----

----

**UNITED      STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-KSB**

**December      31, 2006**

----

**DOR      BIOPHARMA, INC.**

| **DELAWARE**                                                                                    |                                                                  | **41-1505029**                                                            |
|-------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------|---------------------------------------------------------------------------|
| (State                or other jurisdiction of incorporation or organization)                   |                                                                  | (I.R.S.                Employer Identification Number)                    |
|                                                                                            |                                                                  |                                                                      |
| **1101                Brickell Avenue, Suite 701-S****Miami,                FL**                |                                                                  | **33131**                                                                 |
| (Address                of principal executive offices                                          |                                                                  | (Zip                Code)                                                 |
|                                                                                            | **(786)                425-3848**                                     |                                                                      |
|                                                                                            | (Issuer’s                telephone number, including area code) |                                                                      |
|                                                                                            |                                                                  |                                                                      |
| Securities              registered              under Section 12 (b) of the Exchange Act:  |
|                                                                                            |                                                                  |                                                                      |
|  Title of Each Class              of              Securities to be Registered         |                                                                  | Name of Each Exchange              on Which              Registered  |
|  **Common Stock, par value $.001 per                share**                                |                                                                  | **OTCBB**                                                            |
|  Securities              registered under Section 12 (g) of the Exchange Act:**None**      |

**Yes x      No o**

**o**

**Yes o      No x**

**$2,313,020**

**Yes o      No x**

----

**Table      of Contents**

| **Item**                    | **Description**                                                                                                                                                | **Page** |
|-----------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                        |                                                                                                                                                           |     |
| **Part                I**   |                                                                                                                                                           |     |
| 1.                          | Description                of Business.                                                                                                                        | 4        |
|                        | Risk                Factors.                                                                                                                                   | 28       |
| 2.                          | Description                of Property.                                                                                                                        | 37       |
| 3.                          | Legal                Proceedings.                                                                                                                              | 37       |
| 4.                          | Submission                of Matters to a Vote of Security Holders.                                                                                            | 38       |
| **Part                II**  |                                                                                                                                                           |     |
| 5.                          | Market                for Common Equity and Related Stockholder Matters and Small Business                Issuer Purchases of Equity Securities.               | 39       |
| 6.                          | Management’s                Discussion and Analysis or Plan of Operation.                                                                                | 40       |
|                        | Critical                Accounting Policies.                                                                                                                   | 44       |
|                        | Material                Changes in Results of Operations.                                                                                                      | 46       |
|                        | Financial                Condition.                                                                                                                            | 48       |
| 7.                          | Financial                Statements.                                                                                                                           | 51       |
| 8.                          | Changes                and Disagreements with Accountants on Accounting and Financial                Disclosure.                                               | 52       |
| 8A.                         | Controls                and Procedures.                                                                                                                        | 52       |
| 8B.                         | Other                Information.                                                                                                                              | 52       |
| **Part                III** |                                                                                                                                                           |     |
| 9.                          | Directors,                Executive Officers, Promoters and Control Persons; Compliance with                Section                16 (a) of the Exchange Act. | 53       |
| 10.                         | Executive                Compensation.                                                                                                                         | 56       |
| 11.                         | Security                Ownership of Certain Beneficial Owners and Management and Related                Stockholder Matters.                                  | 61       |
| 12.                         | Certain                Relationships and Related Transactions.                                                                                                 | 62       |
| 13.                         | Exhibits.                                                                                                                                                      | 63       |
| 14.                         | Principal                Accountant Fees and Services.                                                                                                         | 68       |
|                        |                                                                                                                                                           |     |
|                        | Consolidated                Financial Statements.                                                                                                              | 69       |
|                        | Report                of Independent Registered Public Accounting Firm.                                                                                        | 70       |

----

**PART      I**

**Item      1. Description of Business.**

*This      Annual Report on Form 10-KSB contains statements of a forward-looking nature      relating to future events or our future financial performance. These statements      are only predictions and actual events or results may differ materially. In      evaluating such statements, you should carefully consider the various factors      identified in this report that could cause actual results to differ materially      from those indicated in any forward-looking statements, including those set      forth in “Risk Factors” in this Annual Report. See “Cautionary Note Regarding      Forward Looking Statements.”*

**A.      Overview**

**BioTherapeutics        Overview**

**BioDefense        Overview**

*Proceedings        of the National Academy of Sciences*

----

**B.        BioTherapeutics Division**

**1.        orBec**
**®**

***Comprehensive        Long-Term Mortality Results***

*Blood*

***200        Days Post Transplant Mortality Results***

|                                                          | **Phase                  3 trial**       | **Phase                  2 trial**       |
|---------------------------------------------------------------|------------------------------------------|------------------------------------------|
|                                                          | **orBec**®                          | **Placebo**                              | **orBec**® | **Placebo** |
|  Number                  of patients randomized          |  62                                 |  67                                 |  31 |  29 |
|  Number                  (%) who died                    |  5                  (8%)            |  16                  (24%)          |  3                  (10%) |  6                  (21%) |
|  Hazard                  ratio (95% confidence interval) |  0.33                  (0.12, 0.89) |  0.47                  (0.12, 1.87) |
|  Death                  with infection*                  |  3                  (5%)            |  9                  (13%)           |  2                  (6%) |  5                  (17%) |
|  Death                  with relapse*                    |  3                  (5%)            |  9                  (13%)           |  1                  (3%) |  4                  (14%) |

***Safety        and Adverse Events***

***Commercialization        and Market***

***Research        and Development***

***About        Graft-versus-Host Disease***

***About        Allogeneic Bone Marrow/Stem Stem Cell Transplantation        (HSCT)***

**2.        Future Potential Indications of orBec**
**®**

**3.        Other Products in BioTherapeutics Pipeline**

**TM**

**TM**

----

***LPM***
***TM***

*** -        Leuprolide***

*Research        and Development*

----

**Cost        and Development analysis for LPM™ Leuprolide**

|                                                                                                   | 2007          | 2008          | 2009       | 2010       | 2011       |
|--------------------------------------------------------------------------------------------------------|---------------|---------------|------------|------------|------------|
| Pilot                  stability                                                                       | $50,000       | $150,000      | $-         | $-         | $-         |
| Process                  DevelopmentScale                  upProduct                  characterization |  100,000 |  150,000 |       |       |       |
| Acute                  toxicity studies                                                                |  100,000 | 250,000       |       |       |       |
| Clinical                  supply manufacture                                                           |          | 250,000       |       |       |       |
| Phase                  1 Clinical studies                                                              | 150,000       | 300,000       |       |       |       |
| Animal                  dosing studies (efficacy)                                                      |          | 250,000       |       |       |       |
| Phase                  2 clinical(dose                  ranging)                                       |          |          | 1,500,000  | 500,000    |       |
| Phase                  3(endometriosis)                                                                |          |          |       | 2,500,000  | 1,000,000  |
| Manufacture                  -Characterization                                                         |          |          |       | 750,000    |       |
| TOTALS                                                                                                 | $400,000      | $1,350,000    | $1,500,000 | $3,250,000 | $1,000,000 |

** **

***Oraprine***
***TM ***

*** ***

*Research        and Development*

----

**Cost        and timeline analysis of Oraprine™ development.**

|                                                           | 2007         | 2008          | 2009          | 2010       | 2011     |
|----------------------------------------------------------------|--------------|---------------|---------------|------------|----------|
| Continued                  reformulation                       | $75,000      | $-            | $-            | $-         | $-       |
| Pilot                  stability                               | 50,000       |          |          |       |     |
| Formal                  stability                              |  75,000 |  225,000 |          |       |     |
| Bioequivalence                  (Clinical) Adults              |         |  250,000 |  500,000 |       |     |
| Bioequivalence                  (clinical) - pediatric         |         |          |  500,000 |       |     |
| Juvenile                  Rheumatoid arthritis (RA)            |         |          | 1,000,000     | 500,000    |     |
| Toxicology                                                     |         |          |          | 400,000    |     |
| Manufacture-                  Quality                  control |         |          | 750,000       | 750,000    | 500,000  |
| TOTALS                                                         | $200,000     | $475,000      | $2,750,000    | $1,650,000 | $500,000 |

----

***LPE***
***TM***

***and PLP***
***TM***

***Systems for Delivery of Water-Insoluble Drugs***

**TM**

**C.        BioDefense Programs**

**1.        Rivax**
**TM**

**        - Ricin Toxin Vaccine**

***Ricin        Toxin***

*Research        and Development*

**Cost        and Development analysis for RiVax™**

|                                                               | 2007       | 2008       | 2009       | 2010    | 2011    |
|--------------------------------------------------------------------|------------|------------|------------|---------|---------|
| cGMP                  stability                                    | $85,000    | $-         | $-         | $-      | $-      |
| Adjuvant                  characterization                         | 210,000    |       |       |    |    |
| Animal                  model development                          | 500,000    |       |       |    |    |
| Vaccine/protection                  Inhaled                  ricin | 295,000    | 295,000    | 295,000    |    |    |
| Clinical                  supply(3000                  doses)      | 150,000    |       |       |    |    |
| Release                  and potency testing                       |       | 250,000    |       |    |    |
| Human/animal                  correlation                          | 130,000    | 130,000    |       |    |    |
| Phase                  1/2(dose                  determination)    | 150,000    | 1,250,000  |       |    |    |
| Pivotal                  animal studies(primates)                  |       |       | 1,500,000  |    |    |
| Additional                  manufacture                            |       |       | 750,000    |    |    |
| Other                                                              |       |       |       | 50,000  | 50,000  |
| TOTALS                                                             | $1,520,000 | $1,925,000 | $2,545,000 | $50,000 | $50,000 |

