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, 2002

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

                         Commission File Number 0-23788

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

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

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

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

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

Title of each class                    Name of each exchange on which registered

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

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

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

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


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                                (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. $ 269,000

     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. $ 937,000 as of March 31, 2003.

     The number of shares  outstanding of our Common Stock was  9,431,281,641 as
of March 31, 2003.

<PAGE>

                                      INDEX
                                      -----
                                                                            Page
                                                                            ----
PART I
     Item 1.  Description of Business......................................... 3
     Item 2.  Description of Property.........................................25
     Item 3.  Legal Proceedings...............................................25
     Item 4.  Submission of Matters to a Vote of Stockholders.................27

PART II
     Item 5.  Market for Common Equity and Related Stockholder Matters........28
     Item 6.  Management's Discussion and Analysis............................29
     Item 7.  Financial Statements............................................34
     Item 8.  Changes In and Disagreements With Accountants on Accounting
              and Financial Disclosure........................................35

PART III
     Item 9.  Directors, Executive Officers, Promoters and Control Persons;
              Compliance with Section 16(a) of the Exchange Act...............36
     Item 10. Executive Compensation..........................................37
     Item 11. Security Ownership of Certain Beneficial Owners and Management..40
     Item 12. Certain Relationships and Related Transactions..................41
     Item 13. Exhibits and Reports on Form 8-K................................43
     Item 14. Control Procedures..............................................45

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

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

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

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

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

     In July 2002 we formed Xechem  Pharmaceuticals  Nigeria Limited,  under the
Companies and Allied Matters Act (1992),  of the Federal  Republic of Nigeria to
develop and manufacture an NIPRISAN,  a  nutraceutical  product which we believe
holds promise in the treatment of Sickle Cell Disease. See Xechem Nigeria below.

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

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

                                       3
<PAGE>

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

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

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

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

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

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

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

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

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

                                       4
<PAGE>

toxicology and other experts,  as necessary,  will design  appropriate  clinical
studies. See "Government Regulation" below.

RECENT DEVELOPMENTS

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 will  manufacture,  market and
distribute  a  number  of   pharmaceuticals   and   prescription   nutraceutical
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 nutraceuticals in the near future.

     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  phyto-pharmaceutical 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  anticipate  the initial sales of  NICOSAN(TM)  in Nigeria in the second
quarter of 2003. All  manufacturing,  marketing,  distribution  and sales of the
product NICOSAN(TM) will take place through Xechem Nigeria at this time.

     We filed an Orphan Drug  Application  with the United  States Food and Drug
Administration  ("FDA") seeking Orphan Drug status for the  Phyto-Pharmaceutical
product,  HEMOXIN(TM),  which is a strong  candidate as a treatment for patients
suffering with Sickle Cell Disease ("SCD").

SICKLE CELL DISEASE IN THE UNITED STATES
----------------------------------------

     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.

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

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

                                       5
<PAGE>

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

     In an exclusive  License Agreement with Xechem China, we will allow the use
of our patents, trademarks and technical information to manufacture,  market and
sell the products in the  Territories  of the People's  Republic of China,  Hong
Kong,  Macao,  Taiwan  (The  Republic  of China),  Mongolia,  Korea,  Singapore,
Malaysia, Indonesia, the Republic of the Philippines, Thailand, Vietnam, Brunei,
Cambodia,  Myanmar,  and such other  countries  or  regions  which may be agreed
between the  parties.  A  non-exclusive  license is granted in Japan.  J & M had
committed a sum of $1,218,000  and management  services to Xechem China.  Xechem
China had  agreed to fund  Xechem up to  $240,000  as an  interest  free loan in
monthly  installments of $20,000 over 24 months. As of December 31, 2000 we have
received $140,000, no new funds were received in 2001 or 2002. In the event that
funding is not  received  in the near  future,  we may elect to  terminate  this
license agreement.

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

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

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

     During  December of 2002 we received  approval from the New Jersey Economic
Development  Authority  ("NJEDA") to sell  approximately  $303,000 of a total of
$377,000 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 2002 and 2001,  Xechem and its  subsidiaries  transferred
the tax  benefits of $303,000 and $519,000 in exchange for $243,000 and $452,000
respectively,  pursuant to the New Jersey State Tax Credit Transfer program.  We
received $243,000 net pursuant to this program in December 2002.

PACLITAXEL AND OTHER ANTICANCER AGENTS

Paclitaxel
----------

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

     An  established  market  exists for  paclitaxel  that we believe  currently
exceeds  $1.5  billion per year.  Additionally,  as clinical  experience  grows,
paclitaxel is expected to be approved for use in several other cancers.

                                       6
<PAGE>

Paclitaxel  is  also  used  in  combination  with  other  chemotherapy  and as a
sensitizer to radiation  therapy.  We believe that significant  market expansion
can be  expected in the near  future as a number of  competitors  produce or are
developing processes to produce paclitaxel.

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

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

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

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

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

     We have obtained  notice of regulatory  approval to import and sell generic
Chinese paclitaxel, under the name MEDAXOL(TM), in India. We received notice and
authorization  from the Indian  Government  on July 20, 2001. As of the December
31, 2002 there has been no sales generated from MEDAXOL(TM).

MANUFACTURING

     We conduct pilot-scale  manufacturing of our potential products (other than
nutraceuticals) under current Good Manufacturing Practices ("cGMP").  Management
believes  that its  in-house  pilot  plant  facility  has  adequate  capacity to
manufacture  a limited  quantity  of bulk  drugs for sale.  We have  temporarily
stopped our in-house

                                       7
<PAGE>

manufacturing  of bulk  paclitaxel  due to  Bristol-Myers  exclusivity to market
paclitaxel,  now since expired.  We intend to resume  manufacturing  in the near
future.  We have submitted a Drug Master File (DMF) for the facility and for the
manufacture of bulk paclitaxel with the FDA. Such  certification  is a necessary
precondition to production of paclitaxel and other  pharmaceutical  products for
sale in the United States market.  See "Paclitaxel and Other Anticancer  Agents"
above.

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

PATENTS AND PROPRIETARY TECHNOLOGY

     Our policy is to seek patent protection aggressively and enforce all of its
intellectual  property  rights.  Dr.  Pandey  was  issued a  patent  in 1992 for
purifying  Dermostatin  A and B, the rights to which have been assigned to us. A
second patent,  related to the method for  separating  and purifying  antifungal
polyene macrolide antibiotics, was granted to Dr. Pandey in 1993 and assigned by
Dr.  Pandey  to us.  We have  received  two  patents  from the U.S.  Patent  and
Trademark  Office for the  HEXOID(TM)  plate.  We has also  received  seven U.S.
patents on paclitaxel and its analogs from the U.S. Patent and Trademark  Office
from 1997 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.

                                       8
<PAGE>

                              UNITED STATES PATENTS
                              ---------------------
--------------------------------------------------------------------------------
    U.S. PATENT                                                          DATE OF
       NUMBER                      TITLE OF PATENT                        ISSUE
--------------------------------------------------------------------------------
1.   5,159,002      "Method for Purifying Dermostatin A and B"             1992
--------------------------------------------------------------------------------
2.   5,210,226      "Method for Separating Purifying Polyene               1993
                    Macrolide Antibiotics"
--------------------------------------------------------------------------------
3.   5,654,448      "Isolation and Purification of Paclitaxel              1997
                    from Organic Matter containing Paclitaxel,
                    Cephalomannine and Other Related Taxanes"
--------------------------------------------------------------------------------
4.   5,840,748      "Dihalocephalomannine and Methods of Use               1998
                    Therefor"
--------------------------------------------------------------------------------
5.   5,854,278      "Preparation of Chlorinated Paclitaxel                 1998
                    Analogues and Their Use Thereof as Antitumor
                    Agents"
--------------------------------------------------------------------------------
6.   5,807,888      "Preparation of Brominated Paclitaxel                  1998
                    Analogues and Their Use as Effective
                    Antitumor Agents"
--------------------------------------------------------------------------------
7.   5,840,930      "Method for Production of 2",3"                        1998
                    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         2001
                    Antileukemic Activity and Method Preparation
                    Therefor"
--------------------------------------------------------------------------------

                                       9
<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.
--------------------------------------------------------------------------------

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

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

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

                                       10
<PAGE>

RESEARCH FOR PROPRIETARY DRUGS AND TECHNOLOGY DEVELOPMENT

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

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

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

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

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

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.  Towards this goal, we are
seeking to develop  proprietary  drugs from  extracts  of  medicinal  plants and
marine sources, as well as diagnostic tests for determination of the presence of
certain biochemical compounds and/or diseases.

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

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

     Our particular  focus is the  development  of  therapeutic  agents based on
traditional  plant medicines,  especially the folklore of India and the People's
Republic of China. Over the past few decades, research in these

                                       11
<PAGE>

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 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").

     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.

                                       12
<PAGE>

     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.

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
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.

     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)  and have
applied for  registration  of  HEXOID(TM).  We had planned to market  paclitaxel
under the trademark  PAXETOL(TM).  Registration  of PAXETOL(TM) in United States
and Canada was  opposed by  Smithkline  Beecham  P.L.C.  ("SKB")  based on SKB's
registered  PAXIL(R) mark for use with a dissimilar  product.  In order to avoid
this conflict,  we will select a new name for the United States and Canada,  but
will  retain  the  trademark  PAXETOL(TM)  for other  countries.  We may seek to
register  other  existing  or future  trademarks.  We have also  registered  and
maintain  trademark  rights for  NICOSAN(TM)  and HEMOXIN(TM) for our new Sickle
Cell Anemia  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.

                                       13
<PAGE>

RAW MATERIAL SUPPLY

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

     Should the agreement with Guizhou be terminated or not extended, we may not
be able to purchase sufficient  quantities of paclitaxel pursuant to the Guizhou
agreement to meet our current  needs.  If we determine to produce  paclitaxel in
larger quantities than presently planned,  we have located additional  suppliers
in China and one  supplier  in India for the crude  paclitaxel  material  or its
precursor.  We  currently  import the plant  materials  for our  products  under
development primarily from the People's Republic of China and India. A continued
source of plant supply from the People's Republic of China and India, as well as
a supply of the raw material for paclitaxel, is subject to the risks inherent in
international  trade.  Those  risks  include  unexpected  changes in  regulatory
requirements, exchange rates, tariffs and barriers, difficulties in coordinating
and managing other foreign operations,  potentially adverse tax consequences and
possible  problems  associated  with DMF data.  There can be no  assurance  of a
continual  source  of  supply  of these  materials.  Interruptions  in supply or
material  increases in the cost of supply could have a materially adverse effect
on our financial condition and results of operations.

