**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**Form 10-K/A**

**(AmendmentNo. 1)**

**(Mark One)**

**x**                                 ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**FORTHE FISCAL YEAR ENDED DECEMBER 28, 2005**

**OR**

**o**                                   TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**FORTHE TRANSITION PERIODFROM                     TO                     **

**CommissionFile Number 0-24320**

**TAPESTRY PHARMACEUTICALS, INC.**

(Exact name of Registrantas specified in its charter)

| **Delaware**                     |   | **84-1187753**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer     |
| incorporation or  organization)  |   | Identification  No.) |

 

**4840 Pearl East Circle,Suite 300WBoulder, Colorado 80301**

(Address of principal executiveoffice, including zip code)

**(303) 516-8500**(Registrant’stelephone number, including area code)

**Securitiesregistered pursuant to Section 12(b) of the Act:** None

**Securitiesregistered pursuant to Section 12(g) of the Act:** Common Stock, ParValue $0.0075 per share;Preferred Stock Purchase Rights

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. Yes o  No x

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes o  No x

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x  No o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K. o

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer (See the definition of “accelerated filer” and “largeaccelerated filer” in Rule 12b-2 of the Exchange Act). Largeaccelerated filer o  Accelerated filer o Non-accelerated filer x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Act). Yes o No x

The aggregate market valueof the voting and non-voting common equity held by non-affiliates of theregistrant was $14,819,374 as of June 29, 2005 (the last business day ofthe registrant’s second fiscal quarter in 2005). For purposes of determiningthis number, 1,307,052 shares of common stock held by affiliates are excluded. Forpurposes of making this calculation, the registrant has defined affiliates asincluding all directors and executive officers and related parties thereto.

As of February 22,2006, the registrant had 3,485,672 shares of Common Stock outstanding. Theregistrant implemented a one-for-ten reverse split of its common stockeffective for trading on February 6, 2006. All share and per share amountsfor all periods presented have been restated to reflect this reverse stocksplit.

**DOCUMENTSINCORPORATED BY REFERENCE**

**None.**

 

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**EXPLANATORY NOTE**

This Annual Report on Form 10-K/A (AmendmentNo. 1) for the fiscal year ended December 28, 2005 corrects thenumber of shares outstanding as of February 22, 2006 on the cover page andamends Item 1A to correct certain numbers under the risk factor “If closed, our proposed financing and therelated grants and repricing of stock options under expanded equity incentiveplans will result in substantial dilution of the percentage ownership of ourstockholders,” Item 11 to correct numbers in the table under “AggregatedOption Exercises in Last Fiscal Year and Fiscal Year-End Option Values,” Item12 to correct numbers in the table under “Security Ownership by CertainPersons,” Item 13 to add two paragraphs under that item and Item 15 to reflect theattachment of an exhibit.

 

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**Item 1ARisk Factors**

*You should carefully consider the following riskfactors related to our current business operations before making a decision toinvest in our common stock. Additional risks of which we are not yet aware orthat we currently believe are immaterial may also impair our businessoperations. If any of the events or circumstances described in the followingrisk factors actually occurs, our business may suffer, the trading price ofcommon stock could decline, and you may lose all or part of your investment.*

**If we fail to close our previously announced proposedfinancing and do not otherwise obtain the capital necessary to fund ouroperations when needed, we could be forced to discontinue our operations.**

As of January 31,2006, we had unrestricted cash, cash equivalents, and investments ofapproximately $12.7 million. Without additional capital, meeting our workingcapital needs under a continuation of our current business model would provedifficult beyond December 2006. The audit report prepared by ourindependent registered public accounting firm relating to our consolidatedfinancial statements for the year ended December 28, 2005 includes anexplanatory paragraph expressing the substantial doubt about our ability tocontinue as a going concern. During the past year we undertook a number ofactions to reduce our monthly cash requirements, including, among other things,reductions in workforce and related payroll costs, reductions in the growth ofexecutive compensation, reductions in facility costs, reductions in the numberof active programs in development, reductions in capital expenditures andreductions in charges from outside service providers. After implementing theseand other cost savings measures and further determining that our leadpharmaceutical program warranted expanded clinical development, we determinedthat we should seek the additional capital necessary to fund our ongoingoperations related to our lead pharmaceutical program.

On February 2, 2006, we entered into a purchaseagreement under which we agreed to sell and issue to certain investors anaggregate of 12,750,000 shares of our common stock, and related warrants topurchase up to an aggregate of 12,750,000 shares of our common stock for grossproceeds of $25.5 million not including any proceeds from the exercise of thewarrant (or approximately $24 million net of transaction fees and expenses). Closingof this proposed financing is subject to the satisfaction of certainconditions, including our conducting a special meeting of stockholders to beheld not later than May 2, 2006 for the purpose of securing the requiredstockholder approval of the transaction under the Nasdaq Marketplace Rules andour obtaining such approval; the adoption by our Board of Directors of a budgetfor fiscal years 2006 and 2007, including a covenant that the net proceeds fromthe transaction be used solely to fund the development of TPI 287 in accordancewith such budget; and other matters common in transactions of this kind. Pursuantto the purchase agreement, we will issue to the investors thereunderalternative warrants to purchase an aggregate of 522,815 shares of our commonstock (representing 15% of our issued and outstanding shares of common stock asof February 2, 2006), with an exercise price of $0.01 per share. Thesealternative warrants will become exercisable only in connection with certainevents, one of which is the failure of our stockholders to approve the proposedfinancing.

If we do not close the proposed financing, whether asa result of the failure to receive stockholder approval or the failure of otherconditions, we would be forced to preserve our cash position through acombination of additional cost reduction measures, sales of core assets atvalues significantly below their potential worth and postponement or terminationof our program for the development of TPI 287. In addition, we would need toaugment our cash through additional and possibly repetitive dilutive financings.If we are unable to raise additional funds, we could be forced to discontinueour operations.

Even if we close theproposed financing, our business will require substantial additional investmentthat we have not yet secured. We cannot be sure how much we will need to spendin order to develop, market and manufacture new products and technologies inthe future. We expect to continue to spend 

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substantialamounts on research and development, including amounts spent on conductingclinical trials for our product candidates. Further, we will not havesufficient resources to develop fully any new products or technologies unlesswe are able to raise substantial additional financing on acceptable terms. Wecould also be required to seek strategic partners at an earlier stage thanmight be preferable and on less favorable terms than might be otherwise available.Our failure to raise capital when needed would adversely affect our business,financial condition and results of operations, and could force us to reduce ordiscontinue our operations at some time in the future, even if the proposedfinancing is closed.

**If closed, our proposed financing and the relatedgrants and repricing of stock options under expanded equity incentive planswill result in substantial dilution of the percentage ownership of ourstockholders.**

Stockholders will incur immediate and substantialdilution of their percentage of stock ownership in the Company if our recentlyproposed financing is closed. The aggregate ownership of all holders of ouroutstanding common stock immediately prior to closing of the proposed financingwill be reduced to approximately 21% of outstanding shares of our common stockafter closing, or 12% assuming exercise in full of the warrants issued as partof the proposed financing.

In addition, our Board of Directors has adopted and weintend to submit to our stockholders for approval a new equity incentive planthat will provide for an initial reservation of 6,577,106 shares of commonstock, for which options on 3,259,480 shares have been initially grantedthereunder, contingent upon stockholders approval. The shares available forissuance under the equity incentive plan may be increased by up to 1,600,000shares of common stock based upon the number of shares of common stock we issueduring the three year period after the closing of the proposed financing. We alsointend to submit to stockholders proposals for approval of an amendment to ourbylaws and the approval under our existing stock option plans to permit therepricing of 633,238 of our currently outstanding stock options.

For purposes of example only, a stockholder who ownedapproximately 15.0% of our outstanding stock as of February 21, 2006,would own approximately 3.2% of the shares outstanding immediately after theproposed financing, assuming the issuance of 12,750,000 shares of common stockto the investors, and would own 1.8% of the shares outstanding immediatelyafter the proposed financing assuming full exercise of warrants to purchase12,750,000 shares of common stock issued to the investors, and as low as 1.5%on a fully diluted basis after taking into account stock options that may begranted under our equity incentive plan proposed to be adopted.

Each of the investors inthe proposed financing has agreed, at any meeting of stockholders of theCompany called for that purpose after the date the proposed financing isclosed, to vote to approve the equity incentive plan and the amendment of ourbylaws. This agreement of the investors continues to be applicable at anymeeting called by the Company for such purpose, notwithstanding that suchmatter may have previously been voted upon but not approved by the Company’sstockholders. If the proposed financing is completed, approval of proposals toadopt the new equity incentive plan and to amend our bylaws will be assuredbecause the investors will hold more than 75% of the Company’s outstandingcommon stock and they will be obligated to vote in favor of such proposals.

**We currently are focusing our development efforts ononly one product candidate, TPI 287, and we will have limited prospects forsuccessful operations if TPI 287 does not prove successful in clinical trialsor is never commercialized because of the costs of continuing development orfor other reasons.**

During the past 16 months we have closed our Genomicsdivision, terminated our program relating to Huntington’s Disease andterminated development of TPI 284. These actions have permitted us to focus ourdevelopment efforts primarily on the development of TPI 287, which is still inPhase I clinical trials. Our other product candidates are in preclinicaldevelopment and we have no products that are approved 

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for commercial sale. TPI287 will require extensive additional clinical evaluation, regulatory review,marketing efforts and significant investment before we receive any revenuesfrom it, if ever. We currently do not have the capital resources necessary tobring any of our product candidates through to commercial approval, and we donot expect TPI 287 or any of our other product candidates or technologies to becommercially available for several years. We believe that our recentlyannounced proposed financing, if closed, will only be sufficient to permit usto generate preliminary Phase II efficacy data on TPI 287 in a number of majortumor types, as well as begin development of, upon continued confirmatory data,a preliminary oral form of this drug candidate.

Our efforts may not leadto commercially successful products for a number a reasons, including theinability to be proven safe and effective in clinical trials, the lack ofregulatory approvals or obtaining regulatory approvals that are narrower thanwe seek, inadequate financial resources to complete the development andcommercialization of our product candidates or the lack of acceptance in themarketplace. Given the limited focus on one product candidate, if TPI 287 doesnot prove successful in clinical trials or is not commercialized because wehave insufficient resources for continued development for any other reason, wemay be required to suspend or discontinue our operations and you could loseyour entire investment in the Company.