**2.        BT-VACC**
**TM**

**        - Botulinum Toxin Vaccine**

*Clostridium        botulinum*

*Pseudomonas        fluorescens.*

***Research        and Development***

----

**Cost        and Development analysis for BT-VACC™**

|                                                                       | 2007     | 2008     | 2009       | 2010       | 2011       |
|----------------------------------------------------------------------------|----------|----------|------------|------------|------------|
| Definition                  of enteric formulation                         | $130,000 | $-       | $-         | $-         | $-         |
| Stability                  characterization                                | 50,000   |     |       |       |       |
| Animal                  efficacy                                           | 150,000  | 250,000  |       |       |       |
| Process                  development 3                  components         |     | 150,000  | 350,000    |       |       |
| Assay                  development                                         |     | 250,000  |       |       |       |
| Scale                  up and production                                   |     |     | 500,000    |       |       |
| Toxicology                  evaluation                                     |     |     | 300,000    |       |       |
| Release/potency                                                            |     |     | 200,000    |       |       |
| Phase                  1Safety/immunogenicity                  -volunteers |     |     | 150,000    |       |       |
| Phase                  2 +manufacture                                      |     |     |       | 5,000,000  | 4,000,000  |
| Pivotal                  animal                                            |     |     |       | 1,500,000  | 500,000    |
| TOTALS                                                                     | $330,000 | $650,000 | $1,500,000 | $6,500,000 | $4,500,000 |

**3.        Strategy for development of BioDefense products**

----

**D.      Summary of Our Products in Development**

**BioTherapeutic        Products**

| **Product**                                               | **Therapeutic                  Indication**                              | **Stage                  of Development**           |
|-----------------------------------------------------------|--------------------------------------------------------------------------|-----------------------------------------------------|
| orBec®                                          | Treatment                  of gastrointestinal Graft-versus-Host Disease | NDA                  and MAA filed and under review |
| LPMTM                    -                    Leuprolide  | Endometriosis                    and Prostate Cancer                     | Phase                  1                            |
| OraprineTM                                                | Oral                  lesions resulting from Graft-versus-Host Disease   | Phase                  1/2                          |
| LPETM                  and PLPTM                  Systems | Delivery                  of Water-Insoluble Drugs                       | Pre-Clinical                                        |

**Biodefense      Products**

| **Select                Agent** | **Currently                Available Countermeasure**        | **DOR                Biodefense Product**                                                            |
|---------------------------------|--------------------------------------------------------------|------------------------------------------------------------------------------------------------------|
| Ricin                Toxin      | No                vaccine or antidote currently FDA approved | Injectable                Ricin Vaccine Phase                I Clinical Trial Successfully Completed |
| Botulinum                Toxin  | No                vaccine or antidote currently FDA approved | Oral/Nasal                Botulinum Vaccine                                                          |

----

**F.      The Drug Approval Process**

**1.      General**

----

**2.        Marketing Strategies **

**3.        Competition**

**A.        Biodefense Vaccine Competition**

----

**B.        orBec**
**®**

**        Competition**

**®**

**.**
**®**

**6.        Patents and Other Proprietary Rights**

**7.        orBec**
**®**

**        License Agreement**

**8.        Ricin Vaccine Intellectual Property**

**9.        Botulinum Toxin Vaccine Intellectual Property**

----

**10.        Employees**

**12.        Research and Development Spending**

----

**Cautionary        Note Regarding Forward-Looking Statements**

*          This Annual Report contains forward-looking statements within the meaning        of        Section 21E of the Securities Exchange Act of 1934, and Section 27A of the        Securities Act of 1933 that reflect our current expectations about our future        results, performance, prospects and opportunities. These forward-looking        statements are subject to significant risks, uncertainties, and other factors,        including those identified in "Risk Factors" below, which may cause actual        results to differ materially from those expressed in, or implied by, any        forward-looking statements. The forward-looking statements within this Form        10-KSB may be identified by words such as "believes," "anticipates," "expects,"        "intends," "may," "would," "will" and other similar expressions. However,        these        words are not the exclusive means of identifying these statements. In addition,        any statements that refer to expectations, projections or other        characterizations of future events or circumstances are forward-looking        statements. Except as expressly required by the federal securities laws,        we        undertake no obligation to publicly update or revise any forward-looking        statements to reflect events or circumstances occurring subsequent to the        filing        of this Form 10-KSB with the SEC or for any other reason. You should carefully        review and consider the various disclosures we make in this report and our        other        reports filed with the SEC that attempt to advise interested parties of the        risks, uncertainties and other factors that may affect our        business.*

**Risk        Factors**

***You        should carefully consider the risks, uncertainties and other factors described        below before you decide whether to buy shares of our common stock. Any of        the        factors could materially and adversely affect our business, financial condition,        operating results and prospects and could negatively impact the market price        of        our common stock. Also, you should be aware that the risks and uncertainties        described below are not the only ones facing us. Additional risks and        uncertainties that we do not yet know of, or that we currently think are        immaterial, may also impair our business operations. You should also refer        to        the other information contained in and incorporated by reference into this        Annual Report, including our financial statements and the related        notes.***
** **

**Risks        Related to our industry**

***We        have had significant losses and anticipate future losses; if additional funding        cannot be obtained, we may reduce or discontinue our product development        and        commercialization efforts and we may be unable to continue our        operations.***
** **

***If        we are unsuccessful in developing our products, our ability to generate revenues        will be significantly impaired.***
** **

| ·   | we                will not be able to maintain our current research and development                schedules; |
|--------------------|---------------------------------------------------------------------------------------------------------------|
| ·   | we                may be unsuccessful in our efforts to secure profitable procurement                contracts from the U.S. government or others for our biodefense products; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | we                will encounter problems in clinical trials; or |
|--------------------|------------------------------------------------------------------|
| ·   | the                technology or product will be found to be ineffective or unsafe. |
|--------------------|-------------------------------------------------------------------------------------|

| ·   | it                  is uneconomical or the market for the product does not develop                  or                  diminishes; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------|

| ·   | we                  are not able to enter into arrangements or collaborations to manufacture                  and/or market the product; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | the                product is not eligible for third-party reimbursement from government                or                private insurers; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | others                hold proprietary rights that preclude us from commercializing the                product; |
|--------------------|-----------------------------------------------------------------------------------------------------------------|
| ·   | others                have brought to market similar or superior products; or |
|--------------------|-------------------------------------------------------------------------------|
| ·   | the                product has undesirable or unintended side effects that prevent or                limit                its commercial use. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

***Our        business is subject to extensive governmental regulation, which can be costly,        time consuming and subjects us to unanticipated        delays.***
** **

***There        may be unforeseen challenges in developing biodefense        products.***

***We        will be dependent on government funding, which is inherently uncertain, for        the        success of our biodefense operations.***
** **

***The        manufacture of our products is a highly exacting process, and if we or one        of        our materials suppliers encounter problems manufacturing our products, our        business could suffer.***

***If        the parties we depend on for supplying our drug substance raw materials and        certain manufacturing-related services do not timely supply these products        and        services, it may delay or impair our ability to develop, manufacture and        market        our products.***

***We        do not have sales and marketing experience and our lack of experience may        restrict our success in commercializing our product candidates.***

***Our        products, if approved, may not be commercially viable due to health care        changes        and third party reimbursement limitations.***

***We        may not be able to retain rights licensed to us by third parties to        commercialize key products or to develop the third party relationships we        need        to develop, manufacture and market our products.***
** **

***We        may suffer product and other liability claims; we maintain only limited product        liability insurance, which may not be sufficient.***
** **

***We        may not be able to compete successfully with our competitors in the        biotechnology industry.***
** **

***We        may be unable to commercialize our products if we are unable to protect our        proprietary rights, and we may be liable for significant costs and damages        if we        face a claim of intellectual property infringement by a third        party.***
** **

***Our        business could be harmed if we fail to retain our current personnel or if        they        are unable to effectively run our business.***
** **

**Risks        Related to our Common Stock**

***Our        stock price is highly volatile.***
** **

| ·   | announcements                of technological innovations, more important bio-threats or new commercial                therapeutic products by us, our collaborative partners or our present                or                potential competitors; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | our                quarterly operating results and                performance; |
|--------------------|--------------------------------------------------------------------------------|
| ·   | announcements                by us or others of results of pre-clinical testing and clinical                trials; |
|--------------------|---------------------------------------------------------------------------------------------------------------------|
| ·   | developments                or disputes concerning patents or other proprietary                rights; |
|--------------------|--------------------------------------------------------------------------------------------------------|
| ·   | acquisitions; |
|--------------------|---------------|
| ·   | litigation                and government proceedings; |
|--------------------|-------------------------------------------------------|
| ·   | adverse                legislation; |
|--------------------|-------------------------------------|
| ·   | changes                in government regulations; |
|--------------------|---------------------------------------------------|
| ·   | economic                and other external factors; and |
|--------------------|---------------------------------------------------------|
| ·   | general                market conditions |
|--------------------|------------------------------------------|

