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, 2003

                 [ ] 13 OR 15(D) OF THE TRANSITION REPORT UNDER
                    SECTION 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)

New Brunswick Technology Center
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. $ 318,000 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. $
9,943,000 as of April 1, 2003.

The number of shares outstanding of our Common Stock was 165,750,348 as of April
2, 2004.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                            PAGE
<S>                                                                                         <C>
Part I.........................................................................................1

   Item 1.     Description of Business.........................................................1
   Item 2.     Description of Property........................................................29
   Item 3.     Legal Proceedings..............................................................29
   Item 4.     Submission of Matters to a Vote of Stockholders................................30

Part II.......................................................................................31

   Item 5.     Market for Common Equity and Related Stockholder Matters.......................33
   Item 6.     Management's Discussion and Analysis...........................................35
   Item 7.     Financial Statements...........................................................41
   Item 8.     Changes In and Disagreements With Accountants
               on Accounting and Financial Disclosure.........................................42
   Item 8A.    Controls and Procedures........................................................43

Part III......................................................................................44

   Item 9.     Directors, Executive Officers, Promoters and Control Persons;
               Compliance with Section 16(a) of the Exchange Act..............................44
   Item 10.    Executive Compensation.........................................................45
   Item 11.    Security Ownership Of Certain Beneficial Owners And Management.................48
   Item 12.    Certain Relationships and Related Transactions.................................50
   Item 13.    Exhibits and Reports on Form 8-K...............................................52
               Principal Accountant Fees and Services.........................................54
</TABLE>

                                       2
<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.

XECHEM'S APPROACH FOR DRUG DISCOVERY AND DEVELOPMENT
----------------------------------------------------

         Our drug discovery and 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 seven major
phases: (i) folklore healers collaboration; (ii) ethnobotanical research; (iii)
biological screening; (iv) fingerprinting and standardization of the extracts;
(v) isolation of active compounds through bio-assay guided fractionations, (vi)
product development, and (vii) sales and marketing.

         Folklore Healers Collaborations. 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, Nigeria and People's Republic of China, 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. The Company has established relationships with the National Institute
for Pharmaceutical Research and Development (NIPRD),

          .........

         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.

<PAGE>

Abuja, Nigeria and Voluntary Health Education and Rural Development Society
(VHERDS), Chennai, India and various Non-Governmental Organizations (NGOs) to
locate these products in the respective countries. 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
Nigeria, India and the People's Republic of China. 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 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 from the folklore healer's
collaboration and ethnobotanical research are then extracted with suitable
solvents, as per their folklore use. The extracts are screened for specific
activities in- vitro and in-vivo. The positive extracts are tested again to
confirm the activities.

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

          Isolation of Active Compounds through bio-assay guided factionation.
The active extracts are also subjected to bioassay-guided fractionation to
isolate pure biologically activities to develop as pharmaceuticalsas per western
standards. We are currently screening extracts and pure compounds for activity
against Sickle Cell Disease (SCD), Helicobacter pylori (H. pylori), Vancomycin
resistant Enterococcus faecalis (VREF) and Methicillin resistant Staphylococus
aureus (MRSA), antifungal, anticancer, antiviral, anti-inflammatory,
anti-infectives and memory enhancing areas. We conduct certain of its screening
in collaboration with the NIH and other 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, designs appropriate clinical
studies. See "Government Regulation" below.

XECHEM NIGERIA
--------------

         In July 2002 we formed Xechem Pharmaceuticals Nigeria Limited ("Xechem
Nigeria"), under the Companies and Allied Matters Act (1992), of the Federal
Republic of Nigeria. Through Xechem Nigeria, we plan to manufacture, market and
distribute a number of pharmaceuticals and prescription phytopharmaceutical
originating from the African Continent. This will place us in a unique position
to take full advantage of Nigeria's well-known biodiversity, which is expected
to yield new important drugs and other phytopharmaceuticals in the near future.
Xechem Nigeria is majority owned by us.

                                       2
<PAGE>

         On July 18, 2002, we signed an exclusive worldwide license for the
manufacturing, marketing, distribution and sales of NIPRISAN from the National
Institute for Pharmaceutical Research and Development ("NIPRD"), Abuja,
government of Nigeria, for the treatment of Sickle Cell

Disease ("SCD"). NICOSAN(TM)/HEMOXIN(TM) is our name for the non-toxic
phyto-pharmaceutical product formerly named NIPRISAN, a nutraceutical. The
Company has received the Orphan Drug designation for this phytopharmaceutical
from the US-FDA for the treatment of Sickle Cell Disease sufferers. We are
currently in the process of completing the necessary papers for submission of an
Investigational New Drug (IND) Application for this product to the United States
Food and Drug Administration ("FDA"). To date, there has been no successful
non-toxic drug developed for the treatment of SCD.

         We anticipate the initial sales of NICOSAN(TM) in Nigeria by 2005. All
manufacturing, marketing, distribution and sales of the product NICOSAN(TM) will
take place through Xechem Nigeria at this time.

         In 1972, the 92nd US Congress passed the National Sickle Cell Anemia
Control Act, which called for grant support for screening programs. In 1975, the
first US State began a newborn screening program for SCD. However, there has
been only one drug, Hydroxyurea (HU), which has come to the marketplace since
that time, out of approximately 2,000 screened candidates with over $1 billion
in research funding.

         According to a study published by Allison Ashley-Koch, Quanhe Yang, and
Richard S. Olney of the Centers for Disease Control and Prevention ("CDC"), SCD
is a major public health concern (Ashley-Koch, A. et al, Am. J. Epidemiol 151,
839, 2000). Each year in the US, an average of 75,000 hospitalizations are due
to SCD, costing approximately $475 million. The average length of per hospital
visit was 6.1 days and adults tended to have longer stays than children and
adolescents. SCD is also associated with significant mortality. Among children,
the primary causes of mortality are bacterial infections and stroke. This
genetic disorder has great impact on both the individual and society.

CEPTOR
------

         In January, 2004, we acquired 100% ownership of Ceptor Corporation, a
research drug company focusing on neuromuscular diseases which include
therapeutics for muscular dystrophy, multiple scleroses, ALS and epilepsy. We
have established a program to separately finance Ceptor which contemplates us
substantially reducing our stake in Ceptor. See "Recent Developments" below.

OTHER ENDEAVORS
---------------

         We have a majority owned subsidiary, Xechem (India) Pvt., Ltd., in New
Delhi, India which seeks to obtain contracts for dependable supplies of plants
and other raw materials from 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.

                                       3
<PAGE>

PACLITAXEL
----------

         We are also engaged 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 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).

RECENT DEVELOPMENTS
-------------------

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

         During December of 2003 we received approval from the New Jersey
Economic Development Authority ("NJEDA") to sell approximately $109,000 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 2003 and 2002, Xechem and its subsidiaries transferred the tax benefits
of $109,000 and $303,000 in exchange for $100,000 and $243,00 respectively,
pursuant to the New Jersey State Tax Credit Transfer program. We received
$100,309 net pursuant to this program in December 2003.

Alembic Transactions
--------------------

         On April 7, 2004, we executed definitive documents with Alembic Limited
a pharmaceutical company based in India. The documents relate to: (i) a
commitment to loan $3,000,000 to us; (ii) a license, royalty and distribution
rights agreement ("Xechem Nigeria Agreement") related to the production, sale
and licensing of NICOSAN(TM)/HEMOXIN(TM) through Xechem Nigeria, a
majority-owned subsidiary of ours; and (iii) a five-year warrant to purchase
10,000,000 shares of Xechem common stock at $0.20 per share. The loan is in
connection with our planned approval for sale and development of a manufacturing
facility, in Nigeria, for the production of NICOSAN(TM)/HEMOXIN(TM).

                                       4
<PAGE>

         The $3,000,000 loan is to be funded with six payments of $500,000 each,
with the first made on the date of the closing of the transaction and subsequent
payments to be made each thirty days thereafter. Upon the signing of the
Memorandum of Understanding ("MOU") which predated the loan, Alembic funded
$200,000 in escrow, which is to be applied toward the $3,000,000 loan amount.

         In the Xechem Nigeria Agreement, we granted to Alembic a 15% ownership
interest in Xechem Nigeria (with antidilution rights regarding its next two
rounds of financing), and to distribute the product in Nigeria and nearby
countries. This royalty is in addition to the royalty payable by us to NIPRD of
7.5% of gross revenues on NICOSAN(TM)/HEMOXIN(TM). We also agreed in the MOU to
use our best efforts to cause a designee of Alembic's to be elected to our board
of directors. The Xechem Nigeria Agreement grants to Alembic the right of first
offer to act as Xechem Nigeria's distributor of the product in Africa and India.
Alembic's right with regard to distribution in Africa and India will lapse if
Alembic fails to fund the loan on any of the designated dates or within 30 days
after our delivery of notice to defendant.

         The loan will be convertible, at Alembic's option, at a 30%, 40%, 50%
and 60% discount to the average closing price of our common stock on the first,
second, third and fourth anniversaries of the closing date, respectively. The
Xechem Nigeria Agreement also provides that Alembic will receive a royalty of
15% of the gross collected revenues from sales of NICOSAN(TM)/HEMOXIN(TM) in
Nigeria for a period of five years from the date of the product launch (i.e.,
when the Nigerian manufacturing facility is fully approved by all governmental
and regulatory bodies), 10% of gross collected revenues for the succeeding five
years, and 5% of gross collected revenues for the succeeding five years. In
addition, we have agreed to pay Alembic a royalty of 1% of gross collected
revenues in connection with sales of NICOSAN(TM)/HEMOXIN(TM) outside of Africa
and India. The Xechem Nigeria Agreement also provides that we will be entitled
to a royalty of 30% of the first year's revenues and 25% of revenues thereafter
from the sale of NICOSAN(TM)/HEMOXIN(TM), provided that such royalty is
subordinated to that payable to Alembic, as referenced above.

Ceptor Transactions
-------------------

         On January 27, 2004, we issued 6,000 shares of Class C Series 7
Preferred Stock to the former shareholders of Ceptor Corporation in connection
with the merger of Ceptor Corporation into a wholly-owned subsidiary of ours.
The new Class C Series 7 Preferred Stock has a $6,000,000 liquidation preference
and is convertible into 30,000,000 shares of common stock at the option of the
holders of the Class C Series 7 Preferred Stock, together with piggyback
registration rights for the underlying common shares. We also agreed to provide
a contingent award of $1,000,000 of our stock to certain former Ceptor
shareholders (payable in our stock valued at the lesser of $0.20 per share or
market value) upon the achievement of a designated milestone for each product
developed with the technology. Ceptor is a research drug company focusing on
neuromuscular diseases, which include therapeutics for muscular dystrophy,
multiple sclerosis, ALS and epilepsy.

         On April 1, 2004, we entered into an agreement with Ceptor and William
Pursley intended to provide a framework for independent financing of Ceptor. The
Ceptor agreement contemplates that Ceptor will seek to obtain bridge funding to
be followed by a subsequent round of capital infusion. Ceptor has engaged in
dialogue regarding such proposed financing, however as of the date of this
document no binding commitments have been received and no assurances can be
provided that future financing will be obtained.

                                       5
<PAGE>

         The Ceptor agreement contemplates that Ceptor will take the necessary
steps to effect a stock split so that after the split, we will own 1,406,250
shares of Ceptor $0.00001 per share par value common stock, constituting all of
its then issued and outstanding stock. Ceptor has further agreed to issue to
Ceptor's management team members options to purchase in the aggregate 1,093,750
shares of common stock, fully vested and exercisable at par value for a period
of 10 years from the date of grant. These numbers are subject to proportionate
increase or decrease.

         The Ceptor agreement provides that we will sell back to Ceptor over
time up to 625,000 shares of its common stock in Ceptor for an aggregate of
$2,000,000, payable from 25% of the proceeds of future financing received by
Ceptor other than the contemplated bridge financing. At the end of two years if
the full $2,000,000 has not been paid out to us, we will have the right to put
the remaining portion of the shares held for sale back to Ceptor to cover the
deficiency. In order to induce the funding of a bridge loan (expected to be not
less than $250,000 or more than $1,000,000), we have agreed that in the event
such a loan is funded and is not paid off when due, we will permit the bridge
lender to convert the unpaid indebtedness owing with respect to the bridge loan
into our common stock at the lesser of seven cents per share or seventy five
percent (75%) of the average closing price of our common stock for the ten
trading days preceding the date of funding of the bridge loan. We have been
granted piggyback registration rights with respect to the shares in Ceptor we
may hold from time to time, subject to its agreement to lock up the sale of all
the shares on the open market for a period of 180 days following the initial
registration of any Ceptor shares pursuant to a registration statement, and
one-half of its shares for an addition.

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.

         We have developed our own process and isolated limited quantities (less
than one kilogram) of greater than 97% pure paclitaxel that we utilized 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.

         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.

                                       6
<PAGE>

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 our in-house manufacturing of bulk paclitaxel due to Bristol-Myers
exclusivity to market paclitaxel, now since expired. 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, CEO of Xechem Inc., 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 have also received
seven U.S. patents on paclitaxel and its analogs from the U.S. Patent and
Trademark Office from 1997 through December 2002 and seven international patents
from July 1999 through December 2002. 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 our ability to conduct business.

<TABLE>
<CAPTION>
                                      UNITED STATES PATENTS

------- -------------------- ------------------------------------------------------------- ---------------
            U.S. PATENT                            TITLE OF PATENT                         DATE OF ISSUE
              NUMBER
------- -------------------- ------------------------------------------------------------- ---------------
<C>     <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"
------- -------------------- ------------------------------------------------------------- ---------------

                                       7
<PAGE>

4.      5,840,748            "Dihalocephalomannine and Methods of Use Therefor"                 1998
------- -------------------- ------------------------------------------------------------- ---------------
5.      5,854,278            "Preparation of Chlorinated  Paclitaxel  Analogues and Their       1998
                             Use Thereof as Antitumor Agents"
------- -------------------- ------------------------------------------------------------- ---------------
6.      5,807,888            "Preparation  of Brominated  Paclitaxel  Analogues and Their       1998
                             Use as Effective Antitumor Agents"
------- -------------------- ------------------------------------------------------------- ---------------
7.      5,840,930            "Method for Production of                                          1998
                             2",3" Dihalocephalomannine"
------- -------------------- ------------------------------------------------------------- ---------------
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 Antileukemic        2001
                             Activity and Method Preparation Therefor"
------- -------------------- ------------------------------------------------------------- ---------------
</TABLE>

                                       8
<PAGE>

                              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.

8.       Pandey, R.C., L.K. Yankov, "Isolation and Purification of Paclitaxel
         and Cephalomannine" Canadian Patent #2,210,972, October 21, 2003.

9.       Pandey, R.C., L.K. Yankov, "Isolation and Purification of Paclitaxel
         and Cephalomannine" Chinese Patent #ZL96193149.3, April 2, 2003.

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.

                                       9
<PAGE>

         We also rely on trade secrets and proprietary know-how, which we seek
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

Sickle Cell Drug (SCD)
----------------------

         In July 2002, we formed Xechem Pharmaceuticals Nigeria Limited ("Xechem
Nigeria"), under the Companies and Allied Matters Act (1992), of the Federal
Republic of Nigeria. Through Xechem Nigeria, we will manufacture, market and
distribute a number of pharmaceuticals and prescription nutraceutical
(phytopharmaceutical) originating from the African Continent. The first product
in the pipeline is NICOSAN(TM).

         In addition to NICOSAN(TM), Xechem Nigeria, as a result of its
proximity and relationship to the National Institute for Pharmaceutical Research
and Development (NIPRD) in Abuja, Nigeria, is in a unique position to take full
advantage of Nigeria's well-known biodiversity, which is expected to yield new
important drugs and other nutraceuticals in the near future.

         On July 18, 2002, we signed an exclusive worldwide license for the
manufacturing, marketing, distribution and sales of NIPRISAN (new names
NICOSAN(TM)/HEMOXIN(TM)) from NIPRD, government of Nigeria, for the treatment of
Sickle Cell Disease ("SCD"). NICOSAN(TM) is Xechem's name for the non-toxic
phyto-pharmaceutical product formerly named NIPRISAN(TM), a phyto-pharmaceutical
medicament.

         In August 2003 our sickle cell disease product (SCD), NIPRISAN
(HEMOXIN(TM)), received Orphan Drug designation from the FDA Office of Orphan
Drug Products Development, providing the Company with seven years of U.S. market
exclusivity after the FDA approval of HEMOXIN(TM). If it is first to market the
proprietary phytopharmaceutical. An orphan disease is defined in the U.S. as:

o        A rare disease that affects fewer than 200,000 people; or

o        A common disease that has been ignored because it is less prominent in
         the U.S., compared with developing nations.

         The U.S. Orphan Drug Act of 1983 offers tax incentives on clinical
trials and seven years' market exclusivity on orphan drugs. Since the Act, more
than 200 orphan drugs have been approved by the FDA and are on the market.
According to the NIH, more than 6,000 so-called orphan diseases exist in the
U.S. With a mere 300 of these diseases being directly addressed in a therapeutic
manner, there is a large need to undergo development programs to counter orphan
diseases like SCD.

         Importantly, while the diseases within the orphan market only affect
small number of individuals, collectively, they represent the highest value
healthcare market in the world. For example, Genzyme Corporation's (GENZ-NASDAQ)
Cerezyme to treat Type 1 Gaucher's disease costs approximately $300,000 per
patient per year; Transkaryotic Therapies, Inc.'s (TKTX-NASDAQ.NM) Replagal for
Fabry's disease costs approximately $170,000 per patient per year; Factor VIII,
manufactured by a variety of companies for Hemophilia costs approximately
$70,000 per patient per year; and Human Growth Hormone (HGH), also manufactured
by a variety of companies, can cost upwards of $20,000 per patient per year.

                                       10
<PAGE>

         We believe there are a significant number of advantages that can be
capitalized on by creating a realistic, focused, orphan disease platform, such
as those listed in the table below. We expect to take full advantage of the
lucrative orphan drug market through the development and distribution of our
proprietary product, HEMOXIN(TM). Based on the aforementioned factors, this
could represent a lucrative opportunity to capture a niche market for SCD.

             TABLE SHOWING ADVANTAGES OF AN ORPHAN DISEASE PLATFORM

                                   [graphic]

         We are currently in the process of completing for the submission of an
Investigational New Drug ("IND") Application for this product to FDA. To date,
there has been no successful non-toxic drug developed for the treatment of SCD.

         We along with the Children's Hospital of Philadelphia (CHOP), have
united in our efforts to test, standardize and quality control "NIPRISAN"
(NICOSAN(TM)/HEMOXIN(TM)), an extract of four herbs that has exhibited
anti-sickling effects in patients with sickle cell anemia. This product has been
used in Nigeria to treat sickle cell anemia with little or no toxicity; however
there has been no quality control or standardization of the product. Phase I
research will be dedicated to develop quality control and standardization of the
product. Investigations into synergistic relationships between the four plant
extract components as well as composition of the actives will be explored
through bioassay.

         Sickle Cell Anemia affects approximately 70,000 people just in the
United States; worldwide the numbers are staggering. The long-term objective is
to provide a safe, inexpensive phytopharmaceutical to relieve the suffering of
patients with sickle cell disease. NIPRISAN (NICOSAN(TM)/HEMOXIN(TM)) is unique
in its ability to bind to deoxygenated Hb S, the form of hemoglobin affected by
the disease, delaying or reducing the deformation of the red blood cells.

                                       11
<PAGE>

         Regarding the sales of NICOSAN(TM) in Nigeria, we are planning to lease
or build a manufacturing facility in Nigeria to process commercial quantities of
the raw material. The active phytopharmaceutical product (API) will be
encapsulated and sold in Nigeria in 2005. All manufacturing, marketing,
distribution and sales of the product NICOSAN(TM) are presently scheduled to
take place through Xechem Nigeria.