**If the proposed financing is consummated, theinvestors in the proposed financing will acquire shares of common stock andwarrants representing substantially more than a majority of shares of ourcommon stock.**

If the proposed financingis consummated, the investors in the proposed financing would acquire shares ofour common stock and warrants to acquire such shares representing up toapproximately 88% of our common stock, assuming the full investment of $25.5million and the exercise in full of the warrants to be issued in the proposedfinancing. Immediately following completion of the proposed financing, thoseinvestors would hold a sufficient portion of our outstanding shares so as topermit them, if they chose to act in concert, to approve all actions requiringstockholder approval, including the election of directors, without obtainingthe approval of any other stockholder.

**If our proposed financing is not closed because ourstockholders do not approve or for certain other reasons, alternative warrantsto be issued in connection with the execution of the purchase agreement willbecome exercisable and dilute the percentage ownership of our stockholders withno benefit to the Company.**

Pursuant to the purchase agreementfor our proposed financing, we will issue to the investors alternative warrantsto purchase an aggregate of 522,815 shares of our common stock (representing15% of our issued and outstanding shares of common stock as of February 2,2006), with an exercise price of $0.01 per share. These alternative warrantswill become exercisable only in connection with certain events, one of which isthe failure of our stockholders to approve the proposed financing. Theaggregate ownership of all holders of our outstanding common stock immediatelyprior to the full exercise of the alternative warrants would be reduced toapproximately 88% of outstanding shares of our common stock.

**Future sales and issuances of our common stock orrights to purchase common stock in addition to those in our proposed financing,including pursuant to our equity incentive plans, could result in additionaldilution of the percentage ownership of our stockholders and could cause ourstock price to fall.**

We may sell common stockin one or more transactions at prices and in a manner we determine from time totime whether or not our proposed financing closes. If we sell common stock inmore than one transaction, stockholders who purchase stock may be materiallydiluted by subsequent sales. Such sales may also result in material dilution toour existing stockholders. Sales of a substantial number of shares of ourcommon stock in the public market, or the perception that these sales mightoccur, could depress the 

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marketprice of our common stock and could impair our ability to raise capital throughthe sale of additional equity securities.

**If we fail to continue to meet all applicable NasdaqCapital Market requirements and Nasdaq determines to delist our common stock,the delisting could adversely affect the market liquidity of our common stockand the**market priceof our common stock could decrease.

Our common stock is listed on the Nasdaq CapitalMarket. In order to maintain that listing, we must satisfy minimum financialand other requirements. On February 25, 2005, we received notice from theNasdaq Stock Market, Inc. that the minimum bid price of our common stockhad fallen below $1.00 per share for 30 consecutive business days and that ourcommon stock was, therefore, subject to delisting from the Nasdaq CapitalMarket. At August 24, 2005, since we did meet the Nasdaq Capital Marketinitial listing criteria (other than the minimum bid price requirement), wereceived a second and final grace period from Nasdaq ending February 21,2006. We implemented a one-for-ten reverse split of our common stock effectivefor trading on February 6, 2006, complied with the minimum bid pricerequirement for a minimum of 10 consecutive business days prior to February 21,2006, and as of February 21, 2006, the last sale price of our common stockon the Nasdaq Capital Market was $3.11 per share.

Notwithstanding that the trading price of our commonstock currently exceeds the minimum bid price required to maintain compliancewith the Nasdaq Capital Market listing requirements, it is possible that theminimum bid price of our common stock could fall below the required level orthat we would otherwise fail to satisfy another Nasdaq requirement forcontinued listing of our common stock. For example, we could fail to maintaincompliance with the Nasdaq Capital Market listing requirements if we did notmaintain minimum stockholder equity of at least $2.5 million as a result ofcontinuing losses, whether or not our proposed financing closes.

If we fail to continue tomeet all applicable Nasdaq Capital Market requirements in the future and Nasdaqdetermines to delist our common stock, the delisting could adversely affect themarket liquidity of our common stock and the market price of our common stockcould decrease. Such delisting could also adversely affect our ability toobtain financing for the continuation of our operations and could result in theloss of confidence by investors, suppliers and employees.

**Our product candidates and technologies are in anearly state of development and there is a high risk that they may never becommercialized because of the costs of continuing development or for otherreasons.**

We do not currently haveany products that have received regulatory approval for commercial sale, and weface the risk that none of our product candidates will ever receive regulatoryapproval. All of our product candidates are in early stages of development. Ourexisting product candidates will require extensive additional clinicalevaluation, regulatory review, marketing efforts and significant investmentbefore they result in any revenues. We currently do not have the funds to bringany of our product candidates through to commercial approval. Therefore,advancing the development of our product candidates will require substantialadditional investment. Continueddevelopment of these programs is therefore dependent upon raising additionalcapital. We cannot be certain that we will be able to obtain capital onacceptable terms, or at all. We do not expect any of our prospectiveproducts or technologies to be commercially available for at least severalyears and our efforts may not lead to commercially successful products for anumber a reasons including the inability to be proven safe and effective inclinical trials, the lack of regulatory approvals or obtaining regulatoryapprovals that are narrower than we seek, inadequate financial resources tocomplete the development and commercialization of our product candidates or thelack of acceptance in the marketplace. We continuously reassess all of our research anddevelopment efforts, including those for the therapeutic products described inthe “Business” section of this report. As new information about eachtechnology becomes available, it may change perceptions of previously accepteddata, which could require additional periods of time to review and interpretthese data. As a 

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result,we may find deficiencies in the design or application stages while developingour clinical trial studies, or in the subsequent implementation stages of suchstudies, which could cause us or the FDA to delay, suspend or terminate ourtrials at any time. Potential problems we may encounter in the implementationstages of our studies include the chance that we may not be able to conductclinical trials at preferred sites, obtain sufficient test subjects or begin orsuccessfully complete clinical trials in a timely fashion, if at all. Furthermore,the FDA may suspend clinical trials at any time if it believes the subjectsparticipating in trials are being exposed to unacceptable health risks or if itfinds deficiencies in the clinical trial process or conduct of theinvestigation. Atany time, we may expand, delay, terminate or dispose of all or any portion ofour research and development programs and therapeutic products or we maydevelop or acquire rights to new product candidates.

**Our potential products and technologies must undergorigorous clinical testing and regulatory approvals and compliance, which couldsubstantially delay or prevent us from marketing any products.**

The clinical development of our product candidates hasmany risks of failure. Drugs must be proven safe and effective before they canbe approved for human use. The advancement of drug candidates into humanclinical trials is dependent on the positive outcome of pending preclinicalstudies, decisions by the FDA, institutional review boards, and otherregulatory factors. Patient recruitment for clinical trials can be difficult,and clinical trials may be delayed or prolonged due to inability to recruit asufficient number of patients. We may encounter significant delays or excessivecosts in our efforts to secure regulatory approvals. Our product candidatesrely on new and unproven technologies, and none of our proposed products or technologieshave yet completed clinical tests designed to measure their safety oreffectiveness in humans. The data obtained from preclinical and clinicalactivities are susceptible to varying interpretations which could delay, limitor prevent regulatory approvals. Failure to comply with applicable FDA or otherregulatory requirements may result in criminal prosecution, civil penalties andother actions that would seriously impair our ability to conduct our business. Evenif regulatory approval is granted for a product, this approval will be limitedto those disease states and conditions for which the product is useful, asdemonstrated through clinical trials. In addition, regulatory agencies may notapprove the labeling claims that are necessary or desirable for the successfulcommercialization of our product candidates. Even if we receive regulatoryapprovals, our product candidates may later exhibit adverse effects that limitor prevent their widespread use or that force us to withdraw those productcandidates from the market. In addition, a marketed product continues to besubject to strict regulation after approval. Any unforeseen problems with anapproved product or any violation of regulations could result in restrictionson the product, including its withdrawal from the market.

Any delay in, or failureto receive or maintain regulatory approval for, any of our products couldprevent us from ever generating meaningful revenues or achieving profitability.Given the uncertainty of drug development, it is impossible to say how long theclinical development of any of these compounds will take. We cannot be sure that ourclinical testing for these programs will progress at the times estimated inthis document. We also cannot be sure of the cost of the effort necessary tocomplete these programs or when, if ever, we will receive material revenuesfrom these programs. Successfully completing these programs and obtaining anapproved product for sale in the U.S. and offshore will be dependent upon ourraising additional capital. We cannot be certain that we will be able to obtaincapital on acceptable terms or at all.

**Manufacturing issues may delay or hinder developmentor marketing of our product candidates.**

The manufacture of ourdrug candidates is a complex process. Manufacturing these drugs for use inclinical trials, according to FDA guidelines, presents a number of significantrisks and challenges. The manufacture of TPI 287, in particular, is a verycomplex and difficult process. If we are unable to manufacture adequatesupplies of any of our compounds for our clinical trials, our timelines for 

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developmentcould be delayed significantly. If we are able to gain regulatory approval of our products aftersuccessful clinical trials and then commercialize and sell those products, wemay be unable to manufacture enough products to maintain our business, whichcould have a negative impact on our financial condition. We have noexperience in manufacturing any of our proposed product candidates on acommercial basis. We also have no laboratories or manufacturing facilities forsuch commercial manufacturing activity. If we are unable to manufacture ourproducts in a cost-effective manner, we are not likely to become profitable. Wehave not received a license from the FDA for any necessary manufacturingfacilities, and cannot apply for one until we submit a new potential productfor commercial approval. Even if we do receive a manufacturing license, we mayfail to maintain adequate compliance with the FDA’s regulations concerningcurrent good manufacturing practices, in which case the license, and ourauthorization to manufacture the product, would be revoked. Unless we build ourown manufacturing facilities, we will have to rely on third parties tomanufacture our products. Although we may be able find third-partymanufacturers with experience and the proper licensing requirements from theFDA, we may not be able to negotiate favorable terms regarding costs or along-term commitment to manufacture our products. Our dependence on thirdparties may reduce future profit margins and delay or limit our ability todevelop and commercialize our products on a timely and competitive basis.

**We rely on third-parties to perform certain servicesfor us and any interruption or termination of these**arrangements may adversely affect ourbusiness.

We rely onthird-party contractors to provide certain services related to our research anddevelopment activities. Contractors handle our U.S. and internationalregulatory affairs, provide certain manufacturing, technical and analyticalservices and manage certain aspects of our clinical development. Ouroutsourcing of certain functions to independent, third parties poses thefollowing risks:

**·****     **ourcontracts with independent contractors may expire or be terminated, and we maynot be able to replace them;

**·****     **acontractor may not commit sufficient resources to our projects;

**·****     **acontractor may file for bankruptcy protection or otherwise lack sufficientresources to perform all of its obligations under our agreement;

**·****     **theterms of our contracts with contractors may not be favorable to us; and

**·****     **disputes with ourcontractors may arise, leading to delays in or termination of the developmentor commercialization of our products or resulting in significant litigation orarbitration proceedings.

