                                   |   |                                     |

**Approved      Products**

----

*Table          of Contents*

**Products      in Development Status**

----

*Table          of Contents*

**Drug      Development Strategy**

----

*Table          of Contents*

**Process**

**Scientific      Background**

----

*Table          of Contents*

**Core      Drug Delivery Technology Platforms**

**Synthetic      Polymer Targeted Drug Delivery Technology**

**Cobalamin-Mediated      Oral Delivery Technology**

----

*Table          of Contents*

**Cobalamin-Mediated      Targeted Delivery Technology**

|  | • | 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 targeting                technology. |
|--|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | • | 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 molecule 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, normal                tissue. |
|--|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table          of Contents*

**Other      Key Developments**

----

*Table          of Contents*

**Patents**

----

*Table          of Contents*

| -   | folate                conjugates of polymer therapeutics, to enhance tumor delivery by                targeting                folate receptors, which are upregulated in certain tumor types with                two                U.S. and two European patent                applications; |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | 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, |
|--------------------|------------------------------------------|

| ·   | Cobalamin                mediated technology between 2007 and                2019 |
|--------------------|-----------------------------------------------------------------------------------|

**Government      Regulation**

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*Table          of Contents*

**Competition**

----

*Table          of Contents*

**Employees**

**Web      Availability**

**RISK      FACTORS**

**Without      obtaining adequate capital funding, we may not be able to continue as a going      concern.**

**We      have experienced a history of losses, we expect to incur future losses and      we      may be unable to obtain necessary additional capital to fund operations in      the      future.**

----

*Table          of Contents*

**We      do not have operating revenue and we may never attain      profitability.**

**We      may not be able to pay our debt and other obligations and our assets may be      seized as a result.**

**We      may not successfully commercialize our drug candidates.**

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*Table          of Contents*

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

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

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

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

| ·   | third                parties may market superior or equivalent                drugs. |
|--------------------|--------------------------------------------------------------------------------------|

**The      success of our research and development activities, upon which we primarily      focus, is uncertain.**

**We      may be unable to successfully develop, market, or commercialize our products      or      our product candidates without establishing new relationships and maintaining      current relationships.**

**We      may be unable to successfully manufacture our products and our product      candidates in clinical quantities or for commercial purposes without the      assistance of contract manufacturers, which may be difficult for us to obtain      and maintain.**

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*Table          of Contents*

**We      are subject to extensive governmental regulation which increases our cost of      doing business and may affect our ability to commercialize any new products      that      we may develop.**

| · |     A                mucoadhesive liquid technology product, MuGard™, has received marketing                approval by the FDA. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** |     ProLindac™is                currently in a Phase II trial in Europe and a Phase II trial in the                US. |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** |     ProLindac™has                been approved for an additional Phase I trial in the US by the                FDA. |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|
| · |     Cobalamin™                mediated delivery technology is currently in the pre-clinical                phase. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

**The      uncertainty associated with preclinical and clinical testing may affect our      ability to successfully commercialize new products.**

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*Table          of Contents*

**We      may incur substantial product liability expenses due to the use or misuse of      our      products for which we may be unable to obtain insurance      coverage.**

**We      may incur significant liabilities if we fail to comply with stringent      environmental regulations or if we did not comply with these regulations in      the      past.**

**Intense      competition may limit our ability to successfully develop and market commercial      products.**

|  | • | Cisplatin,                marketed by Bristol-Myers Squibb, the originator of the drug, and                several                generic manufacturers; |
|--|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | • | Carboplatin,                marketed by Bristol-Myers Squibb in the US;                and |
|--|---------|--------------------------------------------------------------------------------------------|

|  | • | Oxaliplatin,                marketed exclusively by                Sanofi-Aventis. |
|--|---------|------------------------------------------------------------------------------------|

|  | • | Antigenics                and Regulon are developing liposomal platinum                formulations; |
|--|---------|------------------------------------------------------------------------------------------------------|

|  | • | Spectrum                Pharmaceuticals and GPC Biotech is developing oral platinum                formulations; |
|--|---------|------------------------------------------------------------------------------------------------------------------|
|   | • |  Poniard              Pharmaceuticals is developing both iv and oral platinum              formulations; |
|--------|---------|---------------------------------------------------------------------------------------------------------------|

|  | • | Nanocarrier                and Debio are developing micellar nanoparticle platinum formulations;                and |
|--|---------|---------------------------------------------------------------------------------------------------------------------|

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

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*Table          of Contents*

**Our      ability to successfully develop and commercialize our drug candidates will      substantially depend upon the availability of reimbursement funds for the costs      of the resulting drugs and related treatments.**

**The      market may not accept any pharmaceutical products that we successfully      develop.**

**Trends      toward managed health care and downward price pressures on medical products      and      services may limit our ability to profitably sell any drugs that we may      develop.**

| ·   | 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. |
|--------------------|-------------------------------------------------------------------------------------------------------------------|

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*Table          of Contents*

**We      may not be successful in protecting our intellectual property and proprietary      rights.**

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

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

| ·   | Cobalamin                mediated technology between 2007 and                2019 |
|--------------------|-----------------------------------------------------------------------------------|

**Our      business could suffer if we lose the services of, or fail to attract, key      personnel. **

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*Table          of Contents*

**An      investment in our common stock may be less attractive because it is not traded      on a recognized public market.**

**Ownership      of our shares is concentrated in the hands of a few investors which could limit      the ability of our other stockholders to influence the direction of the      company.**

**Provisions      of our charter documents could discourage an acquisition of our company that      would benefit our stockholders **
**and      may have the effect of entrenching, and making it difficult to remove,      management**
**.**

**Substantial      sales of our common stock could lower our stock price.**

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*Table          of Contents*

**Failure      to achieve and maintain effective internal controls could have a material      adverse effect on our business. **

**ITEM      2. DESCRIPTION OF      PROPERTY**

**ITEM      3. LEGAL PROCEEDINGS**

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

**EXECUTIVE      OFFICERS OF THE REGISTRANT**

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*Table          of Contents*

**PART      II**

**ITEM      5. MARKET FOR COMMON EQUITY, RELATED**
**STOCKHOLDER      MATTERS AND SMALL**

**BUSINESS      ISSUER PURCHASES OF EQUITY SECURITIES**

**Price      Range of Common Stock and Dividend Policy**

|                                                 |   | ** Common                Stock** |           |
|------------------------------------------------------|--------|---------------------------------------|----------------|
|                                                 |   |                                  |  **High** |   |   | **Low** |   |
| **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 |   |
|                                                 |   |                                  |           |   |   |   |   |
| **Fiscal              Year Ended December 31, 2005** |   |                                  |           |   |   |   |   |
| First              quarter                           |   | $                                     | 18.30          |   | $ | 11.00 |   |
| Second              quarter                          |   |                                  | 15.05          |   |   | 8.80 |   |
| Third              quarter                           |   |                                  | 9.95           |   |   | 2.80 |   |
| Fourth              quarter                          |   |                                  | 8.65           |   |   | 2.60 |   |
|                                                 |   |                                  |           |   |   |   |   |

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*Table          of Contents*

**Recent      Sales of Unregistered Securities**

**Equity        Compensation Plan Information**

| **Plan                  Category**              |   | **Number                  of****securities                  to be issued****upon                  exercise**** ****of****outstanding                  options****warrants                  and rights** |   | **Weighted-average                  exercise price of outstanding options****warrants and rights** |   | **Number                  of securities remaining available for future issuance under equity                  compensation plans excluding securities****reflected in column (a))** |
|-------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Equity                  compensation plans      |   |                                                                                                                                                                                                         |   |                                                                                               |   |                                                                                                                                                                                |
| approved                  by security           |   |                                                                                                                                                                                                         |   |                                                                                               |   |                                                                                                                                                                                |
| holders                                         |   |                                                                                                                                                                                                         |   |                                                                                               |   |                                                                                                                                                                                |
| 2005                  Equity Incentive Plan     |   | 802,672                                                                                                                                                                                                      |   | $                  1.04                                                                            |   | 197,328                                                                                                                                                                             |
| 1995                  Stock Awards Plan         |   | 360,917                                                                                                                                                                                                      |   | 18.03                                                                                              |   | -                                                                                                                                                                                   |
| 2001                  Restricted Stock Plan     |   | -                                                                                                                                                                                                            |   | -                                                                                                  |   | 52,818                                                                                                                                                                              |
|                                            |   |                                                                                                                                                                                                         |   |                                                                                               |   |                                                                                                                                                                                |
| Equity                  compensation plans      |   |                                                                                                                                                                                                         |   |                                                                                               |   |                                                                                                                                                                                |
| not                  approved by security       |   |                                                                                                                                                                                                         |   |                                                                                               |   |                                                                                                                                                                                |
| holders                                         |   |                                                                                                                                                                                                         |   |                                                                                               |   |                                                                                                                                                                                |
| 2000                  Special Stock Option Plan |   | 100,000                                                                                                                                                                                                      |   | 12.50                                                                                              |   | -                                                                                                                                                                                   |
| Total                                           |   | 1,263,589                                                                                                                                                                                                    |   | $                  6.80                                                                            |   | 250,146                                                                                                                                                                             |