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 nine 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.

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 what we believe is an
efficient drug discovery program for the discovery, development and
commercialization of new classes of pharmaceuticals and phytopharmaceuticals.
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.

                                       12
<PAGE>

         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 we have an opportunity to
use our 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.

OTHER NICHE GENERIC DRUGS

         In addition to anti-Sickle Cell Disease and 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.

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").

                                       13
<PAGE>

         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
our financial constraints. 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, however it is not a
major thrust of our activities at the present time.

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 increases in demand to warrant in-house manufacturing. We
will analyze possible alternatives.

MARKETING

         Our initial potential pharmaceutical products are targeted at the
sickle cell, 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 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.

                                       14
<PAGE>

         XetaPharm sells its nutraceutical product line through health food
stores, pharmacies and through the Internet. 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). 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 have
also registered and maintain trademark rights for NICOSAN(TM) and HEMOXIN(TM)
for our new Sickle Cell Disease products. 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 our trademarks.

         XetaPharm maintains trademark rights to GarlicOnce(R), GinsengOnce(R),
GinkgoOnce(R), Gold Leaf(R), Gugulon(TM) and VIDA PRAS(TM) for which U.S.
registration has been granted. XetaPharm may adopt other trademarks for use with
its potential products.

RAW MATERIAL SUPPLY

         The Company has been using Xechem India to obtain contracts for
dependable supplies of plants and other raw materials from India. Based on our
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 also conducts certain
research, manufacturing, and marketing activities in India. Currently The
Company is the major share holder 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, which 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. 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.

                                       15
<PAGE>

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 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 our 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 our 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

                                       16
<PAGE>

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 have 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 REGULATIONS

         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 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.

                                       17
<PAGE>

         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, but cannot guaranty, to submit an ANDA for paclitaxel. 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 REGULATIONS

         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, 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 our resources.

EMPLOYEES

         As of December 31, 2003, we have fifteen employees. Of these employees,
five are dedicated to research, development, manufacturing and regulatory
compliance. Six 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.

                                       18
<PAGE>

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.

         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 one of our directors 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
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.

                                       19
<PAGE>

         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.

         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.

                                       20
<PAGE>

         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.

                                       21
<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 our 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. 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.

         The Board of Directors effected a one share for 3,000 share reverse
split of our shares of Common Stock. The first day of trading, post split, was
May 28, 2003. Our new trading symbol is "XKEM."

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

         We are a development stage company. Our primary potential new product
is NIPRISAN (NICOSAN(TM)/HEMOXIN(TM)), our sickle cell disease (SCD) drug, which
we hope to begin marketing in Nigeria in 2005. Under Ceptor a subsidiary of ours
we have two new potential drugs Myodur(TM) used in the treatment of muscular
dystrophy and Neurodur(TM) used in the treatment of multiple sclerosis. As noted
above, it is expected that through the financing plan for Ceptor, it will become
a minority held subsidiary over time. We plan on applying for orphan drug status
and filing IND's on both drugs in 2004. 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. 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, we, 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.

                                       22
<PAGE>

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

         We have experienced significant operating losses since inception and
have generated minimal revenues from our operations. As of December 31, 2003,
our accumulated deficit was approximately $45,304,000, which included losses
from operations of $2,326,000, and $2,331,000 for the years ended December 31,
2003 and 2002 respectively. 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 will require additional funds to
achieve profitable operations. See "Management's Discussion and Analysis."

Going Concern
-------------

         As a result of our losses to date, working capital deficiency, and
accumulated deficit, the independent auditors report on our financial statements
for each of the years ended December 31, 1993 through 2003, 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 3 to the Notes to
our Consolidated Financial Statements.

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, 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 a ten-year term, which commenced in
1994 and expired in February, 2004. We are in the process of negotiating with
Dr. Pandey for the adoption of a similar employment agreement for a five year
term based upon increased compensation, but which agreement has not yet been
finalized. As of date of filing we have obtained a $5,000,000 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.

                                       23
<PAGE>

         It is contemplated that the new employment agreement if entered into
with Dr. Pandey would require certain payments 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. Should we fail to enter into a new employment agreement with Dr. Pandey,
we may have difficulty in enforcing the restrictive covenants which apply to his
old employment agreement.

         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 fifteen people. We expect to increase our staffing levels in
the future. Our ability to execute our strategies will depend in part upon our
ability to integrate such new employees into our 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 due to our limited staff and funding. 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.

                                       24
<PAGE>

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.

Risk of Doing Business in Nigeria
---------------------------------

         Last year we announced that we have incorporated a corporation in
Nigeria in order to manufacture, market and distribute a number of
pharmaceuticals and prescription nutraceuticals originating from the African
continent. Social, political and economic instability may be significantly
greater in Nigeria and many of the other African countries than that typically
associated with the United States and other industrialized countries. Varying
degrees of social, political and economic instability could significantly
disrupt our ability to conduct businesses in Nigeria.

         The currency of Nigeria has experienced significant fluctuations
against the U.S. dollar. Xechem Pharmaceuticals Nigeria Limited maintains its
books in the Nigerian currency, the Naira, and reports its Nigerian income taxes
with Naira financial reports. We may experience foreign currency exchange
volatility, which could cause us to incur significant income tax adjustments in
the future.

         In the past, interest rates in many African countries, including
Nigeria, are heavily dependent upon international trade and are accordingly
affected by protective trade barriers and the economic conditions of their
trading partners, principally, the United States. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the economies of the African countries.

         Governments in certain of the African countries, including Nigeria,
participate to a significant degree, through ownership interests or regulation,
in their respective economies. Action by these governments could have a
significant adverse effect on the economies of such countries.

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,

                                       25
<PAGE>

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.

Alembic Agreements
------------------

         We have entered into a series of agreements with Alembic, Limited.
Under its $3,000,000 convertible note, should Alembic fail to fund such note in
full we may lack the funds necessary to fund our anticipated operations in
Nigeria and/or domestically. Such loan is convertible into common stock at
Alembic's option at a substantial discount to the current market price for our
stock. Should Alembic elect to effect such conversion, it may become a
substantial stockholder of ours, at a valuation substantially dilutive of our
market valuation. If it does not elect to convert the loan, we will owe it a
substantial sum when the loan comes due, and may be unable to pay it.

         Under our royalty, distribution rights and joint cooperation agreement
with Alembic, we are obligated to pay it substantial royalties with respect to
our African and Indian activities and lesser royalties with respect to our U. S.
activities. Should we fail to generate significant gross margins on the sale of
our products in those areas, we may not be able to satisfy the obligations to
Alembic, which would supersede our royalty rights. In addition, Alembic has
rights of first refusal which could impair our ability to effectively market the
product in Africa and surrounding regions with other distributors.

         Our financing plan for Xechem Nigeria contemplates that we will obtain
additional financing from investors in Nigeria for certain aspects of the
production and distribution of Nicosan/Hemoxin in Nigeria. There can be no
assurances that we will be successful in obtaining financing in Nigeria and/or
that we will not experience unexpected costs or cost overruns in obtaining
regulatory approval for the product, buildout of the production facilities, cost
of production of the product and/or cost of distribution of the product. We may
be required to sell off a greater percentage of Xechem Nigeria than originally
contemplated and/or be required to modify the current royalty structure in place
as a condition to obtaining such financing, which could adversely impact our
operations. We have no guarantees that current or future legislation or business
practices in Nigeria will not adversely impact or ability to expatriate profits
and/or royalty payments from our operation in Nigeria.

                                       26
<PAGE>

Ceptor Corporation
------------------

         We have entered into a series of agreements regarding our subsidiary
Ceptor Corporation, intended to facilitate financing of the subsidiary and to
provide substantial incentives to the management team to effect such financing.
Should Ceptor fail to obtain independent financing, it may not be able to meet
its obligations and may not be able to bring product to market. The financing
structure in place, if successful, is intended to provide substantial capital to
Ceptor and a means whereby we would also obtain additional funding in
consideration for a lessening of our position in Ceptor. There can be no
assurances that the financing to Ceptor will be along the lines contemplated,
and there is a risk that it may be more dilutive than originally contemplated
and/or in a lesser aggregate amount than originally contemplated, which could
impair its ability to bring product to market. Even if Ceptor is adequately
financed, there can be no assurances that its products will receive the
necessary regulatory approval and/or prove effective in the treatment of the
diseases they are intended to treat.

Note Purchase Agreement
-----------------------

         We have received $2,800,000 of funding to date under the Note Purchase
Agreement, which calls for a funding of up to $6,000,000 from Marjorie Chassman
or her designees, all coming due 18 months from the initial funding. Should we
fail to receive the balance of the scheduled funding, we may be unable to
successfully fund our operations. We may lack the funds necessary to repay the
loan when due and/or may seek to negotiate a conversion of some or all of the
loan obligation to equity, which could be substantially dilutive of existing
stockholders.

Other Loans
-----------

         As noted in Item 6 below, we have borrowed additional monies from
various lenders besides those enumerated above. Should we fail to repay those
loans, such lenders could take actions adverse to us.

                                       27
<PAGE>

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 us 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 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 New Brunswick Technology
Center, 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. Our base
rent is approximately $13,400 per month, subject to annual increases, which
commenced July 1, 2002, and continues for five years with base rent of
approximately $15,700 per month in year five. In addition to base rent, we are
responsible for our proportionate share of taxes and all other expenses of the
building. We are up to date with our current monthly rent; however, we are
$80,000 in arrears from 1998 and $26,000 for a security deposit that was due
with the signing of the lease.

         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 HEMOXIN(TM), paclitaxel or
other products in large-scale commercial quantities at 100 Jersey Avenue, 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. We intend to build a manufacturing facility for
NICOSAN(TM)/HEMOXIN(TM) in Nigeria.



ITEM 3.    LEGAL PROCEEDINGS

         We filed an anti-trust lawsuit against Bristol-Myers Squibb on March
17, 2003, to secure damages, injunctive and other equitable relief for
Bristol-Myers Squibb's violations of federal and state antitrust laws. The case,
filed in the United States District Court, Northern District of Illinois, arises
out of Bristol-Meyers Squibb's allegedly unlawful maintenance of a monopoly over
the United States market for paclitaxel based anti-cancer drugs and conspiracy
to further its monopoly.

         Our lawsuit alleges that Bristol-Myers Squibb is liable for violation
of Section 2 of the Sherman Act (15 USC 2). We are seeking an award in damages
in the sum of at least $50 million dollars and said damages to be trebled to at
least $150 million dollars. The case was dismissed in late 2003, and we have
since filed an appeal of the dismissal with the U.S. Court of Appeals for the
Seventh Circuit. The appeal has been briefed and is awaiting further action by
the Court. There can be no assurances as to the outcome of this lawsuit.

                                       28
<PAGE>

         In April 2003, a suit was filed against us by our former patent
counsel, Dorsey Whitney, LLP seeking legal fees and costs. We settled the
lawsuit on August 25, 2003 by entering into a stipulation for confession of
judgment in the amount of $200,000. Execution of the judgment by agreement has
been delayed for 12 months. To secure the judgment, we have granted to our
former counsel a security interest in the net proceeds of our lawsuit against
Bristol Myers Squibb, exclusive of the 40% interest in such lawsuit proceeds
assigned to Marjorie Chassman and exclusive of all contingency legal fees
payable by us in connection with the lawsuit. As part of the settlement, we
provided releases to our former counsel.

         Xechem formerly had entered into a license agreement with M.D. Anderson
Cancer Center for certain paclitaxel formulation rights. That license has since
been cancelled, with all investment therein by us having been written off. In
March, 2000 we filed a declaratory judgment action in the United States District
Court against MD Anderson and the Board of Regents of the University of Texas
seeking to reinstate the license and to change inventorship and ownership of the
corresponding patent. The lawsuit was dismissed in 2003 and in January, 2004 we
filed an appeal of the dismissal in the United States Court of Appeals, and the
matter is still pending.

         The outcome of these, and all other legal matters, is not expected to
have a negative effect on the financial position, results of operations or cash
flows of the Company.


ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

         On or about March 12, 2003, we delivered to stockholders an Information
Statement which disclosed information concerning two matters as to which we had
received approval of our stockholders by consent, namely a proposed reverse
stock split and a proposed amendment to our Certificate of Incorporation to
increase the number of authorized shares of our common stock. The Information
Statement was filed with the Securities and Exchange Commission on March 12,
2003. We make reference to this Information Statement for further information
concerning these matters.

                                       29
<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, 2002 through December 31, 2003:

<TABLE>
<CAPTION>
                                  Common Stock

---------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------- -------------
                     2002          2002          2002          2002          2003          2003          2003           2003
                    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         .02           .015          .008         .0014         .0008          .53            .33           .305
---------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------- -------------
    Low Bid          .005          .006         .0013         .0007         .0001         .0001           .17           .14
---------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------- -------------
</TABLE>

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

         In May 2003 we had a reverse stock split of 3000 to 1. Our trading
symbol also was changed at that time from "ZKEM" to "XKEM".

         As of April 2, 2004, there were 397 record holders and approximately
6,500 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 April 2, 2004 there
were 2,500 outstanding shares of Class A Preferred Stock. As of April 2, 2004
there were 923 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, 2003, 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 the year ended December 31, 2003, we issued a total of
63,581,057 shares (post-split) of our Common Stock to holders of convertible
debt in connection with the conversion of such indebtedness. The amount of
indebtedness converted as a result of such transactions was $1,003,007. We did
not use the services of any finders or securities broker-dealers in connection
with these transactions. We believe that all shares issued in the above
transactions are exempt from registration under the Securities Act by virtue of
Section 3(a)(9) of the Securities Act and/or Regulation D promulgated
thereunder.

                                       30
<PAGE>

         During December 2003 we canceled all outstanding Shares of Class C,
Series 6 Stock to Dr. Ramesh C. Pandey due to reverse split, we then issued a
total of 923 Shares of Class C, Series 6 Stock to Dr. Ramesh C. Pandey, the
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. We believe that all Class C, Series
6 Stock issued in the above transactions are exempt from registration under the
Securities Act by virtue of Section 4(2) of the Securities Act.

                                       31
<PAGE>

ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS2

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), Xechem (India) Pvt. Ltd. and Xechem
Pharmaceuticals Nigeria Limited (formed in 2002) 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, 2003 vs. The Year Ended December 31, 2002

         The following table sets forth certain statement of operations data of
Xechem for each of the years ended December 31, 2003, and December 31, 2002 for
the cumulative period from inception (March 15, 1990) to December 31, 2003.

<TABLE>
<CAPTION>
                                                  YEARS ENDED             CUMULATIVE
                                                  DECEMBER 31         FROM INCEPTION TO
                                              2003           2002            2003
                                                       ( in thousands)

<S>                                       <C>             <C>             <C>
Revenue                                   $       318     $       269     $     1,948
Research and development expense          $       773     $       698     $    11,424
General and administrative expenses       $     1,866     $     1,902     $    16,907
Writedown of inventory and intangibles    $         5     $        --     $     1,861
Loss from operations                      $    (2,326)    $    (2,331)    $   (28,244)
Other expense                             $    (3,261)    $    (1,511)    $   (18,745)
Sale of New Jersey net operating loss
carryforwards                             $    90,000     $   243,000     $ 1,685,000
Net Loss                                  $    (5,497)    $    (3,599)    $   (45,304)
</TABLE>

_________________

         2 Some of the statements included in Item 6, 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.

                                       32
<PAGE>

Revenue
-------

         Revenue increased $49,000 or 18% from $269,000 for the year ended
December 31, 2002 to $318,000 for the year ended December 31, 2003. The $318,000
in revenues consisted of approximately $35,000 in consulting fees, and
approximately $158,000 in lab service fees for Xechem Inc. XetaPharm's revenues
from the sale of nutraceuticals remained consistent at approximately $13,000 for
both years ended December 31, 2003 to the year ended December 31, 2002.
Xetapharm also recognized revenue from consulting fees of approximately $112,000
an increase of approximately $44,000 or 65%.

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

         Research and development increased $75,000 or 11% from $698,000 for the
year ended December 31, 2002 to $773,000 for the year ended December 31, 2003.
Our research and development expenditures emphasize our new sickle cell drugs
NIPRISAN (new names NICOSAN(TM)/HEMOXIN(TM)) and a new start up entity, Xechem
Nigeria Ltd. which will be in place in 2004, start up costs for this project
were approximately $208,000 in 2003 as compared to $72,000 in 2002. We are still
emphasizing research on compounds for niche generic anticancer, antiviral and
antibiotic products, which enjoy significant market demand but are no longer
subject to patent protection.

         The major expenses of 2003 were: salaries and wages of approximately
$220,000 which decreased by approximately 9% or $21,000 as compared to 2002 due
to reduced hours in the second quarter, depreciation expense of approximately
$150,000 a decrease of approximately $35,000 or 19% as compared to 2002 due to a
number of fixed assets being fully depreciated in 2002, outside services of
approximately $77,000 as compared to $ 0. in 2002 due to the start of clinical
testing and trials of our new drug, repairs and lab materials and supplies
remained constant at approximately $80,000 for each year, and the start up costs
for Xechem Nigeria Ltd. and our new sickle cell drug of approximately $208,000.

         We anticipate expenses to increase for 2004 with our launching of
NICOSAN(TM) in Nigeria and the clinical testing and trials of our new drug
HEMOXIN(TM) in the United States.

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

         General and administrative expenses decreased $36,000, or less than 2%,
for the year ended December 31, 2003 as compared to the year ended December 31,
2002. The major expenses for the year were from salaries of approximately
$490,000 which increased by approximately 15% or $65,000 mainly from Xetapharm,
which were offset by the increase in service fees paid to us, consulting fees
which increased by approximately 3% or $6,000 primarily connected to the sickle
cell project and investor relations, rent expense increased approximately
$58,000 or 45% for the year ended December 31, 2003 as compared to the year
ended December 31, 2002 this was due to the rent increase associated with our
new lease, and legal fees increased in for the year ended December 31, 2003 as
compared to the year ended December 31, 2002 by approximately $290,000; this was
caused by our new financing activities and public registration, reporting and
compliance activity in 2003. Our major decrease resulted when we wrote-down
promissory notes of $265,000 in 2002. .

         Interest expense for non-related parties was approximately $3,193,000
in the year ended December 31, 2003, an increase of approximately $1,866,000 or
141% as compared to the year ended December 31, 2002. The Company's 2003 results
were negatively impacted by a change of $1,853,000 (an increase of $1,400,000)
related to the non cash amortization of beneficial conversion features.

                                       33
<PAGE>

         On May 23, 2002 we received $1,150,000 from "Unsecured Convertible
Notes" less $130,000 in legal and finder's fees. The term of these notes is for
two (2) years with simple interest accruing at the annual rate of 8% payable on
May 23, 2004 (the Maturity Date). These notes are convertible into shares of our
common stock, par value $.00001 per share after six months from receipt, the
conversion price of the Notes is the lower of $0.005 or 50% of the lowest
closing bid price for the Shares on the OTC Pink Sheets, the OTC Bulletin Board,
the Nasdaq SmallCap or NMS Markets or any stock exchange, or if not then trading
on any of the foregoing, such other principal market or exchange where the
Shares are listed or traded for 30 trading days prior to but not including the
date of conversion. The interest on those notes accrues and is payable upon
maturity, and at the option of the holder may be converted into common stock,
per the aforesaid formula. In addition, the holders of Unsecured Convertible
Notes were issued five year warrants to purchase common stock at an exercise
price of $0.30 per share, with .0133 warrants issued for each $1.00 of
investment in notes. These notes may not be redeemed or paid before the Maturity
Date without consent of the Borrower.