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

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

     Dr. Pandey and his brothers  incorporated  a corporation  in India ("Xechem
India") that seeks to obtain  contracts  for  dependable  supplies of plants and
other raw materials from India. Based on 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 may also conduct certain research,  manufacturing, and
marketing activities in India. Dr. Pandey has transferred his interest in Xechem
India  to us in  exchange  for our  reimbursement  to him of the  organizational
expenses  (approximately  $5,000).  Currently we own substantially all of Xechem
India. We have not invested  significant  additional amounts in Xechem India. It
is  anticipated  that Xechem  India will seek  financing  from  Indian  sources,
including, in particular,  individuals or organizations, 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.

                                       14
<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 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.

                                       15
<PAGE>

GOVERNMENT REGULATION

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

     Prior to  marketing  any  pharmaceutical  product  for other than  research
purposes,  we must  prepare and submit a Drug Master File  ("DMF") to the FDA to
obtain overall approval of the facility as a manufacturer of pharmaceuticals and
a DMF for the process of manufacturing such products.  Thereafter, before any of
our potential new  pharmaceutical  products may be marketed in the United States
the following is involved:  (i) preclinical  testing including stability studies
and  animal  tests;  (ii)  submission  of an  Investigational  New Drug  ("IND")
application which must become effective before clinical trials may begin;  (iii)
well-controlled  human  clinical  trials to establish the safety and efficacy of
the proposed  drug in its intended  application;  and (iv) FDA approval of a New
Drug Application  ("NDA").  If the drug or compound  utilized in the product has
been previously approved for use in another dosage form, the approval process is
similar,  except that certain  preclinical  toxicity tests normally required for
the IND may be avoided through the use of an ANDA.

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

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

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

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

                                       16
<PAGE>

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

ENVIRONMENTAL REGULATION

     In connection with our research,  development and manufacturing activities,
we are  subject to  federal,  state,  and local laws,  rules,  regulations,  and
policies  governing the use,  generation,  manufacture,  storage,  air emission,
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, 2002, we have nineteen  employees.  Of these  employees,
eight are  dedicated  to research,  development,  manufacturing  and  regulatory
compliance. Eight of our employees hold doctorate degrees. None of our employees
are covered by a collective bargaining agreement.  We believe all relations with
our employees are satisfactory.

SCIENTIFIC ADVISORY BOARD

     We have established the Scientific  Advisory Board ("SAB"),  which consists
of scientists,  researchers,  and clinicians  with  recognized  expertise in our
areas of  research.  Certain  members  of the SAB are asked from time to time to
review our  research  programs,  advise with  respect to  technical  or clinical
matters, and recommend personnel. During 2002 15,000,000 million options for our
common stock with an exercise price of $ .0005 per share were issued to the SAB.

 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.

                                       17
<PAGE>

     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.

     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.

                                       18
<PAGE>

     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.

     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

                                       19
<PAGE>

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.

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.  During 2002 stock prices
have changed  dramatically with a high of $.02 in March 2002 and a low of $.0007
in October  2002.  As of March 31, 2003 the closing price of our common stock on
the OTC Bulletin Board was $ 0.0001.

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

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

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

     We have experienced  significant  operating losses since inception and have
generated  minimal  revenues from its  operations.  As of December 31, 2002, our
accumulated  deficit was approximately  $39,807,000,  which included losses from
operations of  $2,331,000,  and $1,871,000 for the years ended December 31, 2002
and 2001 respectively.  To date, we have been dependent on capital infusions for
financing. Our ability to achieve a profitable level of

                                       20
<PAGE>

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."

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

     As a  result  of our  losses  to  date,  working  capital  deficiency,  and
accumulated  deficit,  the  independent  accountants'  report  on our  financial
statements for each of the years ended  December 31, 1993 through 2002,  contain
an explanatory  paragraph  indicating that there is substantial  doubt about our
ability to continue as a going concern.  Our  continuation is dependent upon our
ability to generate  sufficient  cash flow to meet our  obligations  on a timely
basis and ultimately to attain profitable operations. We anticipate that we will
continue to incur significant losses until successful  commercialization  of one
or more  products  generates  sufficient  net  revenues  to cover  all  costs of
operation.  As a development stage company, we have a limited relevant operating
history upon which an evaluation  of our  prospects  can be made.  Our prospects
must,  therefore,  be evaluated in light of the problems,  expenses,  delays and
complications   associated   with  a  new   business.   As  a   result   of  the
development-stage  nature of our business,  additional  operating  losses can be
expected.  There can be no assurance  that we can be operated  profitably in the
future.  See  "Management's  Discussion and Analysis" and Note 2 to the Notes to
our Consolidated Financial Statements.

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

     We believe that our current manufacturing  facility is capable of producing
approximately  four to six kilograms per year of 97% or greater pure  paclitaxel
from crude bulk extract  containing  approximately  50%  paclitaxel.  A contract
packager  will  perform  formulation  and  packaging  of  paclitaxel  in  single
injection  dosages.  As of December 31, 2002, we have not  negotiated a contract
with any packager to perform such  services.  We maintain an efficient,  ambient
warehouse  center to insure proper handling and shipping of the drugs.  While we
have  been  seeking  additional  and  back-up  manufacturers,  there  can  be no
assurance that we will be able to locate such manufacturers,  or that we will be
able to enter into agreements with such manufacturers.  Although we believe that
we have the capability to  significantly  expand  production of bulk paclitaxel,
should demand exceed our manufacturing capacity, we may have to seek third party
contract  manufacturing.  In such  instance,  there can be no assurance  that we
could  locate  satisfactory  contract  manufacturing  services  to perform  such
functions  at all or on  acceptable  terms,  or that we would  have the funds or
ability  to  develop  such  capability  internally.   In  order  to  manufacture
pharmaceutical  products from our facility, we must obtain FDA approval that the
facility is in compliance  with cGMP. We have  submitted the DMF of the facility
to the FDA. If such approval is not  obtained,  the  manufacture  of our product
will have to be performed by current manufacturers who meet necessary regulatory
requirements.

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

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

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

     Our  ability  to develop  the  business  depends  upon our  attracting  and
retaining qualified management and scientific  personnel,  including consultants
and members of our SAB.  As the number of  qualified  scientists  is limited and
competition  for such  personnel is intense,  there can be no assurance  that we
will be able to  attract  or retain  such  persons.  In  particular,  we will be
dependent upon the continued  services of Dr. Ramesh C. Pandey,  our Chairman of
the Board,  President and Chief  Executive  Officer.  The loss of key personnel,
such as Dr. Pandey,  or the failure to recruit  additional  key personnel  could
significantly impede attainment of our objectives and have a

                                       21
<PAGE>

material  adverse  affect on our financial  condition and results of operations.
Dr. Pandey originally entered into an employment  agreement with us for at least
a five-year  term,  which  commenced  in 1994 and has been  extended to February
2005,  providing  for,  among other things,  an agreement not to compete with us
during his  employment  and for a period of up to six months  thereafter.  As of
date of filing we have obtained a $4,000,000  key man life  insurance  policy on
Dr. Pandey.  See Item 9, Directors,  Executive  Officers,  Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.

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

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

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

     As a result of a reduced amount of capital, the number of persons, which we
employ,  has  decreased.  We have  reduced  our  staff  from a one time  high of
fifty-five to nineteen 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.  There  is  no  assurance  that  any  collaborations  will  be
completed,  or  if  completed,   that  they  will  be  successful.   Should  any
collaborative  partner fail in its  contribution to the discovery,  development,
manufacture  or  distribution  of a  marketable  product,  our  business  may be
adversely affected.

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

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

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

     We face an inherent  business risk of exposure to product  liability claims
if the use of products  manufactured  by us results in adverse  effects.  We may
also face professional  liability as a result of our contract research and other
services.  While we will  continue to attempt to take  appropriate  precautions,
there  can be no  assurance  that we will  avoid  significant  exposure  to such
liabilities.  Because  we have not yet sold any  products  except  for  research
purposes,  and because of the expense of  insurance,  we do not carry product or
professional

                                       22
<PAGE>

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

     We recently 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,  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.

                                       23
<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 is monitored on a regular
basis by both the FDA and state regulators.  Compliance with these standards and
procedures is known as current Good Laboratory Practices, or "cGLP" for research
operations,   and  current   Good   Manufacturing   Practices,   or  "cGMP"  for
manufacturing  operations.  We currently believe that we operate our facility in
accordance  with cGLP and cGMP;  however,  to date, we have not received the FDA
certification for cGMP.

     We lease our office and laboratory space at 100 Jersey Avenue,  Building B,
Suite  310,  New  Brunswick,   New  Jersey  08901.  The  facility   consists  of
approximately  25,000  square  feet and at original  execution  of the lease the
lessor was unaffiliated. Ownership of the lessor was subsequently transferred to
a new  investment  group and Dr. Pandey  invested  personal  funds to acquire an
approximately 25% interest in the lessor. Our base rent is approximately $13,400
per month,  which is subject to annual  increases,  which  commenced  October 1,
1996,  based upon  increases  in the consumer  price index.  In addition to base
rent,  we are  responsible  for our  proportionate  share of taxes and all other
expenses of the building. Till we sign a new lease, which is in the final stages
of negotiations, we are on a month-to-month basis.

     We are  currently  $80,000 in arrears to our landlord and we are  occupying
more space then is stated in our current  lease.  We have received  letters from
our landlord to potentially terminate our lease. Presently we are in the process
of renegotiating the lease to rectify the issue regarding uncharged space and to
extend  the  term of the  lease.  We do not  foresee  any  major  problems  with
finalizing the new lease in a timely  fashion.  If we are unable to obtain a new
lease, our operations will be severely impacted.

     We believe that our facilities  are adequate for our current needs.  If our
operations are successful and our research and development  activities  continue
to  expand,  or if we  determine  to produce  paclitaxel  or other  products  in
large-scale  commercial   quantities,   we  may  require  additional  equipment,
manufacturing  facilities,  or both. We cannot  predict the nature and extent of
the equipment or facilities that might be needed at such time.

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

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

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

                                       24
<PAGE>

based  on 11th  Amendment  state  sovereign  immunity  and  lack of  declaratory
judgment jurisdiction. The case is now pending.

     Additionally we filed an anti-trust  lawsuit against  Bristol-Myers  Squibb
(NYSE: BMY) 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. There can be no assurances as to the outcome of this
lawsuit.

                                       25
<PAGE>

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

     We held our annual  meeting on November  20, 2002 at 100 Jersey Ave.  Suite
     310, Building B, New Brunswick N.J., where:

     1.   Ramesh C. Pandey Ph.D. was re-elected to the Board of Directors  until
          the next  meeting of  stockholders  or  otherwise  as  provided in our
          By-Laws. 1,197,001,776 shares of Common Stock, 2,500 shares of Class A
          Preferred  Stock,  having 1,000 votes per share,  and 26,295 shares of
          Class C Series 6 Preferred Stock,  having 10,000 votes per share, were
          cast in favor of electing Dr. Pandey representing  approximately 99.4%
          of the shares of Common Stock and Preferred Stock present and voting.