The failure of ourthird-party contractors to provide services to us in a timely manner couldmaterially harm our business and financial condition. In addition, our use ofoutside parties could potentially lead to difficulties in coordinatingactivities. Outside parties may have staffing difficulties, may undergo changesin priorities or may have inadequate financial or other resources, adverselyaffecting their willingness or ability to provide certain services to us. We mayexperience unexpected cost increases that are beyond our control. Problems withthe timeliness or quality of the work of a third party contractor may lead usto seek to terminate the relationship and use an alternative service provider.Making this change might be costly and may delay our clinical trials. Further,contractual restrictions may make such a change difficult or impossible.Additionally, it may be impossible to find a replacement organization that canassist us in an acceptable manner and at an acceptable cost.

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**We may be requiredto rely on strategic partners for the development, marketing and manufacturingof future products and technologies that may delay or impair our ability togenerate significant revenue and**may otherwise adversely affect our profitability.

We may, in thefuture rely on strategic partners for the development, marketing andmanufacturing of future products and technologies because we lack the resourcesor capabilities to develop our product candidates. Our reliance on strategicpartners poses a number of risks, including the following:

**·****     **itmay be difficult to successfully negotiate arrangements with potentialstrategic partners on acceptable terms;

**·****     **ifan arrangement with a strategic partner expires or is terminated, we may not beable to replace it or the terms on which we replace it may be unacceptable;

**·****     **apartner involved in the development of new products or technologies may notcommit enough capital or other resources to develop or commercialize theseproducts or technologies successfully;

**·****     **astrategic partner may not commit enough resources to the marketing anddistribution of our products;

**·****     **wemay have disputes with strategic partners that could delay or terminate thedevelopment or commercialization of our products or result in significantlitigation or arbitration proceedings;

**·****     **contractswith our strategic partners may not provide significant protection or may bedifficult to enforce if a strategic partner fails to perform;

**·****     **ourstrategic partners may decide not to further develop or commercialize ourproducts;

**·****     **ourstrategic partners could develop drugs which compete with our products;

**·****     **ourstrategic partners could turn their focus away from oncology;

**·****     **ourstrategic partners who may manufacture future products could fail to operatetheir facilities in accordance with federal good manufacturing practicesregulations; and

**·****     **third-partymanufacturers may be unable to manufacture products in a cost-effective ortimely manner.

**Oursuccess is dependent on obtaining and defending patents and proprietarytechnology.**

Our success in commercializing, producing andmarketing products and technologies in the future depends, in part, on ourability to obtain and maintain adequate protection of the intellectual propertyrelated to our technologies and products, both in the U.S. and other countries,and to operate without infringing the proprietary rights of third parties. Wewill be able to protect our proprietary rights from unauthorized use by thirdparties only to the extent that our proprietary technologies are covered byvalid and enforceable patents. The patent positions of biotechnology companies,including our patent positions, are generally uncertain and involve complexlegal and factual questions.

We cannot predict the breadth of claims that will beallowed and issued to us for patents related to biotechnology or pharmaceuticalapplications. Before a patent is issued, its coverage can be significantlynarrowed, either in the U.S. or abroad. We also do not know whether any of ourpending or future patent applications will result in the issuance of patents. Tothe extent patents have been issued or will be issued, some of these patentsare subject to further proceedings that may limit their scope and once patentshave been issued, we cannot predict how the claims will be construed orenforced. It is not possible to determine which patents may provide significantproprietary protection or competitive advantage, or which patents may becircumvented or invalidated. Furthermore, patents already issued to us, orpatents that may be issued on our pending applications, may become subject todispute, including interference proceedings in 

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the U.S. to determinepriority of invention. If our currently issued patents are invalidated or ifthe claims of those patents are narrowed, our ability to prevent competitorsfrom marketing products that are currently protected by those patents could bereduced or eliminated. We could then face increased competition resulting inreduced market share, prices and profit.

In addition, the laws of some foreign countries do notprotect proprietary rights to the same extent as the laws of the U.S., and manycompanies have encountered significant problems in protecting and defendingtheir proprietary rights in foreign jurisdictions. For example, methods oftreating humans are not patentable in many countries outside of the U.S.

Our patents may not affordus protection against competitors, especially since there is a lengthy timebetween when a patent application is filed and when it is issued. We may alsoincur substantial costs in asserting claims against, and defending claimsasserted against us by third parties to prevent the infringement of our patentsand proprietary rights by others. Participation in such infringement proceedingsmay adversely affect our business and financial condition, even if the eventualoutcome is favorable.

**Litigationor third party claims of intellectual property infringement could require us tospend substantial time and money and adversely affect our ability to developand commercialize our products.**

Our commercial success also depends in part on ourability to avoid infringing patents and proprietary rights of third parties andnot breaching any licenses that we have entered into with regard to any futureproducts. There are many pharmaceutical and chemical patents and applicationsbeing filed, published, and issued frequently throughout the world. Some ofthese patents and applications contain disclosures and claims that are similarto technologies and products that we are using and developing. Some of thesepatents and disclosures contain claims and disclosures that are difficult tointerpret. It is possible that a third party may own or control issued patents,or patent applications or in the future may file, patent applications coveringtechnologies or products we are developing.

If our technology,products or activities are deemed to infringe the other companies’ rights, wecould be subject to damages or be prevented from using the technology orselling the product that is infringing other companies’ rights, or we could berequired to obtain licenses to use that technology or sell the product. Ifpatents covering technologies required by our operations are issued to others,we may have to rely on licenses from third parties, which may not be availableon commercially reasonable terms, if at all. Third parties may accuse us ofemploying their proprietary technology without authorization. In addition,third parties may obtain patents that relate to our technologies and claim thatour use of such technologies infringes their patents, even if we have receivedpatent protection for our technology. Such claims could require us to incursubstantial costs and could have a material adverse effect on us, regardless ofthe merit of the claims, including the following:

·       thediversion of management and technical personnel in defending us against anysuch claims or enforcing our patents. In this regard, we may be required todefend a lawsuit or defend a proceeding in the United States Patent andTrademark Office, either of which could be expensive and time consuming;

·       payinga large sum for damages if we are found to infringe;

·       beingprohibited from selling or licensing our products or product candidates unlessand until we obtain a license from the patent holder, who may refuse to grantus a license or who may only agree to do so on unfavorable terms. Even if weare granted a license, we may have to pay substantial royalties or grantcross-licenses to our patents;

·       redesigningour products or product candidates so they do not infringe on the patent holder’stechnology if we are unable to obtain a license. This may not be possible and,even if possible, it 

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could require substantialadditional capital and could significantly delay commercialization while weattempt to design around the patents or rights infringed;

·       incurringsubstantial cost in defending ourselves and indemnifying our strategic partnersin patent infringement or proprietary rights violation actions brought againstthem relating to their development and commercialization of our products; and

·       assuming the proposedfinancing is consummated, incurring substantial cost in indemnifying theinvestors in the financing in the event that any intellectual propertyinfringement is deemed to be a breach of the purchase agreement for thefinancing.

**Wemay be required to obtain rights to proprietary technologies that are requiredto further develop our business and that may**not be available or may be costly.

Our oncology programs may require the use of multipleproducts or technologies proprietary to other parties. Third party suppliersmay not be able to furnish us with a supply of these products sufficient tosatisfy our requirements. We may not be able to obtain additional licenses wemay need in the future on terms acceptable to us. Our inability to obtain anyone or more of these licenses, on commercially reasonable terms, if at all, orto circumvent the need for any such license, could cause significant delays andcost increases and materially affect our ability to develop and commercializeour product candidates. In connection with our efforts to obtain rights tothese proprietary technologies, we may find it necessary to convey rights toour technology to others. Some of our products may require the use of multipleproprietary technologies. Consequently, we may be required to make cumulativeroyalty payments to several third parties. These cumulative royalties couldbecome commercially prohibitive. We may not be able to successfully negotiatethe amounts of these royalties on terms acceptable to us.

We may rely in part onthird party licenses for access to intellectual property relating to ouroncology programs. Such licenses may obligate us to exercise diligence inpursuing the development of product candidates, to make specified milestonepayments and/or to pay royalties. Our inability or failure to meet any suchdiligence requirements or make any required payments would likely result in areversion to the licensor of the rights granted, which could materially andadversely affect our ability to develop and market products based on ourlicensed technologies.

**Wemay not be successful in obtaining required foreign regulatory approvals, whichwould prevent us from**marketingour products internationally.

Outside the U.S., ourability to market a product is contingent upon receiving a marketingauthorization from the appropriate regulatory authority. This foreignregulatory approval process includes many of the same steps and uncertaintiesassociated with FDA approval described above. We cannot be certain that we will obtain anyregulatory approvals for our product candidates and technologies in othercountries. In order to market our products outside of the U.S., we also mustcomply with numerous and varying foreign regulatory requirements implemented byforeign regulatory authorities governing the conduct of clinical trials,product licensing, pricing and reimbursement. The approval procedure variesamong countries and can involve additional testing. The time required to obtainapproval may differ from that required to obtain FDA approval and approval bythe FDA does not ensure approval by the health authorities of any other country.The process of obtaining foreign regulatory approvals can be lengthy andrequire the expenditure of substantial capital and other resources. We may notbe successful in obtaining the necessary approvals. Any delay or failure todemonstrate the safety and effectiveness of a pharmaceutical product candidateunder development and obtain foreign regulatory approval could have a materialadverse effect on our business.

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**Competitionfrom third parties may hinder our success.**

If we develop andcommercialize our product candidates in the future, we expect competition fromfully integrated pharmaceutical companies and more established biotechnologycompanies as well as government, universities and public and private researchinstitutions. These companies and institutions conduct research, seek patentprotection and establish collaborative arrangements for product development andmarketing. Most of these companies and institutions have significantly greaterfinancial resources and expertise than we do in the following:

·       researchand development;

·       preclinicalstudies and clinical trials;

·       obtainingregulatory approvals;

·       manufacturing;and

·       marketingand distribution.

Smaller companies may alsoprove to be significant competitors, particularly through collaborativearrangements with large pharmaceutical companies or other organizations. Inaddition, other companies and institutions compete with us in recruiting andretaining highly qualified scientific and management personnel. If we developand commercialize our product candidates in the future, our competitors maydevelop more effective, safer or more affordable products and technologies, orcommercialize products earlier than we do. If our competitors are successful inthis respect, it could limit the prices that we are able to charge for the productsthat we market, and prevent us from becoming profitable. In some cases,competing products could render obsolete any products we eventually develop.