During 2003 we had the following activity concerning the "Unsecured Convertible
Notes":

<TABLE>
<CAPTION>
--------------------- ----------------- -------------------- ------------------- ------------------ ------------------
Balance 01/01/03      Additions         Conversions          Interest            Shares Issued      Balance
                                                                                 Post-split         12/31/03
--------------------- ----------------- -------------------- ------------------- ------------------ ------------------
<C>                   <C>               <C>                  <C>                 <C>                <C>
$ 1,133,500           $50,000           $866,151.48          $68,497.50          62,680,970         $317,348.52
--------------------- ----------------- -------------------- ------------------- ------------------ ------------------
</TABLE>


         The $50,000 addition to the notes resulted in a $14,483.33 charge to
operations with another $35,516.67 in charges to be expensed over the life of
the note. This is in addition to a charge to operations of approximately
$1,500,000 relating to the beneficial conversion feature and modifications
thereof during 2002. We also have accrued interest relating to the notes of
$35,253.42

         As of December 31, 2003 we had $144,173 in outstanding debentures
bearing interest at 8% and maturing in 2011. At December 31, 2003 there was
$14,029 in accrued interest relating to the debentures. In March 2003 we
converted $68,358.34 of principal and interest into 900,087 shares of common
stock post-split. After a series of modifications the unpaid principal and
interest on the debentures, are convertible into common stock using a conversion
price of $ 0.0025 per share.

         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.

         A second tranche of convertible debentures aggregating $367,000 at
December 31, 2002 was increased by an additional funding of $767,000 by certain
investors during the twelve months ended December 31, 2003, which debentures
were converted to a term loan bearing simple interest at 8% per annum, due on
the earliest to occur of the settlement, dismissal or final adjudication of the
Bristol Myers Squibb lawsuit (the "BMS Lawsuit), plus additional interest equal
to forty percent (40%) of net recovery with respect to the BMS Lawsuit, subject
to an adjustment factor of the net recovery to us (after deduction of legal fees
and costs). We have granted the term loan holders a security interest in the BMS
lawsuit. These notes will be due on the later of 18 months from the date of the
note purchase agreement or final disposition of the Bristol Myers Squibb lawsuit
(provided that the additional interest, if any, as referenced above, will be due
on disposition of the lawsuit). As of December 31, 2003 we accrued interest of
$70,506 associated with this loan.

                                       34
<PAGE>

Agreement to Fund $6,000,000 Unsecured Loan
-------------------------------------------

         We have entered into a letter agreement ("Note Purchase Agreement")
dated November 11, 2003 with Margie Chassman and designees (the "Investor") to
issue $6,000,000 of unsecured promissory notes (the "New Notes") over a 12 month
period, to be funded: (i) $700,000 by November 25, 2003; (ii) $650,000 by
December 24, 2003; (iii) $500,000 per month for January and February, 2004; (iv)
$450,000 for March, April and May, 2004; (v) $400,000 for June, July, August,
September and October, 2004; and (vi) $300,000 for November, 2004. The loans for
2004 are due on the first business day of the month, subject to a 30-day grace
period. The New Notes will bear interest at 8% per annum and mature 18 months
from the date of the agreement. The funding of the New Notes was conditioned
upon satisfaction and subject to all of other matters discussed below and
execution of definitive documents consistent with the letter agreement.

Recapitalization of Company
---------------------------

         We had previously issued a series of convertible notes (the
"Convertible Notes") that were convertible into our common stock at a conversion
rate equal to 50% of the lowest bid price of our stock for the 30-day period
immediately preceding the date of conversion. The Note Purchase Agreement
acknowledges that in consideration for $175,000 of pre-closing advances on
October 27, 2003, the terms of all Convertible Notes held or subsequently
acquired by the Investor on or following October 27, 2003 are to be convertible
as to principal plus accrued, unpaid interest at a conversion price of $0.0025
per share. As of April 2, 2004, an aggregate of 151,081,266 shares of common
stock have been issued pursuant to conversions under this Convertible Note,
which has resulted in (together with all other shares of common stock
outstanding) issued and outstanding common stock of 165,750,348 shares. At such
date an aggregate of $141,700 of unpaid principal and interest were owed on such
notes, which if converted at $0.0025 per share, would result in the issuance of
an additional 56,679,941 shares of common stock. As interest continues to
accrue, this will increase the amount of stock issuable upon conversion. The
Convertible Notes will continue to be subject to the limitation that the holder
not own in excess of 4.9% of our outstanding common stock at any time after
giving effect to the conversion. In addition, the Note Purchase Agreement
provided for the grant to the Note Purchaser of a 5-year warrant to purchase an
additional 30,000,000 shares of our common stock at $0.0025 per share, together
with a cashless exercise provision, and with demand and piggyback registration
rights for the shares of common stock issuable pursuant to conversion of the
notes and exercise of the warrant

         The Note Purchase Agreement loan contemplates as a condition to the
funding of the corresponding loan that each of Dr. Ramesh Pandey and William
Pursley receive options to acquire 20% of the fully diluted common stock of us
after giving effect to the sum of (i) the then outstanding capital stock of the
Company, plus (ii) the shares issuable or conversion of the notes and warrant
issued to the Investor; plus (iii) the shares issuable to Dr. Pandey and Mr.
Pursley per this option; and (iv) any shares issuable to the Investor and to the
holders of the debt secured by the 40% participation in the Bristol Myers Squibb
lawsuit, as a result of any restructuring of such debt. In connection with the
restructuring of Mr. Pursley's employment arrangement in April, 2004, he was
granted an amended and restated option agreement by us, modifying his options to
a fixed sum of 43,000,000 shares, exercisable at $0.0025 per share; Dr. Pandey's
option as contemplated by the Note Purchase Agreement is exercisable at $0.0001
per share.

         The Note Purchase Agreement also calls for the granting of certain
third party note holders who hold $156,000 of loans to have a 30 day option to
exchange such debt for common stock at $0.01 per share.

                                       35
<PAGE>

         As of December 31, 2003 we have received $1,350,000 from the Note
Purchase Agreement loan and have recorded $9,600 in accrued interest. (An
additional $1,450,000 has been funded through April 8, 2004.)

         In 2003 we have received $88,000 from eight short-term notes. These
notes are all for one year with interest from 8% - 12% accrued interest as of
December 31, 2003 is $4,033. Four of the note holders are to be issued 360,000
shares of our common stock; this resulted in a charge to operations of $77,800.
Two notes totaling $20,000 can be converted into common stock with a conversion
price of $ 0.01 The intrinsic value of the beneficial conversion feature of $
20,000 has been allocated to paid in capital and is being amortized over the
term on the notes.

         During December of 2003 we received approval from the New Jersey
Economic Development Authority ("NJEDA") to sell approximately $109,000 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 2003 and 2002, Xechem and its subsidiaries transferred the tax benefits
of $109,000 and $303,000 in exchange for $100,000 and $243,00 respectively,
pursuant to the New Jersey State Tax Credit Transfer program. We received
$100,309 net pursuant to this program in December 2003.

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

         On December 31, 2003, we had cash of $580,000, negative working capital
of $1,989,000 and stockholders' equity of $11,130,000.

         We have received approximately $2,509,000 in the form of proceeds from
debentures, short-term loans, related party loans and equity securities. Cash
used in operating activities was $1,272,000 during 2003.

         As a result of our net losses to December 31, 2003 and accumulated
deficit since inception, our auditors, in their report on our financial
statements for the year ended December 31, 2003, 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.

         Our research and development activities are at an early stage and the
time and money required developing the commercial value and marketability of our
proposed products will require significant cash expenditures for an indefinite
period in the future. In order to meet these cash needs we have entered into two
recent financing agreements.

                  (1) We have entered into a letter agreement ("Note Purchase
         Agreement") dated November 11, 2003 with Margie Chassman and designees
         (the "Investor") to issue $6,000,000 of unsecured promissory notes (the
         "New Notes") over a 12 month period, as notice fully described in
         "Agreement to Fund $6,000,000 Unsecured Loan" and Recapitalization of
         Company," above.

                  (2) We have entered into a Memorandum of Understanding (MOU)
         dated December 3, 2003 with Alembic, Limited. Funding will be in two
         parts: (i) a subscription agreement to purchase $640,000 of our common
         stock, which subscription was funded in March, 2004; and (ii) a
         $3,000,000 loan that included a $200,000 advance in December 2003 with
         the balance due in 2004 after agreement is finalized; the MOU was
         superceded by a definitive convertible note dated April 7, 2004. (See
         Financial Statements Note 17 Subsequent Events.)

                                       36
<PAGE>

         In view of the matters described in the previous paragraph our
continued operations are dependent upon our ability to meet our financing
requirements on a continuous basis and to succeed in our 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 we be unable to continue in
existence.

         Additionally we have expended and will continue to expend substantial
funds in connection with the research and development of our products. As a
result of these expenditures, and even with revenues anticipated from
commencement of sales of niprisan and 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.

Critical Accounting Policies and Estimates
------------------------------------------

Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and the related disclosure of
contingent assets and liabilities. On an on-going basis, management evaluates
its estimates and judgments, including those related to revenue recognition,
research and development costs, inventory valuation and equity financing.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions Management believes the following critical accounting
policies, among others, affect its more significant judgments and estimates used
in the preparation of its consolidated financial statements

                                       37
<PAGE>

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 any convertible debt is to capitalize the intrinsic value of the
beneficial conversion feature and allocate it to paid-in capital. The debt
discount is then amortized over the life of the debt. As amounts are converted
the unamortized intrinsic value is charged to interest expense.


Recent Accounting Policies

         FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN No.
45), was issued in November 2002. FIN No. 45 addresses the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. Under FIN No. 45,
recognition and initial measurement provisions of this new standard, which
require a guarantor to recognize a liability at inception of a guarantee at fair
value, are effective on a prospective basis to guarantees issued or modified
after December 31, 2002. The adoption of FIN No. 45 did not have a significant
impact on our consolidated financial position or results of operations.

         In November 2002, the Emerging Issues Task Force, "EITF", reached a
consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Elements"
(EITF No. 00-21), which addresses certain aspects of accounting for arrangements
that include multiple products or services. Specifically this issue states that
in an arrangement with multiple deliverables, the delivered items should be
considered a separate unit of accounting if: (1) the delivered items have value
to the customer on a stand alone basis, (2) there is objective and reliable
evidence of the fair value of the undelivered items, and (3) the arrangement
includes a general right of return relative to the delivered item, and delivery
or performance of the undelivered items is considered probable and substantially
within the Company's control. Additionally, the Issue states that the
consideration should be allocated among the separate units of accounting based
upon their relative fair values. If there is objective and reliable evidence of
the fair value of the undelivered items in an arrangement but no such evidence
for the delivered items, then the residual method should be used to allocate the
consideration. Under the residual method, the amount of consideration allocated
to the delivered items equals the total consideration less the aggregate fair
value of the undelivered items. Accordingly, the application of EITF No. 00-21
may impact the timing of revenue recognition as well as the allocation between
products and services. The adoption of EITF No. 00-21 for transactions entered
into after July 1, 2003 did not have a significant impact on our consolidated
financial statements.


         In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities". The primary objectives of this
interpretation are to provide guidance on the identification of entities for
which control is achieved through means other than through voting rights
("variable interest entities") and how to determine when and which business
enterprise (the "primary beneficiary") should consolidate the variable interest
entity. This new model for consolidation applies to an entity in which either
(i) the equity investors (if any) do not have a controlling financial interest;
or (ii) the equity investment at risk is insufficient to finance that entity's
activities without receiving additional subordinated financial support from
other parties. In addition, FIN 46 requires that the primary beneficiary, as
well as all other enterprises with a significant variable interest entity, make
additional disclosures. Certain disclosure requirements of FIN 46 were effective
for financial statements issued after January 31, 2003. In December 2003, the
FASB issued FIN 46 (revised December 2003), "Consolidation of Variable Interest

                                       38
<PAGE>

Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The
effective dates and impact of FIN 46 and FIN 46-R are as follows: (i)
Special-purpose entities ("SPEs") created prior to February 1, 2003. The Company
must apply either the provisions of FIN 46 or early adopt the provisions of FIN
46-R at the end of the first interim or annual reporting period ending after
December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003. The Company
is required to adopt FIN 46-R at the end of the first interim or annual
reporting period ending after March 15, 2004. (iii) All entities, regardless of
whether an SPE, that were created subsequent to January 31, 2003. The provisions
of FIN 46 were applicable for variable interests in entities obtained after
January 31, 2003. The Company does not have any arrangements with variable
interest entities that will require consolidation of their financial information
in our financial statements

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liability and Equity". SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liability and equity. It also
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 15, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. It is to be implemented by reporting a cumulative effect of a change in an
accounting principal of financial instruments created before the issuance date
of the Statement and still existing at the beginning of the interim period of
adoption. Restatement is not permitted. The adoption of SFAS No. 150 did not
have a material impact on our consolidated financial position or results of
operations.

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

                                       39
<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.

                                       40
<PAGE>

INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders,
Xechem International, Inc. (A Development Stage Enterprise) and Subsidiaries:

We have audited the accompanying consolidated balance sheet of Xechem
International, Inc. (A Development Stage Enterprise) and Subsidiaries as of
December 31, 2003, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended and for the period
from March 15, 1990 (date of inception) to December 31, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the consolidated financial statements of Xechem
International, Inc. (A Development Stage Enterprise) for the period March 15,
1990 (date of inception) to December 31, 2002. Such statements are included in
the cumulative totals from inception to December 31, 2003 on the consolidated
statements of operations, cash flows and stockholders' equity, which reflects a
net loss of $39,807,000 of the related cumulative total. Those statements were
audited by other auditors whose reports have been furnished to us and our
opinion, insofar as it relates to amounts for the period March 15, 1990 (date of
inception) to December 31, 2002 included in the cumulative totals, is based
solely upon the reports of the other auditors.

We conducted our audit 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 audit provides a
reasonable basis for our opinion.

In our opinion, based on our audit and the reports of other auditors insofar as
it relates to amounts for the period March 15, 1990 (date of inception) to
December 31, 2002 included in the cumulative totals, these financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Xechem International, Inc. (A Development Stage
Enterprise) and Subsidiaries as of December 31, 2003, and the consolidated
results of their operations and their cash flows for the year then ended and for
the period from March 15, 1990 (date of inception) to December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America.



                                      F-1
<PAGE>

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully described in
Note 3 to the consolidated financial statements, the Company has sustained a
significant operating loss in 2003 and has a working capital deficiency of
$1,989,000 and an accumulated deficit of $45,304,000 as of December 31, 2003.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans regarding those matters are also
described in Note 3. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.



/s/ WithumSmith+Brown P.C.
New Brunswick, New Jersey
March 26, 2004, except for Note 17 (2) which is dated March 31, 2004 and (1)
   which is dated
    April 7, 2004



                                      F-2
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS


To the Audit Committee of Xechem International, Inc.

We have audited the accompanying consolidated balance sheet of Xechem
International, Inc. and Subsidiaries (a Development Stage Company) as of
December 31, 2002 and the related consolidated statements of operations,
stockholders' equity and cash flows for the period ended December 31, 2002. The
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audit.

We conducted our audit 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 consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statements presentation. We
believe that our audit provides a reasonable basis for our opinion.

In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Xechem
International, Inc. and Subsidiaries (a Development Stage Company) as of
December 31, 2002 and the consolidated results of their operations and their
consolidated cash flows for the period ended December 31, 2002 in conformity
with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred substantial losses and negative
cash flows since inception through the period ended December 31, 2002, had a
working capital deficiency, and have realized minimal revenues to date. The
Company's historical losses and illiquid financial position raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.


WISS & COMPANY, LLP
Livingston, New Jersey
March 6, 2003




                                      F-3
<PAGE>

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

                                                                                                            As Reclassified
                                                                                        December 31, 2003  December 31, 2002
                                                                                        -----------------  -----------------
<S>                                                                                          <C>                <C>
CURRENT ASSETS
   Cash                                                                                      $ 580,000          $ 135,000
   Accounts receivable, net of allowance of $7,000 (2003) and $ -0- (2002)                      27,000             22,000
   Inventory                                                                                         -              5,000
   Prepaid expenses and other current assets                                                   109,000              1,000
                                                                                        -------------------------------------

   TOTAL CURRENT ASSETS                                                                        716,000            163,000

 Equipment, less accumulated depreciation of $1,266,000 (2003) and
     $1,185,000 (2002)                                                                         423,000            382,000
 Leasehold improvements, less accumulated amortization of $705,000
     (2003) and $637,000 (2002)                                                                310,000            378,000
 Deposits                                                                                       53,000             45,000
 Deferred financing charges                                                                 13,985,000                  -
 Deferred consulting charge                                                                  1,275,000                  -
                                                                                        -------------------------------------

TOTAL ASSETS                                                                              $ 16,762,000          $ 968,000
                                                                                        =====================================

CURRENT LIABILITIES
   Accounts payable                                                                          $ 601,000          $ 637,000
   Accrued expenses to related parties                                                         594,000            515,000
   Accrued expenses to others                                                                  380,000            211,000
   Note payable to bank                                                                         55,000             55,000
   Notes payable to related party                                                              595,000            493,000
   Notes payable                                                                               200,000                  -
   Convertible notes, net of discount of $99,000 (2003) and $ -0- (2002)                       218,000                  -
   Capital leases: short-term                                                                   27,000              6,000
   Other current liabilities                                                                    35,000             36,000
                                                                                        -------------------------------------

     TOTAL CURRENT LIABILITIES                                                               2,705,000          1,953,000
                                                                                        -------------------------------------

Notes payable                                                                                2,484,000                  -
Notes payable to related parties                                                               340,000            384,000
Capital leases: long term                                                                       86,000             18,000
Convertible notes, net of discount of  $ -0- (2003) and
     $1,133,000 (2002)                                                                               -            368,000
Convertible debentures, net of discount of $67,000
     (2003) and $128,000 (2002)                                                                 17,000             16,000
                                                                                        -------------------------------------

TOTAL LIABILITIES                                                                            5,632,000          2,739,000
                                                                                        -------------------------------------

COMMITMENTS & CONTINGENCIES

STOCKHOLDERS EQUITY (DEFICIT)
   Class A voting preferred stock,$ .00001 par value, 2,500 shares
     authorized; 2,500 shares issued and outstanding (2003 and 2002)                                 -                  -
   Class B 8% preferred stock,$ .00001 par value, 1,150 shares
     authorized; none outstanding                                                                    -                  -
   Class C preferred stock,$ .00001 par value, 2,996,350 shares authorized;
     923 issued and outstanding in (2003) and 14  issued and outstanding in (2002)                   -                  -
   Common stock,$.00001 par value, 499,950,000,000 shares authorized;
     64,240,000 (2003) and 659,000 (2002)  issued and outstanding                                1,000             20,000
   Unearned compensation expense                                                                     -           (158,000)
   Additional paid in capital                                                               56,433,000         38,174,000
   Deficit accumulated during development stage                                            (45,304,000)       (39,807,000)
                                                                                        -------------------------------------

   TOTAL STOCKHOLDERS EQUITY (DEFICIT)                                                      11,130,000         (1,771,000)
                                                                                        -------------------------------------

TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                       $ 16,762,000          $ 968,000
                                                                                       =====================================

The notes to consolidated financial statements are an integral part of these statements.
</TABLE>


