CYTOCLONAL PHARMACEUTICS INC /DE, POS AM, 1997-04-25

CYTOCLONAL PHARMACEUTICS INC /DE
POS AM, 1997-04-25
PHARMACEUTICAL PREPARATIONS

Previous: HIGHWAYMASTER COMMUNICATIONS INC, DEF 14A, 1997-04-25

Next: MICROFIELD GRAPHICS INC /OR, DEF 14A, 1997-04-25

<PAGE>

As filed with the Securities and Exchange Commission on April 25, 1997
Registration No. 33-91802
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------
CYTOCLONAL PHARMACEUTICS INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 2834 75-2402409
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification number)
</TABLE>
9000 Harry Hines Boulevard
Suite 330
Dallas, Texas 75235
(214) 353-2922
(Address and Telephone Number of Principal Executive Offices)
-------------------------------------
9000 Harry Hines Boulevard
Suite 330
Dallas, Texas 75235
(Address of Principal Place of Business or
Intended Principal Place of Business)
-------------------------------------
Arthur P. Bollon, Ph.D.
Chairman and Chief Executive Officer
Cytoclonal Pharmaceutics Inc.
9000 Harry Hines Boulevard
Suite 330
Dallas, Texas 75235
(214) 353-2922
(Name, Address and Telephone Number of Agent for Service)
-----------------------------------
Copies to:

Robert H. Cohen, Esq.
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
(212) 735-8600

Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|

If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|

If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, please check the following box. |X|

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

Pursuant to Rule 416 under the Securities Act of 1933, as amended,
there are also being registered such additional shares of Common Stock as may
become issuable pursuant to anti-dilution provisions of the Class C Warrants and
the Class D Warrants.

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

The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>

EXPLANATORY NOTE

This Registration Statement contains two forms of Prospectus: one for
use in connection with the offering (the "Prospectus") by the Company of Class D
Warrants and the Common Stock underlying the Class C Warrants and Class D
Warrants and one for use in connection with sales by Janssen-Meyers Associates,
L.P. of Common Stock and Warrants in market making transactions (the "Market
Making Prospectus"). The Prospectus and the Market Making Prospectus are
identical except for the following (i) the outside front cover page; (ii) page
60, which will contain alternate language for the "Plan of Distribution"
section; and (iii) the outside back cover page. Alternate language for the
Market Making Prospectus is labeled "Alternate Language for Market Making
Prospectus" and follows the outside back cover page of the Prospectus.

<PAGE>

Subject to Completion, Dated April 25, 1997

CYTOCLONAL PHARMACEUTICS INC.

[LOGO]

6,900,000 Shares of Common Stock
2,300,000 Redeemable Class D Warrants

Cytoclonal Pharmaceutics Inc. (the "Company") hereby offers (i)
2,300,000 shares of common stock, $.01 par value ("Common Stock") and 2,300,000
Redeemable Class D Warrants ("Class D Warrants") issuable upon exercise of the
Redeemable Class C Warrants ("Class C Warrants") issued in connection with the
Company's initial public offering completed in November 1995 ("IPO"), (ii)
2,300,000 shares of Common Stock issuable upon exercise of the Class D Warrants
issued in connection with the IPO and (iii) 2,300,000 shares of Common Stock
issuable upon exercise of the Class D Warrants which are issuable upon exercise
of the Class C Warrants. Each Class C Warrant entitles the registered holder
thereof to purchase, at any time until November 2, 2000 (the "Expiration Date"),
one share of Common Stock and one Class D Warrant at an exercise price of $6.50,
subject to adjustment. Each Class D Warrant entitles the registered holder
thereof to purchase one share of Common Stock at an exercise price of $8.75,
subject to adjustment, at any time until the Expiration Date. The Class C
Warrants and the Class D Warrants (collectively, the "Warrants") are redeemable
by the Company, at a redemption price of $.05 per Warrant, upon at least 30
days' prior written notice, commencing on November 2, 1996, if the average
closing bid price of the Common Stock, as reported by the National Association
of Securities Dealers Automated Quotation System ("Nasdaq") (or the last sale
prices if listed on the Nasdaq National Market or a securities exchange),
exceeds $9.10 per share for the Class C Warrants (subject to adjustment) or
$12.25 per share for the Class D Warrants (subject to adjustment) for 30
consecutive business days ending within 15 business days of the date on which
notice of redemption is given. See "Description of Securities -- The Warrants."

The Company has agreed to pay a solicitation fee (the "Solicitation
Fee") for Janssen-Meyers Associates, L.P. ("JMA") equal to 5% of the aggregate
exercise price of all the Class C Warrants and Class D Warrants exercised after
November 2, 1996. The exercise prices and other terms of the Warrants were
arbitrarily determined by negotiation between the Company and JMA and Rickel &
Associates, Inc. ("Rickel"), the underwriters of the IPO (the "Underwriters"),
and are not necessarily related to the Company's assets, book value or financial
condition, or to any other recognized criteria of value. See "Risk Factors --
Arbitrary Determination of Offering Price." The Common Stock, Class C Warrants
and Class D Warrants are quoted on the over-the-counter market on the Nasdaq
SmallCap Market under the symbols "CYPH," "CYPHW" and "CYPHZ," respectively;
however, there can be no assurance that an active trading market in the
Company's securities will be sustained. See "Risk Factors -- Possible Delisting
of Securities from the Nasdaq Stock Market."

<TABLE>
<CAPTION>
Warrant Warrant Proceeds to
Exercise Price Solicitation Fee (1) Company (2)
-------------- -------------------- ------------
<S> <C> <C> <C>
Per Class C Warrant $6.50 $.325 $6.175
Total $14,950,000 $747,500 $14,202,500

Per Class D Warrant $8.75 $.4375 $8.3125
Total $40,250,000 $2,012,500 $38,237,500
</TABLE>
- ---------------------

(1) Represents Solicitation Fees payable to JMA equal to 5% of the
aggregate exercise price of all Class C Warrants and Class D Warrants
exercised after November 2, 1996.

(2) Assumes the exercise of all the Class C Warrants and Class D Warrants
and that the Solicitation Fee is paid on all such warrants that are
exercised. There can be no assurance that any of the Warrants will be
exercised.

<PAGE>

------

INVESTMENT IN THESE SECURITIES IS SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE 8 OF THIS PROSPECTUS AND "DILUTION."
------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is April , 1997.

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the
more detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus does not give effect to the exercise or conversion of: (i)
warrants (the "Bridge Warrants") issued, or included in options issued, in
connection with the Company's financings completed in August 1994 and April
1995; (ii) the unit purchase option (the "Unit Purchase Option") granted to the
underwriters of the IPO to purchase up to an aggregate of 200,000 Units (as
defined herein); (iii) outstanding options, rights and warrants and other
securities convertible or exercisable into Common Stock; (iv) shares of Common
Stock issuable upon the exercise of currently outstanding options granted under
the Company's 1992 Stock Option Plan (the "1992 Plan"); or (v) issuable upon the
exercise of currently outstanding options granted under the Company's 1996 Stock
Option Plan (the "1996 Plan"). Each prospective investor is urged to read this
Prospectus in its entirety.

The Company

Cytoclonal Pharmaceutics Inc. ("CPI" or the "Company") is a development
stage biopharmaceutical company focusing on the development of diagnostic and
therapeutic products for the identification, treatment and prevention of cancer
and infectious diseases. To date, the Company has been involved solely in
research and development activities relating to several products that are at
various developmental stages. The Company's research and development activities
relate principally to its proprietary fungal paclitaxel (commonly referred to as
"Paclitaxel") production system, its diagnostic and imaging lung cancer
products, Human Gene Discovery Program and its Vaccine program. Taxol (TM) (the
brand name for Paclitaxel) has been designated by the National Cancer Institute
as the most important cancer drug introduced in the past ten years.

The Company's strategy is to focus on its (i) Fungal Paclitaxel
Production System Program since Paclitaxel has been approved by the FDA as a
treatment for refractory (treatment resistant) breast and ovarian cancer; and
(ii) Human Gene Discovery Program, including a proprietary cancer related gene
("LCG gene") and related monoclonal antibody ("MAb") addressing the need for
diagnosis and treatment of lung cancer, the second most common form of cancer,
and its Vaccine program. Other programs, which involve tumor necrosis factor -
polyethylene glycol ("TNF-PEG"), a fusion protein ("IL-T"), a potential
anti-leukemia drug ("IL-P") and anti-sense therapeutics - are being pursued at
modest levels. These other programs may serve as platforms for future products
and/or alternatives to the two primary programs if unforeseen problems develop.
In addition, several of the technologies under development are complementary and
could possibly potentiate each other.

The Company was created in 1991 to acquire certain proprietary cancer
and viral therapeutic technology ("Wadley Technologies") developed at the Wadley
Institute in Dallas, Texas ("Wadley"). Through its own research and development
efforts and agreements with other research institutions and biotechnology
companies, the Company has acquired and/or developed additional proprietary
technology and rights. The Company has not developed any commercial products,
will require significant additional financing to complete development and obtain
regulatory approvals for its proposed products which, if ever received, can take
several years.

The Company has received an exclusive worldwide license to use patented
fungal technology to synthesize Paclitaxel from the Research & Development
Institute, Inc. ("RDI") at Montana State University. Paclitaxel has proven to be
effective in treating refractory ovarian and breast cancers and, in preliminary
clinical trials, has shown potential in treating refractory non-small cell lung
cancer ("NSCLC") and certain other cancer indications. Presently, Paclitaxel is
made from the inner bark and needles of the slow-growing Pacific yew tree.
Scientists at the Company, in cooperation with the inventors of the fungal
Paclitaxel technology, are using this technology and fermentation technology to
develop a system for manufacturing Paclitaxel in commercial quantities and at
lower cost than currently available production methods. See "Business --
Research and Development Programs -- Fungal Paclitaxel Production System
Program."

<PAGE>

In July 1996, the Company entered into an agreement with the Washington
State University Research Foundation ("WSURF") whereby the Company received an
exclusive, world-wide license to use and/or sublicense patented technology or
prospective patented technology (the "WSURF Technology") related to genes for
enzymes and the associated gene products, including the enzymes, in the
biosynthetic pathway for Paclitaxel from the yew tree. This gene will be used
along with a related fungal gene region to further optimize the fungal
Paclitaxel production system.

The Company is directing its resources toward developing cancer
diagnostic and imaging products utilizing the LCG gene and related MAb ("LCG
MAb") isolated by the Company in its Human Gene Discovery Program. The LCG gene
and the LCG MAb are associated with specific lung cancer cells. In Phase I human
clinical trials, an LCG MAb derived from mouse cells was shown to be highly
specific for cancerous lung tissue, but not normal lung tissue. These clinical
studies will be expanded with a human derived form of the LCG MAb which is
presently under development. See "Business -- Research and Development Programs
- -- Human Gene Discovery Program/Lung Cancer Program."

In June 1996, the Company entered into a Patent License Agreement (the
"Regents Agreement") with the Board of Regents of the University of Texas System
("Regents") whereby the Company received an exclusive royalty-bearing license to
manufacture, have manufactured, use, sell and/or sublicense products related to
a U.S. Patent Application entitled "A Method for Ranking Sequences to Select
Target Sequence Zones of Nucleus Acids." The technology has identified optimum
regions within genes to bind anti-sense products. Anti-sense products are under
development to control genes involved in human diseases such as cancer,
diabetes, or AIDS. A patent application has been filed on this technology. This
discovery potentially has broad applications to many human and viral genes
involved in human disease.

In February 1996, the Company obtained exclusive rights to a technology
and pending patent developed at the University of California, Los Angeles for
the Paclitaxel treatment of polycystic kidney disease which looks promising in
animal studies, which will be continued.

The Company is in discussions with several companies regarding the
establishment of strategic partnerships for the development, marketing, sales
and manufacturing of the Company's proposed products for various segments of the
global market. There can be no assurance that the Company's agreement with Helm
AG will result in any benefit to the Company or that any additional agreements
will be entered into.

To date, the Company has generated no sales revenues and has incurred
operating losses of $2,265,000, $2,691,000 and $2,890,000 for the 12 months
ended December 31, 1994, 1995 and 1996, respectively. The increase in net losses
from 1994 to 1995 was attributable to an increase in interest expense and
finance costs associated with two bridge financings, one in August 1994 and one
in April 1995. In connection with the two bridge financings, the Company issued
an aggregate of $3,037,500 in principal amount of 9% subordinated notes, which
were repaid in 1995, including $400,000 of these notes which were past due, from
the net proceeds of the IPO. The increase in net loss for 1996 from 1995 was
primarily attributable to an increase in research and development expenses and
general and administrative expenses partially offset by interest income
generated from the proceeds of the Company's and a decrease in interest expense.
The Company expects to incur additional losses in the foreseeable future. See
"Risk Factors --Accumulated Deficit; and History of Significant Losses and
Anticipated Continuing Significant Future Losses," "Plan of Operation" and
Financial Statements.

The Company was originally incorporated in the state of Texas in
September 1991 as Bio Pharmaceutics, Inc. In November 1991, the Company changed
its name to Cytoclonal Pharmaceutics Inc. The Company was reincorporated in
Delaware by merger into a wholly-owned Delaware subsidiary in January 1992. The
Company's executive offices are located at 9000 Harry Hines Boulevard, Suite
330, Dallas, Texas 75235 and its telephone number is 214-353-2922.

