U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

[X]              ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2001

[ ]            TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
        For the transition period from _______________ to _______________

                         Commission File Number 0-23788

                           XECHEM INTERNATIONAL, INC.
                 (Name of small business issuer in its charter)

              Delaware                                   22-3284803
----------------------------------          ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

100 Jersey Avenue, Building B, Suite 310, New Brunswick, New Jersey      08901
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

Issuer's telephone number:                             (732) 247-3300
----------------------------------          ------------------------------------

Securities registered under Section 12(b) of the Exchange Act:

       Title of each class             Name of each exchange on which registered

----------------------------------     -----------------------------------------

----------------------------------     -----------------------------------------

Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, $.00001 par value
--------------------------------------------------------------------------------
                                (Title of Class)

--------------------------------------------------------------------------------
                                (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 such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.
     YES  X     NO
         ---       ---

     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-B is not  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-KSB
or any amendment to this Form 10-KSB.
     YES        NO  X
         ---       ---

     State issuer's revenues for its most recent fiscal year. $ 187,000

     State the aggregate market value of the voting stock held by non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days. $ 2,167,000 as of February 15, 2002.

     The number of shares  outstanding of our Common Stock was 414,727,819 as of
February 15, 2002.

<PAGE>

                                      INDEX
                                      -----

                                                                            Page
                                                                            ----
PART I
   Item 1.   Description of Business .......................................   3
   Item 2.   Description of Property .......................................  25
   Item 3.   Legal Proceedings .............................................  25
   Item 4.   Submission of Matters to a Vote of Stockholders ...............  26

PART II
   Item 5.   Market for Common Equity and Related Stockholder Matters ......  27
   Item 6.   Management's Discussion and Analysis ..........................  29
   Item 7.   Financial Statements...........................................  34
   Item 8.   Changes In and Disagreements With Accountants on
             Accounting and Financial Disclosure ...........................  35

PART III
   Item 9.   Directors, Executive Officers, Promoters and Control
             Persons; Compliance with Section 16(a) of the Exchange Act ....  36
   Item 10.  Executive Compensation ........................................  38
   Item 11.  Security Ownership of Certain Beneficial Owners and Management.  41
   Item 12.  Certain Relationships and Related Transactions ................  42
   Item 13.  Exhibits and Reports on Form 8-K ..............................  43

<PAGE>

                                     PART I
                                     ------

ITEM 1.   DESCRIPTION OF BUSINESS1
          ------------------------

GENERAL

     Xechem  International,  Inc.  ("Xechem",  "we", "us" or "our") is a holding
company,(www.xechem.com),  which owns all of the capital stock of Xechem, Inc, a
development stage  biopharmaceutical  company currently engaged in the research,
development,  and limited production of niche generic and proprietary drugs from
natural  sources.   We  are  engaged   primarily  in  applying  our  proprietary
extraction,   isolation  and  purification  technology  to  the  production  and
manufacture of paclitaxel (commonly referred to in the scientific  literature as
"TAXOL(R)," a registered  trademark of  Bristol-Myers  Squibb Company  ("Bristol
-Myers")).  Paclitaxel  is an  anticancer  compound  used for the  treatment  of
ovarian,  breast,  small cell lung cancers and AIDS related Kaposi sarcomas.  We
have  successfully  isolated  greater than 97% pure paclitaxel and have received
seven (7) U.S. and seven (7)  international  patents on this  technology and its
second  generation  analogs  from the  U.S.  Patent  and  Trademark  Office  and
thirty-four  international  patents are pending. We have also prepared,  through
contract,  dosage  forms of  paclitaxel  and have  performed  limited  stability
testing for submission of an Abbreviated  New Drug  Application  ("ANDA") to the
Food and Drug Administration ("FDA"). We have submitted to the FDA a Drug Master
File  ("DMF")  for the  facility  and the bulk  paclitaxel  product,  the Active
Pharmaceutical  Ingredient  (API).  We are working to submit an ANDA for generic
paclitaxel.

     We have  continued and will continue to apply our expertise to research and
develop  other niche  compounds.  We have  focused  certain of our  research and
development  efforts on the  development  of drugs  from  sources  derived  from
Chinese,  Indian  and other  traditional  medicinal  plants  in the  anticancer,
antifungal,  antiviral  (including  anti-AIDS),  anti-inflammatory,   antiaging,
antidiabetic,  memory  enhancing  areas  and  compounds  for  the  treatment  of
sickle-cell  anemia.  Some of these efforts are performed in collaboration  with
the National  Cancer  Institute  ("NCI") and the National  Institutes  of Mental
Health ("NIMH"). We have identified a number of plant extracts showing excellent
in vitro biological activity against Helicobacter pylori (H. pylori), Vancomycin
resistant  Enterococcus  faecalis(VREF) and Methicillin resistant  Staphylococus
aureus(MRSA).

     We have a subsidiary, Xechem (India) Pvt., Ltd., in New Delhi, India.

     We have a subsidiary,  XetaPharm, Inc. ("XetaPharm"), to develop and market
over-the-counter  natural  product  health  supplements  such as  GinkgoOnce(R),
GarlicOnce(R),  GinsengOnce(R),  Gugulon(TM), VIDAPRAS(TM) and CoEnzyme Q-10. To
date,  XetaPharm  has had only limited  operations  and sales.  See  "XetaPharm"
below.

     We have signed a joint venture  agreement  with J & M  Consultants,  Ltd. a
Hong Kong company, to establish Xechem  Pharmaceutical  China Ltd. Currently the
joint venture is inactive. See Xechem China below.

------------------------------
     1 Some of the statements  included in Item 1, Description of Business,  may
be considered to be "forward looking statements" since such statements relate to
matters which have not yet occurred.  For example,  phrases such as "anticipate,
"believe" or "expect,"  indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
which we expected also may not occur or occur in a different  manner,  which may
be more or less favorable to us. We do not undertake any obligations to publicly
release the result of any revisions to these forward looking statements that may
be made to reflect any future events or circumstances.

     Readers  should  carefully  review the items  included under the subsection
Risks Affecting  Forward  Looking  Statements and Stock Prices as they relate to
forward looking  statements as actual results could differ materially from those
projected in the forward looking statement.

                                        3
<PAGE>

Product Discovery and Development Process
-----------------------------------------

     Our drug development  process involves a  multidisciplinary  exchange among
folklore healers, ethnobotanists,  natural product scientists,  pharmacologists,
physicians and research  pharmacists.  Since our targeted plant material has, in
certain  instances,  already been used for many years in humans, we believe that
there is greater  likelihood  that a compound  isolated  from such material will
work on humans and,  correspondingly,  that there is a decreased  likelihood  of
toxicity. In addition,  because traditional medicinal preparations are typically
administered  either  orally  or  topically,  they  are  more  likely  to  yield
pharmaceuticals  that are also  active  orally or  topically.  These  methods of
administering a drug are product  attributes  viewed by the medical community as
convenient and desirable.

     Our product  discovery and development  process  involves six major phases:
(i)  folklore  screening;   (ii)  ethnobotanical   research;   (iii)  biological
screening; (iv) fingerprinting and standardization of the actives; (v) isolation
of active compounds; and (vi) product development.

     Folklore  Screening.  Our drug  discovery  process begins with fieldwork in
collaboration  with folklore healers who have been utilizing plant remedies used
for generations by native people.  Our scientists,  as well as other  scientists
and non-scientists working with us, have participated directly in such fieldwork
in India,  working with local folklore healers to identify and obtain samples of
plants used by such healers,  and to understand  the folklore  applications  and
means of using  such  plants.  In the  People's  Republic  of China,  this early
fieldwork has mainly been  performed by  researchers  at the  institutions  with
which we  collaborate,  and which  have made  their  results  of this  fieldwork
available to us. See "Raw Material Supply" below.

     Ethnobotanical  Research. We investigate candidate plant materials with the
ethnobotanists  and  physicians  who have  conducted  field  expeditions  in the
People's  Republic of China and India.  The  ethnobotanist  records the specific
plants and plant parts used medicinally, the form of use (dried, brewed, fresh),
duration  and method of  treatment,  location  and  abundance  of the plant.  We
prioritize   the   plants   by   determining   their   anticancer,    antiviral,
anti-inflammatory,  anti-infective,  antiaging,  antidiabetic,  memory enhancing
areas and compounds for the treatment of sickle-cell  anemia.  The field-derived
information  is also  crosschecked  through  literature  searches as to chemical
constituents,  previously  discovered  biological  activity  and other  reported
medicinal  uses.  In  our  multidisciplinary   environment,  the  ethnobotanists
continue to work with other  scientists  after the expedition phase in the later
stages of drug discovery to assist in directing activity screens.

     Biological  Screening.  The plants  selected after  folklore  screening and
ethnobotanical  research  are then  extracted.  The  extracts  are  screened for
specific activities in vitro. The in vitro positive extracts are tested again to
confirm the activities.

     Fingerprinting and Standardization. Those extracts, which show confirmed in
vitro activities,  are subjected to fingerprinting  and  standardization by High
Performance Liquid Chromatography (HPLC) and Thin Layer Chromatography (TLC) for
use as "PHYTOPHARMACEUTICALS".

     Isolation of Active  Compounds.  The active  extracts are also subjected to
bioassay-guided  fractionation to isolate pure compounds. The isolated compounds
are then further tested for biological activities to develop  pharmaceuticals in
studies meeting Western standards.  We are currently screening extracts and pure
compounds  in  the   antifungal,   anticancer,   antiviral,   anti-inflammatory,
anti-infectives  and memory enhancing areas. We conduct certain of its screening
in collaboration with the NIH and industrial laboratories.

     Product  Development.  Once an extract or a pure compound has  demonstrated
promising activity, it is subjected to the same product regulatory  requirements
as potential drugs from other sources.  These requirements  include current Good
Laboratory  Practices ("cGLP"),  Preclinical,  Investigational New Drug ("IND"),
Phase  I,  Phase  II  clinical  trials  (i.e.  trials  on  patients),  New  Drug
Application  ("NDA") and Abbreviated New Drug Application  ("ANDA") filings with
FDA. Our product  development team in consultation  with regulatory,  toxicology
and other experts, as necessary,  will design appropriate  clinical studies. See
"Government Regulation" below.

                                        4
<PAGE>

RECENT DEVELOPMENTS

New Patents
-----------

     The U.S.  Patent & Trademark  Office  issued U.S.  Patent No.  6,177,456 on
January 23, 2001 containing broad claims to novel  second-generation  paclitaxel
analogs developed by us. Preliminary studies show antineoplastic efficacy of the
new, novel analogs against a wide array of cancer tumor cells.  The claims cover
the new  paclitaxel  analog,  its  pharmaceutical  formulations  comprising  the
compound,  a method for administering such compound for treating both animal and
human tumors,  and a method for  production  of the compound.  The new analog is
produced by semisyntheses involving selective halogenation of paclitaxel's close
analog cephalomannine, to produce monohaloisomers of cephalomannine.

     We received an  Australian  Patent # 724929 on January 25, 2001 for several
dihalo analogs of paclitaxel.

     On September 4, 2001 we announced  that we have  received a Mexican  patent
for our novel  and  efficient  proprietary  technology  to  extract  and  purify
paclitaxel  from the Yew tree (Taxus  brevifolia and other Taxus  species).  The
claims cover the method of extraction and purification from raw biomass and more
refined paclitaxel-containing  sources. The method is simple, novel and provides
a high  yield  of  paclitaxel  from  renewable  sources  without  destroying  or
endangering  existing  natural  sources of paclitaxel,  which has been a serious
concern in the past.

     On September 25, 2001 we announced that we have received notice of issuance
of New Zealand Patent No. 326527 for paclitaxel analogs, the preparation thereof
and use as antitumor agents.

         The process to  generate  commercial  revenue  and  profits  from these
patents and new  discoveries  may take several years, as we embark on regulatory
approval and development projects.

New Discovery
-------------

     On  February  14,2001  we  announced  that we have  identified  a number of
medicinal  plant  extracts  from Peoples  Republic of China (PR China) and India
showing excellent in vitro biological  activity against  Helicobacter pylori (H.
pylori),   Vancomycin  resistant  Enterococcus  faecalis(VREF)  and  Methicillin
resistant Staphylococus aureus(MRSA)..

     Helicobactor  pylori  has  recently  been  found to be a  primary  cause of
gastro-intestinal  ulcers in humans.  Routinely,  a doctor's  treatment for this
condition   may   comprise   using  a  triple  drug   therapy  of   amoxicillin,
clarithromycin and Prilosec(R) just to name a few of the prescribed combinations
available.  One draw back to this  present-day  treatment  is the fact that many
people are allergic to the  antibiotic  amoxicillin,  resulting in a need for an
alternative therapy.  Also, amoxicillin and clarithromycin may remove beneficial
bacteria  from the  gastro-intestinal  tract.  The plant  extracts  isolated  by
Xechem's  scientists  are  natural  products  that  have the  potential  to be a
preferred medication in this important area of ulcer treatment.

     Similarly,  certain bacteria are becoming  resistant to antibiotics such as
vancomycin and methicillin. Therefore many of the major pharmaceutical companies
are looking for  products/compounds  active  against these  resistant  bacteria.
Xechem's plant extracts have shown excellent in-vitro results and current animal
toxicity studies are progressing.

Xechem China
------------

     On  April  4,  2000,  we  signed  a  joint  venture  agreement  with  J & M
Consultants,  Ltd.  ("J & M") to  establish  Xechem  Pharmaceutical  China  Ltd.
(Xechem China) with offices in Hong Kong and Beijing, People's Republic of

                                        5
<PAGE>

China.  Xechem China is owned 45% by us and 55% by J & M  Consultants,  Ltd. The
purpose  of   establishing   Xechem  China  is  to  carry  on  the  business  of
manufacturing,  marketing  and  distributing  pharmaceutical  and  nutraceutical
products  in China.  Xechem  China  will also carry out  research,  development,
clinical studies and production of new drugs based on our technology  related to
traditional Chinese medicine and other disciplines,  provide consulting services
for drug development and set up a certified  laboratory in the People's Republic
of China to screen, establish Quality Control and Quality Assurance laboratories
and certify pharmaceutical products for the public.

     In the first phase,  Xechem China was to commence the (i)  pre-clinical and
clinical studies of a new paclitaxel formulation for ovarian and breast cancers,
(ii)  toxicological  studies  on  two of  Xechem's  second  generation  patented
paclitaxel  analogs and (iii)  registration  of  Xechem/XetaPharm's  nutritional
products (GinkgoOnce(R),  GarlicOnce(R),  GinsengOnce(R), Gugulon(TM), Co-Enzyme
Q-10 and VIDAPRAS(TM)).  Further capital  commitments will be required of J&M or
other partners in the  development  agreements,  in order to meet their business
plans.

     In an exclusive  License Agreement with Xechem China, we will allow the use
of our patents, trademarks and technical information to manufacture,  market and
sell the products in the  Territories  of the People's  Republic of China,  Hong
Kong,  Macao,  Taiwan  (The  Republic  of China),  Mongolia,  Korea,  Singapore,
Malaysia, Indonesia, the Republic of the Philippines, Thailand, Vietnam, Brunei,
Cambodia,  Myanmar,  and such other  countries  or  regions  which may be agreed
between the  parties.  A  non-exclusive  license is granted in Japan.  J & M had
committed a sum of $1,218,000  and management  services to Xechem China.  Xechem
China had  agreed to fund  Xechem up to  $240,000  as an  interest  free loan in
monthly  installments of $20,000 over 24 months. As of December 31, 2000 we have
received $140,000, no new funds were received in 2001.

     During  the  second  quarter  of  2001  Xechem  Pharmaceutical  China  Ltd.
temporarily ceased active operations, due to Xechem-China's president and C.E.O.
having to devote his full  attention  to his other  holdings.  We feel this is a
temporary  situation and will not hinder our present or future  involvements  in
the Asian Market.  Xechem and our subsidiaries are still actively pursuing other
relationships.

     On March  23,  2001  Xechem  announced  that we have  signed a  cooperation
agreement with Shanghai Fudan Taxusal New  Technology  Co., Ltd.  located within
the  Science  and  Technology  Industry  Park  of  Shanghai  Universities.  This
agreement's  objective is the  co-development of new paclitaxel  soluble analogs
and other natural products isolated from Chinese traditional medicines.

Sale of Net Operating Loses (NOLs)
----------------------------------

     As of  December  31,  2001 we have  received  approval  from the New Jersey
Economic  Development  Authority  ("NJEDA")  to sell  approximately  $519,000 of
$766,000 of tax  benefits  generated  from NOL's.  Under the terms of this NJEDA
program,  the  proceeds  of the sale had to be used  for the  purchase  of fixed
assets,  working capital and any other expenses determined by the NJEDA to be in
conformity with the New Jersey Emerging  Technology and Biotechnology  Financial
Assistance Act. During 2001 and 2000,  Xechem and our  subsidiaries  transferred
New Jersey tax  benefits of $519,000  and  $300,000  in exchange  for  $452,000,
(which was  received  in January of 2002) and  $249,000  (which was  received in
December  of 2000)  respectively,  pursuant  to the New Jersey  State Tax Credit
Transfer program.

                                        6
<PAGE>

PACLITAXEL AND OTHER ANTICANCER AGENTS

Paclitaxel
----------

     Paclitaxel was developed through a program sponsored by the National Cancer
Institute  ("NCI") in which over 35,000 plant species were tested for anticancer
activity.  One of the plant  extracts  (the bark of Taxus  brevifolia,  commonly
known  as  Western  Yew)  led to the  isolation  and  discovery  of  paclitaxel.
Paclitaxel  has a unique  anticancer  action,  which blocks the  replication  of
cancer cells. Bristol-Myers' formulation of paclitaxel (marketed under the trade
name  "TAXOL(R)")  was first  approved in the United States,  Canada,  and other
countries for use against  refractory ovarian and breast cancers in patients who
had  failed  to  respond  to  initial  chemotherapy.  Subsequently,  it has been
approved for small cell lung cancer and AIDS related Kaposi sarcoma.  Paclitaxel
has also been shown to be effective against skin cancer and colon cancer.

     An  established  market  exists for  paclitaxel  that we believe  currently
exceeds  $1.5  billion per year.  Additionally,  as clinical  experience  grows,
paclitaxel  is  expected  to be  approved  for  use in  several  other  cancers.
Paclitaxel  is  also  used  in  combination  with  other  chemotherapy  and as a
sensitizer to radiation  therapy.  We believe that significant  market expansion
can be  expected in the near  future as a number of  competitors  produce or are
developing processes to produce paclitaxel.

     We have  developed our own process and isolated  limited  quantities  (less
than one kilogram) of greater than 97% pure paclitaxel that we intend to utilize
in our efforts to obtain regulatory approval in the United States and equivalent
regulatory  approval in foreign  jurisdictions  for the sale of the  compound In
connection with our development of paclitaxel,  Bristol-Myers was granted such a
period of marketing  exclusivity,  under the Waxman-Hatch Amendment to the Food,
Drug and  Cosmetic  Act of 1984 which has expired We intend to submit an ANDA in
the United States for paclitaxel  before the end of year 2003. We estimate,  but
can provide no assurances, that FDA approval of an ANDA for paclitaxel will take
six to twenty-four months. At such time as we have such data, we intend to apply
for regulatory  approval to market paclitaxel in certain foreign  countries.  In
addition,   although  there  can  be  no  assurances,  we  are  considering  the
possibility of selling  paclitaxel as "bulk raw  material,"  processed to 97% or
greater purity,  but not formulated and packaged into single dosage sizes.  Such
sales,  however,  are not expected to be significant.  Management  believes that
obtaining  regulatory  approval  to market  and  distribute  paclitaxel  in such
foreign markets will require a  significantly  shorter period of time than would
be  required  in the United  States,  but can offer no  assurance  thereof.  See
"Government Regulation."

     In  cooperation  with  researchers  at the  University of Texas MD Anderson
Cancer  Center  ("MD  Anderson"),   we  have  developed  a  new  formulation  of
paclitaxel,  which does not contain Cremophor(TM) and ethanol,  ingredients used
in the currently approved generic formulation. We believe it may ultimately have
significant commercial potential.  In the second quarter of 1997, we obtained an
exclusive  license from MD Anderson and the Trustees of the  University of Texas
(the "UT Board") for the rights to such formulation.  Under the license, we have
the exclusive,  worldwide  rights to MD Anderson's and the UT Board's patent and
other rights,  except for certain  rights of the US government and the rights of
MD Anderson and the UT Board to use such rights for educational purposes. We may
lose the rights to such  technology  in  countries in which it does not commence
activities  within  five years from the date of the  license.  Under the license
agreement,  we would pay MD Anderson certain milestone and similar payments,  as
well as a royalty of 4% of our sales of the new  formulation  use of paclitaxel.
We would also pay to MD  Anderson a  percentage  of amounts  received by us from
sublicenses, if any. We are presently engaged in litigation with MD Anderson and
the Trustees of the University of Texas in connection with this  agreement.  See
Item 3 Legal Proceedings

     In August 1998 we signed a strategic agreement with Nordic Drugs AB for the
marketing and distribution of paclitaxel in Denmark, Sweden, Finland, Norway and
Iceland.  Nordic Drugs AB is a  well-known  marketer of  pharmaceuticals  with a
strong  position in the oncology  area.  The  headquarters  of Nordic Drug AB is
located in Malm, Sweden.

                                        7
<PAGE>

     The marketing and  distribution  agreement calls for Nordic Drugs to submit
the necessary  application for obtaining  regulatory  approval of our paclitaxel
product,  as well as its new  patented  paclitaxel  analogs and its new patented
stable non-toxic formulation for paclitaxel developed in conjunction with the M.
D. Anderson Cancer Center.

     Nordic Drugs will have exclusive  marketing and distribution  rights in its
territory for a term of ten years.  As of filing date no new  developments  have
occurred.

     We have obtained  notice of regulatory  approval to import and sell generic
Chinese paclitaxel, under the name MEDAXOL(TM), in India. We received notice and
authorization  from the Indian  Government  on July 20, 2001. As of the December
31, 2001 there has been no sales generated from MEDAXOL(TM).

MANUFACTURING

     We conduct pilot-scale  manufacturing of our potential products (other than
nutraceuticals) under current Good Manufacturing Practices ("cGMP").  Management
believes  that its  in-house  pilot  plant  facility  has  adequate  capacity to
manufacture  a limited  quantity  of bulk  drugs for sale.  We have  temporarily
stopped its  in-house  manufacturing  of bulk  paclitaxel  due to  Bristol-Myers
exclusivity  to  market  paclitaxel,  now  since  expired.  We  intend to resume
manufacturing in the near future. We have submitted a Drug Master File (DMF) for
the facility  and for the  manufacture  of bulk  paclitaxel  with the FDA.  Such
certification is a necessary  precondition to production of paclitaxel and other
pharmaceutical  products for sale in the United States market.  See  "Paclitaxel
and Other Anticancer Agents" above.

     We are seeking  other  collaborative  partners  for certain of our proposed
products if and when such  products are ready for  marketing  for wide  clinical
use. To the extent that collaborative partners do not perform manufacturing,  we
intend to lease commercial-scale manufacturing facilities or utilize third party
facilities as the needs arise and financing therefor is available.  There can be
no assurance that such facilities  will be available on commercially  acceptable
terms,  that such  facilities  will be adequate for our long-term  needs or that
financing for such facilities will be available on terms  satisfactory to us, if
at all.

PATENTS AND PROPRIETARY TECHNOLOGY

     Our policy is to seek patent protection aggressively and enforce all of its
intellectual  property  rights.  Dr.  Pandey  was  issued a  patent  in 1992 for
purifying  Dermostatin  A and B, the rights to which have been assigned to us. A
second patent,  related to the method for  separating  and purifying  antifungal
polyene macrolide antibiotics, was granted to Dr. Pandey in 1993 and assigned by
Dr.  Pandey  to us.  We have  received  two  patents  from the U.S.  Patent  and
Trademark  Office for the  HEXOID(TM)  plate.  We has also  received  seven U.S.
patents on paclitaxel and its analogs from the U.S. Patent and Trademark  Office
from 1997 till December 2001 and seven international patents from July 1999 till
December 2001. Patent applications for numerous  counterparts are pending in the
areas of paclitaxel  isolation and  purification,  paclitaxel  analogs and plant
tissue culture (which also will be assigned to us).

     No assurance  can be given that any patent held by,  issued to, or licensed
by, we will provide protection that has commercial significance. Furthermore, no
assurance  can be given that our  patents,  if issued,  will  afford  protection
against competitors with similar compounds or technologies, that others will not
obtain  patents  which  make  claims  similar  to those  covered  by our  patent
applications,  or that the patents of others will not have an adverse  effect on
the ability of Xechem to conduct its business.