**Wemay be unable to attract and retain the qualified employees we need to besuccessful.**

We are highly dependent onmembers of our staff that lead or play critical roles in our research anddevelopment efforts. We require highly qualified and trained scientists withthe necessary skills to develop our product candidates. Recruiting andretaining qualified technical and managerial personnel will also be critical toour success. We face intense competition for these professionals from othercompanies in our industry and the turnover rate for these professionals can behigh. The loss of any of these persons, or our inability to recruit additionalpersonnel necessary to our business, could substantially impair our researchand development efforts and impede our ability to develop and commercialize anyof our products. In addition, we rely on other consultants and advisors toassist us in formulating our research and development strategy. Some haveconsulting or other advisory arrangements with other entities that may conflictor compete with their obligations to us.

**Ourstock compensation expense will negatively impact our earnings, and as wereport the fair value of employee stock options as an expense in conjunctionwith a new accounting standard, our reported financial performance will beadversely affected, which may cause our stock price to decline.**

In December 2004, theFinancial Accounting Standards Board issued SFAS 123(R), “Accounting forStock-Based Compensation”. SFAS 123(R) establishes standards for theaccounting for transactions in which an entity exchanges its equity instrumentsfor goods or services. This statement focuses primarily on accounting fortransactions in which an entity obtains employee services in share-basedpayment transactions. SFAS 123(R) requires that the fair value of suchequity instruments be recognized as an expense in the historical financialstatements as services are performed. Prior to SFAS 123(R), only certainpro forma disclosures of fair value were required. The provisions of thisstatement will be effective for the first interim reporting period that beginsafter December 15, 2005. Accordingly, we will adopt SFAS 123(R) commencingwith the quarter ending March 29, 2006. If we had included the cost of 

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employeestock option compensation in our financial statements, our net loss for thefiscal years ended December 28, 2005 and December 29, 2004 would haveincreased by $2,954,000 and $3,947,000, respectively, and our net income forthe fiscal year ended December 31, 2003 would have decreased by $3,957,000.Accordingly, the adoption of SFAS 123(R) is expected to have a materialeffect on our financial statements, which may cause our stock price to declineand increase our anticipated net losses.

**If weacquire any other products or business operations, we will incur a variety ofcosts, and we may never**realize the anticipated benefits of the acquisition.

We may attempt to acquireproduct candidates, or other potentially beneficial technologies, throughin-licensing or the acquisition of businesses, services or products that webelieve are a strategic fit with our business. Although we currently have nocommitments or agreements with respect to any acquisitions, if we undertake anacquisition, the process of integrating the acquired business, technology,service or product may result in unforeseen operating difficulties and expendituresand may divert significant management attention from our ongoing businessoperations. Moreover, we may fail to realize the anticipated benefits of anyacquisition for a variety of reasons, such as an acquired product candidateproving to not be safe or effective in clinical trials. We may issue equity ordebt securities to fund future acquisitions which would dilute the ownership ofour stockholders. In addition, we may devote resources to potentialacquisitions that are never completed.

**Ouruse of hazardous materials exposes us to the risk of material environmentalliabilities, and we may incur substantial additional costs to comply withenvironmental laws in connection with the operation of our**research and manufacturing facilities.

We may use radioactive materials and other hazardousor biohazardous substances in our research and development. As a result, we arepotentially subject to material liabilities related to personal injuries orproperty damages that may be caused by the spread of radioactive contaminationor by other hazardous substance releases or exposures at, or from, ourfacilities. Decontamination costs associated with radioactivity releases, otherclean-up costs, and related damages or liabilities could be significant andcould harm our business. The cost of this liability could exceed our resources.

We are required to complywith increasingly stringent laws and regulations governing environmentalprotection and workplace safety, including requirements governing the handling,storage and disposal of radioactive and other hazardous substances and wastes,and laboratory operating and safety procedures. These laws and regulations canimpose substantial fines and criminal sanctions for violations. Maintainingcompliance with these laws and regulations with regard to our operations couldrequire substantial additional resources. These costs could decrease ourability to conduct operations in a cost-effective manner.

**Legislativeand regulatory proposals to reduce the cost of health care could adverselyaffect our business.**

There have been a numberof federal and state proposals in the U.S. to implement government controls onpricing and other efforts to reduce the cost of health care, includingproposals to reform health care or reduce government insurance programs. Ourbusiness is affected by these efforts and these efforts could adversely affectprices of our products. In addition, government pricing controls exist invarying forms in other countries. The emphasis on managed care in the U.S. hasalso increased and will likely continue to increase the pressure to reduce theprices of pharmaceutical products. We cannot predict whether any of theseproposals will be adopted or the effect these proposals or managed care effortsmay have on our business. In addition, the current discussion of drugreciprocation into the U.S. could also affect our future business operations. Someproposals would permit the reimportation of approved drugs that were originallymanufactured in the U.S. from other countries where the drugs were sold at alower price. These and other initiatives could decrease the price we or anypotential marketing partners receive 

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for ourproducts, adversely affecting our profitability. The pendency or approval ofsuch proposals could result in a decrease in our stock price or limit ourability to raise capital, enter into strategic partnerships or obtain licenses.

**Ifproduct liability lawsuits are successfully brought against us, we may incursubstantial liabilities and may**be required to limit commercialization of our product candidates.

Our business may expose us in the future to productliability risks, which are inherent in the testing, manufacture, marketing andsale of pharmaceutical products. Product liability claims might be brought againstus by clinical trial patients, consumers or health care providers or bypharmaceutical companies or others selling our products. If we completeclinical testing for our product candidates and receive regulatory approval tomarket our products, we will include warnings on our products that identify theknown potential adverse effects and the patients who should not receive ourproduct. There can be no assurance that these warnings will be deemed adequate,or that physicians and patients will comply with these warnings.

If we cannot successfullydefend ourselves against such claims, we may incur substantial liabilities orbe required to limit commercialization of our future products. We cannotpredict all of the possible harms or side effects that may result and, as aresult, the amount of insurance coverage we currently hold, or that we mayobtain, may not be adequate to protect us from any liabilities. We may requireincreased liability coverage as our product candidates advance in clinicaltrials and later develop and commercialize these products. Further, insurancecoverage is increasingly expensive, and we do not know whether we will be ableto maintain insurance coverage at a reasonable cost or in sufficient amounts toprotect us against losses due to liability. A successful product liabilityclaim brought against us in excess of our insurance coverage or a productrecall could adversely affect our business, results of operations and financialcondition.

**Wemay be unable to effectively price our products or obtain adequatereimbursement for sales of our products, which would prevent our products frombecoming profitable.**

Our product candidates, ifdeveloped and commercialized, may not be considered cost-effective, andcoverage and adequate payments may not be available or may not be sufficient toallow us to sell these products on a competitive basis. In both the UnitedStates and elsewhere, sales of medical products and treatments are dependent,in part, on the availability of reimbursement from health maintenanceorganizations, other private insurance plans, governmental programs such asMedicare, and other third-party payors. Third-party payers are increasinglychallenging the prices charged for pharmaceutical products and services.

**Wehave implemented anti-takeover provisions that may reduce the market price ofour common stock.**

Our certificate of incorporation and bylaws providethat the Board of Directors will be divided into three classes, eachconsisting, as nearly as possible, of one-third of the total number ofdirectors, with each class having a three-year term. Stockholders may takeaction only at a stockholders’ meeting and not by written consent. Certainprovisions of our certificate of incorporation and bylaws, including theprovisions providing for a classified Board of Directors, may not be amendedwithout the vote of at least 80% of the voting power of all of our capitalstock entitled to vote generally in the election of directors, voting togetheras a single class. Our bylaws provide that stockholders wishing to nominate adirector at an annual meeting or at a special meeting called for the purpose ofelecting directors or to bring business before any meeting of stockholders mustcomply with strict advance written notice provisions. Our bylaws also providethat special meetings of stockholders may be called only by the chairman of ourBoard of Directors, or certain of our officers, or by resolution of ourdirectors.

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These provisions of our certificate of incorporationand our bylaws could discourage potential acquisition proposals and could delayor prevent a change in control. These provisions are intended to enhance thelikelihood of continuity and stability in the composition of our Board ofDirectors and in the policies formulated by our Board of Directors. We alsointended these provisions to discourage certain types of transactions that mayinvolve an actual or threatened change of control. We designed these provisionsto reduce our vulnerability to unsolicited acquisition proposals and todiscourage certain tactics that may be used in proxy contests. Theseprovisions, however, could also have the effect of discouraging others frommaking tender offers for our shares. As a consequence, they also may inhibitfluctuations in the market price of our shares that could result from actual orrumored takeover attempts. Such provisions also may have the effect ofpreventing changes in our management. We are permitted to issue shares of ourpreferred stock without stockholder approval upon such terms as our Board ofDirectors determines. Therefore, the rights of the holders of our common stockare subject to, and may be adversely affected by, the rights of the holders ofour preferred stock that may be issued in the future. In addition, the issuanceof preferred stock could have a dilutive effect on the holdings of our currentstockholders.

In November 1996, weadopted a stockholder rights plan and distributed a dividend for each share ofcommon stock. This dividend took the form of a right, which entitles theholders to purchase one one-hundredth of a share of a new series of juniorparticipating preferred stock, Series B. The stockholder rights plan wasamended and restated in September 2001, and we intend to replace this planwith a similar rights plan in 2006. In certain events after the rights becomeexercisable they will entitle each holder, other than the acquirer, topurchase, at the rights’ then current exercise price, a number of shares ofcommon stock having market value of twice the right’s exercise price or anumber of the acquiring company’s common shares having a market value at thetime of twice the rights’ exercise price. The adoption of the rights plan makesit more difficult for a third party to acquire control of us without the approvalof our Board of Directors. We are also subject to provisions of Delaware lawthat prohibit us from engaging in any business combination with any “interestedstockholder,” meaning generally that a stockholder who beneficially owns morethan 15% of our stock cannot acquire us for a period of three years from thedate this person became an interested stockholder, unless various conditionsare met, such as approval of the transaction by our Board of Directors.