<PAGE>

THE OFFERING

Securities Offered by the
Company............................. 2,300,000 shares of Common Stock and
2,300,000 Redeemable Class D Warrants
issuable upon exercise of the
Redeemable Class C Warrants and
2,300,000 shares of Common Stock
issuable upon exercise of the
Redeemable Class D Warrants which are
issuable upon exercise of the Class C
Warrants and 2,300,000 shares of Common
Stock issuable upon exercise of the
Class D Warrants issued in connection
with the Company's initial public
offering in November 1995. See
"Description of Securities."

Terms of Warrants...................... Each Class C Warrant entitles the
holder to purchase one share of Common
Stock and one Class D Warrant for an
aggregate exercise price of $6.50 at
any time until November 2, 2000,
subject, in certain circumstances, to
earlier redemption by the Company. Each
Class D Warrant entitles the holder to
purchase one share of Common Stock for
an exercise price of $8.75 at any time
until November 2, 2000, subject, in
certain circumstances, to earlier
redemption by the Company. The exercise
prices and numbers of shares issuable
upon the exercise of the Warrants are
subject to adjustment in certain
circumstances. See "Description of
Securities -- The Warrants."

Capital Stock Outstanding Before
Offering Assuming No Exercise
of the Warrants
Common Stock(1): ..................... 8,180,556 shares

Series A Convertible
Preferred Stock: ..................... 1,201,404 shares

Class C Warrants: ..................... 2,300,000 shares

Class D Warrants: ..................... 2,300,000 shares

Capital Stock Outstanding After
Offering Assuming Exercise
of Class C Warrants
Common Stock(1): .....................10,480,556 shares

Series A Convertible
Preferred Stock: ..................... 1,201,404 shares

Class D Warrants: ..................... 4,600,000 shares

<PAGE>

Capital Stock Outstanding After
Offering Assuming Exercise
of All Class C and Class D
Warrants
Common Stock(1): .....................15,080,556 shares

Series A Convertible
Preferred Stock: .....................1,201,404 shares

Use of Proceeds:........................ The Company intends to utilize the net
proceeds of this Offering to fund
research and development activities
(including certain royalties and
licensing fees), and for general
working capital purposes and operating
expenses. See "Use of Proceeds" and
"Plan of Operation."

Risk Factors:........................... Investment in these securities is
speculative and involves a high degree
of risk. See "Risk Factors."

Nasdaq SmallCap Market
Symbols(3): .......................... Common Stock - CYPH
Class C Warrants - CYPHW
Class D Warrants - CYPHZ
- -----------------------

<PAGE>

Summary Financial Information (1)

Statement of Operations Data:
<TABLE>
<CAPTION>
September 11,
1991
Year Ended (inception)
December 31, to December 31,
------------ ---------------
1995 1996 1996
---- ---- ----
<S> <C> <C> <C>
Research and development
expenses ........................ $ 1,181,000 $ 1,576,000 $ 6,307,000
General and administrative expenses
1,138,000 1,530,000 5,326,000
Net interest expense
(income) ........................ 372,000 (216,000) 140,000
------------ ------------ ------------
Net (loss) ........................ (2,691,000) (2,890,000) (11,773,000)
============ ============ ============
Net (loss) per share of
common stock .................... $ (.53) $ (.42)
Weighted average number of shares
5,695,000 7,640,000
============ ============
</TABLE>

<TABLE>
<CAPTION>
At December 31, 1996 As Adjusted (2) As Adjusted (3)
-------------------- -------------- ---------------

Balance Sheet Data
Working capital ................... $ 2,543,000 $ 16,661,000 $ 54,898,000
Total assets ...................... 3,881,000 17,999,000 56,236,000
Total liabilities ................. 1,569,000 1,569,000 1,569,000
Deficit accumulated during the
development stage ................. (11,852,000) (11,852,000) (11,852,000)
Total stockholders' equity ........ 2,312,000 16,430,000 54,667,000
</TABLE>
- ------------

(1) Through December 31, 1996, and since then, the Company has not
generated any sales revenues.
(2) Gives effect to the exercise of only the 2,300,000 Class C Warrants,
the application on the net proceeds therefrom, and assumes that the
Solicitation Fee is paid on each Warrant Exercise. See "Plan of
Distribution."
(3) Gives effect to the exercise of the 2,300,000 Class C Warrants, the
4,600,000 Class D Warrants, the application on the net proceeds
therefrom, and assumes that the Solicitation Fee is paid on each
Warrant Exercise. See "Plan of Distribution."

<PAGE>

RISK FACTORS

AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS HIGHLY SPECULATIVE,
INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE MADE ONLY BY INVESTORS WHO CAN
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE PURCHASERS, PRIOR TO
MAKING AN INVESTMENT DECISION, SHOULD CAREFULLY CONSIDER, ALONG WITH OTHER
MATTERS REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS:

Accumulated Deficit; and History of Significant Losses and Anticipated
Continuing Future Losses. The Company's balance sheet as of December 31, 1996
reflect accumulated deficits of $(11,852,000). In addition, the Company's
statements of operations for the year ended December 31, 1996 reflect net losses
of $(2,890,000), or approximately $(.42) per share. The Company has continued to
incur substantial operating losses since December 31, 1996 and expects to incur
significant operating losses for at least several years. There can be no
assurances that future revenues will be generated, that, if generated, the
Company's operations will be profitable, or that the Company will be able to
obtain sufficient additional funds to continue its planned activities. See "Use
of Proceeds," "Plan of Operation" and Financial Statements.

Development Stage Company; No Product Revenue. The Company is in the
development stage and, through December 31, 1996, has generated no sales revenue
and has no prospects for revenue in the foreseeable future. Substantial losses
to date have resulted principally from costs incurred in research and
development activities and general and administrative expenses, as well as from
the purchase of equipment and leasehold improvements to the Company's
facilities. The Company will be required to conduct significant research,
development, testing and regulatory compliance activities which, together with
projected general and administrative expenses, are expected to result in
additional significant continuing operating losses. The Company does not expect
to receive regulatory approvals for any of its proposed products for at least
several years, if ever. The Company currently has no source of operating revenue
and there can be no assurance that it will be able to develop any such revenue
source or that its operations will become profitable, even if it is able to
commercialize any products. Further, as a development stage company, the Company
has a limited relevant operating history upon which an evaluation of its
prospects can be made. Such prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in establishing a new business
in the evolving, heavily regulated biotechnology industry, which is
characterized by an increasing number of market entrants, intense competition
and a high failure rate. In addition, significant challenges are often
encountered in shifting from developmental to commercial activities. See "Plan
of Operation" and Financial Statements.

Need for Substantial Additional Funds; Negative Cash Flow. The Company
is currently experiencing, and has since its inception experienced, negative
cash flow from operations which is expected to continue in the foreseeable
future. Since its inception the Company has been dependent upon equity infusions
and upon the Bridge Financings and the Company's initial public offering in
November 1995 (the "IPO") to fund its continuing operations. The Company's cash
requirements may vary materially from current estimates because of results of
the Company's research and development programs, results of clinical studies,
changes in the focus and direction of the Company's research and development
programs, competitive and technological advances and other factors. In any
event, the Company will require substantial funds, in addition to the proceeds
of this Offering, to conduct development activities and pre-clinical and
clinical trials, apply for regulatory approvals and commercialize products, if
any, that it develops.

The Company does not have any commitments or arrangements to obtain any
additional financing and there can be no assurance that required financing will
be available to the Company on acceptable terms, if at all. Although the Company
will seek to fund a portion of its product development efforts by entering into
collaborative ventures with corporate partners, obtaining research contracts,
entering into research and development partnerships and obtaining government
grants, there can be no assurance that the Company will be able to enter into
any such additional ventures on acceptable terms, if at all. To the extent the
Company raises additional capital by issuing securities, further dilution to the
investors in this Offering may result. See "-- Dependence on Collaborations and
Licenses with Others" and "Dilution."

<PAGE>

Dependence on Collaborations and Licenses with Others. The Company's
strategy for the development, clinical testing, manufacturing and
commercialization of its proposed products includes entering into various
collaborations with corporate partners, licensors, licensees and others, and is
dependent upon the subsequent success of these outside parties in performing
their responsibilities. In addition to its agreements with RDI and Enzon, Inc.
("Enzon"), the Company has entered into several other research and license
agreements and is continually seeking to enter into additional arrangements with
other collaborators. There can be no assurance that its current arrangements or
any future arrangements will lead to the development of products with commercial
potential, that the Company will be able to obtain proprietary rights or
licenses for proprietary rights with respect to any technology developed in
connection with these arrangements or that the Company will be able to insure
the confidentiality of any proprietary rights and information developed in such
collaborative arrangements or prevent the public disclosure thereof.

In general, collaborative agreements provide that they may be
terminated under certain circumstances. There can be no assurance that the
Company will be able to extend any of its collaborative agreements upon their
termination or expiration, or that the Company will be able to enter into new
collaborative agreements with existing or new partners in the future. To the
extent the Company chooses not to or is unable to establish any additional
collaborative arrangements, it would require substantially greater capital to
undertake research, development and marketing of its proposed products at its
own expense. In addition, the Company may encounter significant delays in
introducing its proposed products into certain markets or find that the
development, manufacture or sale of its proposed products in such markets is
adversely affected by the absence of such collaborative agreements. See "--
Royalty Obligations; Possible Loss of Patents and Other Proprietary Rights" and
"Business -- Collaborative Agreements."

Early Stage of Product Development; Technological and Other
Uncertainties. There can be no assurance that the Company's research and
development activities will result in any commercially viable products. The
development of each product will be subject to the risks of failure inherent in
the development of products based on innovative technologies and the expense and
difficulty of obtaining regulatory approvals. All of the potential products
currently under development by the Company will require significant additional
research and development and pre-clinical testing and clinical testing prior to
submission of any regulatory application for commercial use. There can be no
assurance that the Company's research or product development efforts will be
successfully completed, that the products currently under development will be
successfully transformed into marketable products, that required regulatory
approvals can be obtained, that products can be manufactured at acceptable cost
in accordance with regulatory requirements or that any approved products can be
successfully marketed or achieve customer acceptance. Additional risks include
the possibility that any or all of the Company's products will be found to be
ineffective or toxic, or that, if safe and effective, will be difficult to
manufacture on a large scale or uneconomical to market; that the proprietary
rights of third parties will preclude the Company from marketing one or more
products; and that third parties will market superior or equivalent products.
See "-- No Assurance of FDA Approval; Government Regulation," "-- Dependence on
Third Parties For Manufacturing; No Manufacturing Experience," "-- Dependence on
Third Parties For Marketing; No Marketing Experience" and "Business -- Research
and Development Programs."

Royalty Obligations; Possible Loss of Patents and Other Proprietary
Rights. Pursuant to its License Agreement with RDI relating to Paclitaxel, the
Company must pay minimum royalties of $100,000 by June 10, 1997 and by each June
10 thereafter as long as such license is retained. Pursuant to the License
Agreement between the Company and RDI relating to a fungal strain known as
FTS-2, the Company must pay to RDI royalties on sales of products incorporating
the licensed technology of 6% if the product is covered by a pending or issued
patent or 3% if the product is not covered by a patent. In addition, for the
purchase of the Wadley Technology, the Company is required to pay royalties to
WadTech of 6.25% of the gross selling price of products incorporating any of the
Wadley Technology until payments totaling $1,250,000 (the "Fixed Sum") have been
made. Thereafter, the royalty rate will be up to 3.75%. Minimum royalties
payable to WadTech start at $31,250 for the year beginning October 1, 1996, are
$62,500 for the year beginning October 1, 1997 and are $125,000 for each year
thereafter. WadTech has a security interest in the Wadley Technology to secure
the payment of the first $1,250,000 of royalties. The WadTech Agreement provides
that the royalties and other sums payable by the Company to WadTech are at a
higher rate until the Fixed Sum has been paid

<PAGE>

in full. WadTech has the right to license such intellectual property to a third
party or sell it through a foreclosure sale in the event that the Company does
not fulfill its obligations under the Wadley Agreement. The Company is also
obligated to pay a royalty of 3% on sales of products produced through the use
of a recombinant yeast expression system pursuant to a license agreement
assigned to the Company in connection with its purchase of the Wadley
Technology. Also, pursuant to its license agreement with WSURF, the Company is
required to pay WSURF license fees of $7,500 per year commencing on July 1, 1997
as well as certain royalties and sublicensing fees. The loss by the Company of
the RDI, Wadley or WSURF technology would have a material adverse affect on the
Company's business and the development of the Company's proposed products.

In addition, the Company's agreements with Enzon provide that if the
parties decide to jointly develop any products, the costs and profits of product
development will be split equally. If the Company is unable to fund its portion
of a product's development costs, the Company will lose its rights to such
product, will no longer have the right to split the profits from such product
and will only be entitled to a royalty. In addition, the Company has paid
$143,128 as of March 13, 1997 of the $240,240 owed the University of Texas
("UTD") pursuant to an extended agreement therein granting the Company a right
of first refusal to acquire a license to develop and commercialize any
intellectual property resulting from the agreement for a royalty to be
negotiated not exceeding eight percent of the net sales of commercialized
products. Furthermore, the Company entered into a Patent License Agreement with
the Board of Regents of the University of Texas ("Regents") in which the Company
is required to pay Regents certain and sublicensing fees. In addition, the
Company entered into a license agreement with the University of California at
Los Angeles ("UCLA License Agreement I") pursuant to which the Company paid UCLA
$5,000 and has agreed to pay an additional $10,000 upon issuance of a patent.
Pursuant to an additional license agreement with UCLA ("UCLA License Agreement
II"), the Company paid a license issue fee of $5,000 and has agreed to pay an
additional $5,000 upon the issuance of a patent. See "Business -- Collaborative
Agreements."