                                        8
<PAGE>

                              UNITED STATES PATENTS
                              ---------------------

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
     U.S. PATENT                         TITLE OF PATENT                      DATE OF
        NUMBER                                                                 ISSUE
-------------------------------------------------------------------------------------
<S>  <C>             <C>                                                      <C>
1.   5,159,002       "Method for Purifying Dermostatin A and B"                1992
-------------------------------------------------------------------------------------
2.   5,210,226       "Method for Separating Purifying Polyene Macrolide        1993
                     Antibiotics"
-------------------------------------------------------------------------------------
3.   5,654,448       "Isolation and Purification of Paclitaxel from Organic    1997
                     Matter containing Paclitaxel, Cephalomannine and Other
                     Related Taxanes"
-------------------------------------------------------------------------------------
4.   5,840,748       "Dihalocephalomannine and Methods of Use Therefor"        1998
-------------------------------------------------------------------------------------
5.   5,854,278       "Preparation of Chlorinated Paclitaxel Analogues and      1998
                     Their Use Thereof as Antitumor Agents"
-------------------------------------------------------------------------------------
6.   5,807,888       "Preparation of Brominated Paclitaxel Analogues and       1998
                     Their Use as Effective Antitumor Agents"
-------------------------------------------------------------------------------------
7.   5,840,930       "Method for Production of 2",3" Dihalocephalomannine"     1998
-------------------------------------------------------------------------------------
8.   5,817,510       "Device and Method for Evaluating Microorganisms"         1998
-------------------------------------------------------------------------------------
9.   Des. 411,308    "Covered, Multi-Well Assay Plate"                         1999
-------------------------------------------------------------------------------------
10.  6,177,456       "Monohalocephalomannines having Anticancer and            2001
                     Antileukemic Activity and Method
                     Preparation Therefor"
-------------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------------------------------------
                              INTERNATIONAL PATENTS
                              ---------------------

1.   Pandey, R.C. and L. Yankov,  "Isolation and Purification of Paclitaxel from
     Organic  Matter  Containing  Paclitaxel,  Cephalomannine  and Other Related
     Taxanes" South African Letters Patent # 97/6834, July 28, 1999.

2.   Pandey,  R.C., L.K.  Yankov,  R. Nair and A. Poulev,  "Paclitaxel  Analogs,
     Preparation  and Use as Antitumor  Agents"  South  African  Letter Patent #
     97/6833, July 28, 1999.

3.   Pandey,  R.C., L.K.  Yankov,  "Isolation and Purification of Paclitaxel and
     Cephalomannine" New Zealand Letter Patent # 321499, August 13, 1999.

4.   Pandey,  R.C., L.K. Yankov,  "Isolation and Purification of Paclitaxel from
     organic  Matter  Containing  Paclitaxel,  Cephalomannine  and other Related
     Taxanes", Australian Letter Patent # 720719, September 21, 2000.

5.   Pandey,  R.C., L.K.  Yankov,  R. Nair and A. Poulev,  "Paclitaxel  Analogs,
     Preparation and Use as Antitumor Agents", Australian Letter Patent #724929,
     January 25, 2001.

6.   Pandey,  R.C., L.K.  Yankov,  R. Nair and A. Poulev,  "Paclitaxel  Analogs,
     Preparation  and Use as Antitumor  Agents",  Mexican  Patent,  September 4,
     2001.

7.   Pandey,  R.C., L.K.  Yankov,  R. Nair and A. Poulev,  "Paclitaxel  Analogs,
     Preparation  and Use as  Antitumor  Agents"  New  Zealand  Letter  Patent #
     326527, September 25, 2001.

--------------------------------------------------------------------------------

                                        9
<PAGE>

     No assurance  can be given that any current or future  patents will provide
us with  competitive  advantages  for our  products,  or that  they  will not be
successfully  challenged or circumvented by our competitors.  We believe we have
conducted an exhaustive patent search, there can be no assurance that patents do
not  exist or could  not be filed  which  would  have an  adverse  effect on our
ability to market our products.  If other companies were to  successfully  bring
legal actions  against us claiming patent or other  intellectual  property right
infringements,  in addition to any potential  liability for damages, we could be
required  to obtain a license  to  continue  to use the  affected  process or to
manufacture  or use the affected  product or may be required to cease using such
products or  processes.  There can be no assurance  that we would prevail in any
such action or that any  license  required  under any such patent  would be made
available on acceptable terms, or at all. There could be significant  litigation
in the industry regarding patent and other  intellectual  property rights. If we
become involved in such  litigation,  it could consume a substantial  portion of
our financial and human resources, regardless of the outcome of such litigation.

     Our licensing agreement with the MD Anderson Cancer Center and the Trustees
of the  University of Texas requires us to expend  significant  sums to maintain
its exclusivity under such agreement,  as well as to prosecute patent infringers
at its cost and expense.  There can be no assurance  that we will have the funds
sufficient to continue its rights under this agreement or to  commercialize  the
licensed technology.  MD Anderson Cancer Center issued a letter to us claiming a
breach  of  contract.  We  oppose  this  claim  and  subsequently  filed  for  a
declaratory  judgement against MD Anderson Cancer Center and the Trustees of the
University of Texas. See Item 3 Legal Proceedings

     We also rely on trade secrets and proprietary  know-how,  which it seeks to
protect, in part, by confidentiality agreements with our employees,  consultants
and others. There can be no assurance that these agreements will not be breached
that we would have  adequate  remedies for any breach or that our trade  secrets
will not otherwise become known or independently developed by competitors.

RESEARCH FOR PROPRIETARY DRUGS AND TECHNOLOGY DEVELOPMENT

Paclitaxel Analogs
------------------

     During the isolation and  purification of paclitaxel,  we have isolated and
purified at least nine analogs of  paclitaxel,  which were first tested in vitro
in collaboration with the NCI.  Preliminary animal studies have shown that these
analogs may have  significant  advantage  over  TAXOL(R) or  TAXOTERE(R)  in the
treatment of certain  cancers.  We have been awarded seven United States patents
and seven international  patents with numerous  international patents pending in
this area.

Niche Anticancer Drugs
----------------------

     In addition to paclitaxel,  we are developing  technologies  for production
and  formulation  of other niche  generic  anticancer  drugs whose  patents have
either expired or will expire. In some instances, the bulk raw material for such
products will require independent strain development from cultures and scale up,
such as in the  case of  bleomycin.  Our  ability  to  develop  such  additional
products  will be  dependent,  at least in part,  upon our  ability to set aside
sufficient funds to commence these sometimes lengthy  projects.  Due to both the
niche  market  size  and the  difficulty  in  isolating  and  replicating  these
compounds,  we believe that there will be limited  future  competition  in these
markets.

     Approval of the FDA will be required before we may market any niche generic
drugs through  submission  of an ANDA in the United  States.  Opportunities  may
exist to market such drugs abroad,  subject to less  stringent  requirements  in
certain instances.

                                       10
<PAGE>

Products from Traditional Medicinal Plants and Marine Sources:
--------------------------------------------------------------

     In addition to its efforts to develop  generic  equivalents  to  compounds,
which no longer enjoy patent  protection,  we have  developed an efficient  drug
discovery program for the discovery,  development and  commercialization  of new
classes  of  pharmaceuticals.  Towards  this  goal,  we are  seeking  to develop
proprietary drugs from extracts of medicinal plants and marine sources,  as well
as diagnostic  tests for  determination  of the presence of certain  biochemical
compounds and/or diseases.

     Though the pharmaceutical  industry's emphasis has shifted from plant-based
drug  discovery to the  increased  screening  through  combinatorial  chemistry,
synthetic   compounds  and  the  modification  of  existing  compounds  for  the
generation of analogs and the utilization of biotechnology tools and techniques,
we believe our approach of screening folk lore medicinal plants and modification
through semisyntheses have better chances of success in developing new drugs.

     Traditional plant medicines have been valued in various cultures throughout
the ages for their therapeutic and healing properties. In recent decades, modern
investigations  have led to the systematic  screening of thousands of plants and
other  natural  products  for  a  variety  of  biological  activities.   Several
commercially   successful   pharmaceuticals  based  upon  these  medicines  have
exhibited  activities  useful in treating  cancer,  fungal and viral  infections
(including AIDS), and in retarding aging and senescence. Ethical pharmaceuticals
currently in use having plant origins include: L-dopa, used for the treatment of
Parkinson's disease; pilocarpine, used to treat glaucoma; quinine, used to fight
malaria; and vinblastine and vincristine, used to treat certain cancers, both of
which come from India and the People's  Republic of China.  In  addition,  drugs
such as aspirin,  ephedrine,  digitalis,  paclitaxel and camptothecin originated
from plants found in temperate  regions of the world.  Valuable  natural-product
pharmaceuticals  may be  derived  from a variety  of  medicinal  plants,  marine
sources and fermentation processes.

     Our particular  focus is the  development  of  therapeutic  agents based on
traditional  plant medicines,  especially the folklore of India and the People's
Republic of China.  Over the past few decades,  research in these  countries has
developed a number of drugs from such plants. However, only a few of these drugs
have been introduced into Western medicine.  We believe it has an opportunity to
use its expertise and knowledge of these agents,  as well as sourcing of natural
compounds, to develop pharmaceuticals that can be successfully introduced in the
United States and other developed countries.

     Through a detailed  investigation of traditional  Chinese  medicinal plants
and herbs, Indian Ayurvedic medicines and Western pharmacological literature, we
have  selected  over  2,000  natural  products,  extracts,   semi-synthetic  and
synthetic  compounds  for  further  research  and  development  in the  areas of
anticancer,  antiviral (including AIDS) and  anti-inflammatory,  anti-infective,
cholesterol-lowering, and anti-aging/anti-senescence agents.

     All of these  extracts and pure  compounds are  undergoing  early stages of
laboratory  screening for activity against cancer,  AIDS,  infections,  or other
conditions.  Those compounds,  which  demonstrate  significant  activity will be
further  tested in animal  studies.  We will select those  compounds  which show
greatest  promise  for  further   investigation  and  commence  the  process  of
submitting  applications  to the FDA,  conducting  human  clinical  trials,  and
obtaining final FDA approval.  Historically  in the United States,  seven to ten
years  are  needed  to  advance  a new  pharmaceutical  from the  laboratory  to
marketing. See "Government Regulation" below.

NCI Grant: Products from Deep Sea Marine Organisms
--------------------------------------------------

     We have  entered  into an  agreement  with the  Fisheries  and  Aquaculture
Technology Extension Center ("FATEC"), Cook College - Rutgers University wherein
FATEC  transfers  biological  materials  to us for  screening  and  isolation of
compounds that may have antiviral, antimicrobial,  anti-HIV and immunomodulatory
activities.  Antimicrobial  screening assays have been developed and implemented
by us for use with the organisms  transferred by FATEC.  Extracts of a number of
organisms  transferred by FATEC were biologically  active against  Streptococcus
infections.

                                       11
<PAGE>

     In August 1999 we were awarded a Small Business  Innovative Research (SBIR)
Phase I grant of  $87,084  from the  National  Cancer  Institute  (NCI) with Dr.
Ramesh Pandey, the principal  investigator,  to study Bioactive Natural Products
from Marine  Extremophiles.  This research was done in conjunction  with Rutgers
University.  The grant was later  increased  by $10,834  and  extended to August
2001. All funds were received in 2000 and the grant was completed in full during
2001.

     We are actively pursuing other government grants and will continue to do so
in the near and distant future.

OTHER NICHE GENERIC DRUGS

     In addition to anticancer  drugs,  we are seeking to develop  compounds for
generic antifungal,  anti-AIDS and cardiovascular  drugs which enjoy significant
market  demand but are no longer  subject to patent  protection,  to obtain ANDA
approval of such drugs and to market such drugs  independently  or through joint
ventures with other pharmaceutical  firms.  Management believes this will afford
us the ability to develop one or more  products in the  marketplace  on a faster
basis than through the development of new drugs, with the concomitant regulatory
hurdles.

                                       12
<PAGE>

TECHNICAL AND CONSULTING SERVICES

     In addition to its research,  development and production activities, we, to
a limited extent,  provide  technical and consulting  services to pharmaceutical
and chemical product  companies,  as well as to companies in the food,  cosmetic
and household product industries.  Our microbiologists can perform tests such as
potency   assays   for   antibiotics   and   vitamins,   microbial   counts  for
pharmaceuticals,  water,  cosmetics and  toiletries,  and  mutagenic  studies of
pharmaceuticals.  Our  chemists  can  provide  tests  such as  infrared  ("IR"),
ultraviolet    ("UV-VIS")   and   gas   chromatography    ("GC")   analysis   of
pharmaceuticals,  chemical  analysis of vitamins,  and High  Performance  Liquid
Chromatography ("HPLC") analysis of pharmaceuticals and cosmetics. Many of these
tests are  standardized  tests required to obtain approval of products by FDA or
the U.S. Environmental Protection Agency ("EPA").

     We  also  consult  with  and  assist  clients  in  their   development  and
improvement of  pharmaceuticals.  We assist clients in developing and validating
methods and protocols for  researching and producing  pharmaceuticals  and other
products.  Technical and consulting services are not our principal focus and are
not expected to have a material impact on our operations.

     Although  we  stress  quality  control  in  our  technical  and  consulting
services,  we may face professional  liability as a result of this service work.
We do not maintain,  and do not currently  intend to obtain,  insurance  against
such liabilities.

XETAPHARM(TM)

     We   established   XetaPharm(TM)   in  1996  to  bridge  the  gap   between
pharmaceuticals and nutraceuticals.  XetaPharm's principal business objective is
to develop "quality controlled"  nutraceutical products for the consumer market.
Based on meetings between the National Center for  Complimentary and Alternative
Medicine ("NCCAM"),  National  Institutes of Health ("NIH"),  and the FDA, which
were attended by our scientists,  we determined that our technological  strength
and  agreements   with  Chinese  and  Indian   institutions   could  assure  the
introduction of standardized quality controlled  nutraceutical products. We have
obtained "Gold Leaf(R)" as our Trademark for these products.

     XetaPharm  has  developed  a  limited  number of  over-the-counter  natural
products (not  requiring FDA approval) for sale through direct  consumer  sales,
health  food  outlets  and  distribution  companies.  We have  selected  several
products  to  be   manufactured  by  contract   manufacturers   under  XetaPharm
trademarks.  The emphasis of the products has been the natural health  benefits.
Initial marketing efforts commenced in the second quarter of 1996. XetaPharm has
six   products,   to   date:   GarlicOnce(R);   GinkgoOnce(R);   GinsengOnce(R);
Gugulon(TM);  Co-Enzyme-Q10  and  VIDAPRAS(TM).  We have designed a time-release
component  for the first three of these  products,  reducing the number of pills
that must be taken.  There can be no  assurances  as to the level of success for
this program.  XetaPharm's marketing efforts and sales have been limited, due to
the financial constraints of Xechem. We are evaluating our long-term commitment,
which includes continued  investment in sales and marketing,  limited investment
to product development for other companies or divestiture of XetaPharm.

     In December of 2001,  we fully  reserved  the value of our  finished  goods
inventory of Xetapharm due to slow movement and limited  sales.  This will in no
way stop our efforts to market nutraceuticals in the future.

     XetaPharm's  interactive  E-commerce  based  web  site  (xetapharm.com)  is
available for purchases and information for XetaPharm's entire product line.

                                       13
<PAGE>

MANUFACTURING OF NUTRACEUTICALS

     A  contract  manufacturer  currently  produces  XetaPharm  products  to our
specifications until our marketing efforts through brokers, Internet and foreign
sales show sufficient demand to warrant in-house manufacturing.  We will analyze
possible alternatives.

MARKETING

     Our  initial  potential   pharmaceutical   products  are  targeted  at  the
anticancer,   antiviral,  and  antifungal  markets.  We  are  seeking  corporate
alliances  with large  pharmaceutical  companies  for some of these  programs in
order to take  advantage  of such  companies'  abilities  to  reach  broad-based
markets.  There  can be no  assurance  that we will be able to enter  into  such
collaborative  agreements.  If we decide to conduct any direct  marketing of its
potential  products,  there can be no assurance  that we will be  successful  in
establishing a successful  in-house marketing and sales force or that sufficient
financing will be available to develop its marketing and sales capabilities.

     XetaPharm sells its nutraceutical  product line through health food stores,
pharmacies  and  through  the  Internet.  The  marketing  of these  products  is
anticipated to occur through print,  radio and television  advertising and trade
publications.  XetaPharm has limited in-house  marketing and sales force at this
time and is seeking to establish  alliances with more  distributors,  as well as
marketing  firms,  to promote its product line.  We may in the future  co-market
these products with established  marketing  organizations and/or provide some of
these products on a private label basis. We have also established  sales through
the worldwide web and E-commerce through the web site WWW.XETAPHARM.COM.

TRADEMARKS

     We have  registered  and maintain  trademark  rights to Xechem(R)  and have
applied for  registration  of  HEXOID(TM).  We had planned to market  paclitaxel
under the trademark  PAXETOL(TM).  Registration  of PAXETOL(TM) in United States
and Canada was  opposed by  Smithkline  Beecham  P.L.C.  ("SKB")  based on SKB's
registered  PAXIL(R) mark for use with a dissimilar  product.  In order to avoid
this conflict,  we will select a new name for the United States and Canada,  but
will  retain  the  trademark  PAXETOL(TM)  for other  countries.  We may seek to
register  other  existing  or  future  trademarks.  We  are  not  aware  of  any
competitive uses of trademarks similar to our existing trademarks, other than as
claimed by SKB, which may interfere with our use of its trademarks.

     XetaPharm  maintains  trademark  rights to  GarlicOnce(R),  GinsengOnce(R),
GinkgoOnce(R) and Gold Leaf(R), for which federal registration has been granted.
The  trademarks  for  Gugulon(TM)  and VIDA  PRAS(TM)  are pending at this time.
XetaPharm may adopt other trademarks for use with its potential products.

RAW MATERIAL SUPPLY

     Initially,  we obtained  the raw  material  for  paclitaxel  from  domestic
sources. In September 1994, we entered into a three-year  agreement with Guizhou
Fanya  Pharmaceutical Co. Ltd. ("Guizhou") for Guizhou to supply to us partially
processed raw material for paclitaxel.  Pursuant to that Agreement, we purchased
2.5  kilograms  of at least  50%  crude  paclitaxel  (i.e.,  paclitaxel  already
extracted from the bark) from Guizhou during 1995 and 2.5 kilograms in 1996. Our
obligation was to purchase a minimum of four kilograms in the year 1996 and four
kilograms in the year 1997. Due to its financial condition, and the extension of
Bristol-Myers  Squibb's exclusivity of the sale of TAXOL(R) in the US market, we
were unable to make the minimum purchases.

     Should the agreement with Guizhou be terminated or not extended, we may not
be able to purchase sufficient  quantities of paclitaxel pursuant to the Guizhou
agreement to meet our current  needs.  If we determine to produce  paclitaxel in
larger quantities than presently planned,  we have located additional  suppliers
in China and one  supplier  in India for the crude  paclitaxel  material  or its
precursor. We currently import the plant materials for its products

                                       14
<PAGE>

under  development  primarily  from the People's  Republic of China and India. A
continued source of plant supply from the People's  Republic of China and India,
as well as a supply of the raw material for paclitaxel,  is subject to the risks
inherent in  international  trade.  Those risks  include  unexpected  changes in
regulatory requirements,  exchange rates, tariffs and barriers,  difficulties in
coordinating  and managing  other foreign  operations,  potentially  adverse tax
consequences  and possible  problems  associated with DMF data.  There can be no
assurance of a continual source of supply of these  materials.  Interruptions in
supply or  material  increases  in the cost of supply  could  have a  materially
adverse effect on our financial condition and results of operations.

     As  paclitaxel  is derived  from the  extraction  and  purification  of raw
materials (bark, needles etc.), the manufacture of paclitaxel is contingent upon
the  availability  of the raw material.  There are limited sources of paclitaxel
raw  material  worldwide,  and certain of such sources are under  contract  with
Bristol-Myers  and other  competitors.  In addition,  the  gathering  season for
paclitaxel  in certain  regions  (e.g.,  the  Pacific  Northwest)  is limited to
certain times of the year,  and  harvesting  must be arranged in advance.  While
management  believes  we will  be able to  obtain  our  required  quantities  of
paclitaxel  in the  foreseeable  future at  reasonable  prices,  there can be no
assurances  that its  current  source of supply or others will be able to supply
the same.

     We have  entered  into  agreements  with two Chinese  institutions  for the
supply of plant extracts and synthetic compounds. We spent $150,000 for extracts
and  compounds  under these  agreements  over the past  five-years.  Some of the
compounds  from  these  investigations  are  in  pre-clinical  development.   In
addition,  we will likely have to pay  royalties  to these  institutions  if the
markets develop for any products based on these materials.

     Dr. Pandey and his brothers  incorporated  a corporation  in India ("Xechem
India") that seeks to obtain  contracts  for  dependable  supplies of plants and
other raw materials from India. Based on its discussions with Indian sources for
such  materials,  we believe that an Indian  corporation  will be able to obtain
such contracts on  significantly  better terms than would a United  States-based
corporation. Xechem India may also conduct certain research,  manufacturing, and
marketing activities in India. Dr. Pandey has transferred his interest in Xechem
India  to us in  exchange  for our  reimbursement  to him of the  organizational
expenses  (approximately  $5,000).  Currently we own substantially all of Xechem
India. We have not invested  significant  additional amounts in Xechem India. It
is  anticipated  that Xechem  India will seek  financing  from  Indian  sources,
including,  in particular,  individuals or organizations,  who will be active in
Xechem  India's  business,  which may dilute our interest in Xechem  India.  Dr.
Pandey's family has invested additional funds in Xechem India. It is anticipated
that Xechem India will make available to us the materials  Xechem India obtains.
We have adopted a policy that all transactions with affiliates shall be on terms
no less  favorable to us than could be obtained from an  unaffiliated  party and
must be  approved  by a  majority  of our  independent  directors.  Such  policy
specifically  applies to any  transaction  between Xechem India and us if and so
long as Dr. Pandey or any of the members of his immediate family own 10% or more
of the capital  stock of Xechem  India.  However,  if we do not  control  Xechem
India,  there can be no  assurance  that Xechem  India will make such  materials
available  to us,  or  that  it  will  not  make  such  materials  available  to
competitors of Xechem. In addition, if we do not control Xechem India, there can
be no assurance that Xechem India's research,  development,  manufacturing,  and
other  activities  will be of benefit to, or would not be competitive  with, us.
The results of operations of Xechem India have not been significant to date.

COMPETITION

Pharmaceuticals
---------------

     Competition  in the  pharmaceutical  industry  is  extremely  intense.  The
principal  factors  upon  which such  competition  is based  include  marketing,
distribution,  price,  therapeutic efficacy,  side effect, profile, ease of use,
safety, physician acceptance, and patient compliance.  Many treatments exist for
cancer,  viruses, and fungi, and additional  therapeutics are under development,
including other naturally sourced pharmaceuticals.

     Most  competitors,  one of whom currently  dominates the paclitaxel  market
(Bristol-Myers),  have  substantially  greater capital  resources,  research and
development capabilities,  manufacturing and marketing resources, and experience
than we do. In addition,  these companies have vastly greater  resources for the
production

                                       15
<PAGE>

and  distribution  of  pharmaceuticals   following  development  and  regulatory
approval.  These companies may represent  significant  long-term competition for
us. Our competitors  may succeed in developing  products that are more effective
or less costly  than any that may be  developed  by us, or that gain  regulatory
approval prior to our products.  Bristol-Myers is already  marketing  paclitaxel
commercially  in the United  States,  Canada and  certain  other  countries  for
treating  ovarian,  breast,  small cell lung  cancers  and AIDS  related  Kaposi
Sarcoma. In addition, other companies have competitive products that are in more
advanced stages of clinical testing than our paclitaxel or our second-generation
paclitaxel.  We also  expect  that the number of market  entrants,  and thus the
number of our  competitors  and  potential  competitors,  will  increase as more
paclitaxel  products  receive  commercial  marketing  approvals  from the FDA or
analogous  foreign  regulatory  agencies.  Any of  these  entrants  may be  more
successful than us in manufacturing, marketing and distributing our products. In
addition,   we  understand  that:  (i)  in  October  and  December  1993,  Napro
Biotherapeutics,  Inc.  ("Napro") filed a confidential DMF containing certain of
Napro's  proprietary  manufacturing  processes  with the FDA and the  Australian
Therapeutic Goods Administration (the "TGA"), Australia's equivalent of the FDA,
relating to Napro's  manufacture of paclitaxel,  and that Napro has been selling
certain  quantities  of  paclitaxel  in  Australia;  and (ii) Rhone  Poulenc has
developed a paclitaxel analogue trademarked as "TAXOTERE(TM)," which has similar
but different  properties to paclitaxel,  which has been sold in Europe,  and in
1996  received  approval  to sell  TAXOTERE(TM)  in the  United  States.  To our
knowledge,  a number  of other  pharmaceutical  firms are  poised  to  introduce
paclitaxel for sale in the United States since Bristol -Myers's  exclusivity for
TAXOL(R) has lapsed.

