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

                                  FORM 10-K SB

/ X /    Annual Report Pursuant to Section 13 or 15(d) of the Securities
 --      Exchange Act of 1934

                   For the Fiscal Year ended DECEMBER 31, 2000

/_ /     Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

For the transition period from ________ to ________.

Commission file number: 000-27866

                                VYREX CORPORATION
           (Name of small business issuer as specified in its charter)

           NEVADA                                          88-0271109
(State or other jurisdiction of                (IRS Employer Identification No.)
corporation or organization)

              2159 AVENIDA DE LA PLAYA, LA JOLLA, CALIFORNIA 92037
                    (Address of principal executive offices)

                                 (858) 454-4446
                 (Issuer's telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:   Common Stock, Par
                                                              Value $.001
                                                              Warrants
                                                              (Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.

Yes   X           No
     ---             ---

Check there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K SB or any
amendment to this Form 10-K SB. [X]

State issuer's revenues for its most recent year: $51,739.

State the aggregate market value of the voting and non-voting common equity held
by non affiliates of the registrant computed by reference to the price at which
the stock was sold, or the average bid and ask prices of such stock equity, as
of a date within the past 60 days: $6,600,000 as of March 30, 2001.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of latest practicable date:

Common Stock - 8,342,867 as of March 30, 2001

Warrants to purchase common stock - 150,000 as of March 30, 2001.

                       DOCUMENTS INCORPORATED BY REFERENCE

The issuer's definitive Proxy Statement for its Annual Meeting of Shareholders
to be submitted to the commission on or before April 30, 2001 is incorporated by
reference into Part III hereof.

Transitional Small Business Disclosure Format

Yes       No  X
     ---     ---


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                                     PART I

ITEM 1.           BUSINESS

GENERAL

      Certain statements in this Form 10-K SB regarding future expectations and
financial performance may be regarded as "forward-looking statements" within the
meaning of the U.S. Securities Litigation Reform Act. They are subject to
various risks and uncertainties, such as those described in the Risk Factors
section, and elsewhere, in this Form 10-K SB, and in the Company's Securities
and Exchange Commission filings. Actual results may vary materially.

                                   THE COMPANY

      Vyrex Corporation (the "Company") is a Nevada Corporation formed in 1991.
The Company is a research and development stage company seeking to discover and
develop pharmaceuticals and nutraceuticals for the treatment and prevention of
respiratory, cardiovascular and neurodegenerative diseases and conditions
associated with aging. The Company's research has been focused on targeted
antioxidant therapeutics for respiratory, neurological and cardiovascular
diseases and the development of nutraceuticals for the dietary support of
certain age-related conditions.

      ANTIOXIDANT DRUG PROGRAM. In the Company's opinion, Vantox(R) is currently
its lead drug candidate. The Company's research with Vantox(R) indicates it may
have usefulness in the treatment of asthma, ARDS, cystic fibrosis, oxygen
toxicity, smoke inhalation and other respiratory diseases and conditions.
Vantox(R) is an inhaled antioxidant intended to be used in vapor form. The
Company believes certain mechanisms in the inflammatory cascade which lead to
tissue damage may be mediated by free radicals. Free radicals are a by-product
of oxidation, which can be damaging at high levels. Vantox(R) has been shown in
laboratory tests to be a free radical scavenger, or "antioxidant". The Company
has demonstrated Vantox(R)`s effects in preventing and treating oxidative lung
damage in three different animal models. The models evaluated protection from
lung damage induced by oxygen, paraquat and ozone. Vantox(R) showed protective
effects in all three models. Based on this data and growing evidence that
oxidative stress and inflammation may be central to the pathogenesis of asthma
and other respiratory conditions, the Company believes Vantox(R) is an
appropriate drug candidate to take forward into clinical trials. Before
initiating Phase I clinical trials, the Company must complete toxicology and
pharmacokinetic studies and submit an Investigational New Drug (IND) application
with the U.S. Food and Drug Administration. Due to the expense of completing
pre-clinical trials and conducting clinical trials, the Company is unable to
fund any additional development and is seeking a joint venture with a
pharmaceutical company to provide the necessary funding for further clinical
development. Preliminary pre-clinical data was provided to several
pharmaceutical companies to review, pursuant to confidentiality and
non-disclosure agreements. To date, the Company has not received a commitment
from any potential partners. There can be no assurance the Company will be
successful in funding the further development of Vantox(R), or that pre-clinical
trials will be completed, or that clinical trials will be initiated, or if they
are initiated that the trials will be completed and the Company's claims
confirmed. Even if confirmed there is no assurance that it will result in the
production or marketing of an FDA approved drug. The Company holds two patents
in connection with Vantox(R).

      The Company believes oxidative damage is implicated in a variety of
diseases including cardiovascular, neurological and viral disorders. Based on
its research in oxidative stress and antioxidants, the Company has designed
several analogs and pro-drugs of Vantox(R) and Panavir(R). These derivatives are
designed to provide improved bioavailability, oral delivery and disease
targeting. In laboratory tests, some of these compounds have been shown to
protect mitochondria from oxidative damage and have been shown to be potentially
potent antioxidants. On the basis of these preliminary results, and the
Company's view of a body of knowledge surrounding certain disorders, the Company
believes these derivatives may be useful in treating Alzheimer's Disease,
Parkinson's Disease, atherosclerosis, spinal cord trauma and other disorders.
The Company has filed patent disclosures concerning their uses and will continue
pre-clinical development as funding becomes available. In 2000, Immune Response
Corporation ("IRC") expanded its research and development activities to include
neurological applications of the Company's water-soluble pro-drugs of its
Propofol patent. An additional U.S. patent for these indications was applied for
by the Company in August 2000. Although these indications are promising, there
is no assurance that the Company and IRC will be successful in funding further
development and commercialization of these compounds.


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      Panavir(R) is an antioxidant drug candidate the Company believes may
inhibit HIV proliferation and may target the events leading to the slow
progressive deterioration of the immune system. The Company believes Panavir(R)
directly inhibits HIV-1 in part by interfering with the attachment of the virus
to cells and also by inhibiting the syncytia-inducing strains of HIV-1. Many
scientists today believe the most pathogenic strains of HIV-1 are those that
lead to the formation of multinucleated giant cells called syncytia. Panavir(R)
may also prevent activation of HIV-1 in latently and chronically infected cells,
which is an activity not shown by the approved reverse transcriptase inhibitors
or protease inhibitors. The Company believes the inhibition of viral activation
in latently infected cells may be one of the most desirable attributes of an
anti-HIV/AIDS drug.

      The Company believes the activation of HIV infection from the latent state
is associated with increased intracellular levels of oxygen free radicals. In
laboratory tests the antioxidant and free radical scavenging activity of
Panavir(R) inhibited activation of HIV-1 in latently infected cells. Chronic and
inappropriate activation of immune cells in HIV infection has been linked to
abnormal secretion of certain immunological hormone-like substances called
cytokines. Certain cytokines appear to be associated with increased production
of oxygen free radicals. Based on the results of preliminary tests completed to
date, Panavir(R) appears to inhibit the activity of certain of these cytokines,
including interleukin-1 and tumor necrosis factor alpha. The Company hopes
Panavir(R) may allow HIV positive individuals to remain healthy by preventing
latently infected cells from reactivating, as well as interfering with viral
replication and transmission to other cells when infected cells are activated by
certain processes.

      In May of 1992, the Company received an Investigational New Drug allowance
from the FDA for a Phase I/II human clinical trial using Panavir(R) to treat
patients infected with the HIV virus. This phase of the Panavir(R) study began
in July of 1992 and was completed in October of 1995. This trial examined
safety, bioavailability and pharmacokinetics in a small group of patients.
Results indicated that Panavir(R) was well tolerated and achieved targeted serum
levels. CD4 counts, which normally decline in untreated AIDS patients, were
stabilized, but did not show a significant increase. During 1996 and 1997, the
Company synthesized new Panavir(R) analogs and prodrugs in an effort to improve
bioavailability and the Company's proprietary position. These compounds have
undergone initial pharmacologic testing and have exhibited antioxidant activity,
but will require additional testing. The Company has, to date, been unable to
obtain a collaborative partner or partners to continue its development and
clinical program involving Panavir(R).

      Ultimately, further trials will be required involving the treatment of at
least several hundred patients with Panavir(R) alone, or in combination with
approved drugs. There can be no assurance that funding will be secured or such
tests will be undertaken or completed, or that any form of Panavir(R) will be
developed as a marketable product.

      In 1997, the Company entered into an agreement with IRC to develop the
certain proprietary technology licensed by the Company for producing tagged
genes, transcripts and proteins under the trademark of CD-Tagging(TM). The
agreement was amended in 1998 to include research and development of certain
proprietary Vantox(R) pro-drugs as potential treatments for spinal cord and
central nervous system trauma. The Company terminated its license covering
CD-Tagging(TM) in conjunction with its decision to terminate its gene discovery
program. The Company and IRC continue to seek a pharmaceutical partner or
outside financing for further development and commercialization of the spinal
cord and central nervous system technology. There can be no assurance that the
Company and IRC will be able to secure funding in the future for this project.
In 2000, IRC expanded its research and development activities to include
neurological applications of the Company's water-soluble pro-drugs of its
Propofol patent. An additional U.S. patent for these indications was applied for
in August 2000. Although these indications are promising, there is no assurance
that the Company and IRC will be successful in funding further development and
commercialization of these compounds.

      NUTRACEUTICALS. The nutraceutical market includes nutritional supplements
and foods, which may deliver health benefits beyond basic nutrition. Consumer
research seems to indicate consumers may seek out nutritional supplements
provided they are backed by reliable science, and that many consumers prefer to
receive their health benefits through foods rather than through pills. There are
a large number of companies competing in the market to provide nutraceuticals to
consumers. The Company's research programs were most recently being directed at
developing proprietary formulas of nutritional supplements targeted at consumer
health concerns, and the development of proprietary supplements
(Pronutrients(TM)) which may be marketed as single line supplements in
multi-formulations and in foods. The Company currently has a pipeline of
proprietary nutraceutical compounds in varying stages of development.

      During 1997, the Company entered into an agreement with Retired Persons
Services, Inc. ("RPS"), to allow RPS to produce and market four nutritional
supplement products designed by the Company. In exchange, the Company is to
receive a royalty in the amount of 15% of RPS's gross sales of such products.
The products were launched by RPS in January 1999. The Company was notified in
September 2000, that RPS was relinquishing their exclusive rights to the
products and discontinuing the product


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line. The Company will continue to receive royalties on sales until the
inventory is depleted. Although the Company has the rights to market the
formulas to other marketers, there is no assurance that can be accomplished.

      The Company's patent for Metallic Oligopeptide Complexes was issued in
June 2000. The patent deals with a novel chromium complex, chromium carnosinate,
which the Company feels is superior to the other forms of chromium supplements
currently on the market. This patent, coupled with the Company's Boron patent,
provided the Company the opportunity in August 2000, to enter into a license
agreement with the Futureceutical division of Van Drunen Farms to manufacture
and market these patented and trademarked nutraceutical compounds. To date, a
partial licensing fee of $25,000 has been received. The Company will receive a
supplemental license issue fee of $75,000 upon attaining $75,000 in initial
sales of licensed products. The licensee shall owe the Company a total gross
royalty of 30% of gross revenue from the sale of licensed products. Of the 30%
gross royalty, licensee shall credit and allocate 5% to further research and
development of the products and pay the remaining 25% to the Company. Product
launch is anticipated in the 3rd quarter of 2001. Futureceuticals will fund
additional studies to enhance the marketability of these products. There can be
no assurance that a significant market will develop for the products or that any
products will continue to be sold or will produce any revenue for the Company.

      GENE DISCOVERY. The Company reviewed its gene and protein discovery
programs during 1999, including CD-Tagging(TM), and made a decision to terminate
the gene discovery program in its entirety.

RESEARCH COLLABORATIONS AND LICENSING AGREEMENTS

      As part of its strategy for developing and commercializing certain
potential products the Company has entered into research collaborations and
licensing agreements. There can be no assurance the Company will enter into
additional collaborative, license or similar agreements, or that its existing
agreements will result in development or successful commercialization of any
potential product. Some of the agreements that the Company has entered into are
summarized below:

      DUSAN MILJKOVIC, PH.D. In October 1997, the Company entered into a License
Agreement with Dusan Miljkovic, Ph.D. ("Miljkovic Agreement") pursuant to which
Dr. Miljkovic granted the Company an exclusive worldwide license to develop,
manufacture and sell certain proprietary nutraceutical compositions. Dr.
Miljkovic originally filed a provisional patent application covering the
compounds, and subsequently filed a further United States patent application.
Pursuant to the agreement, the Company is responsible for all costs and expenses
in connection with obtaining patent protection. In the case of licensed products
sold as bulk compounds or stand-alone supplements, Dr. Miljkovic will receive
royalties in the amount of 2.5% of gross proceeds up to $1 million; 1.75% of
gross proceeds of between $1.0 million and $5.0 million and 1% of gross proceeds
in excess of $5 million. In the case of licensed products sold as a component of
a supplement formulation, Dr. Miljkovic will receive royalties according to the
preceding schedule based on 34% of gross revenues. The License Agreement may be
terminated by Dr. Miljkovic or the Company under certain circumstances. In
addition, there can be no assurance that the Company will be in a position to
meet its annual minimum license fee and thereby maintain any rights to the
covered compound. During 1998 the Company continued development of the compounds
licensed from Dr. Miljkovic. The Company was notified in 1999 that all claims
set forth in Dr. Miljovic's United States and PCT patent applications were
allowed. During 1999, the Company sought potential collaborative partners to
produce and market the proprietary compounds covered by the patent. In August
2000 the Company entered into a collaborative agreement with the Futureceutical
division of Van Drunen Farms to further develop and market these products.