**The      2000 Special Stock Option Plan **

**Issuer      Purchases of Equity Securities**

----

*Table          of Contents*

**SELECTED      FINANCIAL DATA (In Thousands, Except for Net Loss Per Share)**
**(1)**

|  For                the Year Ended December 31,                                                                   |                              |
|------------------------------------------------------------------------------------------------------------------------|-----------------------------------|
|                                                                                                                   |                              | 2006 |   | 2005 |   | 2004 |   | 2003 |   | 2002 |   |
|                                                                                                                   |                              |   |   |   |   |   |   |   |   |   |   |
| **Consolidated                Statement of Operations and Comprehensive Loss                Data:**                    |                              |
| Total                revenues                                                                                          |                              | $                             - |   | $                             - |   | $                             - |   | $                             - |   | $                           89 |   |
| Operating                loss                                                                                          |                              |   | (5,175 | ) |   | (9,622 | ) |   | (6,003 | ) |   | (5,426 | ) |   | (5,925 | ) |
| Interest                and miscellaneous income                                                                       |                              |   | 294 |   |   | 100 |   |   | 226 |   |   | 279 |   |   | 594 |   |
| Interest                and other expense                                                                              |                              |   | (7,436 | ) |   | (2,100 | ) |   | (1,385 | ) |   | (1,281 | ) |   | (1,278 | ) |
| Unrealized                loss                                                                                         |                              |   | (1,107 | ) |   | - |   |   | - |   |   | - |   |   | - |   |
| Income                tax benefit                                                                                      |                              |   | 173 |   |   | 4,067 |   |   | - |   |   | - |   |   | - |   |
| Loss                from continuing operations                                                                         |                              |   | (13,251 | ) |   | (7,555 | ) |   | (7,162 | ) |   | (6,428 | ) |   | (6,520 | ) |
|                                                                                                                   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discontinued                operations net of taxes                $173                in 2006 and $4,067 in 2005 |                              |   | 377 |  |   | 5,855 |   |   | (3,076 | ) |   | (507 | ) |   | (2,864 | ) |
| Net                loss                                                                                                |                              |   | (12,874 | ) |   | (1,700 | ) |   | (10,238 | ) |   | (6,935 | ) |   | (9,384 | ) |
|                                                                                                                   |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Common                Stock Data: (2)**                                                                              |                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                loss per basic and diluted common                share                                              |                              | $ | (3.65 | ) | $ | (0.53 | ) | $ | (3.38 | ) | $ | (2.61 | ) | $ | (3.58 | ) |
| Weighted                average basic anddiluted                common sharesoutstanding                               |                              |   | 3,532 |   |   | 3,237 |   |   | 3,032 |   |   | 2,653 |   |   | 2,621 |   |
|                                                                                                                   |                              |
|                                                                                                                   | December                31,  |
|                                                                                                                   |                              |   | 2006 |   |   | 2005 |   |   | 2004 |   |   | 2003 |   |   | 2002 |   |
|  **Consolidated                Balance Sheet Data:**                                                              |                              |   |   |   |   |   |   |   |   |   |   |   |
| Cash,                cash equivalents and short                term investments                                        |                              | $ | 4,389 |   | $ | 474 |   | $ | 2,261 |   | $ | 2,587 |   | $ | 9,776 |   |
| Restricted                cash                                                                                         |                              |   | - |   |   | 103 |   |   | 1,284 |   |   | 649 |   |   | 468 |   |
| Total                assets                                                                                            |                              |   | 6,426 |   |   | 7,213 |   |   | 11,090 |   |   | 11,811 |   |   | 19,487 |   |
| Deferred                revenue                                                                                        |                              |   | 173 |   |   | 173 |   |   | 1,199 |   |   | 1,184 |   |   | 1,199 |   |
| Convertible                notes, net of discount                                                                      |                              |   | 8,833 |   |   | 7,636 |   |   | 13,530 |   |   | 13,530 |   |   | 13,530 |   |
| Total                liabilities                                                                                       |                              |   | 16,313 |   |   | 11,450 |   |   | 17,751 |   |   | 17,636 |   |   | 18,998 |   |
| Total                stockholders' equity (deficit)                                                                    |                              |   | (9,887 | ) |   | (4,237 | ) |   | (6,661 | ) |   | (5,825 | ) |   | 489 |   |

| (1)   | This                data has been adjusted for discontinued operations and sales of assets.                The discontinued operations relate to the sale of our oral care and                dermatology business to Uluru, Inc. and the closing and sale of the                our                Australian laboratory described more fully in “Item 6. Management’s                Discussion and Analysis or Plan of                Operations.” |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | All                shares and per share information reflect a one for five reverse stock                split effected June 5, 2006. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------|

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*Table          of Contents*

**ITEM      6.** **MANAGEMENT'SDISCUSSION      AND ANALYSIS OR PLAN OF      OPERATIONS**

**Overview**

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*Table          of Contents*

**Results      of Operations**

**Comparison      of Years Ended December 31, 2006 and 2005**

| ·   | Salary                expenses due to the separation agreement in 2005 with our former                CEO                ($909,000); |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Professional                fees for investment strategies and fairness opinions in 2005                ($397,000); |
|--------------------|---------------------------------------------------------------------------------------------------------------------|

| ·   | Legal                fees ($313,000); |
|--------------------|---------------------------------------|

| ·   | Patent                and license fees ($194,000); |
|--------------------|----------------------------------------------------|

| ·   | Rent                ($113,000); |
|--------------------|---------------------------------|

| ·   | Compensation                paid to Chairman in 2005 ($140,000)                and |
|--------------------|------------------------------------------------------------------------------------|

| ·   | Other                net decreases ($41,000). |
|--------------------|-----------------------------------------------|

| ·   | Salary                related costs due to the expensing of stock options ($180,000);                and |
|--------------------|----------------------------------------------------------------------------------------------------------|

| ·   | Investor/public                relations fees ($102,000). |
|--------------------|-----------------------------------------------------------|

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*Table          of Contents*

*“Accounting      for Registration Payment Arrangements” *
*“Accounting      for Contingencies.”*

**Comparison      of Years Ended December 31, 2005 and 2004**

| ·   | Expenses                due to the separation agreement with our former CEO                ($909,000); |
|--------------------|--------------------------------------------------------------------------------------------------------|

| ·   | Professional                fees for investment banking and financing decisions                ($397,000); |
|--------------------|------------------------------------------------------------------------------------------------------------|

| ·   | Higher                legal fees due to changes in our convertible debt and legal fees                associated with merger candidates ($161,000);                and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Royalty                license fee ($150,000). |
|--------------------|------------------------------------------------|

| ·   | Lower                investor relations costs ($90,000); |
|--------------------|----------------------------------------------------------|

| ·   | Lower                patent expenses ($61,000); and |
|--------------------|-----------------------------------------------------|

| ·   | Lower                net other increases ($27,000). |
|--------------------|-----------------------------------------------------|

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*Table          of Contents*

**Discontinued      Operations**

**Liquidity      and Capital Resources**

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*Table          of Contents*

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*Table          of Contents*

----

*Table          of Contents*

***.***
** **
** **

| ·   | 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 merge with Somanta Pharmaceuticals, Inc. and integrate                their                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 clinical                trials; |
|--------------------|---------------------------------------------------------------------------------|

| ·   | 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                month ended  |   |  Inception                to |   |
|-------------------------------------------------------------------|--------|-----------------------------------------------|--------|-----------------------------------|--------|
|                                                              |   |  December                31         |   |  Date                (1)     |   |
| Project                                                           |   | 2006                                          |   | 2005                              |   |   |   |
| Polymer                Platinate(ProLindac™)                |   | $                                             | 2,043  |                              | $      | 2,653 |   | $ | 19,654 |   |
| Mucoadhesive                LiquidTechnology                (MLT) |   |                                          | 10     |                              |   | - |   |   | 1,490 |   |
| Others                (2)                                         |   |                                          | -      |                              |   | 130 |   |   | 5,044 |   |
| Total                                                             |   | $                                             | 2,053  |                              | $      | 2,783 |   | $ | 26,188 |   |
|                                                              |   |                                          |   |                              |   |   |   |   |   |   |

| (1)   | Cumulative                spending from inception of the Company or project through December                31,                2006. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | The                following projects are among the ones included in this line item:                Vitamin                Mediated Targeted Delivery, carbohydrate targeting, amlexanox cream                and                gel and other related projects. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table          of Contents*