                                                             F-4
<PAGE>

                                   XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
                                         (A DEVELOPMENT STAGE ENTERPRISE)
                                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                               CUMULATIVE FROM
                                                                                                  MARCH 15, 1990
                                                                 YEARS ENDED                  DATE OF INCEPTION)
                                                                 DECEMBER 31,                         TO
                                                     ---------------------------------            DECEMBER 31
                                                          2003                 2002                  2003
                                                     -------------         ------------           -----------
<S>                                                 <C>                    <C>                    <C>
Revenues:                                           $    318,000           $    269,000           $  1,948,000

EXPENSES:
   Research and development                              773,000                698,000             11,424,000
   General and administrative                          1,866,000              1,902,000             16,907,000
   Writedown of inventory
      & intangibles                                        5,000                      0              1,861,000
                                                   -----------------------------------------------------------
                                                       2,644,000              2,600,000             30,192,000
                                                   -----------------------------------------------------------

   LOSS FROM OPERATIONS                               (2,326,000)            (2,331,000)           (28,244,000)
                                                   -----------------------------------------------------------

OTHER INCOME(EXPENSE) - NET:

   Interest Expense - Related Party                      (72,000)               (70,000)            (8,941,000)

   Interest Expense                                   (3,193,000)            (1,327,000)            (9,997,000)

   Other(net)                                              4,000               (114,000)               193,000
                                                   -----------------------------------------------------------
                                                      (3,261,000)            (1,511,000)           (18,745,000)
                                                   -----------------------------------------------------------

NET LOSS BEFORE INCOME TAXES                          (5,587,000)            (3,842,000)           (46,989,000)

   Sale of New Jersey net operating
    loss carryforwards                                    90,000                243,000              1,685,000
                                                   -----------------------------------------------------------

   NET LOSS                                         $ (5,497,000)          $ (3,599,000)          $(45,304,000)
                                                    ==========================================================

BASIC AND DILUTED LOSS PER COMMON SHARE             $      (0.53)          $ (12.54)
                                                    ================================

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - BASIC AND DILUTED                10,379,064             287,000
                                                    ================================
</TABLE>



                                                       F-5
<PAGE>
<TABLE>
<CAPTION>
                                             XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
                                                  (A DEVELOPMENT STAGE ENTERPRISE)
                                       CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
                               FOR THE PERIOD MARCH 15, 1990 (DATE OF INCEPTION) TO DECEMBER 31, 2003

                                                                                                                          Deficit
                                                                                                                        Accumulated
                                                                  Number                Unearned      Additional Paid-    During
                                                                    of         Par     Compensation    In-Capital (As   Development
                                                                  Shares      Value       Expense       Reclassified)      Stage
                                                              ---------------------------------------------------------------------
<S>                                                               <C>      <C>       <C>             <C>            <C>
    Common stock issued to Dr. Pandey in 1990 in exchange
      for equipment  recorded at transferor'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        1,000        -         -           13,840,000

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

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

    Private placements, less related expenses:
      In 1995 at $ 3.00 per share                                      -         -         -              389,000
      In 1996 at $ 3.00 per share, net of a related 66,000
        shares returned by Dr. Pandey                                  -         -         -               53,000
      In 1997 at $ 0.05 per share                                  15,000        -         -            2,291,000

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

    Conversion of preferred stock into common
      stock at $ 1.25 to $ 1.75 per share less
       related costs:
                                            In 1996                 1,000       -          -            1,995,000
                                            In 1997                15,000     1,000        -            2,131,000

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

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

    Conversion of Dr. Pandey's preferred stock
      and debt into common stock in 1997 at
      $ 0.0625 per share                                            6,000       -          -            1,214,000

    Other                                                             -         -          -               16,000

    Private placement at $ 0.05 per share                           4,000       -          -              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                                         3,000       -          -              440,000

    Stock issued to Fortress Financial at $ 0.0001 per share          -         -          -                 -

    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                                           15,000    1,000        -              444,000

    Conversion of debt due related parties in 1999 at
      $ 0.01 per share                                              15,000      -          -              360,000

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

     Net loss from inception to December 31, 1999                                                                     (32,493,000)
                                                              ---------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1999                                       80,000  $   2,000   $   -        $ 32,740,000   $ (32,493,000)
</TABLE>


                                                                F-6
<PAGE>

<TABLE>
<CAPTION>
                                             XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
                                                  (A DEVELOPMENT STAGE ENTERPRISE)
                                       CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
                               FOR THE PERIOD MARCH 15, 1990 (DATE OF INCEPTION) TO DECEMBER 31, 2003

                                                                                                                          Deficit
                                                                                                                        Accumulated
                                                                  Number                Unearned      Additional Paid-    During
                                                                    of         Par     Compensation    In-Capital (As   Development
                                                                  Shares      Value       Expense       Reclassified)      Stage
                                                              ----------------------------------------------------------------------
<S>                                                               <C>      <C>       <C>             <C>            <C>
 Stock options exercised at $ .01 per share                           -          -         -                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             27,000      1,000       -              (1,000)

 Conversion of debt to shares of Common Stock @ $0.01 per
     share                                                           5,000        -         -             164,000

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

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

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

 Conversion of debt to shares of Common Stock
     @ $0.01 per share                                               1,000        -         -              22,000

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

 Beneficial Conversion feature 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                                     114,000  $ 3,000     (406,000)     $ 34,100,000   $ (34,464,000)

 Stock issued for services rendered                                 2,000       -         -               68,000

  Amortization of unearned stock compensation                         -          -      197,000              -

 Stock options exercised at $ .01 per share                           -          -         -                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                      1,000        -         -               15,000

Shares issued upon conversion of debentures                         9,000    1,000         -               68,000

    Net loss for year ended December 31, 2001                         -          -         -                 -        (1,744,000)

                                                              --------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2001                                     126,000  $ 4,000     (284,000)     $ 34,565,000   $ (36,208,000)

Shares issued upon conversion of debentures
     @ $  .001 per share                                           44,000    1,000                        188,000

Stock issued for services rendered @ $.007 per share                  -                                   10,000

Stock options exercised @ $ .01/share                                 -

Amortization of unearned stock compensation                                             45,000

Beneficial conversion feature of notes payable                                                             52,000
</TABLE>



                                                                F-7
<PAGE>

<TABLE>
<CAPTION>
                                             XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
                                                  (A DEVELOPMENT STAGE ENTERPRISE)
                                       CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
                               FOR THE PERIOD MARCH 15, 1990 (DATE OF INCEPTION) TO DECEMBER 31, 2003

                                                                                                                          Deficit
                                                                                                                        Accumulated
                                                                  Number                Unearned      Additional Paid-    During
                                                                    of         Par     Compensation    In-Capital (As   Development
                                                                  Shares      Value       Expense       Reclassified)      Stage
                                                              ----------------------------------------------------------------------
<S>                                                               <C>      <C>       <C>             <C>            <C>
Shares issued upon conversion of debentures@
   $ .001 per share                                                 20,000     1,000                       74,000

Amortization of unearned stock compensation                                            44,000

Stock options issued @$ .006/share : 16,000,000 options                               160,000)            160,000

Amortization of stock options compensatory
     charge over service period                                                         40,000

Stock options exercised @ $ .006/share                             2,000                                   30,000

Beneficial conversion feature of debentures                                                               148,000

Record value of warrants issued                                                                           272,000

Beneficial conversion feature of notes payable                                                             35,000

Shares issued upon conversion of debentures@
     $  .001 per share                                             95,000     3,000                       318,000

Stock issued for services rendered @ $  .003 per share              7,000                                  60,000

Amortization of unearned stock compensation                                             45,000

Amortization of beneficial conversion feature of
     notes payable                                                                                        104,000

Amortization of stock options compensatory charge
     over service period                                                                40,000

Shares issued upon conversion of debentures
     @ $  .0005 per share                                         362,000    11,000                       533,000

Stock issued for services rendered @ $  .0007 per share             3,000                                   7,000

Amortization of unearned stock compensation                                             32,000

Amortization of beneficial conversion feature of notes
     payable                                                                                              662,000

Amortization of stock options compensatory charge
     over service period                                                                40,000

Finders fee for convertible debt issuance                                                                (130,000)

Record debt discount on notes & debentures                                                              1,068,000

Cost incurred with stock options issued for service                                                        18,000

  Net loss for the year ended December 31, 2002                                                                       (3,599,000)
                                                              --------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2002 (AS RECLASSIFIED)                   659,000  $ 20,000  $(158,000)      $ 38,174,000   $ (39,807,000)

Effect of Reverse Stock Split                                                (20,000)                     20,000

Shares issued upon conversion of notes @ an avg of
   $ .0002 per share                                              422,000                                253,000

Shares issued upon conversion of notes @ an avg of
   $ .00006 per share                                             972,000                                171,000

Shares issued upon conversion of notes & debentures
   @ $ .000025 per share                                        1,091,000                                 84,000

Reverse split

Shares issued upon conversion of notes @ an avg of
     $  .06 per share                                             789,000                                 47,000

Shares issued upon conversion of notes @ an avg of
     $  .055 per share                                             63,000                                  3,000

Shares issued upon conversion of notes @ an avg of
    $  .03 per share                                           10,673,000                                320,000

Shares issued upon conversion of notes @ an avg of
    $  .0025 per share                                         49,571,000                                125,000

Amortization of unearned stock compensation                                            158,000

Fair value of shares to be issued in conjunction
   with loans                                                                                             78,000

Fair value of shares to be issued in conjunction
     with consulting                                                                                      25,000

Issuance of warrants                                                                                   1,330,000

Beneficial conversion feature of loans                                                                    70,000

Capitalization of deferred finance charges                                                            15,733,000


  Net loss for the year ended December 31, 2003                                                                      (5,497,000)
                                                              --------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2003                                 64,240,000     $  -     $     -        $ 56,433,000  $ (45,304,000)
                                                              ====================================================================
</TABLE>



                                                                F-8
<PAGE>
                                     XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
                                           (A DEVELOPMENT STAGE ENTERPRISE)
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                             Cumulative from
                                                                                          March 15, 1990 (date of
                                                            Years ended December  31,     inception) to December 31,
                                                           --------------------------   --------------------------

                                                              2003               2002              2003
                                                          ------------      ------------      ------------
<S>                                                       <C>               <C>               <C>
Cash flows from operating activities:
    Net loss                                              $ (5,497,000)     $ (3,599,000)     $(45,304,000)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
      Depreciation                                              81,000           118,000         1,168,000
      Amortization                                              68,000            68,000           877,000
      Amortization of beneficial conversion features           970,000           453,000         1,423,000
      Amortization of warrants issued                          136,000            79,000           215,000
      Stock options issued                                        --             160,000           160,000
      Unearned compensation                                    158,000           126,000           284,000
      Interest and compensation expense in connection
        with issuance of equity securities                     230,000         1,079,000        18,823,000
      Write down of inventories                                  5,000              --           1,344,000
      Write down of patents                                       --                --             517,000
      Loss on investment in related party                         --                --              89,000
     Amortization of deferred financing charges              1,748,000              --           1,748,000
     Amortization of deferred consulting charge                 55,000              --              55,000

    Changes in operating assets and liabilities
      (Increase) decrease in:
        Accounts receivable-Net Operating Loss                    --             452,000              --
        Accounts receivable                                     (5,000)           40,000           (27,000)
        Inventories                                               --              (4,000)       (1,339,000)
        Prepaid expenses and other current assest             (108,000)             --              19,000
        Other                                                     --              (5,000)          (20,000)
      Increase (decrease) in:
        Accounts payable                                       (36,000)         (320,000)          624,000
        Other current liabilities                               (1,000)          (64,000)          (35,000)
        Accrued expenses                                       240,000           145,000           968,000
                                                          ------------      ------------      ------------
Net cash flows used in operating activities                 (1,956,000)       (1,272,000)      (18,411,000)
                                                          ------------      ------------      ------------
</TABLE>

                                                    F-9
<PAGE>

<TABLE>
<CAPTION>

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


                                                                                                          Cumulative from
                                                                                                     March 15, 1990 (date of
                                                                        Years ended December  31,    inception) to December 31,
                                                                       --------------------------   --------------------------
                                                                          2003               2002               2003
                                                                       ------------      ------------      ------------

<S>                                                                     <C>               <C>              <C>
 Net cash flows from operating activities                               (1,956,000)       (1,272,000)      (18,411,000)

Cash flows from (used in) investing activities:
    Patent issuance costs                                                    --                --            (548,000)
    Purchases of equipment and leasehold improvements                     (20,000)          (21,000)       (2,121,000)
    Investment in unconsolidated entity and others                           --                --             (23,000)
    Other                                                                    --                --              (8,000)
                                                                     ------------      ------------      ------------
Net cash flows used in investing activities:                              (20,000)          (21,000)       (2,700,000)
                                                                     ------------      ------------      ------------
Cash flows from (used in) financing activities:
    Proceeds from related party loans                                     142,000            95,000         2,197,000
    Proceeds from notes payable and convertible notes                   2,367,000         1,178,000         4,173,000
    Proceeds from short term loans                                           --              55,000         4,166,000
    Capital contribution                                                     --                --              95,000
    Net payments on capital leases                                        (13,000)           (7,000)          (20,000)
    Payments on interim loans                                                --            (110,000)         (608,000)
    Payments on notes payable - others                                       --             (54,000)         (579,000)
    Payments on stockholder loans                                         (75,000)             --            (647,000)
    Proceeds from issuance of capital stock                                  --              30,000        12,914,000
                                                                     ------------      ------------      ------------
     Net cash flows from financing activities:                          2,421,000         1,187,000        21,691,000
                                                                     ------------      ------------      ------------
    Net change in cash                                                    445,000          (106,000)          580,000
Cash, beginning of period                                                 135,000           241,000              --
                                                                     ------------      ------------      ------------
     end of period                                                   $    580,000      $    135,000      $    580,000
                                                                     ============      ============      ============
Supplemental disclosures of cash flow information:
    Cash paid during the periods for:
      Interest paid - related party                                  $     33,000      $     27,000      $    284,000
                                                                     ============      ============      ============
     Interest paid - other                                           $      3,000      $      8,000      $    179,000
                                                                     ============      ============      ============
Noncash financing and investing activities

   Net assets of Xechem India contributed to capital and
    minority interest                                                $       --        $       --        $    118,000
                                                                     ============      ============      ============
   Liabilities exchanged for preferred and common stock              $       --        $     95,000      $  1,271,000
                                                                     ============      ============      ============
   Equipment purchased through financing                             $    102,000      $     32,000      $    134,000
                                                                     ============      ============      ============
   Securities issued as payment on related party note                $       --        $     20,000      $     20,000
                                                                     ============      ============      ============
   Shares issued upon conversion of debentures, notes
       and related interst                                           $  1,003,000      $     16,000      $  1,137,000
                                                                     ============      ============      ============
  Convertible notes refinanced by notes payable                      $    367,000      $       --        $    367,000
                                                                     ============      ============      ============
   Warrants Issued                                                   $       --        $    193,000      $    193,000
                                                                     ============      ============      ============
   Warrants Issued for services                                      $  1,330,000      $       --        $  1,330,000
                                                                     ============      ============      ============
   Debt Discount related to financing agreements                     $     70,000      $       --        $     70,000
                                                                     ============      ============      ============
   Deferred Financing Charges associated with financing agreement    $ 15,733,000      $       --        $ 15,733,000
                                                                     ============      ============      ============
</TABLE>


                                                    F-10
<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 POLICIE:

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 also focusing on phytopharmaceuticals and other
proprietary technologies for orphan diseases. An orphan disease is defined in
the U.S. as: (1) a rare disease that affects fewer than 200,000 people; or (2) a
common disease that has been ignored because it is less prominent in the U.S.
compared with developing nations. The Company's lead project involves the
development of a phytopharmaceutical product, NICOSAN(TM) (HEMOXIN(TM)), which
has received Food and Drug Administration (FDA)-designated orphan drug status as
the first definitive therapy for sickle cell disease (SCD). SCD is an inherited
disease characterized by the deformation of red blood cells (RBCS) and their
subsequent inability to transport oxygen throughout the body, resulting in
episodes of excruciating pain and decreased life expectancy. In the U.S., most
cases of SCD occur among African-Americans and Hispanics of Caribbean ancestry,
with approximately one in every 400 African-Americans suffering with the
disease.

We recently acquired Ceptor Corporation ("Ceptor") (SEE NOTE 17 - SUBSEQUENT
EVENTS). Ceptor has a proprietary, platform technology that is being developed
to treat muscular dystrophy, multiple sclerosis, Amyotrophic Lateral Sclerosis
(ALS), epilepsy, retinal degeneration ototoxicity, nerve damage, and muscle
wasting.

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.

We are a development stage company, with limited history of operations and have
earned minimal revenues from operations to date. Operations from inception have
consisted primarily of financial planning, raising capital, and research and
development activities. We do not have any products approved for sale outside of
Africa (SEE NOTE 7) at the present time. There can be no assurance that we will
be successful in obtaining regulatory clearance for the sale of existing or any
future products or that any of the Company's products will be commercially
viable.



                                      F-11
<PAGE>

SIGNIFICANT ACCOUNTING POLICIES

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., XetaPharm, Inc., and
Xechem (India) Pvt. Ltd. which is substantially owned by Xechem (collectively
the "Company"). All inter-company 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, as we do not control the operations of
this joint venture (sEE NOTE 10).

DEVELOPMENT STAGE CORPORATION - The accompanying consolidated financial
statements have been prepared in accordance with the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 7, "Accounting and Reporting by
Development Stage Enterprises."

RECLASSIFICATIONS - Certain prior year amounts have been reclassified to conform
with the current year's presentation (ALSO, SEE NOTE 2).

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,
accounts payable, accrued expenses, 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.

We follow the provisions of SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement requires companies to record derivatives
on the balance sheet as assets or liabilities, measured at their fair value. The
accounting for the gains or losses resulting from changes in the values of those
derivatives would be dependent on the use of the derivative and whether it
qualifies for hedge accounting. As of December 31, 2003, we do not have any
derivative instruments.

CONCENTRATION OF CREDIT RISK - We maintain cash balances in financial
institutions which are insured by the Federal Deposit Insurance Corporation
("FDIC") up to $100,000 per account. At times, such balances may be in excess of
the FDIC insurance limit. Management monitors the soundness of these
institutions and considers the Company's risk negligible.

INVENTORIES - Inventories are stated at the lower of cost or market on a
first-in, first-out basis. Inventories at December 31, 2002 were principally
comprised of raw materials from our subsidiary Xechem (India) Pvt. Ltd. In 2003
the India inventory was completely reserved for due to age and inactivity.


                                      F-12
<PAGE>

LONG-LIVED ASSETS - We assess the impairment of long-lived assets under SFAS No.
144, "Accounting for the Impairment or Disposal of 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 operations.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Equipment and leasehold improvements are
recorded at stated cost less accumulated depreciation. 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, 2003 and 2002 was approximately
$149,000 and $186,000, respectively. Gains and losses on depreciable assets
retired or sold are recognized in the statement of operations in the year of
disposal. Repairs and maintenance expenditures are expensed as incurred.

ASSETS UNDER CAPITAL LEASE - Certain equipment is leased from third parties
through lease agreements and are treated as capital leases (SEE NOTE 15). The
Company anticipates acquiring the machines at the stated option prices at the
end of the lease terms. These assets are included in equipment.

DEFERRED FINANCING CHARGES - Deferred financing charges, which represent costs
associated with obtaining long-term financing, are capitalized. The costs
generally represent the value of warrants issued in connection with financing
arrangements and the intrinsic value of any beneficial conversion feature
associated with the underlying debt. The charges are amortized over the life of
the loan or over the time period until the loan may be converted into stock.
Amortization expense relating to deferred financing charges amounted to
approximately $494,000 and $ -0- for the years ended December 31, 2003 and 2002,
respectively.

DEFERRED CONSULTING CHARGES - Deferred consulting charges represent the value of
warrants issued in connection with a long-term consulting arrangement. The
charges are amortized over the life of the contract.