      THE IMMUNE RESPONSE CORPORATION. In 1997, the Company entered into an
agreement with the Immune Response Corporation ("IRC") to develop the certain
proprietary technology licensed by the Company for producing tagged genes,
transcripts and proteins under the trademark of CD-Tagging(TM). The agreement
was amended in 1998 to include research and development of certain proprietary
Vantox(R) pro-drugs as potential treatments for spinal cord and central nervous
system trauma. The Company terminated its license covering CD-Tagging(TM) in
conjunction with its decision to terminate its gene discovery program. The
Company and IRC continue to seek a pharmaceutical partner or outside financing
for further development and commercialization of the spinal cord and central
nervous system technology. There can be no assurance that the Company and IRC
will be able to secure funding in the future for this project. In 2000, IRC
expanded its research and development activities to include neurological
applications of the Company's water-soluble pro-drugs of its Propofol patent. An
additional U.S. patent for these indications was applied for in August 2000.
Although these indications are promising, there is no assurance that the Company
and IRC will be successful in funding further development and commercialization
of these compounds.

      FUTURECEUTICALS. The Company's patent for Metallic Oligopeptide Complexes
was issued in June 2000. The patent deals with a novel chromium complex,
chromium carnosinate, which the Company feels is superior to the other forms of
chromium


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supplements currently on the market. This patent, coupled with the Company's
Boron patent, provided the Company the opportunity in August 2000, to enter into
a license agreement with the Futureceutical division of Van Drunen Farms to
manufacture and market these patented and trademarked nutraceutical compounds.
To date, a partial licensing fee of $25,000 has been received. The Company will
receive a supplemental license issue fee of $75,000 upon attaining $75,000 in
initial sales of licensed products. The licensee shall owe the Company a total
gross royalty of 30% of gross revenue from the sale of licensed products. Of the
30% gross royalty, licensee shall credit and allocate 5% to further research and
development of the products and pay the remaining 25% to the Company. Product
launch is anticipated in the 3rd quarter of 2001. Futureceuticals will fund
additional studies to enhance the marketability of these products. There can be
no assurance that a significant market will develop for the products or that any
products will continue to be sold or will produce any revenue for the Company.

PATENTS AND PROPRIETARY TECHNOLOGY

      A United States Patent was issued in 1991 for methods of inhibiting viral
and retroviral infections via the use of various antioxidants corresponding to
the formulae set forth in the subject patent. The patent has been assigned to
the Company and describes the primary proprietary technology underlying the
Company's proposed Panavir(R) products.

      A United States Patent was issued in 1992 for methods of inhibiting viral
and retroviral replication and for treating viral and retroviral infections via
the administration of compositions containing tocopherol, or a tocopherol
derivative, or a pharmaceutically effective product thereof. The Company is one
of two assignees of this patent, with Biodor U.S. Holding.

      A United States Patent was issued in 1994 directed to certain preparations
and methods for dilipidation of skin or hair through the use of cyclodextrin and
cyclodextrin derivative preparations such as hydroxypropyl cyclodextrin. This
patent also is directed to cerumen removal methods involving introduction of
cyclodextrin preparations to the ear canal, resulting in the removal of ear wax
and related substances. This patent has been assigned to the Company. This
patent describes the proprietary technology of the Company underlying its
proposed Cerex(R) products.

      A United States Patent was issued in 1994 involving airborne protectants
against oxidative tissue damage. This patent is directed to certain methods for
preventing free radical-induced oxidative damage and inflammatory response in
biological tissue through the use of vapor-phase, phenolic antioxidants such as
vaporized 2,6-diisopropylphenol. This patent has been assigned to the Company
and describes the technology underlying the Company's proposed Vantox(R)
products.

      A United States Patent was issued in 1995 directed to certain methods for
delipidation of skin or hair through the use of cyclodextrin and cyclodextrin
derivative preparations such as hydroxypropyl cyclodextrin. This patent is also
directed to cerumen removal methods involving introduction of cyclodextrins to
the ear canal resulting in the removal of ear wax and related substances. This
patent has been assigned to the Company. This patent describes the proprietary
technology of the Company underlying its proposed Cerex(R) products.

      A United States Patent was issued in 1995 directed to certain methods for
the prevention and treatment of poison ivy and poison oak dermatitis through the
use of cyclodextrins in applications to complex urushiols. This patent is also
directed to methods of desensitizing against urushiol - induced dermatitis
through cyclodextrin - urushiol complexes. This patent has been assigned to the
Company and describes the technology underlying the Company's proposed
Vyderm(TM) products.

      A United States Patent was issued in 1995 involving airborne protectants
against oxidative tissue damage. This patent is also directed to methods for
preventing free radical-induced oxidative damage and inflammatory response in
biological tissue through vapor-phase, phenolic antioxidants, such as vaporized
2,6-diisopropylpheno.

      A United States Patent was issued in 1996 directed to a certain delivery
formulation for Probucol, related to the Company's Panavir(R) product.

      A United States Patent was issued in 1998 directed to the use of
cyclodextrins to complex urushiols to protect against and to treat irritation
arising from exposure to urushiols. This patent has been assigned to the Company
and relates to the proposed Vyderm(TM) products.

      A United States Patent was issued in 1999 relating to compounds,
compositions, uses and methods for inhibiting viral and retroviral replication
and for treating viral and retroviral infections via the administration of
various compounds, including antioxidants. This patent has been assigned to the
Company and relates to the proposed Panavir(R) products.


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      A United States Patent was issued in 2000 relating to Metallic
Oligopeptide Complexes as nutritional supplements, in particular metals of
nutritional or therapeutic value in mixed complexes of oligopeptides.

      The Company has patent applications pending in the United States and there
have been foreign counterparts filed for certain of the Company's patent
applications One of the U.S. patent applications and certain foreign patent
filings are jointly owned by the Company and Biodor U.S. Holding.

      The protection of proprietary rights relating to the Company's proposed
products, processes and know-how is critical for the Company's business. The
Company intends to file patent applications to protect technology, inventions
and improvements that are considered important to the development of its
business. The Company also intends to rely on unpatented trade secrets for a
part of its intellectual property and property rights, and there can be no
assurance others will not independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to the
Company's trade secrets or disclose such technology, or that the Company can
meaningfully protect its rights to any patented or unpatented technology.

      Although the Company seeks patent protection for its proprietary
technology and potential products in the United States and in foreign countries,
the patent positions of biotechnology and pharmaceutical firms, including the
Company, are generally uncertain and involve complex legal and factual
questions. Consequently, the Company does not know whether any of the patent
applications pending, or the unfiled patent applications which it is considering
will result in the issuance of any patents, whether the patents which it owns
will provide significant proprietary protection, or whether they will be
circumvented or invalidated. Since patent applications in the United States are
maintained in secrecy until patents issue, and publication of discoveries in the
scientific or patent literature tend to lag behind actual discoveries by several
months, at the time of filing a patent application or during the research phase
prior to application the Company can not be certain it will be deemed the first
creator of inventions covered by any future patent applications or that it will
be deemed the first to file patent applications for such inventions. There can
be no assurance all United States or foreign patents that may pose a risk of
infringement can or will be identified. If the Company is unable to obtain a
license(s) where it may have infringed on other patents, it could encounter
delays in product market introductions while it attempts to design around such
intellectual property rights, or could find that the development, manufacture or
sale of potential products requiring such licenses could be prevented. In
addition, the Company could incur substantial costs in defending against suits
brought against it in connection with such intellectual property rights or
prosecuting suits which the Company may bring against other parties to protect
its intellectual property rights. Competitors or potential competitors may have
filed applications for, or have received patents and may obtain additional
patents and proprietary rights relating to, compounds or processes competitive
with those of the Company. See "Business Competition."

      The prosecution and maintenance of U.S. and foreign patent matters is
expensive and may require the commitment of significant funds to maintain its
existing patents and patent applications or prosecute, or file, new patent
applications. The Company can make no assurance that it will be able to maintain
existing patents and patent applications or prosecute new patent applications
unless it is able to obtain significant funding in the future.

      The Company will generally require all or certain of its employees,
consultants and advisors to execute a confidentiality agreement either upon the
commencement of an employment or consulting relationship with the Company or at
a later time. There can be no assurance these agreements will provide meaningful
protection for the Company's trade secrets in the event of unauthorized use or
disclosure of such information.

      The protection of intellectual properties owned by technology firms,
including the Company is subject to uncertainty and involves complex legal and
factual questions. The degree of future protection for the Company's proprietary
technology rights is therefore uncertain. There can be no assurance the
Company's efforts to protect its intellectual property will prove to be
adequate. See "Risk Factors Patents and Proprietary Rights."

TRADEMARKS

      The Company owns trademarks registered with the United States Patent and
Trademark Office (USPTO) for the names Panavir(R), Vantox(R), and its logo in
connection with the name Vyrex. Additionally the company is prosecuting a number
of trademarks in connection with its nutraceutical and genomics programs.
Federally registered trademarks have a perpetual life, as long as they are
renewed on a timely basis, subject to the rights of third parties to seek
cancellation of the marks. The Company has filed other trademark applications,
may claim common law trade name rights as to other potential products, and
anticipates filing additional trademark applications in the future.


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      The prosecution and maintenance of trademark matters is expensive and may
require the commitment of significant funds to maintain its existing trademarks
and trademark applications, or prosecute, or file, new trademark applications.
The Company can make no assurance that it will be able to maintain existing
trademarks and trademark applications or prosecute new trademark applications
unless it is able to obtain significant funding in the future.

EMPLOYEES

      On December 31, 2000, the Company employed three individuals, two in
executive positions and one in administration. In an effort to reduce operating
expenses as well as terminating its clinical and gene discovery programs the
Company either eliminated or did not replace certain positions in the company.
None of its employees are currently represented by a union or any other form of
collective bargaining unit. The Company is not contemplating, but may hire an
undetermined number of new employees over the next 12 to 24 months, should the
Company obtain additional funding and expand its activities.

GOVERNMENT REGULATION

      The research and development, manufacture and marketing of the Company's
potential products may be subject to extensive regulation by the FDA and by
other federal, state, local and foreign entities, which regulate, among other
things, research and development activities and the testing, manufacture,
labeling, storage, record keeping, safety, advertising and promotion of
pharmaceutical products. Governmental review of new drugs, devices or
biologicals is an uncertain, costly and lengthy process.

      The Federal Food, Drug and Cosmetic Act, the Public Health Services Act,
the Controlled Substances Act and other federal statutes and regulations govern
or influence all aspects of the Company's business. Noncompliance with
applicable requirements can result in fines and other judicially imposed
sanctions, including product seizures, injunction actions and criminal
prosecutions. In addition, administrative remedies can involve voluntary recall
of products, and the total or partial suspension of products as well as the
refusal of the government to approve pending applications or supplements to
approved applications. The FDA also has the authority to withdraw approval of
drugs in accordance with statutory due process procedures.

      Ongoing compliance with these requirements can require the expenditure of
substantial resources. Any failure by the Company, or possible licensees to
obtain, or any delay in obtaining required regulatory approvals would adversely
affect the planned marketing of the Company's proposed products and the
Company's ability to derive product or royalty revenue.

      The FDA's regulatory system requires an initial determination of whether a
subsequent filing by the Company for that product will be classified by the FDA
as a drug, device or biological. The FDA has different approval procedures for
drugs, devices and biologicals. The Company believes most, if not all, of its
currently proposed products will be classified as drugs, although the Company
may develop proposed new potential products or potential therapeutic agents in
the future which are considered devices or biologicals. If the Company is
required to submit any application to the FDA as a biological, or device, the
application process may be significantly longer, more expensive and certain
different compliance procedures would apply than those for a drug as described
below.

      The steps required by the FDA before a new drug may be marketed in the
United States include: (a) preclinical studies; (b) submission to the FDA of a
request for authorization to conduct human clinical trials in an Investigational
New Drug (IND) application, which includes the test data of the preclinical
studies and the proposed protocols (study designs) for clinical trials (an IND
allows evaluation of the new drug in controlled clinical studies); (c) adequate
and well controlled human clinical trials to establish the safety and
effectiveness of the drug for its intended use; (d) submission to the FDA of a
New Drug Application ("NDA"); and (e) review and approval of the NDA by the FDA
before the drug may be shipped or sold commercially.

      In addition to obtaining the FDA's approval of an NDA for each of a
company's proposed products, each manufacturing establishment for new drugs must
receive some form of approval by the FDA. Among the conditions for such approval
is the requirement that the prospective manufacturer's quality control and
manufacturing procedures conform to the FDA's Good Manufacturing Practices
regulations, which must be followed at all times. In complying with standards
set forth in these regulations, manufacturers must continue to expend time,
monies and effort in the area of production and quality control to ensure full
technical compliance. Manufacturing establishments, both foreign and domestic,
also are subject to inspections by or under the authority of the FDA and by
other federal, state or local agencies.

      In general, the clinical testing for new compounds required by the FDA is
an extremely costly, ongoing, multi-year project. The FDA itself estimates
clinical drug development time requirements average five years, but range from
two to ten years. Finally, the Company or the FDA may suspend clinical trials at
any time if it is felt that the subjects or patients are being


                                       7
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exposed to an unacceptable health risk. Other competitors of the Company have
had their proposed pharmaceutical clinical trials halted due to safety concerns.

      The process of completing clinical testing and obtaining FDA approval of a
NDA is likely to take a number of years and require the expenditure of
substantial resources. If an application is submitted, there can be no assurance
the FDA will review and approve the NDA in a timely manner if at all. Even after
initial FDA approval of the NDA has been obtained, further studies, including
post-market studies, may be required to provide additional data on safety or
effectiveness and will be required to gain approval for the use of a potential
product as a treatment for clinical indications other than those for which the
potential product was initially tested. Also, the FDA will require post-market
reporting and may require surveillance programs to monitor the side effects of
the drug. Results of post-marketing programs may limit or expand the further
marketing of the potential products. Further, if there are any modifications to
the drug, including changes in indication, manufacturing process, labeling, or a
change in manufacturing facility, an NDA supplement may be required to be
submitted to the FDA.