**Critical      Accounting Policies and Estimates**

***Asset      Impairment***

*“Goodwill      and Other Intangible Assets.” *

***Stock      Based Compensation Expense***

*Share-Based      Payment*
*Accounting      for Stock Issued to Employees*

----

*Table          of Contents*

*Accounting      for Stock-Based Compensation*

***Recent      Accounting Pronouncements***

*“Fair      Value Measurements”*

*“Accounting      for Income Tax Uncertainties*

----

*Table          of Contents*

**Off-Balance      Sheet Transactions**

**Contractual      Obligations **

|                                     |   |  Payment                Due by Period  |       |
|------------------------------------------|--------|--------------------------------------------------|------------|
|                                          |   | Total                                       |       | Less                Than 1 Year  |   | 1-4                Years |   |
| Long-Term                DebtObligations |        | $                                                | 16,395,000 |   | $ | 10,895,000 |   | $ | 5,500,000 |   |
|  Interest                           |   |                                             | 2,422,000  |   |   | 1,151,000 |   |   | 1,271,000 |   |
|  Lease                Obligations   |   |                                             | 135,000    |   |   | 92,000 |   |   | 43,000 |   |
|  Total                              |   | $                                                | 18,952,000 |   | $ | 12,138,000 |   | $ | 6,814,000 |   |

**QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

**ITEM      7. FINANCIAL STATEMENTS**

**ITEM      8. CHANGES IN AND DISAGREEMENTS WITH      ACCOUNTANTS ON ACCOUNTING AND**

**FINANCIAL      DISCLOSURE**

----

*Table          of Contents*

**ITEM      8A. CONTROLS AND      PROCEDURES**

**ITEM      8B. OTHER INFORMATION**

----

*Table          of Contents*

**PART      III**

**ITEM      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,      CONTROL PERSONS AND**

**CORPORATE      GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE **

**EXCGANGE      ACT**

**Directors      and Reports of Beneficial Ownership**

**Code      of Ethics**

**ITEM      10. EXECUTIVE COMPENSATION**

**ITEM      11. SECURITY OWNERSHIP OF CERTAIN      BENEFICIAL OWNERS AND MANAGEMENT**

**AND      RELATED STOCKHOLDER MATTERS**

**ITEM      12. CERTAIN RELATIONSHIPS AND RELATED      TRANSACTIONS AND DIRECTOR**

**INDEPENDENCE**

----

*Table          of Contents*

**ITEM      13. EXHIBITS **

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

|  Report                of Registered Independent Public Accounting Firm                                                   |  F-1  |
|--------------------------------------------------------------------------------------------------------------------------------|-----------------|
|  Report                of Registered Independent Public Accounting Firm                                              |  F-2  |
|  Consolidated                Balance Sheets at December 31, 2006 and 2005                                            |  F-3  |
|  Consolidated                Statements of Operations and Comprehensive Loss for 2006, 2005 and                2004  |  F-4  |
| Consolidated                Statements of Stockholders' Equity (Deficit) for 2006, 2005 and                2004           | F-5        |
|  Consolidated                Statements of Cash Flows for 2006, 2005 and 2004                                        |  F-6  |
|  Notes                to Consolidated Financial Statements                                                           |  F-7  |

|  | 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) |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 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) |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 3.2 | Certificate                  of Amendment of Certificate of Incorporation filed August 21,                  1992 |
|--|-----|------------------------------------------------------------------------------------------------------------------|

|  | 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) |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table          of Contents*

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

|  | 10.0 | Material                contracts: |
|--|------|------------------------------------|

|  *  | 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 10.19 of our Form 10-Q for the quarter ended                September 30, 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 | 2000                Special Stock Option Plan and Agreement (Incorporated                by reference to Exhibit 10.24 of our Form 10-Q for the quarter ended                September 30, 2000) |
|---------------------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.8 | Form                of Convertible Note (Incorporated                by reference to Exhibit 10.24 of our Form 10-Q for the quarter ended                September 30, 2000) |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 10.9 | 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) |
|--|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 10.10 | Amendment                  to Rights Agreement, dated as of February 16, 2006 between us and                  American                  Stock Transfer & Trust Company, as Rights Agent                  (2) |
|--|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  * | 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 |
|---------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  * | 10.13 | Agreement,                dated as of May 10, 2005 by and between us and Kerry P. Gray                (1) |
|---------|-------|-----------------------------------------------------------------------------------------------------------|

|  * | 10.14 | Employment                Agreement, dated as of June 1, 2005 by and between us and Stephen                B.                Thompson (1) |
|---------|-------|-------------------------------------------------------------------------------------------------------------------------------------------|

|  | 10.15 | AssetSale                  Agreement, dated as of October 12, 2005, between us and Uluru,                  Inc.                  (1) |
|--|-------|--------------------------------------------------------------------------------------------------------------------------------------|

|  | 10.16 | Amendment to                                Asset Sale Agreement, dated as December 8, 2006,                                between us and Uluru,                                Inc. |
|--|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 10.17 | License Agreement,                    dated as of October 12, 2005, between us and Uluru, Inc.                    (1) |
|--|-------|-----------------------------------------------------------------------------------------------------------------------|

|  | 10.18 | Amendment                to 7% (Subject to Adjustment) Convertible Promissory Notes Due September                13, 2005, dated as of November 3, 2005, between us and Oracle Partners                LP,                Oracle Institutional Holders LP, SAM Oracle Investments Inc. and                Oracle                Offshore Ltd. (1) |
|--|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 10.19 | Noteand                  Warrant Purchase Agreement, dated February 16, 2006 between us                  and certain                  Secured Parties |
|--|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 10.20 | Security                Agreement, dated February 16, 2006, between us and certain Secured                Parties                (2) |
|--|-------|--------------------------------------------------------------------------------------------------------------------------------------|

|  | 10.21 | Form                of 7.5% Secured Convertible Promissory Note, dated February 16, 2006,                issued by us and to certain Purchasers                (2) |
|--|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 10.22 | Form                of Warrant, dated February 16, 2006, issued by us to certain Purchasers                (2) |
|--|-------|----------------------------------------------------------------------------------------------------------------|

|  | 10.23 | Investor                Rights Agreement, dated February 16, 2006, between us and certain                Purchasers (2) |
|--|-------|-------------------------------------------------------------------------------------------------------------------------|

|  | 10.24 | Note                and Warrant Purchase Agreement, dated October 24, 2006 between us                and                certain Secured Parties |
|--|-------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.25 | Security                Agreement, dated October 24, 2006, between us and certain Secured                Parties |
|--------|-------|------------------------------------------------------------------------------------------------------------------|

|   | 10.26 | Form                of 7.5% Secured Convertible Promissory Note, dated October 24, 2006,                issued by us and to certain                Purchasers |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.27 | Form                of Warrant, dated October 24, 2006, issued by us to certain                Purchasers |
|--------|-------|-----------------------------------------------------------------------------------------------------------|

|   | 10.28 | Investor                Rights Agreement, dated October 24, 2006, between us and certain                Purchasers |
|--------|-------|--------------------------------------------------------------------------------------------------------------------|

|   | 10.29 | Note                and Warrant Purchase Agreement, dated December 6, 2006 between us                and                certain Secured Parties |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table          of Contents*

|   | 10.30 | Security                Agreement, dated December 6, 2006, between us and certain Secured                Parties |
|--------|-------|------------------------------------------------------------------------------------------------------------------|

|   | 10.31 | Form                of 7.5% Secured Convertible Promissory Note, dated December 6, 2006,                issued by us and to certain                Purchasers |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.32 | Form                of Warrant, December 6, 2006, issued by us to certain                Purchasers |
|--------|-------|-----------------------------------------------------------------------------------------------------|

|   | 10.33 | Investor                Rights Agreement, dated December 6, 2006, between us and certain                Purchasers |
|--------|-------|--------------------------------------------------------------------------------------------------------------------|

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

|  | 23.1 | Consent                of Whitley Penn LLP |
|--|------|--------------------------------------------|

|  | 23.2 | Consent                of Grant Thornton LLP |
|--|------|----------------------------------------------|

|   | 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 the                report. |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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 |
|-----------------|---------------------------------------------------------------------------------------------------------------|