     2.   Stephen F. Burg was  re-elected  to the Board of  Directors  until the
          next meeting of  stockholders or otherwise as provided in our By-Laws.
          1,194,400,826  shares  of  Common  Stock,  2,500  shares  of  Class  A
          Preferred  Stock,  having 1,000 votes per share,  and 26,295 shares of
          Class C Series 6 Preferred Stock,  having 10,000 votes per share, were
          cast in favor of electing Mr. Burg representing approximately 99.4% of
          the shares of Common Stock and Preferred Stock present and voting.

     3.   The  amendment of our  Certificate  of  Incorporation  to increase the
          number of  authorized  shares  from 2  billion  to 10  billion  shares
          consisting  of  9,950,000,000  shares of Common  Stock and  50,000,000
          shares of Preferred Stock was approved. 1,163,699,039 shares of Common
          Stock,  2,500 shares of Class A Preferred Stock having 1,000 votes per
          share and 26,295  shares of Class C series 6  Preferred  Stock  having
          10,000   votes  per  share  were  cast  in  favor  of  the   amendment
          representing  approximately  97% of the  shares  of  Common  Stock and
          Preferred Stock present and voting.

     4.   The amendment to the Xechem  International  Inc.  Amended and Restated
          Stock  Option Plan to increase  the number of shares of Common  Stock,
          which may be issued  under such plan from 25  million to 300  million,
          was  approved.  674,414,565  shares of Common  Stock,  2,500 shares of
          Class A  Preferred  Stock,  having  1,000  votes for shares and 26,295
          shares of Class C, Series 6 Preferred  Stock having,  10,000 votes per
          share, were cast in favor of the amendment representing  approximately
          63.8% of the shares of Common Stock and  Preferred  Stock  present and
          voting.

                                       26
<PAGE>

                                     PART II

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

     Our Common Stock is traded on the OTC Bulletin  Board.  The following table
shows the high and low bid quotations, on a quarterly basis, of our Common Stock
from January 1, 2001 through December 31, 2002:

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

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                 2001         2001           2001         2001           2002         2002            2002         2002
                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         .08           .03           .03           .013          .02           .015          .008          .0014
-------------------------------------------------------------------------------------------------------------------------
Low Bid          .03           .01           .01           .005          .005          .006          .0013         .0007
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

     As of March 14, 2003, there were 279 record holders and approximately 4,500
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 March 14, 2003
there were 2,500 outstanding  shares of Class A Preferred Stock. As of March 14,
2003 there were 95,055  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, 2002, 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 2002, we issued a total of 30,828,000 Shares to certain  individuals
as payment for certain  services  provided to us. The purchasers of these Shares
had provided  services to us, which we valued at approximately  $77,000.  We did
not use the services of any finders or securities  broker-dealers  in connection
with the offer and sale of these  Shares.  We believe that all Shares  issued in
the above  transactions are exempt from registration under the Securities Act by
virtue of Section 4(2) of the  Securities  Act and/or  Regulation D  promulgated
thereunder.

     During 2002, we also issued a total of  1,563,023,000  Shares to holders of
convertible  debt in connection  with the conversion of each  indebtedness.  The
amount of indebtedness converted as a result of such transactions was $ 339,016.
We did not use the  services  of any  finders or  securities  broker-dealers  in
connection  with the offer and sale of these Shares.  We believe that all Shares
issued  in the  above  transactions  are  exempt  from  registration  under  the
Securities  Act by  virtue of  Section  3(a)(9)  of the  Securities  Act  and/or
Regulation D promulgated thereunder.

     During 2002,  we issued a total of 39,407 Shares of Class C, Series 6 Stock
to Dr. Ramesh C. Pandey, the President,  Chief Executive Officer and Chairman of
Xechem in order for Dr.  Pandey to maintain his 20% voting  rights.  We received
par value as consideration  from Dr. Pandey in connection with this transaction.
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.

                                       27
<PAGE>

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

General
-------

     We are  the  holder  of all  of  the  capital  stock  of  Xechem,  Inc.,  a
development   stage   bio-pharmaceutical   company   engaged  in  the  research,
development,  and production of niche generic and proprietary drugs from natural
sources.  Xechem, Inc., was formed in March 1990 to acquire substantially all of
the assets of a subsidiary of LyphoMed,  Inc. (later known as Fujisawa/LyphoMed,
Inc.),  a  publicly  traded  company.  Xechem  Laboratories  (formed  in  1993),
XetaPharm,   Inc.  (formed  in  1996),  Xechem  (India)  Pvt.  Ltd.  and  Xechem
Pharmaceuticals  Nigeria  Limited 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, 2002 vs. The Year Ended December 31, 2001

     The  following  table sets forth certain  statement of  operations  data of
Xechem for each of the years ended  December  31,  2002,  December  31, 2001 and
December 31, 2000 for the cumulative  period from inception  (March 15, 1990) to
December 31, 2002.

<TABLE>
<CAPTION>
                                                                             CUMULATIVE
                                                      YEARS ENDED        FROM INCEPTION TO
                                                      DECEMBER 31           DECEMBER 31
                                                      -----------           -----------
                                                    2002         2001           2002
                                                              ( in thousands)
<S>                                             <C>           <C>           <C>
     Revenue                                    $    269      $   187       $    1,629

     Research and development expense           $    698      $   527       $   10,650

     General and administrative expenses        $  1,902      $ 1,398       $   15,041

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

     (Loss) from operations                     $ (2,331)     $(1,871)      $  (25,918)

     Other income (expense)                     $ (1,268)     $   127       $  (13,889)

     Net Loss                                   $ (3,599)     $(1,744)      $  (39,807)
</TABLE>

Revenue
-------

     Revenue  increased $82,000 or 44% from $187,000 for the year ended December
31, 2001 to $269,000  for the year ended  December  31,  2002.  The  $269,000 in
revenues consisted of approximately  $110,000 in consulting

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

     Readers should  carefully  review the items included in Item 1, Description
of Business - Risks Affecting  Forward Looking  Statements and Stock Prices,  as
they relate to any forward  looking  statements,  as actual results could differ
materially from those projected in the forward looking statement. 3 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.

                                       28
<PAGE>


fees,  approximately $75,000 in lab service fees and $3,000 in product sales for
Xechem Inc. XetaPharm's  revenues from the sale of nutraceuticals,  decreased by
approximately  $10,000 or 43% from the year ended  December 31, 2002 to the year
ended December 31, 2001.  Xetapharm also recognized revenue from consulting fees
of approximately $68,000.

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

     Research and  development  increased  $171,000 or 32% from $527,000 for the
year ended  December 31, 2001 to $698,000 for the year ended  December 31, 2002.
Our research and development  expenditures  continue to emphasize  compounds for
niche  generic  anticancer,  antiviral  and  antibiotic  products,  which  enjoy
significant market demand but are no longer subject to patent protection.

     The  major   increases   were   salaries  and  wages  which   increased  by
approximately 39% or $67,000 due to new hiring's,  repairs and lab materials and
supplies which  increased by  approximately  189% or $55,000 due to new projects
and the start up costs for Xechem  Nigeria  Ltd. and our new sickle cell drug of
approximately $72,000.

     We  anticipate  these  trends to continue  for 2003 with our  launching  of
Nicosan(TM)  in Nigeria and applying for orphan drug status in the United States
along with clinical testing and trials of our new drug.

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

     General and  administrative  expenses increased  $504,000,  or 36%, for the
year ended  December  31, 2002 as compared to the year ended  December 31, 2001.
The major increases were from salaries,  which increased by approximately 60% or
$107,000 from Xetapharm, which were offset, by the increase in service fees paid
to us,  consulting  fees  which  increased  by  approximately  151% or  $126,000
primarily connected to financing  operations.  In 2002, we wrote-down promissory
notes of $265,000.

     Interest expense for non-related  parties was  approximately  $1,327,000 in
the year ended  December 31, 2002,  an increase of  approximately  $1,065,000 or
406% as compared to the year ended December 31, 2001.  This expense was non-cash
in nature due to borrowings evidenced by debentures and notes and the beneficial
conversion feature of said debentures and notes.

     In December  2002,  we recorded a loss on investment of $115,000 due to the
instability of the finacial condition of the entity that we had invested in.

     During  December of 2002 we received  approval from the New Jersey Economic
Development  Authority  ("NJEDA") to sell  approximately  $303,000 of a total of
$377,000 of tax benefits generated from deferred tax benefit. 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  2002  and  2001,  we and  our  subsidiaries
transferred  the tax  benefits of $303,000 and $519,000 in exchange for $243,000
and $452,000 respectively,  pursuant to the New Jersey State Tax Credit Transfer
program. We received $243,000 pursuant to this program in December 2002.

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

     On December 31, 2002, we had cash of $135,000,  negative working capital of
$1,790,000 and stockholders' equity deficit of $2,839,000.

     We have  received  approximately  $1,358,000  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 2002.

     As a result of our net losses to December 31, 2002 and accumulated  deficit
since inception,  our auditors,  in their report on our financial statements for
the year ended December 31, 2002, 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

                                       29
<PAGE>

marketability  of our proposed  products cannot be estimated with precision.  We
expect  research and development  activities to continue to require  significant
cost expenditures for an indefinite period in the future.

     In May  1995 we filed a Drug  Master  File  ("DMF")  with the Food and Drug
Administration  ("FDA") for our  facilities.  We have  completed our  technology
validation  and  filed a DMF for bulk  paclitaxel  in June  1997;  however,  our
facilities  have yet to be inspected  by the FDA for current Good  Manufacturing
Practices ("cGMP").  We have sufficient raw materials to produce commercial bulk
paclitaxel  that  has a market  value of  approximately  $2,000,000  at  current
prices;  however,  the book value of such inventory was written off in 1997, and
we  anticipate,  but can provide no  assurances,  that we will commence sales of
paclitaxel in the international  market in 2003. Prior to commencing such sales,
we must file for and obtain  approvals from appropriate  regulatory  agencies in
foreign jurisdictions.  We have made use of a grant from the State of New Jersey
for ISO - 9000 training to gain ISO - 9001 certification; however the project is
currently on hold due to lack of personnel and additional funding. Additionally,
to the extent we elects to manufacture bulk paclitaxel  domestically and ship it
overseas for packaging, our facilities must be approved for cGMP and the product
must either be approved for an investigational new drug exemption (not currently
so approved),  or deemed in compliance with the laws of 24 industrialized  "tier
one" countries (not yet so approved).  Alternatively, we can produce the product
entirely  overseas;  however,  we most likely would  subcontract  production  to
others from raw material or partially processed raw material provided by us, and
might also enter into joint venture or other marketing  arrangements for sale of
the product  overseas.  There can be no such assurance that necessary  approvals
will not be delayed or  subject  to  conditions  or that we will be able to meet
such conditions.  In addition, we have no experience in marketing pharmaceutical
products for human  consumption  and there can be no  assurance  that we will be
able to successfully  market our paclitaxel product in bulk,  indirectly through
others,  or be able to obtain  satisfactory  packaging  of the product in single
dosage vials from an independent manufacturer.