Competition. Many of the Company's competitors have substantially
greater financial, technical, human and other resources than the Company. In
addition, many of these competitors have significantly greater experience than
the Company in undertaking pre-clinical testing and human clinical trials of new
products and in obtaining United States Food and Drug Administration ("FDA") and
other regulatory approvals. Accordingly, certain of the Company's competitors
may succeed in obtaining FDA approvals more rapidly and efficiently than the
Company. Furthermore, if the Company is able to commence commercial production
and sale of any products, it will also be competing with companies having
substantially greater resources and experience in these areas. Company personnel
currently has limited or no experience in the production and sale of any
pharmaceutical or biological products. Investors should be aware that in June
1991, the National Cancer Institute ("NCI") formalized a Collaborative Research
and Development Agreement ("CRADA") for development of Paclitaxel with
Bristol-Myers Squibb Company, Inc. ("Bristol-Myers") as its pharmaceutical
manufacturing and marketing partner. This CRADA granted to Bristol-Myers the
exclusive use until December 1997 of NCI's clinical data relating to Paclitaxel
in seeking approval from the FDA, which significantly shortened the approval
process and prevented any other party from obtaining FDA approval using the NCI
data. Bristol-Myers received FDA approval for the commercial sale of its
Paclitaxel as a treatment for refractory ovarian cancer in December 1992 and for
refractory breast cancer in April 1994. Since December 1992, Bristol-Myers has
been the sole source of Paclitaxel for commercial purposes. It is the Company's
understanding that Bristol-Myers is currently conducting clinical trials
required for FDA approval of Paclitaxel for treating other cancers. See
"Business -- Research and Development Programs -- Fungal Paclitaxel Production
System Program" and "Business -- Competition."

Uncertain Ability to Protect Proprietary Technology. The Company's
success will depend, in part, on its ability to obtain patent protection for its
products and processes in the United States and elsewhere. The Company has filed
and intends to continue to file applications as appropriate. No assurance can be
given that any additional patents will issue from any of these applications or,
if patents do issue, that the claims allowed will be sufficiently broad to
protect the Company's technology. In addition, no assurance can be given that
any patents issued to or licensed by the Company will not be successfully
challenged or circumvented by others, or that the rights granted will provide
adequate protection to the Company.

<PAGE>

The Company is aware of patent applications and issued patents
belonging to competitors and, although it has no knowledge of such, it is
uncertain whether any of these, or patent applications of which it may not have
any knowledge, will require the Company to alter its potential products or
processes, pay licensing fees or cease certain activities. There can be no
assurance that the Company will be able to obtain licenses to technology that it
may require or, if obtainable, that such licenses will be at an acceptable cost.
The Company's failure to obtain any requisite license to any technology may have
a material adverse effect on the Company. Expensive and protracted litigation
may also be necessary to enforce any patents issued to the Company or to
determine the scope and validity of others' claimed proprietary rights.

The Company also relies on trade secrets and confidential information
that it seeks to protect, in part, by confidentiality agreements. There can be
no assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach or that the Company's trade secrets will
not otherwise become known or be independently discovered by competitors. See
"Business -- Patents, Licenses and Proprietary Rights."

No Assurance of FDA Approval; Government Regulation. The FDA and
comparable agencies in foreign countries impose substantial requirements upon
the introduction of therapeutic and diagnostic pharmaceutical and biological
products through lengthy and detailed laboratory and clinical testing
procedures, sampling activities and other costly and time-consuming procedures.
Satisfaction of these requirements typically takes several years or more and
varies substantially based upon the type, complexity and novelty of the product.
The regulatory review may result in extensive delay in the regulatory approval
process. Regulatory requirements ultimately imposed could adversely affect the
Company's ability to clinically test, manufacture or market potential products.
Government regulation also applies to the manufacture and marketing of
pharmaceutical and biological products.

The effect of government regulation may be to delay marketing of new
products for a considerable period of time, to impose costly procedures upon the
Company's activities and to furnish a competitive advantage to larger companies
competing with the Company. There can be no assurance that FDA or other
regulatory approval for any products developed by the Company will be granted on
a timely basis or at all. Any such delay in obtaining, or failure to obtain,
such approvals would adversely affect the marketing of any contemplated products
and the ability to earn product revenue. Further, regulation of manufacturing
facilities by state, local and other authorities is subject to change. Any
additional regulation could result in limitations or restrictions on the
Company's ability to utilize any of its technologies, thereby adversely
affecting the Company's operations. See "Business -- Government Regulation."

The Company is also subject to regulation by the Occupational Safety
and Health Administration ("OSHA") and the Environmental Protection Agency
("EPA") and to regulation under the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other regulatory statutes, and may in the
future be subject to other federal, state or local regulations. Either or both
of OSHA or the EPA may promulgate regulations that may affect the Company's
research and development programs. The Company is unable to predict whether any
agency will adopt any regulation which would have a material adverse effect on
the Company's operations.

Uncertainty Related to Health Care Reimbursement and Reform Measures.
The Company's success in generating revenue from sales of human therapeutic and
diagnostic products may depend, in part, on the extent to which reimbursement
for the costs of such products and related treatments will be available from
government health administration authorities, private health insurers and other
organizations. Significant uncertainty exists as to the reimbursement status of
newly-approved health care products. There can be no assurance that adequate
third-party insurance coverage will be available for the Company to establish
and maintain price levels sufficient for realization of an appropriate return on
its investment in developing new products. Government and other third-party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement of new therapeutic and diagnostic
products approved for marketing by the FDA and by refusing, in some cases, to
provide any coverage of uses of approved products for disease indications for
which the FDA has not granted marketing approval. If adequate coverage and
reimbursement levels are not provided by government and third-party payors for
uses of the Company's products, the market acceptance of these products would be
adversely affected.

<PAGE>

Dependence on Third Parties for Manufacturing; No Manufacturing
Experience. The Company currently does not have facilities or personnel capable
of manufacturing any products in commercial quantities. If the Company completes
development of, and obtains regulatory approval for, fungal Paclitaxel, it
intends to use third-parties to manufacture Paclitaxel. No assurance can be
given that it will be able to enter into any arrangements with such
manufacturers on acceptable terms, if at all. In the future, the Company may, if
it becomes economically attractive to do so, establish its own manufacturing
facilities to produce other products that it may develop. Building and operating
production facilities would require substantial additional funds and other
resources; however, there can be no assurance that such funds would be
available. There is no assurance that the Company will be able to make the
transition successfully to commercial production, should it choose to do so. See
"Business -- Manufacturing and Marketing."

Dependence Upon Third Parties for Marketing; No Marketing Experience.
The Company currently has no marketing and sales personnel and no experience
regarding marketing pharmaceutical products. Significant additional expenditures
and management resources would be required to develop an internal sales force,
and there can be no assurance that such funds would be available. Further, there
can be no assurance that, with such a sales force, the Company would
successfully penetrate the markets for any products developed. For certain
products under development, the Company may seek to enter into development and
marketing agreements which grant exclusive marketing rights to its corporate
partners in return for royalties to be received on sales, if any. Under certain
of these agreements, the Company's marketing partner may have the responsibility
for all or a significant portion of the development and regulatory approval. In
the event that the marketing and development partner fails to develop a
marketable product or fails to market a product successfully, the Company's
business may be adversely affected. The sale of certain products outside the
United States will also be dependent on the successful completion of
arrangements with future partners, licensees or distributors in each territory.
There can be no assurance that the Company will be successful in establishing
any additional collaborative arrangements, or that, if established, such future
partners will be successful in commercializing products. See "Business --
Manufacturing and Marketing."

Dependence Upon Key Personnel and Collaborators; Limited Management
Team. The Company's success depends on the continued contributions of its
executive officers, scientific and technical personnel and consultants. The
Company is particularly dependent on Arthur P. Bollon, Ph.D., its Chairman,
Chief Executive Officer and President, and Daniel Shusterman, its Vice President
of Operations, Treasurer and Chief Financial Officer, and its senior scientists,
Susan L. Berent, Ph.D., Hakim Labidi, Ph.D., Rajinder S. Sidhu, Ph.D. and
Richard M. Torczynski, Ph.D. The Company currently has 18 full-time employees,
15 of whom are engaged directly in research and development activities and three
of whom are in executive and administrative positions. The Company currently has
an employment agreement with Dr. Bollon which expires on November 6, 2000.
Although the Company maintains "key person" life insurance in the amount of $2
million on the life of Dr. Bollon, his death or incapacity would have a material
adverse effect on the Company. During the Company's limited operating history,
many key responsibilities within the Company have been assigned to a relatively
small number of individuals. The competition for qualified personnel is intense,
and the loss of services of certain key personnel could adversely affect the
Company.

The Company's scientific collaborators and its scientific advisors are
employed by employers other than the Company and some have consulting or other
advisory arrangements with other entities that may conflict or compete with
their obligations to the Company. Inventions or processes discovered by such
persons will not necessarily become the property of the Company but may remain
the property of such persons or of such persons' full-time employers. See
"Management."

Product Liability and Insurance. The use of Company products in
clinical trials and the marketing of any products may expose the Company to
product liability claims. The Company intends to obtain product liability
insurance for its ongoing clinical trials. There can be no assurance that the
Company will be able to obtain, maintain or increase its insurance coverage in
the future on acceptable terms or that any claims against the Company will not
exceed the amount of such coverage. Furthermore, certain distributors of
pharmaceutical and biological products require minimum product liability
insurance coverage as a condition precedent to purchasing or accepting products
for distribution. Failure to satisfy such insurance requirements could impede
the ability of the Company to achieve broad distribution of its

<PAGE>

proposed products, which would have a material adverse effect upon the business
and financial condition of the Company. See "Business-Product Liability
Insurance".

Control of the Company; Ability to Direct Management. The current
officers, directors and principal stockholders of the Company beneficially own
or control approximately 58.1% of the outstanding shares of Common Stock, which
represents approximately 52.3% of the total outstanding voting securities of the
Company. Such officers, directors and principal stockholders may, therefore, be
able to elect all of the Company's directors, to determine the outcome of most
corporate actions requiring stockholder approval, and otherwise to control the
business of the Company. Such control could preclude any unsolicited acquisition
of the Company and consequently adversely affect the market price of the
Company's securities. In addition, the Company's Board of Directors is
authorized to issue from time to time shares of preferred stock, without
stockholder authorization, in one or more designated series or classes. See "--
Possible Restriction on 'Market Making' Activities in the Company's Securities;
Illiquidity," "Principal Stockholders" and "Description of Securities."

Dividend Policy. Since its inception, the Company has not paid any
dividends on its Common Stock. The Company intends to retain future earnings, if
any, to provide funds for the operation of its business and, accordingly, does
not anticipate paying any cash dividends on its Common Stock in the reasonably
foreseeable future. Furthermore, the terms of the Company's outstanding Series A
Preferred Stock do not allow for the payment of cash dividends on the Common
Stock unless and until all accrued and unpaid dividends on the Series A
Preferred Stock shall have been paid or set apart for payment.

Indemnification of Officers and Directors. The Company's Certificate of
Incorporation includes certain provisions permitted pursuant to Delaware law
whereby officers and Directors of the Company are to be indemnified against
certain liabilities. The Company's Certificate of Incorporation also limits, to
the fullest extent permitted by Delaware law, a director's liability for
monetary damages for breach of fiduciary duty, including gross negligence,
except liability for (i) breach of the director's duty of loyalty, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, (iii) the unlawful payment of a dividend or unlawful stock
purchase or redemption and (iv) any transaction from which the director derives
an improper personal benefit. Delaware law does not eliminate a director's duty
of care and this provision has no effect on the availability of equitable
remedies such as injunction or rescission based upon a director's breach of the
duty of care. In addition, an insurance policy, which provides for coverage for
certain liabilities of its officers and Directors has been issued to the
Company.

Possible Restriction on "Market Making" Activities in the Company's
Securities; Illiquidity. Bruce Meyers and Peter Janssen beneficially own
approximately 10.1% and 9.9%, respectively, of the outstanding shares of Common
Stock prior to this Offering, which represents approximately 9.1% and 9.0%,
respectively, of the total outstanding voting securities of the Company. See
"Principal Stockholders." JMA is a limited partnership of which Messrs. Meyers
and Janssen are the principals of the corporate general partner. If JMA and/or
its affiliates are deemed to have control of the Company, regulatory
requirements of the Securities and Exchange Commission (the "Commission") and
Nasdaq and the New York Stock Exchange, Inc. could prevent JMA from engaging in
market-making activities relating to the Company's securities. If JMA is unable
to make a market in the Company's securities because it is deemed to have
effective voting control of the Company or if, for any other reason, it chooses
not to or is unable to make a market in the Company's securities, there can be
no assurance that any other broker-dealers would make a market in the Company's
securities. Without market-makers, it would be very difficult for holders of the
Company's securities to sell their securities in the secondary market and the
market prices for such securities would be adversely affected. Moreover, there
can be no assurance that an active trading market for the Company's securities
will develop or be maintained whether or not JMA makes a market in the Company's
securities. In the absence of such a market, investors may be unable to
liquidate their investment in the Company. See "-- Absence of Public Market;
Possible Volatility of Common Stock and Warrant Prices."