     There  can  be no  assurance  that  developments  by  other  pharmaceutical
companies   will  not  render  our   products   or   technologies   obsolete  or
noncompetitive  or  that  we will  be  able  to  keep  pace  with  technological
developments of its  competitors.  We believe that some of our competitors  have
developed or are in the process of developing  technologies  that are, or in the
future may be, the basis for  competitive  products.  Some of these products may
have an  entirely  different  approach  or means of  accomplishing  the  desired
therapeutic effect than products being developed by us. These competing products
may be more effective and less costly than the products developed by us. We have
established some collaboration to investigate its  second-generation  paclitaxel
analogs, which are at a very preliminary stage.

Nutraceuticals
--------------

     The  health  supplements  and  nutritional   product  industries  in  which
XetaPharm operates are extremely  competitive,  both  internationally and in the
United States.  XetaPharm faces substantial competition to each of its products.
Competitive factors include quality, price, style, name recognition and service.
As  a  new  entrant  in  these  markets,  XetaPharm  has  not  established  name
recognition  and its competitive  position cannot be determined.  XetaPharm will
primarily  compete  with  health-aid   companies,   specialty  retailers,   mass
merchandisers,  chain drug stores, health food stores and supermarkets.  Many of
such companies have trademarked  products known  worldwide.  XetaPharm will also
compete with companies,  which manufacture and distribute  non-branded (generic)
products.  Many competitors have substantially greater financial,  distribution,
marketing and other resources than XetaPharm and hav  achieved  significant name
recognition  and goodwill for their brand names.  There can be no assurance that
XetaPharm  will  be able to  successfully  compete  with  these  companies  when
marketing its products.

GOVERNMENT REGULATION

     The  research,  development,  manufacture,  and  marketing of our potential
products are subject to  substantial  regulation by the FDA in the United States
and by comparable  authorities in other countries.  These national  agencies and
other federal, state, and local entities regulate,  among other things, research
and development activities and the testing, manufacture,  safety, effectiveness,
labeling, storage, record keeping, approval,  advertising,  and promotion of our
potential  products.  Historically  in the United States,  it takes seven to ten
years to advance a new  pharmaceutical  from the  laboratory to the time when it
can be marketed.

     Prior to  marketing  any  pharmaceutical  product  for other than  research
purposes,  we must  prepare and submit a Drug Master File  ("DMF") to the FDA to
obtain overall approval of the facility as a manufacturer of pharmaceuticals and
a DMF for the process of manufacturing such products.  Thereafter, before any of
our potential new  pharmaceutical  products may be marketed in the United States
the following is involved: (i) preclinical testing

                                       16
<PAGE>

including   stability   studies  and  animal  tests;   (ii)   submission  of  an
Investigational  New Drug ("IND") application which must become effective before
clinical  trials may  begin;  (iii)  well-controlled  human  clinical  trials to
establish  the  safety  and  efficacy  of the  proposed  drug  in  its  intended
application;  and (iv) FDA approval of a New Drug  Application  ("NDA").  If the
drug or compound utilized in the product has been previously approved for use in
another  dosage  form,  the  approval  process is similar,  except that  certain
preclinical  toxicity tests normally required for the IND may be avoided through
the use of an ANDA.

     Clinical trials are typically conducted in three sequential phases that may
overlap.  Phase I involves  the initial  introduction  of the drug into  healthy
human  subjects  where the  product  is tested  for  safety,  dosage  tolerance,
absorption,  metabolism distribution and excretion. Phase II involves studies in
a limited  patient  population to: (i) determine the efficacy of the product for
specific,  targeted  indications;  (ii) determine  dosage  tolerance and optimal
dosage; and (iii) identify possible adverse effects and safety risks. When Phase
II evaluations  demonstrate  that the product is effective and has an acceptable
safety profile, Phase III trials are undertaken to further evaluate dose ranging
and  clinical  efficacy  and to further  test for safety in an expanded  patient
population at  geographically  dispersed  clinical  study sites.  The FDA or the
sponsor  may  suspend  clinical  trials at any point in this  process  if either
entity  concludes  that clinical  subjects are being exposed to an  unacceptable
health risk, or for other reasons.

     The  results of product  development,  preclinical  studies,  and  clinical
studies are  submitted to the FDA as part of a NDA for approval of the marketing
and  commercial  shipment of the product.  The FDA may deny a NDA if  applicable
regulatory criteria are not satisfied,  or may require additional clinical data.
Even if such data is submitted,  the FDA may ultimately decide that the NDA does
not satisfy the criteria for approval.  Once issued,  a product  approval may be
withdrawn  if  compliance  with  regulatory  standards is not  maintained  or if
problems occur after the product  reaches the market.  In addition,  the FDA may
require  testing  and  surveillance  programs  to monitor the effect of approved
products,  which  have been  commercialized,  and it has the power to prevent or
limit   further   marketing  of  a  product   based  on  the  results  of  these
post-marketing programs.

     Under the  Waxman-Hatch  Amendment  to the Food,  Drug and  Cosmetic Act of
1984, a five-year  period of marketing  exclusivity is granted to any firm which
develops and obtains FDA approval of a non-patentable  new molecular  entity, to
compensate the firm for  development  efforts on such  non-patentable  molecular
entities.  In connection with its development of paclitaxel,  Bristol-Myers  was
granted a period of marketing  exclusivity,  which was to expire on December 29,
1997,  but was extended for four years.  Management  believes  some, but not all
foreign  countries  have given  Bristol-  Myers  exclusive  rights to market the
compound.  We intend to submit  an ANDA for  paclitaxel  before  the end of year
2003. We estimate,  but can provide no assurances,  that FDA approval of an ANDA
for paclitaxel will take six to twenty-four months. At such time as we have such
data, we intend to apply for regulatory approval to market paclitaxel in certain
foreign countries.  Management  believes that obtaining  regulatory  approval to
market and  distribute  paclitaxel  in certain  foreign  markets  will require a
significantly  shorter  period  of time than  would be  required  in the  United
States, but can offer no assurance thereof.

     Each drug product  manufacturing  establishment  that supplies drugs to the
U.S.  market  must be  registered  with,  and  approved  by,  the FDA  prior  to
commencing  production,  and is subject to biennial  inspections  by the FDA for
cGMP  compliance  after a NDA or an ANDA has been  approved.  In addition,  drug
product  manufacturing  establishments  must  meet  applicable  state  and local
standards.

     In nutraceuticals,  the processing,  formulation,  packaging,  labeling and
advertising of XetaPharm's products will be subject to regulation by one or more
federal  agencies,  including  the FDA, the Federal  Trade  Commission,  and the
Consumer  Product Safety  Commission,  among others.  The  Hatch-Harkin  Dietary
Supplement  Health  and  Education  Act of 1994 and  will  also  regulate  these
activities  by  various  agencies  of the  states  and  localities  in which our
products will be sold. We intend to, and believe that we will be able to, comply
with these laws and regulations in all material respects.

ENVIRONMENTAL REGULATION

     In connection with our research,  development and manufacturing activities,
we are  subject to  federal,  state,  and local laws,  rules,  regulations,  and
policies governing the use, generation, manufacture, storage, air emission,

                                       17
<PAGE>

effluent  discharge,  handling,  and disposal of certain  materials  and wastes.
Although we believe that we have complied with these laws and regulations in all
material  respects  and we have not been  required to take any action to correct
any  noncompliance,  there can be no  assurance  that we will not be required to
incur  significant  costs to comply  with health and safety  regulations  in the
future.  Our research and  development  involves the controlled use of hazardous
materials,  chemicals,  and microorganisms.  Although we believe that our safety
procedures  for  handling  and  disposing  of such  materials  comply  with  the
standards  prescribed  by state and federal  regulation,  the risk of accidental
contamination  or injury from these materials  cannot be completely  eliminated.
This risk is less when handling  anticancer  compounds.  In the event of such an
accident,  we could be held  liable  for any  damages  that  result and any such
liability could exceed the resources of Xechem.

EMPLOYEES

     As of December 31, 2001,  we have  seventeen  employees,  four of which are
part-time.  Of these  employees,  eight are dedicated to research,  development,
manufacturing and regulatory  compliance.  Eight of our employees hold doctorate
degrees. None of our employees are covered by a collective bargaining agreement.
We believe all relations with our employees are satisfactory.

SCIENTIFIC ADVISORY BOARD

     We have established the Scientific  Advisory Board ("SAB"),  which consists
of scientists,  researchers,  and clinicians  with  recognized  expertise in our
areas of  research.  Certain  members  of the SAB are asked from time to time to
review our  research  programs,  advise with  respect to  technical  or clinical
matters,  and recommend  personnel.  We initially granted options in May 1994 to
the members of the SAB to purchase an aggregate of 63,000 shares of Common Stock
at an exercise price of $.01 per share,  and shares of Common Stock were granted
to certain  advisors in compensation  for their help and  contribution to us. In
addition,  SAB members will be entitled to reimbursement for out-of-pocket costs
incurred by them in performing their advisory activities.  The following are the
members of the SAB:

     ELIAS J. ANAISSIE,  M.D., is a Professor of Medicine,  Director of Clinical
Affairs of the Myeloma and Transplantation Research Center and the University of
Arkansas School of Medical Sciences,  Little Rock, Arkansas.  Before joining the
University of Arkansas,  Dr.  Anaissie was an Associate  Internist and Associate
Professor  of Medicine  in the Section of  Infectious  Diseases,  Department  of
Medical  Specialties,  at the  University of Texas System  Center M.D.  Anderson
Hospital and Tumor Institute, Houston, Texas.

     NITYA ANAND  PH.D.,  F.N.A.,  is a Scientist  Emeritus at the Central  Drug
Research Institute in Lucknow,  India, of which he was the Director between 1974
and 1984. He was previously the Senior  Scientist of the Indian National Science
Academy.  Dr. Anand has been involved in medicinal  science research for over 40
years,  during which he has worked in the areas of drug design,  drug synthesis,
mode of action,  and  metabolism  of drugs,  and in evolving new  approaches  to
therapeutics.  He was  responsible  for the  discovery of many new drugs,  which
include   Centchroman,   a   contraceptive,    Centbutindole,   a   neuroleptic,
Centbucridine,  a local anaesthetic and Gugulipid,  a lipid-lowering  agent. Dr.
Anand  received  his Ph.D.  from Bombay  University  in 1948 and from  Cambridge
University in 1980.

     BRIAN  ARENARE,  M.D.,  is  currently a physician at NASA's  Johnson  Space
Center in Houston, Texas, providing clinical and medical research support to the
nation's space program.  He holds a M.D. degree from Yale University,  an M.B.A.
from Columbia University,  and an M.P.H from the University of Texas.  Beginning
with The Wilkerson  Group in 1992, Dr. Arenare has been strategy  consultant and
advisor  to the  pharmaceutical  and  medical  product  industries  for the past
decade.  He has also  held a  number  of  clinical  and  academic  appointments,
including  attending  physician  at Beth  Israel  Medical  Center and Lenox Hill
Hospital in New York.  He  currently  is  clinical  assistant  professor  at the
University of Texas Medical  Branch.  Dr.  Arenare was a director of the Company
from 1994 to 1997.

     PROF. JOAN W. BENNETT,  PH.D., is a specialist in the generic and secondary
metabolism of filamentous  fungi.  A graduate of the University of Chicago,  Dr.
Bennett is currently a Professor in the Department of Cell and

                                       18
<PAGE>

Molecular  Biology at Tulane University in New Orleans,  Louisiana.  Active in a
number of  professional  societies,  she has been Vice  President of the British
Mycological Society, a Board member of the Society for Industrial  Microbiology,
and is a Past  President  of  the  American  Society  for  Microbiology.  She is
currently  co-editor  of The Mycota and  Advances  in Applied  Microbiology,  an
Associate Editor of Mycologia, and Mycology Series Editor for Marcel Dekker. She
has co-edited six books, and published well over 100 research  papers,  chapters
and reviews.

     WILLIAM T. BRADNER,  PH.D., is an Adjunct  Professor for the Departments of
Chemistry  and  Biology at  Syracuse  University  and is also the  President  of
Research  Advisors,  an independent  consulting  firm. Dr. Bradner has published
over 194 articles,  book  chapters,  abstracts,  and patents.  He was previously
Director  of  Administration  and Deputy  Director  of  Preclinical  Anti-Cancer
Research at  Bristol-Myers  Squibb.  Dr. Bradner  received his Ph.D. from Lehigh
University in 1952.

     PROF. GEOFFREY A. CORDELL,  PH.D., is a Professor and former  administrator
at The College of Pharmacy,  University of Illinois at Chicago.  He has lectured
throughout the world on the isolation of  biologically  active natural  products
and on the future of drug  discovery  from  plants.  He has  published  over 480
scientific  papers and  reviews  and has  received a number of  fellowships  and
awards. He received his Ph.D.from the University of Manchester in 1970.

     PROF.  SUKH DEV,  PH.D.,  D.SC.,  F.N.A.,  is a visiting  Professor at the.
Centre for Biomedical  Research,  University of Delhi, India and has studied the
organic  chemistry of natural  products and Ayurvedic  medicinal plants for more
than 40 years.  He has held Research  Professorship  at the Indian  Institute of
Technology in Delhi (1988 - 1992), Director of the Malti-Chem Research Center in
Nandesari,  Varodara,  India (1974 - 1988) and has been a Visiting  Professor at
the  Stevens  Institute  of  Technology,  the  University  of  Georgia,  and the
University of Oklahoma. He is a recipient of several awards including the Ernest
Guenther  Award (1980) of the  American  Chemical  Society,  and the Third World
Academy  of  Sciences  Award in  Chemistry  (1988).  He has  published  over 350
scientific  papers,  books, and chapters and holds over 50 patents.  He received
his Ph.D.  and D.Sc.  from the  Indian  Institute  of  Science in 1948 and 1960,
respectively.

     PROF. SUN HAN-DONG,  PH.D., is a professor of Natural Product  Chemistry at
the Kunming  Institute  of Botany,  the  Academy of  Sciences  of China.  He was
previously the Director of the Kunming Institute of Botany.  Dr. Sun Han-Dong is
known for his academic achievements on ent-kauranoids,  taxoids,  cumarins,  and
phenolic  constituents . He has published over 350 papers and received  nineteen
awards  in the  People's  Republic  of  China  for  his  research  achievements,
including the Second and Third Award of Science and Technology  from the Academy
of  Sciences  of China and Yunnan  Province  and the First  Award of Science and
Technology of Kunming City.

     ALLEN I. LASKIN, PH.D., is President of Laskin/Lawrence  Associates. He has
previously  served as the Vice President of Research and  Development  and Chief
Scientific  Officer  of  Ethigen  Corporation,   President  of  Matrix  Research
Laboratories  and Head of bioscience  Research at Exxon Research and engineering
Company.  Among his honors,  Dr.  Laskin has received the Charles Thom  Research
Award,  presented  by the  Society  for  Industrial  Microbiology.  His  work in
microbial  transformations  led to two dozen  patents and numerous  publications
while working at the Squibb Institute for Medical Research and Exxon. Dr. Laskin
is the Senior Editor of The Journal of Industrial  Microbiology and Co-Editor of
Advances  in  Applied  Microbiology.  Dr.  Laskin  received  his Ph.D.  from the
University of Texas in 1956.

     PROF.  ZHANG  LI-HE,  PH.D.,  is  Professor  and  Director of National  Key
Laboratory of Natural and Biomimetic Drugs, School of Pharmaceutical Sciences at
Peking University of the People's Republic of China. He has studied for over two
decades the chemistry of nucleosides, nucleotides, and anti-tumor and anti-viral
drugs and has published over 150 scientific papers in these areas. He has been a
recipient of the National  Scientific Research Excellence Award from the Science
and Technology Commission and The Ministry of Education of the People's Republic
of China and the Science and Technology  Prize from the Beijing  Government.  He
received the Otani Prize and an honorary Ph.D. from Hoshi  University,  Japan in
1988 and 1990, respectively. He was awarded the 12th Edgar Snow Professorship by
the University of Missouri-Kansas  City, USA in 1993. He received the Millennium
Pharmaceutical Scientist Award from FIP in 2000.

                                       19
<PAGE>

     RENUKA MISRA, PH.D., is currently our Director of Natural Products Research
and  Development  and is a guest  research  scientist/consultant  at NIA and NIH
engaged  in  the  study  of  natural  products,   as  well  as  alternative  and
complimentary medicines (nutraceuticals) for their validity of use, efficacy and
quality control,  including Ayurvedic substances and their anti-aging and memory
enhancing  activities.  She has studied the  chemistry  of herbal and  bioactive
natural  products for over two decades.  She has occupied  Research and Academic
positions at a number of research centers  including the University of Nebraska,
North Carolina State  University,  the University of Toronto,  the University of
Illinois,  John Hopkins  University and the  NCI-Frederick  Facility.  Dr. Misra
received her Ph.D. from the National Chemical Laboratory, Pune, India in 1965.

     PROF. LESTER A. MITSCHER,  PH.D., is currently the University Distinguished
Professor and former  Chairman of the  Department of Medicinal  Chemistry at the
University  of Kansas,  one of the nations  premier  research  institutions  for
chemistry. Among his past accomplishments,  he has served on the Senior Advisory
Council of G.D.  Searle & Co., and has been the Chairman of the  Biological  and
Natural  Products Study Section for the NIH, as well as Chairman of the American
Society for  Pharmacognosy.  Dr.  Mitscher  received his Ph.D.  from Wayne State
University in 1968. Dr. Mitscher was a director of ours from 1994 to 1997.

     PROF. OTTO J. PLESCIA,  PH.D.,  Professor  Emeritus of Immunology,  Waksman
Institute,  Rutgers  University,  is  currently  Adjunct  Professor  of  Medical
Microbiology  &  Immunology  at the  University  of South  Florida,  College  of
Medicine, Tampa, Florida. His main research interests relate to the pathogenesis
of  virus  and  cancer  induced   immunodeficiency,   and  the   development  of
immunomodulating  drugs to treat such  immunodeficiencies.  He has served on the
Advisory Boards of several  immunological  journals, is a member of the American
Association of Immunologists and other professional societies, and has published
extensively on the subject of acquired  immunodeficiency.  He received his Ph.D.
from Cornell University in 1947.

     C. L.  PROPST,  PH.D.,  is  President  and CEO of the  Texas  Biotechnology
Foundation.  Previously she was Founder and Executive Director of the Center for
Biotechnology,  and  Director  of the  Graduate  Program  in  Biotechnology,  at
Northwestern University.  She has also served as President and CEO of Affiliated
Scientific,  Inc.,  as  Corporate  Vice  President,   Research  and  Development
Worldwide for Flow General,  Inc., as Divisional  Vice  President,  Research and
Development  for Ayerst  Laboratories,  American Home  Products,  and as Head of
Microbial and Molecular Biology for Abbott Laboratories. Dr. Propst received her
Ph.D. from Yale University in 1973.

     PROF. FEDERICO ARCAMONE, PH.D., received a "Diplome d'etudes superieures de
sciences  physiques de  l'Universite  de Paris (1952) and a "Libera  Docenza" in
biological  chemistry in Rome (1962). He has been active in the field of natural
products  and  antibiotic  research,  drug  metabolism  and  organic  synthesis,
becoming Head of Chemical R&D at Farmitalia, Milan in 1973. In 1987 was Chairman
of the Research Division of the Menarini Company (Florence, Italy). From 1997 he
is  associated  with the National  Research  Council,  Italy.  His  achievements
include  the  discovery  and   development   of  the  antitumor   anthracyclines
doxorubicin, epirubicin, idarubicin and their analogs, the structure elucidation
and synthesis of new antibiotics,  the development of new ergoline drugs and the
synthesis of glycopeptides, penem derivatives and DNA conjugates.

     Prof.  Arcamone is author and  co-author  of over 200  research  papers and
reviews,  over  100  patents  and  has  been an  active  lecturer  in  different
countries,   and  has  been  associated  as  a  "contract  professor"  with  the
Universities  of Bologna,  Parma and Milan.  He has received  the  Bristol-Myers
award for Cancer  Chemotherapy,  (1981),  the Gold Medal of the "Academia  delle
Scienze  detta dei XL" (1982),  and the Bruce Cain award of the American Ass. Of
Cancer Res.  (1985),  the Medal of the University of Florence  (1992),  the Gold
Medal of the Italian Federation of Chemical  Industries (1994), the Medal of the
Italian Chemical  Society,  Carbohydrate  Division (2000),  and other scientific
recognition.  Prof.  Arcamone is a member  "emeritus"  of the American  Chemical
Society,  member Italian Chemical Soc. of the Am. Ass. Of Cancer  Research,  Am.
Soc. of Pharmacognosy,  Am. Soc. of Microbiology, and Int. Society for the Study
of Xenobiotics.

                                       20
<PAGE>

RISKS AFFECTING FORWARD LOOKING STATEMENTS AND STOCK PRICES

     In addition to those matters  already set forth in Item 1,  Description  of
Business and Item 6,  Management's  Discussion  and Analysis,  the following may
result in Xechem not achieving  certain  results  included in any statement that
may be  considered a forward  looking  statement and affect the trading price of
our Common Stock and  Warrants.  We caution the reader that the  following  risk
factors may not be exhaustive.

Volatility of Stock Price
-------------------------

     The securities of biotechnology  companies have  experienced  extreme price
and volume  fluctuations,  which have often  been  unrelated  to the  companies'
operating  performance.  Announcements  of  technological  innovations  for  new
commercial   products  by  us  or  our  competitors,   developments   concerning
proprietary  rights  or  general  conditions  in the  biotechnology  and  health
industries may have a significant effect on our business and on the market price
of our securities.  Sales of shares of Common Stock by existing security holders
could also have an adverse  effect on the market price of our  securities  given
the limited  trading and low price of our  securities.  During 2001 stock prices
have  changed  dramatically  with a high of $.08 in  February  2001 and a low of
$.005 in October  2001.  As of February 28, 2002 the closing price of our common
stock on the OTC Bulletin Board was $ 0.005.

No Developed or Approved Products; Early Stage of Development
-------------------------------------------------------------

     We  are a  development  stage  company.  Our  primary  potential  products,
paclitaxel  and its  analogs  are in the  development  stage.  Although  we have
isolated  paclitaxel in a substantially pure state and obtained several patents,
there  can be no  assurance  that  such  compound(s)  will  pass  the  necessary
regulatory requirements for approval for sale in the United States or abroad. In
addition,  Bristol-Myers  maintains a dominant  market  share in the  paclitaxel
business and may choose to take legal  action to impair the entry of  additional
competitors in the market, such as by alleging  infringement on certain patents.
Also,  although  we  anticipate  that we will be  able  to  submit  an ANDA  for
paclitaxel  in the year  2003,  we do not yet have all of the data for such ANDA
and  there  can be no  assurance  that we will be able to file  the ANDA at that
time.  Although we have the capability to, and may, sell paclitaxel for research
purposes,  to date,  we have not received any revenues  from sales of paclitaxel
for human consumption and have received only minimal revenues from other product
sales or  sales of  paclitaxel  for  research  and  development.  Our  principal
revenues have been  contract  research and testing and  consulting  services for
other companies, which are not expected to continue, and which have historically
been minimal. To achieve profitable  operations,  Xechem,  alone or with others,
must successfully develop, obtain regulatory approval for, introduce, and market
our  potential  pharmaceutical  products.  No  assurance  can be given  that our
product research and development  efforts will be successfully  completed,  that
required  regulatory  approvals  will be  obtained,  or that  any  products,  if
developed  and  introduced,  will be  successfully  marketed  or achieve  market
acceptance.

History of Operating Losses; Future Profitability Uncertain
-----------------------------------------------------------

     We have experienced  significant  operating losses since inception and have
generated  minimal  revenues from its  operations.  As of December 31, 2001, our
accumulated  deficit was approximately  $36,208,000,  which included losses from
operations  of  $1,871,000,  $1,868,000,  and  $3,035,000,  for the years  ended
December 31, 2001, 2000, and 1999 respectively. Approximately $13,508,000 of our
accumulated  deficit resulted from a non-cash  accounting  adjustment based upon
the difference  between the approximate  market value of certain debt and equity
which was exchanged for Common Stock of Xechem  simultaneously  with our initial
public offering (the "IPO"), and the initial public offering price of the Common
Stock in our IPO.  To date,  we have been  dependent  on capital  infusions  for
financing.  Our ability to achieve a profitable level of operations is dependent
in  large  part on our  completing  product  development,  obtaining  regulatory
approvals   for  its   potential   products   and  making  the   transition   to
commercializing  such  products.  No  assurance  can be given  that our  product
research and  development  efforts will be completed,  that required  regulatory
approvals will be obtained,  that any products will be  manufactured or marketed
or that  profitability  will be  achieved.  We may require  additional  funds to
achieve profitable operations. See "Management's Discussion and Analysis."

