UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

(Mark One)

or

Commission file number: 000-26648

eXegenics Inc.

Registrant’s telephone number, including area code:
(214) 523-9022

Securities registered pursuant to Section 12(b) of the Act:

     
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value Per Share
(Title of Class)

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

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

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No o

     The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) on June 30, 2003 was $6,758,785, based on the last sale price as reported by The NASDAQ Stock Market.

     As of March 15, 2004, the registrant had 15,848,579 shares of common stock outstanding.

Table of Contents

FORWARD-LOOKING STATEMENTS

     This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify such forward-looking statements by the words “expects”, “intends,” “plans,” “projects,” “believes,” “estimates,” “likely,” “goal,” “assume” and similar expressions. In the normal course of business, eXegenics Inc. (“eXegenics” or the “Company”), in an effort to help keep its stockholders and the public informed about the Company’s operations may, from time to time, issue such forward-looking statements, either orally or in writing. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies, or projections involving anticipated revenues, earnings or other aspects of operating results. eXegenics bases the forward-looking statements on its current expectations, estimates and projections. eXegenics cautions you that these statements are not guarantees of future performance and involve risks, uncertainties and assumptions that eXegenics cannot predict. In addition, eXegenics has based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Therefore, the actual results of the future events described in such forward-looking statements in this Annual Report, or elsewhere, could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are the risks and uncertainties discussed in this Annual Report, including, without limitation, factors discussed in Item 1, “Business” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including the factors discussed under the caption “Factors That May Affect Financial Condition and Future Results,” beginning on page 8.

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PART I

Item 1. Business

General

     On December 5, 2003, our then current Board of Directors: Dr. Joseph M. Davie, Robert J. Easton, Dr. Ronald L. Goode, Dr. Walter M. Lovenberg and Gordon F. Martin, (collectively referred to as the “Prior Board”) were removed by a majority vote of our stockholders via a proxy consent solicitation. They were replaced by the following slate of new Directors: John A. Paganelli, Robert A. Baron, Robert Benou, John J. Huntz, Jr., and Dr. David Lee Spencer, collectively referred to as the “New Board”. Our New Board is focused on completing the wind-down of our drug discovery operations begun in late 2002, resolving outstanding liabilities and redeploying the remaining residual assets of eXegenics Inc. (“eXegenics” or the “Company”, “we”, “our” or “us”). The New Board has established a committee to study strategic direction and identify potential business opportunities. On February 23, 2004, Dr. Ronald L. Goode, the President and Chief Executive Officer of the Company resigned, thereby terminating his employment agreement with the Company that was to expire on March 21, 2004 (See Item 11. Executive Compensation). Currently, David E. Riggs is our sole employee who serves as the President, Chief Executive Officer and Chief Financial Officer. The New Board is currently contemplating a possible relocation of the Company from Dallas, Texas to Rochester, New York.

     We have historically operated as a drug discovery company, exploiting new enabling technologies to advance and shorten the new drug development cycle. Drug discovery is the first phase of an eight to 12 year cycle, from inception to FDA approval, typically needed to bring a new drug to market. Employing new technologies is a high-risk venture. Our Company has been unsuccessful at advancing research programs. As a result, in 2002 the Prior Board decided to exit the drug discovery market and to reposition the Company as a commercially oriented, specialty markets drug company focused on developing and marketing products to physicians practicing in specialist areas. This strategy would have entailed either licensing niche products or clinical product candidates from outside the Company, completing clinical development and obtaining FDA approval or engaging in a merger with a company already operating in this area. To that end, the Prior Board concluded that it would be in the best interests of our stockholders if we entered into a business combination with a company having products in clinical development and/or pursued a secondary strategy of in-licensing compounds already engaged in human clinical trials and completed that process for those compounds.

     In September 2002, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Innovative Drug Delivery Systems (“IDDS”), and filed a related Registration Statement on Form S-4 with the Securities and Exchange Commission on October 31, 2002. After announcing the proposed merger with IDDS, the Prior Board determined that the proposed merger had significant shareholder opposition, placing the question of shareholder approval in doubt. Given these circumstances, the two companies reached a mutual decision to terminate the merger effort. In November 2002, the Merger Agreement was terminated pursuant to a termination agreement dated November 25, 2002, and on November 27, 2002, the Company requested withdrawal of the registration statement.

     In 2002, the Company recognized an aggregate of $2,010,000 in expenses related to the merger which included $496,000 in legal fees, $304,000 in fees to a financial advisor, $210,000 in other fees for audit, printing and investor relations services and a $500,000 termination fee paid to IDDS pursuant to the termination agreement dated November 25, 2002. The $500,000 expense related to establishing the reserve account for the convertible note the Company received from IDDS. (see Note F in Notes to Financial Statements).

     On May 15, 2003, The M&B Weiss Family Limited Partnership of 1996 filed a lawsuit in the Delaware Court of Chancery, purportedly as a class action on behalf of all other similarly situated stockholders of the Company, against the Company, as a nominal defendant, and former directors: Joseph M. Davie, Robert J. Easton, Ronald L. Goode and Walter Lovenberg, (collectively referred to as the “Individual Defendants”), and purportedly as a derivative action on behalf of the Company against the Individual Defendants (the “Weiss Litigation”). The complaint alleges, among other things, that the Individual Defendants have mismanaged the Company, have made unwarranted and wasteful loans and payments to certain directors and third parties, have disseminated a materially false and misleading proxy statement in connection with the 2003 annual meeting of our stockholders, and have breached their fiduciary duties to act in the best interests of our Company and its stockholders. The complaint seeks, among other things, court orders mandating that the defendants cooperate with parties proposing bona fide transactions to maximize stockholder value, make corrective disclosures with respect to the proxy statement for the 2003 annual meeting, and account to the Company and the plaintiffs for damages suffered as a result of the actions alleged in the complaint.

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     On May 19, 2003 the annual meeting of stockholders was held, but adjourned prior to taking a vote for the election of Directors in order to enable the Prior Board to meet with stockholder groups and consider changing the slate of Directors supported by the Prior Board for re-election.

     On May 29, 2003, EI Acquisition Inc. (“EI Acquisition”), a wholly-owned subsidiary of Foundation Growth Investments LLC (together with EI Acquisition, the “Foundation Group”), commenced an unsolicited cash tender offer (the “Foundation Offer”) for all of our outstanding shares of common stock and Series A preferred stock at a price of $0.40 per share, which offer price was later increased to $0.60 per share. For the reasons described in our Solicitation/Recommendation Statement on Schedule 14D-9 in response to the Foundation Offer, filed with the Securities and Exchange Commission on June 12, 2003, as amended (the “Foundation Schedule 14D-9”), the Prior Board unanimously recommended that the Company’s stockholders reject the Foundation Offer and not tender their shares to the Foundation Group.

     On June 9, 2003, the defendants in the Weiss litigation filed a joint motion with the Delaware Court of Chancery to dismiss the complaint for failure to state a claim and for failure to make the statutorily required demand on the Company to assert the subject claims.

     On June 9, 2003, in an effort to preserve the ability of the Prior Board to resist inadequate takeover proposals and protect stockholder value, the Prior Board adopted a stockholder rights plan (the “Rights Plan”). The Rights Plan requires any party seeking to acquire 15% or more of the outstanding common stock of the Company to obtain the approval of the Board or else the rights granted to stockholders under the Rights Plan that are not held by the acquirer will become exercisable for our common stock, or common stock of the acquirer, at a discounted price.

     On June 17, 2003 the annual meeting of stockholders was reconvened and the slate of Directors designated by the Prior Board in our definitive proxy statement, filed with the SEC on April 15, 2003, were re-elected to serve as directors by a majority of shares voted.

     On June 18, 2003, the Foundation Group filed with the SEC preliminary proxy materials relating to its commencement of a solicitation of our stockholders to consent to the removal of all the members of the Prior Board and the election of three new directors nominated by the Foundation Group to serve as the sole members of a new board of directors. The Foundation Group’s consent solicitation materials stated the belief of the Foundation Group that, if elected, the Foundation Group’s nominees would consider taking the following actions: (i) exempting the Foundation Group from the application of the poison pill adopted by the Prior Board; (ii) exempting the Foundation Group from the application of the Delaware anti-takeover statute; (iii) repealing all of the recent amendments to the Company bylaws, which provide, among other things, for certain procedures for stockholder proposals and nominations to be presented at stockholder meetings and for stockholders taking action by written consent; and (iv) approving a merger between the Company and EI Acquisition Inc. following the completion of the Foundation Offer.

     On June 25, 2003, the Company filed with the Commission preliminary proxy materials relating to our opposition to the Foundation Group’s consent solicitation. The Company’s materials stated the belief of the Prior Board that stockholders should not provide their consent to the Foundation Group’s proposals and should revoke any such consents that might have been given.

     On July 16, 2003, the Company and AVI Biopharma, Inc. (“AVI”) entered into an Agreement and Plan of Merger, pursuant to which AVI would first commence an exchange offer in which AVI, through its wholly-owned subsidiary, Elk Acquisition, Inc., would offer 0.103 of a share of AVI common stock for each outstanding share of the Company’s common stock and 0.155 of a share of AVI common stock for each outstanding share of the Company’s preferred stock. The exchange offer was to be followed by a merger in which each share of the Company’s common stock not tendered in the exchange offer would be converted into the right to receive 0.103 of a share of AVI common stock and each share of the Company’s preferred stock not tendered in the exchange offer would be converted into the right to receive 0.155 of a share of AVI common stock. On July 25, 2003, AVI commenced the exchange offer. On August 11, 2003, AVI amended the terms of the exchange offer by increasing the exchange ratio to 0.123 of a share of AVI’s common stock for each share of the Company’s common stock, and 0.185 of a share of AVI’s common stock for each share of the Company’s preferred stock.

     On August 27, 2003, a group of shareholders consisting of Bruce Meyers, the M&B Weiss Family Limited Partnership of 1996, Melvyn I. Weiss, and Michael Stone (the “Meyers Group”) filed with the SEC preliminary consent materials relating to its commencement of a solicitation of our stockholders to consent to the removal of all the members of the Prior Board and the election of five new directors nominated by the Meyers Group to serve as the sole members of the New Board. On September 15,

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2003, the Meyers Group filed with the SEC amended preliminary consent solicitation materials, and on September 30, 2003, the Meyers Group filed definitive consent solicitation materials.

     At a meeting held on September 2, 2003, the Prior Board set a record date in response to the Meyers Group’s request in connection with the consent solicitation. The Prior Board set September 5, 2003 as the record date.

     On September 2, 2003, AVI terminated the Agreement and Plan of Merger, due to less than the minimum number of shares of the Company’s stock being tendered by stockholders, which termination also served to terminate the exchange offer.

     On September 9, 2003, with less than a majority of the Company’s shares having been tendered, the Foundation Group terminated its tender offer to acquire all of the outstanding shares of our common stock and our preferred stock , as well as its consent solicitation of our shareholders.