Possible Delisting of Securities from the Nasdaq Stock Market. The
Company's Common Stock, Class C Warrants and Class D Warrants are currently
quoted on the Nasdaq SmallCap Market under the symbols "CYPH," "CYPHW" and
"CYPHZ," respectively. However, there can be no assurance that the Company will
continue to meet

<PAGE>

the criteria for continued listing of securities on the Nasdaq SmallCap Market
adopted by the Commission. These continued listing criteria include a minimum of
$2,000,000 in total assets, a minimum bid price of $1.00 per share of common
stock and total equity of $1,000,000. If an issuer does not meet the $1.00
minimum bid price standard, it may, however, remain on the Nasdaq SmallCap
Market if the market value of its public float is at least $1,000,000 and the
issuer has capital and surplus of at least $2,000,000. Nasdaq has recently
proposed revisions to its maintenance criteria which, if adopted, would make it
more difficult for the Company to maintain its listing. If the Company became
unable to meet the continued listing criteria of the Nasdaq SmallCap Market,
because of continued operating losses or otherwise, and became delisted
therefrom, trading, if any, in the Common Stock and the Warrants would
thereafter be conducted in the over-the-counter market in the so-called "pink
sheets" or, if available, the NASD's "Electronic Bulletin Board." As a result,
an investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the value of, the Company's securities.

Risk of Low-Priced Stocks; "Penny Stock" Regulations. If the Company's
securities are delisted from the Nasdaq SmallCap Market, they may become subject
to Rule 15g-9 under the Securities Exchange Act of 1934 (the "Exchange Act"),
which imposes additional sales practice requirements on broker-dealers that sell
such securities except in transactions exempted by such Rule, including
transactions meeting the requirements of Rules 505 or 506 or Regulation D under
the Securities Act of 1933, as amended (the "Securities Act"), and transactions
in which the purchaser is an institutional accredited investor (as defined in
the Securities Act) or an established customer (as defined in the Securities
Act) of the broker-dealer. For transactions covered by this Rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the Rule may affect the ability and/or willingness of
broker-dealers to sell the Company's securities and may consequently affect the
ability of purchasers in this Offering to sell any of the securities acquired in
the Offering in the secondary market.

The Commission has also adopted regulations which define a "penny
stock" to be any equity security that has a market price (as therein defined) of
less than $5.00 per share or with an exercise price of less than $5.00 per
share, subject to certain exceptions. Unless exempt, the rules require the
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the Commission relating to the penny stock market. Disclosure also
has to be made about commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements have to be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks. The foregoing penny stock restrictions will not apply to the Company's
securities if such securities are listed on the Nasdaq SmallCap Market and have
certain price and volume information provided on a current and continuing basis
or meet certain minimum net tangible assets or average revenue criteria. There
can be no assurance that the Company's securities will qualify for exemption
from these restrictions. In any event, even if the Company were exempt from such
restrictions, it would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the Commission the authority to prohibit any person that is engaged
in unlawful conduct while participating in a distribution of penny stock from
associating with a broker-dealer or participating in a distribution of penny
stock, if the Commission finds that such a restriction would be in the public
interest. If the Company's securities were subject to the rules on penny stocks,
the prices of and market liquidity for the Company's securities could be
severely adversely affected.

Shares Eligible for Future Sale; Registration Rights; Potential
Dilutive Effect of Outstanding Securities and Possible Negative Impact on Future
Financings. Certain of the Company's outstanding securities are, and will be,
"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act and may, under certain circumstances, be sold without
registration pursuant to Rule 144. A substantial portion of the outstanding
shares of Common Stock are and will be eligible for sale under Rule 144 at
varying periods.

The holders of the unit purchase option (the "Unit Purchase Option")
issues in the IPO will have certain demand registration rights with respect to
the securities underlying such Option, which would permit resale of the
securities acquired upon exercise thereof commencing November 2, 1998. Holders
of (i) 2,000,000 shares of Common Stock outstanding, (ii) options to purchase
200,000 shares of Common Stock, (iii) 1,201,404 shares of Series A Preferred
Stock convertible into an equal number of shares of Common Stock and (iv)
options to purchase 100,000 shares of

<PAGE>

Series A Preferred Stock convertible into an equal number of shares of Common
Stock (the Common Stock referred to in (i) through (iv) above collectively, the
"Registrable Securities") are entitled to demand and "piggy-back" registration
rights with respect to such Registrable Securities commencing December 7, 1996
and ending November 7, 2000. The holders of more than 50% of the Registrable
Securities may request that the Company file a registration statement under the
Securities Act, and, subject to certain conditions, the Company generally will
be required to use its best efforts to effect any such registration. In
addition, if the Company proposes to register any of its securities, either for
its own account or for the account of other stockholders, the Company is
required, with certain exceptions, to notify the holders described above and,
subject to certain limitations, to include in the first two such registration
statements filed after December 7, 1996 and before November 7, 2000, all of the
shares of the Registrable Securities requested to be included by such holders.
In addition, the Company has registered the Bridge Warrants (including the
warrants underlying the option granted to the placement agent of the 1994 Bridge
Financing) and the 810,000 shares of Common Stock issuable upon the exercise of
such warrants. Holders of 20,000 shares of Common Stock issued by the Company in
connection with the formation of the joint venture with Pestka Biomedical
Laboratories, Inc. also have certain "piggyback" registration rights. Holders of
options and warrants to acquire an aggregate of 211,000 shares of Common Stock
granted and issued in connection with financial advisory and public relations
services rendered to the Company and pursuant to a license agreement also have
"piggy-back" registration rights. The exercise of one or more of these
registration rights may involve substantial expense to the Company and may
adversely affect the terms upon which the Company may obtain additional
financing. See "Description of Securities -- Registration Rights" and "Bridge
Financings."

Additionally, any shares of Common Stock purchased upon exercise of the
Class C and Class D Warrants or the Unit Purchase Option may be tradeable
without restriction, provided that the Company satisfies certain securities
registration and qualification requirements. The sale, or availability for sale,
of substantial amounts of Common Stock and/or Warrants in the public market
pursuant to Rule 144 or otherwise could adversely affect the market price of the
Common Stock and the Company's other securities and could impair the Company's
ability to raise additional capital through the sale of its equity securities or
debt financing. Also, to the extent that the Unit Purchase Option, any options
granted under the 1992 Plan, the 1996 Plan, the Bridge Warrants, or any other
rights, warrants and options are exercised, the ownership interest of the
Company's stockholders will be diluted correspondingly. If, and to the extent,
that the Company in the future reduces the exercise price(s) of outstanding
warrants and/or options, the Company's stockholders could experience additional
dilution.

Arbitrary Determination of Offering Price. The exercise prices and
other terms of the Warrants have been determined by negotiation between the
Company and the underwriters and do not necessarily bear any relationship to the
Company's assets, book value or financial condition, or to any other recognized
criterion of value. It should be noted that Messrs. Meyers and Janssen, who are
principals of JMA, own collectively 19.9% of the Company's Common Stock.

Absence of Public Market; Possible Volatility of Common Stock and
Warrant Prices. There can be no assurances that an active market for the
Warrants or Common Stock will be sustained. The market prices for securities of
emerging health care companies have been highly volatile. Announcements of
biological or medical discoveries or technological innovations by the Company or
its competitors, developments concerning proprietary rights, including patents
and litigation matters, regulatory developments in both the United States and
foreign countries, public concern as to the safety of new technologies, general
market conditions, quarterly fluctuations in the Company's revenues and
financial results and other factors may have a significant impact on the market
price of the Company's securities. See "Shares Eligible for Future Sale."

Potential Anti-takeover Effects. The Company is governed by the
provisions of Section 203 of the General Corporation Law of the State of
Delaware, an anti-takeover law enacted in 1988. In general, the law prohibits a
public Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business combination"
is defined to include mergers, asset sales and certain other transactions
resulting in a financial benefit to the stockholders. An "interested
stockholder" is defined as

<PAGE>

a person who, together with affiliates and associates, owns (or, within the
prior three years, did own) 15% or more of a corporation's voting stock. As a
result of the application of Section 203, potential acquirors of the Company may
be discouraged from attempting to effect an acquisition transaction with the
Company, thereby possibly depriving holders of the Company's securities of
certain opportunities to sell or otherwise dispose of such securities at
above-market prices pursuant to such transaction. See "Description of Securities
- -- Delaware Anti-Takeover Law." In addition, certain provisions contained in
each of the employment agreements with each of Dr. Arthur P. Bollon, Chairman,
President and Chief Executive Officer of the Company, and Mr. Daniel Shusterman,
Vice President of Operations, Treasurer and Chief Financial Officer of the
Company, obligate the Company to make certain salary payments if employment is
terminated without just cause or due to a Disability (as defined therein). See
"Management -- Employment Contracts and Termination of Employment and
Change-In-Control Arrangements."

Possible Adverse and Anti-takeover Effects of Authorization of
Preferred Stock. The Company's Certificate of Incorporation authorizes the
issuance of a maximum of 10,000,000 shares of preferred stock on terms which may
be fixed by the Company's Board of Directors without further stockholder action.
Of these 10,000,000 shares, 4,000,000 shares have been designated Series A
Preferred Stock. The terms of the Series A Preferred Stock include dividend and
liquidation preferences and conversion rights which could adversely affect the
rights of holders of the Common Stock being offered hereby. In addition, each
share of Series A Preferred Stock is entitled to one vote on all matters on
which the Common Stock has the right to vote. Holders of Series A Preferred
Stock are also entitled to vote as a separate class on any proposed adverse
change in the rights, preferences or privileges of the Series A Preferred Stock
and any increase in the number of authorized shares of Series A Preferred Stock.
Further, the terms of any additional series of preferred stock, which may also
include priority claims to assets and dividends, as well as special voting
rights, could adversely affect the rights of holders of the Common Stock being
offered hereby. Other than 1,201,404 shares of Series A Preferred Stock, no
preferred stock has been issued to date and the Company has no current plans to
issue additional preferred stock other than in payment of in-kind dividends. The
issuance of such preferred stock could make the possible takeover of the Company
or the removal of management of the Company more difficult, discourage hostile
bids for control of the Company in which stockholders may receive premiums for
their shares of Common Stock, otherwise dilute or subordinate the rights of
holders of Common Stock and adversely affect the market price of the Common
Stock. See "Description of Securities -- Preferred Stock."

Current Prospectus and State Registration Required to Exercise
Warrants; Adverse Effect of Possible Redemption of Warrants. The Warrants will
be exercisable only if a current prospectus relating to the securities
underlying the Warrants is then in effect under the Securities Act and such
securities are qualified for sale or exempt from qualification under the
applicable securities or "blue sky" laws of the states in which the various
holders of the Warrants then reside. There can be no assurance that the Company
will be able to do so. The value of the Warrants may be greatly reduced if a
current prospectus covering the securities issuable upon the exercise of the
Warrants is not kept effective or if such securities are not qualified or exempt
from qualification in the states in which the holders of the Warrants then
reside. See "Description of Securities -- The Warrants."

In addition, the Warrants are subject to redemption by the Company at
$.05 per Warrant, commencing on November 2, 1996, on at least 30 days' prior
written notice if the average closing bid price (or last sales price) of the
Common Stock for 30 consecutive business days ending within 15 business days of
the date on which the notice of redemption is given exceeds $9.10 per share with
respect to the Class C Warrants and $12.25 per share with respect to the Class D
Warrants. If the Warrants are redeemed, holders of Warrants will lose their
right to exercise the Warrants, except during such 30-day notice of redemption
period. Upon the receipt of a notice of redemption of the Warrants, the holders
thereof would be required to: exercise the Warrants and pay the exercise price
at a time when it may be disadvantageous for them to do so; sell the Warrants at
the then market price (if any) when they might otherwise wish to hold the
Warrants; or accept the redemption price, which is likely to be substantially
less than the market value of the Warrants at the time of redemption. See
"Description of Securities -- The Warrants."

<PAGE>

DILUTION

At December 31, 1996, the Company's Common Stock had a net tangible
book value of $1,448,000, or $.19 per share, which represents the amount of the
Company's total tangible assets less liabilities, based on 7,730,546 shares of
Common Stock outstanding. Giving effect to the exercise of outstanding Class C
Warrants, the pro forma net tangible book value of the shares of Common Stock at
December 31, 1996 would have been $1.55 per share, representing an immediate
dilution per share of $4.95 to individuals exercising Class C Warrants. Giving
additional effect to the exercise of the 2,300,000 outstanding Class D Warrants
and the 2,300,000 Class D Warrants issuable upon exercise of the outstanding
Class C Warrants, the pro forma net tangible book value of the shares of Common
Stock at December 31, 1996 would have been $3.68 per share, representing an
immediate dilution per share of $5.07 to individuals exercising Class D Warrants
assuming the prior exercise of all Class C Warrants. Dilution per share
represents the difference between the exercise price and the pro forma net
tangible book value per share after the exercise of the Warrants.

<PAGE>

The following table illustrates the per share dilution to be incurred
by individuals exercising the Class C Warrants and Class D Warrants assuming all
Warrants are exercised:

Class C Class D
Warrants Warrants (2)
Exercise price $ 6.50 $ 8.75
Net tangible book value per share
before exercise of Warrants .19 .19
Increase per share attributable
to exercise of Warrants 1.36 3.49
Pro forma net tangible book value
after exercise (1) 1.55 3.68
----- -----
Dilution to new investors $4.95 $5.07
====== =====
- -----------------------

(1) Assumes the entire exercise price, less expenses of the Offering, is
allocated to the Common Stock obtained upon exercise.