      Whether or not FDA approval has been obtained, approval of a potential
product by regulatory authorities in foreign countries must be obtained prior to
the commencement of marketing of the product in such countries. The requirements
governing the conduct of clinical trials and product approvals vary widely from
country to country, and the time required for approval may be longer or shorter
than that required for FDA approval. Although there are some procedures for
unified filings for certain European countries, in general, each country at this
time has its own procedures and requirements.

      Establishments handling controlled substances must be licensed by the
United States Drug Enforcement Administration. In addition to the regulatory
framework for potential product approvals, the Company is and may be subject to
regulation under state and federal law, including requirements regarding
occupational safety, laboratory practices, environmental protection and
hazardous substance control, and may be subject to other present and possible
future local, state, federal and foreign regulation.

SOURCES OF SUPPLY

      The principal raw materials used in the Company's proposed products, have
been obtained from several large chemical suppliers. If and when the Company
begins production on a commercial scale, its use of raw materials will
significantly increase. The Company could experience raw material shortages
which, in turn, could affect its ability to produce products. The Company may,
from time to time, rely on a single supplier for one or more of the raw
materials and may represent a significant portion of any such supplier's total
output. Although the Company believes there are and will continue to be
alternative sources for each of its anticipated raw materials, there can be no
assurance this will be the case or that the qualification of additional vendors
will not delay the Company's ability to manufacture products. The Company does
not have any contracts with any suppliers of the raw materials used in the
development of its proposed products.

COMPETITION

      The biotechnology and pharmaceutical industries are intensely competitive.
There are many pharmaceutical companies, biotechnology companies, public and
private universities and research organizations actively engaged in research and
development of pharmaceutical products. Most of the Company's existing or
potential competitors have substantially greater financial, human and other
resources than the Company and may be better equipped to develop, manufacture
and market products. In addition, many of these companies have extensive
experience in preclinical testing and human clinical trials. These companies may
develop and introduce products and processes competitive with or superior to
those of the Company, and many of these companies may be further along in the
product development and approval process for their potential products.

      The Company's competition will be determined in part by the potential
indications for which the Company's proposed products are developed and
ultimately approved, if at all, by regulatory authorities. For most, if not all,
of the Company's potential products, an important factor in competition will be
the timing of market introduction of competitive products. Accordingly, the
relative speed with which the Company can develop potential products, complete
the clinical trials and approval processes and supply commercial quantities of
the products to the market are expected to be important competitive factors. The
Company expects competition among products approved for sale will be based,
among other things, on product effectiveness, safety, reliability, availability,
price and the strength of the patents on which such products are based.


                                       8
<PAGE>


      The Company's competitive position also depends upon its ability to
attract and retain qualified personnel, obtain patent protection or otherwise
develop proprietary products or processes and secure sufficient capital
resources for the very substantial period between technological conception and
any commercial sales, which may develop. There can be no assurance the Company
will be able to compete successfully.


                                       9
<PAGE>


                                  RISK FACTORS

      THIS REPORT CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AS WELL AS THOSE DISCUSSED ELSEWHERE
IN THIS REPORT.

EARLY STAGE OF DEVELOPMENT; ABSENCE OF PRODUCTS

      The Company is in the development stage. Other than four nutritional
supplements licensed to RPS, which have generated some royalty income since
their introduction in 1999, the Company has not completed the development of any
product and, accordingly, has not begun to generate revenues from operations.
Most of the Company's proposed pharmaceutical products will require significant
additional research and development, including extensive preclinical and
clinical testing, before the Company will be able to apply for FDA approval.
There can be no assurance the Company can initiate or sustain any significant
research and development efforts, and that such efforts, if undertaken, will be
successful, that any of the Company's potential pharmaceutical products under
development will prove to be safe and effective in clinical trials, that the
Company will be able to obtain FDA approval for any of its proposed
pharmaceutical products, that any such proposed pharmaceutical products can be
manufactured at acceptable cost and with appropriate quality, or that any such
proposed products, if they do receive regulatory approval, can be successfully
marketed. The Company cannot predict when, if ever, it will begin to market any
proposed pharmaceutical products.

      The Company desires to develop nutraceutical products which the Company
believes may be sold before any of its proposed pharmaceutical products will be
sold. During 1997, the Company entered into an agreement with Retired Persons
Services, Inc. ("RPS") to allow RPS to produce and market four nutritional
supplement products designed by the Company. In exchange, the Company is to
receive a royalty in the amount of 15% of gross sales. The products were
launched by RPS in January, 1999. The Company was notified in September, 2000,
that RPS was relinquishing its exclusive rights to the products and
discontinuing the product line. The Company will continue to receive royalties
on sales until the inventory is depleted. Although the Company has the rights to
market the formulas to other marketers, there is no assurance that can be
accomplished.

      The Company's patent for Metallic Oligopeptide Complexes was issued in
June 2000. The patent deals with a novel chromium complex, chromium carnosinate,
which the Company feels is superior to the other forms of chromium supplements
currently on the market. This patent, coupled with the Company's Boron patent,
provided the Company the opportunity in August 2000, to enter into a license
agreement with the Futureceutical division of Van Drunen Farms to manufacture
and market these patented and trademarked nutraceutical compounds. To date, a
partial licensing fee of $25,000 has been received. The Company will receive a
supplemental license issue fee of $75,000 upon attaining $75,000 in initial
sales of licensed products. The licensee shall owe the Company a total gross
royalty of 30% of gross revenue from the sale of licensed products. Of the 30%
gross royalty, the licensee shall credit and allocate 5% to further research and
development of the products and pay the remaining 25% to the Company. Product
launch is anticipated in the 3rd quarter of 2001. Futureceuticals will fund
additional studies to enhance the marketability of these products. There can be
no assurance that a significant market will develop for the products or that any
products will continue to be sold or will produce any revenue for the Company.

NO SIGNIFICANT OPERATING REVENUES; ACCUMULATED DEFICIT; EXPECTATION OF FUTURE
LOSSES

      The Company has experienced significant operating losses since its
inception in 1991. As of December 31, 2000, the Company had a deficit
accumulated in the development stage of $13,037,100. The Company expects
operating losses to increase substantially in the future only if the Company
decides to restart its research and development and clinical trials internally.
The Company has generated no significant revenues from operations. The
development of the Company's proposed pharmaceutical products will require the
commitment of substantial resources to prepare and submit applications to the
FDA, and to conduct research, preclinical and clinical trials, and for both its
proposed pharmaceutical and nutraceutical products the Company must either
establish commercial scale manufacturing processes and facilities or contract
for such manufacturing facilities, and to establish additional quality control,
regulatory, marketing, sales and administrative capabilities. There can be no
assurance the Company will be successful in these endeavors or will continue as
a going concern, especially in light of the high failure rate of development
stage pharmaceutical and nutrition companies with limited resources. There can
be no assurance the Company will not incur substantial and continuing net losses
beyond the next several years or that the Company will ever reach profitability.
Furthermore, there can be no assurance the Company will apply for or obtain
regulatory approvals, enter into arrangements with third parties for product
development and commercialization, or successfully market or license any
additional


                                       10
<PAGE>


products. To achieve profitable operations, the Company, alone or with others,
must successfully identify, develop, manufacture and market its proprietary
products or technologies. There can be no assurance the Company will be able to
accomplish these tasks. Significant delays in any of these matters could
materially adversely impact the Company.

FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING

      Substantial expenditures will be required to enable the Company to conduct
planned product research and development, resume the FDA application process,
including conducting preclinical studies and clinical trials, and to manufacture
and market its proposed products including its proposed nutraceutical products.
The Company will need to raise substantial additional funds to support its
long-term proposed product development and commercialization programs including
its nutraceutical product development programs. The Company has no established
bank financing arrangements and it is not anticipated the Company will secure
any bank financing in the foreseeable future. Therefore, the Company will need
to seek additional financing through subsequent future public or private sales
of its securities, including equity and debt securities. The Company may also
seek funding for the development and marketing of its proposed products through
strategic alliances and other arrangements with corporate partners. There can be
no assurance such collaborative arrangements or additional funds will be
available when needed, or on terms acceptable to the Company, if at all. Any
such additional financing may result in significant dilution to existing
stockholders. If adequate funds are not available, the Company may be required
to halt operations, or obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to certain
of its technologies, potential product candidates or potential products the
Company would not otherwise relinquish. In an effort to conserve funds, the
Company has curtailed its internal research efforts and is dependent on its
licensees and collaborations for continued studies and clinical trials. The
Company's future cash requirements will be affected by the degree to which the
Company is able to resume operations in the future, as well as future results of
research and development, preclinical studies and clinical trials,
nutraceuticals product development and marketing costs, relationships with
corporate partners, changes in the focus and direction of the Company's research
and development programs, competitive and technological advances, the regulatory
approval process and other factors.

INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE

      The Company is engaged in rapidly evolving and highly competitive fields
and competition is expected to increase. There are many companies, including
large pharmaceutical, chemical, and vitamin and nutrition supplement companies,
engaged in developing, manufacturing and marketing products similar to those
proposed to be developed by the Company, many of which have established a
significant presence in the markets which the Company's proposed products are
designed to address. Virtually all of these companies have substantially greater
capital resources, research and development staffs, facilities and experience in
obtaining regulatory approvals, as well as in the manufacturing, marketing and
distribution of products, than the Company. There can be no assurance the
Company's competitors will not succeed in developing technologies and products
that are more effective and less costly than any potential products under
research and development by the Company or which could render the Company's
proposed products or technology obsolete.

DEPENDENCE UPON KEY PERSONNEL

      The Company has reduced its staff to three people, and is dependent on its
licensees and its scientific collaborations for the bulk of its continuing
research and development activities. Consequently, further successful
development of the Company's proprietary technology is dependent on the ability
of the research and development efforts of its licensees and scientific
collaborations. Directing these efforts is Dr. Sheldon S. Hendler, Chairman of
the Company's Board of Directors and the owner of approximately 18.5% of the
outstanding Common Stock of the Company. The ability to retain the services of
Dr. Hendler is important to the success of the Company. The Company does not
currently have an employment contract with Dr. Hendler, nor does it maintain
insurance on Dr. Hendler's life. Even if the Company succeeded in obtaining
financing necessary to fund internal research and development, it would continue
its efforts to expand its research and development externally by means of
outsourcing and expanding collaborations with current or new scientific
partners.

RELIANCE ON COLLABORATIVE PARTNERS

      In 2000, the Company entered into new license agreements and expanded its
research collaborations in an effort to expedite the development of its
technology. In 2000, Immune Response Corporation ("IRC") expanded its research
and development activities to include neurological applications of the Company's
water-soluble pro-drugs of its Propofol patent. An additional U.S. patent for
these indications was applied for in August 2000. Although these indications are
promising, there is no assurance the Company and IRC will be successful in
funding further development and commercialization of these compounds. In August,


                                       11
<PAGE>


2000, the Company entered into a license agreement with the Futureceutical
division of Van Drunen Farms to manufacture and market patented and trademarked
nutraceutical compounds. To date, a partial licensing fee of $25,000 has been
received. The Company will receive a supplemental license issue fee of $75,000
upon attaining $75,000 in initial sales of licensed products. The licensee shall
owe the Company a total gross royalty of 30% of gross revenue from the sale of
licensed products. Of the 30% gross royalty, the licensee shall credit and
allocate 5% to further research and development of the products and pay the
remaining 25% to the Company. Product launch is anticipated in the 3rd quarter
of 2001. Futureceuticals will fund additional studies to enhance the
marketability of these products.

      There can be no assurance the Company will be able to negotiate acceptable
collaborative arrangements in the future, or that any collaborative arrangements
will be successful. In addition, there can be no assurance the Company's
collaborative partners will not pursue alternative technologies or develop
alternative compounds either on their own or in collaboration with others,
including the Company's competitors, as a means of developing treatments for the
diseases targeted by the collaborative programs.

PATENTS AND PROPRIETARY RIGHTS

       The Company's success will depend in large part on its ability to obtain
patent protection for its proposed products, both in the United States and other
countries. The patent position of biotechnology and pharmaceutical companies is
highly uncertain and involves complex legal and factual questions. There is no
consistent policy regarding the breadth of claims allowed in biotechnology and
pharmaceutical patents. The Company currently has twelve patents issued and
several patent applications pending in the United States. There have been
foreign counterparts of certain of these applications filed in other countries
on behalf of the Company. The Company intends to file additional applications as
appropriate for patents covering both its proposed products and processes. There
can be no assurance patents will issue from any of the pending applications, or
for patents that have been issued or may be issued, the claims allowed will be
sufficiently broad to protect the Company's technology. In addition, there can
be no assurance any patents issued to the Company will not be challenged,
invalidated or circumvented, or the rights granted thereunder will provide
proprietary protection to the Company. In addition, any patents obtained by the
Company will be of limited duration. All United States patents issuing from
patent applications applied for June 8, 1995 or thereafter will have a term of
20 years from the date of filing. All United States patents in force before June
8, 1995 will have a term of the longer of: (1) 17 years from the date of
issuance; or (2) 20 years from the date of filing. All United States patents
issuing from patent applications applied for before June 8, 1995 will have a
term of the longer of (1) 17 years from the date of issuance; or (2) 20 years
from the date of filing. The commercial success of the Company will also depend
in part on the Company's neither infringing patents issued to competitors nor
breaching the technology licenses upon which the Company's proposed products
might be based.