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

CONCENTRATION OF DEBT - We have a concentration of debt with one creditor
(Marjorie Chassman, "Chassman"). Under the terms of the agreement (SEE NOTE 17-
SUBSEQUENT EVENTS) we are to receive significant advances during 2004 which are
necessary to fund our current operations and have issued to this investor
options to convert various debt into common stock. We are therefore dependent
upon this debt holder to meet their funding requirements. In addition, this
investor and her affiliates hold the outstanding convertible notes (SEE NOTE 12)
and convertible debentures (SEE NOTE 13) as of December 31, 2003.


                                      F-13
<PAGE>

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

STOCK-BASED COMPENSATION - We account for employee stock-based compensation in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees", using an intrinsic value approach to measure
compensation expense, if any. Under this method, compensation expense is
recorded on the date of grant only if the current market price of the underlying
stock exceeds the exercise price. Options issued to non-employees are accounted
for in accordance with SFAS 123, "Accounting for Stock-Based Compensation",
 and Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods and Services", using a fair value approach.
SFAS No. 123 established accounting and disclosure requirements using a fair
value-basis method of accounting for stock-based employee compensation plans. As
allowed by SFAS No. 123, the Company has elected to continue to apply the
intrinsic value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123. Had the Company elected to recognize
compensation cost based on fair value of the stock options at the date of grant
under SFAS 123, such costs would have been recognized ratably over the vesting
period of the underlying instruments and the Company's net loss and net loss per
common share would have decreased to the pro forma amounts indicated in the
table below.

                                                 YEAR ENDED DECEMBER 31,

                                                2003                2002
                                                ----                ----
Net Loss (in Thousands):
     As Reported                           $    ( 5,547)       $     (3,599)
     Pro Forma                             $    ( 5,107)       $     (3,618)

Net Loss Per Share:
     As Reported                           $      (0.53)       $     (12.54)
     Pro Forma                             $      (0.49)       $     (12.54)

In 2003, no options were granted to employees, directors, consultants, and
attorneys as incentives and bonuses.

INCOME TAXES - Income taxes are provided based on the asset and liability method
of accounting pursuant to SFAS No. 109, "Accounting for Income Taxes." Deferred
income taxes are recorded for temporary differences between financial statement
carrying amounts and the tax basis of assets and liabilities. Deferred tax
assets and liabilities reflect the tax rates expected to be in effect for the
years in which the differences are expected to reverse. A valuation allowance is
provided if it is more likely than not that some or the entire deferred tax
asset will not be realized. 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.


                                      F-14
<PAGE>


ADVERTISING COSTS - Advertising costs are expensed as incurred. During 2003 and
2002, advertising expenses were approximately $26,000 and $56,000, respectively.

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

NET LOSS PER SHARE - Basic loss per share is computed by dividing loss available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted loss per share is computed by dividing the
loss for the period by the weighted-average number of common shares outstanding
for the period adjusted for the diluted effect of any potential common stock
issueable during the period. The shares issueable upon the exercise of
outstanding warrants, options and convertible debentures have been excluded
since the effect would be anti-dilutive, 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.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS - In November 2002, the Emerging
Issues Task Force, "EITF", reached a consensus on Issue No. 00-21, "Revenue
Arrangements with Multiple Elements" (EITF No. 00-21), which addresses certain
aspects of accounting for arrangements that include multiple products or
services. Specifically this issue states that in an arrangement with multiple
deliverables, the delivered items should be considered a separate unit of
accounting if: (1) the delivered items have value to the customer on a stand
alone basis, (2) there is objective and reliable evidence of the fair value of
the undelivered items, and (3) the arrangement includes a general right of
return relative to the delivered item, and delivery or performance of the
undelivered items is considered probable and substantially within the Company's
control. Additionally, the Issue states that the consideration should be
allocated among the separate units of accounting based upon their relative fair
values. If there is objective and reliable evidence of the fair value of the
undelivered items in an arrangement, but no such evidence for the delivered
items, then the residual method should be used to allocate the consideration.
Under the residual method, the amount of consideration allocated to the
delivered items equals the total consideration less the aggregate fair value of
the undelivered items. Accordingly, the application of EITF No. 00-21 may impact
the timing of revenue recognition as well as the allocation between products and
services. The adoption of EITF No. 00-21 for transactions entered into after
July 1, 2003 did not have a significant impact on our consolidated financial
statements.

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities". The primary objectives of this
interpretation are to provide guidance on the identification of entities for
which control is achieved through means other than through voting rights
("variable interest entities") and how to determine when and which business
enterprise (the "primary beneficiary") should consolidate the variable interest
entity. This new model for consolidation applies to an entity in which either
(i) the equity investors (if any) do not have a controlling financial interest;
or (ii) the equity investment at risk is insufficient to finance that entity's
activities without receiving additional subordinated financial support from
other parties. In addition, FIN 46 requires that the



                                      F-15
<PAGE>

primary beneficiary, as well as all other enterprises with a significant
variable interest entity, make additional disclosures. Certain disclosure
requirements of FIN 46 were effective for financial statements issued after
January 31, 2003. In December 2003, the FASB issued FIN 46 (revised December
2003), "Consolidation of Variable Interest Entities" ("FIN 46-R") to address
certain FIN 46 implementation issues. The effective dates and impact of FIN 46
and FIN 46-R are as follows: (i) Special-purpose entities ("SPEs") created prior
to February 1, 2003. The Company must apply either the provisions of FIN 46 or
early adopt the provisions of FIN 46-R at the end of the first interim or annual
reporting period ending after December 15, 2003. (ii) Non-SPEs created prior to
February 1, 2003. The Company is required to adopt FIN 46-R at the end of the
first interim or annual reporting period ending after March 15, 2004. (iii) All
entities, regardless of whether an SPE, that were created subsequent to January
31, 2003. The provisions of FIN 46 were applicable for variable interests in
entities obtained after January 31, 2003. In 2003 the Company identified its 45%
ownership interest in Xechem Pharmaceuticals, Nigeria, Limited ("Xechem
Nigeria") as an arrangement with a variable interest entity that will require
consolidation of their financial information in our financial statements at a
future date. As of December 31, 2003, Xechem Nigeria has not commenced
operations, and we have expended funds in conjunction with various expenses
incurred with the formation of Xechem Nigeria.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liability and Equity". SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liability and equity. It also
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 15, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. It is to be implemented by reporting a cumulative effect of a change in an
accounting principal of financial instruments created before the issuance date
of the Statement and still existing at the beginning of the interim period of
adoption. Restatement is not permitted. The adoption of SFAS No. 150 did not
have a material impact on our consolidated financial position or results of
operations.

NOTE 2   RECLASSIFICATION

Subsequent to the issuance of its financial statements for the year ended
December 31, 2002, management determined that certain amounts in the 2002
financial statements should be reclassified. The unamortized beneficial
conversion features associated with convertible notes and debentures was not
reflected in the statement of stockholders `equity (deficit) or shown net
against the underlying debt. This reclassification resulted in a decrease in
convertible notes from $1,308,000 to $368,000, a decrease in convertible
debentures from $144,000 to $16,000, an increase in additional paid in capital
from $37,106,000 to $38,174,000 and an increase in total stockholders' equity
from a deficit of $100,000 to equity of $1,771,000.

NOTE 3   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


                                      F-16
<PAGE>

normal course of business. As shown in the consolidated financial statements, we
have incurred net losses for the years ended December 31, 2003 and 2002 and we
have an accumulated deficit and cumulative negative cash flows from operations
since inception. We are in the development stage and have realized minimal
revenues to date. Our research and development activities are at an early stage
and the time and money required to develop the commercial value and
marketability of our proposed products will require significant cash
expenditures for an indefinite period in the future. In order to meet these cash
needs, we have entered into two recent financing agreements.

         1. We have entered into a letter agreement ("Chassman Agreement") dated
         November 11, 2003 with Chassman and designees (the "Investor") to issue
         $6,000,000 of unsecured promissory notes (the "New Notes") over a 12
         month period, to be funded: (i) $700,000 by November 25, 2003; (ii)
         $650,000 by December 24, 2003; (iii) $500,000 per month for January and
         February, 2004; (iv) $450,000 for March, April and May, 2004; (v)
         $400,000 for June, July, August, September and October, 2004; and (vi)
         $300,000 for November, 2004. Proceeds from the loans for 2004 are due
         on the first business day of the month, subject to a 30-day grace
         period. The New Notes will bear interest at 8% per annum and mature 18
         months from the date of the agreement. The funding of the New Notes was
         conditioned upon satisfaction and subject to all of other matters
         discussed below and execution of definitive documents consistent with
         the letter agreement (SEE NOTE 17 - SUBSEQUENT EVENTS).

         2. We have entered into a series of definitive agreements with Alembic,
         Limited ("Alembic Loan") on April 7, 2004 which contemplates the
         funding of a $3,000,000 convertible loan in six $500,000 tranches,
         issuance of a warrant to purchase 10,000,000 shares of common stock and
         payment of certain royalties to Alembic over a fifteen year period in
         connection with sales of NICOSAN(TM)/HEMOXIN(TM) in Africa, and a
         lesser royalty in connection with sales of such product in the United
         States (SEE NOTE 17 - SUBSEQUENT EVENTS).

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 our continued operations, which, in turn, are dependent
upon our ability to meet our financing requirements on a continuous basis and to
succeed in our future operations. However, there can be no assurances that we
will be able to meet our financing requirements and succeed in our 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 we 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, 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, 2003 compared to the year ending December 31,
2002, we have maintained administrative and research expenses and our monthly
cash requirements. For the year ending December 31, 2004 as our business
development activities increase we expect the following:



                                      F-17
<PAGE>

In 2004 we are finalizing testing and formulation of our new nutraceutical
NICOSAN(TM), a sickle cell drug. We plan on starting construction of our own
facility in Nigeria in 2004, beginning production by the end of the year and for
sales to begin in Nigeria in the first quarter of 2005.

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 2004, we anticipate that these
development activities may allow us to enter into more favorable licensing
and/or investment arrangements.

We secured financing through two loans, the Chassman Agreement ($6 million loan
commitment) and the Alembic Loan ($3 million commitment), which we feel will
meet our current needs, provided the funding of such loans is fully adhered to.
We will need to generate funds from operations and/or debt and equity funding
sources to enable us to repay such loans and our other outstanding debt.


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

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 losses.


NOTE 4    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, 2003, we had net operating loss carryforwards
("NOL") for federal income tax purposes of approximately $27.2 million, of which
a portion begins to expire in 2009 and fully expires in 2023. 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 4%) of the
fair market value of the Company at the time of any such ownership changes.

As of December 31, 2003 and 2002, we have a deferred tax asset of approximately
$9 million and $8 million respectively, primarily arising from our net operating
losses. A full valuation allowance has been provided because management believes
it is more likely than not that it will not be realized.

                                      F-18
<PAGE>

The provision for income taxes is summarized as follows:



                                                       2003             2002
                                                       ----             ----

Federal
            Current                                  $    --          $    --
            Deferred (benefit), net                  $(926,000)       $(938,000)
            Valuation allowance                      $ 926,000        $ 938,000
     Total Federal                                   $    --          $    --

State
            Current                                  $ (90,000)       $(243,000)
            Deferred (benefit), net                  $(237,000)       $(129,000)
            Valuation allowance                      $ 237,000        $ 129,000
      Total State                                    $ (90,000)       $(243,000)
Total income tax benefit                             $ (90,000)       $(243,000)


Significant components of deferred tax assets and liabilities as of December 31,
2003 and 2002 are as follows:

                                                   2003             2002
                                                   ----             ----

Deferred tax assets:
     Net operating loss carryforwards            $ 9,025,000       $ 8,099,000
     Total deferred tax assets before
        valuation allowance                      $ 9,025,000       $ 8,099,000

    Valuation allowance                          $(9,025,000)      $(8,099,000)
Net deferred tax asset                           $      -          $      -

A reconciliation from the Federal income tax benefit at the statutory rate to
the effective rate is as follows:

                                                     2003               2002
                                                     ----               ----
Tax benefit at Federal statutory rate               (34.0)%            (34.0)%
State income taxes, net of Federal benefit           (1.6)%               -
Permanent difference                                 17.5%              6.1%
Valuation allowance                                  16.5%              27.9%

Effective tax rate                                  (1.6)%                -

As of December 31, 2003, we recorded no deferred tax asset. The future expected
benefit from the realization of the net operating losses was fully offset by a
related valuation allowance. A full valuation allowance was recorded due to
management's uncertainty about the realizability of the related tax benefits as
of December 31, 2003. However, the amount of the deferred tax assets considered
realizable could be adjusted in the future if estimates of taxable income are
revised.

During December of 2003, we received approval from the New Jersey Economic
Development Authority ("NJEDA") to sell approximately $109,000 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



                                      F-19
<PAGE>

the New Jersey Emerging Technology and Biotechnology Financial Assistance Act.
During 2003 and 2002, Xechem and its subsidiaries transferred the tax benefits
of $109,000 and $303,000 in exchange for $100,000 and $243,000 respectively,
pursuant to the New Jersey State Tax Credit Transfer program. We received
$90,000 net pursuant to this program in December 2003.

Since 1994, the Company has approximate net operating loss carryforwards for
Federal income tax purposes, which expire 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
                         1,604,000                                2021
                         3,482,000                                2022
                         2,636,000                                2023
                      $27,167,000

NOTE 5   RELATED PARTY TRANSACTIONS

Notes Payable - Related Party consists of
   the following:                                       DECEMBER 31,
                                                   ----------------------
                                                      2003       2002
                                                   ---------    ---------
Loans Payable - Dr. Renuka Misra (1)               $ 298,000    $ 298,000
Loans Payable - Beverly Robbins (2)                  218,000      195,000
Loans Payable - Xechem China (3)                     140,000     140,000
Loans Payable - Dr. Pandey (4)                       200,000      244,000
Loans Payable - Family Members of Dr. Pandey (5)      88,000        --
                                                   ---------    ---------
Sub-total                                            944,000      877,000
Less Debt Discount                                     9,000         --
                                                   ---------    ---------

Total Notes Payable                                  935,000      877,000
Less Current Portion                                 595,000      493,000
                                                   ---------    ---------
Total Long Term Notes Payable                      $ 340,000    $ 384,000
                                                   =========    =========

(1) Xechem has a note payable to Dr. Renuka Misra, director of Natural Products,
for approximately $298,000 with 12% annual interest due September 20, 2004.

(2) Xechem has received funding from Beverly Robbins, a sales and marketing
representative totaling $218,000 and $195,000 as of December 31, 2003 and 2002,
respectively. The note requires monthly interest payments and is due on demand.

(3) We 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 have been received since 2000
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 2003 or 2002
and



                                      F-20
<PAGE>

no foreseeable profits in the near future there will not be any short-term
repayment to Xechem China (SEE NOTE 10).

(4) Xechem owes Dr. Pandey, Chairman of the Board, $783,000 as of December 31,
2003 from an interest bearing advance of $200,000 at 10% per annum (above) and,
accrued interest of $199,000 and accrued salary of $384,000, which is included
in accrued expenses to related parties. The advance will be due when Xechem is
no longer a development stage entity; according to terms of the Chassman
Agreement, Dr. Pandey was to be repaid $150,000 from proceeds of the loan, of
which $75,000 was repaid as of December 31, 2003. At December 31, 2002, Xechem
owed Dr. Pandey $776,000.

(5) In 2003, we have received $88,000 from members of Dr. Pandey's family in the
form of eight short-term notes. The due dates of the notes range from three
months to one year with interest from 8% - 12% with accrued interest as of
December 31, 2003 of $4,033. Four of the note holders are to be issued 360,000
shares of our common stock; this resulted in a charge to operations of $77,800
for the fair value of the common stock on the date the agreement was entered
into. As of December 31, 2003 the underlying 360,000 shares remain to be issued.
Two notes totaling $20,000 can be converted into common stock with a conversion
price of $ 0.01. The intrinsic value of the beneficial conversion feature of
$20,000 has been allocated to paid-in capital. This resulting debt discount is
being amortized over the term of the notes.

Interest expense for related parties totaled approximately $72,000 and $70,000
for the years ended December 31, 2003 and 2002, respectively.

XECHEM INDIA - Xechem currently receives its supplies of plant extracts from
India through informal collaborative relationships. Dr. Pandey and his brothers
have incorporated a corporation in India, Xechem (India) Pvt. Ltd., ("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 7).

                                      F-21
<PAGE>

NOTE 6  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

                                         December 31,
                                      -------------------
                                        2003        2002
                                      --------   --------
General Account Payable and Accrued   $162,000   $280,000
 Expenses
Accrued Legal                          457,000    357,000
 Operating  Expenses                   262,000    111,000
 License Agreement Fees                100,000    100,000
                                      --------   --------
 TOTAL ACCOUNTS PAYABLE AND ACCRUED   $981,000   $848,000
 EXPENSES                             ========   ========

NOTE 7 COMMITMENTS AND CONTINGENCIES

EMPLOYMENT CONTRACTS

Employment Contracts - Dr. Pandey has been employed pursuant to an employment
agreement dated February 1994, which expired on its tenth anniversary. The Board
of Directors has approved an increase in his base compensation to $350,000 per
annum and further agreed pursuant to the Chassman Agreement to the grant of the
common stock purchase option referenced below (yet to be codified in writing). A
renewed employment agreement has not yet been negotiated or finalized. It is
expected that Dr. Pandey's employment agreement, when and if executed, will
contain a provision similar to the former agreement which called for payment of
a royalty payment in the amount of 2 1/2% of our 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 Xechem whether
prior to or after the term of the employment agreement.

As set forth in the Chassman Agreement, Xechem has agreed that Dr. Pandey will
be entitled to purchase at $0.0001 per share an amount of common stock for a
five-year period from November 11, 2003 (fully-vested with piggyback
registration rights) 20% of the fully-diluted common stock of the Company then
outstanding, plus after giving effect to issuances that may result from the
following: (i) shares issuable with respect to conversion of the debentures
pursuant to the Chassman Agreement and the warrants issuable to Ms. Chassman;
(ii) shares issuable to William Pursley pursuant to his option agreement (the
option agreement, as negotiated in final, calls for 43,000,000 shares); (iii)
shares issuable with respect to conversion to equity, if any, regarding the
$1,134,000 in loans (the "BMS Loans") secured by a portion of the proceeds of
our lawsuit against Bristol-Myers-Squibb; and (iv) any additional shares
issuable to the holders of loans funded per the Chassman Agreement upon
conversion of such debt to equity, if any.

Dr. Pandey is also entitled to receive additional voting stock to maintain 20%
of the outstanding voting stock, and accordingly we issued 909 and 14 additional
Class C shares to Dr. Pandey in 2003 and 2002 respectively with voting rights
equal to 909,000 and 138,797 of common stock respectively. We need to issue 680
additional shares to bring his percentage of voting stock to 20% as of December
31, 2003.

Dr. Pandey 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, 2003 and 2002 unpaid compensation totaled approximately $384,000
and $331,000, respectively.


                                      F-22
<PAGE>

In November, as per the Chassman Agreement, William Pursley was to become Vice
Chairman of the Company with oversight of marketing, regulatory affairs and
strategic planning for the Company. He received a $25,000 signing bonus and was
to be paid consulting fess of $10,000 per month. He was also to receive options
the fully diluted common stock outstanding after recapitalization at a price of
$0.0025 per share. This option agreement was negotiated in final in 2004 (SEE
NOTE 17 - SUBSEQUENT EVENTS). In December Mr. Pursley became President and COO
of Xechem International Inc. at a base salary of $330,000 annually. In March
2004 Mr. Pursley resigned his position with Xechem to become President and CEO
of Ceptor (SEE NOTE 17 - SUBSEQUENT EVENTS).