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**Item 11**Executive Compensation

**SummaryCompensation Table**

The followingtable shows for the years ended December 28, 2005, December 29, 2004,and December 31, 2003, compensation awarded or paid to, or earned by ourChief Executive Officer, and our four other most highly compensated executiveofficers at December 28, 2005 (the “Named Executive Officers”):

|                                                | ** ** | ** ** | ** ** | ** **                   | ** ** | ** **     | ** ** | **Securities**     | ** ** | ** **     | ** ** |
|------------------------------------------------|------------|------------|------------|------------------------------|------------|----------------|------------|--------------------|------------|----------------|------------|
| ** **                                     | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | **Underlying** | ** ** | **All Other** | ** ** |
| **Name and Principal Position** | ** ** | ** ** | ** ** | **Year**                     | ** ** | **Salary**     | ** ** | **Bonus**          | ** ** | **Options(#)** | ** ** | **Compensation(1)** | ** ** |
| Leonard  P. Shaykin                            |       | 2005       |       | $                            | 370,350    |           | $          | 100,000            |       |           | —     |   |   |   | $ | 31,939 |   |   |
| Chairman  of the Board, Chief Executive        |       | 2004       |       | 354,231                      |       | 140,000        |       |               | —     |           |       |   | 35,841 |   |   |
| Officer                                        |       | 2003       |       | 270,000                      |       | 417,000        |       |               | 25,000     |           |       |   | 20,981 |   |   |
| Martin M. Batt                                 |       | 2005       |       | 270,000                      |       | 20,000         |       |               | —     |           |       |   | 31,939 |   |   |
| Senior Vice President, Chief Operating         |       | 2004       |       | 225,981                      |       | 120,000        |       |               | 8,000      |           |       |   | 35,841 |   |   |
| Officer                                        |       | 2003       |       | 190,000                      |       | 225,000        |       |               | 6,000      |           |       |   | 16,099 |   |   |
| Patricia  A. Pilia(2)                          |       | 2005       |       | 235,000                      |       | —         |       |               | —     |           |       |   | 31,939 |   |   |
| Executive  Vice President, Secretary           |       | 2004       |       | 238,835                      |       | 60,000         |       |               | 6,000      |           |       |   | 35,841 |   |   |
|                                                |       | 2003       |       | 214,412                      |       | 150,000        |       |               | 11,000     |           |       |   | 20,981 |   |   |
| Gordon Link(3)                                 |       | 2005       |       | 240,000                      |       | 16,667         |       |               | —     |           |       |   | 31,939 |   |   |
| Senior Vice President, Chief Financial         |       | 2004       |       | 239,835                      |       | 100,000        |       |               | 8,000      |           |       |   | 35,841 |   |   |
| Officer                                        |       | 2003       |       | 247,154                      |       | 250,000        |       |               | 11,000     |           |       |   | 20,981 |   |   |
| Kai P.  Larson                                 |       | 2005       |       | 220,400                      |       | 11,667         |       |               | —     |           |       |   | 31,939 |   |   |
| Vice  President, General Counsel               |       | 2004       |       | 213,612                      |       | 75,000         |       |               | 6,000      |           |       |   | 35,841 |   |   |
|                                                |       | 2003       |       | 180,000                      |       | 250,000        |       |               | 11,000     |           |       |   | 18,883 |   |   |
|                                                |            |            |            |                              |            |                |            |                    |            |                |            |  |  |  |  |  |  |  |  |  |

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(1)          Represents our Employee Stock OwnershipPlan (“ESOP”) contributions of common stock (valued at fair market value as ofthe date of the contribution) for each of the Named Executive Officers.

(2)          In 2003, annual compensation for Dr. Piliaincluded $4,412 of accrued vacation paid in cash in connection with a change inthe Company’s vacation policy.

(3)          In 2003, annual compensation for Mr. Linkincluded $37,154 of accrued vacation paid in cash in connection with a changein the Company’s vacation policy.

As permitted by rules promulgatedby the SEC, no amounts are shown with respect to certain “perquisites” wherethe aggregate amount of such perquisites received by a Named Executive Officerdoes not exceed the lesser of $50,000 or 10% of his or her salary plus bonusfor the applicable year.

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**Option Grants in Last Fiscal Year**

Therehave been no grants of options to purchase common stock to the Named ExecutiveOfficers for the year ended December 28, 2005 as the following tableillustrates:

| ** **          | ** ** | **Number of  Securities  Underlying  Options  Granted** | ** ** | **% of Total  Options  Granted to  Employees in** | ** ** | **Exercise or  Base Price Per  Share** | ** ** | **Expiration** | ** ** | **Potential Realizable  Value at Assumed  Annual Rates of  Stock Price   Appreciation for  Option Terms ($)** | ** ** |
|---------------------|------------|--------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-------------------------------------------------------|------------|----------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Name**            | ** ** | ** **                                                   | ** ** | **(#)**                                                               | ** ** | **Year**                                              | ** ** | **($/sh)**     | ** ** | **Date**                                                                                                                                                        | ** ** | **    5%    ** | ** ** | **    10%    ** | ** ** |
| Leonard P.  Shaykin |       |                                                         | —     |                                                                  |       |                                                  | —     | %              |       |                                                                                                                                                            | $          | — |   |   |   | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Martin M. Batt      |       |                                                         | —     |                                                                  |       |                                                  | —     | %              |       |                                                                                                                                                            | $          | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Patricia A. Pilia   |       |                                                         | —     |                                                                  |       |                                                  | —     | %              |       |                                                                                                                                                            | $          | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Gordon Link         |       |                                                         | —     |                                                                  |       |                                                  | —     | %              |       |                                                                                                                                                            | $          | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Kai P. Larson       |       |                                                         | —     |                                                                  |       |                                                  | —     | %              |       |                                                                                                                                                            | $          | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                     |            |                                                              |            |                                                                       |            |                                                       |            |                |            |                                                                                                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**AggregatedOptions Exercises in Last Fiscal Year and Fiscal Year-End Option Values**

The following tablereports information, as to each of the Named Executive Officers, concerning thenumber of shares subject to both exercisable and unexercisable stock optionsheld as of December 28, 2005. Also reported are values for “in-the-money”options that represent the positive spread between the respective exerciseprices of outstanding stock options and the fair market value of our commonstock as of December 28, 2005:

| ** **         | ** ** | **Shares**   | ** ** | ** **      | ** ** | **Number of Securities**        | ** ** | **Value of Unexercised** | ** ** |
|--------------------|------------|--------------|------------|-----------------|------------|-------------------------------------------|------------|------------------------------------|------------|
| ** **         | ** ** | **Acquired** | ** ** | **Value**       | ** ** | **Underlying Unexercised**           | ** ** | **in-the-Money Options**      | ** ** |
| ** **         | ** ** | **on**       | ** ** | **Realized**    | ** ** | **Options at Year End(#)** | ** ** | **at Year End($)**       | ** ** |
| **Name**           | ** ** | ** **   | ** ** | **Exercise(#)** | ** ** | **($)(1)**                                | ** ** | **Exercisable**                    | ** ** | **Unexercisable** | ** ** | **Exercisable** | ** ** | **Unexercisable** | ** ** |
| Leonard P. Shaykin |       |         | —     |            |       |                                      | —     |                               |       |   | 74,587 |   |   |   | 47,913 |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Martin M. Batt     |       |         | —     |            |       |                                      | —     |                               |       |   | 7,625 |   |   |   | 13,874 |   |   |   | — |   |   |   | — |   |   |
| Patricia A. Pilia  |       |         | —     |            |       |                                      | —     |                               |       |   | 100,468 |   |   |   | 29,999 |   |   |   | — |   |   |   | — |   |   |
| Gordon Link        |       |         | —     |            |       |                                      | —     |                               |       |   | 35,835 |   |   |   | 36,164 |   |   |   | — |   |   |   | — |   |   |
| Kai P. Larson      |       |         | —     |            |       |                                      | —     |                               |       |   | 13,418 |   |   |   | 29,999 |   |   |   | — |   |   |   | — |   |   |
|                    |            |              |            |                 |            |                                           |            |                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Calculatedon the basis of the closing price per share of our common stock on the date ofexercise on the Nasdaq Capital Market, less the exercise price.

**Compensation of Directors**

Under the 2004 Director’s Plan, options to purchase 1,000 shares of commonstock are granted automatically to each non-employee director who (i) iselected or reelected as a director of the Company at an annual meeting ofstockholders, (ii) continues service as a director of the Company after anannual meeting of stockholders at which the director is not subject to re-election,or (iii) is otherwise appointed as a director of the Company in accordancewith the Company’s bylaws, in each case on the business day date next followingeach such annual meeting or appointment. In addition, under the 2004 Director’sPlan, options to purchase 1,000 shares of common stock are grantedautomatically to each non-employee director who is appointed or continues toserve after an annual meeting of stockholders as chair of the Audit,Compensation, Nominating and Corporate Governance and Research and DevelopmentCommittees of the Board of Directors on the business day next succeeding eachsuch appointment or continuation of service, as the case may be. In addition,options to purchase 750 shares of common stock are automatically granted toeach non-employee who is appointed to the Research and Development Committee(the “RDC”) upon initial appointment to the committee, and options to purchase300 shares of common stock are automatically granted to each non-employeedirector who continues services as a RDC 

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member after an annual meeting ofstockholders, in each case on the business day next succeeding such appointmentor continuation of service, as the case may be. Non-employee directors also maybe granted options to purchase shares of common stock in the discretion of theBoard of Directors. All such options are exercisable at an exercise price equalto the fair market value of the common stock on the date of grant and aresubject to a vesting schedule.

Non-employee directors are paid $3,000for each regular meeting and $500 for each special meeting attended. Inaddition, directors serving on committees of the Board are paid for attendanceat each committee meeting as follows: $1,000 for the committee chair and $500for non-chair committee members. The RDC co-chairs receive $40,000 per year. Directorsare also reimbursed for their cost incurred in attending Board and committeemeetings. In April 2004, the Board added an annual retainer of $10,000,payable quarterly, for all non-employee directors, and an additional annualretainer of $10,000 for the chair of the Audit Committee.

**EmploymentAgreements and Termination of Employment Agreements**

Effective October 1, 2001, we entered into an employment agreement(the “Shaykin Employment Agreement”), with Leonard Shaykin. In addition,effective October 1, 2001, we entered into employment agreements(collectively, the “Employment Agreements”) with Patricia Pilia, Gordon Link,and Kai Larson (collectively, the “Executive Officers”). The Shaykin EmploymentAgreement and the other Employment Agreements are referred to together as the “ExecutiveAgreements,” and Mr. Shaykin and the Executive Officers are referred totogether as the “Executives.”

The Shaykin Employment Agreement provides for aninitial three year employment term that expired on October 1, 2004 and isautomatically renewed on each anniversary of the date of the agreement forsuccessive one-year terms unless either party terminates. No such notice oftermination has been given by or to Mr. Shaykin.