(2) Assumes prior exercise of all of the Class C Warrants.

The following table sets forth the differences at December 31, 1996
between (i) the present stockholders who are officers, directors or beneficial
owners of 5% or more of the outstanding shares of Common Stock ("Insiders");
(ii) the other present stockholders; and (iii) the individuals exercising
Warrants with respect to the number of shares purchased from the Company, the
cash consideration paid and the average price per share. The calculations in
this table assume (i) allocation of the entire offering price of $5.00 to the
Common Stock included in the Units offered in the IPO, and (ii) no exercise of
any of the Company's outstanding options, warrants or any securities which are
convertible and exchangeable into Common Stock. To the extent that shares of
Series A Preferred Stock are issued as dividends and shares of Common Stock are
issued pursuant to the exercise of options, warrants or any securities which are
exchangeable or convertible into Common Stock (including Series A Preferred
Stock), there may be further dilution to the new investors. The calculations in
this table do not include 250,013 shares of Series A Preferred Stock that were
converted into common stock subsequent to December 31, 1996.

<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------- ------------------- Average
Number Percent Amount Percent Price Per Share
------ ------- ------ ------- ---------------
<S> <C> <C> <C> <C> <C>

Executive Officers, Directors and
Initial Investors............. 3,196,000 21.85% $ 1,000 * $0.0003
Other Existing Common
Stockholders.................. 4,534,546 30.99% $15,150,000 21.53% 3.34
Warrantholders exercising Class
C Warrants.................... 2,300,000 15.72% $14,950,000 21.25% 6.50
Warrantholders exercising Class
C Warrants.................... 4,600,000 31.44% $40,250,000 57.22% 8.75
---------- ------- ----------- -------
Total............................ 14,630,546 100.00% $70,351,000 100.00%
========== ======= =========== =======
</TABLE>
- ------------------------

* Less than one percent

<PAGE>

DIVIDEND POLICY

The Company has never paid cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. The terms of the
Company's outstanding Series A Preferred Stock do not allow for the payment of
cash dividends on the Common Stock unless and until all accrued and unpaid
dividends on the Series A Preferred Stock shall have been paid or set apart for
payment. The Company paid dividends in cash of $121,491 and in-kind of shares of
Series A Preferred Stock in payment of its 1992 dividend on the Series A
Preferred Stock. For years the fiscal years ended December 31, 1993, 1994, 1995
and 1996, the Company also paid in-kind dividends of 104,869, 115,307, 126,888
and 122,788 shares of Series A Preferred Stock, respectively, in payment of
dividends on the Series A Preferred Stock. The Company currently intends to
retain all earnings, if any, to finance the growth and development of its
business and anticipates that, for the foreseeable future, that it will continue
to pay dividends in-kind on its outstanding Series A Preferred Stock. See "Plan
of Operation" and "Description of Securities."

USE OF PROCEEDS

Holders of Warrants are not obligated to exercise their Warrants and
there can be no assurance that such holders will choose to exercise all or any
of their Warrants. Furthermore, the Company is unable to predict the timing, if
ever, of the exercise of any of the above securities, although they are likely
to be exercised at such time as the market price of the Common Stock is
substantially above the exercise price of the Warrants. In the event that all of
the 2,300,000 outstanding Class C Warrants are exercised, the net proceeds to
the Company would be approximately $14,117,500 after deducting the expenses of
the offering and assuming payment of the Solicitation Fee. In the event that all
of the 2,300,000 outstanding Class D Warrants and 2,300,000 Class D Warrants
issuable upon exercise of the outstanding Class C Warrants are exercised, the
Company would receive additional net proceeds of approximately $38,237,500,
after deducting the expenses of the offering and assuming payment of the
Solicitation Fee. The net proceeds received upon the exercise of the Warrants
will be used for research and development and general corporate purposes.

The foregoing represents the company's best estimate of the allocation
of the net proceeds received upon exercise of the Class C Warrants and the Class
D Warrants based upon the current status of its business operations, its current
plans and current economic conditions. Future events, including the problems,
delays, expenses and complications frequently encountered by early stage
companies as well as changes in competitive conditions affecting the Company's
business and the success or lack thereof of the Company's marketing efforts, may
make shifts in the allocation of funds necessary or desirable.

Prior to expenditure, the net proceeds will be invested in
high-liquidity, United States government and corporate obligations,
interest-bearing money market funds and other financial instruments.

<PAGE>

CAPITALIZATION

The following table sets forth the actual and as adjusted
capitalization of the Company as of December 31, 1996. This table should be read
in conjunction with the Financial Statements and Notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
As Adjusted As Adjusted
----------- -----------
Actual (1)(2) (1)(3)
------
<S> <C> <C> <C>

STOCKHOLDERS' EQUITY
Preferred stock -- $.01 par value;
10,000,000 shares authorized;
Series A Convertible Preferred Stock, 1,228,629
shares issued and outstanding actual and as
adjusted............................................. 12,000 12,000 12,000
Common Stock -- $.01 par value;
30,000,000 shares authorized, 7,730,546 shares issued
and outstanding actual (1).............................. 78,000 101,000 147,000
Additional paid-in capital.................................... 14,074,000 28,169,000 66,360,00
Deficit accumulated during the development stage.............. (11,852,000) (11,852,000) (11,852,000)
Total stockholders' equity 2,312,000 16,430,000 54,667,000
Total capitalization $2,312,000 16,430,000 54,667,000
</TABLE>
- ------------------------

(1) Does not include the possible issuance of (i) 1,190,000 shares of
Common Stock reserved for issuance upon exercise of options granted or
available for grant under the 1992 Plan and the 1996 Plan; (ii) 810,000
shares of Common Stock issuable upon exercise of warrants (the "Bridge
Warrants") issued, or included in options issued, in connection with
the Company's financings completed in August 1994 and April 1995 (the
"Bridge Financings"); (iii) 1,228,629 shares of Common Stock issuable
at the option of the holders thereof upon the conversion of the
Company's Series A Convertible Preferred Stock ("Series A Preferred
Stock"); (iv) 200,000 shares of Common Stock reserved for issuance upon
exercise of the unit purchase option ("Unit Purchase Option") granted
to the underwriters in connection with the IPO; (v) 600,000 shares of
Common Stock reserved for issuance upon exercise of the Warrants
contained in the Unit Purchase Option; (vi) 100,000 shares of Common
Stock issuable upon exercise of options granted as compensation for
professional services and (vii) 36,000 shares of Common Stock issuable
upon the exercise of warrants granted for research and development. See
"Management," "Certain Transactions," "Description of Securities" and
"Bridge Financings." (2) Gives effect to the exercise of 2,300,000
outstanding Class C Warrants at $6.50 per Warrant, the application of
the net proceeds therefrom, and assumes that the Solicitation Fee is
paid on each Warrant Exercise. See "Plan of Distribution." (3) Gives
effect to the exercise of 2,300,000 outstanding Class C Warrants at
$6.50 per Warrant, 2,300,000 Class D Warrants issuable upon exercise of
the Class C Warrants at $8.75 per Warrant, the net proceeds therefrom,
and assumes that the Solicitation Fee is paid on each Warrant Exercise.
See "Plan of Distribution."

<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data has been derived from, and are
qualified by reference to, the Financial Statements of the Company. The
Company's Financial Statements as of and for the years ended December 31, 1995
and 1996 and for the period September 11, 1991 (the date of the Company's
inception) through December 31, 1996, including the Notes thereto which have
been audited by Richard A. Eisner & Company, LLP, independent auditors, are
included elsewhere in this Prospectus. The following data should be read in
conjunction with such Financial Statements and "Plan of Operation."

STATEMENT OF OPERATIONS DATA (1)
<TABLE>
<CAPTION>

September
Year Ended 11, 1991
December 31, (inception)
------------ to December
1995 1996 31, 1996
---- ---- --------
<S> <C> <C> <C>
Research and development
expenses................................. $1,181,000 $1,576,000 $6,307,000
General and administrative
expenses................................. 1,138,000 1,530,000 5,326,000
Net interest expense
income).................................. 372,000 (216,000) 140,000
-------- ---------- --------
Net (loss)................................. (2,691,000) (2,890,000) (11,773,000)
=========== =========== ============
Net (loss) per share of common
stock.................................... $ (.53) $ (.42)
Weighted average number of
shares................................... 5,695,000 7,640,000
</TABLE>

At December 31, 1996
--------------------------------------------
Balance Sheet Data: As As
Actual Adjusted(2) Adjusted(3)
------ ----------- -----------
<S> <C> <C> <C>
Working capital............................ $2,543,000 16,661,000 54,898,000
Total assets............................... 3,881,000 17,999,000 56,236,000
Total liabilities.......................... 1,569,000 1,569,000 1,569,000
Deficit accumulated during the
development stage........................ (11,852,000) (11,852,000) (11,852,000)
Total stockholders' equity................. 2,312,000 16,430,000 54,667,000
</TABLE>

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

(1) Through December 31, 1996, and since then, the Company has not
generated any sales revenues.

(2) Gives effect to the exercise of only the 2,300,000 Class C Warrants,
the application on the net proceeds therefrom, and assumes that a
Solicitation Fee is paid to JMA on each Warrant Exercise. See "Plan of
Distribution."

(3) Gives effect to the exercise of the 2,300,000 Class C Warrants, the
4,600,000 Class D Warrants, the application on the net proceeds
therefrom, and assumes that a Solicitation Fee is paid to JMA on each
Warrant Exercise. See "Plan of Distribution."

<PAGE>

PLAN OF OPERATION

The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Financial Statements and the Notes thereto and
the Selected Financial Data included elsewhere in this Prospectus. This
discussion contains certain forward-looking statements that involve substantial
risks and uncertainties. When used in this section, the words "anticipate,"
"believe," "estimate," "expect" and similar expressions as they relate to the
Company or its management are intended to identify such forward-looking
statements. The Company's actual results, performance or achievements could
differ materially from those expressed in, or implied by, these forward-looking
statements as a result of, among other things, the factors set forth in the
section entitled "Risk Factors." Historical operating results are not
necessarily indicative of the trends in operating results for any future period.

The Company was organized and commenced operations in September 1991.
The Company is in the development stage, and its efforts have been principally
devoted to research and development activities and organizational efforts,
including the development of products for the treatment of cancer and infectious
diseases, recruiting its scientific and management personnel and advisors and
raising capital.

The Company has not been profitable since inception and expects to
incur substantial operating losses for at least the next several years. For the
period from inception to December 31, 1996, the Company incurred a cumulative
net loss of approximately $(11,773,000). To the extent that the Company does not
enter into agreements with collaborative partners providing for research or
other funding, the Company expects that it will generate losses until at least
such time as it can commercialize products, if ever. The Company's results of
operations may vary significantly from quarter to quarter due to timing of
royalty and research and development payments, if any, as well as the pace of
research and development activities.

The Company believes that the net proceeds from the exercise of all of
the Class C Warrants and Class D Warrants will be sufficient to finance the
Company's plan of operation for at least 24 months from such exercise. See "Use
of Proceeds." There can be no assurance that the Company will generate
sufficient revenues to fund its operations after such period or that any
required financings will be available, through bank borrowings, debt or equity
offerings, or otherwise, on acceptable terms or at all or that any or all of the
Warrants will be exercised.

The Company's plan of operation for the next 12 months will consist of
research and development and related activities aimed at:

o further optimizing the Paclitaxel production from the Fungal
Paclitaxel Production System using alternative fermentation
technologies, inducers, strain improvements and using
Paclitaxel-specific genes. See "Business -- Research and
Development Programs -- Fungal Paclitaxel Production System
Program."

o further development of a diagnostic test using the patented
LCG gene and related MAb to test in vitro serum, tissue or
respiratory aspirant material for the presence of cells which
may indicate a predisposition to, or early sign of, lung or
other cancers. See "Business -- Human Gene Discovery
Program/Lung Cancer Program."

o developing a humanized antibody specific for the protein
associated with the LCG gene and, if successful, submission of
an IND for clinical trials. See "Business -- Research and
Development Programs -- Human Gene Discovery Program/Lung
Cancer Program."

o testing the TNF-PEG technology as an anti-cancer agent in
animal studies. See "Business -- Research and Development
Programs -- Other Programs -- TNF-PEG: Broad Range Anticancer
Drug Program."

o further development of proprietary vectors which have been
constructed for the expression of specific proteins that may
be utilizable for vaccines for different diseases. See
"Business -- Research and Development Programs -- Other
Programs -- IL-T: Prevention of Radiation and Chemotherapy
Damage Program."

<PAGE>

o initiating animal studies of IL-P, and, if successful
submission of an IND for clinical trials. See "Business --
Research and Development Programs -- Other Programs -- Vaccine
Program."

o continuing the funding of the research on anti-sense
technology currently being conducted at the University of
Texas at Dallas. See "Business -- Research and Development
Programs -- Other Programs -- Anti-sense Therapeutics
Program."

o making modest improvements to the Company's laboratory
facilities.

o hiring research technicians and a financial vice president.

o seeking to establish strategic partnerships for the
development, marketing, sales and manufacturing of the
Company's proposed products. See "Business -- Manufacturing
and Marketing."