OPERATING LEASES - We have a five-year lease on our facilities, which commenced
on July 1, 2002, and ends June 30, 2007. Fixed rent expense for the next four
years is as follows:

                        YEAR                         ANNUAL RENT COMMITMENT

                         2004                                 170,600
                         2005                                 177,400
                         2006                                 184,500
                 2007 and thereafter                           94,000
                                                             --------
                        Total                                $626,500
                                                             ========

We are also liable for certain maintenance and utility charges that vary from
month to month.

As part of the negotiated terms of the July 2002 lease agreement, past due
rental payments totaling approximately $88,000 would have been reduced to
approximately $52,000 provided all rent and additional rent is paid on a timely
basis from one year as of the date of the agreement. We did not fulfill our
obligation under this agreement.

As of December 31, 2003, approximately $88,000 of past due rent is included in
accounts payable and the unpaid security deposit of $26,000 is included in
accrued expenses.

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. Rent expense amounted to approximately $183,000 and $128,000 for the
years ended December 31, 2003 and 2002, respectively.

In August of 2001 Dr. Pandey entered into a new 36-month car lease with GMAC,
payable by Xechem. Total commitments under this lease are $5,832 due in equal
monthly payments of $729 in 2004.

LICENSE AGREEMENT - On July 18, 2002, we signed an exclusive worldwide license
for the manufacturing, marketing, distribution, and sales of NIPRISAN(TM) from
the National Institute of Pharmaceutical Research and Development ("NIPRD"),
government of Nigeria, for the treatment of sickle cell disease ("SCD").
NICOSAN(TM) is our name for the non-toxic phytopharmaceutical product formerly
named NIPRISAN(TM), a nutraceutical. We are currently in the process of
completing for submission of an Investigational New Drug Application ("IND") for
this product to the United States Food and Drug Administration ("FDA"). To date,
there has been no successful non-toxic drug developed for the treatment of SCD.
We agreed to pay NIPRD a running royalty of



                                      F-23
<PAGE>

7.5 % of the net sales of this product. We have sublicensed this technology by
Agreement dated April 7, 2004 to our majority-owned subsidiary, Xechem
Pharmaceuticals Nigeria, Limited ("Xechem Nigeria") for the production and sale
of NICOSAN(TM) in Nigeria in a three-party agreement with Alembic Limited (SEE
NOTE 17 - SUBSEQUENT EVENTS).

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, 2003 and 2002. There has been no
activity in 2003 and 2002. Under the terms of the contract we are liable for an
additional $100,000 which we do not expect to pay and, therefore, have not
recorded it in our results of operations or accrued expenses as of December 31,
2003.

PHARM-OLAM AGREEMENT - In October 2003 we entered into an agreement with
Pharm-Olam International Ltd. to perform a Phase IIB study of HEMOXIN(TM)
(Niprisan), a novel phytopharma-ceutical, in adult patients with sickle cell
anemia. The study should take 12.5 months with a total cost of approximately
$193,000 with a $58,000 initial payment made on November 4, 2003.

WOLFE AXELROD AGREEMENT - In December 2003 we entered into an agreement with
Wolfe Axelrod Weinberger to serve as our financial public relations counsel for
a program of financial communications and investor relations. Under the terms of
the agreement, we are obligated for a twenty-four month period, commencing
December 15, 2003, with monthly fees of $8,000, increasing to $10,000 upon
completion of the Alembic financing (SEE NOTE 17 - SUBSEQUENT EVENTS) plus
direct and indirect expenses. In addition, we agreed to issue a warrant to
purchase 7,500,000 shares of our common stock (SEE NOTE 8). The fair value of
the warrant, calculated using the Black Scholes pricing model, of approximately
$1,330,000 has been allocated to paid in capital. The resulting deferred
consulting charge is being amortized over the life of the agreement. As of
December 31, 2003, the unamortized balance of approximately $1,275,000 is
included in deferred consulting charge.

PENDING LITIGATION - We filed an anti-trust lawsuit against Bristol-Myers Squibb
on March 17, 2003, to secure damages, injunctive and other equitable relief for
Bristol-Myers Squibb's violations of federal and state antitrust laws. The case,
filed in the United States District Court, Northern District of Illinois, arises
out of Bristol-Meyers Squibb's allegedly unlawful maintenance of a monopoly over
the United States market for paclitaxel based anti-cancer drugs and conspiracy
to further its monopoly.

Our lawsuit alleges that Bristol-Myers Squibb is liable for violation of Section
2 of the Sherman Act (15 USC 2). We are seeking an award in damages in the sum
of at least $50 million dollars and said damages to be trebled to at least $150
million dollars. The case was dismissed in late 2003, and we have since filed an
appeal of the dismissal with the U.S. Court of Appeals for the Seventh Circuit.
The appeal has been briefed and is awaiting further action by the Court. There
can be no assurances as to the outcome of this lawsuit.


                                      F-24
<PAGE>

In April 2003, a suit was filed against us by our former patent counsel, Dorsey
Whitney, LLP seeking legal fees and costs. We settled the lawsuit on August 25,
2003 by entering into a stipulation for confession of judgment in the amount of
$200,000, which is included in accounts payable as of December 31, 2003.
Execution of the judgment by agreement has been delayed for 12 months. To secure
the judgment, we have granted to our former counsel a security interest in the
net proceeds of our lawsuit against Bristol Myers Squibb, exclusive of the 40%
interest in such lawsuit proceeds assigned to Marjorie Chassman and exclusive of
all contingency legal fees payable by us in connection with the lawsuit. As part
of the settlement, we provided releases to our former counsel.

Subject to the uncertainty in all litigation, we do not believe at the present
time that the resolution of these legal proceedings is likely to have a material
adverse effect on our financial position, results of operations or cash flows.

With respect to all litigation, as additional information concerning the
estimates used by us become known, we reassess our position with respect to
accrued liabilities and other potential exposures.


NOTE 8 STOCK OPTIONS AND WARRANTS:

Xechem's original 1993 stock option plan ("Original Plan") provided for the
grant of up to 100,000 shares of Common Stock to employees with incentive stock
options ("ISOs") and non qualified stock options to employees, consultants and
directors. The Original Plan was administered by the Board of Directors and the
stock option committee.

The exercise price of all ISOs granted under the Original 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 Original 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 260 options granted on December 2, 1997 would 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 4,400 options granted on July
11, 2000, approximately one third (1/3) vested immediately and the balance would
vest equally one year and two years from the grant date. In July 2001, an
exception was made so that of the 3,883 options granted on July 9, 2001,
approximately one third (1/3) vested immediately and the balance would vest
equally one year and two years from the grant date. In November 2002, an
exception was made so that of the 50,850 options granted on November 20, 2002
approximately one third (1/3) vested immediately and the balance would vest
equally one year and two years from the date of grant.

The Original Plan terminated 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.

In December 2003 the Board approved a new Long Term Incentive Plan ("LTIP"). The
LTIP is effective, but is subject to ratification by shareholders in order for
qualified incentive stock options granted under the LTIP to receive favorable
tax treatment. The number of Shares with respect to



                                      F-25
<PAGE>

which Options, Restricted Shares and other Stock-Based Awards may be granted
under the Plan shall not exceed forty million (40,000,000). The number of Shares
with respect to which Awards may be granted to a participant during any calendar
year shall not exceed twenty million (20,000,000). The Plan shall terminate on
the tenth anniversary of the Effective Date, unless previously terminated. All
Awards granted prior to termination of the Plan shall continue in full force and
effect following the termination of the Plan, subject to the terms and
conditions upon which they were granted.

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

                                 2002          2002       2003           2003
                                 ----          ----       ----           ----
                                             WEIGHTED-                 WEIGHTED-
                                             AVERAGE                   AVERAGE
                                             EXERCISE                  EXERCISE
                                SHARES       PRICE        SHARES        PRICE
                                ------       --------     ------       ------

  OUTSTANDING ON JANUARY 1,     7,639      $   75.00      58,152      $   6.00
  Granted                       50,850     $   15.00           0           --
  Exercised                        (4)     $   30.00           0           --
  Forfeited/Expired              (333)     $   21.00      (4,711)     $   1.51
   OUTSTANDING ON
    DECEMBER 31,               58,152      $    6.00      53,441      $   6.36
    EXERCISABLE ON
    DECEMBER 31,               23,510      $   12.00      39,006      $   8.02


The following table summarizes information about stock options at December 31,
2003:
<TABLE>
<CAPTION>
                                                            OUTSTANDING STOCK OPTIONS                 EXERCISABLE STOCK OPTIONS
                                                     -----------------------------------------      -------------------------------
    Range of Exercise Prices         Shares          Weighted-Average          Weighted-Average     Shares        Weighted-Average
                                                       Remaining                 Exercise Price                    Exercise Price
                                                     Contractual Life
    ------------------------         ------          -----------------         -----------------    -------       ----------------
<S>          <C>                          <C>              <C>                   <C>                    <C>           <C>
    $1.50 to $1020.00                 53,698               9.6                       $4.59          38,963                $5.75
$1,980.00 to $15,000.00                   43               4.7                   $2,730.23              43            $2,730.23
             TOTALS                   53,741               9.6                        6.36          39,006                $8.02

</TABLE>

Compensation cost for the stock options issued in prior years at exercise prices
below fair market value has been determined based on the intrinsic value at the
grant dates for awards under the plan, which resulted in compensation expense of
approximately $158,000 in 2003 and $166,000 in 2002.

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 2002: (i) dividend yields of 0%; (ii) expected
volatility of approximately 159%; (iii) risk-free interest rates of 4.00; and
(iv) expected life of 10 years. The weighted-average fair value of options
granted was $291,000 for the year ended December 31, 2002. There were no options
granted in 2003.


                                      F-26
<PAGE>

WARRANTS

In 2003 in connection with the Chassman Agreement we granted 5-year warrants to
purchase 30 million shares of our common stock at an exercise price of $0.0025
(SEE NOTE 14).

In 2003 in connection with the Wolfe Axelrod consulting agreement, we granted a
5-year warrant to purchase 7.5 million shares of our common stock exercisable at
the average of the closing bid price for ten days preceding the day the
agreement was signed ($.1955) (SEE NOTE 7).

As of December 31, 2003, we have the following warrants to purchase common
stock:

           NUMBER OF SHARES      WARRANT EXERCISE       WARRANT EXPIRATION DATE
            TO BE PURCHASED       PRICE PER SHARE
           ----------------      ----------------       -----------------------
                 11,853               $ 30.0000                 May 23, 2007
             30,000,000               $ 0.0025             November 11, 2008
              7,500,000               $ 0.1955              December 9, 2008


NOTE 9  COMMON AND PREFERRED STOCK:

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

Xechem recognized a charge to operations of $70,000 for the year ended December
31, 2002 for shares of common stock issued to consultants.

In February 2003, the Board of Directors approved a one share for 3,000 share
reverse split of its shares of Common Stock. A reverse split was previously
approved by holders of a majority of Xechem's voting stock, subject to the Board
setting the amount of the split. Under the Amendment to the Certificate of
Incorporation, the company has the authority to issue 500,000,000,000 shares as
follows:

  Class A Voting Preferred Stock, $.00001 par              2,500 shares
  Class B 8% Preferred Stock, $.00001 par                  1,150 shares
  Class C Preferred Stock, $.00001 par                 2,996,350 shares
  Common Stock, $.00001 par                      499,950,000,000 shares
  Unallocated                                         47,000,000 shares

All documentation was finalized to affect the reverse split, and the first day
of trading, post split, was May 28, 2003. All references in the financial
statements to the number of shares outstanding, per share amounts and warrant
and stock option data of our common stock have been restated to reflect the
effect of the stock split for all periods presented.

As of December 31, 2003 we need to issue 360,000 shares of our common stock in
connection with certain related party notes (SEE NOTE 4). There was a charge to
interest of $77,800 for the fair value of the common stock on the date the
agreement was entered into.

In 2003 we have received $88,000 from members of Dr. Pandey's family in the form
of eight short-term notes. The due dates of the notes range from three months to
one year with interest from 8% - 12% with accrued interest as of December 31,
2003 of $4,033. Four of the note holders are to be



                                      F-27
<PAGE>

issued 360,000 shares of our common stock; this resulted in a charge to
operations of $77,800 for the fair value of the common stock on the date the
agreement was entered into. As of December 31, 2003 the underlying 360,000
shares remain to be issued. Two notes totaling $20,000 can be converted into
common stock with a conversion price of $ 0.01. The intrinsic value of the
beneficial conversion feature of $20,000 has been allocated to paid-in capital.
This resulting debt discount is being amortized over the term of the notes.

As of December 31, 2003 we need to issue 200,000 shares of our common stock in
connection with an agreement with Ibis Consulting Group. This resulted in a
charge to operations of $25,000.

As of December 31, 2003, we had reserved shares of commons stock for issuance as
follows:

Exercise of common stock options                               53,741,000
Exercise of common stock purchase warrants                     37,511,853

The following table summarizes the number of shares of common stock and
preferred stock outstanding at December 31, 2003 and 2002:

                                          DECEMBER 31, 2003    DECEMBER 31, 2002
 COMMON STOCK                                 64,240,000               659,235
 CLASS A VOTING PREFERRED STOCK                    2,500                 2,500
 CLASS B PREFERRED STOCK                               0                     0
 CLASS C  - SERIES 6 PREFERRED STOCK                923                     14

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, 2003 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



                                      F-28
<PAGE>

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 .75 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. This
option was exercised in October of 2001.

In 2002 we increased the authorized shares of Class C, Preferred Voting Stock,
par value $0.00001 per share to 49,996,350. A total of 14 shares were issued and
outstanding to Dr. Pandey as of December 31, 2002.

In 2003 we had a reverse stock split of 3,000-1. Because of this all the
outstanding Class C, Preferred Voting Stock was cancelled and a new certificate
was issued to Dr. Pandey for 923 shares, which were outstanding as of December
31, 2003.

NOTE 10 - 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.



                                      F-29
<PAGE>

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, 2003 and December 31, 2002. Xechem has no
obligation to fund any loses or commitments of Xechem-China (SEE NOTE 5).

During the second quarter of 2001 Xechem China has ceased active operations, due
to Xechem-China's president and CEO 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.

There have been no changes in 2003 or 2002.


NOTE 11 - NOTE PAYABLE BANK

Note payable bank at December 31, 2003 and 2002 totaled approximately $55,000
for each year. This loan has been collateralized by all tangible assets
including accounts receivables. The $55,000 loan represents borrowings against a
$ 55,000 line-of-credit at interest rate of 6.00% as of December 31, 2003 (6.25%
at December 31, 2003) from the Bank of New York. The line-of-credit renews
annually.


NOTE 12 - CONVERTIBLE NOTES

Convertible notes consists of the following:              DECEMBER 31,
                                                          ------------
                                                        2003          2002
                                                     ----------     ----------

     Unsecured Convertible Notes (A)                 $  317,000     $1,134,000
     Convertible Notes (B)                               --          367,000
     Subtotal-Convertible Notes                         317,000      1,501,000
     Less Unamortized Debt Discount                      99,000      1,133,000
                                                     ----------     ----------
     Total Convertible Notes                         $  218,000     $  368,000
                                                     ==========     ==========

(A) On May 23, 2002 we received approximately $1,134,000 from "Unsecured
Convertible Notes" less $130,000 in legal and finder's fees. The term of these
notes is for two (2) years with simple interest accruing at the annual rate of
8% payable on May 23, 2004 (the Maturity Date). These notes are convertible into
shares of our common stock after six months from receipt, the conversion price
of the Notes is the lower of $0.005 or 50% of the lowest closing bid price for
the Shares on the OTC Pink Sheets, the OTC Bulletin Board, the NASDAQ SmallCap
or NMS Markets or any stock exchange, or if not then trading on any of the
foregoing, such other principal market or exchange where the Shares are listed
or traded for 30 trading days prior to but not including the date of conversion.
In addition, certain the holders of Unsecured Convertible Notes were issued five
year warrants to purchase 11,853 shares of common stock at an exercise price of
$30 per share, with .01333 warrants issued for each $1.00 of investment in
notes. These notes may not be redeemed or paid before the Maturity Date without
consent of the Borrower. The estimated fair value of the warrants of
approximately $271,000 and the intrinsic value of the beneficial conversion
feature of



                                      F-30
<PAGE>

approximately $834,000 have been allocated to paid-in capital. This
resulting debt discount is being amortized on a straight line basis over the
term of the notes.

The interest on those notes accrues and is payable upon maturity and, at the
option of the holder, may be converted into common stock, by a defined formula.

During 2003 we had the following activity concerning the "Unsecured Convertible
Notes":
<TABLE>
<CAPTION>
Balance 01/01/03      Additions           Convered Principal   Converted Interest  Shares Issued        Balance 12/31/03
<C>                   <C>                   <C>                   <C>                 <C>                    <C>
$ 1,134,000           $50,000               $867,000              $69,000             62,680,970             $317,000
</TABLE>

The $50,000 additional note is due is in two years with simple interest accruing
at the annual rate of 8% payable on June 5, 2005 (the Maturity Date). This note
is convertible into shares of our common stock, par value $.00001 per share
after six months from receipt, the conversion price of the Notes is the lower of
$0.005 or 50% of the lowest closing bid price for the Shares on the OTC Pink
Sheets, the OTC Bulletin Board, the NASDAQ SmallCap or NMS Markets or any stock
exchange, or if not then trading on any of the foregoing, such other principal
market or exchange where the Shares are listed or traded for 30 trading days
prior to but not including the date of conversion. The intrinsic value of the
beneficial conversion feature of $50,000 has been allocated to paid-in capital.
This resulting debt discount is being amortized on a straight line basis over
the term of the note.

As of December 31, 2003 we have accrued interest relating to the notes of
approximately $35,000.

(B) During 2002, we issued convertible notes totaling $367,000. The term of the
notes is 2 years from the date of issuance and they are immediately convertible
at $.0025 per share. The intrinsic value of the beneficial conversion feature of
$367,000 has been allocated to paid-in capital. This resulting debt discount is
being amortized on a straight line basis over the term of the note. These notes
were refinanced during 2003 (SEE NOTE 14).

NOTE 13 - CONVERTIBLE DEBENTURES

As of December 31, 2003 and 2002 we had approximately $84,000 and $144,000 in
outstanding debentures bearing interest at 8% and maturing in 2011. The
debentures were convertible six months after issuance at $7.50 per shares. The
intrinsic value of the beneficial conversion feature of approximately $144,000
has been allocated to paid-in capital. This resulting debt discount is being
amortized over the term of the note. In March 2003 we converted approximately
$68,000 of principal and interest into 900,087 shares of common stock
post-split. In October 2003, after a series of modifications, the debentures are
convertible into common stock using a conversion price of $ 0.0025 (SEE NOTE
14).

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. At December 31, 2003 there was approximately
$14,000 in accrued interest relating to the debentures.