                                       21
<PAGE>

Explanatory Going Concern Disclosure
------------------------------------

     As a  result  of our  losses  to  date,  working  capital  deficiency,  and
accumulated  deficit,  the  independent  accountants'  report  on our  financial
statements for each of the years ended  December 31, 1993 through 2001,  contain
an explanatory  paragraph  indicating that there is substantial  doubt about our
ability to continue as a going concern.  Our  continuation is dependent upon our
ability to generate  sufficient  cash flow to meet our  obligations  on a timely
basis and ultimately to attain profitable operations. We anticipate that we will
continue to incur significant losses until successful  commercialization  of one
or more  products  generates  sufficient  net  revenues  to cover  all  costs of
operation.  As a development stage company, we have a limited relevant operating
history upon which an evaluation  of our  prospects  can be made.  Our prospects
must,  therefore,  be evaluated in light of the problems,  expenses,  delays and
complications   associated   with  a  new   business.   As  a   result   of  the
development-stage  nature of our business,  additional  operating  losses can be
expected.  There can be no assurance  that we can be operated  profitably in the
future.  See  "Management's  Discussion and Analysis" and Note 2 to the Notes to
our Consolidated Financial Statements.

Limited Manufacturing Experience and Capacity
---------------------------------------------

     We believe that our current manufacturing  facility is capable of producing
approximately  four to six kilograms per year of 97% or greater pure  paclitaxel
from crude bulk extract  containing  approximately  50%  paclitaxel.  A contract
packager  will  perform  formulation  and  packaging  of  paclitaxel  in  single
injection  dosages.  As of December 31, 2001, we have not  negotiated a contract
with any packager to perform such  services.  We maintain an efficient,  ambient
warehouse  center to insure proper handling and shipping of the drugs.  While we
have  been  seeking  additional  and  back-up  manufacturers,  there  can  be no
assurance that we will be able to locate such manufacturers,  or that we will be
able to enter into agreements with such manufacturers.  Although we believe that
we have the capability to  significantly  expand  production of bulk paclitaxel,
should demand exceed our manufacturing capacity, we may have to seek third party
contract  manufacturing.  In such  instance,  there can be no assurance  that we
could  locate  satisfactory  contract  manufacturing  services  to perform  such
functions  at all or on  acceptable  terms,  or that we would  have the funds or
ability  to  develop  such  capability  internally.   In  order  to  manufacture
pharmaceutical  products from our facility, we must obtain FDA approval that the
facility is in compliance  with cGMP. We have  submitted the DMF of the facility
to the FDA. If such approval is not  obtained,  the  manufacture  of our product
will have to be performed by current manufacturers who meet necessary regulatory
requirements.

Limited Marketing Experience and Capacity
-----------------------------------------

     Although we may market certain of our potential  products  through a direct
sales force if and when  regulatory  approval  is  obtained,  currently  we have
minimal sales and marketing  employees.  To the extent that we determine not to,
or are unable to, enter into  collaborative  agreements  or to arrange for third
party distribution of its potential products,  significant  additional resources
will be  required  to develop a marketing  and sales  force.  Should we elect to
license or sell products to distributors,  a significant  portion of the profits
from such  products may be realized by such  licensees or  distributors,  rather
than by us. See "Marketing" above.

Dependence upon Dr. Pandey and Other Key Personnel
--------------------------------------------------

     Our  ability  to develop  the  business  depends  upon our  attracting  and
retaining qualified management and scientific  personnel,  including consultants
and members of our SAB.  As the number of  qualified  scientists  is limited and
competition  for such  personnel is intense,  there can be no assurance  that we
will be able to  attract  or retain  such  persons.  In  particular,  we will be
dependent upon the continued  services of Dr. Ramesh C. Pandey,  our Chairman of
the Board,  President and Chief  Executive  Officer.  The loss of key personnel,
such as Dr. Pandey,  or the failure to recruit  additional  key personnel  could
significantly  impede  attainment of our objectives and have a material  adverse
affect  on our  financial  condition  and  results  of  operations.  Dr.  Pandey
originally entered into an employment agreement with us for at least a five-year
term, which commenced in 1994 and has been extended to February 2005,  providing
for,  among  other  things,  an  agreement  not to  compete  with us during  his
employment and for a period of up to six months thereafter. As of date of filing
we have obtained a $4,000,000 key man life insurance  policy on Dr. Pandey.  See
Item 9, Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.

                                       22
<PAGE>

     We will be required to make certain  payments to Dr. Pandey in the event of
certain  changes in control.  We may have to record  significant  charges to the
results of  operations if this occurs.  Further,  a portion of such payments may
constitute excess employment  severance payments,  which would not be deductible
by us for income tax purposes. In addition,  under recently adopted legislation,
we may not be permitted to deduct that portion of an  executive's  compensation,
which  exceeds  $1,000,000  in any  year,  excluding  certain  performance-based
compensation. There can be no assurance that options or warrants issued or which
may be issued to Dr. Pandey would qualify as performance based compensation,  or
that we will be able to deduct the  entire  amount  earned by Dr.  Pandey in any
year.

     In addition,  we rely on members of the SAB to assist us in formulating our
product discovery strategy and therapeutic targets. We do not employ the members
of the SAB and each of these  members has  commitments  to other  entities  that
limit their  availability  to us. Some of the members of the SAB are consultants
for companies that may be our competitors. There is no assurance that we will be
able to retain key members of the SAB.

Management of Staff Growth
--------------------------

     As a result of a reduced amount of capital, the number of persons, which we
employ,  has  decreased.  We have  reduced  our  staff  from a one time  high of
fifty-five to seventeen people. We expect to increase our staffing levels in the
future,  as we did in 2001. Our ability to execute our strategies will depend in
part upon its ability to integrate  such new employees  into its  operations and
fund such additional  cost. Our planned  activities will require the addition of
new personnel, including management, and the development of additional expertise
by existing management personnel in areas such as preclinical testing,  clinical
trial  management,   regulatory  affairs,  manufacturing,   and  marketing.  The
inability to acquire such  services or to develop  such  expertise  could have a
material adverse impact on our operations.

Reliance on Collaborative Relationships
---------------------------------------

     We believe that we will need to enter into collaborative  arrangements with
other  companies.  There  is  no  assurance  that  any  collaborations  will  be
completed,  or  if  completed,   that  they  will  be  successful.   Should  any
collaborative  partner fail in its  contribution to the discovery,  development,
manufacture  or  distribution  of a  marketable  product,  our  business  may be
adversely affected.

Uncertainty Regarding Drug Development
--------------------------------------

     Our  principal  strategy  is  to  develop  generic   equivalents  of  niche
off-patent drugs that enjoy limited competition.  There can be no assurance that
such  strategy  will prove  successful  or that any  proposed  products  will be
commercially  viable. Even if we successfully  develop and market such products,
with time,  other  competitors will likely enter the markets for these products,
which could  adversely  affect our business.  There can be no assurance  that we
will be able to replicate products that come off patent, or that we will be able
to obtain regulatory approval for the sale of such compounds.

Product and Professional Liability Exposure
-------------------------------------------

     We face an inherent  business risk of exposure to product  liability claims
if the use of products  manufactured  by us results in adverse  effects.  We may
also face professional  liability as a result of our contract research and other
services.  While we will  continue to attempt to take  appropriate  precautions,
there  can be no  assurance  that we will  avoid  significant  exposure  to such
liabilities.  Because  we have not yet sold any  products  except  for  research
purposes,  and because of the expense of  insurance,  we do not carry product or
professional  liability  insurance.  While management  intends to obtain product
liability  insurance at such time as our  operations  require it, subject to our
ability  to pay  for  such  insurance,  we do not  currently  intend  to  obtain
professional  liability  insurance.  There can be no assurance that any coverage
that we may obtain will be adequate or that adequate  insurance coverage will be
available  at  acceptable  cost,  if at all,  or that a product or  professional
liability claim would not materially  adversely affect our business or financial
condition.  We may  lack the  resources  to  defend  ourselves,  our  employees,
officers or directors  against any product  liability or professional  liability
claims.

                                       23
<PAGE>

Anti-Takeover Provisions
------------------------

     The Board of Directors has the  authority to issue up to 49,996,350  shares
of Class C  Preferred  Stock in one or more  series,  and to fix the  number  of
shares   constituting   any  such  series,   the  voting  powers,   designation,
preferences,  and relative participating,  optional, or other special rights and
qualifications,  limitations,  or restrictions  thereof,  including the dividend
rights,  terms of redemption  (including  sinking fund  provisions),  conversion
rights,  and  liquidation  preferences  of the shares  constituting  any series,
without any further vote or action by stockholders.  The Board of Directors may;
therefore,  in the  future  issue  Class  C  Preferred  Stock  with  voting  and
conversion rights that could adversely affect the voting power of the holders of
Common Stock.  In addition,  the issuance of Class C Preferred  Stock as well as
certain  statutory  provisions  of  Delaware  law could  potentially  be used to
discourage  attempts by others to obtain  control of us through  merger,  tender
offer,  proxy  contest,  or otherwise by making such attempts more  difficult to
achieve or more costly.

Absence of Dividends; Dividend Policy
-------------------------------------

     We have not paid any dividends  upon its Common Stock since its  formation.
We do not  currently  intend to pay any  dividends  upon the Common Stock in the
foreseeable  future  and  anticipates  that  earnings,  if any,  will be used to
finance  the  development  and  expansion  of our  business.  Our ability to pay
dividends on our Common Stock will be limited by the  preferences of any Class C
Preferred  Stock,  which may be outstanding from time to time and may be limited
by future indebtedness.  Any payment of future dividends and the amounts thereof
will be dependent upon our earnings,  financial  requirements  and other factors
deemed   relevant  by  our  Board  of  Directors,   including  our   contractual
obligations.

ITEM 2.   DESCRIPTION OF PROPERTY
          -----------------------

     We conduct our operations in a state-of-the-art  laboratory facility in New
Brunswick,  New Jersey.  Organizations  such as Xechem  that  develop or produce
pharmaceuticals must meet certain Federal and State standards. For each facility
subject to such standards,  specific operating  procedures are developed to meet
these standards,  and compliance with those procedures is monitored on a regular
basis by both the FDA and state regulators.  Compliance with these standards and
procedures is known as current Good Laboratory Practices, or "cGLP" for research
operations,   and  current   Good   Manufacturing   Practices,   or  "cGMP"  for
manufacturing  operations.  We currently believe that we operate our facility in
accordance  with cGLP and cGMP;  however,  to date, we have not received the FDA
certification for cGMP.

     We lease our office and laboratory space at 100 Jersey Avenue,  Building B,
Suite  310,  New  Brunswick,   New  Jersey  08901.  The  facility   consists  of
approximately  25,000  square  feet and at original  execution  of the lease the
lessor was unaffiliated. Ownership of the lessor was subsequently transferred to
a new  investment  group and Dr. Pandey  invested  personal  funds to acquire an
approximately  25% interest in the lessor.  We have  accepted the first of three
five-year  extensions  therefore  the current  extension to the lease expires on
September 30, 2005, subject to two additional five-year extensions at our option
and an option by us to lease an additional  10,000 square feet. Our base rent is
approximately  $7,800 per month,  which is  subject to annual  increases,  which
commenced  October 1, 1996, based upon increases in the consumer price index. In
addition to base rent, we are responsible for its  proportionate  share of taxes
and all other expenses of the building.

     We are currently in arrears to our landlord and we are occupying more space
then  is  stated  in our  current  lease.  Presently  we are in the  process  of
renegotiating  the lease to rectify the issue  regarding  uncharged space and to
extend  the  term of the  lease.  We do not  foresee  any  major  problems  with
finalizing the new lease in a timely fashion.

     We believe that our facilities  are adequate for our current needs.  If our
operations are successful and our research and development  activities  continue
to expand, or if we determine to produce paclitaxel or other products in

                                       24
<PAGE>

large-scale  commercial   quantities,   we  may  require  additional  equipment,
manufacturing  facilities,  or both. We cannot  predict the nature and extent of
the equipment or facilities that might be needed at such time.

ITEM 3.   LEGAL PROCEEDINGS
          -----------------

     On March 2, 2000, we filed a complaint in the United States  District Court
for the District of New Jersey  against the  University  of Texas M.D.  Anderson
Cancer  Center  and  the  Board  of  Regents  of the  University  of  Texas,  as
defendants. This complaint is for declaratory judgment against the defendants in
connection with a certain Patent and Technology  License  Agreement dated August
18,  1997 (the  "License  Agreement"),  which was the  outgrowth  of a Sponsored
Laboratory  Study  Agreement  dated  December  12, 1995.  The License  Agreement
granted  to  Xechem  certain  exclusive  worldwide  rights to use,  license  and
sublicense  patented technology related to a new formulation for the delivery of
paclitaxel. The M.D. Anderson Cancer Center sent a letter to our counsel seeking
to terminate the License Agreement. This letter also contained a counterproposal
to us,  which we rejected,  and Xechem also  rejected the claim that the License
Agreement should be terminated. The defendants delivered a termination letter to
us purporting to terminate the License  Agreement on the basis of the claim that
we were  "insolvent."  This  alleged  insolvency  was based upon 1998  financial
records.  We state in our complaint  that we are currently  solvent and deny the
claim that we were insolvent in 1998. We have made all required  payments to the
M.D. Anderson Cancer Center pursuant to the License Agreement.

     Our  complaint  also  seeks to change  inventorship  and  ownership  of the
University of Texas' patents,  worldwide, which cover the new formulation of the
anticancer  drug  paclitaxel.  The  University  of Texas  sought to dismiss  the
complaint based on lack of personal  jurisdiction,  venue,  11th Amendment state
sovereign immunity and lack of declaratory  judgment  jurisdiction.  On February
21, 2002, a federal district court judge of the U.S. District Court, District of
New Jersey  denied  University  of Texas' motion to dismiss the case for lack of
personal  jurisdiction and venue and granted the defendant's  motion to transfer
the case to the Southern District of Texas (CA No.: 00-1010).  The judge did not
rule on the defendants' motion to dismiss the suit based on 11th Amendment state
sovereign immunity and lack of declaratory  judgment  jurisdiction.  The case is
now pending.

                                       25
<PAGE>

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
          -----------------------------------------------

     No matters were submitted to stockholders  for a vote in the fourth quarter
of 2001.

                                       26
<PAGE>

                                     PART II
                                     -------

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
          --------------------------------------------------------

     Our Common Stock is traded on the OTC Bulletin  Board.  The following table
shows the high and low bid quotations, on a quarterly basis, of our Common Stock
from January 1, 2000 through December 31, 2001:

                                  Common Stock
                                  ------------

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
              2000       2000       2000       2000       2001       2001      2001        2001
             First      Second     Third      Fourth     First      Second     Third      Fourth
            Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter
            -------    -------    -------    -------    -------    -------    -------    -------
------------------------------------------------------------------------------------------------
<S>            <C>       <C>        <C>        <C>        <C>        <C>        <C>        <C>
High Bid       1         .41        .22        .13        .08        .03        .03        .013
------------------------------------------------------------------------------------------------
Low Bid       .06        .09        .03        .03        .03        .01        .01        .005
------------------------------------------------------------------------------------------------
</TABLE>

     We have not declared or paid any dividends on our Common Stock.

     As of February 15, 2002,  there were 231 record  holders and  approximately
4,200 beneficial  owners of our Common Stock.  Dividends on the Common Stock are
subordinated  to the  payment of  dividends  on our  outstanding  Class A Voting
Preferred Stock (the "Class A Preferred Stock"). The Class A Preferred Stock has
a  dividend  preference  of  $.00001  per  annum  per  share on the  liquidation
preference of $.00001 per share on a cumulative  basis.  As of February 28, 2002
there were 2,500  outstanding  shares of Class A Preferred Stock. As of February
28, 2002 there were 2,665  outstanding  shares of Class C Preferred Stock with a
par value of $ .00001 with voting  rights for 1 share equal to 10,000  shares of
Common Stock.

     During the year ended December 31, 2001, we sold shares of our Common Stock
(the "Shares") in transactions  not registered under the Securities Act of 1933,
as amended (the "Securities Act") as set forth below:

     During 2001, we issued a total of 900,000 Shares to an investment relations
firm as payment for certain  services  provided to us. The  purchasers  of these
Shares had provided services to us, which we valued at approximately $36,000. We
did not  use  the  services  of any  finders  or  securities  broker-dealers  in
connection  with the offer and sale of these Shares.  We believe that all Shares
issued  in the  above  transactions  are  exempt  from  registration  under  the
Securities Act by virtue of Section 4(2) of the Securities Act and/or Regulation
D promulgated thereunder.

     During 2001,  we also issued a total of  1,241,000  Shares to one person in
connection  with  the  conversion  of  certain  indebtedness  owed by us to such
person.  The amount of indebtedness  converted as a result of such  transactions
was $  12,411.  We did  not  use  the  services  of any  finders  or  securities
broker-dealers in connection with the offer and sale of these Shares. We believe
that all Shares issued in the above  transactions  are exempt from  registration
under the  Securities Act by virtue of Section 4(2) of the Securities Act and/or
Regulation D promulgated thereunder.

     During  2001,  we issued a total of 2,232 Shares of Class C, Series 6 Stock
to Dr. Ramesh C. Pandey, the President,  Chief Executive Officer and Chairman of
Xechem in order for Dr.  Pandey to maintain his 20% voting  rights.  We received
par value as consideration from Dr. Pandey in connection with this transaction.

                                       27
<PAGE>

     During  2001,  we  issued a total of  1,500,000  Shares  to one  person  in
connection  with  the  conversion  of  certain  indebtedness  owed by us to such
person. The amount of indebtedness converted as a result of such transaction was
$15,000. We did not use the services of any finder or securities  broker-dealers
in  connection  with the offer and sale of these  Shares.  We  believe  that all
Shares  issued  in  connection  in  the  above   transaction   are  exempt  from
registration  under  the  Securities  Act  by  virtue  of  Section  4(2)  of the
Securities Act and/or Regulation D promulgated thereunder.

                                       28
<PAGE>

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS.2
          --------------------------------------

General
-------

     We are  the  holder  of all  of  the  capital  stock  of  Xechem,  Inc.,  a
development   stage   bio-pharmaceutical   company   engaged  in  the  research,
development,  and production of niche generic and proprietary drugs from natural
sources.  Xechem, Inc., was formed in March 1990 to acquire substantially all of
the assets of a subsidiary of LyphoMed,  Inc. (later known as Fujisawa/LyphoMed,
Inc.),  a  publicly  traded  company.  Xechem  Laboratories  (formed  in  1993),
XetaPharm,  Inc.  (formed  in  1996)  and  Xechem  (India)  Pvt.  Ltd.  are  our
subsidiaries. Xechem Pharmaceutical China Ltd., (formed in 2000) is an affiliate
in the early stages of development.

Results of Operations
---------------------

The Year Ended December 31, 2001 vs. The Year Ended December 31, 2000

     The  following  table sets forth certain  statement of  operations  data of
Xechem for each of the years ended  December  31, 2001 and December 31, 2000 and
for the cumulative period from inception (March 15, 1990) to December 31, 2001.

                                                                     Cumulative
                                            Years Ended             Inception to
                                            December 31              December 31
                                            -----------              -----------
                                             2001          2000          2001
                                                      (in thousands)

Revenue                                    $    187      $     38      $  1,360

Research and development expense           $    527      $    538      $  9,952

General and administrative expenses        $  1,398      $  1,368      $ 13,139

Writedown of inventory and intangibles     $    133      $     --      $  1,856

(Loss) from operations                     $ (1,871)     $ (1,868)     $(23,587)

Other income (expense)                     $    127      $   (103)     $(12,621)

Net Loss                                   $ (1,744)     $ (1,971)     $(36,208)

Revenue
-------

     Revenue increased $149,000 or 392% from $38,000 for the year ended December
31, 2000 to $187,000 for the year ended December 31, 2001. The $149,000 increase
in revenue was the result of $170,000 in consulting fees from A & K Consultants.
XetaPharm's revenues from the sale of over-the-counter  natural health products,
commonly known as  nutraceuticals,  decreased $12,000 or 43% from the year ended
December 31, 2000 to the year ended December 31, 2001.

Research and Development
------------------------

------------------------------
     2 Some of the  statements  included in Item 7,  Management  Discussion  and
Analysis,  may be  considered  to be  "forward  looking  statements"  since such
statements relate to matters which have not yet occurred.  For example,  phrases
such as "we  anticipate,"  "believe" or "expect"  indicates  that it is possible
that the event  anticipated,  believed  or expected  may not occur.  Should such
event not occur, then the result that we expected also may not occur or occur in
a  different  manner,  which  may be  more or less  favorable  to us.  We do not
undertake any obligation to publicly  release the result of any revisions to the
forward  looking  statements  that may be made to reflect  any future  events or
circumstances.

     Readers should  carefully  review the items included in Item 1, Description
of Business - Risks Affecting  Forward Looking  Statements and Stock Prices,  as
they relate to any forward  looking  statements,  as actual results could differ
materially from those projected in the forward looking statement.

                                       29
<PAGE>

     Research and development decreased $11,000 or 2% from $538,000 for the year
ended  December 31, 2000 to $527,000 for the year ended  December 31, 2001.  Our
research and development  expenditures continue to emphasize compounds for niche
generic anticancer,  antiviral and antibiotic products,  which enjoy significant
market demand but are no longer subject to patent protection

     Research  and  development  operations  decreased  slightly in 2001,  which
resulted  in the 2%  reduction.  The  status  quo was  maintained  because of no
significant changes in operations or personnel.

     Expenditures for research and development  should increase during 2002 with
anticipated  new  projects  due to begin  in 2002.  We  believe  that  increased
research and development expenditures could significantly hasten the development
of new products as well as the marketability of paclitaxel.

General and Administrative
--------------------------

     General and administrative  expenses increased $30,000, or 2%, for the year
ended  December 31, 2001 as compared to the year ended  December  31, 2000.  The
significant  changes for the period ending December 31, 2001 were an increase of
approximately  $87,000 or 37% in  administration  salaries  due to the hiring of
three new full  time  employees,  approximately  a $21,000  or 37%  increase  in
accounting  fees due to the hiring of new auditors,  approximately  a $36,000 or
68%  decrease  in  advertising  costs  due to the one time  costs in 2000 of the
design  and  maintenance  of three web sites and the  production  of a video for
"American  Medical  Review",  approximately  a $247,000 or 54% decrease in legal
fees  primarily  relating to the timing of fees incurred for M.D.  Anderson case
and the hiring of in-house  counsel,  approximately  a 37% decrease in the costs
for our Annual  Meeting of  $10,000,  and  approximately  a $17,000  increase in
licenses and fees due in part to filing costs for registration  statements which
were filed with the Securities  and Exchange  Commission for the issuance of our
common stock in connection with the conversion of our convertible debentures. We
also had a non-cash stock expense increase of  approximately  $53,000 or 36% due
to the beneficial conversion feature for stock options granted in 2000 and 2001.
We also saw an increase in travel expenses of  approximately  $22,000 or 95% due
to increased foreign travel to facilitate international projects.

     We increased  personnel in 2001 but we do not  anticipate  that the general
and  administrative  expenses  will increase  significantly  until the hiring of
additional personnel,  including  management,  and the development of additional
expertise  in areas such as  preclinical  testing,  clinical  trial  management,
regulatory  affairs,  manufacturing and marketing  occurs.  The exact number and
nature of persons  hired,  and our expenses for such persons will depend on many
factors, including the capabilities of those persons who seek employment with us
and the availability of funding to finance these efforts.

     We recorded a charge to  operations  in 2001 of  approximately  $133,000 to
reserve for XetaPharm's finished goods inventory, which due to slow-movement and
lack of sales, in our opinion, had no realizable value.

     Our loss from operations totaled $1,871,000, an increase of $3,000, or less
than 1%, for the year ended  December  31,  2001 as  compared  to the year ended
December 31, 2000.

     Interest expense was approximately  $325,000 in the year ended December 31,
2001,  a decrease of  approximately  $32,000 or 9% as compared to the year ended
December 31, 2000. Approximately $248,000 of this expense was non-cash in nature
due to borrowings evidenced by convertible debentures.

     We have accrued approximately  $452,000, in other income, from the sales of
its New Jersey NOL's in 2001,  which funds were  received in January of 2002, as
compared to approximately $249,000 received in 2000. We still have over $247,000
in approved tax credits and anticipate  applying for approximately an additional
$162,000 of credits,  from our losses in 2001. There is no guarantee that any or
all of these proposed  credits will be approved by the State of New Jersey or of
the total amount we will be allowed to sell in 2002.