     On September 9, 2003, a First Amended Shareholder’s Class and Derivative Complaint was filed by the plaintiff in the Weiss Litigation against the Company, as a nominal defendant, and the Individual Defendants, and purportedly as a class action on behalf of the plaintiff and on behalf of all other similarly situated stockholders of the Company, and purportedly as a derivative action on behalf of the Company against the Individual Defendants. The amended complaint, which was filed in substitution for the complaint previously filed by the same plaintiff on May 15, 2003, seeks, among other things, court orders mandating: (i) that the amended complaint be declared a proper class action and certifying the plaintiff as the class representative; (ii) that the Individual Defendants restore to the Company all monies alleged to have been wasted in connection with the aborted merger transactions with IDDS and AVI; (iii) that the defendants cooperate with parties proposing bona fide transactions to maximize stockholder value; (iv) that the Individual Defendants act independently so that the interests of shareholders are protected; (v) that the Individual Defendants ensure that no conflicts of interest exist between themselves and the Company and our stockholders; and (vi) that the Individual Defendants account to the Company, the plaintiff and the proposed class for damages suffered as a result of the actions alleged in the amended complaint.

     On September 17, 2003, Ernst & Young LLP (“E&Y”) resigned as our independent auditor. The decision to change independent auditors was not recommended or approved by the Audit Committee (the “Audit Committee”) of the Prior Board. The reports of E&Y on the financial statements of the Company as of and for the fiscal years ended December 31, 2001 and 2002 contained no adverse opinion or disclaimer of opinion, nor were the reports qualified or modified as to uncertainty, audit scope or accounting principles. In connection with its audits for the fiscal years ended December 31, 2001 and December 31, 2002, and during the subsequent interim period that began on January 1, 2003 and ended September 17, 2003, there were no disagreements with E&Y on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if they had occurred and not been resolved to the satisfaction of E&Y, would have caused E&Y to make reference to such disagreements in their reports on the financial statements for such years.

     On September 22, 2003, the defendants in the Weiss Litigation filed a subsequent joint motion with the Delaware Court of Chancery to dismiss the complaint for failure to state a claim and for failure to make the statutorily required demand on the Company to assert the subject claims. On that same day, the defendants also filed a joint motion with the Delaware Court of Chancery to disqualify Melvyn Weiss and Milberg Weiss Bershad Hynes & Lerach LLP, a firm in which Mr. Weiss is senior partner, from serving as both class counsel and as class representative.

     On October 2, 2003, we filed with the SEC preliminary proxy materials relating to our opposition to the Meyers Group’s consent solicitation. In the proxy materials, we stated that the Prior Board unanimously opposed the Meyers Group’s consent solicitation and recommended that our stockholders not provide their consent to the Meyers Group’s proposals, and should revoke any such consents that had been given. On October 3, 2003, we filed with the SEC solicitation materials under Rule 14a-12.

     On October 8, 2003, we filed with the SEC definitive consent solicitation materials. On October 10, 2003 and on November 26 2003, we filed with the SEC definitive additional materials relating to our opposition to the Meyers Group’s consent solicitation.

     On November 12, 2003, we selected BDO Seidman, LLP as our new independent auditor to replace our previous auditor, E&Y.

     On December 5, 2003, the Meyers Group delivered to us consents, exceeding a majority of the Company’s issued and outstanding preferred and common shares as of September 5, 2003, in favor of removing the Company’s Prior Board and electing the New Board.

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The Company engaged IVS Associates, Inc. (“IVS”), independent proxy inspectors, to provide an independent tabulation of the consents and revocations and to report on the results as soon as possible.

     On December 9, 2003, IVS completed the review of the consents and revocations submitted in connection with the Meyers Group consent solicitation and reported that the vote’s cast were sufficient to elect a new slate of directors. As a result, the New Board was elected as directors of the Company, replacing the Prior Board.

     In 2003, the Company recognized an aggregate of $2,233,000 in expenses related to merger, tender offer and consent solicitation activities which included $1,375,000 in legal fees, $398,000 in fees to a financial advisor, $360,000 in other fees for audit, printing and investor relations services and $100,000 for reimbursement of certain expenses triggered in connection with the termination of the Agreement and plan of Merger were paid to AVI Biopharma (see Note F in Notes to Financial Statements).

Discontinued Programs

     As a result of our late 2002 decision to exit the drug discovery business, the following programs have been shut down:

Quantum Core Technology (QCT™)

     QCT is a proprietary, drug creation methodology that is based on a combination of quantum chemistry, proprietary computational software and molecular modeling. QCT is a Quantum Mechanism-Based drug creation technique that combines quantum mechanical calculations and physical organic chemistry to understand essential biochemical reactions at the level of the atom. We were unsuccessful in developing novel compounds that advanced to clinical drug candidates and that we would generate revenues from partnering agreements with pharmaceutical companies. With the lack of progress in discovery research and unfavorable market conditions that drug discovery companies faced in licensing collaborations with major pharmaceutical companies, we terminated all QCT research programs in 2003. We are investigating out-licensing opportunities for rights to further develop the QCT technology.

Optimized Anti-Sense Inhibitory Sequence™ (OASIS™)

     OASIS is a patented technology platform that uses computers to design “anti-sense sequences” or “anti-senses” — molecules capable of blocking the expression of specific genes. The goal of OASIS is to eliminate the trial and error work traditionally involved in finding anti-sense sequences and to efficiently predict the most potent anti-sense molecules in a gene sequence. Although our scientists were able to use OASIS to create a library of optimal inhibitor sequences to 100% of the genes of Mycobacterium tuberculosis and another library consisting of optimal inhibitors for 25% of human genes, we could not find corporate partners interested in utilizing our technology. Other Company sponsored research programs conducted at the University of Texas at Dallas (UTD) were terminated in December 2002.

Taxanes Program

     We had an exclusive worldwide license to use gene-based technology to synthesize taxanes (the chemical class to which Taxol® belongs). Taxol® is expensive to manufacture since it is derived from hard-to-obtain natural products: the bark and needles of the Pacific Yew tree. A genetically engineered production system for baccatin could potentially be used to manufacture an improved second-generation paclitaxel. Due to poor results from our research efforts, the termination of external funding for this program, and the extremely long timeframe projected for successful conclusion, if any, of this production development project, we discontinued our research in this area.

Gaucher’s disease

     We were unsuccessful in finding a party interested to license our program to produce glucocerebrosidase for use in Gaucher’s disease, and discontinued those efforts in 2003.

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Other Programs

     In addition, we have discontinued the following programs: vaccine engineering, telomerase, polycystic kidney disease, estrogen peptide, and monoclonal antibodies.

Discontinued Collaborative and License Agreements

QCT

     In June 2000, we entered into an exclusive worldwide license agreement with the University of California — San Diego (UCSD), and the University of British Columbia (UBC) to use or sublicense patent rights disclosed in a pending U.S. patent titled “A New Anti-tuberculosis Drug Target.” Pursuant to the agreement, we paid a license issue fee and we were obligated to pay license maintenance fees and, possibly, milestone and royalty payments. Also in June 2000, we agreed to a three-year collaborative research agreement with UBC and Vancouver Hospital to fund research under the direction of Dr. Yossef Av-Gay of the Department of Medicine at UBC. In August 2000, we entered into a three-year collaborative research agreement with the Regents of the University of California to fund research performed under the direction of Dr. Robert Fahey of the Department of Chemistry and Biochemistry at the UCSD. We terminated the agreements with both UBC and UCSD in February 2003 and December 2002, respectively.

OASIS

     An agreement with UTD that was originally entered into in 1992 pursuant to which UTD was to perform certain research and development activities relating to anti-sense compounds and related technology for use in humans terminated in December 2002.

     We retain certain rights to a patent, originated in June 1996, with the Board of Regents of UTD whereby we obtained an exclusive royalty-bearing license to manufacture, have manufactured, use, sell and sublicense products related to a U.S. patent application entitled, “A Method for Ranking Sequences to Select Target Sequence Zones of Nucleic Acids.”

Taxanes Program

     Our June 1998 license agreement and research and development agreement with Bristol Meyers Squibb (“BMS”) granted them exclusive worldwide sublicenses under our agreements with the Research & Development Institute (RDI) and the Washington State University Research Foundation (“WSURF”). The research and development agreement, between BMS and us, terminated on June 12, 2002. In June 2003, we terminated our license agreement with BMS, re-acquiring the exclusive rights to the WSURF paclitaxel gene technology.

     On June 19, 2002 we terminated our June 1993 license agreement with RDI, in which we had been granted worldwide exclusive rights to fungal technology to produce paclitaxel.

Patents, Licenses and Proprietary Rights

     Prior to the termination of all of our research and development programs, our policy was to protect technology that we consider important in the development of our business by, among other things, filing patent applications for such technology. In addition to filing patent applications in the U.S., we have filed patent applications in certain foreign countries. Although a patent has a statutory presumption of validity in the U.S., the issuance of a patent is not conclusive as to such validity or as to the enforceable scope of the claims of the patent. There can be no assurance that our issued patents or any patents subsequently issued to us, or licensed by us, will not be successfully challenged in the future. The validity or enforceability of a patent after its issuance by the U.S. Patent and Trademark Office can be challenged in litigation. If the outcome of the litigation is adverse to the owner of the patent, third parties may then be able to use the invention covered by the patent, in some cases without payment. There can be no assurance that patents in which we have rights will not be infringed or successfully avoided through design innovation.

     Costs associated with our patent portfolio exceeded $220,000 in 2003 and $600,000 in 2002. We do not expect to incur significant new patent expenses related to drug discovery research operations.

     There can be no assurance that patent applications owned by us or licensed to us will result in patents being issued or that any such patents will afford protection against competitors with similar technology. It is also possible that third parties may obtain patent or other proprietary rights that may be needed by us. In cases where third parties are the first to invent a particular product or technology,

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it is possible that those parties will obtain patents that will be sufficiently broad so as to prevent us from using certain technology or from further developing or commercializing certain products. If licenses from third parties are necessary but cannot be obtained, commercialization of the related products would be delayed or prevented. We are aware of patent applications and issued patents belonging to competitors but we are uncertain whether any of these, or patent applications filed of which we may not have any knowledge, will require us to alter our potential products or processes, pay licensing fees or cease certain activities.

     We also rely on unpatented technology as well as trade secrets and information. No assurance can be given that others will not independently develop substantially equivalent information and techniques or otherwise gain access to our technology or disclose such technology, or that we can effectively protect our rights in such unpatented technology, trade secrets and information. We require each of our employees to execute a confidentiality agreement at the commencement of their employment with us. The agreements generally provide that all inventions conceived by the individual in the course of employment or in the providing of services to us and all confidential information developed by, or made known to, the individual during the term of the relationship shall be our exclusive property and shall be kept confidential and not disclosed to third parties except in limited specified circumstances. There can be no assurance, however, that these agreements will provide us with meaningful protection in the event of unauthorized use or disclosure of such confidential information.

Competition

     Any potential products that might come from our remaining intellectual property may face competition from existing therapies. The development by others of novel treatment methods for those indications for which we were developing compounds could render any compounds derived from our intellectual property non-competitive or obsolete. Competition in pharmaceuticals is generally based on performance characteristics as well as price and timing of market introduction of competitive products. Acceptance by hospitals, physicians and patients is crucial to the success of a product. Price competition may become increasingly important as a result of an increased focus by insurers and regulators on the containment of health care costs. In addition, the various federal and state agencies have enacted regulations requiring rebates of a portion of the purchase price of many pharmaceutical products.