     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 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.

                                       30
<PAGE>

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


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                               PAYMENTS DUE BY PERIOD AS OF DECEMBER 31, 2002
                                          -------------------------------------------------------
                                            TOTAL      LESS THAN       1-3      4-5     AFTER 5
        CONTRACTUAL OBLIGATIONS                          1 YEAR       YEARS    YEARS     YEARS
-------------------------------------------------------------------------------------------------
<S>                                        <C>           <C>        <C>         <C>     <C>
LONG-TERM DEBT: DEBENTURES (1)               144,000                                     144,000
-------------------------------------------------------------------------------------------------
LONG-TERM DEBT: NOTES (2)                  1,500,000                1,500,000
-------------------------------------------------------------------------------------------------
OPERATING LEASES-SHORT & LONG TERM            44,000      19,000       20,000   5,000
-------------------------------------------------------------------------------------------------
SHORT-TERM DEBT (3)                          298,000     298,000
-------------------------------------------------------------------------------------------------
UNCONDITIONAL PURCHASE OBLIGATIONS (4)       666,000     666,000
-------------------------------------------------------------------------------------------------
OTHER LONG-TERM OBLIGATIONS                  195,000     195,000
-------------------------------------------------------------------------------------------------
TOTALS                                     2,847,000   1,178,000    1,520,000   5,000    144,000
-------------------------------------------------------------------------------------------------
</TABLE>

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

     We also had loans  payable  at  December  31,  2002 and 2001  that  totaled
approximately   $55,000   and   $54,000,   respectively.   This  loan  has  been
collateralized  by all tangible assets including  receivables.  The $55,000 loan
represents  borrowings against a $ 55,000  line-of-credit at an interest rate of
6.25% as of  December  31, 2002 from the Bank of New York as compared to $54,000
in borrowings  against a $ 55,000  line-of-credit at an annual rate of 6.75% for
2001 from the Bank of New York.

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

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 recognize the beneficial  conversion  feature upon
the issuance of debt with beneficial conversion features.

Recent Accounting Policies
--------------------------

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

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

                                       31
<PAGE>

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

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

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

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

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

     In July 2002, the FASB issued Statement of Financial  Accounting  Standards
No. 146,  "Accounting for Costs  Associated  with Exit of Disposal  Activities."
SFAS  146  applies  to  costs  associated  with  an  exit  activity,   including
restructurings,  or with a disposal of long-lived assets.  SFAS 146 is effective
prospectively for exit or disposal activities  initiated  subsequent to December
31, 2002. Xechem is currently evaluating the impact that this pronouncement will
have on its future consolidated financial results.

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

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

                                       32
<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.

                                       33
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

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

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

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

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

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

GRANT THORNTON LLP
February 13, 2002
Edison, New Jersey

                                      F-1
<PAGE>

                        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 has 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.

                                             /s/ WISS & COMPANY

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

                                      F-2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                             DECEMBER 31, 2002   DECEMBER 31, 2001
                                                                             -----------------   -----------------
CURRENT ASSETS
<S>                                                                             <C>                <C>
   Cash                                                                         $    135,000       $    241,000
   Miscellaneous receivable:
        Net Operating Loss                                                                --            452,000
        Miscellaneous                                                                 22,000             62,000
   Inventory                                                                           5,000              1,000
   Prepaid expenses and other current assets                                           1,000              1,000
                                                                                -------------------------------

   TOTAL CURRENT ASSETS                                                              163,000            757,000

Equipment, less accumulated depreciation
  of $1,185,000 (2002) and $1,067,000 (2001)                                         382,000            448,000
Leasehold improvements, less accumulated amortization
  of $637,000 (2002) and $570,000 (2001)                                             378,000            445,000
Note receivable less allowance of $265,000 in 2002                                        --                 --
Cash surrender value of officer's life insurance                                          --             20,000
Deposits                                                                              45,000             20,000
                                                                                -------------------------------

                                                                                $    968,000       $  1,690,000
                                                                                ===============================

CURRENT LIABILITIES
   Accounts payable                                                             $    637,000       $    957,000
   Accrued expenses to related parties                                               515,000            474,000
   Accrued expenses to others                                                        211,000            132,000
   Loans payable other                                                                55,000             54,000
   Loans payable to related party                                                    493,000            503,000
   Other current liabilities                                                          42,000             70,000
                                                                                -------------------------------

     TOTAL CURRENT LIABILITIES                                                     1,953,000          2,190,000
                                                                                -------------------------------

NOTES PAYABLE-RELATED PARTIES                                                        384,000            409,000
CONVERTIBLE NOTES: NET OF DISCOUNT                                                 1,308,000                 --
CAPITAL LEASES: LONG TERM                                                             18,000                 --
CONVERTIBLE DEBENTURES                                                               144,000          1,014,000
                                                                                -------------------------------

TOTAL LIABILITIES                                                                  3,807,000          3,613,000
                                                                                -------------------------------
COMMITMENTS & CONTINGENCIES

STOCKHOLDERS EQUITY (DEFICIT)
   Class A voting preferred stock, $ .00001 par value, 2,500 shares
     authorized; 2,500 shares issued and outstanding (2002 and 2001)                      --                 --
   Class B 8% preferred stock,$ .00001 par value, 1,150 shares
     authorized; none outstanding                                                         --                 --
   Class C preferred stock,$ .00001 par value, 49,996,350 shares authorized;
     41,639 issued and outstanding in (2002) and 2,232 issued and
     outstanding in (2001)                                                                --                 --
   Common stock,$.00001 par value, 9,950,000,000 shares authorized;
     1,977,705,000(2002) and 378,841,000(2001) issued and outstanding                 20,000              4,000
   Unearned compensation expense                                                    (158,000)          (284,000)
   Additional paid in capital                                                     37,106,000         34,565,000
   Deficit accumulated during development stage                                  (39,807,000)       (36,208,000)
                                                                                -------------------------------

   TOTAL STOCKHOLDERS EQUITY (DEFICIT)                                            (2,839,000)        (1,923,000)
                                                                                -------------------------------

                                                                                $    968,000       $  1,690,000
                                                                                ===============================
</TABLE>

See notes to consolidated financial statements

                                      F-3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                  MARCH 15 1990
                                                                                  -------------
                                                                                     (DATE OF
                                                                                     --------
                                                      YEAR ENDED                  INCEPTION) TO
                                                      ----------                  -------------
                                                      DECEMBER 31,                 DECEMBER 31,
                                                      ------------                 ------------
                                                 2002               2001               2002
                                                 ----               ----               ----
<S>                                         <C>                <C>                <C>
REVENUES:                                         269,000            187,000          1,629,000

EXPENSES:
Research and development                          698,000            527,000         10,650,000
General and administrative                      1,902,000          1,398,000         15,041,000
Writedown of inventory
& intangibles                                          --            133,000          1,856,000
                                            ---------------------------------------------------
                                                2,600,000          2,058,000         27,547,000
                                            ---------------------------------------------------

LOSS FROM OPERATIONS                           (2,331,000)        (1,871,000)       (25,918,000)
                                            ---------------------------------------------------

OTHER INCOME(EXPENSE) - NET:

Interest Expense - Related Party                  (70,000)           (63,000)        (8,869,000)

Interest Expense                               (1,327,000)          (262,000)        (6,804,000)

Other(net)                                       (114,000)                --            189,000
                                            ---------------------------------------------------
                                               (1,511,000)          (325,000)       (15,484,000)
                                            ---------------------------------------------------

NET LOSS BEFORE INCOME TAXES                $  (3,842,000)     $  (2,196,000)     $ (41,402,000)

Sale of New Jersey net operating
loss carryforwards                                243,000            452,000          1,595,000

NET LOSS                                    $  (3,599,000)     $  (1,744,000)     $ (39,807,000)
                                            ===================================================

BASIC AND DILUTED LOSS PER COMMON SHARE     $      (0.004)     $      (0.005)
                                            ================================

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING                     861,193,000        348,886,000
                                            ================================
</TABLE>

See notes to consolidated financial statements

                                      F-4
<PAGE>

                   XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
             CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
                                    CONDENSED

<TABLE>
<CAPTION>
                                                                                                                   Deficit
                                                                                     Unearned      Additional    Accumulated
                                                         Number of                 Compensation     Paid-in-        During
                                                       shares issued   Par value      Expense       Capital      Development
                                                       -------------   --------      ---------    ------------  -------------
<S>                                                    <C>              <C>         <C>           <C>           <C>
BALANCES AT DECEMBER 31, 2001                           378,841,000     $ 4,000    $ (284,000)    $ 34,565,000  $(36,208,000)

Shares issued upon conversion of debentures
  @ $  .001 per share                                   133,252,000       1,000                        188,000

Stock issued for services rendered @ $.007 per share      1,386,000                                     10,000

Stock options exercised @ $ .01/share                        13,000

Amortization of unearned stock compensation                                             45,000

Beneficial conversion feature of notes payable                                                          52,000

Shares issued upon conversion of debentures
  @ $  .001 per share                                    60,860,000       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                    5,000,000                                     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                                   284,200,000       3,000                        318,000

Stock issued for services rendered
  @ $ .003 per share                                     20,000,000                                     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                                 1,084,711,000      11,000                        533,000

Stock issued for services rendered
  @ $ .0007 per share                                     9,442,000                                      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)

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                         1,977,705,000    $ 20,000     $ (158,000)   $ 37,106,000  $(39,807,000)
                                                      ======================================================================
</TABLE>

See notes to consolidated financial statements

                                      F-5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                         March 15, 1990
                                                                                       (date of inception)
                                                           Years ended December 31,      to December 31,
                                                         ----------------------------------------------
                                                             2002             2001             2002
                                                         ------------     ------------     ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                      <C>              <C>              <C>
    Net loss                                             $ (3,599,000)    $ (1,744,000)    $(39,807,000)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
      Depreciation                                            118,000          145,000        1,087,000
      Amortization                                             68,000           68,000          809,000
      Amortization of benificial conversions                  453,000               --       453,000.00
      Amortization of warrents issued                          79,000               --        79,000.00
      Stock options issued                                    160,000               --       160,000.00
      Unearned compensation                                   126,000               --       126,000.00
      Interest and compensation expense in connection
        with issuance of equity securities                  1,079,000          581,000       18,593,000
      Write down of inventories                                    --          133,000        1,339,000
      Write down of patents                                        --               --          517,000
      Loss on investment in related party                          --               --           89,000