The actual research and development and related activities of
the Company may vary significantly from current plans depending on numerous
factors, including changes in the costs of such activities from current
estimates, the results of the Company's research and development programs, the
results of clinical studies, the timing of regulatory submissions, technological
advances, determinations as to commercial potential and the status of
competitive products. The focus and direction of the Company's operations will
also be dependent upon the establishment of collaborative arrangements with
other companies, the availability of financing and other factors.

The Company incurred net losses of $2,265,000, $2,691,000 and
$2,890,000 for the 12 months ended December 31, 1994, 1995 and 1996,
respectively. The increase in net losses from 1994 to 1995 was attributable to
an increase in interest expense and finance costs associated with two bridge
financings, one in August 1994 and one in April 1995. In connection with the two
bridge financings, the Company issued an aggregate of $3,037,500 in principal
amount of 9% subordinated notes, which were repaid in 1995, including $400,000
of these notes which were past due, from the net proceeds of the IPO. The
increase in net loss for 1996 from 1995 was primarily attributable to an
increase in research and development expenses and general and administrative
expenses partially offset by interest income generated from the proceeds of the
Company's initial public offering of November 1995 and a decrease in interest
expense. The Company expects to incur additional losses in the foreseeable
future.

The Company incurred general and administrative expenses of $1,054,000,
$1,138,000 and $1,530,000 for the twelve months ended December 31, 1994, 1995
and 1996, respectively. The increase from 1994 to 1995 was attributable to the
increased financing costs mentioned above and to the acquisition of Directors
and Officers liability insurance. The increase was partially offset by a
decrease in administrative salaries. The increase in 1996 was primarily
attributable to increased public relations expenses, legal and professional fees
and a full year's premium for Director's and Officer's liability insurance. Also
contributing to the 1996 increase was increased expenses for technology
marketing, travel and consulting fees. The increase in 1996 was partially offset
by a decrease in financing costs. Included in the general and administrative
expenses for 1996 was a non-cash charge of $130,000 related to the valuation of
stock options issued to consultants of the Company.

The Company incurred research and development expenses of $1,099,000,
$1,181,000 and $1,576,000 for the twelve months ended December 1994, 1995 and
1996, respectively. The increase from 1995 to 1996 was attributable to an
increase in the expense for laboratory supplies and equipment and an increase in
research salaries. Also contributing to the 1996 increase was expenses for
contract research and development and license fees. Included in the research and
development expenses for 1996 was a non-cash charge of $42,000 related to the
valuation of warrants issued to the Washington State University Research
Foundation.

On November 7, 1995 the Company closed on the sale of 2,000,000 Units,
consisting of an aggregate of 2,000,000 shares of Common Stock, 2,000,000
redeemable Class C warrants and 2,000,000 redeemable Class D warrants, pursuant
to an initial public offering at an offering price of $5.00 per Unit, with the
Company receiving net

<PAGE>

proceeds of $8,796,025. On November 27, 1995 the Company closed on the sale of
an additional 300,000 Units pursuant to the underwriter's over-allotment option
with the Company receiving net proceeds of $1,312,500.

At the closing of the initial public offering, approximately $3.3
million of the proceeds were used to pay the 9% subordinated notes from the two
bridge financings. The Company believes, although there can be no assurances,
that it has sufficient capital to finance the Company's plan of operation for
approximately 12 months. However, there can be no assurance that the Company
will generate sufficient revenues, if any, to fund its operations after such
period or that any required financings will be available, through bank
borrowings, debt or equity offerings, or otherwise, on acceptable terms or at
all.

The actual research and development and related activities of the
Company may vary significantly from current plans depending on numerous factors,
including changes in the costs of such activities from current estimates, the
results of the Company's research and development programs, the results of
clinical studies, the timing of regulatory submissions, technological advances,
determinations as to commercial potential and the status of competitive
products. The focus and direction of the Company's operations will also be
dependent upon the establishment of collaborative arrangements with other
companies, the availability of financing and other factors.

BUSINESS

General

Cytoclonal Pharmaceutics Inc. ("CPI" or the "Company") is a development
stage biopharmaceutical company focusing on the development of diagnostic and
therapeutic products for the identification, treatment and prevention of cancer
and infectious diseases. To date, the Company has been involved solely in
research and development activities relating to several products that are at
various stages of development. The Company's research and development activities
relate principally to its proprietary fungal paclitaxel (commonly referred to as
"Paclitaxel") production system, its diagnostic and imaging lung cancer
products, Human Gene Discovery Program and its Vaccine program.

The Company's strategy is to focus on its (i) Fungal Paclitaxel
Production System program since Paclitaxel has been approved by the FDA as a
treatment for refractory breast and ovarian cancer; and (ii) Human Gene
Discovery Program, including a proprietary cancer related gene ("LCG gene") and
related monoclonal antibody ("MAb") addressing the need for diagnosis and
treatment of lung cancer, the second most common form of cancer and its Vaccine
program. Other programs which involve tumor necrosis factor - polyethylene
glycol ("TNF-PEG"), a fusion protein ("IL-T"), a potential anti-leukemia drug
("IL-P") and anti-sense therapeutics are being pursued at modest levels. These
other programs may serve as platforms for future products and/or alternatives to
the two primary programs if unforeseen problems develop. In addition, several of
the technologies under development are complementary and could possibly
potentiate each other.

The Company was created in 1991 to acquire rights to certain
proprietary cancer and viral therapeutic technology ("Wadley Technology")
developed at the Wadley Institutes in Dallas, Texas ("Wadley"). See
"--Collaborative Agreements -- WadTech." Through its own research and
development efforts and agreements with other research institutions and
biotechnology companies, the Company has acquired and/or developed additional
proprietary technology and rights. The Company has not developed any commercial
products, will require significant additional financing to complete development
and obtain regulatory approvals for its proposed products which, if ever
received, can take several years.

<PAGE>

license to manufacture, have manufactured, use, sell and/or sublicense products
related to a U.S. Patent Application entitled "A Method for Ranking Sequences to
Select Target Sequence Zones of Nucleus Acids." The technology has identified
optimum regions within genes to bind anti-sense products. Anti-sense products
are under development to control genes involved in human diseases such as
cancer, diabetes, or AIDS. A patent application has been filed on this
technology. This discovery potentially has broad applications to many human and
viral genes involved in human disease.

Research and Development Programs

Fungal Paclitaxel Production System Program

Scientists at the Company in collaboration with the inventors of the
fungal Paclitaxel technology (the "Fungal Paclitaxel Technology"), have
developed a system for the production of Paclitaxel (the "Fungal Paclitaxel
Production System") utilizing microbial fermentation. Microbial fermentation is
considered one of the most cost effective systems for drug production. The
Company's objective under this program is to become a low-cost, high volume
producer of Paclitaxel.

Presently, Paclitaxel is made from the inner bark and needles of the
slow-growing Pacific yew tree. Supplies of Paclitaxel are limited and it is
expensive. The Fungal Paclitaxel Technology licensed by the Company utilizes a
Paclitaxel producing micro-organism, specifically the fungus Taxomyces
andreanae. This fungus was initially isolated from a Pacific yew tree and has
been adapted to grow independently from the yew tree utilizing fermentation
processes. Detailed chemical analysis of the Paclitaxel produced by the fungus
indicates chemical equivalency to Paclitaxel produced from the Pacific yew tree.
Science, 260, 214-216 (1993).

The Paclitaxel producing fungus was discovered by Dr. Gary Strobel from
Montana State University ("MSU"), Dr. Andrea Stierle from MSU and Montana
College of Mineral Science and Technology ("MCMST") and Dr. Donald Stierle of
MCMST. Drs. Stierle and Dr. Strobel assigned their rights to the Fungal
Paclitaxel Technology to Research & Development Institute, Inc. ("RDI"), a
non-profit corporation which manages intellectual property for MSU and MCMST.
RDI was issued a U.S. patent on the Fungal Paclitaxel Technology on June 21,
1994 covering the method of isolating the fungus which produces Paclitaxel, the
use of the fungus to make Paclitaxel, and the method of producing Paclitaxel
from the fungus. In June 1993, RDI granted the Company worldwide exclusive
rights to the Fungal Paclitaxel Technology and technologies related thereto. See
"-- Collaborative Agreements -- RDI." It has been reported that over ten
companies, including several major pharmaceutical companies, were competing to
license this technology. The Company believes that the experience of Dr. Arthur
Bollon, the Company's Chairman, President and Chief Executive Officer, in the
area of fungi, which originated from his Post-Doctoral Fellowship at Yale
University, combined with the research and development activities of the Company
in anti-cancer products, contributed to the Company obtaining the Fungal
Paclitaxel Technology.

The Fungal Paclitaxel Production System also produces certain compounds
called Taxanes which can be precursors to Paclitaxel or related compounds like
Taxotere. These compounds are under investigation by several entities, including
Rhone-Poulenc Rorer Pharmaceuticals, Inc., which is developing Taxotere as a
therapeutic for use in the treatment of lung cancer.

<PAGE>

Development efforts are continuing with respect to the Fungal
Paclitaxel Production System with the goal of generating commercial quantities
of Paclitaxel at reduced cost. Scientists at the Company, in conjunction with
the inventors of the Fungal Paclitaxel Technology, have increased the level of
Paclitaxel production over 3,000 fold from the initial levels of production
under the Fungal Paclitaxel Production System. Media, growth conditions and
strain improvements continue to be used to improve the Fungal Paclitaxel
Production System. The Company's participation in this development program is
under the direction of Dr. Rajinder Sidhu, Director of the Company's Fungal
Paclitaxel Program, and Dr. Arthur Bollon, the Company's Chairman. In February
1996, the Company entered into two license agreements with the Regents of the
University of California, granting to the Company exclusive rights to: (1) a
pending patent, entitled Inhibition of Cyst Formation By Cytoskeletal Specific
Drugs that makes use of various drugs, one of which is Paclitaxel and (2)
technology in the field of Pharmacological Treatment for Polycystic Kidney
Disease. See "UCLA License Agreements".

Furthermore, in July 1996 the Company entered into an exclusive license
agreement with Washington State University granting the Company the exclusive
rights to a gene isolated from the Yew tree by Dr. Rodney Croteau. The gene
codes for the enzyme Taxadiene Synthase which is involved in a critical step for
Paclitaxel production. The gene and a related gene region isolated by the
Company is expected to be utilized to further increase the efficiency of
Paclitaxel synthesis by the fungus. Manipulation of genes by genetic engineering
have greatly improved production of pharmaceutical products such as antibiotics
and human interferon and insulin.

The National Cancer Institute ("NCI") has recognized Paclitaxel as one
of the most important cancer drugs discovered in the past decade. Paclitaxel,
although not a cure for cancer, promotes the assembly of cellular microtubules
so fast growing cells such as cancer cells are unable to divide and proliferate.
This mode of action is in contrast to most cancer drugs which target the cell
nucleus or DNA. Paclitaxel has proven to be effective in treating refractory
(treatment-resistant) ovarian and breast cancers and, in preliminary clinical
trials, has shown potential for treating refractory non-small cell lung cancer
("NSCLC") and certain other cancers. Due to its different mode of action,
Paclitaxel is being tested in combination therapy with other cancer therapeutic
drugs.

Evidence to date has shown that Paclitaxel is generally well tolerated
by patients with reduced side effects compared to other chemotherapy treatments.
Considering that no currently available anticancer agents are free from
toxicity, Paclitaxel's comparative safety profile suggests substantial
improvements in quality of life for patients who must undergo chemotherapy.
Nevertheless, hypersensitivity reactions and other side effects have been noted
during Paclitaxel administration. Reactions are characterized by transient
hypotension and an allergic type response, which appear to cease upon stopping
drug administration. Premedication effectively minimizes or eliminates this
problem, although side effects may nevertheless limit Paclitaxel use in some
patients. In addition, Paclitaxel has been shown to produce peripheral
neuropathy (loss of sensation or pain and tingling in the extremities) and
neutropenia (low white blood cell counts), which also may, in certain cases,
limit Paclitaxel's use.

In June 1991, the NCI formalized a Collaborative Research and
Development Agreement ("CRADA") for development of Paclitaxel with Bristol-Myers
Squibb Company, Inc. ("Bristol-Myers") as its pharmaceutical manufacturing and
marketing partner. This CRADA granted to Bristol-Myers the exclusive use of
NCI's clinical data relating to Paclitaxel in seeking approval from the FDA,
which significantly shortened the approval process and prevented any other party
from obtaining FDA approval using the NCI data. Bristol-Myers received FDA
approval for the commercial sale of its Paclitaxel as a treatment for refractory
ovarian cancer in December 1992 and for refractory breast cancer in April 1994.
Since December 1992, Bristol-Myers has been the sole source of Paclitaxel for
commercial purposes. It is the Company's understanding that Bristol-Myers is
currently conducting clinical trials required for FDA approval of Paclitaxel for
treating other cancers.

The exclusive right of Bristol-Myers to the NCI clinical data expires
in December 1997 when the FDA will begin accepting Abbreviated New Drug
Applications ("ANDAs") for the approval of Paclitaxel produced by others based
on a showing of bioequivalency to the commercial Paclitaxel approved by the FDA.
The Company believes, though there can be no assurances, that it will be able to
show bioequivalency based, in significant part, upon the chemical equivalence of
its Paclitaxel produced under the Fungal Paclitaxel Production System to the
Paclitaxel

<PAGE>

produced from the Pacific yew tree. Under regulations of the FDA, approval of a
generic drug from a new production source can be submitted by an ANDA where the
generic drug from the new source contains the same active ingredient as that in
the pioneer drug. In addition, information must be submitted showing similar
indications, routes of administration, dosage form and strength, and that the
generic drug is "bioequivalent" to the pioneer drug. Also included in the ANDA
submission is information concerning manufacturing, processing and packaging
required in NDA applications. Additional safety and efficacy information is
usually not required. However, there can be no assurance that the Company will
not be required to submit such information or that any ANDA submitted by the
Company will be approved.