Insurance

     We have indemnification agreements with our former directors, in addition to the rights to indemnification afforded such individuals in our bylaws. The indemnification agreements require us to maintain directors’ and officers’ liability insurance covering at the then current levels of coverage for these individuals for a period from the date of such agreements until six years after the last date on which the individual ceases to be a director, officer, employee, agent or fiduciary of the Company. There can be no assurance that we will be able to obtain, maintain or increase our insurance coverage in the future on acceptable terms or that any claims against us will not exceed the amount of such coverage.

Employees

     As of March 30, 2004, we have one full-time employee, David E. Riggs, who serves as the President, Chief Executive Officer and Chief Financial Officer. We engage independent contractors and temporary employees to perform certain administrative tasks. Although we believe that we have been successful to date in attracting skilled, highly qualified personnel, competition for personnel is intense and we cannot assure that we will be able to attract and retain highly qualified personnel. Our employees are not governed by any collective bargaining agreement, however, Mr. Riggs has an employment contract with the Company.

     On February 23, 2004, Dr. Ronald L. Goode resigned his positions with the Company as President and Chief Executive Officer, thereby terminating his employment agreement with the Company that was to expire on March 21, 2004. Dr. Goode has claimed that he left his positions in part because the New Board has created an environment where his ability to perform his job functions has been diminished. We unconditionally dispute each of Dr. Goode’s claims.

Factors That May Affect Financial Condition and Future Results

     We are currently focused on completing the wind-down of our drug discovery operations begun in late 2002, resolving outstanding liabilities and redeploying the remaining residual assets of the Company. We have participated in a continually changing industry that utilizes rapidly evolving technologies. The following cautionary statements discuss important factors that could cause actual results to differ materially from the projected results contained in the forward-looking statements in this report.

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Liquidity and Capital Resources

     At December 31, 2003 we had cash, cash equivalents and investments of approximately $10,132,000, plus restricted cash of $600,000. Restricted cash was pledged as collateral in support of leased laboratory equipment. In connection with the termination of our drug discovery research programs, we repurchased equipment subject to a capital lease agreement. In January 2004, in conjunction with this December 2003 repurchase, the lessor of this equipment released $375,000 of the held collateral. We anticipate the wind-down operations to be substantially completed by the end of the first half of 2004. We estimate that we will use $1.2-1.5 million during this time to satisfy previous commitments of the Prior Board. After the first quarter, we forecast our cash usage to be approximately $100,000-125,000 per month, assuming that we make no new investments or engage in the operation of a new business. Our future capital needs are uncertain. The Company may or may not need additional financing in the future to fund operations, a determination to be made when the Company implements its new business strategy. We do not know whether additional financing will be available when needed, or that, if available, we will obtain financing on terms favorable to our stockholders.

Our Stock

     The market price of our stock may be negatively affected by market volatility. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our securities:

Research and Development Activities

     We incurred research and development expenses of $154,000, $3,948,000 and $4,843,000 for the fiscal years 2003, 2002 and 2001, respectively. None of our 2003 research and development activities related to customer-sponsored development programs. In 2002 and 2001 we incurred an estimated $562,000 and $1,333,000, respectively, related to our agreement with Bristol Myers Squibb to develop a novel production method to manufacture paclitaxel.

Item 2. Properties

     As of December 31, 2003, we vacated approximately 19,300 square feet of office and laboratory space at 2110 Research Row, Dallas, Texas, previously occupied by the Company since its inception. The New Board is contemplating relocating the Company to Rochester, New York. Until such time as a relocation decision is made we are occupying approximately 545 square feet of temporary office space leased on a month-to-month basis at 2911 Turtle Creek Boulevard, Dallas, Texas for which we incur rent expenses of approximately $4,000 per month.

Item 3. Legal Proceedings

     We are not a party to any litigation in any court, and management is not aware of any contemplated proceeding by any governmental authority or individual against us except as described below.

     Weiss Litigation. On May 15, 2003, The M&B Weiss Family Limited Partnership of 1996 filed a lawsuit in the Delaware Court of Chancery, purportedly as a class action on behalf of all other similarly situated stockholders of the Company, against the Company, as a nominal defendant, and the Individual Defendants, and purportedly as a derivative action on behalf of the Company against the Individual Defendants. The complaint alleges, among other things, that the Individual Defendants have mismanaged the Company, have made unwarranted and wasteful loans and payments to certain directors and third parties, have disseminated a materially false and misleading proxy statement in connection with the 2003 annual meeting of our stockholders, and have breached their fiduciary

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duties to act in the best interests of our Company and its stockholders. The complaint seeks, among other things, court orders mandating that the defendants cooperate with parties proposing bona fide transactions to maximize stockholder value, make corrective disclosures with respect to the proxy statement for the 2003 annual meeting, and account to the Company and the plaintiffs for damages suffered as a result of the actions alleged in the complaint.

     On June 9, 2003, the defendants in the Weiss litigation filed a joint motion with the Delaware Court of Chancery to dismiss the complaint for failure to state a claim and for failure to make the statutorily required demand on the Company to assert the subject claims.

     On September 9, 2003, a First Amended Shareholder’s Class and Derivative Complaint was filed by the plaintiff in the Weiss Litigation against the Company, as a nominal defendant, and the Individual Defendants, and purportedly as a class action on behalf of the plaintiff and on behalf of all other similarly situated stockholders of the Company, and purportedly as a derivative action on behalf of the Company against the Individual Defendants. The amended complaint, which was filed in substitution for the complaint previously filed by the same plaintiff on May 15, 2003, seeks, among other things, court orders mandating: (i) that the amended complaint be declared a proper class action and certifying the plaintiff as the class representative; (ii) that the Individual Defendants restore to the Company all monies alleged to have been wasted in connection with the aborted merger transactions with IDDS and AVI; (iii) that the defendants cooperate with parties proposing bona fide transactions to maximize stockholder value; (iv) that the Individual Defendants act independently so that the interests of shareholders are protected; (v) that the Individual Defendants ensure that no conflicts of interest exist between themselves and the Company and our stockholders; and (vi) that the Individual Defendants account to the Company, the plaintiff and the proposed class for damages suffered as a result of the actions alleged in the amended complaint.

     On September 22, 2003, the defendants in the Weiss Litigation filed a subsequent joint motion with the Delaware Court of Chancery to dismiss the complaint for failure to state a claim and for failure to make the statutorily required demand on the Company to assert the subject claims. On that same day, the defendants also filed a joint motion with the Delaware Court of Chancery to disqualify Melvyn Weiss and Milberg Weiss Bershad Hynes & Lerach LLP, a firm in which Mr. Weiss is senior partner, from serving as both class counsel and as class representative.

     We cannot predict at this point the length of time that the Weiss Litigation will be ongoing or the liability, if any, which may arise there from. The Company will defend itself vigorously against this claim.

     Labidi Proceeding. In April 2002, Dr. Labidi, one of our former employees, made certain allegations against us regarding discrimination. Dr. Labidi initially filed an employment discrimination charge with the Equal Employment Opportunity Commission (“EEOC”) alleging that he was harassed and discriminated against. The EEOC dismissed this charge because it found no substantial evidence to support Dr. Labidi’s claims. Dr. Labidi subsequently filed a federal court lawsuit against the Company in the United States District Court for the Northern District of Texas. In the lawsuit, Dr. Labidi reasserted his harassment and discrimination claims. In addition, Dr. Labidi alleged that the Company wrongfully converted certain biological research materials that Dr. Labidi claims belong to him. At this point, no formal discovery has occurred in this lawsuit and our attorneys investigation of Dr. Labidi’s claims are in an early stage. We believe we have meritorious defenses with respect to these allegations, all of which we intend to pursue vigorously.

     2110 Research Row, Ltd. Proceeding. On December 31, 2003, the termination date of our lease agreement, we vacated 19,300 square feet of office and laboratory space that we occupied at 2110 Research Row, Dallas, Texas. We occupied this facility since October 1991. 2110 Research Row, Ltd. (the “Landlord”) acquired this property in April 2002. The Landlord contends he is owed payments that we believe to be outside the terms of the lease agreement or waived by the previous landlord. Among the Landlord’s claims, for which he seeks monetary payments from the Company are late fees on monthly lease payments which were waived by the previous landlord, incremental property taxes incurred by the Landlord as a result of the change in the tax status of the property from not-for-profit to for profit, and additional lease payments resulting from the purported mis-measurement of the square footage of space we occupy contained in the lease agreement. The aggregation of these and other claims made by the landlord is approximately $173,000.

     In October 2003, the Landlord filed a lien on our personal property located at 2110 Research Row. The lien was subsequently removed in December 2003.

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     In October 2003, we filed suit against the Landlord and 9000 Harry Hines, Inc., in a Dallas County District Court. The Company, as Tenant, and Landlord were parties to a lease agreement (“Lease Agreement”) dated October 1, 1991, as amended. The petition filed by us contends that the monetary payments sought by the Landlord are excluded under the Lease Agreement and requests a declaration from the Court that the Company is not in either monetary, or non-monetary, default.

     On March 19, 2004, we entered into a settlement agreement with the Landlord, whereby we agreed to make a $33,000 payment to the Landlord, dismiss the suit with prejudice and enter into a mutual release of any and all claims by all parties.

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

Meyers Group Consent Solicitation

     On August 27, 2003, the Meyers Group filed with the SEC preliminary consent materials relating to its commencement of a solicitation of our stockholders to consent to the removal of all the members of the Prior Board and the election of five new directors nominated by the Meyers Group to serve as the sole members of the New Board. On September 15, 2003, the Meyers Group filed with the SEC amended preliminary consent solicitation materials, and on September 30, 2003, the Meyers Group filed definitive consent solicitation materials.

     At a meeting held on September 2, 2003, the Prior Board of Directors set a record date in response to the Meyers Group’s request in connection with the consent solicitation. The Prior Board set September 5, 2003 as the record date.

     On December 5, 2003, we received from the Meyers Group copies of written consents purporting to represent a majority of the outstanding shares of the Company’s voting stock. On the same date, we engaged IVS Associates, Inc. (“IVS”), independent proxy inspectors, to provide an independent tabulation of the consents and revocations and to report on the results. On December 9, 2003, IVS reported that the consents delivered by the Meyers Group were sufficient to elect a new slate of directors. Consents voting for the five nominees of the Meyers Group, as determined by IVS, totalled 8,909,367 shares of the Company’s voting stock. As a result, five nominees of the Meyers Group were elected as the New Board, replacing the Prior Board.

     At this time, the Meyers Group, together with the New Board, was the beneficial owner of 2,963,717 shares of the common and preferred stock of the company (according to the Schedule 14A filed with the Securities and Exchange Commission by the Meyers Group on September 30, 2003). This amount represents approximately 18% of the total voting stock of the Company currently outstanding.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

     Our common stock is currently listed on the NASDAQ SmallCap Market. Before May 22, 2000, our common stock was quoted in the over-the-counter market on the NASDAQ SmallCap Market System under the ticker symbol “CYPH”. From May 22, 2000 until October 24, 2001 we had been listed on the NASDAQ National Market under the symbol “CYPH”. Since October 24, 2001 we have been listed under “EXEG”. On October 25, 2002, we transferred from the NASDAQ National Market to the NASDAQ SmallCap Market as a result of our failure to comply with the NASDAQ National Market’s minimum bid price requirement of $1.00 per share. On January 22, 2003, we were provided an additional 180 calendar days, or until July 21, 2003, to regain compliance with such requirement. Although on July 21, 2003 we failed to regain compliance with such requirement, given that we met the initial listing requirements for the NASDAQ SmallCap Market, NASDAQ provided us with an additional 90 calendar days, or until October 20, 2003 to regain compliance with the minimum bid price requirement.