    Changes in operating assets and liabilities
     (Increase) decrease in:
        Accounts receivable-Net Operating Loss                452,000         (452,000)              --
        Accounts receivable-Miscellanous                       40,000          (47,000)         (22,000)
        Inventories                                            (4,000)          (3,000)      (1,339,000)
        Prepaid expenses and other current assest                  --            5,000          127,000
        Other                                                  (5,000)           5,000          (20,000)
      Increase (decrease) in:
        Accounts payable                                     (320,000)         207,000          660,000
        Other current liabilities                             (64,000)         (86,000)         (34,000)
        Accrued expenses                                      145,000          136,000          728,000
                                                         ----------------------------------------------
NET CASH FLOWS USED IN OPERATING ACTIVITIES              $ (1,272,000)    $ (1,052,000)    $(16,455,000)
                                                         ----------------------------------------------
</TABLE>

See notes to consolidated financial statements

                                      F-6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                            March 15, 1990
                                                                                          (date of inception)
                                                              Years ended December 31,      to December 31,
                                                            ----------------------------------------------
                                                                2002             2001             2002
                                                            ------------     ------------     ------------
<S>                                                         <C>              <C>              <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES                    $ (1,272,000)    $ (1,052,000)    $(16,455,000)
                                                            ----------------------------------------------

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
    Patent issuance costs                                             --               --         (548,000)
    Purchases of equipment and leasehold improvements            (21,000)         (85,000)      (2,101,000)
    Investment in unconsolidated entity and others                    --               --          (23,000)
    Other                                                             --               --           (8,000)
                                                            ----------------------------------------------

NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:              (21,000)         (85,000)      (2,680,000)
                                                            ----------------------------------------------

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
    Proceeds from related party loans                             95,000          205,000        2,055,000
    Proceeds from notes payable - others                       1,178,000               --        1,806,000
    Proceeds from short term loans                                55,000          938,000        4,166,000
    Capital contribution                                              --               --           95,000
    Net payments on capital leases                                (7,000)              --           (7,000)
    Payments on interim loans                                   (110,000)              --         (608,000)
    Payments on notes payable - others                           (54,000)              --         (579,000)
    Payments on stockholder loans                                     --               --         (572,000)
    Proceeds from issuance of capital stock                       30,000            6,000       12,914,000
                                                            ----------------------------------------------

    NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:        1,187,000        1,149,000       19,270,000
                                                            ----------------------------------------------

    NET CHANGE IN CASH                                          (106,000)          12,000          135,000
CASH, BEGINNING OF PERIOD                                        241,000          229,000                0
                                                            ----------------------------------------------
CASH, END OF PERIOD                                         $    135,000     $    241,000     $    135,000
                                                            ==============================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the periods for:
      Interest paid - related party                         $     27,000     $     36,000     $    251,000
                                                            ==============================================
      Interest paid - other                                 $      8,000     $      6,000     $    176,000
                                                            ==============================================

INCOME TAXES PAID                                           $         --     $         --     $         --
                                                            ==============================================

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

   Liabilities exchanged for preferred and common stock     $     95,000     $     69,000     $  1,271,000
                                                            ==============================================

   Equipment purchased through financing                    $     32,000     $         --     $     32,000
                                                            ==============================================

   Securities issued as payment on related party note       $     20,000     $         --     $     20,000
                                                            ==============================================

   Shares issued in conversion of debentures                $     16,000     $         --     $    134,000
                                                            ==============================================

   Warrants Issued                                          $    193,000     $         --     $    193,000
                                                            ==============================================
</TABLE>

See notes to consolidated financial statements

                                       F-7
<PAGE>

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

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

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

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

PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include  the  accounts  of  Xechem  International,  Inc.  and  its  wholly-owned
subsidiaries,  Xechem,  Inc.,  Xechem  Laboratories,  Inc. and XetaPharm,  Inc.,
Xechem  Pharmaceuticals  Nigeria Ltd.  (Formed in July 2002) and Xechem  (India)
Pvt. Ltd. which is substantially  owned by Xechem  (collectively the "Company").
All   intercompany   transactions   and  balances   have  been   eliminated   in
consolidation.

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

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

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

CASH - Xechem maintains cash balances at three different financial  institutions
in New Jersey, which are insured by the Federal Deposit Insurance Corporation up
to $100,000.  At times,  such  balances  may be in excess of the FCIC  insurance
limit.

INVENTORIES  -  Inventories  are  stated  at the  lower  of cost on a  first-in,
first-out  basis or  market.  Inventories  at  December  31,  2002 and 2001 were
principally  comprised of raw materials from our subsidiary  Xechem (India) Pvt.
Ltd.

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

                                      F-8
<PAGE>

asset  may not be  recoverable.  Management  also  reevaluates  the  periods  of
amortization of long-lived  assets to determine whether events and circumstances
warrant revised estimates of useful lives.

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

DEPRECIATION AND AMORTIZATION - Depreciation and amortization are provided using
the straight-line method over estimated lives of 5 to 15 years. Depreciation and
amortization  expense for  equipment and  leasehold  improvements  for the years
ended  December  31,  2002 and  2001 was  approximately  $186,000  and  $213,000
respectively.

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

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

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

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

ESTIMATES - In preparing  financial  statements  in  conformity  with  generally
accepted  accounting  principles  management  is required to make  estimates and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

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

RECENTLY  ISSUED  ACCOUNTING  STANDARDS - Financial  Accounting  Standards Board
(FASB)  Interpretation  No.  46,"Consolidation  of Variable  Interest  Entities"
(Interpretation  No.  46),  was issued in January  2003.  Interpretation  No. 46
defines  variable   interest  entities  (VIE)  and  requires  that  the  assets,
liabilities,  noncontrolling  interests,  and results of  activities of a VIE be
consolidated  if  certain  conditions  are met.  For VIE's  created  on or after
January 31, 2003, the guidance will be applied

                                      F-9
<PAGE>

immediately. For VIE's created before that date, the guidance will be applied at
the  beginning  of the third  quarter  of 2003.  The new  rules  may be  applied
prospectively  with a  cumulative-effect  adjustment  as of the beginning of the
period in which it is first applied or by restating  previously issued financial
statements for one or more years with a  cumulative-effect  adjustment as of the
beginning of the first year restated.  Management is in the process of analyzing
the potential  effect of this recently issued  accounting  pronouncement  on the
company's future consolidated financial statements.

SFAS  No.  148,  "Accounting  for  Stock-Based  Compensation  -  Transition  and
Disclosure"  (SFAS No.  148),  which amends SFAS No. 123, was issued in December
2002.  The new  standard  provides  alternative  methods  for  transition  for a
voluntary change from the intrinsic method of accounting to the fair value-based
method of accounting for stock-based employee  compensation.  In addition,  SFAS
No. 148  amends  the  disclosure  requirements  of SFAS No. 123 to require  more
prominent and frequent  disclosures in financial statements about the effects of
stock-based   compensation.   The  transition  guidance  and  annual  disclosure
provisions  are effective for 2002.  The new interim  disclosure  provisions are
effective  beginning  in the first  quarter  of 2003.  Management  does not have
immediate  plans  for the  company  to  voluntarily  elect  to  adopt  the  fair
value-based method of accounting for stock-based employee compensation.

FASB Interpretation No. 45, "Guarantor's  Accounting and Disclosure Requirements
for  Guarantees,  Including  Indirect  Guarantees  of  Indebtedness  of  Others"
(Interpretation  No. 45), was issued in November 2002.  The initial  recognition
and  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 on or after January 1,
2003.  Management is in the process of analyzing the recognition and measurement
provisions of Interpretation  No. 45, and has not estimated the potential impact
on the company's future consolidated  financial  statements,  as the impact will
depend on the nature and amount of future transactions.

In July 2002, the FASB issued  Statement of Financial  Accounting  Standards No.
146,  "Accounting for Costs Associated with Exit of Disposal  Activities."  SFAS
146 applies to costs associated with an exit activity, including restructurings,
or with a disposal of long-lived assets. SFAS 146 is effective prospectively for
exit or disposal activities initiated subsequent to December 31, 2002. Xechem is
currently  evaluating the impact that this pronouncement will have on its future
consolidated financial results.

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

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

                                      F-10
<PAGE>

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

The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. As shown in the
consolidated financial statements,  Xechem has incurred net losses for the years
ended December 31, 2002 and 2001; has a working  capital  deficiency at December
31, 2002; and has an accumulated deficit and cumulative negative cash flows from
operations since inception.  Xechem is in the development stage and has realized
minimal revenues to date. Xechem's research and development activities are at an
early stage and the time and money required to develop the commercial  value and
marketability  of Xechem's  proposed  products  cannot be reasonably  estimated.
Xechem  expects  research  and  development  activities  to  continue to require
significant  cash  expenditures for an indefinite  period in the future.  All of
these factors raise substantial doubt about the ability of Xechem to continue as
a going concern.

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

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

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

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

In the first quarter of 2003 we are starting production of our new nutraceutical
Nicosan(TM),  a sickle  cell  drug.  We intend to start  sales in Nigeria in the
second quarter of 2003.

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  2003,  we  anticipate  that  these
development  activities  may  allow us to enter  into more  favorable  licensing
and/or investment arrangements.

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

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

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

                                      F-11
<PAGE>

NOTE 3    INCOME TAXES

     We have not provided for income taxes since we have generated net operating
losses for current tax  purposes,  and all  deferred  tax assets have been fully
reserved.  As of December 31, 2002 Xechem had net operating  loss  carryforwards
("NOL") for federal income tax purposes of  approximately  $23 million,  which a
portion of the NOL begins to expire in 2009 and fully expires in 2022. 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, 2002 and 2001 we have a deferred  tax asset of  approximately
$8  million  and $7  million  respectively,  primarily  arisen  out  of 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 due
to the uncertainty of realization.