      It may become necessary for the Company to obtain licenses of potential
products or other proprietary rights or trade secrets from other parties.
Failure by the Company to obtain such licenses may have a material adverse
impact on the Company. Litigation, which could result in substantial costs to
the Company, may also be necessary to enforce any patents issued to the Company
or to determine the scope and validity of others' proprietary rights. In
addition, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office to determine the priority of
inventions which could result in substantial costs to the Company.

      The Company also attempts to protect its proprietary technology and
processes by seeking to obtain confidentiality agreements with its contractors,
consultants, employees, potential collaborative partners, licensees, licensors
and others. There can be no assurance these agreements will adequately protect
the Company, that these agreements will not be breached, or the Company will
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known or be independently discovered by competitors. In
addition the Company does not generally require its principal scientific
advisors to enter into confidentiality agreements, and to the extent there is
collaboration between any of the scientific advisors and the Company, the
aspects of such collaboration will not necessarily remain the trade secrets of
the Company. This approach could increase the risk to the Company that it may
not be able to protect its proprietary information.

       There can be no assurance others will not independently develop similar
or more advanced technologies or design around aspects of the Company's
technology which may be patented, or duplicate the Company's trade secrets. In
some cases, the Company may rely on trade secrets to protect its innovations.
There can be no assurance trade secrets will be established, or secrecy
obligations will be honored, or that others will not independently develop
similar or superior technology. To the extent consultants, key employees or
other third parties apply technological information independently developed by
them or by others to Company projects, disputes may arise as to the proprietary
rights to such information which may not be resolved in favor of the Company.


                                       12
<PAGE>


GOVERNMENTAL REGULATION AND UNCERTAINTY OF PRODUCT APPROVALS

       The production and marketing of the Company's proposed products are
subject to strict regulation by federal and state governmental authorities in
the United States and in foreign countries where such potential products may be
produced and marketed. In the United States, the FDA regulates, where
applicable, development, testing, labeling, manufacturing, registration,
notification, clearance or approval, marketing, distribution, record keeping and
reporting requirements for human and animal drugs, medical devices, biologics,
cosmetics and food additives. Most, if not all, of the Company's proposed
products, including its proposed Panavir(R), Vantox(R), and other products may
require FDA clearance prior to marketing. The Federal Environmental Protection
Agency ("EPA") has regulations covering certain areas for some of the Company's
proposed products. Comparable state and local agencies may have similar
regulations. The FDA and EPA regulatory approval processes may take a number of
years and both FDA and EPA regulatory approval may require the expenditure of
substantial resources. The processing, formulation, packaging, labeling and
advertising of the Company's proposed nutraceutical products is subject to
regulation by one or more federal agencies, including the FDA, the Federal Trade
Commission (the "FTC"), the Consumer Product Safety Commission, the United
States Department of Agriculture and the Environmental Protection Agency. These
activities are also regulated by various agencies of the state and localities in
which the Company's nutraceutical products may be sold, including without
limitation the California Department of Health and Human Services, Food and Drug
branch. The Nutrition Labeling and Education Act and the Dietary Supplement Act
provide regulations which require that vitamin, mineral and dietary supplements
labels have to provide the same basic nutritional information found on the
labels on most conventional foods. The regulations also require that health
claims made for vitamins, minerals and dietary supplements be scientifically
valid, and mandate nutrition information found on the label to state the
nutrition content per serving. Compliance with these regulations could adversely
affect the Company's operations and its financial condition. There can be no
assurance the production and marketing of the Company's proposed products or
other potential products which may be developed by the Company in the future, if
any, will satisfy then current requirements of the FDA, EPA, FTC, or comparable
state, local and foreign authorities. Delays in receiving or failure to receive
governmental approvals may have a material adverse impact on the Company. In
addition, there can be no assurance that government regulations applicable to
the Company or its proposed products or the interpretation thereof will not
change and thereby prevent the Company from marketing some or all of its
potential products for a period of time or permanently, or otherwise materially
and adversely affect the Company. Moreover, if regulatory approval of a drug is
granted, such approval may entail limitations on the indicated uses for which
the drug may be marketed. Even if such regulatory approval is obtained, a
marketed drug, its manufacturer and the facilities in which the drug is
manufactured are subject to continual review and periodic inspections. Later
discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer, including
withdrawal of the potential product from the market, product seizures, a halt in
operation and other materially adverse consequences. The Company is unable to
predict the extent of adverse governmental regulation which might arise from
future federal, state or foreign legislative or administrative action, or the
extent of the impact of such legislative changes on the business of the Company.

DEBT SERVICE AND PENALTIES

      The Company has two notes payable, one of $100,000 principal amount, and
the other of $60,000 principal amount, which notes are collateralized by
substantially all of the assets of the Company. In January 2001, the maturity
date of both notes was extended to March 22, 2002, provided the Company makes
interest payments on such debt of $8,000 on March 22, 2001 and $4,800 on August
17, 2001. All principal and accrued and unpaid interest at the rate of 8% per
annum will be payable on March 22, 2002. In connection with the extension of the
maturity of this debt, the Company issued the notes' holder an option
exercisable for two years to purchase 50,000 shares of Common Stock at a price
of $0.50 per share. Furthermore, the Company has amended the $60,000 note to
make it convertible into Common Stock at a price of $0.60 per share in
increments of not less than 20,000 shares.

DILUTIVE AND OTHER ADVERSE EFFECTS OF OUTSTANDING OPTIONS AND WARRANTS

      Certain warrants issued in connection with private and public placement of
the Company's common stock prior to April 1, 1996, expired on January 31, 2000,
and are no longer exercisable. Under the terms of existing, options issued under
the Company's stock option plan and other outstanding options, the holders
thereof are given an opportunity to profit from a rise in the market price of
the Common Stock with a resulting dilution in the interests of the other
stockholders. The terms on which the Company may obtain additional financing may
be adversely affected by the existence of such options. The holders of the
options may exercise them at a time when the Company might be able to obtain
additional capital through a new offering of securities on terms more favorable
than those provided by the options.


                                       13
<PAGE>


POSSIBLE DEPRESSIVE EFFECT ON PRICE OF SECURITIES OF FUTURE SALES OF COMMON
STOCK

      Actual sales or the prospect of sales of Common Stock under Rule 144 or
otherwise in the future may depress the prices of the Company's securities or
any market that may develop in the future. There are options outstanding both
pursuant to the Company's Stock Option Plan and options not pursuant to any plan
which are exercisable for up to 2,180,259 shares of Common Stock. Approximately
50% of these options are currently exercisable. Exercise of any of these options
would result in additional dilution to the purchaser of the shares offered
herein, and exercise of any significant amount of these options will result in
substantial additional dilution. Resale of shares acquired upon the exercise of
these options may depress the prices of the Company's securities or make them
more difficult to sell by the investors herein. The sale or availability for
sale of substantial amounts of Common Stock in the public market after this
offering could adversely affect the prevailing market prices of the Company's
securities and could impair the Company's ability to raise additional capital
through the sale of its equity securities.

POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION AND ISSUANCE OF PREFERRED STOCK

      The Company's Board of Directors is authorized to issue up to 10,000,000
shares of preferred stock. The Board of Directors has the power to establish the
dividend rates, liquidation preferences, voting rights, redemption and
conversion terms and privileges with respect to any series of preferred stock.
The issuance of any series of preferred stock having rights superior to those of
the common stock may result in a decrease in the value or market price of the
common stock and could further be used by the Board as a device to prevent a
change in control favorable to the Company. Holders of preferred stock to be
issued in the future may have the right to receive dividends and certain
preferences in liquidation and conversion rights. The issuance of such preferred
stock could make the possible takeover of the Company or the removal of
management of the Company more difficult, and adversely affect the voting and
other rights of the holder of the common stock, or depress the market price of
the Common Stock.

DELISTING FROM NASDAQ STOCK MARKET

      The Company was notified that it had been delisted from the NASDAQ
SmallCap Market effective with the close of business October 21, 1998. As of
October 22, 1998, the company's securities commenced trading over the counter
under the symbols OTC:BB - VYRX and OTC:BB - VYRXW. As a result, investors may
find it more difficult to dispose of or to obtain accurate quotations as to the
value of, the Company's securities.

VOLATILITY OF STOCK PRICE

      The market prices for securities of emerging and development stage
companies such as Vyrex have historically been highly volatile. Future
announcements concerning the Company or its competitors, including the results
of testing, technological innovations or new commercial products, government
regulations, developments concerning proprietary rights, litigation or public
concern as to safety of potential products developed by the Company or others,
may have a significant impact on the market price of the Company's securities.

DISCLOSURES RELATING TO LOW PRICED STOCKS; RESTRICTIONS ON RESALE OF LOW PRICE
STOCKS AND ON BROKER-DEAL SALE; POSSIBLE ADVERSE EFFECT OF "PENNY STOCK" RULES
ON LIQUIDITY FOR THE COMPANY'S SECURITIES

      Since the Company's securities were delisted from the NASDAQ SmallCap
Market and the Company has net tangible assets of less than $2,000,000
transactions in the Company's securities are subject to Rule 15g-9 under the
Exchange Act, which imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with a net worth in
excess of $1,000,000 or annual incomes exceeding $200,000 or $300,000 together
with their spouses). For transactions covered by this Rule, a broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to the sale. Consequently,
this Rule may affect the ability of broker-dealers to sell the Company's
securities, and may affect the ability of Shareholders to sell any of the
Company's securities in the secondary market.

      The Commission has adopted regulations which generally define a "penny
stock" to be any non-NASDAQ equity security of a small company that has a market
price (as therein defined) less than $5.00 per share, or with an exercise price
of less than $5.00 per share subject to certain exceptions, and which is not
traded on any exchange or quoted on NASDAQ. For any transaction by
broker-dealers involving a penny stock (unless exempt), the rules require
delivery, prior to a transaction in a penny stock, of a risk disclosure document
relating to the penny stock market. Disclosure is also required to be made about
compensation payable to both the broker-dealer and the registered representative
and current quotations for the securities.


                                       14
<PAGE>


Finally, monthly statements are required to be sent disclosing recent price
information for the penny stock held in an account and information on the
limited market in penny stocks.

CONTROL BY PRESENT STOCKHOLDERS; POSSIBLE DEPRESSIVE EFFECT ON THE COMPANY'S
SECURITIES

      The current officers and directors of the Company own 22% of the
outstanding Common Stock of the Company. Dr. Hendler individually owns
approximately 18.5% of the outstanding Common Stock. This concentration of
ownership could have an influence over the election of directors and could exert
influence or control over the Company's operations. This may discourage
potential purchasers from seeking control of the Company through purchase of
Common Stock and this possibility could have a depressive effect on the price of
the Company's securities.

ANTI-TAKEOVER PROVISIONS - LIMITATION ON VOTING RIGHTS

      The Company's Articles of Incorporation and Bylaws contain provisions that
may make it more difficult to acquire control of the Company by means of tender
offer, over-the-counter purchases, a proxy fight, or otherwise. The Articles of
Incorporation also include provisions restricting stockholder voting rights. The
Company's Articles of Incorporation include a provision that requires that any
action required by the stockholders may not be affected by a written consent,
and that special meetings of the stockholders may only be called by the Board of
Directors. This provision makes it difficult for stockholders to pass any
resolution not supported by the Board of Directors except at a regularly called
meeting. The Company's Articles of Incorporation provide for a staggered term of
the Board of Directors, thus eliminating the ability to elect all of the
directors in any one year. This provision may make the implementation of a
change in management a process requiring more than one year even if supported by
a majority of the stockholders. The Company's Articles of Incorporation provide
directors may only be removed for cause and a vote of 70% of the shareholders.
Certain provisions of the Articles of Incorporation may only be amended by a
vote of 70% of the stockholders. As a result of the number of shares currently
owned by management, this provision may for some time have the effect of
indirectly eliminating any possibility stockholders could pass a resolution
unless approved by management, in connection with any question submitted or
required to be submitted to a vote of the stockholders. The Company's Articles
of Incorporation also require that stockholders give advance notice to the
Company of any directorship nominations or other business to be brought by the
stockholders at any stockholder's meeting. This provision makes it more
difficult for stockholders to nominate candidates for the Board of Directors who
are not supported by management. In addition, the Articles of Incorporation
require advance notice for stockholder proposals to be brought before the annual
meeting. The requirements include that the notice must specify certain
information regarding the stockholder and the meeting. This provision to
implement stockholder proposals makes it more difficult even if a majority of
stockholders are in support thereof. The Company is also subject to certain
provisions of California law if more than 50% of its outstanding securities are
held of record by persons with addresses in California, and if more than 50% of
its property, payroll and sales are from California. These provisions of
California law will control the operations of the Company with respect to
certain of the anti-takeover provisions discussed herein, until such time as
either (i) the Company is listed on the New York or American Stock Exchange or
the National Market System of Nasdaq, and it has 800 stockholders; or (ii) the
Company no longer has either more than 50% of its outstanding securities held by
persons with addresses in California, or less than 50% of its property, payroll
and sales are in California. Each of these provisions may also have the effect
of deterring hostile take-overs or delaying changes in control or management of
the Company. In addition, the indemnification provisions of the Company's Bylaws
and Articles of Incorporation may represent a conflict of interest with the
stockholders since officers and directors may be indemnified prior to any
judicial determinations as to their conduct.

WARRANTS

      The Company issued Debenture Warrants to purchase 17,000 shares of Common
Stock issued in conjunction with the issuance of Debentures in November 1997, in
the principal amount of $1,000,000. The Debentures were converted to Common
Stock in 1998. The Debenture Warrants were exercisable for a period of three
years from the date of issuance and were exercisable at a price equal to $7.50
per share. These Warrants expired in November 2000.