**ITEM      14. PRINCIPAL ACCOUNTANT FEES AND      SERVICES**

----

*Table          of          Contents*

**SIGNATURES**

|                                                                                                                    |   |  ACCESS PHARMACEUTICALS, INC. |
|-------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|
|                                                                                                                    |   |                               |
|  Date April                  2, 2007              |        | By:                                | /s/ Stephen                  R.                  Seiler |
|                                                                                                                    |   |                                    | Stephen R. Seiler |
|                                                                                                                    |   |                                    | President and Chief Executive Officer |
|                                                                                                                    |   |                                    | Principal Executive Officer |
|                                                                                                                    |   |                               |   |
|  Date  April                  2, 2007                                                                    |   |  By:                          | /s/                  Stephen B. Thompson  |
|                                                                                                                    |   |                               | Stephen B. Thompson |
|                                                                                                                    |   |                               | Vice President, Chief Financial Officer |
|                                                                                                                    |   |                               | and Treasurer |
|                                                                                                                    |   |                               | Principal Financial and Accounting Officer |
|                                                                                                                    |   |                               |   |
|                                                                                                                    |   |                                    |   |

| Date  April                  2, 2007 |   | By:    | /s/                  Stephen R. Seiler         |
|------------------------------------------------|--------|--------|----------------------------------------------------------|
|                                           |   |   | Stephen                  R. Seiler                       |
|                                           |   |   | President                  and Chief Executive Officer   |
|                                           |   |   |                                                     |
| Date  April                  2, 2007 |   | By:    | /s/                  Mark Ahn                       |
|                                           |   |   | Mark                  Ahn, Director                      |
|                                           |   |   |                                                     |
| Date  April                  2, 2007 |   | By:    | /s/                  Mark J. Alvino                 |
|                                           |   |   | Mark                  J. Alvino, Director                |
|                                           |   |   |                                                     |
| Date  April                  2, 2007 |   | By:    | /s/                  Esteban Cvitkovic, MD          |
|                                           |   |   | Esteban                  Cvitkovic, Director             |
|                                           |   |   |                                                     |
| Date  April                  2, 2007 |   | By:    | /s/                  Jeffrey B. Davis               |
|                                           |   |   | Jeffrey                  B. Davis, Director              |
|                                           |   |   |                                                     |
| Date  April                  2, 2007 |   | By:    | /s/                  J. Michael Flinn               |
|                                           |   |   | J.                  Michael Flinn, Director              |
|                                           |   |   |                                                     |
| Date  April                  2, 2007 |   | By:    | /s/                  Stephen B. Howell              |
|                                           |   |   | Stephen                  B. Howell, Director             |
|                                           |   |   |                                                     |
| Date  April                  2, 2007 |   | By:    | /s/                  David P. Luci             |
|                                           |   |   | David                  P. Luci, Director                 |
|                                           |   |   |                                                     |
| Date  April                  2, 2007 |   | By:    | /s/                  Herbert H. McDade, Jr.         |
|                                           |   |   | Herbert                  H. McDade, Jr., Director        |
|                                           |   |   |                                                     |
| Date  April                  2, 2007 |   | By:    | /s/                  Rosemary Mazanet          |
|                                           |   |   | Rosemary                  Mazanet, M.D., Ph.D., Director |
|                                           |   |   |                                                     |
| Date  April                  2, 2007 |   | By:    | /s/                  John J. Meakem                 |
|                                           |   |   | John                  J. Meakem, Jr., Director           |

----

*Table          of Contents*

**Report      of Independent Registered Public Accounting Firm**

----

*Table          of          Contents*

**Report      of Independent Registered Public Accounting Firm**

----

*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

| ASSETS                                                                                                                                                                                                                              |   | December                  31, 2006 |        | December                  31, 2005 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|-------------|------------------------------------|--------|
| Current                  assets                                                                                                                                                                                                     |   |                               |        |                               |   |
| Cash                  and cash equivalents                                                                                                                                                                                          |   | $                                  | 1,194,000   |                               | $      | 349,000 |   |
| Short                  term investments, at cost                                                                                                                                                                                    |   |                               | 3,195,000   |                               |   | 125,000 |   |
| Receivables                                                                                                                                                                                                                         |   |                               | 359,000     |                               |   | 4,488,000 |   |
| Prepaid                  expenses and other current assets                                                                                                                                                                          |   |                               | 283,000     |                               |   | 197,000 |   |
| Total                  current assets                                                                                                                                                                                               |   |                               | 5,031,000   |                               |   | 5,159,000 |   |
|                                                                                                                                                                                                                                |   |                               |        |                               |   |   |   |
| Property                  and equipment, net                                                                                                                                                                                        |   |                               | 212,000     |                               |   | 300,000 |   |
| Debt                  issuance costs, net                                                                                                                                                                                           |   |                               | 158,000     |                               |   | - |   |
| Patents,                  net                                                                                                                                                                                                       |   |                               | 878,000     |                               |   | 1,046,000 |   |
| Licenses,                  ne                                                                                                                                                                                                       |   |                               | 25,000      |                               |   | 75,000 |   |
| Restricted                  cash and other assets                                                                                                                                                                                   |   |                               | 122,000     |                               |   | 633,000 |   |
| Total                  assets                                                                                                                                                                                                       |   | $                                  | 6,426,000   |                               | $      | 7,213,000 |   |
| LIABILITIES                  AND STOCKHOLDERS' DEFICIT                                                                                                                                                                              |   |                               |        |                               |   |   |   |
|  Current                  liabilities                                                                                                                                                                                          |   |                               |        |                               |   |   |   |
| Accounts                  payable and accrued expenses                                                                                                                                                                              |   | $                                  | 1,226,000   |                               | $      | 2,883,000 |   |
| Accrued                  interest payable                                                                                                                                                                                           |   |                               | 581,000     |                               |   | 652,000 |   |
| Deferred                  revenues                                                                                                                                                                                                  |   |                               | 173,000     |                               |   | 173,000 |   |
| Current                  portion long-term debt, net                  of discount $2,062,000 in 2006                                                                                                                                |   |                               | 8,833,000   |                               |   | 106,000 |   |
| Total                  current liabilities                                                                                                                                                                                          |   |                               | 10,813,000  |                               |   | 3,814,000 |   |
| Long-term                  debt, net of discount $1,879,000 in 2005                                                                                                                                                                 |   |                               | 5,500,000   |                               |   | 7,636,000 |   |
| Total                  liabilities                                                                                                                                                                                                  |   |                               | 16,313,000  |                               |   | 11,450,000 |   |
| Commitments                  and contingencies                                                                                                                                                                                      |   |                               |        |                               |   |   |   |
| Stockholders'                  deficit                                                                                                                                                                                              |   |                               |        |                               |   |   |   |
| Preferred                    stock - $.01 par value; authorized 2,000,000 shares;none                    issued or outstanding                                                                                                      |   |                               | -           |                               |   | - |   |
| Common                    stock - $.01 par value; authorized 100,000,000 shares;issued,                    3,535,108 at December 31, 2006 and authorized50,000,000                    shares; issued 3,528,108 at December 31, 2005 |   |                               | 35,000      |                               |   | 35,000 |   |
| Additional                  paid-in capital                                                                                                                                                                                         |   |                               | 68,799,000  |                               |   | 62,942,000 |   |
| Notes                  receivable from stockholders                                                                                                                                                                                 |   |                               | (1,045,000  | )                                  |   | (1,045,000 | ) |
| Treasury                  stock, at cost - 163 shares                                                                                                                                                                               |   |                               | (4,000      | )                                  |   | (4,000 | ) |
| Accumulated                  deficit                                                                                                                                                                                                |   |                               | (77,672,000 | )                                  |   | (66,165,000 | ) |
| Total                  stockholders' deficit                                                                                                                                                                                        |   |                               | (9,887,000  | )                                  |   | (4,237,000 | ) |
| Total                  liabilities and stockholders' deficit                                                                                                                                                                        |   | $                                  | 6,426,000   |                               | $      | 7,213,000 |   |