                                      F-31
<PAGE>

NOTE 14 -NOTES PAYABLE

Notes Payable consists of the following:    DECEMBER 31,
                                            ------------
                                          2003           2002
                                          ----           ----
     Secured Notes Payable(A)          $1,134,000     $     --
     $6,000,000 Unsecured Loan(B)       1,350,000           --
     Alembic, Ltd.(C)                     200,000           --
                                       ----------     ----------
     Total Notes Payable                2,684,000           --
     Less Current Portion                 200,000           --
                                       ----------     ----------
     Total Long Term Notes Payable     $2,484,000     $     --
                                       ==========     ==========

(A) The convertible debentures totaling $367,000 at December 31, 2002 was
increased by an additional funding of $767,000 by certain investors during the
twelve months ended December 31, 2003, at which time debentures were converted
into term notes. The new term notes bearing simple interest at 8% per annum, due
on the earliest to occur of the settlement, dismissal or final adjudication of
the Bristol-Myers Squibb lawsuit (the "BMS Lawsuit"), plus additional interest
equal to forty percent (40%) with respect to the BMS Lawsuit, subject to an
adjustment factor of the net recovery to us (after deduction of legal fees and
costs). We have granted the term loan holders a security interest in the BMS
lawsuit. These notes will be due on the later of 18 months from the date of the
Note Purchase Agreement or final disposition of the Bristol Myers Squibb lawsuit
(provided that the additional interest, if any, as referenced above, will be due
on disposition of the lawsuit). As of December 31, 2003 we accrued interest of
approximately $71,000 associated with this loan. The Bristol-Myers-Squibb
lawsuit alleges damages due to alleged anticompetitive actions by
Bristol-Myers-Squibb in connection with its activities related to paclitaxel.
Our lawsuit was dismissed in 2003, and we have filed an appeal of the dismissal,
which appeal is presently pending before the U.S. Court of Appeals.

(B)AGREEMENT TO FUND $6,000,000 UNSECURED LOAN
We have entered into a letter agreement ("Note Purchase Agreement") dated
November 11, 2003 with Chassman and designees (the "Investor") to issue
$6,000,000 of unsecured promissory notes (the "New Notes") over a 12 month
period, to be funded: (i) $700,000 by November 25, 2003; (ii) $650,000 by
December 24, 2003; (iii) $500,000 per month for January and February, 2004; (iv)
$450,000 for March, April and May, 2004; (v) $400,000 for June, July, August,
September and October, 2004; and (vi) $300,000 for November, 2004. Proceeds from
the loans for 2004 are due on the first business day of the month, subject to a
30-day grace period. The New Notes will bear interest at 8% per annum and mature
18 months from the date of the agreement. The funding of the New Notes was
conditioned upon satisfaction and subject to all of other matters discussed
below and execution of definitive documents consistent with the letter
agreement.

We had previously issued a series of convertible notes (the "Convertible Notes")
that were convertible into our common stock at a conversion rate equal to 50% of
the lowest bid price of our stock for the 30-day period immediately preceding
the date of conversion. The Note Purchase Agreement acknowledges that in
consideration for $175,000 of pre-closing advances on October 27, 2003, the
terms of all Convertible Notes and Debentures held or subsequently acquired by
the Investor on or following October 27, 2003 are to be convertible as to
principal plus accrued, unpaid interest at a conversion price of $0.0025 per
share. It is estimated that this would result in the issuance of approximately
210,000,000 shares, if all affected Convertible Notes as of October 27, 2003
were converted. The Convertible Notes will continue to be subject to the
limitation that the holder not



                                      F-32
<PAGE>

own in excess of 4.9% of our outstanding common stock at any time after giving
effect to the conversion. As the result of the change in the conversion rate, we
recorded a deferred financing fee of approximately $11,788,000 to be amortized
over the life of the loan. The deferred finance fee was determined by
calculating the additional beneficial conversion feature resulting from the
decrease conversion price per share (SEE NOTE 17 - SUBSEQUENT EVENTS).

In addition, we granted the Investor five year warrants to purchase 30 million
shares of Xechem common stock at an exercise price of $.0025, subject to
anti-dilution terms. The warrants will not be exercisable until one year after
issuance. The estimated fair value of the warrants of $3,945,000 has been
allocated to paid-in capital. This deferred financing fee is being amortized
over the term of the notes.

As of December 31, 2003 we have received $1,350,000 from this loan and recorded
$9,600 in accrued interest. This agreement has not been signed in its final
form, however, the Company and the Investor do not anticipate any material
differences from the facts stated above.

(C) In December we received a $200,000 advance from Alembic, Ltd. a new investor
in the Company. This amount was applied to a financing agreement entered into in
2004 (SEE NOTE 17 - SUBSEQUENT EVENTS).

NOTE 15 - OBLIGATIONS UNDER CAPITAL LEASE

The Company is the lessee of machinery and equipment under capital leases
expiring through 2006. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The assets are amortized over the lower of their
related lease terms or their estimated productive lives.

Obligations under capital leases consist of the following at December 31:

<TABLE>
<CAPTION>
                                                                                      2003          2002
                                                                                      ----          ----
<S>                                                                                 <C>          <C>
     Equipment  lease  -  Vanguard   Capital   Partners,   LLC.,
     effective   interest  of  18.64  percent  per  annum,  final
     payments due in 2006, secured by equipment                                     $ 20,000     $   --

     Equipment  lease  - M  &  C  Leasing  Co.,  Inc.,  effective
     interest of 13.54 percent per annum,  final  payments due in
     2008, secured by equipment                                                       75,000         --

     Equipment  lease - Avaya Finance Corp.,  effective  interest
     of 14.00  percent  per annum,  final  payments  due in 2004,
     secured by equipment                                                              4,000        7,000

     Equipment   lease  -  Citicorp   Vendor   Financing,   Inc.,
     effective   interest  of  14.0  percent  per  annum,   final
     payment due in 2006, secured by equipment                                        14,000       17,000
                                                                                    --------     --------
</TABLE>



                                      F-33
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                                 <C>          <C>
     Obligations Under Capital Leases                                                113,000       24,000

     Less Current Portion                                                             27,000        6,000
                                                                                     -------     --------
     Obligations Under Capital Leases, Less Current Portion                         $ 86,000     $ 18,000
                                                                                    ========     ========


         A summary of property held under capital leases included in equipment
         is as follows at December 31:


                                                                                               2003          2002
                                                                                               ----          ----

           Machinery and Equipment                                                          $   144,000   $   31,000
           Less Accumulated Amortization                                                         19,000        7,000
                                                                                            -----------   ----------
              Property Held Under Capital Leases, Net                                       $   125,000   $   24,000
                                                                                            ===========   ==========
</TABLE>
            Amortization on assets under capital leases charged to expense in
            2003 and 2002 was $6,000 and $26,350, respectively.

            Minimum future lease payments under capital leases as of December
            31, 2003 for each of the next five years and in the aggregate area:


     YEAR                                                        AMOUNT

     2004                                                      $     41,000
     2005                                                            37,000
     2006                                                            35,000
     2007                                                            22,000
     2008                                                            13,000
                                                               ------------
         Total Minimum Lease Payments                               148,000

         Less Imputed Interest                                       35,000
                                                               ------------

         Present Value of Net Minimum Lease Payment            $    113,000
                                                               ============


         NOTE 16 - 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 domestic
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 50% of
their compensation, up to the maximum amount permitted by the Internal Revenue
Code. Employer contributions are made up to 4% of the employee's gross
compensation. In 2003 and 2002, respectively, the Company contributed $19,200
and $17,050 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 employment.


                                      F-34
<PAGE>

NOTE 17 -SUBSEQUENT EVENTS

(1) ALEMBIC TRANSACTIONS

On April 7, 2004, Xechem executed definitive documents with Alembic Limited
("Alembic"), a pharmaceutical company based in India. The documents relate to:
(i) a commitment to loan $3,000,000 to Xechem; (ii) a license, royalty and
distribution rights agreement ("Xechem Nigeria Agreement") related to the
production, sale and licensing of NICOSAN(TM)/HEMOXIN(TM) through Xechem
Nigeria, a majority-owned subsidiary of Xechem; and (iii) a five-year warrant to
purchase 10,000,000 shares of Xechem common stock at $0.20 per share. The loan
is in connection with the Company's planned approval for sale and development of
a manufacturing facility, in Nigeria, for the production of
NICOSAN(TM)/HEMOXIN(TM)," a drug used to treat sickle cell anemia, through
Xechem Nigeria. NICOSAN(TM)/HEMOXIN(TM) has been granted orphan drug status by
the FDA in the United States; however, sales will not be permitted in the United
States unless appropriate FDA regulatory approval is attained for the product.

The $3,000,000 loan to the Company is to be funded with six payments of $500,000
each, with the first made on the date of the closing of the transaction and
subsequent payments to be made each thirty days thereafter. Upon the signing of
the Memorandum of Understanding ("MOU") which predated the loan, Alembic funded
$200,000 in escrow, which is to be applied toward the $3,000,000 loan amount.

In the Xechem Nigeria Agreement, the Company granted to Alembic a 15% ownership
interest in Xechem Nigeria (with antidilution rights regarding its next two
rounds of financing), which has been formed to manufacture
NICOSAN(TM)/HEMOXIN(TM) and to distribute the product in Nigeria and nearby
countries. This royalty is in addition to the royalty payable by Xechem to NIPRD
of 7.5% of gross revenues on NICOSAN(TM)/HEMOXIN(TM). Xechem has also agreed in
the MOU to use its best efforts to cause a designee of Alembic's to be elected
to its Board of Directors. The Xechem Nigeria Agreement also grants to Alembic
the right of first offer to act as Xechem Nigeria's distributor of the product
in Africa and India. The warrant and Alembic's right with regard to distribution
in Africa and India will lapse if Alembic fails to fund the loan on any of the
designated dates or within 30 days thereafter.

The loan will be convertible, at Alembic's option, at a 30%, 40%, 50% and 60%
discount to the average closing price of Xechem's common stock on the first,
second, third and fourth anniversaries of the closing date, respectively. The
Xechem Nigeria Agreement also provides that Alembic will receive a royalty of
15% of the gross collected revenues from sales of NICOSAN(TM)/HEMOXIN(TM) in
Nigeria for a period of five years from the date of the product launch (I.E.,
when the Nigerian manufacturing facility is fully approved by all governmental
and regulatory bodies), 10% of gross collected revenues for the succeeding five
years, and 5% of gross collected revenues for the succeeding five years. In
addition, Xechem has agreed to pay Alembic a royalty of 1% of gross collected
revenues in connection with its sales of NICOSAN(TM)/HEMOXIN(TM) outside of
Nigeria. The Xechem Nigeria Agreement also provides that Xechem will be entitled
to a royalty of 30% of the first year's revenues and 25% of revenues thereafter
from the sale of NICOSAN(TM)/HEMOXIN(TM), provided that such royalty is
subordinated to that payable to Alembic, as referenced above.



                                      F-35
<PAGE>

(2)CEPTOR TRANSACTIONS
On January 27, 2004, we issued 6,000 Class C Series 7 Preferred Stock to the
former shareholders of Ceptor Corporation in connection with the merger of
Ceptor Corporation into a wholly-owned subsidiary of the Company. The new Class
C Series 7 Preferred Stock has a $6,000,000 liquidation preference and is
convertible into 30,000,000 shares of common stock at the option of the holders
of the Class C Series 7 Preferred Stock, together with piggyback registration
rights for the underlying common shares. We also agreed to provide a contingent
award of $1,000,000 of our stock to certain former Ceptor shareholders (payable
in Xechem stock valued at the lesser of $0.20 per share or market value) upon
the achievement of a designated milestone for each product developed with the
technology. Ceptor is a research drug company focusing on neuromuscular
diseases, which include therapeutics for muscular dystrophy, multiple sclerosis,
ALS and epilepsy.

On March 31, 2004, we entered into an agreement with Ceptor and William Pursley
("Pursley"), intended to provide a framework for independent financing of
Ceptor. The agreement calls for Pursley to act full time as chief executive
officer of Ceptor pursuant to two-year term, subject to automatic renewal absent
delivery of non-renewal. It calls for base compensation of $330,000 per annum
and a five year option to purchase 443,000,000 shares of common stock of the
Company at a purchase price of $.0025 per share subject to vesting provisions
stipulated in the option agreement. As part of the Agreement, Mr. Pursley has
resigned from his positions as president, chief operating officer, vice chairman
and as a member of the Board of Directors of Xechem

The Ceptor agreement contemplates that Ceptor will seek to obtain bridge funding
to be followed by a subsequent round of capital infusion. Ceptor has engaged in
dialogue regarding such proposed financing, however as of the date of this
document no binding commitments have been received and no assurances can be
provided that future financing will be obtained. Xechem has funded $300,000 of
capital contributions to date to Ceptor, and has further agreed, subject to the
full funding by Marjorie Chassman of her loan obligations to Xechem for the
months of April and May of 2004, to fund an additional $125,000 on May 1, 2004
and June 1, 2004 to Ceptor. All such funding would be in the form of capital
contributions.

The Ceptor agreement contemplates that Ceptor will take the necessary steps to
effect a stock split so that after the split, Xechem will own 1,406,250 shares
of Ceptor $0.00001 per share par value common stock, constituting all of its
then issued and outstanding stock. Ceptor has further agreed to issue to Pursley
and his designees (intended to comprise Ceptor management team members) options
to purchase in the aggregate 1,093,750 shares of common stock, fully vested and
exercisable at par value for a period of 10 years from the date of grant. These
numbers are subject to proportionate increase or decrease.

The Ceptor agreement provides that Xechem will sell back to Ceptor over time up
to 625,000 shares of its common stock in Ceptor for an aggregate of $2,000,000,
payable from 25% of the proceeds of future financing received by Ceptor other
than the contemplated bridge financing. At the end of two years if the full
$2,000,000 has not been paid out to Xechem, it shall have the right to put the
remaining portion of the shares held for sale back to Ceptor to cover the
deficiency. In order to induce the funding of a bridge loan (expected to be not
less than $250,000 or more than $1,000,000), Xechem has agreed that in the event
such a loan is funded and is not paid off when due, it will permit the bridge
lender to convert the unpaid indebtedness owing with respect to the bridge loan
into



                                      F-36
<PAGE>

Xechem common stock at the lesser of seven cents per share or seventy five
percent (75%) of the average closing price of Xechem's common stock for the ten
trading days preceding the date of funding of the bridge loan. Xechem has been
granted piggyback registration rights with respect to the shares in Ceptor it
may hold from time to time, subject to its agreement to lock up the sale of all
the shares on the open market for a period of 180 days following the initial
registration of any Ceptor shares pursuant to a registration statement, and
one-half of its shares for an additional 180-day period.

Pro-forma results of operations as if the transaction had occurred on January 1,
2003 are considered not to vary materially from the results of operations as
reported in these financial statements.

(3) CONSULTING AGREEMENTS
In January 2004, we entered into a consulting agreement with Dr. Alfred Stracher
for a period of sixty months. In consideration for the services to be rendered,
we are obligated to pay a total of $276,000, plus expenses as allowed for in the
agreement.

In January 2004, we entered into a consulting agreement with Dr. Leo Kesner for
a period of sixty months. In consideration for the services to be rendered, we
are obligated to pay a total of $276,000, plus expenses as allowed for in the
agreement.

In February 2004, we entered into a consulting agreement with CEOcast, Inc. for
investor relations with a term of three months and fess of $50,000 plus certain
expenses as allowed for in the agreement.

In February 2004, we entered into a research agreement with The Research
Foundation of State University of New York. In consideration for the research to
be performed, we are obligated to pay $9,000 per month commencing in February
2004 through January 2005, for a total of $108,000.

(4) OPTIONS
At the February 18, 2004 Board of Directors meeting Steve Burg and Leonard Mudry
were both awarded 10-year options to purchase 5,000,000 shares of common stock
each at $0.01 per share. This will result in a charge to operations over the
life of the options of $1,300,000.

At the March 18, 2004 Board of Directors meeting Dr. Soji Adelaja was granted an
option to acquire 5,000,000 shares of common stock of the Company, purchasable
at $0.0025 per share, vesting according to the following schedule (based upon
continued service as a director of the Company): 250,000 shares presently on
each of June 30, September 30 and December 31 of 2004, and an additional
1,000,000 shares on each of December 31, 2005, 2006, 2007 and 2008.This will
result in a charge to operations over the life of the options of $437,500. At
the same meeting the Board granted 500,000 options to purchase common stock to
each of Bhuwan Pandey and Anil Bensali, exercisable within 10 years following
grant at the closing price of the Company's stock as of the day immediately
preceding the date of grant per share.4 In addition, the Company further grants
options (at the same price per share) to each of them to purchase the following
number of shares (i.e. not to exceed 750,000 shares as to each of them), subject
to vesting upon launch of Hemoxin no later than March 31, 2005, for commercial
sale in Nigeria on or before the following dates: 750,000 shares if launch on



                                      F-37
<PAGE>

or before 12/31/04; 650,000 shares if launch on or before 1/31/05; 550,000
shares if launch on or before 2/28/05; 450,000 shares if launch on or before
3/31/05; no shares if launch is after 3/31/05.

(5) STOCK ISSUED
Subsequent to December 31, 2003, we issued 133,690,440 shares of common stock
upon the conversion of approximately $293,000 and $42,000 of principal and
interest, respectively of convertible notes and debentures.

In March 2004, 200,000 shares of our common stock were issued to Dr. David
Jacobs for services rendered in full payment of "The Orphan Drug Application."
Operations were charged $15,000 for his services.

                                      F-38

<PAGE>

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

         Our Audit Committee of the Board of Directors annually considers and
recommends to the Board the selection of our independent public accountants. As
recommended by our Audit Committee, our Board of Directors in December 2003
decided engaged WithumSmith+Brown P.C. to serve as our independent public
accountants for the remainder of 2003 and the years thereafter.

         The report of Wiss on our financial statements for the last fiscal year
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles, except for the
uncertainty paragraph regarding our ability to continue as a going concern as
noted in the report on our financial statements for the years ended December 31,
2002.

         During our most recent fiscal year and through the date of this Form
10-KSB, there were no disagreements with Wiss on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Wiss's satisfaction, would have cause them
to make reference to the subject matter in connection with their report on our
consolidated financial statements for such years. In addition, there were no
reportable events, as listed in Item 304(a) (1) (v) of Regulation S-K.

         Our Audit committee had received a letter from Wiss & Company, LLP
("Wiss"), the Company's independent accountants, dated September 30, 2003 in
which Wiss informed the Company that it had decided to discontinue providing
audit services to SEC clients and was exiting this practice area.

ITEM 8.A   CONTROL PROCEDURES

         We maintain a system of controls and procedures designed to provide
reasonable assurance as to the reliability of the financial statements and other
disclosures included in this report as well as to the safeguard assets from
unauthorized use or disposition. However, no cost effective internal control
system will preclude all errors and irregularities, and management is
necessarily required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Also, we have investments in
certain unconsolidated entities that we do not control or manage. As we do not
control or manage these entities, our disclosure controls and procedures with
respect to such entities are necessarily more limited than those we maintain.

         We evaluate the effectiveness of the design and operation of our
disclosure controls and procedures under the supervision and with the
participation of management, including our chief executive officer and chief
financial officer, within 90 days prior to the filling date of the report. Based
upon that evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information required to be included in our periodic
securities exchange commission filings. No significant changes were made to our
internal controls or other factors that could significant effect these controls
subsequent to the date of their evaluation.

                                       41
<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:

<TABLE>
<CAPTION>
         -------------------------------------------- -------- ------------------------------------------
         NAME                                         AGE      POSITION WITH XECHEM
         -------------------------------------------- -------- ------------------------------------------
<S>                                                   <C>      <C>
         Dr. Ramesh C. Pandey (1)(4)                  65       Chief Executive Officer, President,
                                                               Chairman  of  the  Board  of   Directors,
                                                               Secretary and Treasurer.
         -------------------------------------------- -------- ------------------------------------------
         Stephen F. Burg (1)(2)(3)(4)                 66       Director and Assistant Treasurer
         -------------------------------------------- -------- ------------------------------------------
         Leonard Mudry (1)(2)(3)(4)                   66       Director
         -------------------------------------------- -------- ------------------------------------------
         Adesoji Adelaja, Ph.D.                       52       Director
         -------------------------------------------- -------- ------------------------------------------
</TABLE>

(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.