     On October 20, 2003, the Company received official notification from The NASDAQ Stock Market that it was not in compliance with the minimum $1.00 closing bid price per share requirement as set forth in NASD Marketplace Rule 4310(c)(4), and the requirement for a minimum of three independent members of the audit committee as set forth in NASD Marketplace Rule 4350(d)(2). Our common stock was, therefore, subject to delisting from The NASDAQ SmallCap Market. We requested a hearing before the

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NASDAQ Listing Qualifications Panel to review the NASDAQ staff determination. This hearing occurred on December 4, 2003. As set forth in NASD Marketplace Rule 4820, this request stayed any delisting action pending issuance of a written determination by the NASDAQ Listing Qualifications Panel.

     On January 2, 2004, the NASDAQ Listings Qualification Panel notified us that we were entitled to an extension (until July 25, 2004) to regain compliance with a $1.00 minimum share price for listing on The NASDAQ SmallCap Market. During this period, it will be necessary for the Company’s common stock to trade at or above $1.00 per share for a minimum of 10 consecutive trading days to remain listed on the NASDAQ SmallCap Market. The NASDAQ Panel’s determination was, in part, based on the Company’s commitment to seek shareholder approval of a reverse stock split. A reverse stock split is one possible solution to rectifying the Company’s deficiency as it relates to the $1.00 minimum share price issue. There is no guarantee that a reverse split will ultimately satisfy the $1.00 minimum share price on a limited or long-term basis.

     On January 28, 2004 the NASDAQ internal staff review concluded that the New Board and its Audit Committee satisfy the independent composition requirements as set forth in NASDAQ Marketplace Rules 4350(c) and 4350(d)(2), respectively.

     If we fail to meet the continued listing standards by the time this additional grace period terminates on July 25, 2004, our common stock will be delisted from the NASDAQ SmallCap Market. This would likely have an adverse impact on the trading price and liquidity of our common stock. If our common stock were to be delisted, trading, if any, in the common stock may continue to be conducted on the OTC Bulletin Board upon application by the requisite market makers.

Common Stock

     The following table shows the highest and lowest actual trades of our common stock, on a per share basis, during each quarterly period within the two most recent fiscal years, as reported by the National Association of Securities Dealers. Such prices reflect inter-dealer quotations, without adjustment for any retail markup, markdown or commission.

     On March 15, 2004, the last sale price of our common stock was $0.70.

Stockholders

     As of March 15, 2004, there were approximately 200 holders of record of our common stock and, according to our estimates, approximately 4,600 beneficial owners of our common stock.

Dividends

     We have not paid dividends to our common stockholders since our inception and do not plan to pay cash dividends in the foreseeable future. We currently intend to retain earnings, if any.

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Equity Compensation Plan Information

Equity Compensation Plan Information
As of December 31, 2003

     We have authorized the issuance of equity securities under the compensation plans described below without the approval of stockholders. No additional options, warrants or rights are available for issuance under any of these plans, except for additional shares which may become purchasable under warrants with anti-dilution protection as noted below. We have either already registered or agreed to register for resale the common stock underlying all of these plans.

Recent Sales of Unregistered Securities

     In March 2003, in exchange for financial advisory services we issued warrants to Petkevich & Partners, LLC to purchase 40,000 shares of common stock at a purchase price of $0.58 per share, with an expiration date of March 5, 2008.

     In addition, during the year ended December 31, 2003 we granted options to purchase an aggregate of 455,000 shares of common stock to employees and directors with a weighted average exercise price of $0.51 per share. All options issued during 2003 were granted with an exercise price equal to the fair market value of our common stock on the date of grant.

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     The securities issued in the foregoing transactions were offered and sold in reliance upon exemptions from the Securities Act of 1933 registration requirements set forth in Sections 3(b) and 4(2) of the Securities Act and any regulations promulgated there under, relating to sales by an issuer not involving any public offering. No underwriters were involved in the foregoing sales of securities.

Item 6. Selected Financial Data

     The selected financial data set forth below is derived from our audited financial statements. Such information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and with such financial statements and the notes thereto contained elsewhere in this report.

eXegenics Inc.
SELECTED FINANCIAL DATA

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     In this section, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to “we,” “us,” “our,” and “ours” refer to eXegenics Inc.

     The following discussion should be read in conjunction with, and is qualified in its entirety by, the Financial Statements and the Notes thereto included in this report. This discussion contains certain forward-looking statements that involve substantial risks and uncertainties. When used in this report the words “anticipate,” “believe,” “estimate,” “expect” and similar expressions as they relate to our management or us are intended to identify such forward-looking statements. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Historical operating results are not necessarily indicative of the trends in operating results for any future period.

     On December 5, 2003, our Prior Board was removed by a majority vote of our stockholders via a proxy consent solicitation. They were replaced by our New Board. Our New Board is focused on completing the wind-down of our drug discovery operations begun in late 2002, resolving outstanding liabilities and redeploying the remaining residual assets of the Company. The New Board has established a committee to study strategic direction and identify potential business opportunities. On February 23, 2004, Dr. Ronald L. Goode, the President and Chief Executive Officer of the Company resigned, thereby terminating his employment agreement with the Company that was to expire on March 21, 2004 (See Item 11. Executive Compensation). Currently, David E. Riggs is our sole employee who serves as the President, Chief Executive Officer and Chief Financial Officer.

     We have historically operated as a drug discovery company, exploiting new enabling technologies to advance and shorten the new drug development cycle. Drug discovery is the first phase of an eight to 12 year cycle, from inception to FDA approval, typically needed to bring a new drug to market. Employing new technologies is a high-risk venture. Our Company has been unsuccessful at advancing research programs. As a result, in 2002 the Prior Board decided to exit the drug discovery market and to reposition the Company as a commercially oriented, specialty markets drug company focused on developing and marketing products to physicians practicing in specialist areas. This strategy would have entailed either licensing niche products or clinical product candidates from outside the Company, completing clinical development and obtaining FDA approval or engaging in a merger with a company already operating in this area. To that end, the Prior Board concluded that it would be in the best interests of our stockholders if we entered into a business combination with a company having products in clinical development and/or pursued a secondary strategy of in-licensing compounds already engaged in human clinical trials and completed that process for those compounds.

     In September 2002, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Innovative Drug Delivery Systems (“IDDS”), and filed a related Registration Statement on Form S-4 with the Securities and Exchange Commission on October 31, 2002. After announcing the proposed merger with IDDS, it became clear that the proposed merger had significant shareholder opposition, placing the question of shareholder approval in doubt. Given these circumstances, the two companies reached a mutual decision to terminate the merger effort. In November 2002, the Merger Agreement was terminated pursuant to a termination agreement dated November 25, 2002, and on November 27, 2002, the Company requested withdrawal of the registration statement.

     In 2002, the Company recognized an aggregate of $2,010,000 in expenses related to the merger which included $496,000 in legal fees, $304,000 in fees to a financial advisor, $210,000 in other fees for audit, printing and investor relations services and a $500,000 termination fee paid to IDDS pursuant to the termination agreement dated November 25, 2002. The $500,000 expense related to establishing the reserve account for the convertible note the Company received from IDDS. (see Note F in Notes to Financial Statements).

     On May 15, 2003, The M&B Weiss Family Limited Partnership of 1996 filed a lawsuit in the Delaware Court of Chancery, purportedly as a class action on behalf of all other similarly situated stockholders of the Company, against the Company, as a nominal defendant, and Individual Defendants, and purportedly as a derivative action on behalf of the Company against the Individual Defendants. The complaint alleges, among other things, that the Individual Defendants have mismanaged the Company, have made unwarranted and wasteful loans and payments to certain directors and third parties, have disseminated a materially false and misleading proxy statement in connection with the 2003 annual meeting of our stockholders, and have breached their fiduciary duties to act in the best interests of our Company and its stockholders. The complaint seeks, among other things, court orders mandating that the defendants cooperate with parties proposing bona fide transactions to maximize stockholder value, make corrective disclosures with respect to the proxy statement for the 2003 annual meeting, and account to the Company and the plaintiffs for damages suffered as a result of the actions alleged in the complaint.

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     On May 19, 2003 the annual meeting of stockholders was held, but adjourned prior to taking a vote for the election of Directors in order to meet with stockholder groups and consider changing the slate of Directors supported by the Prior Board for re-election.

     On May 29, 2003, EI Acquisition Inc. (“EI Acquisition”), a wholly-owned subsidiary of Foundation Growth Investments LLC (together with EI Acquisition, the “Foundation Group”), commenced an unsolicited cash tender offer (the “Foundation Offer”) for all of our outstanding shares of common stock and Series A preferred stock at a price of $0.40 per share, which offer price was later increased to $0.60 per share. For the reasons described in our Solicitation/Recommendation Statement on Schedule 14D-9 in response to the Foundation Offer, filed with the Securities and Exchange Commission on June 12, 2003, as amended (the “Foundation Schedule 14D-9”), the Prior Board unanimously recommended that the Company’s stockholders reject the Foundation Offer and not tender their shares to the Foundation Group.

     On June 9, 2003, the defendants in the Weiss litigation filed a joint motion with the Delaware Court of Chancery to dismiss the complaint for failure to state a claim and for failure to make the statutorily required demand on the Company to assert the subject claims.

     On June 9, 2003, in an effort to preserve the ability of the Prior Board to resist inadequate takeover proposals and protect stockholder value, the Prior Board adopted a stockholder rights plan (the “Rights Plan”). The Rights Plan requires any party seeking to acquire 15% or more of the outstanding common stock of the Company to obtain the approval of the Board or else the rights granted to stockholders under the Rights Plan that are not held by the acquirer will become exercisable for our common stock, or common stock of the acquirer, at a discounted price.

     On June 17, 2003 the annual meeting of stockholders was reconvened and the slate of Directors designated by the Prior Board in our definitive proxy statement, filed with the SEC on April 15, 2003, were re-elected to serve as directors by a majority of shares voted.

     On June 18, 2003, the Foundation Group filed with the SEC preliminary proxy materials relating to its commencement of a solicitation of our stockholders to consent to the removal of all the members of the Prior Board and the election of three new directors nominated by the Foundation Group to serve as the sole members of a new board of directors. The Foundation Group’s consent solicitation materials stated the belief of the Foundation Group that, if elected, the Foundation Group’s nominees would consider taking the following actions: (i) exempting the Foundation Group from the application of the poison pill adopted by the Prior Board; (ii) exempting the Foundation Group from the application of the Delaware anti-takeover statute; (iii) repealing all of the recent amendments to the Company bylaws, which provide, among other things, for certain procedures for stockholder proposals and nominations to be presented at stockholder meetings and for stockholders taking action by written consent; and (iv) approving a merger between the Company and EI Acquisition Inc. following the completion of the Foundation Offer.