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

|                                                                                                                                |   |   Year                ended December 31, |        |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|-------------|
|                                                                                                                                |   | 2006                                               |        | 2005 |   | 2004 |   |
| Expenses                                                                                                                            |   |                                               |        |   |   |   |   |
| Research                and development                                                                                             |   | $                                                  | 2,053,000   |   | $ | 2,783,000 |   | $ | 2,335,000 |   |
| General                and administrative                                                                                           |   |                                               | 2,813,000   |   |   | 4,638,000 |   |   | 3,199,000 |   |
| Depreciation                and amortization                                                                                        |   |                                               | 309,000     |   |   | 333,000 |   |   | 469,000 |   |
| Write                off of goodwill                                                                                                |   |                                               | -           |   |   | 1,868,000 |   |   | - |   |
| Total                expenses                                                                                                       |   |                                               | 5,175,000   |   |   | 9,622,000 |   |   | 6,003,000 |   |
|                                                                                                                                |   |                                               |        |   |   |   |   |   |   |   |
| Loss                from operations                                                                                                 |   |                                               | (5,175,000  | ) |   | (9,622,000 | ) |   | (6,003,000 | ) |
|                                                                                                                                |   |                                               |        |   |   |   |   |   |   |   |
| Interest                and miscellaneous income                                                                                    |   |                                               | 294,000     |   |   | 100,000 |   |   | 226,000 |   |
| Interest                and other expense                                                                                           |   |                                               | (7,436,000  | ) |   | (2,100,000 | ) |   | (1,385,000 | ) |
| Unrealized                loss on fair value of warrants and beneficialconversion                feature                            |   |                                               | (1,107,000  | ) |   | - |   |   | - |   |
|                                                                                                                                |   |                                               | (8,249,000  | ) |   | (2,000,000 | ) |   | (1,159,000 |   |
| Loss                before discontinued operations and before tax benefit                                                           |   |                                               | (13,424,000 | ) |   | (11,622,000 | ) |   | (7,162,000 | ) |
| Income                tax benefit                                                                                                   |   |                                               | 173,000     |   |   | 4,067,000 |   |   | - |   |
| Loss                from continuing operations                                                                                      |   |                                               | (13,251,000 | ) |   | (7,555,000 | ) |   | (7,162,000 | ) |
|                                                                                                                                |   |                                               |        |   |   |   |   |   |   |   |
| Discontinued                operations, net of taxes of $173,000 in 2006 and  $4,067,000                in                2005 |   |                                               | 377,000     |   |   | 5,855,000 |   |   | (3,076,000 | ) |
| Net                loss                                                                                                             |   | $                                                  | (12,874,000 | ) | $ | (1,700,000 | ) | $ | (10,238,000 | ) |
|                                                                                                                                |   |                                               |        |   |   |   |   |   |   |   |
| Basic                and diluted loss per common share                                                                              |   |                                               |        |   |   |   |   |   |   |   |
| Loss                from continuing operations allocable to commonstockholders                                                      |   | $                                                  | (3.75       | ) | $ | (2.34 | ) | $ | (2.36 | ) |
| Discontinued                operations                                                                                              |   |                                               | 0.11        |   |   | 1.81 |   |   | (1.02 | ) |
| Net                loss allocable to common stockholders                                                                            |   | $                                                  | (3.65       | ) | $ | (0.53 | ) | $ | (3.38 | ) |
|                                                                                                                                |   |                                               |        |   |   |   |   |   |   |   |
| Weighted                average basic and diluted common sharesoutstanding                                                          |   |                                               | 3,531,934   |   |   | 3,237,488 |   |   | 3,032,451 |   |
|                                                                                                                                |   |                                               |        |   |   |   |   |   |   |   |

| Net                loss                                                                       |   | $      | (12,874,000 | )      | $      | (                1,700,000 | )      | $      | (10,238,000 | ) |
|-----------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|----------------------------|--------|--------|-------------|---|
| Other                comprehensive lossForeign                currency translation adjustment |   |   | -           |   |   | 3,000                      |   |   | (17,000     | ) |
| Comprehensive                loss                                                             |   | $      | (12,874,000 | )      | $      | (1,697,000                 | )      | $      | (10,255,000 | ) |

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

|                                                                                                                  |  Common Stock |   |                        |   |                                                |   |                                                        |   |                                                                 |   |                                    |   |                                            |
|-----------------------------------------------------------------------------------------------------------------------|-------------------------|--------|-----------------------------|--------|-----------------------------------------------------|--------|-------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------------------|
|                                                                                                                  |  Shares            |   |  Amount                |   |  Additional                    paid in capital |   |  Notes                    receivable from stockholders |   |  Unamortizedvalue                    of restricted stock grants |   |  Treasury                    stock |   |  Accumulatedothercomprehensiveincome(loss) |   |  Accumulateddeficit  |
| Balance,                    December 31, 2003                                                                         | 2,679,000               |   | $                    27,000 |   | $49,704,000                                         |   | (1,045,000)                                                 |   | $(294,000)                                                           |   | $(4,000)                                |   | $14,000                                         |   | $(54,227,000) |
| Common                    stock issuedfor                    cash, net of offeringcosts                               | 359,000                 |   | 4,000                       |   |   9,012,000                               |   |   -                                               |   |   -                                                        |   |   -                           |   |   -                                   |   | - |
| Common                    stock issued forcash                    exercise of warrants                    and options |  23,000            |   |   -               |   |   283,000                                 |   |   -                                               |   |   -                                                        |   |   -                           |   |   -                                   |   |  - |
| Common                    stock issued for  cashlessexercise                    of  warrants                | 42,000                  |   |   -               |   |   -                                       |   |   -                                               |   |   -                                                        |   |   -                           |   |   -                                   |   |  - |
| Issuance                    of restrictedstock                    grants                                              | 2,000                   |   |  -                     |   |  135,000                                       |   |  -                                                     |   |  (135,000)                                                      |   |  -                                 |   |  -                                         |   | - |
| Other                    comprehensive loss                                                                           | -                       |   |  -                     |   |  -                                             |   |  -                                                     |   |  -                                                              |   |  -                                 |   |  (17,000)                                  |   | - |
| Amortization                        of restricted stock grants                                                        | -                       |   |  -                     |   |  -                                             |   |  -                                                     |   |  120,000                                                        |   |  -                                 |   |  -                                         |   | - |
| Net                    loss                                                                                           | -                       |   | -                           |   | -                                                   |   | -                                                           |   | -                                                                    |   | -                                       |   | -                                               |   | (10,238,000) |
| Balance,                    December 31, 2004                                                                         |   3,105,000   |   | 31,000                      |   | 59,134                    000                       |   | (1,045,000)                                                 |   | (309,000)                                                            |   |  (4,000)                           |   | (3,000)                                         |   | (64,465,000) |
|                                                                                                                  |                    |   |                        |   |                                                |   |                                                        |   |                                                                 |   |                                    |   |                                            |   |   |
| Common                    stock issued,net                    of offering costs                                       | 237,000                 |   |  2,000                 |   |  1,119,000                                     |   |  -                                                     |   |  -                                                              |   |  -                                 |   |  -                                         |   | - |
| Common                    stock issuedfor                    payment of interest                                      | 190,000                 |   |  2,000                 |   |  616,000                                       |   |  -                                                     |   |  -                                                              |   |  -                                 |   |  -                                         |   | - |
| Other                    comprehensive income                                                                         |  -                 |   |  -                     |   |  -                                             |   |  -                                                     |   |  -                                                              |   |  -                                 |   |  3,000                                     |   | - |
| Discount                    on convertiblenote                    extension                                           | -                       |   |  -                     |   |  2,109,000                                     |   |  -                                                     |   |  -                                                              |   |  -                                 |   |  -                                         |   | - |
| Amortization                    and forfeiture                    of restricted stock                    grants       | (4,000)                 |   |   -               |   |   (36,000)                                |   |   -                                               |   |   309,000                                                  |   |   -                           |   |   -                                   |   |   - |
| Net                    loss                                                                                           | -                       |   | -                           |   | -                                                   |   | -                                                           |   | -                                                                    |   | -                                       |   | -                                               |   | (1,700,000) |
| Balance,                    December 31, 2005                                                                         | 3,528,000               |   | 35,000                      |   | 62,942,000                                          |   | (1,045,000)                                                 |   | -                                                                    |   | (4,000)                                 |   | -                                               |   | (66,165,000) |
|                                                                                                                  |                    |   |                        |   |                                                |   |                                                        |   |                                                                 |   |                                    |   |                                            |   |   |
| Common                    stock issued forcompensation                                                                | 7,000                   |   |  -                     |   |  77,000                                        |   |  -                                                     |   |  -                                                              |   |  -                                 |   |  -                                         |   |  - |
| Warrants                    issued                                                                                    | -                       |   | -                           |   | 100,000                                             |   | -                                                           |   | -                                                                    |   | -                                       |   | -                                               |   | - |
| Stock                    optioncompensation                    expense                                                | -                       |   |  -                     |   |  248,000                                       |   |  -                                                     |   |  -                                                              |   |  -                                 |   |  -                                         |   |  - |
| Issuance                    of convertibledebt                    with warrants                                       | -                       |   |  -                     |   |  5,432,000                                     |   |  -                                                     |   |  -                                                              |   | -                                       |   |  -                                         |   |  - |
| Cumulative                    effect ofchange                    in accountingprinciple                               |  -                 |   |   -               |   |   -                                       |   |   -                                               |   |   -                                                        |   |   -                           |   |   -                                   |   |   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) |