***Our        stock trades on the over the counter bulletin board and our stock is not        listed        on the American Stock Exchange***
** **

----

***Shareholders        may suffer substantial dilution***
*.*
* *

| ·   | warrants                to purchase approximately 34,400,000 shares of our common stock at a                current weighted average exercise price of approximately $0.69; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | anti-dilution                rights associated with a portion of the above warrants which can                permit                purchase of additional shares and/or lower exercise prices under                certain                circumstances; and |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | options                to purchase approximately 11,900,000 shares of our common stock of                a                current weighted average exercise price of approximately $0.50. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Item        2. Description of Property**

**Item        3. Legal Proceedings**

----

**Item        4. Submission of Matters to a Vote of Security Holders.**

|                                         | For        | Withheld                  Authority |
|----------------------------------------------|------------|-------------------------------------|
|                                         |       |                                |
| Steve                  H. Kanzer, JD, CPA    | 50,564,104 | 1,042,764                           |
| James                  S. Kuo, MD            | 50,956,695 | 650,173                             |
| Evan                  Myrianthopoulos        | 50,940,829 | 666,039                             |
| Christopher                  J. Schaber, PhD | 50,957,613 | 649,255                             |

----

**PART        II**

**Item        5. Market for Common Equity and Related Stockholder        Matters.**

| **Period**                                                | **Price                Range** |
|-----------------------------------------------------------|--------------------------------|
|                                                      | **High**                       | **Low** |
| ***Fiscal                Year Ended December 31, 2005:*** |                           |   |
| First                Quarter                              | $0.67                          | $0.35 |
| Second                Quarter                             | $0.42                          | $0.29 |
| Third                Quarter                              | $0.45                          | $0.32 |
| Fourth                Quarter                             | $0.36                          | $0.22 |
|                                                      |                           |   |
| ***Fiscal                Year Ended December 31, 2006:*** |                           |   |
| First                Quarter                              | $0.69                          | $0.26 |
| Second                Quarter                             | $0.40                          | $0.23 |
| Third                Quarter                              | $0.33                          | $0.20 |
| Fourth                Quarter                             | $0.30                          | $0.21 |

**Dividend        Policy**

----

**Item        6. Management’s Discussion and Analysis or Plan of        Operation.**

*The        following discussion and analysis provides information that we believe is        relevant to an assessment and understanding of our results of operation and        financial condition. You should read this analysis in conjunction with our        audited consolidated financial statements and related notes. This discussion        and        analysis contains statements of a forward-looking nature relating to future        events or our future financial performance. These statements are only        predictions, and actual events or results may differ materially. In evaluating        such statements, you should carefully consider the various factors identified        in        this Annual Report which could cause actual results to differ materially        from        those expressed in, or implied by, any forward-looking statements, including        those set forth in "Item1. Description of Business-Risk Factors" in this        Annual        Report. See "Item1 .Description of Business-Cautionary Note Regarding        Forward-Looking Statements."*

**Business        Overview and Strategy **

**orBec**
**®**

**RiVax™        **

*Proceedings        of the National Academy of Sciences*

**BT-VACC™**

*Clostridium        botulinum*

***LPM***
***TM***

*** -        Leuprolide***

**TM**

**TM        **

***Oraprine***
***TM ***

*** ***

----

***LPE***
***TM***

***and PLP***
***TM***

***Systems for Delivery of Water-Insoluble Drugs***

**TM**

**TM**

**TM**

----

**Critical        Accounting Policies **

**Intangible        Assets**

**Research        and Development Costs **

**Revenue        Recognition**

----

**Material        Changes in Results of Operations**

----

**Financial        Condition**

***Cash        and Working Capital***

***Expenditures***

|                                                                | **2006**                     | **2005**                     |
|---------------------------------------------------------------------|------------------------------|------------------------------|
| ***Projects-Research                  & Development Expenses*** |                         |                         |
| orBec®                                                         | $                  3,060,778 | $                  2,045,424 |
| RiVax™                                                        | 274,635                      | 480,120                      |
| BT-VACC™                                                      | 290,405                      | 979,247                      |
| Oraprine™                                                     | 6,996                        | 8,100                        |
| LPMTM-Leuprolide                                                    | 5,679                        | 3,900                        |
| Research                  & Development Expense                 | $                  3,638,493 | $                  3,516,791 |
|                                                                |                         |                         |
| *Projects-Reimbursed                  under Grant*                  |                         |                         |
| orBec®                                                         | $                  -         | $                  124,958   |
| RiVax™                                                        | 1,961,074                    | 1,942,076                    |
| BT-VACC™                                                      | 4,000                        | -                            |
| Oraprine™                                                     | -                            | -                            |
| LPMTM-Leuprolide                                                    | -                            | -                            |
| Reimbursed                  under Grant                             | $                  1,965,074 | $                  2,067,034 |
|                                                                |                         |                         |
| TOTAL                                                               | $                  5,603,567 | $                  5,583,825 |

***Debt***

----

***Leases***

| **Contractual                  Obligation**    | **Year****2007**              | **Year****2008**         | **Year****2009**         |
|------------------------------------------------|-------------------------------|--------------------------|--------------------------|
| Non-cancelable                  obligation (1) | $                  33,706     | $                  -     | -                        |
| **TOTALS**                                     | **$                  33,703** | **$                  -** | **$                  -** |

| (1)   | On                August 7, 2006 we signed a 10 month lease at a new                location. |
|-----------------|-----------------------------------------------------------------------------------------------|

***Equity        Transactions***

----

**Off-Balance        Sheet Arrangements**

**Effects        of Inflation and Foreign Currency Fluctuations**

**                   **

**Item        7. Financial Statements.**

----

**Item        8. Changes in and Disagreements with Accountants on Accounting and Financial        Disclosure.**

**Item        8A. Controls and Procedures**

** **

**Item        8B. Other Information**

----

**PART      III**

**Item      9. Directors, Executive Officers, Promoters and Control Persons; Compliance      with      Section 16(a) of the Exchange Act.**

|  **Name**                                          | **Age** | **Position**                                                    |
|--------------------------------------------------------------|---------|-----------------------------------------------------------------|
|  **James                S. Kuo, M.D., M.B.A.**     | 42      | Chairman                of the Board                            |
|  **Steve                H. Kanzer, C.P.A., J.D.**  | 43      | Vice                Chairman                                    |
|  **Christopher                J. Schaber, Ph.D.**  | 40      | Chief                Executive Officer, President, and Director |
|  **Evan                Myrianthopoulos**           | 42      | Chief                Financial Officer, and Director            |
|  **James                Clavijo, C.P.A., M.A.**    | 41      | Controller,                Treasurer, and Corporate Secretary   |

**James      S. Kuo, M.D., M.B.A., **

**Steve        H. Kanzer,**
**C.P.A.,        J.D.**

**Christopher        J. Schaber, Ph.D.**

**Evan        Myrianthopoulos**

**James        Clavijo, C.P.A., M.A.**

**Section        16(a) Beneficial Ownership Reporting Compliance**

**Code        of Ethics **

**Audit****Committee****Financial****Expert** 

as        defined under the rules of the Securities and Exchange Commission. The board        of        directors has also determined that all of the members of the Audit Committee        are        qualified to serve on the committee and have the experience and knowledge        to        perform the duties required of the committee. 

----

**Item        10. Executive Compensation.**

**Summary        Compensation**

**Summary        Compensation**

| **Name**                                                    | **Position**                                                            | **Year** | **Salary** | **Bonus** | **Option                  Awards** | **All                  Other Compensation** | **Total** |
|-------------------------------------------------------------|-------------------------------------------------------------------------|----------|------------|-----------|------------------------------------|---------------------------------------------|-----------|
|  **Christopher                  J. Schaber (1)**  | CEO                  & President                                    | 2006     | $104,700   | $33,333   | $185,403                           | $16,895                                     | $340,331  |
|  **Michael                  Sember (2)**          | CEO                  & President                                    | 2006     | $192,500   | -         | $82,060                            | $229,827                                    | $504,387  |
|  **Evan****Myrianthopoulos****(3)**               | CFO                                                                     | 2006     | $195,724   | $55,000   | $103,064                           | $49,257                                     | $398,045  |
|  **James                  Clavijo (4)**           | Controller,                  Treasurer &                  Secretary | 2006     | $144,999   | $40,000   | $42,836                            | -                                           | $222,835  |