     On June 25, 2003, the Company filed with the Commission preliminary proxy materials relating to our opposition to the Foundation Group’s consent solicitation. The Company’s materials stated the belief of the Prior Board that stockholders should not provide their consent to the Foundation Group’s proposals and should revoke any such consents that might have been given.

     On July 16, 2003, the Company and AVI Biopharma, Inc. (“AVI”) entered into an Agreement and Plan of Merger, pursuant to which AVI would first commence an exchange offer in which AVI, through its wholly-owned subsidiary, Elk Acquisition, Inc., would offer 0.103 of a share of AVI common stock for each outstanding share of the Company’s common stock and 0.155 of a share of AVI common stock for each outstanding share of the Company’s preferred stock. The exchange offer was to be followed by a merger in which each share of the Company’s common stock not tendered in the exchange offer would be converted into the right to receive 0.103 of a share of AVI common stock and each share of the Company’s preferred stock not tendered in the exchange offer would be converted into the right to receive 0.155 of a share of AVI common stock. On July 25, 2003, AVI commenced the exchange offer. On August 11, 2003, AVI amended the terms of the exchange offer by increasing the exchange ratio to 0.123 of a share of AVI’s common stock for each share of the Company’s common stock, and 0.185 of a share of AVI’s common stock for each share of the Company’s preferred stock.

     On August 27, 2003, a group of shareholders consisting of Bruce Meyers, the M&B Weiss Family Limited Partnership of 1996, Melvyn I. Weiss, and Michael Stone (the “Meyers Group”) filed with the SEC preliminary consent materials relating to its commencement of a solicitation of our stockholders to consent to the removal of all the members of the Prior Board and the election of five new directors nominated by the Meyers Group to serve as the sole members of a new Board of Directors. On September 15,

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2003, the Meyers Group filed with the SEC amended preliminary consent solicitation materials, and on September 30, 2003, the Meyers Group filed definitive consent solicitation materials.

     At a meeting held on September 2, 2003, the Prior Board set a record date in response to the Meyers Group’s request in connection with the consent solicitation. The Prior Board set September 5, 2003 as the record date.

     On September 2, 2003, AVI terminated the Agreement and Plan of Merger, due to less than the minimum number of shares of the Company’s stock being tendered by stockholders, which termination also served to terminate the exchange offer.

     On September 9, 2003, with less than a majority of the Company’s shares having been tendered, the Foundation Group terminated its tender offer to acquire all of the outstanding shares of our common stock and our preferred stock , as well as its consent solicitation of our shareholders.

     On September 9, 2003, a First Amended Shareholder’s Class and Derivative Complaint was filed by the plaintiff in the Weiss Litigation against the Company, as a nominal defendant, and the Individual Defendants, and purportedly as a class action on behalf of the plaintiff and on behalf of all other similarly situated stockholders of the Company, and purportedly as a derivative action on behalf of the Company against the Individual Defendants. The amended complaint, which was filed in substitution for the complaint previously filed by the same plaintiff on May 15, 2003, seeks, among other things, court orders mandating: (i) that the amended complaint be declared a proper class action and certifying the plaintiff as the class representative; (ii) that the Individual Defendants restore to the Company all monies alleged to have been wasted in connection with the aborted merger transactions with IDDS and AVI; (iii) that the defendants cooperate with parties proposing bona fide transactions to maximize stockholder value; (iv) that the Individual Defendants act independently so that the interests of shareholders are protected; (v) that the Individual Defendants ensure that no conflicts of interest exist between themselves and the Company and our stockholders; and (vi) that the Individual Defendants account to the Company, the plaintiff and the proposed class for damages suffered as a result of the actions alleged in the amended complaint.

     On September 17, 2003, Ernst & Young LLP (“E&Y”) resigned as our independent auditor. The decision to change independent auditors was not recommended or approved by the Audit Committee (the “Audit Committee”) of the Prior Board. The reports of E&Y on the financial statements of the Company as of and for the fiscal years ended December 31, 2001 and 2002 contained no adverse opinion or disclaimer of opinion, nor were the reports qualified or modified as to uncertainty, audit scope or accounting principles. In connection with its audits for the fiscal years ended December 31, 2001 and December 31, 2002, and during the subsequent interim period that began on January 1, 2003 and ended September 17, 2003, there were no disagreements with E&Y on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if they had occurred and not been resolved to the satisfaction of E&Y, would have caused E&Y to make reference to such disagreements in their reports on the financial statements for such years.

     On September 22, 2003, the defendants in the Weiss Litigation filed a subsequent joint motion with the Delaware Court of Chancery to dismiss the complaint for failure to state a claim and for failure to make the statutorily required demand on the Company to assert the subject claims. On that same day, the defendants also filed a joint motion with the Delaware Court of Chancery to disqualify Melvyn Weiss and Milberg Weiss Bershad Hynes & Lerach LLP, a firm in which Mr. Weiss is senior partner, from serving as both class counsel and as class representative.

     On October 2, 2003, we filed with the SEC preliminary proxy materials relating to our opposition to the Meyers Group’s consent solicitation. In the proxy materials, we stated that the Prior Board unanimously opposed the Meyers Group’s consent solicitation and recommended that our stockholders not provide their consent to the Meyers Group’s proposals, and should revoke any such consents that had been given. On October 3, 2003, we filed with the SEC solicitation materials under Rule 14a-12.

     On October 8, 2003, we filed with the SEC definitive consent solicitation materials. On October 10, 2003 and on November 26 2003, we filed with the SEC definitive additional materials relating to our opposition to the Meyers Group’s consent solicitation.

     On November 12, 2003, we selected BDO Seidman, LLP as our new independent auditor to replace our previous auditor, E&Y.

     On December 5, 2003, the Meyers Group delivered to us consents, exceeding a majority of the Company’s issued and outstanding preferred and common shares as of September 5, 2003, in favor of removing the Company’s Prior Board and electing the New Board.

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The Company engaged IVS Associates, Inc. (“IVS”), independent proxy inspectors, to provide an independent tabulation of the consents and revocations and to report on the results as soon as possible.

     On December 9, 2003, IVS completed the review of the consents and revocations submitted in connection with the Meyers Group consent solicitation and reported that the vote’s cast were sufficient to elect a new slate of directors. As a result, the New Board was elected as directors of the Company, replacing the Prior Board.

     In 2003, the Company recognized an aggregate of $2,233,000 in expenses related to merger, tender offer and consent solicitation activities which included $1,375,000 in legal fees, $398,000 in fees to the financial advisor, $360,000 in other fees for audit, printing and investor relations services and $100,000 for reimbursement of certain expenses triggered in connection with the termination of the Agreement and Plan of Merger were paid to AVI Biopharma (see Note F in Notes to Financial Statements).

     Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to investments, intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical Accounting Policies

     We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements. Revenue from research support agreements is recognized ratably over the length of the agreements. Revenue resulting from contracts or agreements with milestones is recognized when the milestone is achieved. Amounts received in advance of services to be performed, or the achievement of milestones, are recorded as deferred revenue. Payments to third parties in connection with nonrefundable license fees are being recognized over the period of performance of related research and development activities. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize deferred tax assets in the future in excess of its net recorded amount, an adjustment to the net deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the net deferred tax asset would be charged to income in the period such determination was made.

Results of Operations

Fiscal Year Ended December 31, 2003 Compared to Fiscal Year Ended December 31, 2002

Revenues

     Revenues for 2003 and 2002 were attributable to license and research and development payments. We recognized revenues of $13,000 during fiscal 2003, compared to $562,000 for fiscal 2002, a decrease of $549,000 or 98%. The decrease was a result of the Company exiting the drug discovery business and termination of related research and development activities.

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Research and Development Expenses

     We incurred research and development expenses of $154,000 during fiscal 2003 and $3,948,000 during fiscal 2002, a year-to-year decrease of $3,794,000 or 96%. The decrease was a result of the Company exiting the drug discovery business and termination of related research and development activities. Significant contributions to the overall decrease were as follows: $1,249,000 decrease in research salaries and payroll, $718,000 decrease in expenses for research consultants, $625,000 decrease in payments and reimbursements made under sponsored university research agreements, $536,000 decline in lease expenses, maintenance and depreciation, $382,000 decrease in research services and materials, $168,000 decrease in travel and entertainment, health insurance and other headcount related expenses and $99,000 decline in laboratory supplies.

General and Administrative Expenses

     General and administrative expenses for fiscal 2003 were $2,938,000 compared to $4,770,000 for fiscal 2002, a decrease of $1,832,000 or 38%. General and administrative expenses decreased primarily as a result of the termination of drug discovery operations. Significant variances in fiscal 2003, compared to fiscal 2002, were as follows: patents and intellectual property expenses declined by $1,028,000, professional consulting fees declined by $357,000, headcount related expenses, primarily salaries, travel and entertainment, health insurance, employee relations and office expenses declined by $481,000, investor and public relations expense declined by $154,000 and insurance, primarily directors and officers liability insurance expense increased by $232,000.

Merger, Tender Offers and Consent Solicitation Expenses

     In 2003, we recognized an aggregate of $2,233,000 in expenses related to merger, tender offers and consent solicitation activities, which included $1,375,000 in legal fees, $398,000 in fees to a financial advisor, $360,000 in other fees for audit, printing and investor relations services and a $100,000 termination fee paid to AVI Biopharma. This compares to $2,010,000 in expenses related to merger activities during 2002.

Expenses Related to Strategic Redirection

     As a result of our decision to redirect our business strategy, we recognized $653,000 in expenses from operations terminated in fiscal 2003, net of a $284,000 reimbursement from Bristol Meyers Squibb (“BMS”). These expenses included $467,000 for severance payments, $221,000 for research and legal fees related to intellectual property and $126,000 for the write down of laboratory equipment, net of recoveries from the sale of equipment, to its estimated resale value. In addition, there were charges of $123,000 for other expenses of terminated scientific programs. We recognized $864,000 in expenses related to Strategic Redirection in 2002.

Other Income

     Other income for fiscal 2003 was $0 as compared to $4,000 during fiscal 2002.

Interest Income

     Interest income for fiscal 2003 was $174,000 as compared to $686,000 for fiscal 2002, a decrease of $512,000 or 75%. The decrease in interest income was due to lower interest rates and declining investable balances as disbursements were made.

Net Loss

     We incurred net losses of $5,793,000 during fiscal 2003 and $10,358,000 during fiscal 2002. The decrease in net loss of $4,565,000 or 44% is a result of the aforementioned changes in our operations. Net loss per common share for fiscal 2003 was $0.38 and for fiscal 2002 was $0.67.

Fiscal Year Ended December 31, 2002 Compared to Fiscal Year Ended December 31, 2001

Revenues

     Revenues for 2002 and 2001 were primarily attributable to license and research and development payments, including those from our agreements with BMS. We recognized revenues of $562,000 during fiscal 2002, compared to $1,333,000 for fiscal 2001, a decrease of $771,000 or 58%. The decrease was a result of the completion of the funding related to our research and development

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agreement with BMS, offset by a laboratory services agreement executed in December 2002, in the aggregate amount of $20,000, $7,000 of which was recognized in 2002.