Alternative production systems for Paclitaxel, such as plant cell
culture, complete synthesis and improved processing of yew tree material, are
under investigation by others and there can be no assurance that such
alternative methods will not be developed prior to the Company's proposed method
or that they will not prove more efficient and cost effective than the method
being developed by the Company.

Human Gene Discovery Program/Lung Cancer Program

The Company's Human Gene Discovery Program focuses on identifying and
isolating human genes by utilizing biological markers employing MAbs and
analyzing cellular activities associated with the cause or treatment of various
diseases. Genes play an important role in the development of a variety of
therapeutics, diagnostics and other products and services. Proteins expressed by
genes are the targets of many drugs. As a result, the identification of proteins
can play an important role in the development of drugs and drug screens. The
identification of genes that code for proteins that may be missing or defective
can enable the development of therapeutics for genetic diseases. In addition,
identification of genes that may predispose a person to a particular disease may
enable the development of diagnostic tests for the disease.

One of the central features of the Company's Human Gene Discovery
Program is its proprietary human gene expression libraries. Currently, these
libraries consist of over 50,000 human gene clones isolated by the Company
through extracting expressed messenger RNA from human tissue and cells in
different development stages and in normal and diseased states. By comparing the
genes expressed from tissue in different physiological states (e.g., diseased
and normal), the Company hopes to identify genes that are expressed during
different stages of a disease and that could serve as components of diagnostic
tests or as targets for therapeutic drugs. Thus, the Company's Human Gene
Discovery Program concentrates on gene products with associated biological or
medical use as opposed to only DNA sequences. At present the Company is focusing
on creating MAb and DNA probes products for diagnostic and imaging applications.

The Company is developing a proprietary MAb (the "LCG MAb") which
recognizes a specific protein (the "LCG protein") on the surface of some lung
cancer cells, such as NSCLC which is believed to represent approximately 65% of
lung cancers. In addition, the cancer related human gene ("LCG gene") that makes
this surface protein, has been isolated by CPI scientists by a process CPI calls
Retroselection. The specificity of the LCG protein to some lung cancers is based
on studies on biopsy material, biodistribution studies on animal model systems
and Phase I clinical trials. A U.S. patent for the LCG gene, filed by the
Company in July 1994, was issued on December 31, 1996.

The LCG gene and LCG MAb are being developed by the Company as a
potential diagnostic product to test in vitro serum, tissue or respiratory
aspirant material for presence of cells which may indicate a predisposition or
early sign of lung cancer. The LCG MAb is also being developed as an in vivo
imaging agent for lung cancer. An imaging agent may assist physicians in
establishing the location of a cancer and if the cancer has spread to other
sites in the body. In Phase I human clinical trials performed at Wadley, the LCG
MAb made from mouse cells and labeled with a radioactive marker showed strong
specificity in 5 of 6 patients. In these trials, the LCG MAb bound to the lung
cancer but was not detectable for normal lung cells. These clinical studies will
be expanded with a human-related form of the LCG MAb which is presently under
development by the Company. Working with cells in culture, the Company is
studying whether the LCG gene itself may be potentially useful as a DNA probe to
test for the presence of the LCG gene expression where the LCG protein has not
been made or has been made at low levels.

<PAGE>

Additional potential products under development using the LCG gene and
LCG MAb are products for the delivery of therapeutic drugs such as Paclitaxel
and/or TNF-PEG to the cancer. The involvement of the LCG gene in the formation
and metabolism of the lung cancer is also under investigation. In addition, the
LCG protein could possibly be used as an antigen for a vaccine against NSCLC.
The Company has deferred plans to initiate testing in animal model systems and
conducting clinical trials since successful development of vaccine applications
will take significant additional research and development efforts and
expenditures.

The Human Gene Discovery Program is also being used to isolate
additional novel cancer related genes utilizing specific MAbs for breast and
ovarian cancer and melanoma which are proprietary to the Company. A U.S. patent
for the melanoma MAb was issued to WadTech and assigned to the Company. See "--
Collaborative Agreements -- WadTech."

The Human Gene Discovery Program is conducted under the direction of
Dr. Richard Torczynski, along with Dr. Bollon. Dr. Torczynski and Dr. Bollon
have extensive experience isolating human genes including IFN-WA, a novel
interferon, and the LCG gene. The human-related form of the LCG MAb is under the
direction of Dr. Susan Berent.

Other Programs

In addition to its Fungal Paclitaxel Production System Program and
Human Gene Discovery Program/Lung Cancer Program, the Company is pursuing other
programs at modest levels which may serve as platforms for the development of
future products and/or alternatives to such primary programs. These include
Vaccine Program, Anti-sense Therapeutics Program, TNF-PEG: Broad Range
Anticancer Drug Program, IL-T: Prevention of Radiation and Chemotherapy Damage
Program and IL-P Anti-leukemic Product Program.

Vaccine Program. The main objective of the Company's vaccine program is
to develop genetically engineered live vaccines for diseases that are life
threatening. CPI's current strategy consists of (i) identifying bacterial host
strains that are the best suited for delivering recombinant immunogens and
cancer markers; (ii) developing proprietary cloning and expression vectors that
can transfer, maintain and express recombinant immunogens and cancer markers in
the delivery system; and (iii) cloning genes for specific immunogens or cancer
markers into the vectors and testing the vaccine system in appropriate animal
models and, if successful, commencing clinical trials.

The Company has identified three host strains of mycobacteria that
appear well suited for expressing and delivering protein and lipid antigens.
Furthermore, CPI has constructed plasmid and phage based cloning vectors and
developed reproducible transformation techniques for the host strains. These
vectors have large cloning capacities and are highly efficient in
transformation. Potential antigens for cancer markers are the proprietary LCG
gene and other cancer genes for breast cancer and melanoma which are under
development by the Company. The Company's goal is to license, as licensor and
licensee, new cancer specific marker genes and to enter into strategic
partnerships to develop vaccines for infectious diseases, such as tuberculosis.

These vaccine studies are under the direction of Dr. Labidi, who is
director of the Company's vaccine program. Dr. Labidi, who received his Ph.D. in
Microbiology from the Pasteur Institute, in Paris, France, was one of the early
investigators to establish the plasmid profile of several mycobacterium species
and was the first to isolate, characterize and sequence the mycobacterium
plasmid pAL5000 which has contributed to mycobacterium cloning and expression
vectors. Working with the Company and Dr. Labidi is Dr. Hugo David, a consultant
to the Company and a member of its Scientific Advisory Board. Dr. David was
formerly the head of the tuberculosis program at the Center for Disease Control
(CDC) in the U.S. and at the Pasteur Institute. The Company is establishing
research support for Dr. David's work on a new vaccine for tuberculoses.

Anti-sense Therapeutics Program. Anti-sense has the potential of
regulating genes involved in various disease states. The Company is sponsoring
anti-sense research and development under the direction of Dr. Donald Gray,
Professor of Molecular and Cell Biology at University of Texas at Dallas. The
Company had a right of first refusal for

<PAGE>

an exclusive worldwide license for the technology developed in connection with
these research activities in. The Company has exercised right in June 1996 and
has obtained an exclusive world-wide license for certain anti-sense technology
developed by Dr. Gray. Pursuant to this program, Dr. Gray has developed, and a
patent application has been submitted covering, proprietary technology which may
improve the efficiency of anti-sense reagents potentially applicable to a broad
spectrum of diseases. The capability has recently been computerized, which will
be contained in a related patent continuation-in-part. See "-- Collaborative
Agreements -- University of Texas."

TNF-PEG: Broad Range Anticancer Drug Program. TNF is a natural immune
protein (cytokine) made by human cells. It has been found to kill in vitro a
high percentage of different cancer cells compared to normal cells and is one of
the most potent anticancer agents tested in animals. CPI has TNF technology,
including TNF analogs, which the Company believes are proprietary and which were
developed at Wadley utilizing a genetically engineered bacteria and developed
further by Lymphokine Partners Limited, a partnership set up by an affiliate of
Wadley and Phillips Petroleum Company (the "Wadley/Phillips Partnership"). CPI
acquired this technology from Wadley Technologies, Inc. ("WadTech"). See "--
Collaborative Agreements -- WadTech." Phase I and II human clinical trials were
performed at Wadley using 23 patients with different kinds of cancer. These
studies, as well as studies on TNF technology developed by others, showed no
therapeutic benefit from TNF in humans because of the high toxicity of TNF at
therapeutic doses and its relatively short half life (approximately 30 minutes)
at lower doses.

Pursuant to a research collaboration (the "Enzon Agreement") with
Enzon, Inc. ("Enzon"), the Company and Enzon are developing an anticancer agent
combining the Company's TNF technology with Enzon's patented polyethylene glycol
("PEG") technology. See "-- Collaborative Agreements -- Enzon." The PEG process
involves chemically attaching PEG, a relatively non-reactive and non-toxic
polymer, to proteins and certain other biopharmaceuticals for the purpose of
enhancing their therapeutic value. Attachment of PEG helps to disguise the
proteins and to reduce their recognition by the immune system, thereby generally
lowering potential immunogenicity. Both the increased molecular size and lower
immunogenicity result in extended circulating blood life, in some cases from
minutes to days. The PEG technology is a proven technology covered by patents
held by Enzon. To the Company's knowledge, Enzon has two products on the market
using PEG, namely, PEG-adenosine deaminase, for treatment of the immune
deficiency disease know as the "bubble boy," and PEG-Asparaginase, a cancer
chemotherapeutic drug. In preliminary animal studies at Sloan-Kettering
Institute for Cancer Research ("Sloan-Kettering"), a TNF-PEG construct has been
tested in an animal cancer model system and was shown to kill tumors with
possibly reduced toxicity. See "-- Collaborative Agreements -- Sloan-Kettering."
The results of these studies will be confirmed and expanded and, if the TNF-PEG
does result in longer half life and reduced toxicity, an IND for clinical trials
is expected to be submitted by the Company and/or Enzon during 1997. There can,
however, be no assurance that similar results will be found in humans. The Enzon
Agreement also involves directing TNF-PEG to human cancers using Enzon's
proprietary single chain antibodies.

The Enzon Agreement involves equal sharing of revenue from sales of
TNF-PEG if both parties contribute equally to its development, which is CPI's
intention. There can, however, be no assurance that the Company will have the
financial resources to meet such obligations. The Enzon Agreement also specifies
that Enzon will work with only CPI on the construction of TNF-PEG, unless CPI
consents to Enzon working with a third party. See "-- Collaborative Agreements
- -- Enzon."

IL-T: Prevention of Radiation and Chemotherapy Damage Program. This
program involves a novel protein called IL-T. CPI and the Wadley/Phillips
Partnership constructed IL-T through genetic engineering by fusing together
parts of two human immune proteins ("cytokines"), Interleukin and TNF. The
Company is testing various combinations of cytokines for improved protection
against radiation and chemotherapy damage. The IL-T protein has been tested in
animal studies for protection against radiation damage at Sloan-Kettering and
these studies are expected to continue. Following animal studies contemplated to
occur in 1997, confirmation of protection against radiation damage could
potentially lead to filing in 1997 an investigational new drug ("IND")
application with the FDA followed by Phase I clinical trials. Products
proprietary to others have shown protection against radiation damage and to
potentiate weakened immune cells. The Company has filed a patent application for
IL-T. See "-- Collaborative Agreements --WadTech" and "-- Collaborative
Agreements -- Sloan-Kettering."

<PAGE>

IL-P Anti-Leukemic Product Program. Through its joint venture with
Pestka Biomedical Laboratories, Inc. ("Pestka"), the Company is participating in
the development of a novel anti-leukemic drug known as ("IL-P"). This research
and development involves the application of certain phosphorylation technology
developed at Pestka and licensed to the joint venture to interleukin-2. Various
constructs of IL-P have been tested at Pestka and the Company expects to provide
additional funding to the joint venture for the continuation of such tests. See
"-- Collaborative Agreements -- Cytomune."

For the fiscal years ended December 31, 1996 and 1995, the Company
incurred $1,576,000 and $1,181,000 of research and development expenses,
respectively.

Collaborative Agreements

WadTech. In October 1991, the Company entered into a purchase agreement
with WadTech (the "WadTech Agreement"), whereby the Company acquired certain of
WadTech's right, title and interest in and to the Wadley Technology, including
technology developed by Wadley, and acquired by WadTech upon dissolution of the
Wadley/Phillips Partnership and licensed to WadTech by Phillips Petroleum
Company ("Phillips"). The Wadley Technology includes, but is not limited to,
technology related to TNF, IL-T, a novel interferon designated IFN-WA, and
select melanoma, ovarian, breast, colon and lung cancer MAbs. See "-- Research
and Development Programs -- Human Gene Discovery Program/Lung Cancer Program"
and "-- Research and Development Programs -- Other Programs --TNF/PEG: Broad
Anticancer Drug Program."