The provision for income taxes is summarized as follows:

     ---------------------------------------------------------------------------
                                                  2002             2001
                                                  ----             ----
     ---------------------------------------------------------------------------
     Federal
     ---------------------------------------------------------------------------
                 Current                          $      -         $      -
     ---------------------------------------------------------------------------
                 Deferred (benefit), net          $(938,000)       $(633,000)
     ---------------------------------------------------------------------------
                 Valuation allowance              $ 938,000        $ 633,000
     ---------------------------------------------------------------------------
           Total Federal                          $      -         $      -
     ---------------------------------------------------------------------------

     ---------------------------------------------------------------------------
     State
     ---------------------------------------------------------------------------
                 Current                          $(243,000)       $(450,000)
     ---------------------------------------------------------------------------
                 Deferred (benefit), net          $(129,000)       $(147,000)
     ---------------------------------------------------------------------------
                 Valuation allowance              $ 129,000        $ 147,000
     ---------------------------------------------------------------------------
           Total State                            $(243,000)       $(450,000)
     ---------------------------------------------------------------------------
     Total provision for income taxes             $(243,000)       $(450,000)
     ---------------------------------------------------------------------------

Significant components of deferred tax assets and liabilities as of December 31,
2002 and 2001 are as follows:

                                      F-12
<PAGE>

--------------------------------------------------------------------------------
                                                     2002              2001
                                                     ----              ----
--------------------------------------------------------------------------------
Deferred tax assets:
--------------------------------------------------------------------------------
     Net operating loss carryforwards           $  8,099,000      $  7,161,000
--------------------------------------------------------------------------------
     Total deferred tax assets before
       valuation allowance                      $  8,099,000      $  7,161,000
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
     Valuation allowance                        $ (8,099,000)     $ (7,161,000)
--------------------------------------------------------------------------------
Net deferred tax asset                          $         --      $         --
--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------
                                                        2002              2001
                                                        ----              ----
--------------------------------------------------------------------------------
Tax (benefit) at Federal statutory rate                (34.0)%           (34.0)%
--------------------------------------------------------------------------------
State income taxes, net of Federal benefit                --                --
--------------------------------------------------------------------------------
Permanent difference                                     6.1%             (2.2)%
--------------------------------------------------------------------------------
Valuation allowance                                     27.9%             36.2%
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Effective tax rate                                        --                --
--------------------------------------------------------------------------------

As of December 31, 2002 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, 2002. 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 2002 we  received  approval  from the New  Jersey  Economic
Development  Authority  ("NJEDA") to sell  approximately  $303,000 of a total of
$517,000 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 2002 and 2001,  Xechem and its  subsidiaries  transferred
the tax  benefits of $303,000 and $519,000 in exchange for $243,000 and $452,000
respectively,  pursuant to the New Jersey State Tax Credit Transfer program.  We
received  $452,000 in January 2002 and $243,000  December  2002 pursuant to this
program.

                                      F-13
<PAGE>

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

            Amount                            Expiration Date
            ------                            ---------------
          $3,170,000                                2009
           3,183,000                                2010
           3,218,000                                2011
           3,762,000                                2012
           1,992,000                                2018
           2,257,000                                2019
           1,863,000                                2020
           1,604,000                                2021
           2,000,000                                2022
          ----------                               -----
         $23,049,000                               Total

NOTE 4    RELATED PARTY TRANSACTIONS

NOTES PAYABLE - Xechem owes Dr.  Pandey,  Chairman of the Board,  $776,000 as of
December 31, 2002 from an interest  bearing advance  ($244,000) at 10% per annum
and the note will be due when Xechem is no longer a development entity,  accrued
interest  ($183,000),  accrued salary ($331,000) and accrued expenses ($18,000).
At December 31, 2001,  Xechem owed Dr. Pandey  $721,000.  Xechem also has a note
payable to Dr. Renuka Misra, director of Natural Products, for $298,300 with 12%
annual  interest due September 20, 2003.  Interest  expense for related  parties
totaled  $70,000 and $63,000  for the years  ended  December  31, 2002 and 2001,
respectively,  related to these notes.  Xechem has received funding from Beverly
Robbins, a sales and marketing  representative totaling $195,000 and $198,000 as
of December 31, 2002 and 2001 respectively.

XECHEM CHINA - Xechem has received  $140,000  during the year ended December 31,
2000 from Xechem China pursuant to an interest free loan. Although an additional
$340,000 was due Xechem under the original loan terms,  no amounts were received
in 2001 or 2002 and it is unlikely any additional amounts will be received.  The
loan  advanced by Xechem China shall be repaid by Xechem out of its share in the
dividends or distribution of Xechem China. Since Xechem-China had no activity in
2001 or 2002 and no foreseeable profits in the near future there will not be any
short-term repayment to Xechem-China.

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

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

                                      F-14
<PAGE>

NOTE 5    COMMITMENTS AND CONTINGENCIES

EMPLOYMENT CONTRACTS

Dr.  Pandey is  employed  pursuant to  Agreements  through  February  2005 which
provide  for a salary of  $140,000 a year  commencing  July 1, 1992,  subject to
annual  increases in proportion to the increase in the consumer price index.  In
addition a royalty  payment is due Dr.  Pandey or his estate or designees in the
amount of 2-1/2% of Xechem's  net profits  before  taxes,  as  determined  under
generally accepted accounting principles, with respect to any products developed
by Xechem during Dr.  Pandey's tenure with us whether prior to or after the term
of the Employment Agreement. This royalty will continue to be paid to Dr. Pandey
and/or  his  successors  so  long  as any  such  products  are  sold  by  Xechem
(regardless of whether Dr. Pandey is actually  employed by Xechem at the time of
such sale).  Further Dr.  Pandey will receive a severance  payment  equal to his
remaining compensation under the Agreements if his services are terminated.  Dr.
Pandey is also entitled to purchase voting stock equal to 20% of the outstanding
voting stock,  and  accordingly  we issued 39,407 and 2,232  additional  Class C
shares to Dr.  Pandey in 2002 and 2001  respectively  for a total of 41,639 with
voting rights equal to 416,390,000 and 22,320,000 of common stock respectively.

Dr. Pandey has agreed to defer a portion of  compensation  otherwise  payable to
him under these agreements until such time as Xechem has the available funds. At
December 31, 2002 unpaid compensation totaled $331,000.

LEASES - We lease our  facilities  on a  month-to-month  basis,  a new long-term
lease is currently under negotiations and we expect to finalize our new lease as
soon as possible.  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  $128,000 and
$94,000  for the years  ended  December  31,  2002 and 2001 ,  respectively.  At
December 31, 2002 and 2001,  Xechem owes rental  payments to the lessor totaling
approximately $80,000.

We are currently  $80,000 in arrears to our landlord and we are  occupying  more
space then is stated in our current  lease.  We have  received  letters from our
landlord to potentially terminate our lease.  Presently we are in the process of
renegotiating  the lease to rectify the issue  regarding  uncharged space and to
extend  the  term of the  lease.  We do not  foresee  any  major  problems  with
finalizing the new lease in a timely  fashion.  If we are unable to obtain a new
lease, our operations will be severely impacted.

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

In August of 2001 Dr.  Pandey  entered  into a new 36-month car lease with GMAC,
payable by Xechem.  As of December 31, 2002 we had a liability of  approximately
$13,800 due in equal monthly payments of $729.

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  phyto-pharmaceutical 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 agree to pay  licensor  a  running  royalty  of 7.5 % of the net  sales  this
product.

                                      F-15
<PAGE>

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

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

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

Xechem is  currently  in  litigation  with M.D.  Anderson  with  respect to M.D.
Anderson's desire to terminate the License Agreement on the basis that Xechem is
"insolvent".  Xechem  believes  that this  litigation  will not have a  material
effect on the financial condition of Xechem.

LOVASTATIN  AGREEMENT  - In March  1997,  Xechem  acquired a strain and  related
technology to produce Lovastatin for a total purchase price of $300,000, payable
$50,000 upon delivery,  $50,000 upon initial laboratory  verification,  $100,000
upon  additional  laboratory  verification  and  $100,000  upon the  earlier  of
commercial  production  or two years  after  delivery  of the strain and related
technology.  For accounting purposes, the payments have been considered research
and  development  expenses  incurred at the  earliest  date to which they become
payable.  Through  December 31,  1998, a total of $200,000 has been  recorded as
research and development  expense,  of which $100,000 has been paid and $100,000
is included in accounts payable at December 31, 2002 and 2001. There has been no
activity in 2002 and 2001 but Xechem intends to continue with the agreement.

NOTE 6    STOCK OPTIONS:

Xechem's Stock Option Plan provides for the grant of up to 300,000,000 shares of
Common  Stock  to  employees   with   incentive   stock  options   ("ISOs")  and
non-qualified stock options to employees, consultants and directors. The Plan is
administered by the Board of Directors and the stock option committee.

The exercise  price of all ISOs granted under the Plan must be at least equal to
the fair  market  value of the shares of Common  Stock on the date of the grant.
With respect to any participant  who owns stock  possessing more than 10% of the
voting power of Xechem's  outstanding  capital stock,  the exercise price of any
ISO granted  must equal at least 110% of the fair market value on the grant date
and the  maximum  exercise  period of the ISO must not exceed  five  years.  The
exercise  period of any other  options  granted under the Plan may not exceed 11
years (10 years in the case of ISOs).  Options begin vesting after one year from
the grant date at a rate of 20% per year.  In December  1997,  an exception  was
made so that  780,000  options  granted on December  2, 1997 will begin  vesting
after one year from the grant date at a rate of 33 1/3% per year.  In July 2000,
an  exception  was made so that of the  13,200,000  options  granted on July 11,
2000, approximately one third (1/3) vested immediately and the balance will vest
equally one year and two years from the grant date.  In July 2001,  an exception
was  made  so  that  of  the  11,650,000   options  granted  on  July  9,  2001,
approximately  one third (1/3)  vested  immediately  and the  balance  will vest
equally  one year and two years  from the  grant  date.  In  November  2002,  an
exception was made so that of the 152,550,000

                                      F-16
<PAGE>

options  granted on November  20,  2002  approximately  one third  (1/3)  vested
immediately  and the balance  will vest  equally one year and two years from the
date of grant.