Research and Development Expenses

     We incurred research and development expenses of $3,948,000 during fiscal 2002 and $4,843,000 during fiscal 2001, a year-to-year decrease of $895,000 or 18%. The decrease in research and development expenses in 2002 from 2001 was primarily due to the discontinuation of research projects and related activities as we implemented our revised strategy. The overall decrease was comprised of a $653,000 decrease in research salaries, a $683,000 decrease in expenses for contract research, licenses and royalties, a $126,000 decrease in research services and supplies, a $25,000 decrease in facility costs, partially offset by a $141,000 increase in equipment and depreciation expenses for equipment placed in service in the latter part of 2001 and a $90,000 charge for employee related expenses previously charged to G&A expense.

General and Administrative Expenses

     General and administrative expenses for fiscal 2002 were $4,770,000 compared to $6,448,000 for fiscal 2001, a decrease of $1,678,000 or 26%. General and administrative expenses decreased primarily as a result of a $1,630,000 decrease in legal fees in 2002 due to a settlement fee of $765,000 and $803,000 of legal expenses recognized in 2001. Decreases in salaries and wages of $535,000, a $61,000 decrease in expenses related to the amortization of purchased intellectual property and a $90,000 decrease in employee related expenses now charged to R&D expense were offset by a $218,000 increase in expenses related to patents and intellectual property and a $178,000 increase in professional consulting charges.

Merger Expenses

     We recognized an aggregate of $2,010,000 in expenses related to our terminated merger with IDDS, which included $496,000 in legal fees, $304,000 in fees to the financial advisor and $210,000 in other fees for audit, printing and investor relations services, a $500,000 termination fee paid to IDDS and a $500,000 expense related to establishing the reserve account for the IDDS convertible note. There were no comparable expenses for fiscal 2001.

Expenses Related to Strategic Redirection

     As a result of our decision to redirect our business strategy, we recognized $864,000 in expenses from operations terminated in fiscal 2002. These expenses included $298,000 for severance payments, $186,000 for facility lease space for the terminated operations through December 31, 2003, $161,000 for losses for equipment no longer used, $79,000 in impairment charges for software deemed to be of no value and $140,000 for charges related to leased equipment utilized for the terminated operations. We recognized $560,000 in expenses related to severance payments from operations terminated in the fiscal year 2001.

Other Income

     Other income for fiscal 2002 was $4,000 as compared to $274,000 during fiscal 2001. The gain in 2001 was due to recognizing the relinquishment of certain patent rights.

Interest Income

     Interest income for fiscal 2002 was $686,000 as compared to $1,383,000 for fiscal 2001, a decrease of $697,000 or 50%. The decrease in interest income was due to lower interest rates and declining investable balances as disbursements were made.

Net Loss

     We incurred net losses of $10,358,000 during fiscal 2002 and $8,785,000 during fiscal 2001. The increase in net loss of $1,573,000 or 17.9% is a result of the aforementioned changes in our operations. Net loss per common share for fiscal 2002 was $0.67 and for fiscal 2001 was $0.57.

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Liquidity and Capital Resources

     At December 31, 2003 we had cash, cash equivalents and investments of approximately $10,132,000, plus restricted cash of $600,000. During 2003, we used approximately $5,836,000 to fund our operating activities, principally related to a net loss of $5,793,000 for the year. Net sales of equipment provided approximately $28,000 of cash and $202,000 was used to pay our capital lease obligations. Restricted cash was pledged as collateral in support of leases of laboratory equipment. In connection with the termination of our drug discovery research programs, we repurchased equipment subject to a capital lease agreement. In January 2004, in conjunction with this repurchase, the lessor of this equipment released $375,000 of the held collateral.

     We anticipate the wind-down operations to be substantially completed by the end of the first half of 2004. We estimate that we will use $1.2-1.5 million during this time to satisfy previous commitments of the Prior Board. After the first quarter, we forecast our cash usage to be approximately $100,000-125,000 per month, assuming that we make no new investments or engage in the operation of a new business. Our future capital needs are uncertain. The Company may or may not need additional financing in the future to fund operations, a determination to be made when the Company implements its new business strategy. We do not know whether additional financing will be available when needed, or that, if available, we will obtain financing on terms favorable to our stockholders.

     Our common stock is currently listed on the NASDAQ SmallCap Market. Before May 22, 2000, our common stock was quoted in the over-the-counter market on the NASDAQ SmallCap Market System under the ticker symbol “CYPH”. From May 22, 2000 until October 24, 2001 we had been listed on the NASDAQ National Market under the symbol “CYPH”. Since October 24, 2001 we have been listed under “EXEG”. On October 25, 2002, we transferred from the NASDAQ National Market to the NASDAQ SmallCap Market as a result of our failure to comply with the NASDAQ National Market’s minimum bid price requirement of $1.00 per share. On January 22, 2003, we were provided an additional 180 calendar days, or until July 21, 2003, to regain compliance with such requirement. Although on July 21, 2003 we failed to regain compliance with such requirement, given that we met the initial listing requirements for the NASDAQ SmallCap Market, NASDAQ provided us with an additional 90 calendar days, or until October 20, 2003 to regain compliance with the minimum bid price requirement.

     On October 20, 2003, the Company received official notification from The NASDAQ Stock Market that it was not in compliance with the minimum $1.00 closing bid price per share requirement as set forth in NASD Marketplace Rule 4310(c)(4), and the requirement for a minimum of three independent members of the audit committee as set forth in NASD Marketplace Rule 4350(d)(2). Our common stock was, therefore, subject to delisting from The NASDAQ SmallCap Market. We requested a hearing before the NASDAQ Listing Qualifications Panel to review the NASDAQ staff determination. This hearing occurred on December 4, 2003.

     On January 2, 2004 the NASDAQ Listings Qualification Panel notified us that we were entitled to an extension (until July 25, 2004) to regain compliance with a $1.00 minimum share price for listing on The NASDAQ SmallCap Market. During this period, it will be necessary for the Company’s common stock to trade at or above $1.00 per share for a minimum of 10 consecutive trading days to remain listed on the NASDAQ SmallCap Market. The NASDAQ Panel’s determination was, in part, based on the Company’s commitment to seek shareholder approval of a reverse stock split. A reverse stock split is one possible solution to rectifying the Company’s deficiency as it relates to the $1.00 minimum share price issue. There is no guarantee that a reverse split will ultimately satisfy the $1.00 minimum share price on a limited or long-term basis.

     On January 28, 2004 the NASDAQ internal staff review concluded that the New Board and its Audit Committee satisfy the independent composition requirements as set forth in NASDAQ Marketplace Rules 4350(c) and 4350(d)(2), respectively.

     If we fail to meet the continued listing standards by the time this additional grace period terminates on July 25, 2004, our common stock will be delisted from the NASDAQ SmallCap Market. This would likely have an adverse impact on the trading price and liquidity of our common stock. If our common stock were to be delisted, trading, if any, in the common stock may continue to be conducted on the OTC Bulletin Board upon application by the requisite market makers.

Recent Accounting Pronouncements

     We believe that the adoption of the following accounting standard will not have a material impact on our financial statements.

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     In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities. FIN 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements to certain entities in which the equity investors do not have either a controlling financial interest or sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for variable interest entities in which we hold a variable interest. We do not hold variable interests in variable interest entities and, therefore, FIN 46 will not have an impact on our financial condition or results of operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     Our exposure to financial market risk, including changes in interest rates, relates primarily to our marketable security investments. We generally place our marketable security investments in high credit quality instruments, primarily U.S. government obligations and corporate obligations with contractual maturities of less than one year. We do not believe that a 100 basis point increase or decrease in interest rates would significantly impact our business. We do not have any derivative instruments. We operate only in the United States and all our transactions have been made in U.S. dollars. We do not have any material exposure to changes in foreign currency exchange rates.

Item 8. Financial Statements and Supplementary Data

     The response to this item is submitted in item 15 of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     On September 17, 2003, Ernst & Young LLP (“E&Y”) resigned as our independent auditor. The decision to change independent auditors was not recommended or approved by the Audit Committee (the “Audit Committee”) of the Prior Board. The reports of E&Y on the financial statements of the Company as of and for the fiscal years ended December 31, 2001 and 2002 contained no adverse opinion or disclaimer of opinion, nor were the reports qualified or modified as to uncertainty, audit scope or accounting principles. In connection with its audits for the fiscal years ended December 31, 2001 and December 31, 2002, and during the subsequent interim period that began on January 1, 2003 and ended September 17, 2003, there were no disagreements with E&Y on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if they had occurred and not been resolved to the satisfaction of E&Y, would have caused E&Y to make reference to such disagreements in their reports on the financial statements for such years.

     On November 12, 2003,we engaged BDO Seidman, LLP as our new independent auditor to replace our previous auditor, E&Y.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

     An evaluation was carried out by the Company’s sole officer, who is the President, Chief Executive and Chief Financial Officer, of the effectiveness of the Company’s “Disclosure Controls and Procedures”. We are exiting the biotechnology-drug discovery business and all employees have been terminated except the Principal Executive and Financial Officer. He has concluded that, given our limited operation, our Disclosure Controls and Procedures were effective. As such term is used above, the Company’s Controls and Procedures are controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls and Procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its sole officer as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

     In December 2003, our New Board established procedures relating to the control and disbursement of cash and cash equivalents, which represents approximately 89% of our total assets. The Chairman of the Board and Chairman of the Audit Committee have access to and control over substantially all of our cash and cash equivalents. The Chairman of the Board of Directors or the Chairman

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of the Audit Committee may authorize disbursements up to $50,000 on his sole authority. Both the Chairman of the Board and the Chairman of the Audit Committee are required to authorize expenditures above $50,000. The Principal Executive and Financial Officer is authorized to incur expenditures on behalf of the Company up to $10,000 on his own authority and must obtain approval from the Board above that level.

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PART III

Item 10. Directors and Executive Officers of the Registrant

The Board of Directors

     Set forth below are the names of the persons currently serving as a director, their ages, their offices in the Company, if any, their principal occupations or employment for the past five years, the length of their tenure as directors and the names of other public companies in which such persons hold directorships.

     John A. Paganelli was President and Chief Executive Officer of Transamerica Life Insurance Company of New York from 1992 to 1997. Since 1987, Mr. Paganelli has been a partner in RFG Associates, a financial planning organization. Mr. Paganelli is the Manager of Pharos Systems Partners, LLC, a company formed to raise capital to purchase the controlling interest in Pharos Systems International, a software development company. Mr. Paganelli is Chairman of the Board of Pharos Systems International. He was Vice President and Executive Vice President of PEG Capital Management, an investment advisory organization, from 1987 until 2000. From 1980 to January 2003, Mr. Paganelli was an officer and director-shareholder of Mike Barnard Chevrolet, Inc., an automobile dealership. Mr. Paganelli has been on the Board of Directors of Mid Atlantic Medical Services, Inc. since 1999. Mid Atlantic is listed on the New York Stock Exchange and through its wholly owned subsidiaries is in the business of selling various forms of health insurance. Mr. Paganelli is also on the Board of Directors of Mid Atlantic’s subsidiary, MAMSI Life and Healthy Insurance Company. Mr. Paganelli holds an A.B. from Virginia Military Institute.