                                       42
<PAGE>

         LEONARD MUDRY became a director in January 2004. Mr. Mudry is currently
a consultant to a number of companies. From October 1998 to May 2000, he held
the position of business consultant with Strategic Business Organisation in
Cranford, NJ. Mr. Mudry was Senior Vice-President of Finance and Operations of
Xechem International Inc. from May 1994 to September 1998.From February 1991 to
April 1994, he was Vice President -Operations of MediGebe, Inc., a pre-natal
testing company. Prior to joining MediGene, Mr. Mudry was Vice
President-Operations/Finance for Princeton Diagnostic Labs from March 1990 to
January 1991; Senior Vice President and Chief Financial Officer of American
Medical Laboratories from January 1987 to March 1990; held various positions
with Hoffman-LaRoche, Inc. and its subsidiaries, a major pharmaceutical company,
from 1969 to 1987.

         ADESOJI ADELAJA, PH.D., became a director in March, 2004. He is the
John A. Hannah Distinguished Professor in Land Policy and Director of Research
for the Victor Institute at Michigan State University. He holds joint faculty
appointments as professor in the following departments: Agricultural Economics;
Geography; and Community, Agricultural and Recreational Resource Studies. Dr.
Adelaja commenced his appointment at MSU on January 1, 2004. Prior to that, he
served as the Executive Dean of Agriculture and Natural Resources, the Dean of
Cook College, the Executive Director of the New Jersey Agricultural Experiment
Station and Director of Rutgers Cooperative Extension at Rutgers University.



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 believe 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.

COMMITTEES

         Our Stock Option Committee, established in May 1995, presently consists
of Dr. Pandey 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 Mr. Burg. 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.

         Our Audit Committee, established in May 1995, presently consists of Mr.
Burg and Mr. Mudry. 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.

                                       43
<PAGE>

ITEM 10.    EXECUTIVE COMPENSATION

Compensation of Directors.

         Directors do not receive any standard compensation for services. Mr.
Burg was paid $12,500 in consulting fees during 2003.

Executive Compensation.

         Set forth below is information concerning the compensation for 2001,
2002 and 2003 for our President and Chief Executive Officer, who is the only
executive officer of Xechem whose compensation exceeded $100,000:

<TABLE>
<CAPTION>
  -------------------------- ----------------------------------- ---------------------------- ----------- ---------------
                                                                                                            ALL OTHER
                             ANNUAL COMPENSATION                           AWARDS              PAYOUTS     COMPENSATION
  -------------------------- ----------------------------------- ---------------------------- ----------- ---------------
                                                                                SECURITIES
                                                      OTHER       RESTRICTED    UNDER-LYING
                                                      ANNUAL        STOCK         OPTIONS        LTIP
            YEAR               SALARY      BONUS   COMPENSATION     AWARDS                     PAYOUTS
  -------------------------- ------------ -------- ------------- ------------- -------------- ----------- ---------------
  Dr. Ramesh Pandey
<S>                           <C>            <C>      <C>         <C>                 <C>          <C>           <C>
         2000                 $140,000       0        $   688     $1,563,000          0            0             0
         2001                 $140,000       0        $ 1,380          0              0            0             0
         2002                 $140,000       0        $   709          0              0            0             0
         2003                 $150,000       0        $ 1,164          0              0            0             0
  -------------------------- ------------ -------- ------------- ------------- -------------- ----------- ---------------
</TABLE>

EMPLOYMENT AGREEMENTS

         Dr. Pandey has been employed pursuant to an employment agreement dated
February, 1994, which expired on its tenth anniversary. The Board of Directors
has approved an increase in his base compensation to $350,000 per annum and
further agreed pursuant to the Note Purchase Agreement to the grant of the
common stock purchase option referenced below (yet to be codified in writing). A
renewed employment agreement has not yet been negotiated or finalized. It is
expected that Dr. Pandey's employment agreement, when and if executed, will
contain a provision similar to the former agreement which called for payment of
a royalty payment in the amount of 2 1/2% of our net profits before taxes, as
determined under generally accepted accounting principles, with respect to any
products developed by us during Dr. Pandey's tenure with us whether prior to or
after the term of the employment agreement. In addition, as set forth in the
Note Purchase Agreement, Dr. Pandey is to be granted an option to purchase a 20%
interest in our common stock, subject to the antidilution rights detailed above
in "Recapitalization of Company."

         Dr. Pandey, under his prior employment agreement, was also entitled to
purchase voting stock equal to 20% of the outstanding voting stock issued
through December, 2003, and accordingly, we issued 923 and 39,407 additional
Class C Preferred shares to Dr. Pandey in 2003 and 2002 respectively with voting
rights equal to 9,230,000 and 416,390,000 shares of common stock, respectively
(pre-split shares). We need to issue 680 additional shares to bring his
percentage of voting stock to 20% as of December 31, 2003.

                                       44
<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
(pre-split) shares of Common Stock. The Plan provides for the grant to employees
of incentive stock options ("ISOs") and non-qualified stock options. On November
20,2002 the Board of Directors increased the number of options available to
300,000,000 (pre-split) shares.

         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 was terminated 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, 2003, we have granted
options under the Plan to purchase 58,846 (pre-split) shares of Common Stock,
with 53,741 (pre-split) shares still outstanding under the Plan.

         A new long term incentive program was adopted in 2004 calling for the
issuance of options, restricted stock or other equity based compensation awards,
equivalent to 40,000,000 shares of

                                       45
<PAGE>

   AGGREGATE OPTION EXERCISES IN FISCAL 2003 AND FISCAL YEAR-END OPTION VALUES

         The following table provides information on option exercises during the
year ended December 31, 2003 by the directors and executive officers of Xechem
and the value of such parties' unexercised stock options as of December 31,
2003.

<TABLE>
<CAPTION>
========================== ===================== ========= ============================= ==============================
                                                               NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                                                              UNDERLYING UNEXERCISED         IN-THE-MONEY OPTIONS
                                                               OPTIONS AT 12/31/03              AT 12/31/03 (1)
-------------------------- --------------------- --------- ----------------------------- ------------------------------
                                  SHARES
                               ACQUIRED ON        VALUE
          NAME                 EXERCISE (#)      REALIZED  EXERCISABLE   UNEXERCISABLE   EXERCISABLE    UNEXERCISABLE
                                    (3)            ($)         (3)
-------------------------- --------------------- --------- ------------ ---------------- ------------- ----------------
<S>                                <C>              <C>       <C>             <C>            <C>            <C>
Dr. Ramesh C. Pandey               13 (2)           0          500             0              $0             $0
                                                              2,673            0
Stephen F. Burg                     0               0                                         $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, 2002 ($.0008) 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.
(3)      All shares are post-split.

         There were no options granted for Common Stock during the year ended
December 31, 2003 to the directors and executive officers of Xechem.

         We have not granted any Long-Term Incentive Plan-Awards during the year
ended December 31, 2003.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding the
beneficial ownership of our common stock and total voting stock (including the
Class A and Class C Preferred Stock) as of April 2, 2004 by: (i) each
stockholder known by us to beneficially own in excess of 5% of the outstanding
shares of common stock or Class A preferred stock; (ii) each director; and (iii)
all directors and executive officers as a group. As of April 2, 2004 we had
165,750,348 Common Shares issued and outstanding, 2,500 Class A Preferred Shares
outstanding and 923 shares of Class C, Series 6 Preferred Shares outstanding.
Ramesh C. Pandey owns all of the outstanding Class A preferred stock and Class
C, Series 6 Preferred Shares. 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.

                                       46
<PAGE>

<TABLE>
<CAPTION>
----------------------------- ------------------------ ----------------------- ----------------------- ---------------
                                   COMMON STOCK          CLASS A PREFERRED       CLASS C PREFERRED
                                                               STOCK                   STOCK
----------------------------- ------------------------ ----------------------- ----------------------- ---------------
Name and Address               Number of    Percent    Number of    Percent     Number of   Percent      Percent of
                                 Shares     of Class     Shares     of Class     Shares     of Class    Voting Stock
                                                                                                           (1)(2)
----------------------------- ------------- ---------- ----------- ----------- ----------- ----------- ---------------
<S>                           <C>            <C>       <C>         <C>         <C>         <C>            <C>
William Pursley (12)           43,000,000     19.6%        -           -           -           -           15.70%
                                  (13)
----------------------------- ------------- ---------- ----------- ----------- ----------- ----------- ---------------
Stephen F. Burg (3)            5,002,673      2.28%        -           -           -           -           1.83%
                                  (7)
----------------------------- ------------- ---------- ----------- ----------- ----------- ----------- ---------------
Ramesh C. Pandey, Ph.D. (4)    20,640 (8)     .01%     2,500 (1)      100%      923 (2)       100%         4.29%
----------------------------- ------------- ---------- ----------- ----------- ----------- ----------- ---------------
Leonard Mudry (5)               5,002,888     2.28%        -           -           -           -           1.83%
                                  (9)
----------------------------- ------------- ---------- ----------- ----------- ----------- ----------- ---------------
Adesoji Adelaja (6)             267,390       .12%         -           -           -           -            .10%
                                  (10)
----------------------------- ------------- ---------- ----------- ----------- ----------- ----------- ---------------
All  directors and executive   10,293,591     4.70%    2,500 (1)      100%      923 (2)       100%         15.71%
officers   as  a  group   (4      (11)
persons)
----------------------------- ------------- ---------- ----------- ----------- ----------- ----------- ---------------
</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 95,055 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 STEPHEN BURG IS 3257 WINGED FOOT DRIVE, FAIRFIELD, CA
         94533.
(4)      THE ADDRESS OF DR. PANDEY IS C/O XECHEM INTERNATIONAL, INC., 100 JERSEY
         AVENUE, BUILDING B, SUITE 310, NEW BRUNSWICK, NEW JERSEY 08901, DOES
         NOT INCLUDE OPTIONS ISSUABLE AS CONTEMPLATED IN NOTE PURCHASE AGREEMENT
         WHICH HAVE NOT YET BEEN CODIFIED IN AN OPTION AGREEMENT BETWEEN DR.
         PANDEY AND US.
(5)      THE ADDRESS OF MR. MUDRY IS C/O XECHEM INTERNATIONAL, INC., 100 JERSEY
         AVENUE, BUILDING B, SUITE 310, NEW BRUNSWICK, NEW JERSEY 08901
(6)      THE ADDRESS OF DR. ADESOJI ADELAJA IS C/O XECHEM INTERNATIONAL, INC.,
         100 JERSEY AVENUE, BUILDING B, SUITE 310, NEW BRUNSWICK, NEW JERSEY
         08901
(7)      INCLUDES 5,002,673 SHARES THAT ARE PRESENTLY EXERCISABLE OPTIONS. (8)
         INCLUDES 500 SHARES THAT ARE PRESENTLY EXERCISABLE OPTIONS. (9)
         INCLUDES 5,002,388 SHARES THAT ARE PRESENTLY EXERCISABLE OPTIONS.
(10)     DOES NOT INCLUDE 4,750,000 SHARES SUBJECT TO THE ADELAJA OPTIONS, WHICH
         PRESENTLY ARE NOT EXERCISABLE, AND WILL NOT BE EXERCISABLE IN 60 DAYS
         FROM APRIL 2, 2004; HOWEVER INCLUDES 250,000 SHARES THAT ARE PRESENTLY
         EXERCISABLE.
(11)     DOES NOT INCLUDE 4,750,000 SHARES SUBJECT TO THE DIRECTORS OPTIONS,
         WHICH PRESENTLY ARE NOT EXERCISABLE, AND WILL NOT BE EXERCISABLE IN 60
         DAYS FROM APRIL 2, 2004; HOWEVER INCLUDES 10,255,561 SHARES THAT ARE
         PRESENTLY EXERCISABLE.
(12)     THE ADDRESS OF MR. PURSLEY IS 1138 CORBETT RD., MONKTON MD. 21111.
(13)     INCLUDES 43,000,000 SHARES THAT ARE PRESENTLY EXERCISABLE OPTIONS.

As of December 31, 2003 we had the following compensation plans under which our
equity securities are authorized for issuance:

<TABLE>
<CAPTION>
        ---------------------------- -------------------------- -------------------------- --------------------------
        Plan Category                Number of securities to    Weighted average           Number of securities
                                     be issued upon exercise    exercise price of          remaining available for
                                     of outstanding options,    outstanding options,       future issuance under
                                     warrants and rights        warrants and rights        equity compensation
                                                                                           plans (excluding
                                                                                           securities effected in
                                                                                           column (a))
        ---------------------------- -------------------------- -------------------------- --------------------------
<S>                                         <C>                           <C>                          <C>
        Equity compensation plans           37,565,594                    16.62                        0
        approved by security
        holders
        ---------------------------- -------------------------- -------------------------- --------------------------
        Equity compensation plans                0                          0                     40,000,000
        not approved by security
        holders
        ---------------------------- -------------------------- -------------------------- --------------------------
        Total                               37,565,594                    16.62                   40,000,000
        ---------------------------- -------------------------- -------------------------- --------------------------
</TABLE>

                                       47
<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 us 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, 2003, 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.

         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, we 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 our capital, Dr.
Pandey transferred his 66-2/3% interest in Xechem India to us 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 we
anticipate will be made available to other, unrelated, persons in India. The
minority interest in Xechem India is not material.

         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 have a new five-year
lease, which commenced on July 1, 2002. Rent expense amounted to approximately
$183,000 and $128,000 for the years ended December 31, 2003 and 2002 ,
respectively. At December 31, 2003, we owed rental payments to the lessor
totaling approximately $80,000 and a security deposit of $26,000 upon payment of
the security deposit the old rental payments will be reduced to $51,658.92.

         In 2003 we had a reverse stock split of 3000-1 because of this all the
outstanding Class C, Preferred Voting Stock was canceled and a new certificate
was issued to Dr. Pandey for 923 shares, which were outstanding as of December
31, 2003.

         We owe Dr. Pandey, Chairman of the Board, $783,000 as of December 31,
2003 from an interest bearing advance of $200,000 at 10% per annum, accrued
interest of $199,000, and accrued salary of $384,000. The advance will be due
when we are no longer a development entity; according to terms of the Chassman
agreement Dr. Pandey was to be repaid $150,000 from proceeds of loan as of
filing date he has received $140,000, At December 31, 2002, we owed Dr. Pandey
$776,000.

                                       48
<PAGE>

         We also have a note payable to Dr. Renuka Misra, director of Natural
Products, for $298,300 with 12% annual interest due September 20, 2004.

         We have received funding from Beverly Robbins, a sales and marketing
representative totaling $218,000 and $195,000 as of December 31, 2003 and 2002
respectively.

         In 2003 we have received $88,000 from members of Dr. Pandey's family in
the form of eight short-term notes. These notes are all for one year with
interest from 8% - 12% with accrued interest as of December 31, 2003 of $4,033.
Four of the note holders are to be issued 360,000 shares of our common stock;
this resulted in a charge to operations of $77,800. Two notes totaling $20,000
can be converted into common stock with a conversion price of $ 0.01 per share.
The intrinsic value of the beneficial conversion feature of $20,000 has been
allocated to paid-in capital. This resulting debt discount is being amortized on
a straight line basis over the term of the notes.

         Interest expense for related parties totaled approximately $72,000 and
$70,000 for the years ended December 31, 2003 and 2002, respectively.

                                       49
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

EXHIBIT NO.

3(i)(a)    Certificate of Incorporation1

3(i)(b)    Certificate of Correction to Certificate of Incorporation1

3(ii)      By-Laws1

3(i)(c)    Certificate of Amendment to Certificate of Incorporation2

3(i)(c)    Certificate of Amendment to Certificate of Incorporation3

3(i)(c)(A) Certificate of Amendment to Certificate of Incorporation.4

3(i)(c)(B) Certificate of Amendment to Certificate of Incorporation5

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

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

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

3(i)(g)    Certificate of Designations, Preferences and Rights of Class C
           Shares6 (Class C Series 6 Preferred Stock)

4.1        Representative Unsecured Debenture4

4.2        Representative Unsecured Note5

4.3        Representative Subscription Agreement for Purchase of Unsecured
           Notes5

4.4        Representative Subscription Agreement for Purchase of Unsecured
           Debentures4

4.5        Representative Warrant to Purchase Shares of Common Stock5

10.2       Form of Pandey Option1

10.3       Form of Employment Agreement between Xechem and Dr. Pandey1

-----------
1 Incorporated by referenced from our Registration Statement on Form SB-2 (SEC
File No. 33-75300NY) referencing the exhibit numbers used in such Registration
Statement.

2 Incorporated by reference from our Annual Report on Form 10-KSB for the year
ended December 31, 1995.

3 Incorporated by reference from our Annual Report on Form 10-KSB for the year
ended December 31, 1996.

4 Incorporated by reference from our Registration Statement on Form S-3 (SEC
File No. 333-71742).

5 Incorporated by reference from our Registration Statement on Form S-3 (SEC
File No. 333-97345).

6 Incorporated by reference from our Registration Statement on Form SB-2 (SEC
File NO. 333-97345).

                                       50
<PAGE>

10.17      Patents1

10.18      Indemnity agreement between Xechem and Ramesh C. Pandey1

10.28      Xechem International, Inc. Amended and Restated Stock Option Plan2

10.29      Stockholders Agreement dated November 18, 1996 among Xechem
           International, Inc., David Blech and Ramesh C. Pandey7

10.30      2004 Long Term Incentive Plan

10.31      Royalty, Distribution Rights and Joint Cooperation Agreement Among
           Xechem International, Inc., Xechem Pharmaceuticals Nigeria, Limited
           and Alembic, Limited

10.32      Fund of $3,000,000 Promissory Note to Alembic, Limited

10.33      Ceptor Agreement among Ceptor Corporation, Xechem International, Inc.
           and William Pursley

10.34      Employment Agreement between Ceptor Corporation and William Pursley

10.35      Amended and Restated Stock Option Agreement between Xechem
           International, Inc. and William Pursley

-------------------
7 Incorporated by reference from our Form 8-K Current Report dated November 18,
1996.

                                       51
<PAGE>

PRINCIPAL ACCOUNTING FEES AND SERVICES

AUDIT FEES: The audit fees for 2003 from WithumSmith + Brown P.C. are $30,000
for the annual audit and review of Form 10-KSB and $3,000 for each quarterly
review as compared to 2002 from Wiss & Co. LLP of $25,000 for the annual audit
and review of Form 10-KSB and $3,000 for each quarterly review.

TAX FEES: The fees for our corporate tax return for 2003 will be $6,000 as
compared to $ 7,000 for 2002 returns.

ALL OTHER FEES: There have been no fees from our principal accountants
WithumSmith + Brown for 2003; however we did have a charges from Wiss & Co, LLP
of approximately $1,300 and anticipate approximately another $ 3,000 for review
of 2003 financial statements as compared to $7,000 from our previous auditor for
review of 2002 financial statements.

All fees and the retaining of auditors was done by our audit committee with the
approval of our Board of Directors.

                                       52
<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.


                                        /s/Ramesh C. Pandey
                                        ----------------------------------------
Date: April 14, 2004                    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:  April 14, 2004
         ---------------------
         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:  April 14, 2004
         ---------------------
         Stephen F. Burg
         Director

By:      /s/ Leonard Mudry                              Date:  April 14, 2004
         ---------------------
         Leonard Mudry
         Director

By:      /s/Adesoji Adelaja                             Date:  April 14, 2004
         ---------------------
         Adesoji Adelaja, Ph.D.
         Director

                                       53
<PAGE>
                                  EXHIBIT INDEX



Number Exhibit

21     Subsidiaries of Xechem

23     Consent of WithumSmith+Brown CPA's

23.2   Consent of Wiss & Co. LLP

31.1   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1   Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002