      The Company issued Warrants in March and August of 1999 in connection with
entering into loan transactions with a single entity with an aggregate principal
amount equal to $160,000. Warrants were issued in this transaction entitling the
lender to purchase 50,000 shares at an exercise price equal to $1.00 per share,
50,000 shares at an exercise price equal to $0.50 per share, and 150,000 shares
at an exercise price of $0.25 per share. In consideration of extending the
maturity of this debt during February 2000, the exercise price of the warrants
to purchase an aggregate of 250,000 shares of common stock was reduced to


                                       15
<PAGE>


$0.10. The lender purchased 100,000 shares during June and July 2000 at a price
of $0.10 per share. The warrant to purchase 150,000 shares remains unexercised.
This warrant expires on August 16, 2002.

LACK OF MARKETING EXPERIENCE; DEPENDENCE ON OUTSIDE PARTIES FOR MARKETING AND
DISTRIBUTION; UNCERTAINTY OF MARKET ACCEPTANCE OF PROPOSED PRODUCTS

      If successfully developed and approved by applicable regulatory agencies,
the Company intends to market its proposed products currently under development
through contractual arrangements with others such as joint venture, licensing or
similar collaborative agreements and distribution agreements. This may result in
a lack of control by the Company over some or all of the marketing and
distribution of such potential products. There can be no assurance the Company
will be able to enter into any marketing arrangements on terms acceptable to the
Company or that any marketing efforts undertaken on behalf of the Company will
be successful. The Company may, in the future, determine to directly market
certain of its proposed products. The Company has limited marketing experience
and significant additional capital expenditures and management resources would
be required to develop a direct sales force. In the event the Company elects to
engage in direct marketing activities, there can be no assurance the Company
would be able to obtain the requisite funds or attract and retain the human
resources necessary to successfully market any of its potential products.

      The Company's future growth and profitability will depend, in large part,
on the success of its personnel and others conducting marketing efforts on
behalf of the Company in fostering acceptance among the various markets of the
use of the Company's potential products as an alternative to other available
products or otherwise. The Company's success in marketing its potential products
will be substantially dependent on educating its targeted markets as to the
distinctive characteristics and perceived benefits of the Company's potential
products. There can be no assurance that the Company's efforts or the efforts of
others will be successful or that any of the Company's proposed products will be
favorably accepted among the targeted markets.

LACK OF MANUFACTURING CAPABILITY; DEPENDENCE ON OUTSIDE PARTIES FOR
MANUFACTURING OF PROPOSED PRODUCTS

      The Company has no manufacturing facilities or expertise, and does not
intend to manufacture any potential product or products. The Company initially
intends to enter into arrangements with others to manufacture all of its
proposed products and has done so with respect to its nutraceutical products.
The Company does not have any contracts or agreements obligating any party to
manufacture any quantity of nutraceuticals for any price. Failure to secure such
contracts or agreements could have a material adverse impact on the business and
operations of the Company. There can be no assurance the Company will be able to
enter into satisfactory arrangements for the manufacture of its proposed
products with manufacturers whose facilities and procedures comply with FDA or
other regulatory requirements, that the manufacturers will continue to comply
with such standards, or that such manufacturers will be able to adequately
supply the Company with its product needs. The Company's dependence on third
parties for manufacturing may adversely affect the Company's ability to develop
and deliver products on a timely and competitive basis. The Company may in the
future undertake to manufacture some or all of its proposed products directly.
The Company has no experience with the manufacture of any of its proposed
products under development. In the event the Company were to undertake to
manufacture any of its proposed products, the Company would be required to
finance considerable additional capital expenditures, attract and retain
experienced personnel, develop a manufacturing capability, and comply with
extensive government regulations with respect to its facilities, including among
others, FDA manufacturing requirements. The Company would not be able to develop
any reasonable manufacturing capability without obtaining significant capital in
excess of the funds anticipated from this offering. There can be no assurance
the Company would be able to successfully establish manufacturing operations.

DEPENDENCE ON SUPPLIERS

      The materials used in the Company's potential products are currently
available only from a limited number of suppliers. The Company anticipates there
will continue to be a limited number of suppliers for its proposed products. In
the event the Company could not obtain adequate quantities of necessary
materials from its existing suppliers, there can be no assurance the Company
would be able to access alternative sources of supply within a reasonable period
of time or at commercially reasonable rates. Regulatory requirements applicable
to pharmaceutical products tend to make the substitution of suppliers costly and
time-consuming. The Company does not have any contracts or agreements with any
of its raw material suppliers for its proposed nutraceutical products to provide
quantities of raw materials at specific prices. The Company believes there are
numerous suppliers of its raw materials for its proposed nutraceutical products.
There can be no assurance adequate suppliers will be available or that the lack
of such contracts or agreements will not have a material adverse impact on the
business and operations of the Company. The unavailability of adequate
commercial quantities, the inability to develop alternative sources, a reduction
or interruption in supply or a significant increase in the price of materials
could have a material adverse effect on the Company's ability to manufacture and
market its proposed products.


                                       16
<PAGE>


PRODUCT LIABILITY; AVAILABILITY OF INSURANCE

      The design, development and manufacture of the Company's proposed products
involve an inherent risk of product liability claims and associated adverse
publicity. The Company obtained clinical trial product liability insurance for
its Panavir(R) Phase I human clinical trial and intends to obtain insurance for
future clinical trials of Panavir(R), Vantox(R), and other potential products
under development, and for potential product liability associated with the
commercial sale of the Company's proposed products. There can be no assurance
the Company will be able to obtain or maintain insurance for any of its clinical
trials or proposed commercial products. Such insurance is expensive, difficult
to obtain and may not be available in the future on acceptable terms or at all.
The Company will also be exposed to product liability claims in the event that,
among other things, the use of its proposed nutraceutical products result in
injury.

HAZARDOUS MATERIAL; ENVIRONMENTAL MATTERS

      The Company, at present, contracts with outside vendors for manufacture of
its proposed products. However, the Company's research and development processes
at times involve the controlled use of hazardous materials, chemicals, viruses
and various radioactive compounds. In addition, various of such materials,
chemicals, viruses and compounds may be used by the Company in the future to the
extent Vyrex undertakes to perform its own manufacturing. To the extent certain
such materials, chemicals, viruses and compounds are or will be used by the
Company, Vyrex will be subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of certain
materials and waste products. Although the Company believes its safety
procedures for handling and disposing of materials would comply with the
standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result, and any such liability could exceed the resources of the Company.
There can be no assurance the Company will not be required to incur significant
costs to comply with environmental laws and regulations in the future, or that
the operations, business or assets of the Company will not be affected adversely
or materially by current or future environmental laws or regulations.

HEALTH CARE REFORM

      Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental changes. Reforms under
consideration may include mandated basic health care benefits, controls on
health care spending through limitations on the growth of private health
insurance premiums and Medicare and Medicaid spending, the creation of large
insurance purchasing groups and fundamental changes to the health care delivery
system. The Company anticipates Congress and certain state legislatures will
continue to review and assess alternative health care delivery systems and
payment methods and public debate of these issues will likely continue in the
future. Due to uncertainties regarding the ultimate features of reform
initiatives and their enactment and implementation, the Company cannot predict
which, if any, of such reform proposals will be adopted, when they may be
adopted or what impact they may have on the Company.

UNCERTAINTY OF HEALTH CARE REIMBURSEMENT

      Vyrex's ability to commercialize its proposed products successfully may
depend in part on the extent to which reimbursement for the cost of such
proposed products and related treatment will be available from government health
administration authorities, private health insurers and other organizations.
Third-party payers are increasingly challenging the price of medical products
and services. Significant uncertainty exists as to the reimbursement status of
newly approved health care products, and there can be no assurance adequate
third-party coverage will be available to enable Vyrex to maintain price levels
sufficient to realize an appropriate return on its investment in product
development.

FORWARD-LOOKING STATEMENTS

      Prospective investors are cautioned that the statements in this Prospectus
that are not descriptions of historical facts may be forward-looking statements
that are subject to risks and uncertainties. Actual results could differ
materially from those currently anticipated due to a number of factors,
including those identified under "Risk Factors" and elsewhere in this report or
documents incorporated by reference herein.


                                       17
<PAGE>


ITEM 2.           PROPERTIES

Vyrex Corporation is currently negotiating new lease terms for its
administrative office space in La Jolla, California.

ITEM 3.           LEGAL PROCEEDINGS

None

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

None

                                     PART II

ITEM 5.           MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS

The Company's Common Stock began trading on the Over-The-Counter Bulletin Board
on October 22 1998 under the symbol "VYRX". The over-the-counter market
quotations provided reflect inter-dealer prices, without retail mark-ups,
mark-down or commission and may not represent actual transactions. The following
table sets forth the range of high and low sales prices for the Common Stock on
the Nasdaq Small Capitalization Market for the periods indicated:

<TABLE>
<CAPTION>

                                                                                  HIGH                    LOW
                                                                                  ----                    ---
<S>                                                                               <C>                     <C>
January 1,  1999                    March 30,  1999                               $0.8125                 $0.1875
April 1,  1999                      June 30,  1999                                $0.6875                 $0.3438
July 1,  1999                       September 30,  1999                           $0.4375                 $0.2812
October 1,  1999                    December 31,  1999                            $0.2812                 $0.0938
January 1,  2000                    March 30,  2000                               $2.1562                 $0.0938
April 1,  2000                      June 30,  2000                                $1.3438                 $0.2812
July 1,  2000                       September 30,  2000                           $1.5312                 $0.8125
October 1,  2000                    December 31,  2000                            $0.875                  $0.375

</TABLE>

As of March 29 2001, the Company's Common Stock was held by approximately 600
stockholders of record. The Company has never paid cash dividends and does not
anticipate paying any cash dividends in the foreseeable future.

ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS AND PLAN OF OPERATION

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE HEREIN

OVERVIEW

      Since its inception in January 1991, the Company has devoted substantially
all of its efforts and resources to research and development related to the
study of biological oxidation and antioxidation directed to the development of
potential therapeutic products for the treatment of various diseases and
conditions. Currently the Company's research focuses mainly on targeted
antioxidant therapeutics and nutraceuticals. The Company is a development stage
company, has never generated any substantial revenue from product sales and has
relied primarily on equity financing, licensing revenues, and various debt
instruments for its working capital. The Company has been unprofitable since its
inception.

         With the ever increasing difficulty of biotechnology companies being
able to raise funds in the capital markets, the Company has and is continuing to
seek collaborative partners to license its existing technology with a view to
raising funding. In addition the Company's short term strategy will be to
continue efforts to commercialize existing technology and to selectively defer
research and development activity until such time as the Company has adequate
operating funds. During 2000 the


                                       18
<PAGE>


Company continued to reduce operating expenses. The net loss for 2000 amounted
to $335,000 compared to $789,000 in 1999. As of December 31, 2000 the Company's
accumulated deficit was approximately $13,037,000.

         The Company's business is subject to significant risks, including the
risks inherent in its research and development efforts, uncertainties associated
with obtaining and enforcing patents, the lengthy and expensive regulatory
approval process and competition from other biotechnology companies. See "Risk
Factors."

RESULTS OF OPERATIONS

      YEARS ENDED DECEMBER 31, 2000 AND 1999

      The Company started earning royalty income in 1999 from the sale of four
nutritional formulations by the Retired Persons Services, Inc. ("RPS"). Royalty
income decreased $44,000 to $27,000 in 2000 compared to $71,000 in 1999. The
Company is entitled to a royalty of 15% on the sale of these formulations. The
Company was notified in September 2000, that RPS was relinquishing their
exclusive rights to the products and discontinuing the product line. The Company
will continue to receive royalties on sales until the inventory is depleted.
Although the Company has the rights to market the formulas to other marketers,
there is no assurance that can be accomplished. The Company earned $25,000 in
license fees during 2000 compared to a license fee of $6,600 in 1999. The
Company's patent for Metallic Oligopeptide complexes was issued in June 2000.
The patent deals with a novel chromium complex, chromium carnosinate, which the
Company feels is superior to the other forms of chromium supplements currently
on the market. This patent, coupled with the Company's Boron patent, provided
the Company the opportunity in August 2000, to enter into a license agreement
with the Futureceutical division of Van Drunen Farms to manufacture and market
these patented and trademarked nutraceutical compounds. To date, a partial
licensing fee of $25,000 has been received. The Company will receive a
supplemental license issue fee of $75,000 upon attaining $75,000 in initial
sales of licensed products. The licensee shall owe the Company a total gross
royalty of 30% of gross revenue from the sale of licensed products. Of the 30%
gross royalty, licensee shall credit and allocate 5% to further research and
development of the products and pay the remaining 25% to the Company. Product
launch is anticipated in the 3rd quarter 2001. Futureceuticals will fund
additional studies to enhance the marketability of these products. There can be
no assurance that a significant market will develop for the products or that any
products will continue to be sold or will produce any revenue for the Company.

      Since January 2000, the Company's major activities consisted of reducing
overhead and debt, in raising funds through financing activities, and seeking
licensing opportunities for its intellectual properties and joint ventures to
market its nutraceutical products and initiate the research necessary to take
its drug candidates forward into clinical trials. During this period, the
Company generated $449,000 from financing activities consisting of $420,000 from
the sale of common stock, $25,000 from the exercise of stock options, and
$10,000 from the exercise of warrants net of repayment of $6,114 on short term
loans. To supplement its existing resources, the Company will require additional
capital from the sale of debt or equity. There can be no assurance that such
capital will be available on favorable terms, or at all, and if additional funds
are raised by issuing equity securities, dilution to existing shareholders is
likely to result.

      In 2000, three officers of the Company forgave previously accrued
compensation totaling $422,559.

      Research and development expenses decreased $276,000 to $19,000 in 2000
compared to $295,000 in 1999. The decrease in research and development expenses
is attributed to the fact that there were no fringe benefits or compensation
expenses in 2000. Expenses were limited to purchased services and a license fee.