The Shaykin Employment Agreement provides for aninitial annual base salary for Mr. Shaykin of $270,000. Since enteringinto the agreement, Mr. Shaykin’s base salary has been raised to $370,000.Under the Shaykin Employment Agreement, in the event a change of control occursor is anticipated (including the sale of substantially all of the assets of theCompany) and Mr. Shaykin’s employment is terminated by the Company withoutcause (as defined in the Shaykin Employment Agreement) or by Mr. Shaykinfor good reason (as defined in the Shaykin Employment Agreement), Mr. Shaykinis to be granted (i) a payment equal to the greater of 100% of his prioryear’s bonus or 75% of his base annual salary, (ii) a payment equal to300% of his base annual salary and (iii) a payment equal to accrued,unpaid salary and bonus through the date of termination. As defined in theShaykin Employment Agreement, “good reason” includes, along with other events,the Board of Directors’ failure to grant, in each calendar year after a changein control occurs or is anticipated, a minimum annual bonus at least equal tothe average of the three years’ prior annual bonuses, if such a failure is inanticipation of or following a change in control. The sale of our paclitaxelbusiness to Mayne Pharma may be deemed to have been a sale of substantially allour assets. In connection with the sale, Mr. Shaykin advised the Companythat he has waived any requirement that a minimum annual bonus be paid to himinsofar as the sale of the paclitaxel business could be construed to constitutea change of control pursuant to the Shaykin Employment agreement.

In addition, if Mr. Shaykin’s employment isterminated by the Company without cause or by Mr. Shaykin for good reason,he would be entitled to receive, subject to certain limitations, (i) alump sum of accrued, unpaid salary and bonus, if any, through the terminationdate, (ii) health and welfare benefits as in effect immediately prior totermination for a maximum of 18 months following termination, (iii) fullvesting for all outstanding Company stock options owned by Mr. Shaykinthat were granted prior to October 1, 2001, and (iv) a bonus paymentin an amount equal to a percentage of his base salary, according 

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to the terms set forthabove. The forgoing benefits would be limited by the amount deductible forincome tax purposes under the Internal Revenue Code of 1986, as amended.

Each of the Employment Agreements provides for aninitial two-year employment term that expired on October 1, 2003, and isautomatically renewed on each anniversary of the date of the agreement for anadditional one-year term unless either party gives notice of termination to theother party at least 180 days prior to the commencement of any additionalone-year term. No such notice of termination has been given by or to any of theExecutive Officers. The Employment Agreements provide for initial annual basesalaries for Dr. Pilia, Mr. Link and Mr. Larson of $210,000,$210,000 and $180,000, respectively. Currently, their base salaries have beenraised to $235,000, $240,000 and $220,000, respectively. Under the EmploymentAgreements, in the event a change of control occurs or is anticipated(including the sale of substantially all of the assets of the Company) and anExecutive Officer’s employment is terminated by the Company without cause or bythe Executive Officer for good reason, such Executive Officer is to be granted (i) apayment equal to the greater of 100% of his or her prior year’s bonus or 75% ofhis or her base annual salary and (ii) a payment equal to 200% of theExecutive Officer’s base annual salary. As defined in these agreements, “goodreason” includes, along with other events, the Board of Directors’ failure togrant, in each calendar year after a change in control occurs or isanticipated, a minimum annual bonus at least equal to the average of the threeyears’ prior annual bonuses, if such a failure is in anticipation of orfollowing a change in control. The sale of our paclitaxel business to MaynePharma may be deemed to have been a sale of substantially all of our assets. Inconnection with the sale, each of the Executive Officers advised the Companythat he or she has waived any requirement that a minimum annual bonus be paidhim or her insofar as the sale of the paclitaxel business could be construed toconstitute a change of control pursuant to his or her Employment Agreement.

In addition, if the Executive Officer’s employment isterminated by the Company without cause or by the Executive Officer for goodreason, each Executive Officer would be entitled to receive, subject to certainlimitations, (i) a lump sum of accrued, unpaid salary and bonus, if any,through the termination date, (ii) health and welfare benefits as ineffect immediately prior to termination for a maximum of 18 months followingtermination, (iii) full vesting for all outstanding Company stock optionsowned by the Executive Officer that were granted prior to October 1, 2001,and (iv) a bonus payment in an amount equal to a percentage of the individualExecutive Officer’s base salary, according to the terms set forth above foreach named individual. The forgoing benefits would be limited by the amountdeductible for income tax purposes under the Internal Revenue Code of 1986, asamended.

The Company entered into an employment agreement withMartin Batt (the “Batt Employment Agreement”) effective October 28, 2005. Underthe agreement, Mr. Batt will be employed as the Company’s Senior VicePresident and Chief Operating Officer and will perform executive andadministrative services for a base annual salary of $270,000, and the Companymay not terminate or alter Mr. Batt’s employment status without Cause insuch a way that he is no longer eligible to receive Company benefits prior to April 15,2006. If Mr. Batt is terminated without Cause or resigns for good reason,upon compliance with certain conditions, the Company is obligated to make thefollowing payments to Mr. Batt 195 days after such termination (or suchlonger period as may be required by law): (i) 100% of Mr. Batt’s theneffective base salary; (ii) a lump sum amount in cash equal to any accruedbut unpaid salary through the date of termination and unpaid salary withrespect to any vacation days accrued but not taken as of termination; and (iii) reimbursementof Mr. Batt’s COBRA payments.

Under the Employment Agreements, the ShaykinEmployment Agreement and the Batt Employment Agreement, Executives may receivean annual bonus in such amount, if any, as the Compensation Committee (or ifthe Board has no Compensation Committee at the time, then the Board), in itsdiscretion, may award to Executives, based upon the Executive’s and the Company’sperformance during each year of the Employment Period.

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The Executive Agreementsalso contain provisions (i) prohibiting disclosure of confidentialinformation, (ii) granting to the Company rights to intellectual propertydeveloped by the Executives that relate to its business or are developed in thecourse of employment with Tapestry, and (iii) prohibiting competition withTapestry under certain circumstances during and for five years after theExecutive’s employment.

**CompensationCommittee Interlocks and Insider Participation**

During the year ended December 28, 2005, our compensation committeeconsisted of Dr. Robert Pollack (chairman), Dr. Stephen Carter,Elliot Maza, and George Gould, Esq. None of our Executive Officers serveas members of the Board of Directors or compensation committee of any entitythat has one or more Executive Officers who serve on the Board of Directors orcompensation committee.

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**Part III**

**Item 12Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters**

**EquityCompensation Plan Information**

The followingtable sets forth certain information as of December 28, 2005 concerningour common stock that may be issued upon the exercise of options or thepurchases of restricted stock under all of our equity compensation plansapproved by stockholders and equity compensation plans not approved bystockholders (all share and per share amounts for all periods presented havebeen restated to reflect the one-for-ten reverse stock split that was effectiveFebruary 6, 2006):

| **Plan Category**                                       | ** ** | ** ** | ** ** | **Number of securities  to be issued  upon exercise  of outstanding  options, warrants  and rights** | ** ** | **Weighted-average  exercise price  of outstanding options,  warrants and rights** | ** ** | **Number of securities  remaining available for  future issuances under  equity compensation plans  (excluding securities  reflected in column (a))** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation  plans approved by security holders:     |       |       |       |                                                                                                                                         |       |                                                                                                        |       |                                                                                                                                                                                                              |       |   |   |   |   |
| 2004 Equity  Incentive Plan                                  |       |       | 99,299     |                                                                                                                                         |       |                                                                                                        | $          | 9.40                                                                                                                                                                                                              |       |   |   | 84,450 |   |   |
| 2004 Non-Employee  Directors’ Stock Option Plan         |       |       | 15,350     |                                                                                                                                         |       |                                                                                                        | $          | 6.90                                                                                                                                                                                                              |       |   |   | 13,300 |   |   |
| 1994 Long-Term  Performance Incentive Plan                   |       |       | 517,541    |                                                                                                                                         |       |                                                                                                        | $          | 42.70                                                                                                                                                                                                             |       |   |   | 78,801 |   |   |
| Total Approved  Plans                                        |       |       | 632,190    |                                                                                                                                         |       |                                                                                                        | $          | 36.60                                                                                                                                                                                                             |       |   |   | 176,551 |   |   |
| Equity  compensation plans not approved by security holders: |       |       |       |                                                                                                                                         |       |                                                                                                        |       |                                                                                                                                                                                                              |       |   |   |   |   |
| Non-plan                                                     |       |       | 50         |                                                                                                                                         |       |                                                                                                        | $          | 95.00                                                                                                                                                                                                             |       |   |   | — |   |   |
| 1998 Stock Option  Plan                                      |       |       | 92,562     |                                                                                                                                         |       |                                                                                                        | $          | 37.30                                                                                                                                                                                                             |       |   |   | 39,846 |   |   |
| Total Unapproved  Plans                                      |       |       | 92,612     |                                                                                                                                         |       |                                                                                                        | $          | 37.30                                                                                                                                                                                                             |       |   |   | 39,846 |   |   |
| Total Plans                                                  |       |       | 724,802    |                                                                                                                                         |       |                                                                                                        | $          | 36.70                                                                                                                                                                                                             |       |   |   | 216,397 |   |   |

 

**Summary of EquityCompensation Plans Not Approved by Stockholders**

*Non-plan StockOptions*

In January 1994, theCompany granted to four outside directors 2,700 non-plan options to purchaseshares of common stock which were immediately exercisable at a price of $24.00and which expired in January 2004. In September 1997, the Companygranted to its employees 2,007 non-plan options to purchase shares of commonstock which vested over two years and which expire in September 2007. Asof December 28, 2005, 50 of these options remained outstanding.

*The 1998 StockIncentive Plan*

In 1998, the Board ofDirectors adopted the 1998 Stock Incentive Plan (formerly known as the “1998Stock Option Plan”) (the “1998 Plan”) to provide awards of stock options, stockappreciation rights, restricted stock, performance grants, or any other type ofaward deemed by the Board of Directors or its designated committee to employeesand other individuals who perform services for the Company. The 1998 Planprovides for option grants designated as nonqualified stock options orincentive stock options. Originally, 12,500 shares were authorized for issuanceunder the 1998 Plan. In 1999, 2000, 2001 and 2002 the Board of Directorsapproved increases in the number of authorized shares. There are currently192,500 shares authorized for issuance under the 1998 Plan. Under the terms ofthe 1998 Plan, stock options 

21

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cannotbe granted to persons who are Tapestry officers subject to Section 16 ofthe Securities Exchange Act of 1934, as amended, (unless granted to officersnot previously employed by Tapestry, as an inducement essential to suchofficers entering into employment contracts with the Company) or to Tapestrydirectors. Options granted under the 1998 Plan typically vest 25% after eachanniversary date of the grant, and expire ten years from the date of grant. Theexercise price for stock options issued under the 1998 Plan is equal to thefair market value of the Company’s common stock on the date of grant.