----

**Potential        Issuance of Shares**

**Employment        and Severance Agreements**

----

**Outstanding        Equity Awards at Fiscal Year-End**

**Outstanding        Equity Awards at Fiscal Year-End**

| **Name**                                   | **Number                  of Securities****Underlying                  Unexercised****Options                  (#)** | **Equity                  Incentive Plan Awards: Number of Securities Underlying Unexercised                  Unearned Options (#)** | **Option                  Exercise Price (S)** | **Option                  Expiration Date** |
|--------------------------------------------|----------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------|---------------------------------------------|
| **Exercisable**                            | **Unexercisable**                                                                                                    |
| Christopher                  J. Schaber(1) | 972,223                                                                                                              | 1,527,777                                                                                                                            | 1,527,777                                      | $0.27                                       | 8/28/2016 |
| Michael                  T. Sember(2)      | 1,340,000                                                                                                            | -                                                                                                                                    | -                                              | $0.46                                       | 8/24/2007 |
| Evan                  Myrianthopoulos      | 150,000                                                                                                              | -                                                                                                                                    | -                                              | $0.35                                       | 11/14/2012 |
|                                       | 50,000                                                                                                               | -                                                                                                                                    | -                                              | $0.90                                       | 9/15/2013 |
|                                       | 50,000                                                                                                               | -                                                                                                                                    | -                                              | $0.58                                       | 6/11/2014 |
|                                       | 150,000                                                                                                              | -                                                                                                                                    | -                                              | $0.47                                       | 11/10/2014 |
|                                       | 333,336                                                                                                              | 166,664                                                                                                                              | 166,664                                        | $0.49                                       | 12/13/2014 |
|                                       | 150,000                                                                                                              | 250,000                                                                                                                              | 250,000                                        | $0.35                                       | 5/10/2016 |
| James                  Clavijo             | 66,666                                                                                                               | 33,334                                                                                                                               | 33,334                                         | $0.45                                       | 10/22/2014 |
|                                       | 116,664                                                                                                              | 33,336                                                                                                                               | 33,336                                         | $0.45                                       | 2/22/2015 |
|                                       | 87,500                                                                                                               | 112,500                                                                                                                              | 112,500                                        | $0.33                                       | 5/10/2016 |

| (1)   | Dr.                Schaber began his employment with us on August 29, 2006. |
|-----------------|-----------------------------------------------------------------------------|
| (2)   | Mr.                Sember’s employment was terminated without “Just Cause” on August 25,                2006. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------|

**Compensation        of Directors **

----

**Director        Compensation**

| **Name**                             | **Fees                  Earned of Paid in Cash ($) (1)** | **Option                  Awards ($) (2)** | **Total                  ($)** |
|--------------------------------------|----------------------------------------------------------|--------------------------------------------|--------------------------------|
| **Steve                  H. Kanzer** | $25,000                                                  | $11,270                                    | $36,270                        |
| **James                  S. Kuo**    | $25,000                                                  | $11,270                                    | $36,270                        |

| (1)   | Directors                who are compensated as full-time employees receive no additional                compensation for service on our Board of Directors or its committees.                Each                director who is not a full-time employee is paid $2,000 for each                board or                committee meeting attended ($1,000 if such meeting was attended                telephonically). |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)   | We                maintain a stock option grant program pursuant to the nonqualified                stock                option plan, whereby members of our Board of Directors who are not                full-time employees receive an initial grant of fully vested options                to                purchase 50,000 shares of common stock, and subsequent annual grants                of                fully vested options to purchase 50,000 shares of common stock after                re-election to our Board of                Directors. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Item        11. Security Ownership of Certain Beneficial Owners and Management and Related        Stockholder Matters.**

| **Name                  of Beneficial Owner**                                | **Shares                  of Common Stock Beneficially Owned**                                                                                                                                                        | **Percent                  of Class** |
|------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------|
|                                                                         |                                                                                                                                                                                                                  |                                  |
| SouthPointe                  Master Fund, LP (1)                             | 8,510,638                                                                                                                                                                                                             | 9.6%                                  |
| Cyrill                  F. Buhrman(2)                                        | 4,900,020                                                                                                                                                                                                             | 5.2%                                  |
| Platinum                  Partners Long Term Growth III (3)                  | 4,604,306                                                                                                                                                                                                             | 5.2%                                  |
| Sigma                Tau Pharmaceuticals, Inc. (4)                           | 4,065,041                                                                                                                                       |  4.6%                       |
| Paolo                Cavazza (4)                                             | 5,611,911                                                                                                                                  |  6.3%                       |
| Claudio                Cavazza (4)                                           | 4,065,041                                                                                                                                  |  4.6%                       |
| Christopher                  J. Schaber (5)                                  | 1,403,879                                                                                                                                                                                                             | 1.6%                                  |
| Steve                  H. Kanzer (6)                                         | 2,398,401                                                                                                                                                                                                             | 2.7%                                  |
| James                  S. Kuo (7)                                            | 205,000                                                                                                                                                                                                               | *                                     |
| Evan                  Myrianthopoulos (8)                                    | 1,381,345                                                                                                                                                                                                             | 1.5%                                  |
| James                  Clavijo (9)                                           | 324,029                                                                                                                                                                                                               | *                                     |
| All                  directors and executive officers as a group (5 persons) |                                                  5,712,654 | 6.2%                                  |

**Equity        Compensation Plan Information**

| **Plan                  Category**                                          | **Number                  of Securities to be issued upon exercise of outstanding options,                  warrants                  and rights** | **Weighted-Average                  Exercise Price Outstanding options, warrants and                  rights** | **Number                  of Securities Remaining Available for Future Issuance Under Equity                  Compensation Plans (excluding securities reflected in the first                  column)** |
|-----------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Equity                  compensation plans approved by security holders (1) | 11,639,339                                                                                                                                         | $                  0.50                                                                                        | 2,936,032                                                                                                                                                                                                |
| Equity                  compensation plans not approved by security holders | -                                                                                                                                                  | -                                                                                                              | -                                                                                                                                                                                                        |
| TOTAL                                                                       | 11,639,339                                                                                                                                         | $0.50                                                                                                          | 2,936,032                                                                                                                                                                                                |