      Marketing expenses amounted to $5,000 for 2000. There were no marketing
expenses in 1999. General and administrative expenses decreased $215,000 to
$348,000 in 2000 compared to $563,000 in 1999. Salaries and fringe benefits
decreased $185,000, insurance decreased $75,000, and rent decreased $22,000.
Expenses were limited to consulting fees, maintenance of patents, and general
office expenses such as accounting services, telephone expenses, utility
expenses and postage.

      Net loss decreased $454,000 to $335,000 during 2000 compared to $789,000
in 1999. Basic and diluted loss per share decreased $0.07 to $0.04 during 2000
compared to $0.11 in 1999. The lower net loss per common share is principally
due to the decrease in the net loss.


                                       19
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

      The Company has financed its operations since inception through the sale
of debt and equity securities. As of December 31, 2000, the Company had a
working capital deficit of $37,000 compared to a working capital deficit of
$755,000 at December 31, 1999. The deficit in working capital is the result of
the Company's operating loss.

      For the twelve months ended December 31, 2000, the Company used $213,000
of cash in operating activities, compared to $330,000 during 1999. The decrease
in cash usage was primarily related to decreases in salaries, consulting fees
and other expenses. In addition, salaries to administrative and science staff
were deferred until such time as the Company has the funds to fund the payroll.
As of December 31, 2000 accrued payroll amounted to approximately $180,000.

      In 2000 the Company generated $449,000 from financing activities
consisting of $420,000 from the sale of common stock, $25,000 from the exercise
of stock options, and $10,000 from the exercise of warrants net of repayment of
$6,114 on short term loans compared to $217,000 in 1999.

      While the Company may have revenues during 2001, it is not anticipated
that they will be significant and therefore without additional financing it is
uncertain whether the Company can continue as a going concern. The Company is
actively pursuing collaborations with potential partners in both the
pharmaceutical and nutraceutical divisions with the objective of raising
financing to enable the Company to continue operations. During 2000, the Company
raised $455,000 through the private sale of securities and exercise of warrants
and options. The Company does not currently have any other commitments for
financing. On March 22, 1999, the Company obtained a loan for $100,000 at 10%
interest. The loan was originally due and payable on March 22, 2000, and is
collateralized by the general assets of the Company with applicable provisions
of the Uniform Commercial Code. The principal amount of the loan was increased
in August of 1999 to $160,000. The loan was renegotiated to provide that the
interest only on the $100,000 was due and payable on March 22, 2000, and
interest only on the $60,000 was due and payable on August 17, 2000. The March
22, 2000 and August 17, 2000 interest payments were paid within the prescribed
terms. The remaining principal balance plus 8% annual interest was extended one
year and will be due and payable on March 22, and August 17, of 2001. In
January, 2001, the Company agreed with the holder of the two promissory notes to
extend the maturity of such notes to March 22, 2002. Interest on the $100,000
note in the amount of $8,000 will be due and payable on March 22, 2001, and
interest on the $60,000 note in the amount of $4,800 will be due and payable on
August 17, 2001. All principal and accrued and unpaid interest at the rate of 8%
per annum on each note will be due and payable on March 22, 2002. In
consideration of such extension the Company issued the debt holder an option
exercisable for two years to purchase 50,000 shares of Common Stock at a price
of $0.50 per share. Furthermore, the Company amended the $60,000 note to make it
convertible at any time prior to maturity into 100,000 shares of Common Stock at
a price of $0.60 per share in increments of not less than 20,000 shares. The
Company does not have any revenue to service the debt, and must obtain
additional financing to pay the principal and interest on this debt when due. It
is anticipated that the $455,000 raised will enable the Company to continue
operating through 2001. Additional funds will have to be raised by that time to
enable the Company to continue operations. The Company does not have any lease
or other commitments. The Company does not have an existing bank line of credit
or other form of revolving or renewable credit facility. There can be no
assurance the Company will generate revenue during 2001, or that funds will be
available through the public or private markets.

PLAN OF OPERATION

      As a result of expanded collaboration and license agreements in 2000
clinical trials on certain of the Company's key products are scheduled to
commence in 2001. In addition to working with our existing partners to expedite
the development of these products toward commercialization the Company will
continue to focus its efforts and resources on developing new strategic
relationships concerning the development, manufacturing and marketing of
additional antioxidant pharmaceutical compounds and nutraceuticals.

ITEM 7.  FINANCIAL STATEMENTS

The financial statements of the Company and other information required by this
item are set forth herein in a separate section beginning with the Index to the
Financial Statements on page F1.


                                       20
<PAGE>


ITEM 7a.          QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable

ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE:

None
                                    PART III

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
                  COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

The information required by Item 9 of Form 10-K SB is incorporated by reference
to the information contained in the section captioned "Election of Directors"
and "Compliance with Section 16(a) of the Exchange Act" in the Registrants
definitive proxy statement for the Annual Meeting of Shareholders ("Proxy
Statement") to be filed with the Commission on or before April 30, 2001.

ITEM 10.          EXECUTIVE COMPENSATION.

The information required by Item 10 of Form 10-K SB is incorporated by reference
to the information contained in the section captioned "Executive Compensation"
in the Proxy Statement to be filed with the Commission on or before April 30,
2001.

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

The information required by Item 11 of Form 10-K SB is incorporated by reference
to the information contained in the section captioned "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement to be filed
with the Commission on or before April 30, 2001.

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by Item 12 of Form 10-K SB is incorporated by reference
to the information contained in the section captioned "Certain Relationships and
Related Transactions" in the Proxy Statement to be filed with the Commission on
or before April 30, 2001.

ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K.

Exhibit 23.1:  Consent of J. H. Cohn LLP, Independent Public Accountants.


                                       21
<PAGE>


                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                            VYREX CORPORATION
                                            Registrant


                                            By: /s/ G. Dale Garlow
                                                --------------------------------
                                                G. Dale Garlow
                                                Chief Executive Officer,

         In accordance with the Exchange Act, this Report has been SIGNED by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>

         Signature                          Title                                       Date
         ---------                          -----                                       ----
<S>                                      <C>                                            <C>


/s/ SHELDON S. HENDLER                   Director                                       March 30, 2001
------------------------------------


/s/ G. DALE GARLOW                       Director                                       March 30, 2001
------------------------------------


/s/ RICHARD G. MCKEE, JR.                Director                                       March 30, 2001
------------------------------------



/s/ LORI A. ROBINSON                     Director                                       March 30, 2001
------------------------------------



/s/ TOMAS K. LARSON, JR.                 Director                                       March 30, 2001
------------------------------------

</TABLE>


                                       22
<PAGE>


                                VYREX CORPORATION
                          ANNUAL REPORT ON FORM 10-KSB
                          YEAR ENDED DECEMBER 31, 2000
                                  EXHIBIT INDEX

EXHIBIT NUMBER                      DESCRIPTION
-----------------------------------------------
 3.1      BYLAWS *

23.1      CONSENT OF INDEPENDENT ACCOUNTANTS


* previously filed.
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)





                          Index to Financial Statements

<TABLE>

<S>                                                                                                 <C>
Report of J.H. Cohn LLP, Independent Public Accountants.............................................F-2
Balance Sheets......................................................................................F-3
Statements of Operations............................................................................F-4
Statements of Stockholders' Deficiency..............................................................F-5-6
Statements of Cash Flows............................................................................F-7
Notes to Financial Statements.......................................................................F-8-17

</TABLE>


                                      F-1
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors and Stockholders
Vyrex Corporation


We have audited the accompanying balance sheets of VYREX CORPORATION (a
development stage enterprise) as of December 31, 2000 and 1999, and the related
statements of operations, stockholders' deficiency and cash flows for the years
then ended, and for the period from January 2, 1991 (date of inception) through
December 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements for the years
ended December 31, 1998, 1997 and 1996, were audited by other auditors whose
reports dated March 15, 1999 (except as to Note 10 to the 1998 financial
statements for which the date was March 29, 1999) and February 12, 1998,
expressed an unqualified opinion and included an explanatory paragraph
discussing uncertainty regarding Vyrex Corporation's ability to continue as a
going concern. Total revenues and net losses for the three years ended December
31, 1998, 1997 and 1996 were $1,600 and $8,504,866, respectively. Our opinion on
the statements of operations, stockholders' deficiency and cash flows for the
period from January 2, 1991 (inception) through December 31, 2000, insofar as it
relates to amounts for the years ended December 31, 1998, 1997 and 1996, is
based solely on the report of other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Vyrex Corporation (a development stage enterprise) at
December 31, 2000 and 1999, and its results of operations and cash flows for the
years then ended and for the period from January 2, 1991 (date of inception)
through December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company has incurred recurring operating losses, has a working capital
deficiency and a net capital deficiency. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that may result from the outcome of
this uncertainty.

                                                        J.H. COHN LLP


San Diego, California
February 20, 2001


                                      F-2
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

                                 Balance Sheets

<TABLE>
<CAPTION>

                                                                                      DECEMBER 31
                                                                                2000              1999
                                                                          ------------------------------------
<S>                                                                          <C>            <C>
ASSETS
Current assets - cash and cash equivalents                                   $    238,817   $        3,184

Furniture and equipment, net of accumulated depreciation of $146,678 in
   2000 and $132,425 in 1999                                                       14,030           41,591
                                                                          ------------------------------------
Total assets                                                                 $    252,847    $      44,775
                                                                          ====================================

LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities:
   Accounts payable and accrued liabilities                                  $    264,036     $    713,183
   Deferred revenue                                                                 2,171           28,910
   Notes payable to related parties                                                10,000           16,114
                                                                          ------------------------------------
Total current liabilities                                                         276,207          758,207

Notes payable                                                                     160,000          160,000
                                                                          ------------------------------------
Total liabilities                                                                 436,207          918,207
                                                                          ------------------------------------

Commitments and contingencies

Stockholders' deficiency:
   Preferred stock, $.001 par value; 10,000,000 shares authorized; none
     issued                                                                             -                -
   Common stock, $.001 par value; 50,000,000 shares authorized; 8,342,867
     and 7,542,867 issued and outstanding in 2000 and 1999, respectively            8,343            7,543
   Additional paid-in capital                                                  12,845,397       11,820,638
   Deficit accumulated during the development stage                           (13,037,100)     (12,701,613)
                                                                          ------------------------------------
Total stockholders' deficiency                                                   (183,360)        (873,432)
                                                                          ------------------------------------
Total liabilities and stockholders' deficiency                               $    252,847     $     44,775
                                                                          ====================================

</TABLE>

SEE ACCOMPANYING NOTES.


                                      F-3
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

                            Statements of Operations

<TABLE>
<CAPTION>

                                                                                              CUMULATIVE
                                                          YEARS ENDED DECEMBER 31                FROM
                                                          2000               1999             INCEPTION
                                                  ------------------------------------------------------------
<S>                                                  <C>               <C>                  <C>
Licensing and royalty revenue                        $        51,739   $          77,690    $       441,029
                                                  ------------------------------------------------------------

Operating expenses:
   Research and development                                   18,527             294,502          6,432,748
   Marketing and selling                                       5,009                                433,102
   General and administrative                                347,629             562,974          5,648,380
                                                  ------------------------------------------------------------
Total operating expenses                                     371,165             857,476         12,514,230
                                                  ------------------------------------------------------------

Loss from operations                                        (319,426)           (779,786)       (12,073,201)
                                                  ------------------------------------------------------------

Other income (expense):
   Interest income                                             5,925                 321            470,452
   Gain (loss) on disposal of fixed assets                    (6,376)              1,137            (12,605)
   Interest expense                                          (15,610)            (10,220)           (71,846)
   Charge from issuance of stock options for
     bridge financing                                              -                   -         (1,349,900)
                                                  ------------------------------------------------------------
Total other income (expense)                                 (16,061)             (8,762)          (963,899)
                                                  ------------------------------------------------------------

Net loss                                             $      (335,487)          $(788,548)   $   (13,037,100)
                                                  ============================================================

Net loss per share - basic and diluted               $         (0.04)      $       (0.11)    $        (1.96)
                                                  ============================================================
Shares used in per share computations                      8,037,129           7,474,491          6,656,601
                                                  ============================================================

</TABLE>

SEE ACCOMPANYING NOTES.