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

|                                                                                                        |   |                                     |                        |   |   |        |   |
|-------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|-----------------------------|--------|--------|-------------|--------|
|                                                                                                        |   | Year                  ended December 31, |                        |
|                                                                                                        |   | 2006                                     |                        | 2005   |   | 2004        |   |
| Cash                  flows from operating activities                                                       |   |                                     |                        |   |   |        |   |
| Net                  loss                                                                                   |   | $                                        | (12,874,000                 | )      | $      | (1,700,000  | )      | $ | (10,238,000 | ) |
| Adjustments                  to reconcile net loss to net cash used                                         |   |                                     |                        |   |   |        |   |   |   |   |
| in                  operating activities:                                                                   |   |                                     |                        |   |   |        |   |   |   |   |
| Unrealized                  Loss                                                                            |   |                                     | 1,107,000                   |   |   | -           |   |   | - |   |
| Loss                  on sale Australia assets                                                              |   |                                     | -                           |   |   | 208,000     |   |   | - |   |
| Impairment                  of investment                                                                   |   |                                     | -                           |   |   | -           |   |   | 112,000 |   |
| Write                  off of goodwill                                                                      |   |                                     | -                           |   |   | 1,868,000   |   |   | - |   |
| Amortization                  of restricted stock grants                                                    |   |                                     | -                           |   |   | 309,000     |   |   | 120,000 |   |
| Stock                  option expense                                                                       |   |                                     | 248,000                     |   |   | -           |   |   | - |   |
| Stock                  issued for compensation                                                              |   |                                     | 77,000                      |   |   | 42,000      |   |   | - |   |
| Stock                  issued for interest                                                                  |   |                                     | -                           |   |   | 618,000     |   |   | - |   |
| Depreciation                  and amortization                                                              |   |                                     | 309,000                     |   |   | 570,000     |   |   | 773,000 |   |
| Amortization                  of debt costs and discounts                                                   |   |                                     | 6,749,                  000 |   |   | 695,000     |   |   | 183,000 |   |
| Gain                  on sale of assets                                                                     |   |                                     | (550,000)                   |   |   | (12,891,000 | )      |   | - |   |
| Change                  in operating assets and liabilities:                                                |   |                                     |                        |   |   |        |   |   |   |   |
| Receivables                                                                                                 |   |                                     | 4,129,000                   |   |   | 622,000     |   |   | 358,000 |   |
| Inventory                                                                                                   |   |                                     | -                           |   |   | 104,000     |   |   | 60,000 |   |
| Prepaid                  expenses and other current assets                                                  |   |                                     | 14,000                      |   |   | 817,000     |   |   | (195,000 | ) |
| Restricted                  cash and other assets                                                           |   |                                     | 127,000                     |   |   | -           |   |   | - |   |
| Accounts                  payable and accrued expenses                                                      |   |                                     | (1,657,000                  | )      |   | 490,000     |   |   | 401,000 |   |
| Accrued                  interest payable                                                                   |   |                                     | 363,000                     |   |   | 341,000     |   |   | - |   |
| Deferred                  revenues                                                                          |   |                                     | -                           |   |   | 606,000     |   |   | 15,000 |   |
| Net                  cash used in operating activities                                                      |   |                                     | (1,958,000                  | )      |   | (7,301,000  | )      |   | (8,411,000 | ) |
|                                                                                                        |   |                                     |                        |   |   |        |   |   |   |   |
| Cash                  flows from investing activities:                                                      |   |                                     |                        |   |   |        |   |   |   |   |
| Capital                  expenditures                                                                       |   |                                     | (3,000                      | )      |   | (28,000     | )      |   | (221,000 | ) |
| Proceeds                  from sale of equipment                                                            |   |                                     | -                           |   |   | 355,000     |   |   | - |   |
| Proceeds                  from sale of patents                                                              |   |                                     | -                           |   |   | 974,000     |   |   | - |   |
| Proceeds                  from sale of oral/topical care assets                                             |   |                                     | 550,000                     |   |   | 7,391,000   |   |   | - |   |
| Restricted                  cash and other assets                                                           |   |                                     |                        |   |   | 684,000     |   |   | (666,000 | ) |
| Redemptions                  of short-term investments                                                      |   |                                     |                        |   |   |        |   |   |   |   |
| and                  certificates of deposit, net                                                           |   |                                     | (3,070,000                  | )      |   | 361,000     |   |   | 1,374,000 |   |
| Net                  cash provided by (used in) investing activities                                   |   |                                     | (2,523,000                  | )      |   | 9,717,000   |   |   | 487,000 |   |
|                                                                                                        |   |                                     |                        |   |   |        |   |   |   |   |
| Cash                  flows from financing activities:                                                      |   |                                     |                        |   |   |        |   |   |   |   |
| Payments                  of notes payable                                                                  |   |                                     | (106,000                    | )      |   | (407,000    | )      |   | (310,000 | ) |
| Payment                  of secured notes payable and convertible notes                                     |   |                                     | -                           |   |   | (6,648,000  | )      |   | - |   |
| Proceeds                  from secured notes payable                                                        |   |                                     | 5,432,000                   |   |   | 2,633,000   |   |   | - |   |
| Proceeds                  from stock issuances, net of costs                                                |   |                                     | -                           |   |   | 577,000     |   |   | 9,299,000 |   |
| Net                  cash provided by (used in) financing activities                                        |   |                                     | 5,326,000                   |   |   | (3,845,000  | )      |   | 8,989,000 |   |
|                                                                                                        |   |                                     |                        |   |   |        |   |   |   |   |
| Net                  increase (decrease) in cash and cash equivalents                                       |   |                                     | 845,000                     |   |   | (1,429,000  | )      |   | 1,065,000 |   |
| Effect                  of exchange rate changes on cash and cash equivalents                               |   |                                     | -                           |   |   | 3,000       |   |   | (17,000 | ) |
| Cash                  and cash equivalents at beginning of year                                             |   |                                     | 349,000                     |   |   | 1,775,000   |   |   | 727,000 |   |
| Cash                  and cash equivalents at end of year                                                   |   | $                                        | 1,194,000                   |   | $      | 349,000     |   | $ | 1,775,000 |   |
|                                                                                                        |   |                                     |                        |   |   |        |   |   |   |   |
| *Cash                  paid for interest*                                                                   |   | *$*                                      | *315,000*                   |   | *$*    | *445,000*   |   | *$* | *1,073,000* |   |
|                                                                                                        |   |                                     |                        |   |   |        |   |   |   |   |
| *Supplemental                  disclosure of noncash transactions*                                          |   |                                     |                        |   |   |        |   |   |   |   |
| *Value                  of restricted stock grants*                                                         |   |                                     | *-*                         |   |   | *-*         |   |   | *135,000* |   |
| *Assets                  acquired under capital leases*                                                     |   |                                     | *-*                         |   |   | *-*         |   |   | *59,000* |   |
| *Common                  stock issued for SEDA and*                                                         |   |                                     |                        |   |   |        |   |   |   |   |
| *Secured                  Convertible Notes*                                                                |   |                                     | *-*                         |   |   | *502,000*   |   |   | *-* |   |
| *Discount                  on convertible note extension*                                                   |   |                                     | *-*                         |   |   | *2,109,000* |   |   | *-* |   |
| *Debt                  issuance costs*                                                                      |   |                                     | *568,000*                   |   |   |        |   |   |   |   |
| *Accrued                  interest capitalized*                                                             |   |                                     | *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*                 |   |   |        |   |   |   |   |

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

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

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*Table          of          Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

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

*“Accounting      for Research and Development Costs,”*

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

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

|                                           |   |  December                  31, 2006  |   |  December                  31, 2005  |   |  December                  31, 2004  |   |
|------------------------------------------------|--------|------------------------------------------------|--------|------------------------------------------------|--------|------------------------------------------------|--------|
|                                           |   |  Gross                  carryingvalue     |   |  Accumulatedamortization                  |   |  Grosscarryingvalue                       |   |  Accumulatedamortization |   |  Grosscarryingvalue |   |   Accumulatedamortization |   |
| Amortizable                  intangible assets |   |                                           |   |                                           |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Patents                                        |   | $                                              | 1,680  |                                           | $      | 802                                            |   | $ | 1,680 |   | $ | 634 |   | $ | 3,179 |   | $ | 864 |   |
| Licenses                                       |   |                                           | 500    |                                           |   | 475                                            |   |   | 500 |   |   | 425 |   |   | 500 |   |   | 375 |   |
| Total                                          |   | $                                              | 2,180  |                                           | $      | 1,277                                          |   | $ | 2,180 |   | $ | 1,059 |   | $ | 3,679 |   | $ | 1,239 |   |

| 2007       |   | $      | 193    |   |
|------------|--------|--------|--------|--------|
| 2008       |   |   | 168    |   |
| 2009       |   |   | 168    |   |
| 2010       |   |   | 168    |   |
| 2011       |   |   | 168    |   |
| Thereafter |   |   | 38     |   |
|       |   |   |   |   |
| Total      |   | $      | 903    |   |

*Share-Based      Payment*
*Accounting      for Stock Issued to Employees*

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

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

*Accounting      for Stock-Based Compensation*

| ·   | 127%                - the 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. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 4.85%                (average) - the 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. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | None                - the dividend yield assumption is based on our history and expectation                of                dividend payments. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 1.6                years - the estimated expected term (average of 1.6 years) is based                on                employee exercise behavior. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

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

|                                                                           |    | **Year ended****December 31,                2006** |
|--------------------------------------------------------------------------------|--------------|--------------------------------------------------------------|
| Research                and development                                        |    | $                                                            | 68 |
| General                and administrative                                      |    |                                                         | 180 |
|                                                                           |    |                                                         |   |
| Stock-based                compensation expense included in operating expenses |    |                                                         | 248 |
|                                                                           |    |                                                         |   |
| Total                stock-based compensation expense                          |    |                                                         | 248 |
| Tax                benefit                                                     |    |                                                         | —   |
|                                                                           |    |                                                         |   |
| Stock-based                compensation expense, net of tax                    |    | $                                                            | 248 |
|                                                                           |    |                                                         |   |