**Item        12. Certain Relationships and Related Transactions.**

----

**Item        13. Exhibits**

| 2.1        | Agreement                  and Plan of Merger, dated May 10, 2006 by and among the Company,                  Corporate                  Technology Development, Inc.,                  Enteron Pharmaceuticals, Inc. and CTD Acquisition, Inc (incorporated                  by                  reference to Exhibit 2.1 included in our Registration Statement                  on Form                  SB-2 (File No. 333-133975) filed on May 10, 2006).                       |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1        | Amended                  and Restated Certificate of Incorporation (incorporated by reference                  to                  Exhibit 3.1 included in our Quarterly Report on Form 10-QSB, as                  amended,                  for the fiscal quarter ended September 30, 2003).                                                                                                                                                                                     |
| 3.2        | Certificate                  of Amendment to Amended and Restated Certificate of Incorporation                  (incorporated by reference to Exhibit 4.2 included in our Registration                  Statement on Form S-8 (File No. 333-130801) filed on December 30,                  2005).                                                                                                                                                                                   |
| 3.3        | Certificate                  of Amendment to Amended and Restated Certificate of Incorporation                  (incorporated by reference to Annex A to our Proxy Statement filed                  December 12, 2006).                                                                                                                                                                                                                                                                  |
| 3.4        | By-laws                  (incorporated by reference to Exhibit 3.1 included in our Quarterly                  Report on Form 10-QSB, as amended, for the fiscal quarter ended                  June 30,                  2003).                                                                                                                                                                                                                                                |
| 4.1        | Form                  of Investor Warrant issued to each investor dated as of April 12,                  2000                  (incorporated by reference to Exhibit 4.4 included in our Registration                  Statement on Form S-3 (File No. 333- 36950), as amended on December                  29,                  2000).                                                                                                                                             |
| 4.2        | Finder                  Warrant issued to Paramount Capital, Inc. dated as of April 12,                  2000                  (incorporated by reference to Exhibit 4.5 included in our Registration                  Statement on Form S-3 (File No. 333- 36950), as amended on December                  29,                  2000).                                                                                                                                             |
| 4.3        | Warrant                  issued to Aries Fund dated as of May 19, 1997 (incorporated by                  reference                  to Exhibit 4.6 included in our Registration Statement on Form S-3                  (File                  No. 333- 36950), as amended on December 29, 2000).                                                                                                                                                                                    |
| 4.4        | Warrant                  issued to Aries Domestic Fund, L.P. dated as of May 19, 1997 (incorporated                  by reference to Exhibit 4.7 included in our Registration Statement                  on Form                  S-3 (File No. 333- 36950), as amended on December 29, 2000).                                                                                                                                                                                      |
| 4.5        | Warrant                  issued to Paramount Capital, Inc. dated as of October 16, 1997                  (incorporated by reference to Exhibit 4(i)(c) included in our Quarterly                  Report on Form 10-QSB, as amended, for the fiscal quarter ended                  September                  30, 1997).                                                                                                                                                            |
|  4.6  | Warrant                  issued to Paramount Capital, Inc. dated as of October 16, 1997                  (incorporated by reference to Exhibit 4(i)(d) included in our Quarterly                  Report on Form 10-QSB, as amended, for the fiscal quarter ended                  September                  30, 1997).                                                                                                                                                            |
| 4.7        | Warrant                  issued to Élan International Services, Ltd. Dated January 21, 1998                  (incorporated by reference to Exhibit 4.4 included in our Annual                  Report on                  Form 10-KSB, as amended, for the fiscal year ended December 31,                  1997).                                                                                                                                                              |
| 4.8        | Form                  of Warrant to be issued to CTD warrant holders (incorporated by                  reference                  to Exhibit 4.12 include in our Registration Statement on Form S-4                  filed on                  October 2, 2001).                                                                                                                                                                                                                    |
| 4.9        | Form                  of Warrant issued to each investor in the December 2002 private                  placement                  (incorporated by reference to Exhibit 4.9 included in our Annual                  Report on                  Form 10-KSB, as amended, for the fiscal year ended December 31,                  2003).                                                                                                                                              |
| 4.10       | Form                  of Warrant issued to each investor in the September 2003 private                  placement                  (incorporated by reference to Exhibit 99.4 included in our current                  report                  on Form 8-K filed on July 18, 2003).                                                                                                                                                                                                 |
| 4.11       | Form                  of Warrant issued to each investor in the March 2004 private placement                  (incorporated by reference to Exhibit 99.4 included in our current                  report                  on Form 8-K filed on March 4, 2004).                                                                                                                                                                                                                      |
| 4.12       | Form                  of Warrant issued to each investor in the February 2005 private                  placement                  (incorporated by reference to Exhibit 10.2 included in our current                  report on Form 8-K filed on February 3, 2005).                                                                                                                                                                                                           |
| 4.13       | Form                  of Warrant issued to each investor in the April 2006 private placement                  (incorporated by reference to Exhibit 10.2 included in our current                  report on Form 8-K filed on April 7, 2006).                                                                                                                                                                                                                                  |
| 4.14       | Form                  of Warrant issued to finders in connection with the February 2007                  private                  placement.*                                                                                                                                                                                                                                                                                                                                            |
| 10.1       | Amended                  and Restated 1995 Omnibus Incentive Plan (incorporated by reference                  to                  Exhibit 10.1 included in our Quarterly Report on Form 10-QSB, as                  amended,                  for the fiscal quarter ended September 30, 2003).                                                                                                                                                                                     |
| 10.2       | Form                  of Affiliate Agreement dated as of August 15, 2001 by and between                  the                  Company and the affiliates of CTD (incorporated by reference to                  Exhibit                  10.3 included in our current report on Form 8-K filed on December                  14,                  2001).                                                                                                                              |
| 10.3       | Noncompetition                  and Nonsolicitation Agreement entered into by and among the Company,                  CTD                  and Steve H. Kanzer dated as of November 29, 2001 (incorporated                  by                  reference to Exhibit 10.30 included in our Annual Report on Form                  10-KSB as                  amended for the fiscal year ended December 31, 2002).                                                                  |
| 10.4       | Termination                  of the Endorex Newco joint venture between the Company, Élan Corporation,                  Élan International Services, and Elan Pharmaceutical Investments                  dated                  December 12, 2002 (incorporated by reference to Exhibit 10.37 included                  in                  our Annual Report on Form 10-KSB as amended for the fiscal year                  ended                  December 31, 2002).  |
| 10.5       | Option                  Agreement with General Alexander M. Haig Jr. (incorporated by reference                  to                  Exhibit 10.39 included in our Annual Report on Form 10-KSB as amended                  for                  the fiscal year ended December 31, 2002).                                                                                                                                                                                          |
| 10.6       | Separation                  agreement and General Release between the Company and Ralph Ellison                  dated                  July 9, 2004 (incorporated by reference to Exhibit 10.7 included                  in our                  Annual Report on Form 10-KSB, as amended, for the fiscal year ended                  December 31, 2004).                                                                                                                          |
| 10.7       | License                  Agreement between the Company and The University of Texas Southwestern                  Medical Center (incorporated by reference to Exhibit 10.8 included                  in our                  Annual Report on Form 10-KSB, as amended, for the fiscal year ended                  December 31, 2004).                                                                                                                                               |
| 10.8       | License                  Agreement between the Company and Thomas Jefferson University                  (incorporated by reference to Exhibit 10.9 included in our Annual                  Report                  on Form 10-KSB, as amended, for the fiscal year ended December                  31,                  2004).                                                                                                                                                      |
| 10.9       | License                  Agreement between the Company and The University of Texas Medical                  Branch                  (incorporated by reference to Exhibit 10.10 included in our Annual                  Report                  on Form 10-KSB, as amended, for the fiscal year ended December                  31,                  2004).                                                                                                                         |
| 10.10      | Consulting                  Agreement between the Company and Lance Simpson of Thomas Jefferson                  University. (incorporated by reference to Exhibit 10.43 included                  in our                  Annual Report on Form 10-KSB as amended for the fiscal year ended                  December                  31, 2002).                                                                                                                                  |
| 10.11      | Form                  of Subscription Agreement between the Company and each investor                  dated July                  18, 2003 (incorporated by reference to Exhibit 99.3 included in                  our                  current report on Form 8-K filed on July 18, 2003).                                                                                                                                                                                        |
| 10.12      | Form                  of Securities Purchase Agreement between the Company and each investor                  dated March 4, 2004 (incorporated by reference to Exhibit 99.3                  included in                  our current report on Form 8-K filed on March 4, 2004).                                                                                                                                                                                                  |
| 10.13      | Employment                  agreement between the Company and Evan Myrianthopoulos dated December                  7,                  2004 (incorporated by reference to Exhibit 10.17 included in our                  Annual                  Report on Form 10-KSB, as amended, for the fiscal year ended December                  31,                  2004).                                                                                                                 |
| 10.14      | Employment                  agreement between the Company and James Clavijo dated February                  18, 2005                  (incorporated by reference to Exhibit 10.18 included in our Annual                  Report                  on Form 10-KSB, as amended, for the fiscal year ended December                  31, 2004).                                                                                                                                        |
| 10.15      | Form                  of Securities Purchase Agreement between the Company and each investor                  dated February 1, 2005 (incorporated by reference to Exhibit 10.1                  included                  in our current report on Form 8-K filed on February 3, 2005).                                                                                                                                                                                       |
| 10.16      | Amendment                  No. 1 dated February 17, 2005 to the Securities Purchase Agreement                  between                  the Company and each investor dated February 1, 2005 (incorporated                  by                  reference to Exhibit 10.20 included in our Annual Report on Form                  10-KSB,                  as amended, for the fiscal year ended December 31, 2004).                                                                |
| 10.17      | Form                  Registration Rights agreement between the Company and each investor                  dated                  February 1, 2005 (incorporated by reference to Exhibit 10.3 included                  in our current report on Form 8-K filed on February 3,                  2005).                                                                                                                                                                         |
| 10.18      | 2005                  Equity Incentive Plan (incorporated by reference to Appendix D                  to our                  Proxy Statement filed December 12, 2005).                                                                                                                                                                                                                                                                                                             |
| 10.19      | Form                  S-8 Registration of Stock Options Plan dated December 30, 2005                  (incorporated by reference to our registration statement on Form                  S-8 filed                  on December 30, 2005).                                                                                                                                                                                                                                           |
| 10.20      | Form                  of Securities Purchase Agreement between the Company and each investor                  dated January 17, 2006 (incorporated by reference to Exhibit 10.1                  included                  in our current report on Form 8-K filed on January 20, 2006)                                                                                                                                                                                             |
| 10.21      | Form                  of Registration Rights agreement between the Company and each investor                  dated January 17, 2006 (incorporated by reference to Exhibit 4.1                  included                  in our current report on Form 8-K filed on January 20,                  2006).                                                                                                                                                                       |
| 10.22      | Securities                  Purchase Agreement dated as of April 6, 2006 among the Company                  and the                  investors named therein (incorporated by reference to Exhibit 10.1                  included in our current report on Form 8-K filed on April 7,                  2006).                                                                                                                                                                  |
| 10.23      | Registration                  Rights Agreement dated as of April 6, 2006 among the Company and                  the                  investors named therein (incorporated by reference to Exhibit 10.3                  included in our current report on Form 8-K filed on April 7,                  2006).                                                                                                                                                                  |
| 10.24      | Employment                  Agreement, dated as of August 29, 2006, between Christopher J.                  Schaber,                  Ph.D., and the Company (incorporated by reference to Exhibit 10.1                  included                  in our current report on Form 8-K filed on August 30,                  2006).                                                                                                                                                    |
| 10.25      | Letter                  of Intent dated January 3, 2007 by and between DOR BioPharma, Inc.                  and                  Sigma-Tau Pharmaceuticals, Inc (incorporated by reference to Exhibit                  10.1                  included in our current report on Form 8-K filed on January 4,                  2007).                                                                                                                                                 |
| 10.26      | January                  17, 2007 letter from Cell Therapeutics, Inc. to DOR BioPharma,                  Inc                  (incorporated by reference to Exhibit 10.1 included in our current                  report on Form 8-K filed on January 19, 2007).                                                                                                                                                                                                                    |
| 10.27      | Securities                  Purchase Agreement dated February 7, 2007 by and among the Company                  and the                  investors named therein (incorporated by reference to Exhibit 10.1                  included in our current report on Form 8-K filed on February 12,                  2007).                                                                                                                                                               |
| 10.28      | Registration                  Rights Agreement dated February 7, 2007 by among the Company and                  the                  investors named therein (incorporated by reference to Exhibit 10.2                  included in our current report on Form 8-K filed on February 12,                  2007).                                                                                                                                                                   |
| 10.29      | Letter                  from Sigma Tau dated February 21, 2007 (incorporated by reference                  to                  Exhibit 10.1 included in our current report on Form 8-K filed on                  February                  23, 2007).                                                                                                                                                                                                                                    |
| 21.1       | Subsidiaries                  of the Company.*                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 31.1  | Certification                  of the Chief Executive Officer pursuant to Section 302 of the Sarbanes                  Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                               |
| 31.2  | Certification                  of the Chief Financial Officer pursuant to Section 302 of the Sarbanes                  Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                               |
| 32.1  | Certification                  of the Chief Executive Officer pursuant to Section 906 of the Sarbanes                  Oxley Act of 2002. Filed therewith.*                                                                                                                                                                                                                                                                                                                              |
| 32.2  | Certification                  of the Chief Financial Officer pursuant to Section 906 of the Sarbanes                  Oxley Act of 2002. Filed                  therewith.*                                                                                                                                                                                                                                                                                                             |

| * | Filed                  Herewith. |
|---|----------------------------------|