**SecurityOwnership by Certain Persons**

Thefollowing table sets forth certain information as of February 6, 2006regarding the ownership of our common stock by (1) persons believed by usto be the beneficial owners of more than five percent of our outstanding commonstock; (2) by each director and by each executive officer named in theSummary Compensation Table above; and (3) by all executive officers anddirectors as a group. Except where otherwise indicated, the address for each ofthe persons listed in the table is: Tapestry Pharmaceuticals, Inc., 4840 Pearl East Circle, Suite 300W,Boulder, CO 80301.

| **Name of Director, Officer or  Beneficial Owner(1)** | ** ** | ** ** | ** ** | **Number of  Shares of  Common Stock** | ** ** | **Percent of  Class** | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|-------------------------------------------------------|------------|----------------------------|------------|
| Leonard P.  Shaykin                                                            |       |       | 159,398    | (2)                                                   |       |                       | 4.57       | % |   |
| Stephen K. Carter,  M.D.                                                       |       |       | 3,050      | (3)                                                   |       |                       |       | * |   |
| George M. Gould                                                                |       |       | 4,000      | (4)                                                   |       |                       |       | * |   |
| Arthur H.  Hayes, Jr.                                                     |       |       | 11,000     | (5)                                                   |       |                       |       | * |   |
| Elliot M. Maza                                                                 |       |       | 2,000      | (6)                                                   |       |                       |       | * |   |
| The Honorable  Richard N. Perle                                                |       |       | 13,300     | (7)                                                   |       |                       |       | * |   |
| Patricia A. Pilia                                                              |       |       | 219,783    | (8)                                                   |       |                       | 6.31       | % |   |
| Robert E. Pollack                                                              |       |       | 10,260     | (9)                                                   |       |                       |       | * |   |
| Martin M. Batt                                                                 |       |       | 19,917     | (10)                                                  |       |                       |       | * |   |
| Kai P. Larson                                                                  |       |       | 27,442     | (11)                                                  |       |                       |       | * |   |
| Gordon Link                                                                    |       |       | 56,846     | (12)                                                  |       |                       | 1.63       | % |   |
| All Directors and  Executive Officers as a Group (12 persons)        |       |       | 389,753    | (13)                                                  |       |                       | 11.18      | % |   |
| Mayne Pharma (USA) Inc.                                                        |       |       | 200,000    | (14)                                                  |       |                       | 5.74       | % |   |

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             *  Less than 1%

   (1)       Unless otherwise noted, we believe that allpersons named in the table have sole voting and investment power with respectto all shares of common stock beneficially owned by them. Percentage ofbeneficial ownership is based on 3,485,434 shares of common stock outstandingas of February 6, 2006, as adjusted as required by the rules promulgatedby the SEC. Beneficial ownership is determined in accordance with the rules ofthe SEC and generally includes voting or investment power with respect tosecurities. Shares of stock subject to options or warrants currentlyexercisable or exercisable within 60 days of February 6, 2006 are deemedoutstanding for computing the percentage of the person or entity holding suchsecurities, and for purposes of computing the percentage of each other personor entity.

   (2)       Includes 74,586 shares of common stock issuableupon exercise of options granted to Mr. Shaykin under the 1994 Plan and14,848 shares of common stock beneficially owned through our ESOP plan as of February 6,2006. This does not include 7,500 shares held in a private foundation for whichMr. Shaykin exercises voting control. Mr. Shaykin disclaimsbeneficial ownership of such shares.

   (3)       Includes 3,050 shares of common stock issuableupon exercise of options granted to Dr. Carter under the 1994 Plan.

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   (4)       Includes 3,000 shares of common stock issuableupon exercise of options granted to Mr. Gould under the 1994 Plan and1,000 shares of common stock issuable upon exercise of options granted underthe 2004 Non-Employee Director Plan.

   (5)       Includes 11,000 shares of common stock issuableupon exercise of options granted to Dr. Hayes under the 1994 Plan.

   (6)       Includes 2,000 shares of common stock issuableupon exercise of options granted to Mr. Maza under the 2004 Non-EmployeeDirector Plan.

   (7)       Includes 11,000 shares of common stock issuableupon exercise of options granted to Mr. Perle under the 1994 Plan and1,000 shares of common stock issuable upon exercise of options granted underthe 2004 Non-Employee Director Plan.

   (8)       Includes 100,468 shares of common stock issuableupon exercise of 1994 Plan options; 23,539 shares of common stock beneficiallyowned through our ESOP plan as of February 6, 2006; and 5,335 shares ofcommon stock gifted by Dr. Pilia to relatives and certain other persons,which Dr. Pilia may be deemed to beneficially own by virtue of holdingpowers of attorney to vote and take certain other actions with respect to suchshares. Dr. Pilia disclaims beneficial ownership of the gifted shares ofcommon stock over which Dr. Pilia holds powers of attorney.

   (9)       Includes 6,400 shares of common stock issuableupon exercise of options granted to Dr. Pollack under the 1994 Plan and3,750 shares of common stock issuable upon exercise of options granted underthe 2004 Non-Employee Director Plan.

(10)   Includes 7,625 shares of common stock issuable uponthe exercise of options granted to Mr. Batt under the 1994 Plan and 10,279shares of common stock beneficially owned through our ESOP plan as of February 6,2006.

(11)   Includes 13,417 shares of common stock issuable uponthe exercise of options granted to Mr. Larson under the 1994 Plan and14,024 shares beneficially owned through our ESOP plan as of February 6,2006.

(12)   Includes 35,835 shares of common stock issuable uponthe exercise of options granted to Mr. Link under the 1994 Plan and 14,857shares of common stock beneficially owned through our ESOP plan as of February 6,2006.

(13)   Includes an aggregate of 218,092 shares of commonstock issuable upon exercise of outstanding stock options held by such persons.

(14)   Information in the table as tobeneficial ownership of common stock by Mayne Pharma (USA) Inc. is based uponfilings on Schedule 13G made by Mayne Pharma (USA) Inc. on October 9, 2003.Mayne Pharma (USA) Inc.’s address is Mack Cali Centre II, 650 From Road, SecondFloor, Paramus, NJ 07652.

**Item 13**Certain Relationships and Related Transactions

Arthur H. Hayes, Jr., M.D., has provided certain consulting servicesto us. During the first half of 2005, we were parties with MediScienceAssociates to a consulting agreement (the “MediScience Agreement”) whereby Dr. Hayes,who is President and Chief Operating Officer of MediScience, may have providedus with consulting services in a variety of areas, including clinical researchplanning, strategic positioning and regulatory guidance. We were obligated tomake quarterly payments to MediScience under the MediScience Agreement in theamount of $12,500. Dr. Hayes was paid $50,000 under this agreement 

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during 2004. During the second quarter of2005 we terminated the consulting agreement. Dr. Hayes was paid $25,000 in2005 under the agreement.

Patricia Pilia, Ph.D. holds an option entitling her topurchase up to 10% of the outstanding stock of Regulus PharmaceuticalConsulting (“Regulus”), a firm thatprovides regulatory consulting services to the Company.  The option is subject to certain vestingrequirements.  In compensation forconsulting services provided to the Company, the Company paid Regulus $162,364during 2005 and $182,043 during 2004. Dr. Pilia has also made a loan to Regulus and has guaranteed a loanto Regulus made by a bank.  

The Company has entered intoindemnification agreements with all members of the Board of Directors and withcertain officers.  Such agreementsprovide, among other things, that the Company will indemnify such officer ordirector, under the circumstances and to the extent provided for therein, forexpenses, damages, judgments, fines and settlements he or she may be requiredto pay in actions or proceedings which he or she is or may be made a party byreason of his or her position as a director, officer or other agent of theCompany, and otherwise to the fullest extent permitted under Delaware law andthe Company’s Bylaws.

**Part IV**

**Item 15Exhibits and Financial Statement Schedules**

**Financial Statements**

The Financial Statement Index is on Page F-1.

**Financial Statement Schedules**

All schedules are omitted because theyare not applicable or not required or because the information is included inthe consolidated financial statements or the notes thereto.

**Exhibits**
| Exhibit   Number | ** ** | **Description of Exhibit**                                                                                                                        | ** ** |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|   3.1  |       | Second Amended and Restated Certificate of  Incorporation of the Company, as amended February 3, 2006(1)                                               |       |
|   3.2  |       | Bylaws of the Company as amended through  August 25, 2003(2)                                                                                           |       |
|   4.1  |       | Common Stock Certificate(1)                                                                                                                                 |       |
|   4.2  |       | Amended and Restated Rights Agreement dated  September 25, 2001 between the Company and American Stock Transfer and  Trust Company, as Rights Agent(3) |       |
|   4.3  |       | The Certificate of Incorporation and Bylaws of the  Company are included as Exhibits 3.1 - 3.2                                                              |       |
|   4.4  |       | Promissory Note dated February 18, 2005 payable  by the Company to TL Ventures V L.P. in the amount of $4,590,600.17(4)                                |       |
|   4.5  |       | Promissory Note dated February 18, 2005 payable  by the Company to TL Ventures V Interfund L.P. in the amount of $79,399.53(4)                         |       |
| 10.1**           |       | Company’s Amended and Restated 1994 Long-Term  Performance Incentive Plan, as amended through March 4, 2002(2)                                    |       |
| 10.2             |       | Company’s Amended and Restated 1998 Stock Incentive  Plan, as amended through October 15, 2002(2)                                                 |       |
| 10.3**           |       | Company’s 2004 Equity Incentive Plan as amended and  restated effective June 10, 2005(11)                                                         |       |
| 10.4**           |       | Company’s 2004 Non Employee Director’s Stock Option  Plan(5)                                                                                      |       |
| 10.5**           |       | Employment Agreement effective October 1, 2001  between the Company and Leonard Shaykin(6)                                                             |       |