     Robert A. Baron has been the President of Cash City, Inc. since 1999. Cash City is a payday advance and check cashing business. From 1997 to 1999 Mr. Baron was the President of East Coast Operations for CSS/TSC, Inc., a distributor of blank t-shirts and fleece and accessories and a subsidiary of Tultex, Inc., a publicly held company. From 1986 to 1997, Mr. Baron was the chairman of T shirt City, Inc., a privately held company. From 1993 to 1997, Mr. Baron was a member of the Board of Directors of Suburban Bank Corp. When Mr. Baron was on Suburban’s board, its common stock was traded on NASDAQ. Mr. Baron has a B.S. in Business from Ohio State University.

     Robert S. Benou has been a director of Conolog Corporation, a publicly held company that provides engineering technical personnel placement and manufactures a line of digital signal processing systems, since 1968 and served as its President from 1968 until May 2001 when he was elected Conolog’s Chairman and Chief Executive Officer. Mr. Benou has also been a member of the Board of Directors of Diversified Security Solutions, Inc., since June 2001. Diversified Security Solutions, Inc. is a publicly held company that is a single-source/turn-key provider of technology-based security solutions for medium and large companies and government agencies. Mr. Benou is also a member of Diversified Security Solutions’ audit committee. Mr. Benou is a graduate of Victoria College and holds a BS degree from Kingston College, England and a BSEE from Newark College of Engineering, in addition to industrial management courses at Newark College of Engineering.

     John J. Huntz. Jr. has been the Managing Director of Fuqua Ventures LLC, a private equity investment firm, since March 1998. As Managing Director, Mr. Huntz develops and manages a portfolio of investments. Mr. Huntz served as Executive Vice President and Chief Operating Officer of Fuqua Enterprises, Inc., a company that manufactured health care products, from August 1995 until March 1998 and as its Senior Vice President from March 1994 until August 1995. From September 1989 until January 1994, Mr. Huntz served as the Managing Partner of Noble Ventures International, Inc., a private international investment company. From 1984 until 1989, Mr. Huntz served as Director of Capital Resources for Arthur Young & Company, and from 1979 until 1984, Mr. Huntz was with Harrison Capital, Inc., a venture capital investment subsidiary of Texaco, Inc. Mr. Huntz founded and serves as President of the Atlanta Venture Forum, a risk capital network, and is a board member of the National Venture Capital Association. Mr. Huntz serves as a director of several of the portfolio companies of Fuqua Ventures, LLC and is the Chairman of the Board of Manhattan Associates, Inc., whose common stock is traded on NASDAQ. Mr. Huntz is also a member of the Securities and Exchange Commission Executive Committee on Small Business Capital Formation. Mr. Huntz received a BBA from Niagara University and a MBA from Sacred Heart University.

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     David Lee Spencer, M.D. has been an orthopedic surgeon since 1977. Dr. Spencer has been a Clinical Associate in orthopedic surgery at the University of Illinois since 1999. Dr. Spencer is also an attending surgeon at the University of Illinois Hospital Medical Center and Lutheran General Hospital. Dr. Spencer received his B.A. and M.D. degrees from the University of Iowa.

Committees of the Board of Directors and Meetings

     Committee Structure. During fiscal 2003, our Prior Board, removed as a result of the majority vote, by written consents, of our stockholders, had three permanent committees (Audit Committee, Compensation and Organization Committee and Nominating Committee) and one ad hoc committee (Business Development Task Force). Our New Board has three permanent committees (Audit Committee, Compensation Committee and Nominating Committee) and one ad hoc committee (Business Opportunities Search Committee).

     Meeting Attendance. During the fiscal year ended December 31, 2003, there were 37 meetings of our Prior Board. The various committees of the Prior Board met a total of 11 times. No director attended fewer than 90% of the total number of meetings held by the Prior Board during fiscal 2003. Since their election in December 2003, the New Board held two meetings in 2003 with 100% attendance of the directors.

     Audit Committee. Our prior Audit Committee met six times during fiscal 2003. Until May 2003, this committee consisted of three members, Irwin C. Gerson (Chairman), Ira J. Gelb and Walter Lovenberg. On May 15, 2003 Dr. Gelb and Mr. Gerson resigned as Directors. On May 18, 2003 Joseph M. Davie was appointed to the Audit Committee. On November 10, 2003 Gordon Martin was appointed as Chairman of the Audit Committee. On December 5, 2003 Dr. Goode, Dr. Davie, Mr. Easton, Dr. Lovenberg and Mr. Martin were removed from the Board of Directors by written consent of a majority of our stockholders. On December 16, 2003, Mr. Benou was appointed Chairman of the Audit Committee. On December 22, 2003 Mr. Baron and Mr. Huntz were appointed to the Audit Committee. Our Audit Committee reviews the engagement of our independent accountants, reviews annual financial statements, considers matters relating to accounting policy and internal controls and reviews the scope of annual audits. Mr. Benou, Mr. Baron and Mr. Huntz are “independent” as defined by current National Association of Securities Dealers’ listing standards. Our New Board has determined that the Company has at least one audit committee financial expert serving on our Audit Committee.

     Compensation and Organization Committee. Our Compensation and Organization Committee met four times during fiscal 2003. Gary E. Frashier served as Chairman until his term as a director expired on May 19, 2003 (Mr. Frashier did not stand for re-election at the 2003 annual stockholders meeting). Robert J. Easton served on the committee until he was removed from the Board on December 5, 2003. Irwin C. Gerson served until he resigned from the Board of Directors on May 15, 2003. On May 18, 2003 Dr. Davie, Dr. Lovenberg and Mr. Easton were appointed to the committee and served until they were removed from the Board of Directors on December 5, 2003. On December 22, 2003, Robert Baron (Chairman), David Lee. Spencer, M.D. and John J. Huntz, Jr. were appointed to the Compensation Committee. The Compensation Committee reviews, approves and makes recommendations regarding our compensation policies, practices and procedures to ensure that legal and fiduciary responsibilities of the Board of Directors are carried out and that such policies, practices and procedures contribute to our success.

     Nominating Committee. During fiscal year 2003 our Nominating Committee met one time. Gary E. Frashier served as Chairman until his term as a director expired on May 19, 2003. Ira J. Gelb served on the committee until he resigned on May 15, 2003. Dr. Lovenberg served on the committee until he was removed from the Board on December 5, 2003. Irwin C. Gerson served until he resigned from the Board of Directors on May 15, 2003. On May 18, 2003 Dr. Davie, Dr. Lovenberg and Mr. Easton were appointed to the committee and served until they were removed from the Board of Directors on December 5, 2003. The committee’s role, following consultation with all other members of the Board of Directors, was to make recommendations to the full Board as to the size and composition of the Board and to make recommendations as to particular nominees. The Nominating Committee has two sitting members at this time, John Huntz Jr. (Chairman) and David Spencer, M.D.

     Compensation Committee Interlocks and Insider Participation. None of the members of our current Compensation Committee serve as a member of the Board of Directors or Compensation Committee of any entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

Code of Ethics

     The Prior Board has adopted a code of ethics that applies to our directors and executive officer. If we make any substantive amendment to our code of ethics or grant any waiver from a provision of the code of ethics to our Chief Executive Officer or Chief Financial Officer,

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including an implicit waiver, we intend to satisfy the information disclosure requirements under Item 10 of Form 8-K regarding such amendment or waiver.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers and directors, and persons who own more than ten percent of the Company’s common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”). Officers, directors, and greater than ten percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such reports furnished to the Company, the Company believes all Section 16(a) filing requirements applicable to all such persons were complied with during the fiscal year covered by this report.

Compensation of Directors

     In December 2003, the new Directors agreed to a new compensation plan. Directors receive a flat $6,250 per quarter, due the day after the commencement of each calendar quarter for their service. The Chairman of the Board receives an annual salary of $75,000.

     Directors are eligible to participate in our Amended and Restated 2000 Stock Option Plan, or the Plan. The Prior Board previously approved an option grant schedule for non-employee directors that provides for an option to purchase 50,000 shares of our common stock upon first joining the Board and then annual grants to be awarded at the beginning of each calendar year as follows: an option to purchase 25,000 shares of our common stock until a total of 150,000 options is reached, an option to purchase 15,000 shares of our common stock until a total of 200,000 options is reached, and then an option to purchase 10,000 shares of our common stock every year thereafter. The initial grant of an option to purchase 50,000 shares of our common stock has an exercise price equivalent to the fair market value of our common stock on the date of issuance, while each annual option grant has an exercise price equivalent to the fair market value of our common stock on the second Friday of January of the year, the date of grant. In addition, directors are eligible to receive other periodic grants of options from time to time under the Plan. Options granted under the Plan to non-employee directors are immediately exercisable on the date of grant. The New Board is undertaking an in-depth review of the practices and procedures of the Prior Board before granting options to the New Board.

     We paid Easton Associates L.L.C., of which Robert J. Easton, one of our prior directors, is the Chairman, $102,000 during fiscal 2003 for consulting services for strategy and market planning services. This payment is in addition to the remuneration Mr. Easton received as a director. Mr. Easton was removed as a director on December 5, 2003.

     Gary E. Frashier was also employed as a consultant by us in addition to his responsibilities as a director. Mr. Frashier’s total remuneration for consulting services during fiscal 2003 was $3,000. This payment is in addition to the remuneration Mr. Frashier received as a director. The agreement terminated in May 2003. Mr. Frashier ceased to be a director on May 19, 2003.

Executive Officer

     David E. Riggs is 51 years old. Mr. Riggs joined us in March 2003 as Vice President, Chief Business Officer and Chief Financial Officer. On March 30, 2004, Mr. Riggs was appointed President and Chief Executive Officer in addition to Chief Financial Officer. Mr. Riggs most recently was Founder and President of EMLIN Bioscience (founded in 2000). From 2000 to 2001 he was Senior Vice President and Chief Financial Officer of Celera Genomics Group (previously Axys Pharmaceuticals, Inc. – NASDAQ: AXPH). From 1992 to 2000 he was with Unimed Pharmaceuticals, Inc. (previously NASDAQ: UMED) where he was Senior Vice President of Business Operations and prior to that, Chief Financial Officer and Secretary. Mr. Riggs also served as Chief Financial Officer of NeoPharm, Inc. (NASDAQ: NEOL) and VideoCart, Inc. (formerly NASDAQ: VCRT). He has held financial management positions at Fujisawa Healthcare, Inc. and GATX Corporation. He is a certified public accountant having earned a B.S. from the University of Illinois and an M.B.A. from DePaul University.

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Item 11. Executive Compensation

Summary Compensation Table

     The following Summary Compensation Table sets forth summary information as to compensation received by our former Chief Executive Officer and each of our other most highly compensated executive officers who were employed by us at the end of fiscal 2003 for services rendered to us in all capacities during the three fiscal years ended December 31, 2003, 2002 and 2001, and who earned in excess of $100,000 for services rendered to us during fiscal 2003.

Option Grants in Our Last Fiscal Year

     The following table shows grants of stock options that we made during the fiscal year ended December 31, 2003 to each of our executive officers named in the Summary Compensation Table, above.