                                       30
<PAGE>

Liquidity and Capital Resources; Plan of Operations
---------------------------------------------------

     On  December  31,  2001,  we had  cash and cash  equivalents  of  $241,000,
negative  working  capital of $1,433,000  and  stockholders'  equity  deficit of
$1,923,000.

     We have  received  approximately  $1,214,000  in the form of proceeds  from
convertible  debentures,  short-term loans and equity  securities.  Cash used in
operating activities was $1,117,000 during 2001.

     As a result of our net losses to December 31, 2001 and accumulated  deficit
since inception,  our accountants,  in their report on our financial  statements
for the  year  ended  December  31,  2001,  included  an  explanatory  paragraph
indicating  there is substantial  doubt about our ability to continue as a going
concern. Our research and development activities are continuing and the time and
money  required to  determine  the  commercial  value and  marketability  of our
proposed  products  cannot be estimated with  precision.  We expect research and
development  activities to continue to require significant cost expenditures for
an indefinite period in the future.

     In May  1995 we filed a Drug  Master  File  ("DMF")  with the Food and Drug
Administration  ("FDA") for our  facilities.  We have  completed our  technology
validation  and  filed a DMF for bulk  paclitaxel  in June  1997;  however,  our
facilities  have yet to be inspected  by the FDA for current Good  Manufacturing
Practices ("cGMP").  We have sufficient raw materials to produce commercial bulk
paclitaxel  that  has a market  value of  approximately  $2,000,000  at  current
prices;  however,  the book value of such inventory was written off in 1997, and
we  anticipate,  but can provide no  assurances,  that we will commence sales of
paclitaxel in the international  market in 2002. Prior to commencing such sales,
we must file for and obtain  approvals from appropriate  regulatory  agencies in
foreign jurisdictions.  We have made use of a grant from the State of New Jersey
for ISO - 9000 training to gain ISO - 9001 certification; however the project is
currently on hold due to lack of personnel and additional funding. Additionally,
to the extent we elects to manufacture bulk paclitaxel  domestically and ship it
overseas for packaging, our facilities must be approved for cGMP and the product
must either be approved for an investigational new drug exemption (not currently
so approved),  or deemed in compliance with the laws of 24 industrialized  "tier
one" countries (not yet so approved).  Alternatively, we can produce the product
entirely  overseas;  however,  we most likely would  subcontract  production  to
others from raw material or partially processed raw material provided by us, and
might also enter into joint venture or other marketing  arrangements for sale of
the product  overseas.  There can be no such assurance that necessary  approvals
will not be delayed or  subject  to  conditions  or that we will be able to meet
such conditions.  In addition, we have no experience in marketing pharmaceutical
products for human  consumption  and there can be no  assurance  that we will be
able to successfully  market our paclitaxel product in bulk,  indirectly through
others,  or be able to obtain  satisfactory  packaging  of the product in single
dosage vials from an independent manufacturer.

     We  have  expended  and  will  continue  to  expend  substantial  funds  in
connection  with the research and  development  of its products.  As a result of
these  expenditures,  and even with revenues  anticipated  from  commencement of
sales of paclitaxel, we anticipate that losses will continue for the foreseeable
future.

     Our  planned  activities  will  require  the  addition  of  new  personnel,
including  management,  and the continued development of expertise in areas such
as  preclinical   testing,   clinical  trial  management,   regulatory  affairs,
manufacturing and marketing.  Further, if we receive regulatory approval for any
of our products,  in the United States or elsewhere,  we will incur  substantial
expenditures  to develop our  manufacturing,  sales and  marketing  capabilities
and/or  subcontract or joint venture these activities with others.  There can be
no  assurance  that we will  ever  recognize  revenue  or  profit  from any such
products.  In  addition,  we may  encounter  unanticipated  problems,  including
developmental,  regulatory,  manufacturing  or marketing  difficulties,  some of
which may be beyond our ability to resolve.  We may lack the capacity to produce
its  products  in-house and there can be no  assurances  that we will be able to
locate suitable contract  manufacturers or be able to have them produce products
at satisfactory prices.

     We will  continue  to apply to various  governmental  agencies  to fund our
research on specific projects and those projects that are in our expertise.

                                       31
<PAGE>

Contractual Obligations and Commercial Commitments
--------------------------------------------------

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
         CONTRACTUAL OBLIGATIONS              PAYMENTS DUE BY PERIOD AS OF DECEMBER 31, 2001
----------------------------------------------------------------------------------------------------
                                                TOTAL      LESS THAN     1-3       4-5      AFTER 5
                                                            1 YEAR      YEARS     YEARS      YEARS
----------------------------------------------------------------------------------------------------
<S>                                           <C>          <C>          <C>       <C>      <C>
LONG-TERM DEBT: CONVERTIBLE DEBENTURES (1)     1,014,000                                   1,014,000
----------------------------------------------------------------------------------------------------
OPERATING LEASES                                  64,000       19,000    30,000    15,000
----------------------------------------------------------------------------------------------------
SHORT-TERM DEBT (2)                              318,000      318,000
----------------------------------------------------------------------------------------------------
UNCONDITIONAL PURCHASE OBLIGATIONS (3)           979,000      979,000
----------------------------------------------------------------------------------------------------
OTHER LONG-TERM OBLIGATIONS                      198,000       13,000   185,000
----------------------------------------------------------------------------------------------------
TOTALS                                         2,573,000    1,329,000   215,000    15,000  1,014,000
----------------------------------------------------------------------------------------------------
</TABLE>

     1.   The Convertible  Debentures  mature in ten (10) years with 8% interest
          per  annum.  We  expect  them  to(but  there can be no  assurance)  be
          converted to common stock within one year.
     2.   $298,000 is due in September 2002 but we expect to extend this note at
          that time for another twelve-month period.
     3.   This consists of Accounts  Payable and accrued  payroll for the end of
          December.

     We also have a line of credit with the Bank of New York with  borrowings of
$54,000 against a $55,000  line-of-credit  bearing interest at the rate of 6.75%
per annum as of December  31, 2001.  In January  2002 the entire  amount due was
repaid in full.

Critical Accounting Policies
----------------------------

Consolidation

     Our  Consolidated  Financial  Statements  include  the  accounts  of Xechem
International  Inc. and all  subsidiaries  except where  control is temporary or
does not  rest  with our  Company.  All  majority-owned  entities  in which  our
Company's  control is  considered  other than  temporary are  consolidated.  For
investments  in companies  in which we have the ability to exercise  significant
influence over operating and financial  policies,  including certain investments
where there is a temporary majority interest, such entities are accounted for by
the equity method. Our judgments  regarding the level of influence or control of
each equity  method  investment  include  considering  key  factors  such as our
ownership interest,  representation on the board of directors,  participation in
policy making decisions and material intercompany transactions.  Our investments
in  other  companies  that we do not  control  and for  which we do not have the
ability to exercise significant influence as discussed above are carried at cost
or fair  value,  as  appropriate.  All  significant  intercompany  accounts  and
transactions,   including   transactions  with  equity  method  investees,   are
eliminated from our financial results.

Patents, Trademarks, and other Intellectual or Intangible Assets

     The costs of Patents,  Trademarks,  and other  Intellectual  or  Intangible
Assets are currently  expensed in the period in which they are  incurred.  It is
our opinion that while we realize  there is an intrinsic  value to these assets,
the fair market value is not easily  discernable  because of the  uncertainty of
success and the time it takes to bring certain of these assets to market.

Beneficial Conversions

     Our policy for recognizing interest expense in connection with the issuance
of convertible debt is to recognize the beneficial  conversion  feature upon the
issuance of convertible debt with beneficial conversion features.

                                       32
<PAGE>

Other Policies

     We have  adopted  or will adopt the  following  new  accounting  standards:
Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"),  "Business
Combinations,"  and Statement of Financial  Accounting  Standards No. 142 ("SFAS
No. 142"),  "Goodwill and Intangible  Assets." SFAS No. 141 is effective for all
business  combinations  completed after June 30, 2001. SFAS No. 142 is effective
for fiscal years beginning after December 15, 2001; however,  certain provisions
of this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001 and the effective date of SFAS No. 142.  Major  provisions of these
Statements and their effective dates for Xechem are as follows:

     -    All business  combinations  initiated after June 30, 2001 must use the
          purchase  method of  accounting.  The  pooling-of-interests  method of
          accounting is prohibited except for transactions initiated before July
          1, 2001.

     -    Intangible assets acquired in a business  combination must be recorded
          separately from goodwill if they arise from contractual or other legal
          rights or are  separable  from the  acquired  entity  and can be sold,
          transferred,  licensed, rented or exchanged, either individually or as
          part of a related contract, asset or liability.

     -    Goodwill, as well as intangible assets with indefinite lives, acquired
          after June 30, 2001, will not be amortized. Effective January 1, 2002,
          all  previously   recognized   goodwill  and  intangible  assets  with
          indefinite lives would no longer be subject to amortization.

     -    Effective  January  1,  2002,  goodwill  and  intangible  assets  with
          indefinite  lives will be tested for impairment  annually and whenever
          there is an impairment indicator.

     -    All acquired goodwill must be assigned to reporting units for purposes
          of impairment testing and segment reporting.

     In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144  ("SFAS  No.  144"),  "Accounting  for the  Impairment  or  Disposal  of
Long-Lived  Assets." This Statement is effective for the fiscal years  beginning
after  December  15,  2001.  This  Statement  supersedes  Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of
Long-Lived  Assets and for Long-Lived Assets to be Disposed Of," while retaining
many of the requirements of such statement.

     Although  it  is  still  reviewing  the  provisions  of  these  Statements,
management's  preliminary  assessment is that these  Statements  will not have a
material impact on Xechem's financial position or results of operations.

     For further information concerning accounting policies,  refer to Note 1 of
consolidated financial statements.

                                       33
<PAGE>

ITEM 7.   FINANCIAL STATEMENTS.
          ---------------------

     The  following  financial  statements  of Xechem  International,  Inc.  and
subsidiaries  are separately  prepared and numbered  independently  of the other
narrative portions of this Form 10-KSB.

                                       34
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
   Xechem International, Inc.

We  have  audited  the  accompanying   consolidated   balance  sheet  of  Xechem
International, Inc. ("Xechem") (a development stage company) and subsidiaries as
of  December  31,  2001 and 2000,  and the related  consolidated  statements  of
operations,  stockholders' equity (deficit),  and cash flows for the years ended
December  31,  2001 and  2000,  and the 2001 and 2000  amounts  included  in the
cumulative  period from  inception  (March 15, 1990) through  December 31, 2001.
These financial  statements are the responsibility of Xechem's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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  provide  a
reasonable basis for our opinion.

In our opinion, the 2001 and 2000 consolidated  financial statements referred to
above  present  fairly,  in all  material  respects the  consolidated  financial
position  of Xechem  International,  Inc.  (a  development  stage  company)  and
subsidiaries as of December 31, 2001 and 2000, and the  consolidated  results of
their  operations and their cash flows for the years ended December 31, 2001 and
2000,  and the 2001 and 2000  amounts  included  in the  cumulative  period from
(March 15, 1990)  through  December  31, 2001,  in  conformity  with  accounting
principles generally accepted in the United States of America.

The accompanying  financial  statements have been prepared  assuming that Xechem
will  continue as a going  concern.  Xechem is a  development  stage  enterprise
engaged in the research and  development of generic and  proprietary  drugs from
natural sources.  To date, Xechem has primarily been engaged in the research and
development  activities and needs to secure additional capital and obtain proper
regulatory  approval  to  continue  operations.  As  discussed  in Note 2 to the
consolidated  financial  statements,  Xechem's  existence is dependent  upon its
ability to generate  sufficient  cash flows to meet its  obligations on a timely
basis and ultimately to attain profitable  operations,  which raises substantial
doubt  about its  ability to continue  as a going  concern.  Management's  plans
concerning these matters are also described in Note 2. The financial  statements
do not  include  any  adjustments  that might  result  from the outcome of these
uncertainties.

GRANT THORNTON LLP
February 13, 2002
Edison, New Jersey

                                       F-1
<PAGE>

                   XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        December 31,     December 31,
                                                                            2001             2000
                                                                        ------------     ------------
CURRENT ASSETS
<S>                                                                     <C>              <C>
   Cash                                                                 $    241,000     $    229,000
   Accounts receivable:
        Net Operating Loss                                                   452,000               --
        Miscellaneous                                                         62,000           15,000
   Inventory:
       Raw materials                                                           1,000            6,000
       Finished goods                                                             --          125,000
   Prepaid expenses and other current assets                                   1,000            6,000
                                                                        -----------------------------

   TOTAL CURRENT ASSETS                                                      757,000          381,000

 Equipment, less accumulated depreciation of $1,067,000(2001)
     and $923,000(2000)                                                      448,000          507,000
 Leasehold improvements, less accumulated amortization of
     $570,000(2001) and $502,000(2000)                                       445,000          513,000
 Cash surrender value of officer's life insurance                             20,000           25,000
 Deposits                                                                     20,000           20,000
                                                                        -----------------------------

                                                                        $  1,690,000     $  1,446,000
                                                                        =============================

CURRENT LIABILITIES
   Accounts payable                                                     $    957,000     $    750,000
   Accrued expenses to related parties                                       474,000          346,000
   Accrued expenses to others                                                132,000          124,000
   Loans payable                                                              54,000          130,000
   Loans payable to related party                                            503,000          298,000
   Other current liabilities                                                  70,000          156,000
                                                                        -----------------------------

     TOTAL CURRENT LIABILITIES                                             2,190,000        1,804,000
                                                                        -----------------------------

NOTES PAYABLE-RELATED PARTIES                                                409,000          409,000
CONVERTIBLE DEBENTURES                                                     1,014,000               --
                                                                        -----------------------------

TOTAL LIABILITIES                                                          3,613,000        2,213,000
                                                                        -----------------------------

STOCKHOLDERS EQUITY (DEFICIT)
   Class A voting preferred stock,$ .00001 par value, 2,500 shares
     authorized; 2,500 shares issued and outstanding (2001 and 2000)              --               --
   Class B 8% preferred stock,$ .00001 par value, 1,150
     shares authorized; none outstanding                                          --               --
   Class C preferred stock,$ .00001 par value, 49,996,350
     shares authorized; 2,232 outstanding (2001)
   Common stock,$.00001 par value, 1,950,000,000 shares authorized;
      378,841,000(2001) and 344,537,000(2000) issued and outstanding           4,000            3,000
   Unearned compensation expense                                            (284,000)        (406,000)
   Additional paid in capital                                             34,565,000       34,100,000
   Deficit accumulated during development stage                          (36,208,000)     (34,464,000)
                                                                        -----------------------------

   TOTAL STOCKHOLDERS EQUITY (DEFICIT)                                    (1,923,000)        (767,000)
                                                                        -----------------------------

                                                                        $  1,690,000     $  1,446,000
                                                                        =============================
</TABLE>

See notes to consolidated financial statements

                                       F-2
<PAGE>

                   XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                      CONSOLIDATED STATEMENTS OF OPERATION

<TABLE>
<CAPTION>
                                                                          MARCH 15 1990 (Date
                                                                          -------------------
                                                     YEAR ENDED             of Inception) to
                                                     ----------             ----------------

                                                    DECEMBER 31,              DECEMBER 31,
                                                    ------------              ------------
                                                2001             2000             2001
                                                ----             ----             ----

<S>                                         <C>              <C>              <C>
 REVENUES:                                  $    187,000     $     38,000     $  1,360,000

EXPENSES:
   Research and development                      527,000          538,000        9,952,000
   General and administrative                  1,398,000        1,368,000       13,139,000
   Writedown of inventory
      and intangibles                            133,000               --        1,856,000
                                            ----------------------------------------------
                                               2,058,000        1,906,000       24,947,000
                                            ----------------------------------------------

   LOSS FROM OPERATIONS                       (1,871,000)      (1,868,000)     (23,587,000)
                                            ----------------------------------------------

OTHER INCOME(EXPENSE) - NET:

   Interest Expense - Related Party              (63,000)         (66,000)      (8,799,000)

   Interest Expense                             (262,000)        (290,000)      (5,477,000)

   Sale of New Jersey net operating
    loss carryforwards                           452,000          249,000        1,352,000

   Other(net)                                         --            4,000          303,000
                                            ----------------------------------------------
                                                 127,000         (103,000)     (12,621,000)
                                            ----------------------------------------------

   NET LOSS                                 $ (1,744,000)    $ (1,971,000)    $(36,208,000)
                                            ==============================================

BASIC AND DILUTED LOSS PER SHARE            $      (0.01)    $      (0.01)
                                            =============================

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING                           348,886,000      285,145,000
                                            =============================
</TABLE>

See notes to consolidated financial statements.

                                       F-3
<PAGE>

                   XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
        CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
                 MARCH 15, 1990 (INCEPTION) TO DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                                                                                                        Deficit
                                                                                           Unearned     Additional    Accumulated
                                                                   Number of             Compensation    Paid-in-        During
                                                                 shares issued   Par value  Expense      Capital      Development
                                                                 -------------   --------  ---------   ------------  -------------
<S>                                                              <C>             <C>       <C>         <C>           <C>
    Common stock issued to Dr. Pandey in 1990 in exchange
      for equipment  recorded at transferror's cost                         --   $     --  $      --   $    125,000

    Laboratory and research equipment contributed to capital
      by Dr. Pandey in 1990 and 1991                                        --         --         --        341,000

    Contribution to capital relating to unconsummated acquisition
      in 1992                                                               --         --         --         95,000

    Exchange of securities of newly formed parent for outstanding
      securities of entities owned by Dr. Pandey                     4,371,000         --         --     13,840,000

    Initial public offering in 1995 at $ 5 per share,
      less related expenses                                          1,150,000         --         --      4,543,000

    Stock options granted at exercise prices below market:
      1994                                                             210,000         --         --         51,000
      1995                                                             659,000         --         --      1,110,000
      1996                                                              54,000         --         --         18,000
      1997                                                             126,000         --         --         31,000

    Private placements, less related expenses:
      In 1995 at $ 3.00 per share                                      119,000         --         --        389,000
      In 1996 at $ 3.00 per share, net of a related 66,000 shares
        returned by Dr. Pandey                                         163,000         --         --         53,000
      In 1997 at $ 0.05 per share                                   45,020,000         --         --      2,291,000

    Shares issued in 1996 at $ 0.38 per share upon termination of
      agreement to sell a minority interest in a subsidiary            260,000         --         --        100,000

    Conversion of preferred stock into common stock at $ 1.25 to
      $ 1.75 per share less related costs:
         In 1996                                                     1,686,000         --         --      1,995,000
         In 1997                                                    45,120,000      1,000         --      2,131,000

    Conversion of debt into common stock in 1996 at $ 0.25 per
      share                                                          1,478,000         --         --        369,000

    Shares issued in settlement of a lawsuit in 1996 valued at
      $ 1.31 per share                                                  25,000         --         --         33,000

    Conversion of Dr. Pandey's preferred stock and debt into
      common stock in 1997 at $ 0.0625 per share                    19,430,000         --         --      1,214,000

    Other                                                                   --         --         --         16,000

    Private placement at $ 0.05 per share                           11,180,000         --         --        559,000

    Contribution to capital by stockholders of equity interest
      in Xechem India                                                       --         --         --         79,000

    Conversion of debt into common stock  at $ 0.05 per share        8,800,000         --         --        440,000

    Stock issued to Fortress Financial at $ 0.0001 per share           800,000         --         --             --

    Return of capital to David Blech or his designees                       --         --         --       (261,000)

    Sale of common stock in 1999 pursuant to Blech agreement
      at $0.01 per share                                         $  44,554,000      1,000         --        444,000

    Conversion of debt due related parties in 1999 at
      $ 0.01 per share                                              44,181,000         --         --        360,000

    Shares issued to directors , employees and consultants in
      1999 for services valued at $ 0.037 per share                 11,074,000         --         --        410,000
     Capital arising from issuance of Class C Stock (Note 7):
          Series 4                                                          --         --         --        400,000
          Series 5                                                          --         --         --      1,564,000

    Net loss for year ended December 31, 1999                                                                         $(32,493,000)
                                                                 -----------------------------------------------------------------
BALANCES AT DECEMBER 31, 1999                                      240,460,000   $  2,000  $      --   $ 32,740,000   $(32,493,000)

See notes to consolidated financial statements.

                                       F-4
<PAGE>

                   XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
        CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
                 MARCH 15, 1990 (INCEPTION) TO DECEMBER 31, 2001

                                   (Continued)

<CAPTION>
                                                                                                                        Deficit
                                                                                           Unearned     Additional    Accumulated
                                                                   Number of             Compensation    Paid-in-        During
                                                                 shares issued   Par value  Expense      Capital      Development
                                                                 -------------   --------  ---------   ------------  -------------
<S>                                                              <C>             <C>       <C>         <C>           <C>

 Stock options exercised at $ .01 per share                            393,000         --         --          4,000

  Issuance of 1,500,000 options at $.01 per share
     with a FMV of $ .06  per share for services rendered                   --         --         --         75,000

 Conversion of Class C preferred stock to common shares             82,259,000      1,000         --         (1,000)

 Conversion of debt to shares of Common Stock @
   $0.01 per share                                                  16,426,000         --         --        164,000

 Private placement of shares of Common Stock @ $0.08
   per share                                                         1,000,000         --         --         80,000

 Issuance of Common Stock @ $0.096 per share for services rendered   1,110,000         --         --        107,000

 Stock options exercised at $ .01 per share with a FMV
   of $0.076 per share                                                 503,000         --         --          5,000

 Conversion of debt to shares of Common Stock @ $0.01 per share      2,155,000         --         --         22,000

 Stock options exercised at $ .01 per share                            231,000         --         --          1,000

 Beneficial Conversion featue of notes payable                              --         --         --        286,000

 Charge to operations resulting from Options granted to Directors,
  Consultants and Employees                                                 --         --         --        192,000

 Unearned Stock Compensation Expense Related to
  Options granted to Directors,Consultants and Employees                    --         --   (406,000)       406,000

 Increase in Equity Interest in Xechem India                                --         --         --         19,000

    Net loss for year ended December 31, 2000                               --         --         --             --     (1,971,000)
                                                                 -----------------------------------------------------------------
BALANCES AT DECEMBER 31, 2000                                      344,537,000   $  3,000  $(406,000)  $ 34,100,000   $(34,464,000)
                                                                 =================================================================

 Stock issued for services rendered                                  5,141,000         --         --         68,000

  Amortization of unearned stock compensation                               --         --    197,000             --

 Stock options exercised at $ .01 per share                            450,000         --         --          6,000

 Beneficial Conversion feature of notes payable                             --         --         --        216,000

 Unearned Stock Compensation Expense Related to
  Options granted to Directors and Employees                                --         --    (75,000)        76,000

 Stock Options Granted to Consultants                                       --         --         --         16,000

 Stock issued for cancellation of indebtedness                       1,500,000         --         --         15,000

Shares issued upon conversion of debentures                         27,213,000      1,000         --         68,000

    Net loss for year ended December 31, 2001                               --         --         --             --     (1,744,000)
                                                                 -----------------------------------------------------------------
BALANCES AT DECEMBER 31, 2001                                      378,841,000   $  4,000  $(284,000)  $ 34,565,000   $(36,208,000)
                                                                 =================================================================
</TABLE>

See notes to consolidated financial statements.