24

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| 10.6**  |   | Employment Agreement effective October 1, 2001  between the Company and Patricia Pilia(6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 10.7**  |   | Employment Agreement effective October 1, 2001  between the Company and Gordon Link(6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 10.8**  |   | Employment Agreement effective October 1, 2001  between the Company and Kai Larson(6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
| 10.9**  |   | Employment Agreement effective October 28, 2005  between the Company and Martin Batt(11)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
| 10.10** |   | Form of waiver agreement signed by Patricia A.  Pilia, Gordon Link and Kai P. Larson on September 10, 2003 and by  Leonard P. Shaykin on September 12, 2003 (together with Schedule  required by Instruction 2 to Item 601 Regulation S-K)(2)                                                                                                                                                                                                                                                                                                                                                               |   |
| 10.11   |   | Form of Director and Officer Indemnification  Agreement signed by the Company and each of Martin M. Batt, George  Gould, Esq., Arthur Hull Hayes, Jr., M.D., Kai Larson, Gordon H.  Link, Jr., Patricia A. Pilia, Ph.D., The Honorable Richard N. Perle, Robert  E. Pollack, Ph.D., and Leonard P. Shaykin on the dates set forth on the  Schedule previously filed and incorporated herein by reference, which  Schedule is amended to include the Director and Officer Indemnification  Agreement signed by Stephen Carter, M.D. on March 7, 2004 and Elliot  Maza on December 14, 2004(7) |   |
| 10.12** |   | Form of Stock Option Agreement for certain  options granted under the Company’s 2004 Equity Incentive Plan(8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| 10.13** |   | Form of Stock Option Agreement for options  granted under the Company’s 2004 Non-Employee Directors’ Stock Option Plan(8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
| 10.14   |   | Settlement Agreement and Mutual General Release  dated February 18, 2005 between the Company, on one hand, and TL  Ventures V L.P. and TL Ventures Interfund L.P., on the other hand(4)                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 10.15** |   | Salaries and Bonuses of Named Executive Officers*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
| 10.16** |   | Compensation of Directors(9)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 21.1    |   | List of Subsidiaries(10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
| 23.1    |   | Consent of Grant Thornton LLP(11)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
| 23.2    |   | Consent of Ernst & Young LLP(11)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
| 24.1    |   | Power of Attorney(11)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
| 31.1    |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a)/15d-14(a) under the Securities Exchange  Act of 1934, as amended*                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 31.2    |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a)/15d-14(a) under the Securities Exchange  Act of 1934, as amended*                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 32.1#   |   | Certification of Chief Executive Officer pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.  Section 1350)(11)                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 32.2#   |   | Certification of  Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 (18 U.S.C. Section 1350)(11)                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |

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             *       Filed herewith

      **       A management compensationplan

          #       This certification shallnot be deemed “filed” for purposes of Section 18 of the Exchange Act, orotherwise subject to liability pursuant to that section. Such certificationshall not be deemed to be incorporated by reference into any filing under theSecurities Act or the Exchange Act, except to the extent that the Companyspecifically incorporates it by reference

   (1)  Incorporated herein by reference to the Company’sCurrent Report on Form 8-K dated February 6, 2006 (File No. 0-24320)

   (2)  Incorporated herein by reference to theCompany’s Annual Report on Form 10-K for the year ended December 31,2003 (File No. 0-24320)

   (3)  Incorporated herein by reference to the RegistrationStatement on Form 8-A12G/A of the Company, filed with the Commissionon October 23, 2001 (File No. 0-24320)

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(4)   Incorporatedherein by reference to the Company’s Annual Report on Form 10-K forthe year ended December 29, 2004 (File No. 0-24320)

(5)   Incorporatedherein by reference to the Company’s Quarterly Report on Form 10-Qfor the period ending June 30, 2004 (File No. 0-24320)

(6)   Incorporatedherein by reference to the Company’s Annual Report on Form 10-K forthe year ended December 31, 2001 (File No. 0-24320)

(7)   Incorporatedherein by reference to the Company’s Annual Report on Form 10-K/Afor the year ended December 31, 2002, filed on August 8, 2003 (File No. 0-24320)

(8)   Incorporatedherein by reference to the Company’s Current Report on Form 8-Kdated December 14, 2004 (File No. 0-24320)

(9)   Incorporatedherein by reference to the Company’s Quarterly Report on Form 10-Qfor the period ending March 30, 2005 (File No. 0-24320)

(10) Incorporatedherein by reference to the Company’s Annual Report on Form 10-K forthe year ended December 31, 2001 (File No. 0-24320)

(11) Previouslyincluded as an exhibit to the Company's Annual Report on Form 10-K for theyear ended December 28, 2005 (File No. 0-24320) filed onFebruary 23, 2006

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**Signatures**

Pursuantto the requirements of Section 13 of the Securities Exchange Act of 1934,the registrant has duly caused this report on Form 10-K/A to besigned on its behalf by the undersigned, thereunto duly authorized.
| TAPESTRY PHARMACEUTICALS, INC. |   |                      |
|-------------------------------------|--------|---------------------------|
|                                |   |                      |   |   |
| By:                                 |   | /s/ GORDON  LINK          |   | March 31, 2006 |
|                                |   | Gordon Link               |   |   |
| * *                            |   | *Senior Vice President,*  |   |   |
| * *                            |   | *Chief Financial Officer* |   |   |

 

 

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**INDEX TO EXHIBITS**

|   3.1  |   | Second  Amended and Restated Certificate of Incorporation of the Company, as amended  February 3,2006(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   3.2  |   | Bylaws  of the Company as amended through August 25, 2003(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|   4.1  |   | Common  Stock Certificate(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|   4.2  |   | Amended  and Restated Rights Agreement dated September 25, 2001 between the  Company and American Stock Transfer and Trust Company, as Rights Agent(3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|   4.3  |   | The  Certificate of Incorporation and Bylaws of the Company are included as  Exhibits 3.1 - 3.2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
|   4.4. |   | Promissory  Note dated February 18, 2005 payable by the Company to TL Ventures V  L.P. in the amount of $4,590,600.17(4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
|   4.5  |   | Promissory  Note dated February 18, 2005 payable by the Company to TL Ventures V  Interfund L.P. in the amount of $79,399.53(4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
| 10.1**      |   | Company’s  Amended and Restated 1994 Long-Term Performance Incentive Plan, as amended  through March 4, 2002(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
| 10.2        |   | Company’s  Amended and Restated 1998 Stock Incentive Plan, as amended through  October 15, 2002(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.3**      |   | Company’s  2004 Equity Incentive Plan as amended and restated effective June 10,  2005(11)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
| 10.4**      |   | Company’s  2004 Non Employee Director’s Stock Option Plan(5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 10.5**      |   | Employment  Agreement effective October 1, 2001 between the Company and Leonard  Shaykin(6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.6**      |   | Employment  Agreement effective October 1, 2001 between the Company and Patricia  Pilia(6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
| 10.7**      |   | Employment  Agreement effective October 1, 2001 between the Company and Gordon Link(6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
| 10.8**      |   | Employment  Agreement effective October 1, 2001 between the Company and Kai Larson(6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.9**      |   | Employment  Agreement effective October 28, 2005 between the Company and Martin Batt(11)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| 10.10**     |   | Form of  waiver agreement signed by Patricia A. Pilia, Gordon Link and Kai P. Larson  on September 10, 2003 and by Leonard P. Shaykin on September 12,  2003 (together with Schedule required by Instruction 2 to Item 601 Regulation  S-K)(2)                                                                                                                                                                                                                                                                                                                                                                        |   |
| 10.11       |   | Form  of Director and Officer Indemnification Agreement signed by the Company and  each of Martin M. Batt, George Gould, Esq., Arthur Hull Hayes, Jr.,  M.D., Kai Larson, Gordon H. Link, Jr., Patricia A. Pilia,  Ph.D., The Honorable Richard N. Perle, Robert E. Pollack, Ph.D., and  Leonard P. Shaykin on the dates set forth on the Schedule previously  filed and incorporated herein by reference, which Schedule is amended to  include the Director and Officer Indemnification Agreement signed by Stephen  Carter, M.D. on March 7, 2004 and Elliot Maza on December 14, 2004(7) |   |
| 10.12**     |   | Form of  Stock Option Agreement for certain options granted under the Company’s 2004  Equity Incentive Plan(8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |
| 10.13**     |   | Form of  Stock Option Agreement for options granted under the Company’s 2004  Non-Employee Directors’ Stock Option Plan(8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
| 10.14       |   | Settlement  Agreement and Mutual General Release dated February 18, 2005 between the  Company, on one hand, and TL Ventures V L.P. and TL Ventures Interfund L.P.,  on the other hand(4)                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| 10.15**     |   | Salaries  and Bonuses of Named Executive Officers*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
| 10.16**     |   | Compensation  of Directors(9)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| 21.1        |   | List  of Subsidiaries(10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
| 23.1        |   | Consent  of Grant Thornton LLP(11)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
| 23.2        |   | Consent  of Ernst & Young LLP(11)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 24.1        |   | Power  of Attorney(11)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 31.1        |   | Certification  of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under  the Securities Exchange Act of 1934, as amended*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 31.2        |   | Certification  of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under  the Securities Exchange Act of 1934, as amended*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |

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| 32.1# |   | Certification  of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 (18 U.S.C. Section 1350)(11) |   |
|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 32.2# |   | Certification of Chief  Financial Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 (18 U.S.C. Section 1350)(11) |   |

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             *  Filed herewith

      **  A management compensation plan

          #  This certification shall not be deemed “filed” for purposes of Section 18of the Exchange Act, or otherwise subject to liability pursuant to that section.Such certification shall not be deemed to be incorporated by reference into anyfiling under the Securities Act or the Exchange Act, except to the extent thatthe Company specifically incorporates it by reference

   (1)       Incorporated herein by reference to the Company’sCurrent Report on Form 8-K dated February 6, 2006 (File No. 0-24320)

   (2)       Incorporated herein by reference to the Company’sAnnual Report on Form 10-K for the year ended December 31, 2003(File No. 0-24320)

   (3)       Incorporated herein by reference to theRegistration Statement on Form 8-A12G/A of the Company, filed withthe Commission on October 23, 2001 (File No. 0-24320)

   (4)       Incorporated herein by reference to the Company’sAnnual Report on Form 10-K for the year ended December 29, 2004(File No. 0-24320)

(5)          Incorporated herein byreference to the Company’s Quarterly Report on Form 10-Q for theperiod ending June 30, 2004 (File No. 0-24320)

   (6)       Incorporated herein by reference to the Company’sAnnual Report on Form 10-K for the year ended December 31, 2001(File No. 0-24320)

   (7)       Incorporated herein by reference to the Company’sAnnual Report on Form 10-K/A for the year ended December 31,2002, filed on August 8, 2003 (File No. 0-24320)

   (8)       Incorporated herein by reference to the Company’sCurrent Report on Form 8-K dated December 14, 2004 (File No. 0-24320)

   (9)       Incorporated herein by reference to theCompany’s Quarterly Report on Form 10-Q for the period ended March 30,2005 (File No. 0-24320)

(10) Incorporated herein by reference to the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2001 (File No. 0-24320)

(11)   Previously included as anexhibit to the Company's Annual Report on Form 10-K for the year endedDecember 28, 2005 (File No. 0-24320) filed on February 23, 2006

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