----

**Item      14. Principal Accountant Fees and Services **

|                              |   | **December                31****,** |        |
|-----------------------------------|--------|-------------------------------------|-------------|
|                              |   |                                | **2006**    |   |   | 2005 |   |
| Audit                fees         |   | **$**                               | **112,695** |   | $ | 91,265 |   |
| Audit                related fees |   |                                | **19,590**  |   |   | 4,801 |   |
| Tax                fees           |   |                                | **14,292**  |   |   | 12,956 |   |
| **Total**                         |   | **$**                               | **146,577** |   | $ | 109,022 |   |

**Audit      Fees **

**Audit        Related Fees **

**Tax        Fees **

**Other        Fees **

**Pre        Approval Policies and Procedures**

----

----

**DOR      BIOPHARMA, Inc. AND SUBSIDIARIES**

**CONSOLIDATED      FINANCIAL STATEMENTS**

**Table      of Contents**

|                                                                                                          | **Page** |
|---------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                          |     |
| Report                    of Independent Registered Public Accounting Firm                                    | 71       |
|                                                                                                          |     |
| Consolidated                    Financial Statements:                                                         |     |
|                                                                                                          |     |
| Balance                    Sheets as of December 31, 2006                                                     | 72       |
|                                                                                                          |     |
| Statements                    of Operations for the years ended December 31, 2006 and                    2005 | 73       |
|                                                                                                          |     |
| Statements                    of Changes in Shareholders’ Equity for the years ended                    |     |
|                         December 31, 2006 and 2005                                        | 74       |
|                                                                                                          |     |
| Statements                    of Cash Flows for the years ended December 31, 2006 and                    2005 | 75       |
|                                                                                                          |     |
| Notes                    to Financial Statements                                                              | 76       |

----

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**/s/        Sweeney, Gates & Co.**

----

**DOR      BioPharma, Inc.**

**Consolidated      Balance Sheet**

**December      31, 2006**

| **Assets**Current                assets:                                                                                               |   |   |                            |        |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------------------------------|-------------|
|         Cash                                                                                   |   | **$**  | **119,636**                     |        |
|         Grants                receivable                                                       |   |   | **89,933**                      |        |
|         Prepaid                expenses                                                        |   |   | **94,470**                      |        |
| Total                current assets                                                                                                    |   |   | **304,039**                     |        |
|                                                                                                                                   |   |   |                            |        |
| Office                and laboratory equipment, net                                                                                    |   |   | **29,692**                      |        |
| Intangible                assets, net                                                                                                  |   |   | **1,073,239**                   |        |
| Total                assets                                                                                                            |   | **$**  | **1,406,970**                   |        |
| **Liabilities                and shareholders’ (deficiency)**                                                                    |   |   |                            |        |
| Current              liabilities:                                                                                                      |   |   |                            |        |
|         Accounts                payable                                                        |   | **$**  | **2,112,479**                   |        |
|         Accrued                compensation                                                    |   |   | **402,947**                     |        |
|  Total                current liabilities                                                                                         |   |   | **2,515,426**                   |        |
| Shareholders’                (deficiency):                                                                                       |   |   |                            |        |
|         Common                stock, $.001 par value. Authorized 250,000,000                   |   |   |                            |        |
|              shares;                68,855,794 issued and outstanding |   |   | **68,855**                      |        |
|         Additional                paid-in capital                                              |   |   | **91,553,766**                  |        |
|         Accumulated                deficit                                                     |   |   | **(                92,731,077** | **)**       |
|                                                                                                                                   |   |   |                            |        |
| Total                shareholders’ (deficiency)                                                                                  |   |   | **(1,108,456**                  | **)**  |
| Total                liabilities and shareholders’ deficiency                                                                    |   | **$**  | **1,406,970**                   |        |

----

**DOR      BioPharma, Inc.**

**Consolidated      Statements of Operations**

**For      the years ended December 31,**

|                                                                                                                    |   | **2006**      |                               |  2005  |    |
|-------------------------------------------------------------------------------------------------------------------------|--------|---------------|------------------------------------|-------------|---------|
| Revenues                                                                                                                |   | **$**         | **2,313,020**                      |        | $       | 3,075,736 |   |
| Cost                    of revenues                                                                                     |   |          | **(                    1,965,074** | **)**       |    | (                    2,067,034 | ) |
| Gross                    profit                                                                                         |   |          | **347,946**                        |        |    | 1,008,702 |   |
|                                                                                                                    |   |          |                               |        |    |   |   |
| Operating                    expenses:                                                                                  |   |          |                               |        |    |   |   |
| Research                    and development                                                                             |   |          | **3,638,493**                      |        |    | 3,516,791 |   |
|                              In-process research and development |   |          | **981,819 **                  |        |    | -  |   |
|                              Impairment of intangible assets     |   |          | **816,300**                   |        |    | 164,346  |   |
| General                    and administrative                                                                           |   |          | **3,110,882**                      |        |    | 2,162,616 |   |
| Total                    operating expenses                                                                             |   |          | **8,547,494**                      |        |    | 5,843,753 |   |
|                                                                                                                    |   |          |                               |        |    |   |   |
| Loss                    from operations                                                                                 |   |          | **(                    8,199,548** | **)**       |    | (                    4,835,051 | ) |
|                                                                                                                    |   |          |                               |        |    |   |   |
| Other                    income (expense):                                                                              |   |          |                               |        |    |   |   |
| Interest                    income                                                                                      |   |          | **41,510**                         |        |    | 78,242 |   |
| Interest                    (expense) reversal                                                                          |   |          | **(5,308**                         | **)**  |    | 36,549 |   |
| Total                    other income (expense)                                                                         |   |          | **36,202**                         |        |    | 114,791 |   |
|                                                                                                                    |   |          |                               |        |    |   |   |
| Net                    loss                                                                                             |   |  $  | **(                    8,163,346** | **)**       |  $ | (                    4,720,260 | ) |
|                                                                                                                    |   |          |                               |        |    |   |   |
| Basic                    and diluted net loss per share                                                                 |   | $             | **(                    0.13**      | **)**       | $       | (                    0.09 | ) |
|                                                                                                                    |   |          |                               |        |    |   |   |
| Basic                    and diluted weighted average common shares outstanding                                         |   |          | **63,759,092**                     |        |    | 49,726,249 |   |

----

**DOR      BioPharma, Inc.**

**Consolidated        Statements of Changes in Shareholders’ (Deficiency)**

**For        the years ended December 31, 2006 and 2005**

|                                                                       |   | **Common                  Stock** | **Additional                  Paid-In capital** | **AccumulatedDeficit** | **Treasury                  Stock** |
|----------------------------------------------------------------------------|--------|-----------------------------------|-------------------------------------------------|------------------------|-------------------------------------|
|                                                                       |   |                              | **Shares**                                      |                   |                                | **Par****Value** |   |   |   |   |   |   |   |   | **Shares** |   |   | **Cost** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance,****January                  1, 2005**                           |   |                              | **42,218,404**                                  |                   |                                | **$42,218** |   |   | **$83,216,533** |   |   | **($79,847,471** | **)** |   | **120,642** |   |   | **($427,697** | **)** |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Issuance                  of common stock**                              |   |                              | **8,396,100**                                   |                   |                                | **8,396** |   |   | **3,539,897** |   |   | **-** |   |   | **-** |   |   | **-** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Treasury                  stock retired**                                |   |                              | **(2,000**                                      | **)**                  |                                | **(2** | **)** |   | **(426,383** | **)** |   | **-** |   |   | **(120,642** | **)** |   | **427,697** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Reversal                  of non-cash compensation**                     |   |                              | **-**                                           |                   |                                | **-** |   |   | **(284,855** | **)** |   | **-** |   |   | **-** |   |   | **-** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Net                  loss**                                              |   |                              | **-**                                           |                   |                                | **-** |   |   | **-** |   |   | **(4,720,260** | **)** |   | **-** |   |   | **-** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance,****December                  31, 2005**                         |   |                              | **50,612,504**                                  |                   |                                | **50,612** |   |   | **86,045,192** |   |   | **($84,567,731** | **)** |   | **-** |   |   | **-** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Issuance                  of common stock**                              |   |                              | **13,429,504**                                  |                   |                                | **13,430** |   |   | **3,521,570** |   |   | **-** |   |   | **-** |   |   | **-** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Issuance                  of common stock for exercise of options**      |   |                              | **504,100**                                     |                   |                                | **504** |   |   | **112,816** |   |   | **-** |   |   | **-** |   |   | **-** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Issuance                  of common stock to vendors**                   |   |                              | **506,942**                                     |                   |                                | **507** |   |   | **134,171** |   |   | **-** |   |   | **-** |   |   | **-** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Issuance                  of warrants to vendors**                       |   |                              | **-**                                           |                   |                                | **-** |   |   | **121,965** |   |   | **-** |   |   | **-** |   |   | **-** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Issuance                  of common stock for an equity commitment fee** |   |                              | **512,500**                                     |                   |                                | **512** |   | **(** | **512** | **)** |   | **-** |   |   | **-** |   |   | **-** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Issuance                  of common stock to employees**                 |   |                              | **222,061**                                     |                   |                                | **222** |   |   | **82,632** |   |   | **-** |   |   | **-** |   |   | **-** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Issuance                  of common stock to minority shareholders**     |   |                              | **3,068,183**                                   |                   |                                | **3,068** |   |   | **978,750** |   |   | **-** |   |   | **-** |   |   | **-** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Stock                  option expense**                                  |   |                              | **-**                                           |                   |                                | **-** |   |   | **557,182** |   |   | **-** |   |   | **-** |   |   | **-** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Net                  loss**                                              |   |                              | **-**                                           |                   |                                | **-** |   |   | **-** |   |   | **(8,163,346** | **)** |   | **-** |   |   | **-** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance,****December                  31, 2006**                         |   |                              | **68,855,794**                                  |                   |                                | **$68,855** |   |   | **$91,553,766** |   |   | **($92,731,077** | **)** |   | **-** |   |   | **$                  -** |   |
|                                                                       |   |                              |                                            |                   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