                                       F-5
<PAGE>

                   XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                  March 15, 1990
                                                                                               (date of inception)
                                                                     Year ended December 31,      to December 31,
                                                                  ----------------------------------------------
                                                                      2001             2000             2001
                                                                      ----             ----             ----

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                               <C>              <C>              <C>
    Net loss                                                      $ (1,744,000)    $ (1,971,000)    $(36,208,000)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
      Depreciation                                                     145,000          132,000          969,000
      Amortization                                                      68,000           68,000          741,000
      Non-cash expenses in connection
        with issuance of debt and equity securities                    581,000          700,000       17,514,000
      Write down of inventories                                        133,000               --        1,339,000
      Write down of patents                                                 --               --          517,000
      Loss on investment in related party                                   --               --           89,000

    Changes in operating assets and liabilities
      (Increase) decrease in:
        Accounts receivable- Net Operating Loss                       (452,000)              --         (452,000)
        Accounts receivable- Miscellaneous                             (47,000)          (2,000)         (62,000)
        Inventories                                                     (3,000)           2,000       (1,335,000)
        Prepaid expenses and other current assets                        5,000            5,000          127,000
        Other                                                            5,000           10,000          (15,000)
      Increase (decrease) in:
        Accounts payable                                               207,000           95,000          980,000
        Other current liabilities                                      (86,000)         120,000           30,000
        Accrued expenses                                               136,000           45,000          583,000
                                                                  ----------------------------------------------
NET CASH FLOWS USED IN OPERATING ACTIVITIES                       $ (1,052,000)    $   (796,000)    $(15,183,000)
                                                                  ----------------------------------------------
</TABLE>

See notes to consolidated financial statements

                                       F-6
<PAGE>

                   XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (continued)
<TABLE>
<CAPTION>
                                                                                                  March 15, 1990
                                                                                               (date of inception)
                                                                     Year ended December 31,      to December 31,
                                                                  ----------------------------------------------
                                                                      2001             2000             2001
                                                                      ----             ----             ----

<S>                                                               <C>              <C>              <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES                          $ (1,052,000)    $   (796,000)    $(15,183,000)
                                                                  ----------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Patent issuance costs                                                   --               --         (548,000)
    Purchases of equipment and leasehold improvements                  (85,000)         (20,000)      (2,080,000)
    Investment in related party                                             --               --          (23,000)
    Other                                                                   --               --           (8,000)
                                                                  ----------------------------------------------

NET CASH FLOWS FROM INVESTING ACTIVITIES:                              (85,000)         (20,000)      (2,659,000)
                                                                  ----------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from related party loans                                  205,000           97,000        1,960,000
    Proceeds from notes payable - others                                    --               --          628,000
    Proceeds from short term loans                                     938,000          226,000        4,111,000
    Capital contribution                                                    --               --           95,000
    Payments on interim loans                                               --               --         (498,000)
    Payments on notes payable - others                                      --               --         (525,000)
    Payments on stockholder loans                                           --               --         (572,000)
    Proceeds from issuance of capital stock
     & exercising stock options                                          6,000           90,000       12,884,000
                                                                  ----------------------------------------------

    NET CASH FLOWS FROM FINANCING ACTIVITIES:                        1,149,000          413,000       18,083,000
                                                                  ----------------------------------------------

    NET CHANGE IN CASH                                                  12,000         (403,000)         241,000
CASH, BEGINNING OF PERIOD                                              229,000          632,000               --
                                                                  ----------------------------------------------
CASH, END OF PERIOD                                               $    241,000     $    229,000     $    241,000
                                                                  ==============================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the periods for:
      Interest paid - related party                               $     36,000     $     50,000     $    224,000
                                                                  ==============================================
      Interest paid - other                                       $      6,000     $         --     $    167,818
                                                                  ==============================================

NONCASH FINANCING ACTIVITIES
   Net assets of Xechem India contributed to capital
    and minority interest                                         $         --     $         --     $    118,000
                                                                  ==============================================

   Liabilities exchanged for preferred and common stock           $     69,000     $    186,000     $  1,176,000
                                                                  ==============================================
</TABLE>

See notes to consolidated financial statements

                                       F-7
<PAGE>

XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

NOTE 1    NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF THE BUSINESS
----------------------

We are engaged in one business segment, the research and technology  development
of generic and proprietary drugs from natural sources.  Research and development
efforts  focus  principally  on  antifungal,  anticancer,  antiviral  (including
anti-AIDS)  and  anti-inflammatory  compounds,  as well as antiaging  and memory
enhancing  compounds.  We are  particularly  committed to developing  drugs from
sources  derived from Chinese and Indian  folklore and niche generic  anticancer
drugs developed by fermentation or from other natural  processes.  Additionally,
we provide technical and analytical laboratory services including the testing of
chemicals,  cosmetics, food, household and pharmaceutical products on a contract
basis.  We also provide  consulting  services for  development  and  pilot-plant
production  of  pharmaceuticals  for  companies  on a  contract  basis.  We also
developed  and market a natural  food and dietary  supplement  line of products.
Operations  from  inception  have  consisted  primarily of  financial  planning,
raising capital, and research and development activities;  minimal revenues have
been earned to date.

PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include  the  accounts  of  Xechem  International,  Inc.  and  its  wholly-owned
subsidiaries,  Xechem, Inc., Xechem Laboratories,  Inc. and XetaPharm, Inc., and
Xechem (India) Pvt. Ltd. which is  substantially  owned by Xechem  (collectively
the "Company").  All intercompany transactions and balances have been eliminated
in consolidation.

We own 45% of Xechem China  ("China").  Xechem's  investment in China is carried
under the equity method of accounting. See Note 8.

REVENUE  RECOGNITION - We record revenue when all contracted  services have been
performed or when products have been shipped to the customer.

FINANCIAL INSTRUMENTS - Financial instruments include cash, accounts receivable,
notes and loans payable,  the fair value of such  instruments  approximates  the
carrying value. The amounts reported for financial instruments are considered to
be  reasonable  approximations  of  their  fair  values,  based  on  information
available to  management.  The use of different  assumptions  and/or  estimation
methodologies could have a material effect on the estimated fair value amounts.

CASH - We consider all highly liquid  investments  with an original  maturity of
three  months or less to be cash  equivalents.  At  December  31, 2001 and 2000,
Xechem  had no  cash  equivalents.  Xechem  maintains  cash  balances  at  three
different financial institutions in New Jersey. At December 31, 2001 we had over
$226,000  in one  account,  which is insured by the  Federal  Deposit  Insurance
Corporation up to $100,000.

ACCOUNTS  RECEIVABLE - We were due, as of December 31, 2001,  $452,000  from the
sale of a portion of our approved tax  credits,  associated  with our New Jersey
net operating losses, to a major New Jersey Corporation. This money was received
in full in January of 2002.

                                       F-8
<PAGE>

At December 31, 2001 we have a $40,000  receivable from Consumers Choice Systems
Inc.,  a  west  coast  company   engaged  in  the  sales  and   distribution  of
nutraceutical  and  pharmaceutical  products.  To date we have not  received any
payments from this company,  but we may negotiate to acquire an equity  position
with them in lieu of the debt owed to us.  This  company is in part  financed by
one of our major investors. See Note 12 - Loan to Consumers Choice

INVENTORIES  -  Inventories  are  stated  at the  lower  of cost on a  first-in,
first-out  basis or  market.  Inventories  at  December  31,  2001 and 2000 were
principally comprised of raw materials and finished goods of XetaPharm's dietary
supplement products. At year-end of 2001 due to uncertainty of realization,  the
entire finished goods inventory for Xetapharm was fully reserved.

LONG-LIVED  ASSETS - Long-lived  assets,  if impaired,  are written down to fair
value,  if  lower  then  the  carrying  cost,  whenever  events  or  changes  in
circumstances  indicate  that  the  carrying  amount  of the  asset  may  not be
recoverable.   Management  also  reevaluates  the  periods  of  amortization  of
long-lived assets to determine whether events and circumstances  warrant revised
estimates of useful lives.

FOREIGN  CURRENCY  TRANSLATION - The  consolidated  financial  statements of the
foreign  affiliates have been  translated at current  exchange rates for balance
sheet  items and at average  rates for income and expense  items.  The effect of
foreign  currency  translation  is included in the  consolidated  statements  of
operations,  as the  effects  are  not  material.  Transaction  adjustments  are
included in income.

DEPRECIATION AND AMORTIZATION - Depreciation and amortization are provided using
the straight-line method over estimated lives of 5 to 15 years. Depreciation and
amortization  expense for  equipment and  leasehold  improvements  for the years
ended  December  31,  2001 and  2000 was  approximately  $209,000  and  $202,000
respectively.

PATENTS - The cost of patents is charged to cost of operations when incurred, as
no value is assigned to the patents due to the  uncertainty  of  realization  of
value.

GOVERNMENT  GRANTS - We have obtained a grant from the National Cancer Institute
for a project entitled  Bioactive  Natural  Products from Marine  Extremophiles,
which was  substantially  completed in 2000 and  finalized  in 2001.  Government
grants are  recognized as income as the related costs are incurred.  No cash was
received in 2001.

RESEARCH AND  DEVELOPMENT  COSTS -  Expenditures  for  research and  development
activities are charged to operations as incurred.

STOCK-BASED  COMPENSATION - We recognize  compensation expense when the exercise
price of  employee  stock  options is below the market  price of the  underlying
stock on the date of grant ("intrinsic value method").  However, with respect to
common stock and options  granted to  non-employees,  we record expense equal to
the fair  value of the common  stock or option on the  measurement  date,  which
generally  is the date of  completion  of  service.  Expenses  relating  to such
options or stock are  estimated  based upon the fair value as of the end of each
reporting period prior to the measurement date.

INCOME TAXES - Income taxes are provided based on the asset and liability method
of accounting pursuant to Statement of Financial  Accounting  Standards ("SFAS")
No. 109,  "Accounting  for Income Taxes." Prior to the  consummation of Xechem's
initial public offering (in May 1994), we were an "S" corporation  and, as such,
losses  incurred  from the date of inception to April 26, 1994 are not available
to us as tax loss carryforwards.

ESTIMATES - In preparing  financial  statements  in  conformity  with  generally
accepted  accounting  principles  management  is required to make  estimates and
assumptions that affect the reported

                                       F-9
<PAGE>

amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

EARNINGS  (LOSS)  PER SHARE - Basic  earnings  (loss) per share is  computed  by
dividing income (loss) available to common stockholders by the  weighted-average
number of common shares outstanding for the period.  Diluted earnings (loss)/per
share is computed by  dividing  the loss for the period by the  weighted-average
number of common and preferred  shares  outstanding  for the period adjusted for
the diluted effect of any potential common stock issuable during the period. The
shares  issuable  upon  the  exercise  of  outstanding  warrants,   options  and
convertible   debentures   have  been   excluded   since  the  effect  would  be
antidilutive, due to net losses for all periods presented.  Accordingly, diluted
loss per share is the same as basic loss per share for all periods reported.

     NEW  ACCOUNTING  STANDARDS NOT YET ADOPTED -On July 20, 2001, the Financial
Accounting  Standards  Board ("FASB") issued  Statement of Financial  Accounting
Standards No. 141 ("SFAS No. 141"),  "Business  Combinations,"  and Statement of
Financial  Accounting  Standards  No.  142  ("SFAS  No.  142"),   "Goodwill  and
Intangible  Assets."  SFAS No. 141 is effective  for all  business  combinations
completed  after June 30,  2001.  SFAS No.  142 is  effective  for fiscal  years
beginning after December 15, 2001; however, certain provisions of this Statement
apply to goodwill and other intangible  assets acquired between July 1, 2001 and
the effective  date of SFAS No. 142.  Major  provisions of these  Statements and
their effective dates for Xechem are as follows:

     -    All business  combinations  initiated after June 30, 2001 must use the
          purchase  method of  accounting.  The  pooling-of-interests  method of
          accounting is prohibited except for transactions initiated before July
          1, 2001.

     -    Intangible assets acquired in a business  combination must be recorded
          separately from goodwill if they arise from contractual or other legal
          rights or are  separable  from the  acquired  entity  and can be sold,
          transferred,  licensed, rented or exchanged, either individually or as
          part of a related contract, asset or liability.

     -    Goodwill, as well as intangible assets with indefinite lives, acquired
          after June 30, 2001, will not be amortized. Effective January 1, 2002,
          all  previously   recognized   goodwill  and  intangible  assets  with
          indefinite lives would no longer be subject to amortization.

     -    Effective  January  1,  2002,  goodwill  and  intangible  assets  with
          indefinite  lives will be tested for impairment  annually and whenever
          there is an impairment indicator.

     -    All acquired goodwill must be assigned to reporting units for purposes
          of impairment testing and segment reporting.

     In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144  ("SFAS  No.  144"),  "Accounting  for the  Impairment  or  Disposal  of
Long-Lived  Assets." This Statement is effective for the fiscal years  beginning
after  December  15,  2001.  This  Statement  supersedes  Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of
Long-Lived  Assets and for Long-Lived Assets to be Disposed Of," while retaining
many of the requirements of such statement.

Although it is still reviewing the provisions of these Statements,  management's
preliminary  assessment is that these Statements will not have a material impact
on Xechem's financial position or results of operations.

                                      F-10
<PAGE>

RECLASSIFICATIONS-Certain reclassifications to prior years' financial statements
have been made to conform to the current presentation.

NOTE 2    OPERATING  AND  LIQUIDITY   DIFFICULTIES  AND  MANAGEMENT'S  PLANS  TO
          OVERCOME THEM:

The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. As shown in the
consolidated financial statements,  Xechem has incurred net losses for the years
ended December 31, 2001 and 2000; has a working  capital  deficiency at December
31, 2001; and has an accumulated deficit and cumulative negative cash flows from
operations since inception.  Xechem is in the development stage and has realized
minimal revenues to date. Xechem's research and development activities are at an
early stage and the time and money required to develop the commercial  value and
marketability  of Xechem's  proposed  products  cannot be reasonably  estimated.
Xechem  expects  research  and  development  activities  to  continue to require
significant  cash  expenditures for an indefinite  period in the future.  All of
these factors raise substantial doubt about the ability of Xechem to continue as
a going concern.

In view of the matters described in the previous paragraph,  recoverability of a
major portion of the recorded  asset amounts shown in the  accompanying  balance
sheet is dependent  upon  continued  operations of Xechem,  which,  in turn, are
dependent  upon  Xechem's  ability  to  meet  its  financing  requirements  on a
continuous  basis  and  to  succeed  in its  future  operations.  The  financial
statements do not include any  adjustments  relating to the  recoverability  and
classification of recorded asset amounts or amounts of liabilities that might be
necessary should Xechem be unable to continue in existence.

MANAGEMENT'S PLANS WITH RESPECT TO THIS SITUATION INCLUDE THE FOLLOWING:

We have financed research and development activities principally through capital
contributions and loans made by our stockholders and other investors, banks, and
through funds received from the sale of State of New Jersey NOL's (Net Operating
Losses) through the New Jersey State Tax Credit Transfer program.

During the year ended December 31, 2001 compared to the year ending December 31,
2000,  we  have   increased   administrative   expenses  and  our  monthly  cash
requirements.  For the year ending December 31, 2002 as its business development
activities increase we expect the following:

We expect to  continue  our  development  efforts  with  respect to  antifungal,
anticancer,  antiviral (including anti-AIDS) and anti-inflammatory compounds, as
well as  antiaging  and memory  enhancing  compounds.  Although we do not expect
product   revenues  from  these  sources  in  2002,  we  anticipate  that  these
development  activities  may  allow us to enter  into more  favorable  licensing
and/or investment arrangements.

We plan to receive,  as in the past,  financing from cash advances,  convertible
debentures  and loans from private  investors and  affiliates of ours, and defer
payment of certain expenses payable to officers of Xechem.

We are  attempting  to raise  outside  financing  through the issuance of equity
securities or other instruments, although no agreements are currently in place.

                                      F-11
<PAGE>

In addition we have issued, and plan to continue issuing equity securities where
possible to obtain  services,  without  expending cash. We also plan to continue
receiving cash from the sale of our New Jersey net operating loss carryforward.

NOTE 3    INCOME TAXES

     We have not provided for income taxes since we have generated net operating
losses for current tax  purposes,  and all  deferred  tax assets have been fully
reserved.  As of December 31, 2001 Xechem had net operating  loss  carryforwards
("NOL") for federal income tax purposes of approximately $20.5 million,  which a
portion of the NOL begins to expire in 2009 and fully expires in 2021. As Xechem
continues to sell stock, Xechem may undergo ownership changes within the meaning
of Section 382 of the Internal  Revenue  Code of 1986 as amended  (the  "Code").
Internal  Revenue  Code Section 382 places a limitation  on the  utilization  of
Federal net operating  losses and other credit  carryforwards  when an ownership
change, as defined by the tax law, occurs. Generally, this occurs when a greater
than 50 percent change in ownership occurs. Accordingly,  the actual utilization
of the net operating  loss  carryforward  and other  deferred tax assets for tax
purposes may be limited  annually to the  percentage  (approximately  6%) of the
fair market value of the Company at he time of any such ownership changes.

As of December 31, 2001 and 2000 we have a deferred  tax asset of  approximately
$7.0 million and $6.3 million, primarily arisen out of our Net Operating Losses,
and  writedowns of inventory and other assets,  a full  valuation  allowance has
been provided due to the uncertainty of realization.

As of December 31, 2001 we have received  approval from the New Jersey  Economic
Development  Authority  ("NJEDA") to sell  approximately  $519,000 of a total of
$766,000 of tax  benefits  generated  from NOL's.  Under the terms of this NJEDA
program,  the  proceeds  of the sale had to be used  for the  purchase  of fixed
assets,  working capital and any other expenses determined by the NJEDA to be in
conformity with the New Jersey Emerging  Technology and Biotechnology  Financial
Assistance Act. During 2001 and 2000,  Xechem and its  subsidiaries  transferred
the tax  benefits of $519,000 and $300,000 in exchange for $452,000 and $249,000
respectively,  pursuant to the New Jersey State Tax Credit Transfer program.  We
received  $452,000  pursuant to this  program in January 2002 and such amount is
reflected in current assets at December 31, 2001.

                                      F-12
<PAGE>

Since 1994, the Company has  approximate  net operating loss  carryforwards  for
Federal income tax purposes as follows:

                         Amount                 Expiration Date
                         ------                 ---------------
                       $3,170,000                    2009
                        3,183,000                    2010
                        3,218,000                    2011
                        3,762,000                    2012
                        1,992,000                    2018
                        2,257,000                    2019
                        1,863,000                    2020
                        1,100,000                    2021

NOTE 4    RELATED PARTY TRANSACTIONS

NOTES PAYABLE - Xechem owes Dr.  Pandey,  Chairman of the Board,  $721,000 as of
December 31, 2001 from an interest  bearing advance  ($269,000) at 10% per annum
and the note will be due when Xechem is no longer a development entity,  accrued
interest  ($157,000),  accrued salary ($261,000) and accrued expenses ($34,000).
At December 31, 2000,  Xechem owed Dr. Pandey  $615,000.  Xechem also has a note
payable to Dr. Renuka Misra, director of Natural Products, for $298,300 with 12%
annual  interest due September 20, 2002.  Interest  expense for related  parties
totaled  $63,000 and $66,000  for the years  ended  December  31, 2001 and 2000,
respectively,  related to these notes.  Xechem has received funding from Beverly
Robbins, a sales and marketing  representative  totaling $198,000 as of December
31, 2001. There is also a $20,000 loan, bearing interest of 8% per annum, due to
Dr. Bhairab Pandey, a research scientist of ours, as of December 31, 2001.

XECHEM CHINA - Xechem has received  $140,000  during the year ended December 31,
2000 from Xechem China pursuant to an interest free loan. Although an additional
$340,000 was due Xechem under the original loan terms,  no amounts were received
in 2001 and it is unlikely any  additional  amounts  will be received.  The loan
advanced  by Xechem  China  shall be  repaid  by Xechem  out of its share in the
dividends or distribution of Xechem China. Since Xechem-China had no activity in
2001  and no  foreseeable  profits  in the  near  future  there  will not be any
short-term repayment to Xechem-China.

XECHEM INDIA - Xechem  currently  receives its supplies of plant  extracts  from
India through informal collaborative relationships.  Dr. Pandey and his brothers
had incorporated a corporation in India ("Xechem India"),  which was established
to formalize such relationships by obtaining  contracts for dependable  supplies
of plants and other raw materials.  Based on its discussions with Indian sources
for such materials, Xechem believed that an Indian corporation would obtain such
contracts  on  significantly  better  terms  than  would a  United  States-based
corporation. Xechem India may also conduct certain research,  manufacturing, and
marketing  activities in India. In 1998, as a contribution to Xechem's  capital,
Dr.  Pandey  transferred  his 66-2/3%  interest in Xechem India to Xechem for no
consideration  other than  reimbursement  of amounts  Dr.  Pandey  advanced  for
organizational  expenses  (approximately  $5,000).  Dr.  Pandey's  brothers will
initially own the remaining equity in Xechem India,  some or all of which Xechem
anticipates  will be made available to other,  unrelated,  persons in India. The
minority interest in Xechem India is not material.

LEASES - Dr.  Pandey  owns 25% of the  lessor  of our  operating  facility  as a
limited partner (See Note 5).

                                      F-13
<PAGE>

NOTE 5    COMMITMENTS AND CONTINGENCIES

EMPLOYMENT CONTRACTS

Dr.  Pandey is  employed  pursuant to  Agreements  through  February  2005 which
provide  for a salary of  $140,000 a year  commencing  July 1, 1992,  subject to
annual  increases in proportion to the increase in the consumer price index.  In
addition a royalty  payment is due Dr.  Pandey or his estate or designees in the
amount of 2-1/2% of Xechem's  net profits  before  taxes,  as  determined  under
generally accepted accounting principles, with respect to any products developed
by Xechem during Dr.  Pandey's tenure with us whether prior to or after the term
of the Employment Agreement. This royalty will continue to be paid to Dr. Pandey
and/or  his  successors  so  long  as any  such  products  are  sold  by  Xechem
(regardless of whether Dr. Pandey is actually  employed by Xechem at the time of
such sale).  Further Dr.  Pandey will receive a severance  payment  equal to his
remaining compensation under the Agreements if his services are terminated.  Dr.
Pandey is also entitled to purchase voting stock equal to 20% of the outstanding
voting stock,  and  accordingly  we issued  options to acquire 2,232 and 100,000
additional  Class  C  shares  Series  5 and 6 to Dr.  Pandey  in 2001  and  2000
respectively  with voting  rights equal to 22,320,000  and  42,259,000 of common
stock respectively.

Dr. Pandey has agreed to defer a portion of  compensation  otherwise  payable to
him under these agreements until such time as Xechem has the available funds. At
December 31, 2001 unpaid compensation totaled $261,000.

LEASES - Xechem  leases its  facilities  under an operating  lease that began in
April 1991 and expires on September  30, 2005. In 1996,  Dr. Pandey  purchased a
25%  beneficial  ownership  in the lessor as a limited  partner in such  entity,
which may be deemed to be an affiliate of Dr. Pandey.  The lease provides Xechem
with renewal options for two additional  five-year  periods.  Rent expense under
the operating lease amounted to approximately $94,000 and $105,000 for the years
ended December 31, 2001 and 2000,  respectively.  At December 31, 2001 and 2000,
Xechem owes rental payments to the lessor totaling approximately $80,000.

We are currently in arrears to our landlord and we are occupying more space then
is stated in our current lease. Presently we are in the process of renegotiating
the lease to rectify the issue regarding  uncharged space and to extend the term
of the lease. We do not foresee any major problems with finalizing the new lease
in a timely fashion.

Xechem has two equipment  leases  outstanding as of December 31, 2001. The first
lease is owed to Avaya  Financial  Services  for our phone system  upgrade;  the
lease is for thirty-six (36) monthly payments totaling $12,485. The second lease
is a simple  equipment  lease with  Citicorp  Vendor  Finance,  Inc. for our new
Konica Copier with sixty monthly payments  totaling  $28,493.  The first payment
under both leases was made in January 2002.

In August of 2001 Dr.  Pandey  entered  into a new 36-month car lease with GMAC,
payable by Xechem.  As of December 31, 2001 we had a liability of  approximately
$22,600 due in equal monthly payments of $729.

PURCHASE  COMMITMENTS - In September 1994, Xechem entered into an agreement with
Guizhou Fanya  Pharmaceutical  Co., Ltd.  ("Guizhou"),  a Chinese  company,  for
Guizhou to supply to Xechem  partially  processed  raw material for  paclitaxel.
This purchase of the raw material by Xechem was contingent  upon Guizhou meeting
specific  contractual  criteria  which were met in 1995 and the  purchases  were
consummated in 1997 and 1996, resulting in a substantial outlay of cash.

                                      F-14
<PAGE>

Xechem has bought all of its crude paclitaxel from Guizhou. Although there are a
limited number of suppliers of these materials,  Xechem has come to an agreement
with a second  supplier and is  negotiating  with a third supplier on comparable
terms  to  assure  there  is no delay in  manufacturing.  In 2001 and  2000,  no
purchases of paclitaxel were made.

LICENSE  AGREEMENT - In August 1997,  Xechem  entered  into a license  agreement
granting it exclusive  worldwide rights to a novel  formulation  (patent pending
for the delivery of paclitaxel developed by the University of Texas MD. Anderson
Cancer Center,  ("M.D.  Anderson") in collaboration with Xechem. Xechem will pay
royalties to M.D.  Anderson on net sales and future minimum annual  royalties as
follows, after the beginning of licensed sales, as follows:

                      1st Year                    $25,000
                      2nd Year                     35,000
                      3rd Year                     45,000
    Each year for 17 years thereafter              50,000

To date Xechem has not generated any sales with respect to the agreement, and no
royalties were paid.

Xechem is  currently  in  litigation  with M.D.  Anderson  with  respect to M.D.
Anderson's desire to terminate the License Agreement on the basis that Xechem is
"insolvent", which Xechem believes is not correct due to the fact that Xechem is
still operating and has met all of it's financial obligations to date concerning
M.D.  Anderson.  Xechem  believes that this  litigation will not have a material
effect on the financial condition of Xechem.