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Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

     The following table shows information regarding exercises of options to purchase our common stock by each executive officer named in the Summary Compensation Table during the fiscal year ended December 31, 2003. The table also shows the aggregate value of options held by each executive officer named in the Summary Compensation Table as of December 31, 2003. The value of the unexercised in-the-money options at fiscal year end is based on a value of $0.90 per share, the closing price of our stock on the NASDAQ SmallCap Market on December 31, 2003 (the last trading day prior to the fiscal year end), less the per share exercise price.

Employment Contracts, Termination of Employment and Change-in-Control Arrangements

     Ronald L. Goode, Ph.D. entered into an employment agreement with us on March 21, 2001 to serve as our President and Chief Executive Officer until March 21, 2004. The employment agreement provides for the payment to Dr. Goode of a base salary of $375,000 per year with an annual bonus payment of up to 60% of Dr. Goode’s base salary, at the discretion of the Board of Directors. On December 9, 2002, Dr. Goode’s base salary was increased to $405,000 and he was awarded a bonus, payable in January 2003, of $105,000. The employment agreement provides that in the event Dr. Goode’s employment is terminated by us without cause, Dr. Goode terminates his employment for good reason, or upon a change of control as defined in the agreement, Dr. Goode shall receive severance payments of equal monthly installments at the base rate until the expiration of 18 months following the date of termination, if such date is after March 21, 2003. Dr. Goode also receives a car expense allowance of $1,000 per month under the employment agreement. On December 18, 2003, the New Board notified Dr. Goode that his employment agreement would not be renewed. The employment agreement contains a two-year post-termination non-compete, non-solicitation and non-disclosure agreement. On February 23, 2004, Dr. Goode resigned, thereby terminating his employment agreement with the Company that was to expire on March 21, 2004. Dr. Goode has claimed that he left his positions in part because the New Board has created an environment where his ability to perform his job functions has been diminished. We unconditionally dispute each of Dr. Goode’s claims.

     David E. Riggs, entered into an employment agreement with us on March 10, 2003 to serve as our Vice President, Chief Business Officer, Chief Financial Officer and Secretary until March 9, 2006, to be automatically renewed for additional one-year periods, unless sooner terminated. The employment agreement provides for the payment to Mr. Riggs of a base salary of $235,000 per year with an annual bonus payment of up to 30% of Mr. Riggs’s base salary, at the discretion of the Board of Directors. The employment agreement provides that in the event Mr. Riggs’s employment is terminated by us without cause or by Mr. Riggs for good reason, Mr. Riggs shall receive severance payments of equal monthly installments at the then current base rate until either (i) the expiration of 12 months following the date of termination, if such date is prior to March 10, 2004, (ii) the expiration of nine months following the date of termination, if such date is before March 10, 2005, (iii) the expiration of six months following the date of termination, if such date is before March 9, 2006, or (iv) the expiration of six months following the date of termination, if such date is during a renewal period. The employment agreement contains a one-year post-termination non-compete, non-solicitation and non-disclosure agreement. On March 30, 2004, we amended Mr. Riggs’ employment agreement to reflect his assumption of the additional role of President and Chief Executive Officer.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     The table below shows the number of shares of our common stock and series A preferred stock beneficially owned as of March 15, 2004 by the following persons:

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     To our knowledge and unless otherwise indicated, each person in the table has sole voting power and investment power, or shares such power with his or her spouse, with respect to all shares of capital stock listed as owned by such person.

     The number of shares beneficially owned by each stockholder is determined under the rules promulgated by the SEC. The information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and any shares as to which the individual has the right to acquire beneficial ownership within 60 days after March 15, 2004 through the exercise of any option, warrant or other right. The inclusion in the following table of those shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of those shares.

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Item 13. Certain Relationships and Related Transactions

Easton Associates L.L.C.

     In December 2000, we entered into an agreement with Easton Associates L.L.C. for strategy and market planning services. Under this agreement, Easton Associates was paid $102,000 for services rendered in 2003. Mr. Easton, one of our directors until December 2003, is the chairman of Easton Associates.

Gary E. Frashier

     In December 2000, we entered into an agreement with Gary E. Frashier, who was our chairman of our Board of Directors until June 2003, for consulting services. Mr. Frashier was paid $3,000 for expense reimbursement related to his consulting services during fiscal 2003. On May 19, 2003, Mr. Frashier ceased to be a director.

Ronald L. Goode, Ph.D.

     In May 2001, we sold 100,000 shares of common stock to our former President and Chief Executive Officer, Ronald L. Goode, Ph.D., for a purchase price of $3.25 per share, the fair market value at the time of the transaction. Dr. Goode paid the purchase price of $325,000 with $25,000 in cash and issued a $300,000 five-year promissory note to us bearing interest at a rate of 4.71% per annum, with interest payable semi-annually. The 100,000 shares sold to Dr. Goode, serve as collateral to secure the note. Through December 31, 2003, Dr. Goode has made $36,000 in interest payments. A stock certificate for these shares was not issued to Dr. Goode until September 2003. In February 2004, Dr. Goode resigned, thereby terminating his employment agreement with the company that was set to expire on March 21, 2004. Dr. Goode has claimed that he left his positions in part because the New Board has created an environment where his ability to perform his job functions has been diminished. We unconditionally dispute each of Dr. Goode’s claims.

     We recently discovered that certain terms of the promissory note had not been disclosed in our SEC filings and were not included in the minutes of the Prior Board meeting authorizing the issuance of the note. Namely, the promissory note provides that in the event

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of a condition of default on the note, as defined in the agreement, Dr. Goode’s obligation to the Company is limited to $65,000 and proceeds from the public sale of the collateralizing stock. Additionally, the note bears interest at the rate of 4.71%, per annum, payable semi-annually to the Company. The terms authorized by the Prior Board required a 6% per annum, payable on a quarterly basis.

     We continue to investigate the facts and circumstances surrounding the issuance of the note and believe, at this time, that Dr. Goode’s obligation to the Company remains $300,000.

     The Goode promissory note is included as an exhibit in our 2003 Form 10-K, herewith.

Meyers Associates, L.P.

     On August 13, 2002 we entered into an agreement with Meyers Associates, L.P. (formerly Roan/Meyers Associates, L.P.) for financial advisory services. Pursuant to the terms of this agreement, we paid Meyers Associates, L.P. $57,000 in 2003. In addition, we issued them warrants to purchase 125,000 shares of our common stock at a purchase price of $1.00 per share, with an expiration date of August 13, 2007, and additional warrants to purchase 125,000 shares of our common stock at a purchase price of $0.55 per share, with an expiration date of August 13, 2007. In connection with the Meyers Group consent solicitation, we reimbursed Meyers Associates, L.P. $14,000 for out-of-pocket expenses incurred in 2003.

Milberg Weiss Bershad Hynes & Lerach LLP

     Melvyn I. Weiss is an attorney and senior partner of Milberg Weiss Bershad Hynes & Lerach LLP (“Milberg Weiss”). Milberg Weiss represents The M&B Weiss Family Limited Partnership of 1996 in connection with its lawsuit against the Company (as a nominal defendant) and Ronald L. Goode, Joseph M. Davie and Walter Lovenberg. Milberg Weiss also represents Bruce Meyers, The M&B Weiss Family Limited Partnership of 1996, Melvyn I. Weiss and Michael Stone in connection with this consent solicitation. Mr. Weiss’ business address is Milberg Weiss Bershad Hynes & Lerach LLP, One Pennsylvania Plaza, New York, New York 10119. In December 2003, in connection with the Meyers Group consent solicitation, we recognized expenses to be reimbursed to Milberg Weiss of $176,000 for legal expenses incurred in 2003.

Item 14. Principal Accountant Fees and Services

     The following represents fees for professional audit services rendered by BDO Seidman, LLP and Ernst & Young LLP (collectively “our principal accountants” See Item 9.) for the audit of our annual financial statements for the years ended December 31, 2003 and December 31, 2002.

Audit Fees

     Our principal accountants billed us an aggregate of $98,000 and $107,000 in fees and expenses for professional services rendered in connection with the audits of our financial statements for the calendar years ended December 31, 2003 and 2002, respectively, and reviews of the financial statements included in our quarterly reports on Form 10-Q during such calendar years.

Audit Related Fees

     Our principal accountants billed us an aggregate of $48,000 and $131,000 in audit related fees for due diligence for the calendar years ended December 31, 2003 and 2002, respectively.

Tax Fees

     Our principal accountants billed us an aggregate of $15,000 and $10,000 in fees and expenses for tax compliance, tax advice and tax planning during calendar years ended December 31, 2003 and 2002, respectively.

32

All Other Fees

     Our principal accountants did not bill us any additional fees that are not disclosed under audit fees, audit related fees or tax fees in each of the last two calendar years

Audit Committee Pre-Approval Process, Policies and Procedures

     The Audit Committee of the Prior Board and full Prior Board approved the appointment of BDO Seidman, LLP as the replacement auditors to Ernst & Young, LLP. Our principal auditors have performed their audit procedures in accordance with pre-approved policies and procedures established by our Audit Committee. Our principal auditors have informed our Audit Committee of the scope and nature of each service provided. With respect to the provisions of services other than audit, review, or attest services, our principal accountants brought such services to the attention of our Audit Committee, or one or more members of our Audit Committee for the members of our Board of Directors to whom authority to grant such approval had been delegated by the Audit Committee, prior to commencing such services. Such services primarily consisted of due diligence and tax related services.

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PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)(1) Report of BDO Seidman, LLP, Independent Auditors
          Report of Ernst & Young LLP, Independent Auditors
          Balance Sheets as of December 31, 2003 and 2002
          Statements of Operations for the years ended December 31, 2003, 2002 and 2001
          Statements of Changes in Stockholders’ Equity for years ended December 31, 2003, 2002 and 2001
          Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001
          Notes to Financial Statements

(2) Financial Statement Schedules

     All schedules have been omitted because the required information is included in the financial statements or notes thereto or because they are not required.

(3) Exhibits

34

35

     (b) The following reports were filed on Form 8-K during the quarter ended December 31, 2003:

     (c) Refer to (a) 3 above.

     (d) Refer to (a) 2 above.

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: April 2, 2004

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated below and on the dates indicated.

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eXegenics Inc.

CONTENTS

Financial Statements

38

Report of BDO Seidman, LLP, Independent Auditors

Board of Directors and Stockholders
eXegenics Inc.

     We have audited the accompanying balance sheet of eXegenics Inc. (the Company) as of December 31, 2003, and the related statements of operations, changes in stockholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

     In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of eXegenics Inc. as of December 31, 2003, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

BDO Seidman, LLP

Dallas, Texas
February 27, 2004

F-1

Report of Ernst & Young LLP, Independent Auditors

Board of Directors and Stockholders
eXegenics Inc.

     We have audited the accompanying balance sheet of eXegenics Inc. (the Company) as of December 31, 2002, and the related statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of eXegenics Inc. as of December 31, 2002, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States.

Ernst & Young LLP

Dallas, Texas
February 28, 2003

F-2

eXegenics Inc.

BALANCE SHEETS

See notes to financial statements

F-3

eXegenics Inc.

STATEMENTS OF OPERATIONS

See notes to financial statements

F-4

eXegenics Inc.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

[Continued from above table, first column(s) repeated]

See notes to financial statements

F-5

eXegenics Inc.

STATEMENTS OF CASH FLOWS