** **

----

**DOR      BioPharma, Inc.**

**Consolidated      Statements of Cash Flows**

**For      the years ending December 31,**

|                                                                                                                                                                      |   | **2006** |                               | 2005        |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|------------------------------------|-------------|---------|
| **Operating                    activities**                                                                                                                               |   |     |                               |        |    |   |   |
|                       Net loss                                                                                                                                  |   | **$**    | **(                    8,163,346** | **)**       | $       | (                    4,720,260 | ) |
|                                                                                                                                                                      |   |     |                               |        |    |   |   |
| Adjustments                    to reconcile net loss to net cash used by operating                    activities:                                                         |   |     |                               |        |    |   |   |
| Amortization                    and depreciation                                                                                                                          |   |     | **137,044**                        |        |    | 194,284 |   |
|                                  Non-cash stock compensation                                   |   |     | **896,680**                        |        |    | (                  284,855 |  ) |
|                                  Non-cash stock purchase of in-process research and developent |   |     | **981,819**                        |        |    | -  |   |
|                        Impairment expense for intangibles                                                                                                  |   |     | **816,300**                        |        |    | 164,346 |   |
|                                                                                                                                                                      |   |     |                               |        |    |   |   |
| Change                    in operating assets and liabilities:                                                                                                            |   |     |                               |        |    |   |   |
|                        Grants receivable                                                                                                                   |   |     | **474,397**                        |        |    | 178,657 |   |
|                        Prepaid expenses                                                                                                                    |   |     | ** 44,324**                   |        |    | (71.191 | )  |
|                        Accounts payable                                                                                                                    |   |     | **476,605**                        |        |    | (                    167,039 | )  |
|                        Accrued compensation                                                                                                                |   |     | **254,347**                        |        |    | 83,356 |   |
|                        Accrued royalties                                                                                                                   |   |     | **(                    60,000**    | **)**  |    | (                    40,000 | )  |
| Total                    adjustments                                                                                                                                      |   |     | **4,021,516**                      |        |    | 49,558 |   |
|                                                                                                                                                                      |   |     |                               |        |    |   |   |
| Net                    cash used by operating activities                                                                                                                  |   |     | **(                    4,141,830** | **)**       |    | (                    4,670,702 | ) |
|                                                                                                                                                                      |   |     |                               |        |    |   |   |
| **Investing                    activities:**                                                                                                                              |   |     |                               |        |    |   |   |
|  Purchases                    of office and laboratory equipment                                                                                                     |   |     | **(                    2,552**     | **)**       |    | (                    21,561 | ) |
|  Acquisition                    of intangible assets                                                                                                                 |   |     | **(                    206,004**   | **)**       |    | (                    250,570 | ) |
|                        Net cash used by investing activities                                                                                               |   |     | **(                    208,556**   | **)**       |    | (                    272,131 | ) |
| **Financing                    activities:**                                                                                                                              |   |     |                               |        |    |   |   |
|  Net                    proceeds from issuance of common stock                                                                                                       |   |     | **3,535,000**                      |        |    | 3,548,293 |   |
|  Repayments                    of note payable                                                                                                                       |   |     | **-**                              |        |    | (                    115,948 | ) |
|  Proceeds                    from exercise of options                                                                                                                |   |     | **113,320**                        |        |    | - |   |
|                        Net cash provided by financing activities                                                                                           |   |     | **3,648,320**                      |        |    | 3,432,345 |   |
|                                                                                                                                                                      |   |     |                               |        |    |   |   |
| Net                    (decrease) in cash and cash equivalents                                                                                                            |   |     | **(                    702,066**   | **)**       |    | (                    1,510,488 | ) |
|                        Cash and cash equivalents at beginning of period                                                                                    |   |     | **821,702**                        |        |    | 2,332,190 |   |
|                        Cash and cash equivalents at end of period                                                                                          |   | **$**    | **119,636**                        |        | $       | 821,702 |   |
|                                                                                                                                                                      |   |     |                               |        |    |   |   |
| **Supplemental                    disclosure of cash flow:**                                                                                                              |   |     |                               |        |    |   |   |
|                        Cash paid for interest                                                                                                              |   | **$**    | **3,170**                          |        | $       | 41,865 |   |
| **Non-cash                    transactions:**                                                                                                                             |   |     |                               |        |    |   |   |
|                        Non-cash stock option expense (reversal)                                                                                            |   | **$**    | **-**                              |        | $       | (                    284,855 | )  |
|                        Non-cash payment to an institutional investor                                                                                       |   |     | **220,374**                        |        | $  | - |   |

----

**DOR      BioPharma, Inc.**

**Notes      to Consolidated Financial Statements**

**1.**
**Nature      of Business**

**Nature      of Business **

**2.**
**Summary        of Significant Accounting Policies**

**Principles        of Consolidation **

**Segment        Information **

**Grants        Receivable **

**Intangible        Assets **

----

**Impairment        of Long-Lived Assets **

**Fair        Value of Financial Instruments**

**Revenue        Recognition**

**Research        and Development Costs **

----

**Stock        Based Compensation **

** **

|                                                                                                                                                  |   |   |                                                                                                                                                                                                                                                                                                                           |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Net                  loss as reported                                                                                                                 |   |   | $                  (                  4,720,260                                                                                                                                                                                                                                                                                | )      |
| Add                  stock-based employee compensation expense related to stock options                  determined under fair value method |   |   | (                  393,226                                                                                                                                                                                                                                                                                                     | )      |
| Amounts                  (credited) charged to income                                                                                                 |   |   | (                  284,855                                                                                                                                                                                                                                                                                                     | )      |
| Pro                  forma net loss according to SFAS 123                                                                                             |   |   |                                                 $                  ( 5,398,341 | )      |
| ***Net                  loss per share:***                                                                                                            |   |   |                                                                                                                                                                                                                                                                                                                           |   |
| As                  reported, basic and diluted                                                                                                       |   |   | $                  (                  0 .09                                                                                                                                                                                                                                                                                    | )      |
| Pro                  forma, basic and diluted                                                                                                         |   |   | $                  (                  0 .11                                                                                                                                                                                                                                                                                    | )      |

----

**Income        Taxes **

**Net        Loss Per Share**

**Use        of Estimates and Assumptions**

**New        Accounting Pronouncements**

**Management’s        Plan**

| ·   | The                Company is exploring outlicensing opportunities for orBec® both in the US                and Europe and for its BioDefense                programs. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | The                Company plans to continue seeking grant funds from governmental sources.                In September 2006, the Company received two grants totaling approximately                $5,300,000 to support the development of its BioDefense vaccine                programs. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | The                Company believes that its current cash position will allow it to                operate                over the next 12 months. However, several factors could affect this                with                the outcome of the NDA and MAA filings. Therefore, if there were                no other                sources of financing and it is not able to utilize the funding from                the                investment banking organization, reductions or discontinued operations                of                several of the Company’s programs may be required. If this should occur,                the Company believes it could continue to operate over the next eight                quarters at a reduced level and only continue with the existing grant                projects.  |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**4.        Office and Laboratory Equipment**

| ** **** **                      |                           |   |   |
|-------------------------------------------|--------------------------------|--------|--------|
| Office                  equipment         | **$                  117,660** |   |   |
| Laboratory                  equipment     | **23,212**                     |   |   |
| **Total**                                 | **140,872**                    |   |   |
| Accumulated                  depreciation | **(                  111,180** | **)**  |   |
|                                      | **$                  29,692**  |   |   |

**5.        Intangible Assets**

|                               | **Weighted                  Average Amortization****period                  (years)** |   **Cost**         |  **Accumulated****Amortization** |   **Net                  Book Value** |
|------------------------------------|---------------------------------------------------------------------------------------|------------------------------|---------------------------------------|-------------------------------------------------|
| December                  31, 2006 | 10.1                                                                                  | $                  1,739,391 | $                  666,152            | $                  1,073,239                    |
| December                  31, 2005 | 10.2                                                                                  | $                  2,605,472 | $                  802,452            | $                  1,803,020                    |

|   | **Amortization                  Amount** |
|--------|------------------------------------------|
| 2007   | $                  106,000               |
| 2008   |                     106,000    |
| 2009   |                     106,000    |
| 2010   |                     106,000    |
| 2011   |                     106,000    |