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

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

|  (in                thousands)                                                                                                                            |   | Year                endedDecember                31, |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|
|                                                                                                                                                                |   |                                                 | 2006 |   |   | 2005 |   |
| Net                loss, as reported under APB 25 for the prior period (1)                                                                                          |   | $                                                    | N/A |   | $ | (1,700 | ) |
| Add                back stock based employee compensation expense in reported                net loss, net of related tax effects                                   |   |                                                 | - |   |   | - |   |
| Subtract                total stock-based compensation expense determined under                fair value-based method for all awards, net of related taxeffects(2) |   |                                                 | (248 | ) |   | (750 | ) |
| Net                loss including the effect of stock-based compensation expense(3)                                                                                 |   | $                                                    | (12,874 | ) | $ | (2,450 | ) |
|  Loss                per share:                                                                                                                           |   |                                                 |   |   |   |   |   |
| Basic                and diluted, as reported for the prior period(1)                                                                                               |   | $                                                    | (3.65 | ) | $ | (0.53 | ) |
| Basic                and diluted, including the effect of stock-basedcompensation                expense(3)                                                         |   | $                                                    | (3.65 | ) | $ | (0.76 | ) |

| (1) | Net                loss and loss per share for periods prior to year 2006 does not include                stock-based compensation expense under SFAS 123 because the Company                did                not adopt the recognition provisions of SFAS 123. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Stock-based                compensation expense for periods prior to year 2006 was calculated                based                on the pro forma application of SFAS 123. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Net                loss and loss per share for periods prior to year 2006 represent                pro forma                information based on SFAS 123. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

*“Accounting      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,      or      in Conjunction with Selling, Goods or Services,” *

*“Fair      Value Measurements”*

*“Accounting      for Income Tax Uncertainties*

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

**NOTE      2 - LIQUIDITY**

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

**NOTE      3 - RELATED PARTY TRANSACTIONS**

|  Year |   |   | Consulting                    Fees |   |   | ExpenseReimbursement |   |
|------------|--------|--------|------------------------------------|--------|--------|----------------------|--------|
| 2006       |   | $      | 69,000                             |   | $      | 5,000                |   |
| 2005       |   |   | 79,000                             |   |   | 5,000                |   |
| 2004       |   |   | 58,000                             |   |   | 9,000                |   |

**NOTE      4 - PROPERTY AND EQUIPMENT**

| Property                  and equipment consists of the following: |   | December                  31, |
|--------------------------------------------------------------------|--------|-------------------------------|
|                                                               |   |                          | 2006 |   |   | 2005 |   |
| Laboratory                  equipment                              |   | $                             | 1,090,000 |   | $ | 1,090,000 |   |
| Laboratory                  and building improvements              |   |                          | 167,000 |   |   | 167,000 |   |
| Furniture                  and equipment                           |   |                          | 134,000 |   |   | 138,000 |   |
|                                                               |   |                          | 1,391,000 |   |   | 1,395,000 |   |
| Less                  accumulated depreciation and amortization    |   |                          | 1,179,000 |   |   | 1,095,000 |   |
| Net                  property and equipment                        |   | $                             | 212,000 |   | $ | 300,000 |   |

**NOTE      5 - 401(k) PLAN**

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

**NOTE      6 - DISCONTINUED OPERATIONS**

|                       |   |      2006     |     |  2005 |   |  2004 |   |
|----------------------------------------------------------------------------------------|--------|------------------------------------------------------------|----------|------------|--------|------------|--------|
|  Revenues                                                                         |   | $                                                          | 550,000  |       | $      | 781,000    |   | $ | 549,000 |   |
|                                                                                   |   |                                                       |     |       |   |       |   |   |   |   |
|  Expenses             |   |                                                       |     |       |   |       |   |   |   |   |
| Cost                of                product sales                                    |   |                                                       |          |       |   | (1,012,000 | )      |   | (239,000 | ) |
| Research                and                development                  |   |                                                       |     |       |   | (2,501,000 | )      |   | (3,082,000 | ) |
| Depreciation                                                                           |   |                                                       |     |       |   | (237,000   | )      |   | (304,000 | ) |
|  Total                expenses                                                    |   |                                                       | -        |       |   | (3,750,000 | )      |   | (3,625,000 | ) |
|                                                                                   |   |                                                       |     |       |   |       |   |   |   |   |
|  Income/loss              from discontinued operations                            |   |                                                       | 550,000  |       |   | (2,969,000 | )      |   | (3,076,000 | ) |
|                                                                                   |   |                                                       |     |       |   |       |   |   |   |   |
|  Gain              on sale of assets                                              |   |                                                       | -        |       |   | 12,891,000 |   |   | - |   |
|  Tax expense                                                                      |   |                                                       | (173,000 | )          |   | (4,067,000 | )      |   | - |   |
|  Discontinued operations                                                          |   | $                                                          | 377,000  |       | $      | 5,855,000  |   | $ | (3,076,000 | ) |

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

**NOTE      7 - DEBT**

*“Accounting      for Registration Payment Arrangements” *
*“Accounting      for Contingencies.”*

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

**NOTE      7 - DEBT - continued**

*Application      of Issue No. 98-5 to Certain Instruments.*

**NOTE      8 - COMMITMENTS AND CONTINGENCIES**

| FutureMaturities |   |                    Debt |
|------------------|--------|------------------------------|
| 2007             |   | 10,895,000                   |
| 2010             |   | 5,500,000                    |

**NOTE      9 - STOCKHOLDERS' EQUITY**

** **

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

**NOTE      9 - STOCKHOLDERS' EQUITY - Continued**

|  Summary                of Warrants             |    |   | Outstanding |      | Exercise                  Price |   | Expiration                  Date |   |
|------------------------------------------------------|--------------|--------|-------------|-----------|---------------------------------|--------|----------------------------------|--------|
| 2006                  convertible note (a)           |         |   |        | 3,863,634 |                            | $      | 1.32                             |   |   | 2/16/12 |   |
| 2006                  convertible note (a)           |         |   |        | 386,364   |                            |   | 1.32                             |   |   | 10/24/12 |   |
| 2006                  convertible note (a)           |         |   |        | 386,364   |                            |   | 1.32                             |   |   | 12/06/12 |   |
| 2006                  investor relations advisor (b) |         |   |        | 50,000    |                            |   | 2.70                             |   |   | 12/27/11 |   |
| 2004                  offering (c)                   |         |   |        | 89,461    |                            |   | 35.50                            |   |   | 2/24/09 |   |
| 2004                  offering (c)                   |         |   |        | 31,295    |                            |   | 27.00                            |   |   | 2/24/09 |   |
| 2003                  financial advisor (d)          |         |   |        | 14,399    |                            |   | 19.50                            |   |   | 10/30/08 |   |
| 2002                  scientific consultant (e)      |         |   |        | 2,000     |                            |   | 24.80                            |   |   | 2/01/09 |   |
| 2001                  scientific consultant (f)      |         |   |        | 3,000     |                            |   | 15.00                            |   |   | 1/1/08 |   |
| Total                                                |         |   |        | 4,826,517 |                            |   |                             |   |   |   |   |

| a)   | 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. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b)   | 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 were                exercisable at December 31, 2006. The fair value of the warrants                was $2.00                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 4.58%, expected volatility 138% and a term of 2.5 years. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c)   | 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. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d)   | 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.                The                fair value of the warrants was $14.10 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 2.9%, expected                volatility 92% and a term of 5 years. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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*Table          of          Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

**NOTE      9 - STOCKHOLDERS' EQUITY - Continued**

| e)   | 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. The fair value of the warrants was $18.50                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 3.90%, expected volatility 81% and a term of 7 years. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f)   | 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. The fair value of the warrants was $13.70                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 5.03%, expected volatility 118% and a term of 7 years. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE      10 - STOCK OPTION PLANS**

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*Table          of          Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

**NOTE      10 - STOCK OPTION PLANS - Continued**

|                                                      |    |   | Weighted-            |
|-----------------------------------------------------------|---------|--------|----------------------|
|                                                      |    |   | average              |
|                                                      |    |   | exercise             |
|                                                      | Options |   | price                |
| Outstanding                  options at January 1, 2005   | -       |   | $                  - |
| Granted,                  fair value of $8.50 per share   | 50,000  |   | 5.45                 |
| Outstanding                  options at December 31, 2005 | 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                 |
| Exercisable                  at December 31, 2005         | 14,000  |   | 5.45                 |
| Exercisable                  at December 31, 2006         | 204,718 |   | 2.00                 |

|                                                        | Number                  of | Weighted                  average    | Number                  of |  Weighted                  aververage |
|--------------------------------------------------------|----------------------------|--------------------------------------|----------------------------|--------------------------------------------|
|                                                   | options                    | Remaining                            | Exercise                   | options                                    |  Remaining |  Exercise |
| Range                  of excercise prices   | outstanding           |  life                  in years |  price                |  exerciseable                         |  life                  in years |  price |
|                                                   |                       |                                 |                       |                                       |   |   |
| $0.63                  - 0.85                          | 717,000                    | 9.6                                  | $0.63                      | 129,250                                    |  9.6 | $0.63 |
| $3.15                  - 5.45                          | 85,672                     | 8.9                                  | 4.49                       | 75,468                                     |  8.9 |  4.36 |
|                                                   | 802,672                    |                                 |                       | 204,718                                    |   |   |