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

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

                                               2002                     2001
                                             ---------                ---------
                                             Weighted-                Weighted-
                                             ---------                ---------
                                              Average                  Average
                                              -------                  -------
                                             Exercise                 Exercise
                                             --------                 --------
                                    Shares     Price         Shares     Price
                                    ------     -----         ------     -----

OUTSTANDING ON JANUARY 1,           22,919   $   0.025       12,024   $    0.04

Granted                            152,550   $   0.005       11,650   $   0.014
Exercised                              (13)  $   0.010         (450)  $   0.010
Forfeited/Expired                   (1,000)  $   0.007         (305)  $   0.015
                                 ---------   ---------    ---------   ---------
  OUTSTANDING ON DECEMBER 31,      174,456   $   0.002       22,919   $   0.025
                                 =========   =========    =========   =========
  EXERCISABLE ON DECEMBER 31,       70,530   $   0.004       12,910   $   0.026
                                 =========   =========    =========   =========

The following table summarizes  information  about stock options at December 31,
2002 (shares in thousands):

<TABLE>
<CAPTION>
                          Outstanding Stock Options              Exercisable Stock Options
                          -------------------------              -------------------------
                                 Weighted-
                                 ---------
                                  Average          Weighted
                                  -------          --------
   Range of                      Remaining          Average               Weighted-Average
   --------                      ---------          -------               ----------------
Exercise Prices     Shares   Contractual Life   Exercise Price    Shares   Exercise Price
---------------     ------   ----------------   --------------    ------   --------------
<S>                <C>             <C>              <C>          <C>            <C>
$0.01 to 0.34      174,312         10.7             $0.002        73,119        $0.002
$0.66 to 5.00          145          4.9              $0.81           145         $0.81
                   -------      -------            -------       -------       -------
TOTALS             174,457         10.6             $0.002        73,264        $0.004
                   -------      -------            -------       -------       -------
</TABLE>

Compensation  cost for the stock option plans has been  determined  based on the
fair  value at the grant  dates for awards  under the plan,  which  resulted  in
approximately  a $166,000 in 2002 and a $199,000  charge in 2001 with additional
charges  of  approximately  $158,000  scheduled  for next  year  which  has been
recorded as unearned compensation in the accompanying financial statements.

The fair value of certain  option grants is estimated on the date of grant using
the  Black-Scholes  option-pricing  model  with the  following  weighted-average
assumptions used for grants in 2002 and 2001,  respectively;  dividend yields of
0% for each year, expected volatility of approximately 159 % in 2002 and 122% in
2001, risk-free interest rates of 4.00% and 5.63% for 2002 and 2001 respectively
and expected lives of 10 years for both years. The  weighted-average  fair value
of options  granted was  $291,000  and  $117,000 for the each of the years ended
December 31, 2002 and 2001 respectively.

                                      F-17
<PAGE>

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

                                  Year Ended December 31,
                                  -----------------------

                                   2002            2001
                                   ----            ----
Net Loss:
     As Reported                $  (3,599)      $  (1,744)
     Pro Forma                  $  (3,618)      $  (2,480)
Net Loss Per Share:
     As Reported                $  (0.004)      $   (0.01)
     Pro Forma                  $  (0.004)      $   (0.01)

In 2002, 152,550,000 options were granted to employees,  directors,  consultants
and attorneys as incentives and bonuses. We recognized a charge to operations in
2002 of  $674,000  relating to the  issuance of these stock  options and options
issued in prior years.

NOTE 7    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 and $72,000 for the years
ended  December  31,  2002 and 2001,  respectively,  for shares of common  stock
issued to consultants.

The  following  table  summarizes  the  number of  shares  of  common  stock and
preferred stock outstanding at December 31, 2002 and 2001:

--------------------------------------------------------------------------------
                                        DECEMBER 31, 2002      DECEMBER 31, 2001
--------------------------------------------------------------------------------
COMMON STOCK                                1,977,705,000            378,841,000
--------------------------------------------------------------------------------
CLASS A VOTING PREFERRED STOCK                      2,500                  2,500
--------------------------------------------------------------------------------
CLASS B PREFERRED STOCK                                 0                      0
--------------------------------------------------------------------------------
CLASS C  - SERIES 6 PREFERRED STOCK                41,639                  2,232
--------------------------------------------------------------------------------

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.

                                      F-18
<PAGE>

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, 2002 Dr. Pandey is still the holder
of record.

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

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

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

In 2002 we increased the authorized shares of Class C, Series 6 Preferred Voting
Stock,  par value  $0.00001 per share to 49,996,350  with total of 41,639 issued
and outstanding to Dr. Pandey as of December 31, 2002.

NOTE 8 - XECHEM CHINA JOINT VENTURE

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

                                      F-19
<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, 2002 and  December  31,  2001.  Xechem has no
obligation to fund any loses or commitments of Xechem-China.

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

There has been no change in 2002.

NOTE 9 - LOANS PAYABLE

Loans  payable at December 31, 2002 and 2001 totaled  approximately  $55,000 and
$54,000, respectively.  This loan has been collateralized by all tangible assets
including receivables. The $55,000 loan represents borrowings against a $ 55,000
line-of-credit  at interest  rate of 6.25% as of December 31, 2002 from the Bank
of  New  York  as   compared  to  $54,000  in   borrowings   against  a  $55,000
line-of-credit at an annual rate of 6.75% for 2001 from the Bank of New York.

NOTE 10 - CONVERTIBLE DEBENTURES

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 $0.01
per share, with 40 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 2002 Xechem filed a  Registration  Statement  under the Securities Act of
1933 registering  6,000,000,000 shares of Xechem International Inc. common stock
with a per value of $ 0.00001 per share in  connection  with the  aforementioned
notes.

During  2002 we had  conversions  of  $16,500 of  principal  and $736 of accrued
interest for which 49,244,829  shares of our common stock, par value $.00001 per
share were issued.

As of December 31, 2002 we had  $1,500,500 in  outstanding  notes and $58,416 in
accrued interest.

During the first six months of 2002 we received  $162,403  for which  debentures
bearing  interest at 8% and maturing in ten years were issued,  these debentures
are associated with the 2001 Registration Statement. In 2002 debentures totaling
$1,030,331 in principal  and $60,356 in accrued  interest  were  converted  into
1,485,482,622 shares of common stock.

                                      F-20
<PAGE>

As of December 31, 2002 we had $144,173 in outstanding debentures and $13,267 in
accrued interest.

We have recognized a charge to operations of approximately  $1,500,000  relating
to the beneficial  conversion  feature and modifications  thereof during 2002 of
the notes and debentures.

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

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

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

NOTE 11 - EMPLOYEE BENEFIT PLAN

Effective August 1, 1997, the Company  established a defined  contribution  plan
qualified under Section 401(k) of the Internal Revenue Code. Any employee who is
at least eighteen  years of age and has completed  thirty days of employment may
enroll in the plan. Participants may contribute up to 12% of their compensation,
with an average  contribution of 7% and 7.5% in 2002 and 2001 respectively up to
a maximum of $11,000. Employer contributions are made up to 4% of the employee's
gross compensation with an average  contribution of 4% and 3.5% in 2002 and 2001
respectively.  In 2002 and 2001,  respectively,  the Company contributed $17,050
and  $11,552  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.

NOTE 12 -SUBSEQUENT EVENTS

As of March 31,  2003 we  received  $322,000  in  additional  notes with  simple
interest of 8% per annum,  also during 2003 $477,454 of principal and $29,763 of
accrued interest were converted into  7,453,576,765  shares of our common stock,
par value $.00001 per share.

                                      F-21
<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 on December 13, 2002
decided to no longer  engage  Grant  Thornton,  LLP  ("Grant  Thornton")  as our
independent public  accountants and engaged Wiss & Company,  LLP to serve as our
independent  public  accountants  for  the  remainder  of  2002  and  the  years
thereafter.

     The report of Grant  Thornton on our financial  statements for the past two
fiscal years  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, 2001 and 2000.

     During our two most recent  fiscal  years and through the date of this Form
8-K, there were no disagreements with Grant Thornton on any matter of accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure  which, if not resolved to Grant Thornton'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.

                                       34
<PAGE>

                                    PART III
                                    --------

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

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

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

Dr. Ramesh C. Pandey (1)(4)......   64      Chief Executive Officer, President,
                                            Chairman of the Board of Directors,
                                            Secretary and Treasurer.

Stephen F. Burg (1)(2)(3)(4).....   65      Director and Assistant Treasurer

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

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

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

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

SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE

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

                                       35
<PAGE>

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

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

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

     Directors do not receive any standard compensation for services.

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

     Set forth below is information  concerning the  compensation for 2000, 2001
and  2002  for our  President  and  Chief  Executive  Officer,  who is the  only
executive officer of Xechem whose compensation exceeded $100,000:

<TABLE>
<CAPTION>
=============================================================================================================
                                                                  LONG TERM COMPENSATION
                                                            ----------------------------------
                                                                                                  ALL OTHER
                                ANNUAL COMPENSATION                  AWARDS            PAYOUTS   COMPENSATION
----------------------------------------------------------------------------------------------
                                                 OTHER      RESTRICTED   SECURITIES
                                                ANNUAL        STOCK      UNDERLYING     LTIP
                   YEAR    SALARY    BONUS   COMPENSATION     AWARDS       OPTIONS     PAYOUTS
-------------------------------------------------------------------------------------------------------------
<S>                <C>    <C>        <C>        <C>         <C>             <C>         <C>         <C>
Dr. Ramesh Pandey  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
=============================================================================================================
</TABLE>

EMPLOYMENT AGREEMENTS

     Ramesh C. Pandey is employed  pursuant to an agreement which provides for a
base salary of $140,000 per year, subject to an annual increase in proportion to
the  increase in the  consumer  price  index,  such bonuses as a majority of the
disinterested members of our board of directors may determine,  and a royalty of
2 1/2% of our net profits before taxes with respect to any products developed by
us or our  affiliates  during the term of the  agreement.  The  royalty  will be
payable  to Dr.  Pandey  or his  estate  so long  as we  continue  to sell  such
products,  notwithstanding  any  termination  of the  agreement.  The  agreement
provides  for a  ten-year  term,  but  permits  either  party to  terminate  the
agreement  after five years;  if we terminate the agreement,  Dr. Pandey will be
entitled to receive  severance equal to his compensation for the two years prior
to  termination.  Dr.  Pandey  has  agreed  not to  engage in  certain  business
activities  (generally  similar  to those  currently  engaged  in by us) for six
months (four months,  in certain cases) after the  termination of his employment
with us. If there is a change in the beneficial

                                       36
<PAGE>

ownership  of 20% or more of our  capital  stock,  Dr.  Pandey  may, at any time
within one year after such event,  terminate the  agreement,  in which event his
noncompete and confidentiality agreement terminate and any indebtedness of us to
Dr. Pandey shall accelerate.  In August 1996, due to financial constraints,  Dr.
Pandey's  salary was reduced by 54%. In November  1996, 50% of the reduction was
restored and in February  1997,  Dr.  Pandey was  returned to full  salary.  The
reduction  in salary  was not  accrued  and will not be paid to Dr.  Pandey.  On
September 30, 1998 Dr. Pandey signed an Amended Employment  Agreement  extending
his current  agreement  by two years.  He was also granted an option to purchase
stock of Xechem in an amount  equal to 20% of the total number of shares sold by
us in a rights  offering  to  certain  shareholders  and one or more  subsequent
offerings to raise up to $10,000,000 of additional  capital through December 31,
2002.

     In 2002 Dr.  Pandey  deferred  $70,000 of salary for a total of $331,425 of
deferred  salary until we have funds to pay him as set forth in the amendment to
his Employment Agreement.