**6.        Shareholders’ Equity**

**Preferred        Stock**

**Common        Stock**

**Stock        Compensation to Employees and Non-employees**

**7.        Stock Option Plans and Warrants**

**                                                                                                                                                                                                                                                 December 31,**

|                                                             | **2006**                         | 2005   |   |
|------------------------------------------------------------------|----------------------------------|--------|--------|
|                                                             |                             |   |   |   |   |
| Shares                  available for grant at beginning of year | **7,000,000**                    |   |   | (                  1,979,339 | ) |
| Increase                  in shares available                    | **-**                            |   |   | 10,000,000 |   |
| Options                  granted                                 | **(                  4,360,000** | **)**  |   | (                  3,500,000 | ) |
| Options                  forfeited or expired                    | **1,325,000**                    |   |   | 2,479,339 |   |
| Common                  stock payment for services               | **(                  728,968**   | **)**  |   | - |   |
| Shares                  available for grant at end of year       | **3,236,032**                    |   |   | 7,000,000 |   |

|                                              |   **Options**      | **Weighted                  Average****Options                  Exercise Price** |   |
|---------------------------------------------------|------------------------------|----------------------------------------------------------------------------------|--------|
| Balance                  at January 1, 2005       | 11,979,339                   |                                                                             |   | $                  0.64 |
| Granted                                           | 500,000                      |                                                                             |   | 0.41 |
| Forfeited                                         | (                  2,465,000 | )                                                                                |   | 0.83 |
| **Balance                  at December 31, 2005** | **10,014,339**               |                                                                             |   | **0.59** |
| Granted                                           | 4,360,000                    |                                                                             |   | 0.30 |
| Forfeited                                         | (                  2,230,900 | )                                                                                |   | 0.83 |
| Exercised                                         | (                  504,100   | )                                                                                |   |   |
| **Balance                  at December 31, 2006** | **11,639,339**               |                                                                             |   | **$                  0.59** |

|  **Price****Range** |   | **Weighted                  Average Remaining****Contractual                  Life in Years** |   |  **Outstanding**** ****Options** |   |  **Exercisable****Options** |   |
|--------------------------|--------|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|----------------------------------|--------|
| $0.20-$0.50              |   | 7.99                                                                                          |   | 9,335,000                                  |   | 6,565,763                        |   |
| $0.51-$1.00              |   | 6.47                                                                                          |   | 1,662,839                                  |   | 1,662,839                        |   |
| $1.01-$6.00              |   | 3.59                                                                                          |   | 641,500                                    |   | 641,500                          |   |
| **Total**                |   | **7.53**                                                                                      |   | **11,639,339**                             |   | **8,870,102**                    |   |

----

|                                              |  **Warrants**         | **Weighted                  Average****Warrant                  Exercise Price** |   |
|---------------------------------------------------|----------------------------|----------------------------------------------------------------------------------|--------|
| Balance                  at January 1, 2005       | 15,692,718                 |                                                                             |   | $                  1.24 |
| Granted                                           | 6,926,783                  |                                                                             |   | 0.52 |
| Expired                                           | (                  452,383 | )                                                                                |   | 5.91 |
| **Balance                  at December 31, 2005** | **22,167,118**             |                                                                             |   | **0.92** |
| Granted                                           | 14,961,672                 |                                                                             |   | 0.25 |
| **Balance                  at December 31, 2006** | **37,128,790**             |                                                                             |   | **$                  0.65** |

|  **Price****Range** |   | **Weighted                  Average Remaining****Contractual                  Life in Years** |   |  **Outstanding**** ****Warrants** |   |  **Exercisable****Warrants** |   |
|--------------------------|--------|-----------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|-----------------------------------|--------|
| $0.24-$0.75              |   | 2.54                                                                                          |   | 24,541,175                                  |   | 24,541,175                        |   |
| $0.76-$1.50              |   | 1.81                                                                                          |   | 10,141,733                                  |   | 10,141,733                        |   |
| $1.51-$8.50              |   | 1.29                                                                                          |   | 2,445,882                                   |   | 2,445,882                         |   |
| **Total**                |   | **2.26**                                                                                      |   | **37,128,790**                              |   | **37,128,790**                    |   |

----

**8.        Income Taxes**

|                                                                           |                          |   |   |
|--------------------------------------------------------------------------------|-------------------------------|--------|--------|
| ***Deferred                  tax assets:***                                    |                          |   |   |
| Net                  operating loss carryforwards                              | $25,000,000                   |   |   |
| Orphan                  drug and research and development credit carryforwards | 3,000,000                     |   |   |
| Other                                                                          | 3,000,000                     |   |   |
| **Total**                                                                      | 31,000,000                    |   |   |
| Valuation                  allowance                                           | (                  31,000,000 | **)**  |   |
| Net                  deferred tax assets                                       | $                  -          |   |   |

|   |                       |
|--------|----------------------------|
| 2007   | $                  981,000 |
| 2008   | 910,000                    |
| 2009   | 1,328,000                  |
| 2010   | 1,711,000                  |
| 2011   | 870,000                    |

----

|                                                                                                               | 2006                 | 2005                 |
|--------------------------------------------------------------------------------------------------------------------|----------------------|----------------------|
| Income                  tax loss at federal stautory rate                                                          | (34.00)%             | (34.00)%             |
| State                  taxes, net of federal benefit                                                               | (3.63)               | (3.63)               |
| Permanent                  differences, principally purchased in-process                  research and development | 3.30                 | -                    |
|  Valuation                  allowance                                                                         |  34.33          |  37.63          |
|                                                                                                               |                 |                 |
| Provision                  for income taxes (benefit)                                                              | -                  % | -                  % |

**9.        Risks and Uncertainties**

**10.        Contingencies **

**11.        Subsequent Events **

----

**12.      Business Segments**

|                                                   |   | December                  31, |                         |
|--------------------------------------------------------|--------|-------------------------------|------------------------------|
|                                                   |   | 2006                          |                         | 2005 |   |
| Net                  Revenues                          |   |                          |                         |   |   |   |   |
| BioDefense                                             |   | $                             | 2,173,128                    |   | $ | 2,896,878 |   |
| BioTherapeutics                                        |   |                          | 139,892                      |   |   | 178,858 |   |
| Total                                                  |   | $                             | 2,313,020                    |   | $ | 3,075,736 |   |
|                                                   |   |                          |                         |   |   |   |   |
| Loss                  from Operations                  |   |                          |                         |   |   |   |   |
| BioDefense                                             |   | $                             | (                  1,943,732 | ) | $ | (                  847,830 | ) |
| BioTherapeutics                                        |   |                          | (                  5,061,664 | ) |   | (                  1,665,812 | ) |
| Corporate                                              |   |                          | (                  1,164,152 | ) |   | (                  2,321,409 | ) |
| Total                                                  |   | $                             | (                  8,199,548 | ) | $ | (                  4,835,051 | ) |
|                                                   |   |                          |                         |   |   |   |   |
| Identifiable                  Assets                   |   |                          |                         |   |   |   |   |
| BioDefense                                             |   | $                             | 849,295                      |   | $ | 2,189,216 |   |
| BioTherapeutics                                        |   |                          | 343,876                      |   |   | 420,250 |   |
| Corporate                                              |   |                          | 213,799                      |   |   | 763,108 |   |
| Total                                                  |   | $                             | 1,406,970                    |   | $ | 3,372,574 |   |
|                                                   |   |                          |                         |   |   |   |   |
| Amortization                  and Depreciation Expense |   |                          |                         |   |   |   |   |
| BioDefense                                             |   | $                             | 103,855                      |   | $ | 63,212 |   |
| BioTherapeutics                                        |   |                          | 24,395                       |   |   | 118,351 |   |
| Corporate                                              |   |                          | 8,794                        |   |   | 12,721 |   |
| Total                                                  |   | $                             | 137,044                      |   | $ | 194,284 |   |
|                                                   |   |                          |                         |   |   |   |   |

----

**SIGNATURES      **

| **Signature**                                     |   | **Title**                                                                                                           |
|---------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|
|                                              |   |                                                                                                                |
| /s/ James S.                  Kuo  |   |                                                                                                                |
| James                  S. Kuo                     |   | Chairman                  of the Board                                                                              |
|                                              |   |                                                                                                                |
| /s/                  Christopher J. Schaber       |   |                                                                                                                |
| Christopher                  J. Schaber           |   | Chief                  Executive Officer, President and Director (Principal Executive                  Officer)     |
|                                              |   |                                                                                                                |
| /s/                  Steve H. Kanzer              |   |                                                                                                                |
| Steve                  H. Kanzer                  |   | Vice-Chairman                  of the Board                                                                         |
|                                              |   |                                                                                                                |
| /s/                  Evan Myrianthopoulos         |   |                                                                                                                |
| Evan                  Myrianthopoulos             |   | Chief                    Financial Officer and Director (Principal Financial                    Officer)            |
|                                              |   |                                                                                                                |
| /s/                  James Clavijo                |   |                                                                                                                |
| James                  Clavijo                    |   | Controller,                    Treasurer, and Corporate Secretary (Principal Accounting                    Officer) |

----