LOVASTATIN  AGREEMENT  - In March  1997,  Xechem  acquired a strain and  related
technology to produce Lovastatin for a total purchase price of $300,000, payable
$50,000 upon delivery,  $50,000 upon initial laboratory  verification,  $100,000
upon  additional  laboratory  verification  and  $100,000  upon the  earlier  of
commercial  production  or two years  after  delivery  of the strain and related
technology.  For accounting purposes, the payments have been considered research
and  development  expenses  incurred at the  earliest  date to which they become
payable.  Through  December 31,  1998, a total of $200,000 has been  recorded as
research and development  expense,  of which $100,000 has been paid and $100,000
is included in accounts payable at December 31, 2000 and 1999. There has been no
activity in 2000 or 2001 but Xechem intends to continue with the agreement.

NOTE 6    STOCK OPTIONS :

Xechem's Stock Option Plan provides for the grant of up to 25,000,000  shares of
Common  Stock  to  employees   with   incentive   stock  options   ("ISOs")  and
non-qualified stock options to employees, consultants and directors. The Plan is
administered by the Board of Directors and the stock option committee.

The exercise  price of all ISOs granted under the Plan must be at least equal to
the fair  market  value of the shares of Common  Stock on the date of the grant.
With respect to any participant  who owns stock  possessing more than 10% of the
voting power of Xechem's  outstanding  capital stock,  the exercise price of any
ISO granted  must equal at least 110% of the fair market value on the grant date
and the  maximum  exercise  period of the ISO must not exceed  five  years.  The
exercise  period of any other  options  granted under the Plan may not exceed 11
years (10 years in the case of ISOs).  Options begin vesting after one year from
the grant date at a rate of 20% per year.  In December  1997,  an exception  was
made so that  780,000  options  granted on December  2, 1997 will begin  vesting
after one year from the grant date at a rate of 33 1/3% per year.  In July 2000,
an  exception  was made so that of the  13,200,000  options  granted on July 11,
2000, approximately one third (1/3) vested immediately and the balance will vest
equally one year and two years from the grant date.  In July 2001,  an exception
was  made  so  that  of  the  11,650,000   options  granted  on  July  9,  2001,
approximately  one third (1/3)  vested  immediately  and the  balance  will vest
equally one year and two years from the grant date.

                                      F-15
<PAGE>

The Plan will  terminate in December 2003, ten years after the date it was first
approved,  though awards made prior to  termination  may expire after that date,
depending on when granted.

     A summary of stock option  activity under the plan is as follows (shares in
thousands):

<TABLE>
<CAPTION>
                                                        2001                             2000
                                                      --------                         --------
                                                      Weighted-                        Weighted-
                                                      ---------                        ---------
                                                      Average                          Average
                                                      -------                          -------
                                      Shares       Exercise Price      Shares       Exercise Price
                                      ------       --------------      ------       --------------
<S>                    <C>             <C>            <C>                <C>           <C>
OUTSTANDING ON JANUARY 1,              12,024         $   0.04           1,516         $   0.14

Granted                                11,650         $  0.014          13,200         $   0.03
Exercised                                (450)        $  0.010          (1,326)        $   0.01
Forfeited/Expired                        (305)        $  0.015          (1,366)        $   0.02
                                     --------         --------        --------         --------

  OUTSTANDING ON DECEMBER 31,          22,919         $  0.025          12,024         $   0.04
                                     ========         ========        ========         ========

  EXERCISABLE ON DECEMBER 31,          12,910         $  0.026           4,682         $   0.04
                                     ========         ========        ========         ========
</TABLE>

The following table summarizes  information  about stock options at December 31,
2001 (shares in thousands):

<TABLE>
<CAPTION>
                             Outstanding Stock Options              Exercisable Stock Options
                             -------------------------              -------------------------
                                     Weighted-
                                     ---------
                                     Average         Weighted
                                     -------         --------
  Range of                           Remaining       Average                     Weighted-Average
  --------                           ---------       -------                     ----------------
Exercise Prices       Shares     Contractual Life Exercise Price      Shares      Exercise Price
---------------       ------     ---------------- --------------      ------      --------------

<S>                  <C>             <C>             <C>             <C>             <C>
$0.01 to 0.34          22,774             9.8        $   0.02          12,765        $  0.017
$0.66 to 5.00             145             5.9        $   0.81             145        $   0.81
                     --------        --------        --------        --------        --------

     Totals            22,919             9.8        $  0.025          12,910        $  0.026
     ------          ========        ========        ========        ========        ========
</TABLE>

Compensation  cost for the stock option plans has been  determined  based on the
fair  value at the grant  dates for awards  under the plan,  which  resulted  in
approximately  a $199,000 in 2001 and a $267,000  charge in 2000 with additional
charges of approximately $284,000 scheduled in the next two years which has been
recorded as unearned compensation in the accompanying financial statements.

The fair value of certain  option grants is estimated on the date of grant using
the  Black-Scholes  option-pricing  model  with the  following  weighted-average
assumptions used for grants in 2001 and 2000,  respectively;  dividend yields of
0% for each year, expected volatility of approximately 122 % in 2001 and 210% in
2000,  risk-free interest rates of 5.63 percent for each year and expected lives
of 10 years for both years. The  weighted-average  fair value of options granted
was 117,000 and  113,000 for the each of the years ended  December  31, 2001 and
2000 respectively.

                                      F-16
<PAGE>

Had  compensation  cost for the stock option plans been determined  based on the
fair value at the grant dates for awards  under the plans,  consistent  with the
alternative method set forth under Statement of Financial  Accounting  Standards
("SFAS") No. 123, "Accounting for Stock-Based  Compensation," Xechem's pro forma
net loss and pro forma net loss per share would have been as follows:

                                                     Year Ended December 31,
                                                  -----------------------------
                                                     2001               2000
                                                     ----               ----

Net Loss:
     As Reported                                  $   (1,744)        $   (1,971)
     Pro Forma                                    $   (2,480)        $   (2,298)
Net Loss Per Share:
     As Reported                                  $    (0.01)        $    (0.01)
     Pro Forma                                    $    (0.01)        $    (0.01)

In 2001,  11,650,000 options were granted to employees,  directors,  consultants
and attorneys as incentives and bonuses. We recognized a charge to operations in
2001 of  $199,000  relating to the  issuance of these stock  options and options
issued in prior years.

NOTE 7    COMMON AND PREFERRED STOCK:

The largest shareholder of our stock is Ramesh C. Pandey Ph.D.,  Chairman of the
Board of Xechem International Inc.

David  Blech,  an outside  investor  ("Blech"),  his wife and the trustee of the
Harbor Trust (formally known as the Edward A. Blech Trust) granted to Dr. Pandey
an irrevocable proxy to vote all of the shares under his control.

In 1999 Blech and Dr.  Pandey  agreed to amend those  portions of a  stockholder
agreement as to which they are parties. Specifically,  Blech and Dr. Pandey have
amended this agreement to: (i) eliminate the  prohibition  against Dr.  Pandey's
sale of any shares of Company  capital  stock for five years except with Blech's
consent;  (ii) eliminate  Blech's right to sell his prorata portion (relative to
the holdings of Dr. Pandey) of any proposed sale of shares by Dr. Pandey,  and a
reciprocal  right in favor of Dr.  Pandey  to sell his  prorata  portion  of any
shares sold by Blech;  (iii) eliminate the  requirement  that Blech vote for Dr.
Pandey as a director of the  Company,  and to use his best  efforts to cause Dr.
Pandey to remain Chairman, President and Chief Executive Officer of the Company;
and (iv) eliminate the requirement  that the Company and its directors  (subject
to their fiduciary duties to the Company and the shareholders of the Company) to
take such  actions as Blech may request to elect his  nominees to  constitute  a
majority of the directors of the Company.

Xechem  recognized a charge to  operations of $72,000 and $107,000 for the years
ended  December  31,  2001 and 2000,  respectively,  for shares of common  stock
issued to consultants.

                                      F-17
<PAGE>

The  following  table  summarizes  the  number of  shares  of  common  stock and
preferred stock outstanding at December 31, 2001 and 2000:

--------------------------------------------------------------------------------
                                         DECEMBER 31, 2001     DECEMBER 31, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
COMMON STOCK                             378,841,000           344,537,000
--------------------------------------------------------------------------------
CLASS A VOTING PREFERRED STOCK           2,500                 2,500
--------------------------------------------------------------------------------
CLASS B PREFERRED STOCK                  0                     0
--------------------------------------------------------------------------------
CLASS C  - SERIES 6 PREFERRED STOCK      2,232                 0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

CLASS A VOTING PREFERRED STOCK - There are currently outstanding 2,500 shares of
Class A Preferred  Stock.  The holder of Class A Preferred  Stock is entitled to
receive  dividends of $.00001 per share,  and $.00001 per share in  liquidation,
before any dividends or distributions on liquidation,  respectively, may be paid
to the holders of Common  Stock.  The holder of the Class A  Preferred  Stock is
entitled to cast 1,000 votes per share except as may be required by the Delaware
General  Corporation Law, and except that the affirmative vote or consent of the
holders of a majority of the outstanding  Class A Preferred Stock is required to
approve  any  action to  increase  the  number of  authorized  shares of Class A
Preferred Stock, to amend,  alter, or repeal any of the preferences of the Class
A Preferred Stock, or to authorize any reclassification of the Class A Preferred
Stock. Dr. Pandey owns all of the outstanding  Class A Preferred  Stock.  Xechem
may redeem the Class A  Preferred  Stock for $.00001 per share at any time after
May 3, 2009, however,  pursuant to the private offering of Xechem's Common Stock
in 1995 and 1996, Dr. Pandey agreed with the  underwriter to waive the option to
redeem the Class A Preferred  Stock. As of December 31, 2001 Dr. Pandey is still
the holder of record.

CLASS B 8% PREFERRED  STOCK - The 8% Preferred  Stock is entitled to  cumulative
dividends on the  liquidation  preference  at the rate of 8% per annum,  payable
quarterly.  The 8% Preferred  Stock may be redeemed at any time,  in whole or in
part,  at the option of Xechem for a redemption  price equal to the  liquidation
preference  plus accrued and unpaid  dividends.  After the fifth  anniversary of
issuance,  the  holders of 8%  Preferred  Stock may,  at each  holder's  option,
convert such 8% Preferred Stock into Common Stock at a conversion price equal to
$5.00 per share;  provided  that if a change in control has occurred such shares
may be converted,  regardless of whether five years have elapsed at a conversion
price equal to the least of (I) $5.00, (II) 25% of the then-current market price
of the Common  Stock or (III) the  lowest  price  paid by the  hostile  acquirer
within the one year preceding the change in control.  The 8% Preferred Stock has
no voting rights except for corporate actions such as mergers, consolidation, or
sales of  substantially  all the  assets  of  Xechem,  which  will  require  the
affirmative  vote or consent of the  holders or  majority  of such  shares,  and
except as may be required by law.

CLASS C PREFERRED  STOCK - Xechem's  Board of  Directors  may,  without  further
action by Xechem's stockholders,  from time to time, issue shares of the Class C
Preferred  Stock in  series  and may,  at the time of  issuance,  determine  the
rights, preferences,  and limitations of each series. Any dividend preference of
any Class C Preferred  Stock,  which may be issued,  would  reduce the amount of
funds available for the payment dividends on Common Stock.  Also, holders of the
Class C  Preferred  Stock would  normally  be  entitled to receive a  preference
payment in the event of any  liquidation,  dissolution,  or winding-up of Xechem
before  any  payment  is made to the  holders  of  Common  Stock.  The  Board of
Directors  of  Xechem,  without  stockholder  approval,  may  issue  the Class C
Preferred Stock with voting and conversion rights,  which could adversely affect
the holders of Common Stock.

On July 9, 2001 we  authorized  the  creation  of a Class C,  Series 6 Preferred
Voting Stock, par value $0.00001 per share,  consisting of 10,000 shares thereof
with each share of Class C,  Series 6 Preferred  Voting  Stock to be entitled to
10,000 votes and to vote as a class  together  with Common  Stock.  We have also
granted a five (5) year option to Dr.  Pandey to purchase up to 2,232  shares of
Class C, Series 6 Preferred Voting Stock,  $0.00001 per share, which are part of
the options granted to Dr. Pandey by resolution of the Board of Directors at its
meeting  held on August 18, 1999,  as amended by the Board of  Directors  today.
This option was exercised in October of 2001.

                                      F-18
<PAGE>

NOTE 8 - XECHEM CHINA JOINT VENTURE

On  April  4,  2000,  Xechem  signed  a  joint  venture  agreement  with  J  & M
Consultants,  Ltd.  ("J & M") to  establish  Xechem  Pharmaceutical  China  Ltd.
(Xechem  China)  with  offices in Hong Kong and  Beijing,  People's  Republic of
China.  Xechem China is owned 45% by Xechem and 55% by J & M  Consultants,  Ltd.
The  purpose  of  establishing  Xechem  China  was to carry on the  business  of
manufacturing,  marketing  and  distributing  pharmaceutical  and  nutraceutical
products.  Xechem  China will also  carry out  research,  development,  clinical
studies and  production  of new drugs based on  Xechem's  technology  related to
traditional Chinese medicine and other disciplines,  provide consulting services
for drug development and set up a certified laboratory in, the People's Republic
of China to screen, verify and certify pharmaceutical products for the public.

Xechem has not made an investment  in cash or by transfer of recorded  assets to
Xechem  China,  and  accordingly,  there is no amount  reflected  on the balance
sheets of Xechem at  December  31, 2001 and  December  31,  2000.  Xechem has no
obligation to fund any loses or commitments of Xechem-China.

During  the  second  quarter  of  2001  Xechem  Pharmaceutical  China  Ltd.  has
temporarily ceased active operations, due to Xechem-China's president and C.E.O.
having to devote his full attention to his other holdings.  Xechem feels this is
a  temporary   situation  and  will  not  hinder  Xechem's   present  or  future
involvements in the Asian Market. Xechem and its subsidiaries are still actively
pursuing other relationships.

NOTE 9 -  LOANS PAYABLE

Loans  payable at December 31, 2001 and 2000 totaled  approximately  $54,000 and
$130,000, respectively. This loan has been collateralized by all tangible assets
including  receivables.  The o $54,000 loan  represents  borrowings  against a $
55,000 line-of-credit at interest rate of 6.75% as of December 31, 2001 from the
Bank of New  York as  compared  to  $30,000  in  borrowings  against  a $ 50,000
line-of-credit  at an  annual  rate of 11.5% for 2000 from the Bank of New York.
The $100,000  note from 2000 due to an  individual  with an interest rate of 10%
per annum was converted into Xechem's "Convertible  Debentures" -see Note 10- on
October 1, 2001 for an amount of $110,000, which included accrued interest.

NOTE 10 - CONVERTIBLE DEBENTURES

During 2001 Xechem filed a  Registration  Statement  under the Securities Act of
1933 registering  598,146,600  shares of Xechem  International Inc. common stock
with a per value of $ 0.00001 per share.

As of December 31, 2001 we have  $1,013,904 in  outstanding  debentures  bearing
interest at 8% and maturing in 2011.  At December  31,2001  there was $22,000 in
accrued interest relating to the debentures. After a series of modifications the
debentures,  are  convertible  into common stock using a  conversion  price of $
0.0015.  In  November  of 2001  debentures  totaling  $68,033 in  principal  and
interest  were  converted  into  27,213,333  shares  of  common  stock.  We have
recognized a charge to  operations  of  approximately  $216,000  relating to the
beneficial conversion feature and modifications thereof.

During the first quarter of 2002,  $108,000 of the debentures  with  accumulated
interest of $5,200 were converted into 82,568,008 shares of common stock.

                                      F-19
<PAGE>

Xechem  has  reserved  the right to repay  these  Debentures  in full or in part
without  penalty at any time.  Xechem must give  fifteen (15) days notice to the
payee of its intention to prepay.

NOTE 11 - SIGNIFICANT FOURTH QUARTER ADJUSTMENTS

During the fourth  quarter of fiscal 2000  Xechem  recorded  significant  fourth
quarter  adjustments related to the accounting for the issuance of stock options
to directors,  consultants and employees of Xechem as well as stock given out to
various  consultants of Xechem in exchange for their services  rendered.  Xechem
also recorded fourth quarter  adjustments  related to the beneficial  conversion
feature of  convertible  debt.  The  charges  for the above  items  approximated
$430,000,  of this amount  approximately  $325,000 relates to the third quarter.
Accordingly Xechem filed an amended 10Q for the period ended September 30, 2000.

NOTE 12 - LOAN TO CONSUMERS CHOICE

During  the fourth  quarter  of 2001 we loaned  Consumers  Choice  Systems  Inc.
("CCSI")  $40,000  under two equal notes with an interest rate of 10 % annually,
principal  and  interest  are  payable  within  one(1)  year.  These  loans were
facilitated  by one of our  major  investors  who also has a  relationship  with
Consumers Choice Systems Inc.

In the first quarter of 2002 we combined  these notes along with a prior note of
$ 40,000,  which was previously  fully reserved,  plus accrued  interest and new
borrowings of $75,000.  The new note receivable is for $162,487 at 12% annually,
with repayment in twelve equal  payments of $14,436.77  per month  commencing in
2002.  To date we have not received any payments.  We are currently  considering
negotiating a possible  conversion of some or of the entire note receivable into
equity in Consumers Choice Systems Inc.

NOTE 13 - EMPLOYEE BENEFIT PLAN

Effective August 1, 1997, the Company  established a defined  contribution  plan
qualified under Section 401(k) of the Internal Revenue Code. Any employee who is
at least eighteen  years of age and has completed  thirty days of employment may
enroll in the plan. Participants may contribute up to 12% of their compensation,
with an  average  contribution  of 7.5%,  up to a maximum of  $10,500.  Employer
contributions  are made up to 4% of the employee's  gross  compensation  with an
average  contribution  of 3.5%.  In 2001 and  2000,  respectively,  the  Company
contributed  approximately  $11,552.24 and $ 3,701.72 to the plan.  Participants
are  always  100%  vested in their  contributions  and  earnings.  The  employer
contributions  and  earnings  are  fully  vested  in  six  years  from  date  of
employement.

                                      F-20
<PAGE>

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

None

                                       35
<PAGE>

                                    PART III
                                    --------

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

     The names of the  directors  and  executive  officers  of Xechem  and their
respective ages and positions with Xechem are as follows:

NAME                                   AGE   POSITION WITH XECHEM
----                                   ---   --------------------

Dr. Ramesh C. Pandey (2)(3)(4) .....   63    Chief Executive Officer, President,
                                             Chairman of the Board of Directors,
                                             Secretary and Treasurer.

Stephen F. Burg (1)(2)(3)(4) .......   64    Director and Assistant Treasurer

Dr. Jed C. Goldart (1)(2)(3) .......   57    Director

Neil M. Kosterman ..................   55    Director

John P. Luther Esq .................   48    Director,  Vice  President, General
                                             Counsel,  Assistant  Secretary  and
                                             Assistant Treasurer

(1)  Member of Stock Option Committee.
(2)  Member of Compensation Committee.
(3)  Member of Audit Committee.
(4)  Member of Nominating committee

     All  directors  hold office  until their  successors  have been elected and
qualified or until their earlier  resignation or removal.  Directors are elected
annually and serve without remuneration for service as directors. Officers serve
at the discretion of the Board of Directors.  There are no family  relationships
among any of our directors or executive officers.

     RAMESH C.  PANDEY,  PH.D.,  is our  founder.  He has been  Chief  Executive
Officer and President and a director of Xechem Inc.  since its formation in 1990
and our  Chief  Executive  Officer,  President,  and  Chairman  of the  Board of
Directors  since our formation in February  1994.  From 1984 to March 1990,  Dr.
Pandey was the President  and Chief  Scientist of our  predecessor,  which was a
subsidiary of LyphoMed. Dr. Pandey served as a visiting Professor at the Waksman
Institute of  Microbiology  at Rutgers  University from 1984 to 1986. Dr. Pandey
has also served as  scientist,  consultant,  and research  associate for several
universities  and private  laboratories.  Dr. Pandey has  published  over eighty
articles in professional  publications  such as the Journal of Antibiotics,  the
Journal of the American Chemical Society, the Journal of Industrial Microbiology
and the Journal of Natural  Products.  Dr.  Pandey is a member of the  editorial
board of the Journal of Antibiotics and of several professional societies.

     STEPHEN F. BURG has been a director  since  1996.  Mr.  Burg has been chief
executive  officer of SB corporate  Consulting,  Inc.,  which  offers  corporate
growth   strategies   for  public  and   private   companies,   nationally   and
internationally.  From  1978 to 1986,  Mr.  Burg  was  Vice  President-Corporate
Acquisitions  for Evans  Products  Company  and from 1973 to 1978 was  Corporate
Director-Acquisitions  and Human Services for Jack August Enterprises.  Mr. Burg
serves as a consultant to various businesses.

     DR. JED C. GOLDART was elected a director in 2001.  Dr.  Goldart is a board
certified  psychiatrist  trained in public  health and  population  science.  He
received  his medical  education  at New York  University  Medical  School,  and
residency training in psychiatry at Psychiatric Institute-Columbia  Presbyterian
Hospital, while completing a

                                       36
<PAGE>

Masters Degree in Public Health and Administration  (MPH) at The Columbia School
of  Public  Health  in New York  City.  During  his  career  he has  served as a
clinician,  and as a health care  administrator  and Medical  Director/physician
executive  for the managed  health care  industry,  building  and running  large
health care systems with thousands of health care  facilities and  professionals
serving millions of consumers throughout the United States.

     In the early  1980s,  Dr.  Goldart  founded  an  innovative  "hospital  for
wellness"  in New  York  City,  BioFitness  Institute,  with a  staff  of  sixty
multidisciplinary  professionals  providing  an  integrated  program  of  health
promotion/disease prevention services. Beginning in 1985, Dr. Goldart served for
fourteen  years as Medical  Director for nationally  ranked  managed  behavioral
health organizations.  His responsibilities  included balancing and successfully
achieving  business  objectives  of  assuring  clinical  excellence,   promoting
population health and preventing  disease,  and managing medical financial risk;
while assuring  consistently  high service  satisfaction  levels for millions of
health plan  beneficiaries  nationwide.  In 1999, Dr. Goldart founded Innovative
Healthcare  Works,  a consulting  practice  serving  health care  marketing  and
communications   organizations  and  their  medical   equipment/technology   and
pharmaceutical  clients.  In November 2001,  Dr. Goldart became Chief  Operating
Officer of AmmunoMed LLC, a Toledo Ohio based company,  with the exclusive right
to  distribute  a  broad-spectrum,   food-based   nutraceutical  with  bioactive
capability to modulate cellular function to the U.S. medical market.

     Dr. Goldart is a Diplomat of The National Board of Medical  Examiners,  The
American  Board of Psychiatry  and  Neurology,  Inc.,  and The American Board of
Quality Assurance and Utilization Review Physicians.

     NEIL M.  KOSTERMAN  was elected a director  in 2001.  He is the manager and
founder of DeltaQuest  LLC, a  venture-consulting  firm,  which  specializes  in
startup  and  difficult  business  situations   primarily  in  the  medical  and
pharmaceutical  industry.  He has over 30 years of experience in developing  and
marketing  innovation and improving growth and  profitability  for employers and
clients including Pfizer, CR Bard, and Smith & Nephew. He recently  completed an
assignment as interim president for a NASDAQ company in medical products. He has
participated as a principal or consultant in more than 10 startup situations.

     JOHN P. LUTHER,  ESQ. was elected a director in 2001. He has represented us
in  private  practice  for a  number  of years in all  aspects  of  intellectual
property law and litigation. In addition to being a practicing attorney he holds
undergraduate degrees in organic and molecular  biochemistry.  Mr. Luther became
our Vice President and General Counsel of Xechem in 2001.

SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE

     Our executive officers, directors and shareholders beneficially owning more
than 10% of our Common Stock are required under the Exchange Act to file reports
of  ownership  of  Common  Stock of  Xechem  with the  Securities  and  Exchange
Commission.  Copies of those  reports must also be furnished to us. Based solely
upon  a  review  of  the  copies  of  reports   furnished   to  us  and  written
representations that no other reports were required, we believes that during the
preceding  year  all  filing  requirements  applicable  to  executive  officers,
directors and shareholders beneficially owning more than 10% of our Common Stock
have been  complied with the exception of Jay Gupta who was late filing a Form 3
and a Form 4.

COMMITTEES

     Our Stock Option Committee,  established in May 1995, presently consists of
Dr. Goldart and Mr. Burg. The Stock Option Committee  administers the 1995 Stock
Option Plan and reviews and  recommends to the Board of Directors  stock options
to be granted.