                                      F-4
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

               Statements of Stockholders' Deficiency (continued)

<TABLE>
<CAPTION>



                                                                                    COMMON STOCK                ADDITIONAL
                                                                         ------------------------------------    PAID-IN
                                                                              SHARES            AMOUNT           CAPITAL
                                                                         ---------------------------------------------------
<S>                                                                          <C>                 <C>          <C>
   Issuance (at $.002 per share) for acquisition of technology
     retroactively reduced for 150,000 shares returned and retired on
     October 1, 1995                                                          3,350,000           $3,350       $     3,350
   Issuance (at $.002 per share) for cash                                       500,000              500               500
   Issuance (at $1.00 per share) for cash                                       800,000              800           799,200
   Issuance as compensation (at $1.00 per share)                                 32,500               33            32,467
   Issuance (at $2.00 per share) upon conversion of note payable                100,000              100           199,900
   Issuance (at $3.00 per share) for cash, net of issuance costs of $4,086       33,000               33            94,881
   Net loss                                                                           -                -                 -
                                                                         ---------------------------------------------------
Balance at December 31, 1993                                                  4,815,500            4,816         1,130,298
   Issuance (at $3.00 per share) for cash, net of issuance costs of $21,000      99,000               99           275,901
   Issuance (at $3.00 per share) in lieu of finder's fee                          7,000                7            20,993
   Issuance (at $3.00 per share) in lieu of finder's fee                          5,000                5            14,995
   Issuance (at $3.00 per share) for cash, net of issuance costs of $41,844      24,990               25            33,101
   Net loss                                                                           -                -                 -
                                                                         ---------------------------------------------------
Balance at December 31, 1994                                                  4,951,490            4,952         1,475,288
   Issuance (at $3.00 per share) for cash, net of issuance costs of $46,976     149,940              150           402,694
   Issuance (at $3.00 per share) in settlement of account payable                 6,041                6            18,117
   Issuance (at par value) as compensation for services related to prior
     issuances of common stock                                                   83,000               83               (83)
   Issuance (at $3.00 per share) as compensation for services related to
     offering                                                                    13,334               13            39,989
   Issuance (at $3.00 per underlying share) of options for 450,000
     shares as compensation for arranging bridge financing                            -                -         1,349,900
   Net loss                                                                           -                -                 -
                                                                         ---------------------------------------------------
Balance at December 31, 1995                                                  5,203,805            5,204         3,285,905
   Proceeds from initial public offering (at $6.50 per unit), net of
     issuance costs of $1,135,453                                             1,057,097            1,057         5,734,620
   Sale of option to purchase 300,000 shares at $3.00 per share                       -                -            50,000
   Exercise of stock options (at $3.00 per share) for cash                      300,000              300           899,700
   Conversion of notes payable and related accrued interest (at $3.00
     per share)                                                                  86,015               86           257,959
   Exercise of stock options (at $.00022 per share) for cash                    450,000              450              (350)
   Issuance of units as compensation for legal services (at $4.55 per
     share)                                                                      24,292               24           110,505
   Net loss                                                                           -                -                 -
                                                                         ---------------------------------------------------
Balance at December 31, 1996                                                  7,121,209            7,121        10,338,339
(CONTINUED)

</TABLE>

<TABLE>
<CAPTION>

                                                                                         DEFICIT
                                                                                       ACCUMULATED         TOTAL
                                                                                       DURING THE      STOCKHOLDERS'
                                                                                       DEVELOPMENT         EQUITY
                                                                                          STAGE         (DEFICIENCY)
                                                                                  --------------------------------------
<S>                                                                                     <C>           <C>
   Issuance (at $.002 per share) for acquisition of technology
     retroactively reduced for 150,000 shares returned and retired on
     October 1, 1995                                                                     $         -   $        6,700
   Issuance (at $.002 per share) for cash                                                                       1,000
   Issuance (at $1.00 per share) for cash                                                          -          800,000
   Issuance as compensation (at $1.00 per share)                                                   -           32,500
   Issuance (at $2.00 per share) upon conversion of note payable                                   -          200,000
   Issuance (at $3.00 per share) for cash, net of issuance costs of $4,086                         -           94,914
   Net loss                                                                               (1,085,932)      (1,085,932)
                                                                                  --------------------------------------
Balance at December 31, 1993                                                              (1,085,932)          49,182
   Issuance (at $3.00 per share) for cash, net of issuance costs of $21,000                        -          276,000
   Issuance (at $3.00 per share) in lieu of finder's fee                                           -           21,000
   Issuance (at $3.00 per share) in lieu of finder's fee                                           -           15,000
   Issuance (at $3.00 per share) for cash, net of issuance costs of $41,844                        -           33,126
   Net loss                                                                                 (467,683)        (467,683)
                                                                                  --------------------------------------
Balance at December 31, 1994                                                              (1,553,615)         (73,375)
   Issuance (at $3.00 per share) for cash, net of issuance costs of $46,976                        -          402,844
   Issuance (at $3.00 per share) in settlement of account payable                                  -           18,123
   Issuance (at par value) as compensation for services related to prior
     issuances of common stock                                                                     -                -
   Issuance (at $3.00 per share) as compensation for services related to
     offering                                                                                      -           40,002
   Issuance (at $3.00 per underlying share) of options for 450,000
     shares as compensation for arranging bridge financing                                         -        1,349,900
   Net loss                                                                               (1,854,584)      (1,854,584)
                                                                                  --------------------------------------
Balance at December 31, 1995                                                              (3,408,199)        (117,090)
   Proceeds from initial public offering (at $6.50 per unit), net of
     issuance costs of $1,135,453                                                                  -        5,735,677
   Sale of option to purchase 300,000 shares at $3.00 per share                                    -           50,000
   Exercise of stock options (at $3.00 per share) for cash                                         -          900,000
   Conversion of notes payable and related accrued interest (at $3.00
     per share)                                                                                    -          258,045
   Exercise of stock options (at $.00022 per share) for cash                                       -              100
   Issuance of units as compensation for legal services (at $4.55 per
     share)                                                                                        -          110,529
   Net loss                                                                               (1,820,614)      (1,820,614)
                                                                                  --------------------------------------
Balance at December 31, 1996                                                              (5,228,813)       5,116,647

</TABLE>


                                      F-5
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

               Statements of Stockholders' Deficiency (continued)

<TABLE>
<CAPTION>



                                                                                    COMMON STOCK                ADDITIONAL
                                                                         ------------------------------------    PAID-IN
                                                                              SHARES            AMOUNT           CAPITAL
                                                                         ---------------------------------------------------
<S>                                                                      <C>                  <C>             <C>
Balance at December 31, 1996                                                  7,121,209       $    7,121      $ 10,338,339
   Exercise of warrants, 200 shares at $8.00 per share                              200                -             1,600
   Warrants issued in conjunction with debenture offering                             -                -            62,220
   Net loss                                                                           -                -                 -
                                                                         ----------------------------------------------------
Balance at December 31, 1997                                                  7,121,409            7,121        10,402,159
   Issuance of stock as partial consideration for placement of debentures         8,000                8            49,992
   Issuance of stock on conversion of debentures                                227,222              227           807,414
   Issuance of shares upon cashless exercise of stock options                    66,824               67           396,513
   Issuance of 375,000 stock options for services                                     -                -            87,000
   Net loss                                                                           -                -                 -
                                                                         ----------------------------------------------------
Balance at December 31, 1998                                                  7,423,455            7,423        11,743,078
   Issuance (at $.34 per share) for cash                                        119,412              120            40,480
   Issuance of 47,000 stock options for services                                                                     6,580
   Issuance of 250,000 warrants for services                                                                        30,500
   Net loss
                                                                         ----------------------------------------------------
Balance at December 31, 1999                                                  7,542,867            7,543        11,820,638
   Forgiveness of Compensation                                                                                     422,559
   Issuance (at $.90 per share) for cash                                        300,000              300           269,700
   Exercise of stock options (at $.10 per share) for cash                       250,000              250            24,750
   Exercise of warrants (at $.10 per share) for cash                            100,000              100             9,900
   Issuance (at $1.00 per share) for cash                                       150,000              150           149,850
   Reduction of exercise price for options and warrants                                                            148,000
   Net Loss
                                                                         ----------------------------------------------------
Balance at December 31, 2000                                                  8,342,867       $    8,343      $ 12,845,397
                                                                         ====================================================

</TABLE>

<TABLE>
<CAPTION>

                                                                                       DEFICIT
                                                                                     ACCUMULATED         TOTAL
                                                                                     DURING THE      STOCKHOLDERS'
                                                                                     DEVELOPMENT         EQUITY
                                                                                        STAGE         (DEFICIENCY)
                                                                                --------------------------------------
<S>                                                                                  <C>                <C>
Balance at December 31, 1996                                                         $  (5,228,813)     $ 5,116,647
   Exercise of warrants, 200 shares at $8.00 per share                                           -            1,600
   Warrants issued in conjunction with debenture offering                                        -           62,220
   Net loss                                                                             (3,295,840)      (3,295,840)
                                                                                -------------------------------------
Balance at December 31, 1997                                                            (8,524,653)       1,884,627
   Issuance of stock as partial consideration for placement of debentures                        -           50,000
   Issuance of stock on conversion of debentures                                                 -          807,641
   Issuance of shares upon cashless exercise of stock options                                    -          396,580
   Issuance of 375,000 stock options for services                                                -           87,000
   Net loss                                                                             (3,388,412)      (3,388,412)
                                                                                -------------------------------------
Balance at December 31, 1998                                                           (11,913,065)        (162,564)
   Issuance (at $.34 per share) for cash                                                                     40,600
   Issuance of 47,000 stock options for services                                                              6,580
   Issuance of 250,000 warrants for services                                                                 30,500
   Net loss                                                                               (788,548)        (788,548)
                                                                                -------------------------------------
Balance at December 31, 1999                                                           (12,701,613)        (873,432)
   Forgiveness of Compensation                                                                              422,559
   Issuance (at $.90 per share) for cash                                                                    270,000
   Exercise of stock options (at $.10 per share) for cash                                                    25,000
   Exercise of warrants (at $.10 per share) for cash                                                         10,000
   Issuance (at $1.00 per share) for cash                                                                   150,000
   Reduction of exercise price for options and warrants                                                     148,000
   Net Loss                                                                               (335,487)        (335,487)
                                                                                -------------------------------------
Balance at December 31, 2000                                                         $ (13,037,100)     $  (183,360)
                                                                                =====================================

</TABLE>


SEE ACCOMPANYING NOTES.


                                      F-6
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

                            Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                                            CUMULATIVE
                                                          YEARS ENDED DECEMBER 31,             FROM
                                                            2000             1999           INCEPTION
                                                     ------------------------------------------------------
<S>                                                    <C>               <C>              <C>
OPERATING ACTIVITIES
Net loss                                               $     (335,487)   $     (788,548)  $  (13,037,100)
Adjustments to reconcile net loss to net cash
   used in operating activities:
   Depreciation, amortization and impairment                   21,185            35,449          323,358
     charges
   Interest receivable                                              -                 -            3,506
   (Gain) loss on disposal of fixed assets                      6,376            (1,137)          12,605
   Issuance of compensatory notes, stock, stock
     options and warrants                                     148,000            37,080        2,229,712
   Changes in operating assets and liabilities:
     Other assets                                                                24,979          100,000
     Accounts payable and accrued liabilities                 (26,588)          433,613          686,599
     Deferred revenue                                         (26,739)          (71,090)         (97,829)
     Accrued interest on convertible debentures                     -                 -            9,041
                                                     ------------------------------------------------------
Net cash used in operating activities                        (213,253)         (329,654)      (9,770,108)
                                                     ------------------------------------------------------

INVESTING ACTIVITIES
Purchase of short-term investments                                                            (8,440,442)
Sale of short-term investments                                                                 8,467,931
Purchases of furniture and equipment                                                            (209,595)
Proceeds on sale of fixed assets                                                  4,000           10,000
Patent, trademark and copyrights costs                                                          (133,519)
Other assets, including notes receivable from
   related parties                                                               32,117           (4,202)
                                                     ------------------------------------------------------
Net cash provided by (used in) investing                                         36,117         (309,827)
   activities
                                                     ------------------------------------------------------

FINANCING ACTIVITIES
Net proceeds from issuance of common stock                    420,000            40,600        7,889,808
Exercise of stock options and sale of options                  25,000                            975,100
Exercise of warrants                                           10,000                             10,000
Proceeds (repayments) of/from short-term loan                  (6,114)                           867,730
Proceeds from note payable                                     15,000           176,114          591,114
Repayment of note payable                                     (15,000)                           (15,000)
Advances from potential investors                                                                100,000
Repayment of advances                                                                           (100,000)
                                                     ------------------------------------------------------
Net cash provided by financing activities                     448,886           216,714       10,318,752
                                                     ------------------------------------------------------

Net increase (decrease) in cash and cash                      235,633           (76,823)         238,817
   equivalents

Cash and cash equivalents, beginning of the                     3,184            80,007
   period
                                                     ------------------------------------------------------
Cash and cash equivalents, end of the period           $      238,817    $        3,184    $     238,817
                                                     ======================================================

SUPPLEMENTAL CASH FLOW INFORMATION
Conversion of notes payable and related accrued
   interest                                                                                $     258,045
                                                                                        ===================
Issuance of stock as consideration for
   conversion of debentures                                                                $     857,641
                                                                                        ===================
Issuance of stock upon cashless exercise of
   stock options                                                                           $     396,580
                                                                                        ===================
Warrants issued in connection with convertible
   debentures                                                                              $      62,220
                                                                                        ===================

Forgiveness of debt                                    $      422,559                      $     422,559
                                                     ===================                ===================

</TABLE>

SEE ACCOMPANYING NOTES.


                                      F-7
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

                          Notes to Financial Statements


1. BASIS OF PRESENTATION AND THE COMPANY

BASIS OF PRESENTATION

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America which
contemplate continuation of Vyrex Corporation (the "Company") as a going concern
and the realization of the Company's assets and the satisfaction of its
liabilities in the normal course of business. As of December 31, 2000, the
Company has an accumulated deficit of $13,037,100, a stockholders' deficiency of
$183,360 and negative working capital of $37,390. Due to the Company's recurring
losses and stockholders' deficiency, there can be no assurance that the Company
will be able to obtain additional operating capital, which may impact the
Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible inability of the
Company to continue as a going concern.

The Company is seeking collaborative or other arrangements with larger
pharmaceutical and nutraceutical companies, under which such companies would
provide additional capital to the Company in exchange for exclusive or
non-exclusive licenses or other rights to certain of the technologies and
products the Company is developing. Competition for corporate partnering
arrangements with major pharmaceutical and nutraceutical companies is intense,
with a large number of biopharmaceutical companies attempting to arrive at such
arrangements. Accordingly, there can be no assurance that an agreement will be
reached in a timely manner, or at all, or that any agreement that may be reached
will successfully reduce the Company's short-term or long-term funding
requirements.

The Company's major activities through December 31, 2000 have been limited to
out sourcing research and development related to its proposed products and
raising funds for such activities. These activities have not generated any
significant revenues; accordingly, the Company has been in the development stage
since its inception. Successful completion of the Company's development program
and its transition, ultimately, to attaining profitable operations is dependent
upon obtaining additional financing adequate to fulfill its research and
development activities, and achieving a level of revenue adequate to support the
Company's cost structure. There can be no assurance


                                      F-8
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

                          Notes to Financial Statements


1. BASIS OF PRESENTATION AND THE COMPANY (CONCLUDED)

that the Company will be successful in these areas. To supplement its existing
resources, the Company will require additional capital through the sale of debt
or equity. There can be no assurance that such capital will be available on
favorable terms, or at all, and if additional funds are raised by issuing equity
securities, dilution to existing stockholders is likely to result.