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

**NOTE      10 - STOCK OPTION PLANS - Continued**

|                                                      |     | Weighted-                |
|-----------------------------------------------------------|----------|--------------------------|
|                                                      |     | average                  |
|                                                      |     | exercise                 |
|                                                      | Options  | price                    |
|                                                      |     |                     |
| Outstanding                  options at January 1, 2004   | 410,725  | $                  17.25 |
| Granted,                  fair value of $10.90 per share  | 62,840   | 28.75                    |
| Exercised                                                 | (21,939) | 11.90                    |
| Forfeited                                                 | (15,196) | 21.05                    |
| Outstanding                  options at December 31, 2004 | 436,430  | 18.80                    |
|                                                      |     |                     |
| Granted,                  fair value of $6.45 per share   | 49,700   | 12.05                    |
| Forfeited                                                 | (55,859) | 17.30                    |
| Outstanding                  options at December 31, 2005 | 430,271  | 18.20                    |
|                                                      |     |                     |
| Forfeited                                                 | (69,354) | 19.12                    |
| Outstanding                  options at December 31, 2006 | 360,917  | 18.03                    |
|                                                      |     |                     |
| Exercisable                  at December 31, 2004         | 334,232  | 18.20                    |
| Exercisable                  at December 31, 2005         | 406,760  | 18.40                    |
| Exercisable                  at December 31, 2006         | 349,990  | 18.12                    |

| Range                  of  | Number                  of      | Weighted                  average | Number                  of | Weighted                  average |
|---------------------------------|---------------------------------|-----------------------------------|----------------------------|-----------------------------------|
| exercise                   | shares                          | Remaining                         | Exercise                   | shares                            | Remaining |  Exercise |
| prices                          | outstanding                     | life                  in years    | price                      | exercisable                       | life                  in years |  Price |
|                            |                            |                              |                       |                              |   |   |
| $10.00                  - 12.50 | 147,640                         | 3.6                               | $11.15                     | 139,032                           | 3.3 |  $11.12 |
| $14.05                  - 18.65 | 112,717                         | 1.9                               | 16.61                      | 112,717                           | 1.9 | 16.61 |
| $20.25                  - 34.38 |                    100,560 | 2.1                               | 29.73                      | 98,241                            | 2.0 | 29.74 |
|                            |                            |                              |                       |                              |   |   |
|                            |                    360,917 |                              |                       | 349,990                           |   |   |

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

**NOTE      11 - INCOME TAXES**

|                                                             |   | 2006   |       | 2005   |   | 2004       |   |
|------------------------------------------------------------------|--------|--------|------------|--------|--------|------------|--------|
|                                                             |   |   |       |   |   |       |   |
| Income                  taxes at U.S. statutory rate             |   | $      | (4,378,000 | )      | $      | (438,000   | )      | $ | (3,442,000 | ) |
| Change                  in valuation allowance                   |   |   | 3,972,000  |   |   | (2,051,000 | )      |   | 895,000 |   |
| Change                  in miscellaneous items                   |   |   | (130,000)  |   |   | 397,000    |   |   | 598,000 |   |
| Benefit                  of foreign losses not recognized        |   |   | 58,000     |   |   | 304,000    |   |   | - |   |
| Expenses                  not deductible                         |   |   | 240,000    |   |   | 738,000    |   |   | 7,000 |   |
| Expiration                  of net operating loss and general    |   |   |       |   |   |       |   |   |   |   |
| business                  credit carryforwards, net of revisions |   |   | 238,000    |   |   | 1,050,000  |   |   | 1,942,000 |   |
|                                                             |   |   |       |   |   |       |   |   |   |   |
| Total                  tax expense                               |   | $      | -          |   | $      | -          |   | $ | - |   |
|                                                             |   |   |       |   |   |       |   |   |   |   |

|                                                               |   | December                  31,   |        |
|--------------------------------------------------------------------|--------|---------------------------------|-------------|
|                                                               |   | 2006                            |        | 2005 |   | 2004 |   |
| Deferred                  tax assets (liabilities)                 |   |                            |        |   |   |   |   |
| Net                  operating loss carryforwards                  |   | $                    22,634,000 |        | $                  20,261,000 |   | $                  20,808,000 |   |
| General                  business credit carryforwards             |   |                            | 2,402,000   |   |   | 2,261,000 |   |   | 2,094,000 |   |
| Deferred                  gain on sale of oral/topical care assets |   |                            | **-**       |   |   | (1,490,000 | ) |   | - |   |
| Property,                  equipment and goodwill                  |   |                            | 46,000      |   |   | 78,000 |   |   | 259,000 |   |
|                                                               |   |                            |        |   |   |   |   |   |   |   |
| Gross                  deferred tax assets                         |   |                            | 25,082,000  |   |   | 21,110,000 |   |   | 23,161,000 |   |
| Valuation                  allowance                               |   |                            | (25,082,000 | ) |   | (21,110,000 | ) |   | (23,161,000 | ) |
|                                                               |   |                            |        |   |   |   |   |   |   |   |
| Net                  deferred taxes                                |   | $                               | -           |   | $ | - |   | $ | - |   |
|                                                               |   |                            |        |   |   |   |   |   |   |   |

|       |   | Net                  operatingloss                  carryforwards |       | General                  businesscredit                  carryforwards |   |
|------------|--------|-------------------------------------------------------------------|------------|------------------------------------------------------------------------|--------|
| 2007       |   | $                                                                 | 994,000    |                                                                   | $      | 26,000 |   |
| 2008       |   |                                                              | 4,004,000  |                                                                   |   | 138,000 |   |
| 2009       |   |                                                              | 1,661,000  |                                                                   |   | 185,000 |   |
| 2010       |   |                                                              | 2,171,000  |                                                                   |   | 140,000 |   |
| 2011       |   |                                                              | 4,488,000  |                                                                   |   | 13,000 |   |
| Thereafter |   |                                                              | 53,251,000 |                                                                   |   | 1,900,000 |   |
|       |   | $                                                                 | 66,569,000 |                                                                   | $      | 2,402,000 |   |

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*Table          of Contents*

**Access      Pharmaceuticals, Inc. and Subsidiaries**

**NOTE      12 - QUARTERLY FINANCIAL DATA (UNAUDITED)**

|                                                                 |                                    | 2006                Quarter Ended |                    |
|----------------------------------------------------------------------|-----------------------------------------|-----------------------------------|-------------------------|
|                                                                 |                                    | March                31           |                    | June                30 |   | September                30 |   | December                31 |   |
| Loss                from operations                                  |                                    | $                                 | (4,856                  | ) | $ | (3,331 | ) | $ | (2,015 | ) | $ | (3,222 | ) |
| Discontinued                operations                               |                                    |                              | -                       |   |   | - |   |   | - |   |   | 550 |   |
| Net                loss                                              |                                    | $                                 | (4,856                  | ) | $ | (3,331 | ) | $ | (2,015 | ) | $ | (2,672 | ) |
| Basic                and diluted income/loss per common share        |                                    | $                                 | (1.38                   | ) | $ | (0.94 | ) | $ | (0.57 | ) | $ | (0.76 | ) |
|                                                                 |                                    |                              |                    |   |   |   |   |   |   |   |   |   |   |
|                                                                 |                                    |                              |                    |   |   |   |   |   |   |   |   |   |   |
|                                                                 | 2005                Quarter Ended  |
|                                                                 |                                    |                              | March                31 |   |   | June                30 |   |   | September30 |   |   | December31 |   |
| Loss                from operations                                  |                                    | $                                 | (1,616                  | ) | $ | (2,988 | ) | $ | (1,612 | ) | $ | (1,339 | ) |
| Discontinued                operations                               |                                    |                              | (806                    | ) |   | (798 | ) |   | (451 | ) |   | 7,910 |   |
| Net                loss/income                                       |                                    | $                                 | (2,422                  | ) | $ | (3,786 | ) | $ | (2,063 | ) | $ | 6,571 |   |
| Basic                and diluted loss percommon                share |                                    | $                            |  (0.78             |  ) | $  |  (1.21 |  ) | $  |  (0.65 |  ) | $  |  2.11 |   |

**NOTE      13 - SUBSEQUENT EVENTS (UNAUDITED)**

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