     Our Compensation Committee,  established in May 1995, presently consists of
Dr. Pandey,  Mr. Burg and Dr. Goldart.  The Compensation  Committee  reviews and
recommends  to the Board of  Directors  the  compensation  and  benefits  of all
officers of Xechem and reviews  general policy matters  relating to compensation
and benefits of employees of Xechem.

                                       37
<PAGE>

Our Audit Committee,  established in May 1995, presently consists of Dr. Pandey,
Mr. Burg and Dr.  Goldart.  The Audit  Committee  reviews  with our  independent
public  accountants  the scope and timing of their audit  services and any other
services  they are asked to perform,  the  accountants  report on our  financial
statements  following  completion of their audit and our policies and procedures
with respect to internal  accounting and financial  controls.  In addition,  the
Audit Committee makes annual  recommendations  to the Board of Directors for the
appointment of independent accountants for the ensuing year.

ITEM 10.  EXECUTIVE COMPENSATION
          ----------------------

Compensation of Directors.
-------------------------

     Directors do not receive any standard compensation for services.

Executive Compensation.
-----------------------

     Set forth below is information  concerning the  compensation for 1999, 2000
and  2001  for our  President  and  Chief  Executive  Officer,  who is the  only
executive officer of Xechem whose compensation exceeded $100,000:

<TABLE>
<CAPTION>
=============================================================================================================
                                                                  LONG TERM COMPENSATION
                                                            ----------------------------------
                                                                                                  ALL OTHER
                                ANNUAL COMPENSATION                  AWARDS            PAYOUTS   COMPENSATION
----------------------------------------------------------------------------------------------
                                                                         SECURITIES
                                                 OTHER      RESTRICTED   UNDER-LYING
                                                ANNUAL        STOCK        OPTIONS      LTIP
          YEAR             SALARY    BONUS   COMPENSATION     AWARDS                   PAYOUTS
-------------------------------------------------------------------------------------------------------------
<S>                <C>    <C>        <C>      <C>           <C>             <C>         <C>         <C>
Dr. Ramesh Pandey  1999   $140,000     0        $1,249           0            0           0           0
                   2000   $140,000     0        $  688      $1,563,000        0           0           0
                   2001   $140,000     0        $1,380           0            0           0           0
=============================================================================================================
</TABLE>

EMPLOYMENT AGREEMENTS

     Ramesh C. Pandey is employed  pursuant to an agreement which provides for a
base salary of $140,000 per year, subject to an annual increase in proportion to
the  increase in the  consumer  price  index,  such bonuses as a majority of the
disinterested members of our board of directors may determine,  and a royalty of
2 1/2% of our net profits before taxes with respect to any products developed by
us or our  affiliates  during the term of the  agreement.  The  royalty  will be
payable  to Dr.  Pandey  or his  estate  so long  as we  continue  to sell  such
products,  notwithstanding  any  termination  of the  agreement.  The  agreement
provides  for a  ten-year  term,  but  permits  either  party to  terminate  the
agreement  after five years;  if we terminate the agreement,  Dr. Pandey will be
entitled to receive  severance equal to his compensation for the two years prior
to  termination.  Dr.  Pandey  has  agreed  not to  engage in  certain  business
activities  (generally  similar  to those  currently  engaged  in by us) for six
months (four months,  in certain cases) after the  termination of his employment
with us. If there is a change in the beneficial  ownership of 20% or more of our
capital  stock,  Dr.  Pandey  may, at any time within one year after such event,
terminate  the  agreement,  in which event his  noncompete  and  confidentiality
agreement  terminate and any indebtedness of us to Dr. Pandey shall accelerate..
In August 1996, due to the financial  constraints of us, Dr. Pandey's salary was
reduced by 54%. In November  1996,  50% of the  reduction  was  restored  and in
February 1997,  Dr. Pandey was returned to full salary.  The reduction in salary
was not accrued and will not be paid to Dr.  Pandey.  On September  30, 1998 Dr.
Pandey signed an Amended Employment Agreement extending his current agreement by
two  years.  He was also  granted  an option to  purchase  stock of Xechem in an
amount  equal  to 20% of the  total  number  of  shares  sold by us in a  Rights
Offering to certain  shareholders and one or more subsequent  offerings to raise
up to $10,000,000 of additional capital through December 31, 2002.

     In 2001 Dr.  Pandey  deferred  $70,000 of salary for a total of $261,425 of
deferred  salary until we have funds to pay him as set forth in the amendment to
his Employment Agreement.

                                       38
<PAGE>

STOCK PLAN

     Effective  December  1993, our sole  stockholder  approved the Share Option
Plan  (the  "Plan"),  which  we have  assumed,  providing  for the  issuance  to
employees,  consultants,  and  directors of options to purchase up to 12,600,000
shares  of  Common  Stock.  The Plan  provides  for the  grant to  employees  of
incentive stock options ("ISOs") and  non-qualified  stock options.  On July 11,
2000,  the Board of  Directors  increased  the  number of options  available  to
25,000,000.

     The Plan is  administered  by a Stock Option  Committee  established in May
1995  comprised of two members of the Board of Directors  which has the power to
determine  eligibility to receive options and the terms of any options  granted,
including the exercise or purchase  price,  the number of shares  subject to the
options,  the vesting schedule,  and the exercise period.  The exercise price of
all ISOs granted  under the Plan must be at least equal to the fair market value
of the  shares  of  Common  Stock  on the date of  grant.  With  respect  to any
participant  who owns stock  possessing more than 10% of the voting power of our
outstanding  capital stock,  the exercise price of any ISO granted must equal at
least 110% of the fair market  value on the grant date and the maximum  exercise
period of the ISO must not exceed five years.  The exercise  period of any other
options  granted under the Plan may not exceed 11 years (10 years in the case of
ISOs).

     The Plan will  terminate in December  2003, ten years after the date it was
first  approved,  though awards made prior to termination  may expire after that
date,  depending  on when  granted.  As of December  31,  2001,  we have granted
options  under the Plan to  purchase  24,529,333  shares of Common  Stock,  with
22,919,000 still outstanding under the Plan.

                                       39
<PAGE>

AGGREGATED OPTION EXERCISES IN FISCAL 2001 AND FISCAL YEAR-END OPTION VALUES

     The following  table provides  information on option  exercises  during the
year ended  December 31, 2001 by the directors and executive  officers of Xechem
and the value of such  parties'  unexercised  stock  options as of December  31,
2001.

<TABLE>
<CAPTION>
===============================================================================================================
                                                         NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                                                        UNDERLYING UNEXERCISED         IN-THE-MONEY OPTIONS
                                                          OPTIONS AT 12/31/01             AT 12/31/00 (1)
---------------------------------------------------------------------------------------------------------------
                           SHARES
                        ACQUIRED ON       VALUE
          NAME          EXERCISE (#)   REALIZED ($)   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
---------------------------------------------------------------------------------------------------------------

<S>                       <C>             <C>         <C>           <C>               <C>            <C>
Dr. Ramesh C. Pandey      2,232(2)          0          1,000,000       500,000          $0             $0

Stephen F. Burg              0              0          1,522,700       500,000          $0             $0

Dr. Jed C. Goldart           0              0            500,000       500,000          $0             $0

Neil M. Kosterman            0              0            500,000       500,000          $0             $0

John P. Luther Esq.          0              0          1,000,000     2,000,000          $0             $0

===============================================================================================================
</TABLE>

(1)  Represents the excess,  if any, of the closing price of the Common Stock as
     quoted on the OTC  Bulletin  Board on December  31, 2001  ($.011)  over the
     exercise price of the options,  multiplied by the  corresponding  number of
     underlying shares.
(2)  Class C, Series 6 Voting  Preferred  Stock,  Par Value  $0.00001 per share,
     10,000 votes per share.

     The following  table  provides  information  on options  granted for Common
Stock during the year ended  December 31, 2001 to the  directors  and  executive
officers of Xechem.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
NAME                    NUMBER OF OPTIONS      PERCENT OF TOTAL OPTIONS GRANTED TO   EXERCISE PRICE   EXPIRATION DATE
                        GRANTED TO DIRECTORS   EMPLOYEES
---------------------------------------------------------------------------------------------------------------------
<S>                     <C>                    <C>                                   <C>              <C>
Dr. Ramesh C. Pandey    0                      0                                     0                --
---------------------------------------------------------------------------------------------------------------------
Stephen F. Burg         500,000                4.4%                                  $0.015           July 09, 2012
---------------------------------------------------------------------------------------------------------------------
Dr. Jed C. Goldart      1,000,000              8.8%                                  $0.01            July 09, 2012
---------------------------------------------------------------------------------------------------------------------
Neil M. Kosterman       1,000,000              8.8%                                  $0.01            July 09, 2012
---------------------------------------------------------------------------------------------------------------------
John P. Luther Esq.     3,000,000              26.4%                                 $0.01            July 09, 2012
---------------------------------------------------------------------------------------------------------------------
</TABLE>

     We have not granted any  Long-Term  Incentive  Plan-Awards  during the year
ended December 31, 2001.

                                       40
<PAGE>

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

     The following table sets forth certain information regarding the beneficial
ownership of the Common Stock and total voting stock  (including the Class A and
Class C Preferred Stocks) as of February 15, 2002 by: (i) each stockholder known
by Xechem to  beneficially  own in  excess  of 5% of the  outstanding  shares of
Common  Stock or Class A  Preferred  Stock;  (ii) each  director  or nominee for
director;  and (iii) all directors and executive officers as a group.  Ramesh C.
Pandey owns all of the outstanding Class A Preferred Stock.  Except as otherwise
indicated  in the  footnotes  to the table,  the  persons  named below have sole
voting and  investment  power with respect to the shares  beneficially  owned by
such persons.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                       CLASS A PREFERRED      CLASS C PREFERRED
                              COMMON STOCK                   STOCK                  STOCK
---------------------------------------------------------------------------------------------------------------------------
                              NUMBER OF     PERCENT   NUMBER OF   PERCENT    NUMBER OF   PERCENT    PERCENT OF
NAME AND ADDRESS                SHARES     OF CLASS    SHARES     OF CLASS    SHARES     OF CLASS   VOTING STOCK (1)(2)(15)
---------------------------------------------------------------------------------------------------------------------------
<S>                           <C>          <C>        <C>         <C>        <C>         <C>              <C>
JAY N. GUPTA (3)              40,000,000     9.54%        0          -           0          -                8.92%
---------------------------------------------------------------------------------------------------------------------------
STEPHEN F. BURG (4)            1,522,700     0.36%        0          -           0          -                 .34%
                                  (9)
---------------------------------------------------------------------------------------------------------------------------
NEIL M. KOSTERMAN (5)           500,000      0.12%        0          -           0          -                 .11%
                                 (10)
---------------------------------------------------------------------------------------------------------------------------
JED C. GOLDART M.D., M.P.H.     500,000      0.12%        0          -           0          -                 .11%
(6)                              (11)
---------------------------------------------------------------------------------------------------------------------------
JOHN P. LUTHER, ESQ. (7)       1,000,000     0.24%        0          -           0          -                 .22%
                                 (12)
---------------------------------------------------------------------------------------------------------------------------
RAMESH C. PANDEY, PH.D. (8)   61,423,663    14.65%      2,500       100%       2,665       100%             20.2%
                                 (13)                    (1)                    (2)
---------------------------------------------------------------------------------------------------------------------------
ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP (2        64,766,363    15.49%      2,500       100%       2,665       100%             20.98%
PERSONS)                         (14)                    (1)                    (2)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

     (1)  GIVES  EFFECT TO THE VOTING  RIGHTS OF 2,500  SHARES OF CLASS A VOTING
          PREFERRED  STOCK,  ALL OF WHICH  ARE  OWNED BY DR.  PANDEY  AND  WHICH
          ENTITLE  HIM TO CAST 1,000  VOTES PER SHARE ON ALL MATTERS AS TO WHICH
          SHAREHOLDERS ARE ENTITLED TO VOTE.
     (2)  GIVES  EFFECT TO THE VOTING  RIGHTS OF 2,665  SHARES OF CLASS C VOTING
          PREFERRED  STOCK,  ALL OF WHICH  ARE  OWNED BY DR.  PANDEY  AND  WHICH
          ENTITLE HIM TO CAST 10,000  VOTES PER SHARE ON ALL MATTERS AS TO WHICH
          SHAREHOLDERS ARE ENTITLED TO VOTE.
     (3)  THE ADDRESS OF JAY GUPTA IS 1173 DOLLY MADISON BLVD. MCLEAN VA. 22101.
     (4)  THE ADDRESS OF STEPHEN BURG IS 3257 WINGED FOOT DRIVE,  FAIRFIELD,  CA
          94533.
     (5)  THE  ADDRESS  OF  NEIL  KOSTERMAN  IS  2  SOUTHWICK  CIRCLE,  MADISON,
          WISCONSIN 53717
     (6)  THE ADDRESS OF JED GOLDART IS 3 GOLDSBORO COURT BETHESDA, MD 20817
     (7)  THE  ADDRESS OF JOHN LUTHER IS 768 SOUTH 3RD STREET  PHILADELPHIA,  PA
          19147
     (8)  THE  ADDRESS OF DR.  PANDEY IS C/O  XECHEM  INTERNATIONAL,  INC.,  100
          JERSEY AVENUE, BUILDING B, SUITE 310, NEW BRUNSWICK, NEW JERSEY 08901.
     (9)  DOES NOT INCLUDE  500,000  SHARES  SUBJECT TO THE BURG OPTIONS,  WHICH
          PRESENTLY ARE NOT EXERCISABLE, AND WILL NOT BE EXERCISABLE,  WITHIN 60
          DAYS FROM FEBRUARY 15, 2002;  HOWEVER,  INCLUDES 1,522,700 SHARES THAT
          ARE PRESENTLY EXERCISABLE OPTIONS.
     (10) DOES NOT INCLUDE  500,000  SHARES  SUBJECT TO THE  KOSTERMAN  OPTIONS,
          WHICH  PRESENTLY  ARE NOT  EXERCISABLE,  AND WILL NOT BE  EXERCISABLE,
          WITHIN 60 DAYS FROM  FEBRUARY  15,  2002;  HOWEVER,  INCLUDES  500,000
          SHARES THAT ARE PRESENTLY EXERCISABLE OPTIONS.
     (11) DOES NOT INCLUDE 500,000 SHARES SUBJECT TO THE GOLDART OPTIONS,  WHICH
          PRESENTLY ARE NOT EXERCISABLE, AND WILL NOT BE EXERCISABLE,  WITHIN 60
          DAYS FROM FEBRUARY 15, 2002; HOWEVER, INCLUDES 500,000 SHARES THAT ARE
          PRESENTLY EXERCISABLE OPTIONS.
     (12) DOES NOT INCLUDE 2,000,000 SHARES SUBJECT TO THE LUTHER OPTIONS, WHICH
          PRESENTLY ARE NOT EXERCISABLE, AND WILL NOT BE EXERCISABLE,  WITHIN 60
          DAYS FROM FEBRUARY 15, 2002;  HOWEVER,  INCLUDES 1,000,000 SHARES THAT
          ARE PRESENTLY EXERCISABLE OPTIONS.
     (13) DOES NOT INCLUDE 500,000 SHARES SUBJECT TO THE PANDEY  OPTIONS,  WHICH
          PRESENTLY ARE NOT EXERCISABLE, AND WILL NOT BE EXERCISABLE,  WITHIN 60
          DAYS FROM FEBRUARY 15, 2002;  HOWEVER,  INCLUDES 1,000,000 SHARES THAT
          ARE PRESENTLY EXERCISABLE OPTIONS.
     (14) DOES NOT INCLUDE  4,000,000  SHARES SUBJECT TO THE DIRECTORS  OPTIONS,
          WHICH  PRESENTLY  ARE NOT  EXERCISABLE,  AND WILL NOT BE  EXERCISABLE,
          WITHIN 60 DAYS FROM  FEBRUARY 15, 2002;  HOWEVER,  INCLUDES  4,522,700
          SHARES THAT ARE PRESENTLY EXERCISABLE OPTIONS.
     (15) DURING 2000, MR. GUPTA GRANTED TO DR. PANDEY AN  IRREVOCABLE  PROXY TO
          VOTE ALL OF THE SHARES UNDER HIS CONTROL.

                                       41
<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------

     Subject to obtaining  necessary  regulatory  approvals in India, Dr. Pandey
has  transferred  his  interest in Xechem  India to Xechem for no  consideration
other than  reimbursement of amounts (equal to approximately  $5,000) Dr. Pandey
advanced for  organizational  expenses.  Dr. Pandey's brothers own the remaining
equity in Xechem India. At December 31, 2001, we own substantially all of Xechem
India.  We  anticipate  that some of the  equity in  Xechem  India  will be made
available to other,  unrelated,  persons in India. Both of Dr. Pandey's brothers
and Mr. Anil Sharma, a chartered accountant, serve as directors of Xechem India.
No  compensation  is paid to Dr.  Pandey,  his  relatives or Mr. Anil Sharma for
service as directors. See Item 1, Description of Business - Raw Material Supply.

     Effective June 25, 1996, an entity wholly-owned by Dr. Pandey (the "Holding
Company") became a member of Vineyard Productions, L.L.C. ("Vineyard"), which in
June 1994  acquired the building in which we lease its offices.  Prior to making
such  investment,  Dr. Pandey informed the Board of Directors of the opportunity
for such investment, and the Board determined that we was not interested in such
opportunity and approved Dr. Pandey making the investment. Our lease was entered
into prior to that date (with a prior  owner of the  building)  and has not been
modified  subsequent  thereto.  We are currently in  negotiations  to form a new
lease,  which would protect us in the future.  We paid Vineyard $135,958 in 2001
and $228,366 in 2000.

     Also during  1999,  Mr.  Blech and the trustee of the Edward A. Blech Trust
granted to Dr. Pandey an irrevocable proxy to vote all of the shares under their
control.

     During 2000, Jay Gupta Trust granted to Dr. Pandey an irrevocable  proxy to
vote all of the shares under his control.

     During 2000, Dr. Pandey's brothers converted notes payable of approximately
$80,000 into 7,957,100  shares of common stock of ours,  under the same terms as
other investors.

     During 2001,  Dr. Pandey  exercised his option to purchase  2,232 shares of
Class C, Series 6 Preferred Voting Stock,  $0.00001 per share, which are part of
the options granted to Dr. Pandey by resolution of the Board of Directors at its
meeting held on August 18, 1999, as amended by the Board of Directors on July 9,
2001.

     We owe Dr. Pandey,  Chairman of the Board, $721,000 as of December 31, 2001
from an interest  bearing advance  ($269,000) at 10% per annum and the note will
be  due  when  Xechem  is no  longer  a  development  entity,  accrued  interest
($157,000),  accrued  salary  ($261,000)  and  accrued  expenses  ($34,000).  At
December  31,  2000,  Xechem owed Dr.  Pandey  $615,000.  Xechem also has a note
payable to Dr. Renuka Misra, director of Natural Products, for $298,300 with 12%
annual  interest due September 20, 2002.  Interest  expense for related  parties
totaled  $63,000 and $66,000  for the years  ended  December  31, 2001 and 2000,
respectively,  related to these notes.  Xechem has received funding from Beverly
Robbins, a sales and marketing  representative  totaling $198,000 as of December
31, 2001.  There is also a $20,000 loan bearing 8% interest per annum due to Dr.
Bhairab Pandey as of December 31, 2001.

     We have  received  $140,000  during the year ended  December  31, 2000 from
Xechem China pursuant to an interest free loan.  Although an additional $340,000
was due Xechem under the original  loan terms,  no amounts were received in 2001
and it is unlikely any additional  amounts will be received.  We shall repay the
loan advanced by Xechem China out of our share in the dividends or  distribution
of Xechem China.  Since  Xechem-China had no activity in 2001 and no foreseeable
profits  in the near  future  there  will  not be any  short-term  repayment  to
Xechem-China.

                                       42
<PAGE>

     We currently  receive our  supplies of plant  extracts  from India  through
informal   collaborative   relationships.   Dr.  Pandey  and  his  brothers  had
incorporated a corporation in India ("Xechem  India"),  which was established to
formalize such relationships by obtaining  contracts for dependable  supplies of
plants and other raw materials. Based on its discussions with Indian sources for
such  materials,  Xechem believed that an Indian  corporation  would obtain such
contracts  on  significantly  better  terms  than  would a  United  States-based
corporation. Xechem India may also conduct certain research,  manufacturing, and
marketing  activities in India. In 1998, as a contribution to Xechem's  capital,
Dr.  Pandey  transferred  his 66-2/3%  interest in Xechem India to Xechem for no
consideration  other than  reimbursement  of amounts  Dr.  Pandey  advanced  for
organizational  expenses  (approximately  $5,000).  Dr.  Pandey's  brothers will
initially own the remaining equity in Xechem India,  some or all of which Xechem
anticipates  will be made available to other,  unrelated,  persons in India. The
minority interest in Xechem India is not material.

                                       43
<PAGE>

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

     (a) (1) The  following  exhibits are  incorporated  by  reference  from our
Registration Statement on Form SB-2 (SEC File Number 33-75300NY) referencing the
exhibit numbers used in such Registration Statement:

Number Exhibit
--------------

3(i)(a)   Certificate of Incorporation.

3(i)(b)   Certificate of Correction to Certificate of Incorporation.

3(ii)     By-Laws.

10.2      Form of Pandey Option.

10.3      Form of Employment Agreement between Xechem and Dr. Pandey.

10.17     Patents.

10.18     Indemnity agreement between Xechem and Ramesh C. Pandey.

     (a)(2)    The following  exhibits are  incorporated  by reference  from our
               Quarterly  Report on Form 10-QSB for the quarter ended  September
               30, 1994 (File No. 0-23788).

Number Exhibit
--------------

     (a)(3)    The following  exhibits are  incorporated  by reference  from our
               Annual  Report on Form  10-KSB  for the year ended  December  31,
               1995:

3(i)(c)   Certificate of Amendment to Certificate of Incorporation.

10.28     Xechem International, Inc. Amended and Restated Stock Option Plan.

     (a)(4)    The following  exhibits are  incorporated  by reference  from our
               Form 8-K Current Report dated November 18, 1996:

10.29     Stockholders   Agreement   dated   November   18,  1996  among  Xechem
          International, Inc., David Blech and Ramesh C. Pandey

10.30     Stock  Purchase   Agreement  dated  November  18,  1996  among  Xechem
          International, Inc., David Blech and Ramesh C. Pandey.

     (a)(5)    The following  exhibits are  incorporated  by reference  from our
               Annual Report on Form 10-KSB for the year ended December 31, 1996
               (File No. 0-23788).

3(i)(c)   Certificate of Amendment to Certificate of Incorporation

3(i)(d)   Certificate of Designations,  Preferences and Rights of Class C Shares
          (Class C Series 1 Preferred Stock)

3(i)(e)   Certificate of Designations,  Preferences and Rights (Class C Series 2
          and Series 3 Preferred Stock)

                                       44
<PAGE>

3(i)(f)   Certificate  of  Elimination  (Class C Series 1, Series 2 and Series 3
          Preferred Stock)

     The following exhibits are filed with the Form 10-KSB:

Number Exhibit
--------------

3(i)(g)   Certificate of Designations,  Preferences and Rights of Class C Shares
          (Class C Series 6 Preferred Stock)

21        Subsidiaries of Xechem

23        Consent of Grant Thornton LLP

     (b)  Xechem filed no Reports on Form 8-K during the fourth quarter of 2001.

                                       45
<PAGE>

                                   SIGNATURES
                                   ----------

In accordance  with Section 13 or 15(d) of the Securities  Exchange Act of 1934,
as amended,  the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                   XECHEM INTERNATIONAL, INC.

Date: March 29, 2002               By: /s/ Ramesh C. Pandey
                                       --------------------------------------
                                       Ramesh C. Pandey, Ph.D.
                                       Chief Executive Officer, President and
                                       Chairman of the Board of Directors

     In accordance  with the Securities  Exchange Act of 1934, as amended,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.


By: /s/ Ramesh C. Pandey                                    Date: March 29, 2002
    --------------------------------------
    Ramesh C. Pandey, Ph.D.,
    Chief Executive Officer, President and
    Chairman of the Board of Directors and
    Chief Accounting Officer


By: /s/ Stephen F. Burg                                     Date: March 29, 2002
    --------------------------------------
    Stephen F. Burg
    Director


By: /s/ Jed C. Goldart                                      Date: March 29, 2002
    --------------------------------------
    Jed C. Goldart, M.D., M.P.H.
    Director


By: /s/ Neil Kosterman                                      Date: March 29, 2002
    --------------------------------------
    Neil M. Kosterman
    Director


By: /s/ John Luther                                         Date: March 29, 2002
    --------------------------------------
    John P. Luther Esq.
    Director

                                       46
<PAGE>

                                  EXHIBIT INDEX

Number    Exhibit
------    -------

21        Subsidiaries of Xechem

23        Consent of Grant Thornton LLP

                                       47