THE COMPANY

The Company was incorporated on January 2, 1991 in the State of Nevada. The
Company's operations focus primarily on the discovery and development of
biopharmaceuticals for the treatment and prevention of various disorders
including AIDS, respiratory diseases, cancer and aging and it is involved in
various stages of the investigation and development of several potential
therapeutic products. The Company is using contractors for manufacturing and
testing of the products it is developing and is seeking strategic partners to
market and distribute them. Management expects the Company to continue to use
contractors and strategic partners until such time, if ever, that it has
sufficient resources to conduct such activities on its own.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consists of cash and highly-liquid U.S. Government
securities with original maturities of three months or less.

FURNITURE AND EQUIPMENT

Furniture and equipment are stated at cost. Depreciation is provided using the
straight- line method over the estimated useful lives of the assets which range
from 3 to 5 years.


                                      F-9
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

                          Notes to Financial Statements


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK OPTIONS

Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", establishes the use of the fair value based method of
accounting for stock-based compensation arrangements, under which compensation
cost is determined using the fair value of stock-based compensation determined
as of the grant date, and is recognized over the periods in which the related
services are rendered. The statement also permits companies to elect to continue
using the intrinsic value accounting method specified in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") to
account for stock-based compensation. The Company has elected to retain the
intrinsic value based method and has disclosed the pro forma effect of using the
fair value based method to account for its stock-based compensation to employees
and directors of the Company.

Options granted to consultants are valued based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable, and expensed over the term of the
consulting agreement.

NET LOSS PER SHARE

Net loss per share is computed using the weighted-average number of common
shares outstanding during the periods presented. Diluted earnings per share has
not been presented because the assumed exercise of the Company's outstanding
options and warrants would have been antidilutive. Options and warrants will
have a dilutive effect only when the average market price of the common stock
during the period exceeds the exercise price of the options or warrants.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.


                                      F-10
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

                          Notes to Financial Statements


3.  FURNITURE AND EQUIPMENT

Furniture and equipment consist of the following:

<TABLE>
<CAPTION>

                                                     DECEMBER 31,
                                                 2000             1999
                                           ----------------- ----------------
<S>                                            <C>               <C>
Office furniture and equipment                 $116,188          $116,188
Laboratory equipment                             44,520            57,828
                                           ----------------- ----------------
                                                160,708           174,016
Less accumulated depreciation                   146,678           132,425
                                           ----------------- ----------------
Totals                                        $  14,030         $  41,591
                                           ================= ================

</TABLE>

Depreciation expense was $21,185, $35,449 and $172,960 for the years ended
December 31, 2000 and 1999, and the period from January 2, 1991 (date of
inception) through December 31, 2000, respectively.

4. RELATED PARTY TRANSACTIONS

NOTES PAYABLE

The Company has an outstanding note payable to a related party totaling $10,000
at December 31, 2000. The note is unsecured, bears interest at an annual rate of
10% and has a maturity date of June 2, 2001.

FORGIVENESS OF DEBT

The officers forgave accrued salaries and vacation amounting to $422,559 during
2000. Due to the officers performing services for the Company, the amount was
credited to additional paid in capital.


                                      F-11
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

                          Notes to Financial Statements


5.  WARRANTS

During 2000, in connection with an agreement with an investor, the Board
approved a decrease in the exercise price of 250,000 warrants having a previous
exercise price ranging from $0.25 to $1 to an exercise price of $0.10. The fair
value of the new warrants in excess of the value of the prior warrants at the
date of amendment of $5,500 has been charged to general and administrative
expenses in the accompanying 2000 statement of operations.

Activity with respect to warrants for the purchase of the Company's common stock
is summarized as follows:

<TABLE>
<CAPTION>

                                                                                              Weighted
                                                                                              Average
                                                        Warrants                              Exercise
                                                      Outstanding        Exercise Price         Price
                                                  -------------------- ------------------- ----------------
<S>                                               <C>                  <C>                 <C>
Balance at January 1, 1999                                 1,156,701   $7.50 - $8.00       $7.99
   Issued                                                    250,000   $0.25 - $1.00       $0.45
                                                  --------------------

Balance at December 31, 1999                               1,406,701   $0.25 - $8.00
   Issued                                                    250,000   $0.10               $0.10
   Exercised                                                (100,000)  $0.10               $0.10
   Cancelled or expired                                   (1,406,701)  $0.25 - $8.00       $6.65
                                                  --------------------

Balance at December 31, 2000                                 150,000   $0.10               $0.10
                                                  ====================

</TABLE>

The warrants outstanding at December 31, 2000 will expire on August 16, 2002.


                                      F-12
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

                          Notes to Financial Statements


6. LICENSE AND COLLABORATION AGREEMENTS

On October 7, 1997, the Company entered into an agreement with Retired Persons
Services, Inc. ("RPS"), the entity which administers the AARP Pharmacy Service
("AARP"). The agreement called for the Company to provide dietary supplement
products. The Company designed and contract manufactured pilot batches of the
products and initiated safety and stability studies. RPS manufactures the final
product and pays the Company a royalty based on sales. The Company received a
$100,000 advance on future royalties in 1998. The Company recognized
approximately $27,000 of the deferred revenue attributed to royalties earned on
sales by AARP in 2000 and approximately $71,000 in 1999.

On August 1, 1997, the Company entered into a collaboration agreement with The
Immune Response Corporation, Inc. to develop treatments for spinal cord and
other central nervous system traumas. The agreement calls for a 50% split of any
funds raised or profits realized in connection with the venture. As part of the
agreement, the Company licensed its CD-Tagging technology to The Immune Response
Corporation, Inc. for use in the research and development on products within the
scope of the venture of the treatments mentioned above.

On August 29, 2000, the Company entered into a license agreement with VDF
Futureceuticals, Inc. ("VDF"). The agreement calls for the licensee to
manufacture certain chromium and boron compounds and/or complexes, including
method and know-how, which compounds and/or complexes are covered by U.S.
patents. The Company received $25,000, after signing this agreement and the
licensee shall pay the Company $75,000 upon attaining $75,000 in initial sales
of the licensed products. VDF shall also owe the Company a total gross royalty
of 30% of gross revenue derived from the sale of licensed products.

7. CONCENTRATION OF CREDIT RISK

The Company maintains its cash and cash equivalent balances primarily in one
financial institution. As of December 31, 2000, the balance exceeded the Federal
Deposit Insurance Corporation limitations for coverage of $100,000 by
approximately $139,000.


                                      F-13
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

                          Notes to Financial Statements


8.  INCOME TAXES

At December 31, 2000, the Company had net operating loss carryforwards available
to reduce future taxable income, if any, of approximately $15,678,000 and
$13,984,000 for Federal and California income tax purposes, respectively. The
Federal net operating loss begins to expire in 2006. California net operating
losses of approximately $391,000 expired in 2000 and will continue to expire in
2001. The difference between the Federal and California tax loss carryforwards
is primarily related to the expiration of California loss carryforwards. At
December 31, 2000, the Company also had research and development credit
carryforwards of approximately $486,000 and $162,000 for Federal and state
income tax reporting purposes, respectively. Pursuant to Internal Revenue Code
Sections 382 and 383, use of the Company's net operating loss and credit
carryforwards may be limited if a cumulative change in ownership of more than
50% occurs within a three year period.

Temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes (the
loss and tax credit carryforwards described above) give rise to the Company's
deferred income taxes. The components of the Company's deferred tax assets as of
December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>

                                                               2000             1999
                                                         ----------------- ----------------
<S>                                                         <C>               <C>
Net operating loss carryforwards                            $6,567,000        $6,470,000
Research and development credit carryforwards                  648,000           639,000
Other                                                          115,000           413,000
                                                         ----------------- ----------------
                                                             7,330,000         7,522,000
Valuation allowance                                         (7,330,000)       (7,522,000)
                                                         ----------------- ----------------
                                                         $           -     $           -
                                                         ================= ================

</TABLE>

A valuation allowance has been recorded against the deferred tax assets as the
ultimate realization of these assets is considered unlikely.


                                      F-14
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

                          Notes to Financial Statements


9.  STOCK OPTION PLAN

The Company's 1993 Stock Option Plan (the "Plan") was adopted by the Board of
Directors in February 1994. Pursuant to the Plan, the Company may grant both
incentive stock options and nonqualified stock options. Incentive stock options
may be granted only to employees, while consultants, employees, officers and
directors are eligible for the grant of nonqualified options. The total number
of shares of common stock of the Company reserved and available for grant under
the Plan is 2,875,000 shares.

The maximum term of stock options granted under the Plan is ten years, but if
the optionee at the time of the grant has voting power over more than 10% of the
Company's outstanding capital stock, the maximum term is five years. The
exercise price of incentive stock options granted under the Plan must be at
least equal to the fair market value of such shares on the date of grant. The
exercise price of nonqualified stock options granted under the Plan must be at
least 85%, or 110% with respect to holders of 10% of the voting power of the
Company's outstanding capital stock, of the fair market value of the stock
subject to the option on the date of the grant.

During 2000, the Company granted options to acquire 550,000 shares of common
stock to employees of the Company with an exercise price ranging from $.10 to
$.37. The options granted vest 25% annually and expire during 2010.

During 2000, in connection with an agreement with a former consultant, the Board
approved a decrease of the exercise price of 250,000 stock options having
previous exercise prices ranging from $0.41 to $5.63 to an exercise price of
$0.10. These options were exercised during 2000. The fair value of these options
with an amended exercise price in 2000 of $142,500 has been charged to general
and administrative expenses in the accompanying 2000 statements of operations.

Activity with respect to the stock option plan is summarized as follows:

<TABLE>
<CAPTION>

                                                                                       WEIGHTED-
                                                        STOCK                          AVERAGE
                                                       OPTIONS    OPTION EXERCISE      EXERCISE
                                                     OUTSTANDING        PRICE            PRICE
                                                     -------------------------------------------
<S>                                                   <C>         <C>                  <C>
Balance at January 1, 1999                             2,008,259  $0.41  -   $8.63     $3.58
   Granted                                               492,000  $0.56  -   $3.00     $1.43
   Canceled                                             (177,000) $3.00  -   $8.65     $3.06
                                                    --------------
Balance at December 31, 1999                           2,323,259  $0.41  -   $7.50     $3.16
   Granted                                               550,000  $0.10  -   $0.37     $0.27
   Exercised                                            (250,000)      $0.10           $0.10
   Canceled                                             (443,000)  $3.00 - $5.63       $3.74
                                                    --------------
Balance at December 31, 2000                           2,180,259
                                                    ==============
Shares available for grant at December 31, 2000          694,741
                                                    ==============

</TABLE>


                                      F-15
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

                          Notes to Financial Statements


9.  STOCK OPTION PLAN (CONCLUDED)

Following is a further breakdown of the options outstanding as of December 31,
2000:

<TABLE>
<CAPTION>

                                      WEIGHTED-AVERAGE                                      WEIGHTED-AVERAGE
    RANGE OF                             REMAINING          WEIGHTED-                        EXERCISE PRICE
    EXERCISE            OUTSTANDING         LIFE             AVERAGE           OPTIONS         OF OPTIONS
     PRICES              OPTIONS          IN YEARS        EXERCISE PRICE     EXERCISABLE       EXERCISABLE
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S>                 <C>               <C>               <C>               <C>               <C>
$0.10 - $0.56           1,167,000           8.04             $   0.40           381,000          $  0.43
        $3.00             473,668           5.46                 3.00           371,585             3.00
$5.75 - $7.50             539,591           5.04                 5.96           453,341             5.97
                    -----------------                                     -----------------
                        2,180,259           6.74                 2.34         1,205,926             3.30
                    ================= ================= ================= ================= =================

</TABLE>

The Company has elected to follow APB 25 for options granted to employees. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of the grant, no
compensation expense is recognized. Pro forma information regarding net loss and
loss per share is required by SFAS 123, and has been determined as if the
Company had accounted for its employee stock options under the fair value method
of SFAS 123. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.3%; dividend yield of 0%; the
volatility factor of the expected market price of the Company's common stock of
242% and 15% in 2000 and 1999, respectively, and a weighted-average expected
life of the options of 48 months in 2000 and 1999.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:

<TABLE>
<CAPTION>

                                            2000              1999
                                      ----------------- -----------------
<S>                                     <C>             <C>
Pro forma net loss                          $(655,000)      $(1,981,000)
Pro forma net loss per share            $      (0.08)   $         (0.27)

</TABLE>

The weighted-average fair value of options granted in 2000 and 1999 was $0.27
and $0.14, respectively.


                                      F-16
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

                          Notes to Financial Statements

10. NOTES PAYABLE

At December 31, 2000, the Company has outstanding notes payable with an
aggregate principal balance of $160,000 which bear interest at an annual rate of
8%. Accrued interest of approximately $8,000 at December 31, 2000 is included in
accounts payable and accrued expenses in the accompanying 2000 balance sheet.
These notes have a maturity date of March 22, 2002, and are collateralized by
substantially all of the Company's assets. One note for $60,000 contains an
option to convert into 100,000 shares of common stock at a price of $0.60 per
share exercisable until the due date of March 22, 2002. In connection with the
extension of the maturity of this debt, the Company granted the notes' holder an
option to purchase 50,000 shares of common stock at a price of $.50 per share.
The option will expire two years from the date of grant.

11. CONTINGENCIES

Due to cash constraints, the Company has been unable to remain current in the
payment of insurance premiums. As a result, no insurance coverage is in effect
for the Company at December 31, 2000.



                                      F-17