STOCK PLAN

     Effective  December  1993, our sole  stockholder  approved the Share Option
Plan  (the  "Plan"),  which  we have  assumed,  providing  for the  issuance  to
employees,  consultants,  and  directors of options to purchase up to 12,600,000
shares  of  Common  Stock.  The Plan  provides  for the  grant to  employees  of
incentive stock options ("ISOs") and  non-qualified  stock options.  On November
20,2002 the Board of  Directors  increased  the number of options  available  to
300,000,000.

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

     The Plan will  terminate in December  2003, ten years after the date it was
first  approved,  though awards made prior to termination  may expire after that
date,  depending  on when  granted.  As of December  31,  2002,  we have granted
options  under the Plan to purchase  176,539,333  shares of Common  Stock,  with
174,456,000 still outstanding under the Plan.

                                       37
<PAGE>

AGGREGATED OPTION EXERCISES IN FISCAL 2002 AND FISCAL YEAR-END OPTION VALUES

     The following  table provides  information on option  exercises  during the
year ended  December 31, 2002 by the directors and executive  officers of Xechem
and the value of such  parties'  unexercised  stock  options as of December  31,
2002.

<TABLE>
<CAPTION>
===========================================================================================================================
                                                                   NUMBER OF SECURITIES           VALUE OF UNEXERCISED
                                                                  UNDERLYING UNEXERCISED          IN-THE-MONEY OPTIONS
                                                                    OPTIONS AT 12/31/02             AT 12/31/02 (1)
---------------------------------------------------------------------------------------------------------------------------
                                  SHARES
                               ACQUIRED ON          VALUE
          NAME                 EXERCISE (#)      REALIZED ($)  EXERCISABLE    UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
---------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                  <C>       <C>            <C>                 <C>            <C>
Dr. Ramesh C. Pandey             39,407 (2)           0         1,500,000              0           $0             $0
Stephen F. Burg                      0                0         4,024,700      4,000,000           $0             $0
===========================================================================================================================
</TABLE>

(1)  Represents the excess,  if any, of the closing price of the Common Stock as
     quoted on the OTC  Bulletin  Board on December 31, 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.

     The following  table  provides  information  on options  granted for Common
Stock during the year ended  December 31, 2002 to the  directors  and  executive
officers of Xechem.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
NAME                      NUMBER OF OPTIONS       PERCENT OF TOTAL OPTIONS GRANTED TO    EXERCISE       EXPIRATION DATE
                          GRANTED TO DIRECTORS    EMPLOYEES                              PRICE
---------------------------------------------------------------------------------------------------------------------------
<S>                       <C>                     <C>                                    <C>            <C>
Dr. Ramesh C. Pandey      0                       0                                      0              -
---------------------------------------------------------------------------------------------------------------------------
Stephen F. Burg           6,000,000               3.9%                                   $0.0005        November 20, 2013
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

     We have not granted any  Long-Term  Incentive  Plan-Awards  during the year
ended December 31, 2002.

                                       38
<PAGE>

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 stocks) as of March 14, 2003 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 March 14, 2003 we had 7,797,281,607  Common
Shares issued and outstanding,  2,500 Class A Preferred  Shares  outstanding and
95,055  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.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                     COMMON STOCK        CLASS A PREFERRED STOCK   CLASS C PREFERRED 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>
Stephen F. Burg (3)             4,024,700       .05%          0           -            0           -            .17%
                                   (5)
---------------------------------------------------------------------------------------------------------------------------
Ramesh C. Pandey, Ph.D. (4)     61,923,663      .79%        2,500        100%       95,055       100%          11.6%
                                   (6)                       (1)                      (2)
---------------------------------------------------------------------------------------------------------------------------
All directors and executive     65,948,363      .85%      2,500 (1)      100%       95,055       100%          11.6%
officers as a group (2             (7)                                                (2)
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.
(5)  DOES NOT  INCLUDE  4,000,000  SHARES  SUBJECT  TO THE BURG  OPTIONS,  WHICH
     PRESENTLY ARE NOT EXERCISABLE, AND WILL NOT BE EXERCISABLE,  WITHIN 60 DAYS
     FROM  DECEMBER  31,  2002;  HOWEVER,  INCLUDES  4,024,700  SHARES  THAT ARE
     PRESENTLY EXERCISABLE OPTIONS.
(6)  INCLUDES 1,500,000 SHARES THAT ARE PRESENTLY EXERCISABLE OPTIONS.
(7)  DOES NOT INCLUDE 4,000,000 SHARES SUBJECT TO THE DIRECTORS  OPTIONS,  WHICH
     PRESENTLY ARE NOT EXERCISABLE, AND WILL NOT BE EXERCISABLE,  WITHIN 60 DAYS
     FROM  DECEMBER  31,  2002;  HOWEVER,  INCLUDES  5,524,700  SHARES  THAT ARE
     PRESENTLY EXERCISABLE OPTIONS.

                                       39
<PAGE>

As of December 31, 2002 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 exercise   Number of securities
                              be issued upon exercise     price of outstanding        remaining available for
                              of outstanding options,     options, warrants and       future issuance under
                              warrants and rights         rights                      equity compensation plans
                                                                                      (excluding securities
                                                                                      effected in column (a))
-----------------------------------------------------------------------------------------------------------------
<S>                                  <C>                             <C>                     <C>
Equity compensation plans            174,456,000                     .002                    123,461,000
approved by security holders
-----------------------------------------------------------------------------------------------------------------
Equity compensation plans                 0                           0                           0
not approved by security
holders
-----------------------------------------------------------------------------------------------------------------
Total                                174,456,000                     .002                    123,461,000
-----------------------------------------------------------------------------------------------------------------
</TABLE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Subject to obtaining  necessary  regulatory  approvals in India, Dr. Pandey
has  transferred  his  interest in Xechem  India to Xechem for no  consideration
other than  reimbursement of amounts (equal to approximately  $5,000) Dr. Pandey
advanced for  organizational  expenses.  Dr. Pandey's brothers own the remaining
equity in Xechem India. At December 31, 2002, we own substantially all of Xechem
India.  We  anticipate  that some of the  equity in  Xechem  India  will be made
available to other,  unrelated,  persons in India. Both of Dr. Pandey's brothers
and Mr. Anil Sharma, a chartered accountant, serve as directors of Xechem India.
No  compensation  is paid to Dr.  Pandey,  his  relatives or Mr. Anil Sharma for
service as directors. See Item 1, Description of Business - Raw Material Supply.

     Effective June 25, 1996, an entity wholly-owned by Dr. Pandey (the "Holding
Company") became a member of Vineyard Productions, L.L.C. ("Vineyard"), which in
June 1994  acquired the building in which we lease its offices.  Prior to making
such  investment,  Dr. Pandey informed the Board of Directors of the opportunity
for such investment, and the Board determined that we was not interested in such
opportunity and approved Dr. Pandey making the investment. Our lease was entered
into prior to that date (with a prior  owner of the  building)  and has not been
modified  subsequent  thereto.  We are currently in  negotiations  to form a new
lease,  which would protect us in the future.  We paid Vineyard $185,739 in 2002
and $135,958 in 2001. We owe prior year rental payments to Vineyard of $80,000.

                                       40
<PAGE>

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

     We owe Dr. Pandey,  Chairman of the Board, $776,000 as of December 31, 2002
from an interest  bearing advance  ($244,000) at 10% per annum and the note will
be due when we are no longer a development entity,  accrued interest ($183,000),
accrued salary ($331,000) and accrued expenses ($18,000).  At December 31, 2001,
we owed Dr.  Pandey  $721,000.  We also have a note payable to Dr. Renuka Misra,
director  of  Natural  Products,  for  $298,300  with 12%  annual  interest  due
September 20, 2003.  Interest  expense for related  parties  totaled $70,000 and
$63,000 for the years ended December 31, 2002 and 2001, respectively, related to
these notes.  Xechem has received  funding  from  Beverly  Robbins,  a sales and
marketing representative totaling $195,000 as of December 31, 2002.

     We have  received  $140,000  during the year ended  December  31, 2000 from
Xechem China pursuant to an interest free loan.  Although an additional $340,000
was due Xechem under the original  loan terms,  no amounts were received in 2001
and it is unlikely any additional  amounts will be received.  We shall repay the
loan advanced by Xechem China out of our share in the dividends or  distribution
of Xechem China.  Since  Xechem-China had no activity in 2002 and no foreseeable
profits  in the near  future  there  will  not be any  short-term  repayment  to
Xechem-China.

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

                                       41
<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
            Shares8 (Class C Series 6 Preferred Stock)6

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

10.17       Patents1

10.18       Indemnity agreement between Xechem and Ramesh C. Pandey1

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

--------------------
1    Incorporated by reference from our Registration Statement on Form SB-2 (SEC
     File No. 33-75300NY).
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).

                                       42
<PAGE>

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

23          Consent of Grant Thornton LLP

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

                                       43
<PAGE>

ITEM 14.  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.

                                       44
<PAGE>

                                   SIGNATURES

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

                                      XECHEM INTERNATIONAL, INC.

Date: April 14, 2003                  By: /s/ Ramesh C. Pandey
                                          --------------------
                                          Ramesh C. Pandey, Ph.D.
                                          Chief Executive Officer, President and
                                          Chairman of the Board of Directors


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


By: /s/ Ramesh C. Pandey                                  Date: April 14, 2003
    --------------------------------------
    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, 2003
    --------------------------------------
    Stephen F. Burg
    Director

                                       45
<PAGE>

                                 CERTIFICATIONS

     I, Ramesh C. Pandey, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Xechem  International,
     Inc.;
2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;
3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;
4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
     a.   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;
     b.   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and
     c.   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;
5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):
     a.   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and
     b.   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and
6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date: April 14, 2003

                                        /s/ Ramesh C. Pandey, Ph.D.
                                        ---------------------------
                                        Ramesh C. Pandey, Ph.D.
                                        Chief Executive Officer

See also the certification  pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, which is also attached to this report.

                                       46
<PAGE>

                                 CERTIFICATIONS

     I, Ramesh C. Pandey, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Xechem  International,
     Inc.;
2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;
3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;
4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
     a.   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;
     b.   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and
     c.   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;
5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):
     a.   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and
     b.   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and
6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date: April 14, 2003

                                        /s/ Ramesh C. Pandey, Ph.D.
                                        ---------------------------
                                        Ramesh C. Pandey, Ph.D.
                                        Chief Financial Officer

See also the certification  pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, which is also attached to this report.

                                       47
<PAGE>

                                  EXHIBIT INDEX

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

21        Subsidiaries of Xechem

23        Consent of Grant Thornton LLP

                                       48
<PAGE>