Pursuant to the WadTech Agreement, the Company agreed to (i) pay
WadTech the sum of $1,250,000 (the "Fixed Sum"), (ii) pay WadTech royalties on
sales of products incorporating the Wadley Technology and a percentage of all
royalties and other consideration paid to the Company by any licensees of the
Wadley Technology, all of which are to be applied toward the Fixed Sum, (iii)
assume WadTech's obligations under a license agreement entered into in March
1989 between the Wadley/Phillips Partnership and Phillips (the "Phillips
Agreement"), namely the obligation to pay royalties of up to 3.75% on sales
products produced using Phillips recombinant yeast expression system, and (iv)
pay to WadTech minimum annual royalties of $31,250 for the year beginning
October 1, 1996, $62,500 for the year beginning October 1, 1997 and $125,000 for
each year thereafter. The WadTech Agreement provides that the royalties and
other sums payable by the Company to WadTech are at a higher rate until the
Fixed Sum has been paid in full. The term of the WadTech Agreement is for 99
years but may be terminated earlier by WadTech if the Company fails to cure a
default in its payment obligations or breaches any material term or condition of
the agreement.

In order to secure the Company's obligation to pay the Fixed Sum to
WadTech, the Company and WadTech entered into a Security Agreement (the
"Security Agreement"), pursuant to which WadTech retains a security interest in
all of the Wadley Technology until the Fixed Sum is paid in full to WadTech. The
Security Agreement also provides that in the event of a default (which includes
failure of the Company to perform any material obligation under the WadTech
Agreement), WadTech would have the right to license the Wadley Technology to a
third party or sell the Wadley Technology through a foreclosure sale.

RDI. In June 1993, the Company entered into a license agreement (the
"Paclitaxel License Agreement") with RDI, a non-profit entity which manages the
intellectual property of MSU and MCMST, granting to the Company worldwide
exclusive rights to the Fungal Paclitaxel Technology. Pursuant to the Paclitaxel
License Agreement, the Company made an initial payment of $150,000 to RDI and
has agreed to pay RDI royalties on sales of products using the Fungal Paclitaxel
Technology and a percentage of royalties paid to the Company by sublicensees of
the Fungal Paclitaxel Technology in minimum amounts of $25,000 for the first
year, $50,000 for the second year, $75,000 for the third year, and $100,000 for
all years thereafter that the license is retained. The Company also granted to
RDI stock options to purchase up to 20,000 shares of the Company's Common Stock
at $2.50 per share exercisable over four years. The Company and RDI also entered
into a Research and Development Agreement (the "Paclitaxel R&D Agreement")
effective the date of the RDI License Agreement. The Paclitaxel R&D Agreement
provides for RDI to perform research and development at MSU relating to the
Fungal Paclitaxel Production System. Pursuant to the Paclitaxel R&D Agreement,
the Company has agreed to make payments of $250,000 per year for four years. The
Company has paid

<PAGE>

a total of $1,300,000 under both RDI agreements to date. In February 1995, the
Company and RDI amended the RDI License Agreement and Paclitaxel R&D Agreement
to include technology applicable to commercial products, in addition to
Paclitaxel and Paclitaxel related technology, identified and developed from
organisms/products supplied to CPI by Dr. Gary Strobel, Dr. Andrea Stierle
and/or Dr. Donald Stierle pursuant to the Paclitaxel License Agreement and
Paclitaxel R&D Agreement. These additional technologies could include, but are
not limited to, anti-cancer, anti-viral, anti-fungal or any other activities
which could result in any commercial products.

In February 1995, the Company entered into a license agreement (the
"FTS-2 License Agreement") with RDI, granting to the Company worldwide exclusive
rights to practice all intellectual property rights relating to a fungal strain
identified as "FTS-2" (the "FTS-2 Rights") which contains a cytotoxic activity
for a breast cancer line and related activities. In October 1995, the Company
entered into a license agreement (the "Tbp-5 License Agreement") with RDI,
granting to the Company worldwide exclusive rights to practice all intellectual
property rights relating to a fungal strain identified as "Tbp-5" (the "Tbp-5
Rights"; the FTS-2 Rights and the Tbp-5 Rights are collectively referred to
herein as the "Intellectual Property Rights") which contains a cytotoxic
activity for a breast cancer cell line. Pursuant to the FTS-2 License Agreement
and the Tbp-5 License Agreement, the Company has agreed to pay RDI royalties on
sales of products or services using the Intellectual Property Rights and a
percentage of royalties paid to the Company by sublicensees using the
Intellectual Property Rights.

UCLA License Agreements. In February 1996, the Company entered into two
license agreements with the Regents of the University of California, granting to
the Company exclusive rights to: (1) a pending patent, entitled Inhibition of
Cyst Formation By Cytoskeletal Specific Drugs ("UCLA License Agreement I") that
makes use of various drugs, one of which is Paclitaxel and (2) technology in the
field of Pharmacological Treatment for Polycystic Kidney Disease ("UCLA License
Agreement II"). Pursuant to the UCLA License Agreement I, the Company paid a
license issue fee of $5,000 and has agreed to pay the University of California
$10,000 upon issuance of a patent. Pursuant to the UCLA License Agreement II,
the Company paid a license issue fee of $5,000 and has agreed to pay the
University of California $5,000 upon issuance of a patent. The Company must pay
a yearly license maintenance fee on both licenses until the Company is
commercially selling a product based on the technology derived from these UCLA
License Agreements, at which time a royalty based on net sales will be due.

Enzon. In July 1992, the Company and Enzon entered into the Enzon
Agreement providing for the conduct of a collaborative research and development
program to develop an anticancer agent by combining the Company's TNF technology
with Enzon's PEG technology. Pursuant to this agreement, each party agreed to
fund its own development costs associated with the initial stage, roughly the
first year, of the program. The agreement provides that if both parties agree to
continue the TNF-PEG program jointly each party shall share equally in the cost
of such research and development and the profits therefrom. If one party decides
not to proceed or later is unable to share jointly, the continuing party will
receive exclusive (even as to the other party) worldwide licenses in the
applicable technology of the other party and will pay the other party royalties.
The term of the Enzon Agreement is 15 years for each product developed under the
program from the date of FDA approval to market such product. The Company and
Enzon also entered into a similar agreement in March 1992 relating to combining
various target proteins to be developed by the Company with Enzon's
PEG-technology pursuant to which agreement Enzon funded certain of the Company's
initial research and development activities thereunder. To the extent this
earlier agreement applied to TNF, it was superseded by the Enzon Agreement.
Currently, the primary focus of the parties is on the Enzon Agreement and the
TNF-PEG technology.

Sloan-Kettering. Pursuant to a Research Agreement effective April 8,
1994 between the Company and the Sloan-Kettering, Sloan-Kettering has agreed to
continue evaluating the IL-T fusion protein to determine whether such protein
protects mice against radiation and chemotherapy. In connection with such
activities, Sloan-Kettering has agreed to provide all necessary personnel,
equipment supplies and facilities in completion of the protocol set forth in the
agreement for a budget not to exceed $35,000. Inventions resulting from
Sloan-Kettering's research which were not contemplated by the parties, if any,
will be the property of Sloan-Kettering; however, Sloan-Kettering must grant the
Company the right of first refusal to acquire a world-wide exclusive license to
develop and commercialize any such invention upon mutually agreeable terms. The
term of the agreement is through completion of the protocol.

<PAGE>

Cytomune. Cytomune, Inc. ("Cytomune") is a joint venture (50:50)
between CPI and Pestka. A novel anti-leukemic drug, IL-P, is in development
utilizing proprietary technology developed by Dr. Sidney Pestka. Dr. Pestka
developed interferon for commercial use for Hoffmann-La Roche, Inc. The
objective of the joint venture is to develop IL-P for the diagnosis and
treatment of leukemia. For their respective interests in the joint venture the
Company contributed $233,000 and certain technology and Pestka contributed
exclusive rights to phosphorylation technology as applied to interleukin-2.
Pestka has performed research and development for Cytomune relating to IL-P
using this technology. Additional funding is not required but, if provided, will
permit such research and development to continue.

University of Texas. In June 1992, the Company and the University of
Texas at Dallas ("UTD") entered into an agreement, which has been amended,
pursuant to which UTD performs certain research and development activities
relating to anti-sense compounds and related technology for use in humans as
therapeutic and diagnostic products. Pursuant to the agreement, UTD provides all
necessary personnel, equipment supplies and facilities in consideration for an
amended budget not to exceed $240,240. Inventions under the agreement, if any,
will be the property of UTD; however, UTD must grant the Company the right of
first refusal to acquire a license to develop and commercialize any intellectual
property resulting from the agreement for a royalty to be negotiated, not to
exceed eight percent of the net sales (as defined in the agreement) of
commercialized products. The Company is not required to pay any up-front fee or
any minimum royalty. The agreement has been extended through May 1998 in
consideration for the Company's agreement to increase the original funding
commitment from $150,240 to $240,240 of which amount the Company has paid
$143,128 as of March 13, 1997. In June 1996, the Company entered into a Patent
License Agreement (the "Regents Agreement") with the Board of Regents of the
University of Texas System ("Regents") whereby the Company received an exclusive
royalty-bearing license to manufacture, have manufactured, use, sell and/or
sublicense products related to a U.S. Patent Application entitled "A Method for
Ranking Sequences to Select Target Sequence Zones of Nucleus Acids." The
technology has identified optimum regions within genes to bind Anti-sense
products. Anti-sense products are under development to control genes involved in
human diseases such as cancer, diabetes, or AIDS. This discovery potentially has
broad applications to many human and viral genes involved in human disease. The
Company is required to pay Regents certain royalties and sublicensing fees. The
Regents Agreement shall be in full force and effect until patent rights have
expired or 20 years, whichever is longer. However, the Regents Agreement will
terminate (i) automatically if the Company's obligations to pay royalties and
sublicensing fees are not satisfied within 30 days after the Company receives
written notice of its failure to make such payment; (ii) upon 90 days' written
notice if the Company or Regents shall breach or default on any obligation under
the Regents Agreement; and (iii) upon 60 days' written notice by the Company. In
addition, Regents may terminate the exclusivity of the Regents Agreement at any
time after June 1999 and may terminate the license completely at any time after
June 2001 if the Company fails to provide Regents with written evidence that it
has commercialized or is actively attempting to commercialize the licensed
product. There can be no assurance that any revenues will be derived by the
Company as a result of the agreement or that the Regents will not be in a
position to exercise its termination rights.

Helm AG. The Company entered into a marketing agreement, effective in
November 1994, with Helm AG, a world-wide distributor of pharmaceutical and
related products, granting Helm AG the right, in certain parts of Europe, to
market the technology and/or products of, and arrange business introductions
for, the Company on a commission basis. The agreement is terminable by either
party on six months' notice. To date, the Company has no products available for
distribution and thus no revenues have been derived from such agreement. There
can be no assurance that any revenues will be derived by the Company from this
agreement in the future.

WSURF. In July 1996, the Company entered into an agreement with the
Washington State University Research Foundation ("WSURF") whereby the Company
received an exclusive, world-wide license to use and/or sublicense patented
technology or prospective patented technology (the "WSURF Technology") related
to genes for enzymes and the associated gene products, including the enzymes, in
the biosynthetic pathway for Paclitaxel. The Company is required to pay WSURF
license fees of $7,500 per year commencing on July 1, 1997 as well as certain
royalties and sublicensing fees. This Agreement shall be in full force and
effect until the last to expire of the patents licensed under the WSURF
Technology. However, the Company may terminate the agreement on 90 days notice
provided that all amounts due to WSURF are paid. WSURF may terminate the
agreement immediately if the Company ceases to carry

<PAGE>

on its business or on 90 days notice if the Company is in default in payment of
fees and/or royalties, is in breach of any provisions of the agreement, provides
materially false reports or institutes bankruptcy, insolvency, liquidation or
receivership proceedings. There can be no assurance that any revenues will be
derived by the Company as a result of the agreement.

Patents, Licenses and Proprietary Rights

The Company has rights to a number of patents and patent applications.
In 1991, the Company entered into the WadTech Agreement, whereby it was assigned
two issued United States patents (expiring, under current law, in 2006 and 2007,
respectively), three pending United States patent applications and six pending
foreign patent applications held by WadTech. A. U.S. patent for the LLG gene,
filed by the Company in July 1994, was issued on December 31, 1996. Pursuant to
the Paclitaxel License Agreement, the Company has been granted an exclusive
license to the technology contained in the Fungal Paclitaxel Production System,
including one issued United States patent and foreign patent applications. In
addition, UTD has filed a patent application relating to certain anti-sense
technology with respect to which, pursuant to the agreement between the Company
and UTD, the Company has a right of first refusal to acquire a license to
develop and commercialize products using such technology.

The Company's policy is to protect its technology by, among other
things, filing patent applications for technology it considers important in the
development of its business. In addition to filing patent applications in the
United States, the Company has filed, and intends to file, patent applications
in foreign countries on a selective basis. The Company has filed patent
applications relating to its IL-T and Lung Cancer Gene technologies and is
preparing to file additional patent applications, relating primarily to
technologies for vaccines and Paclitaxel production. Although a patent has a
statutory presumption of validity in the United States, 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 the Company's issued
patents or any patents subsequently issued to or licensed by the Company will
not be successfully challenged in the future. The validity or enforceability of
a patent after its issuance by the patent 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 the Company has rights will not be infringed or successfully avoided
through design innovation.

There can be no assurance that patent applications owned by or licensed
to the Company will result in patents being issued or that the 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 necessary or useful to the Company. In cases where third parties are
first to invent a particular product or technology, it is possible that those
parties will obtain patents that will be sufficiently broad so as to prevent the
Company 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. The Company is aware of patent applications and issued
patents belonging to competitors and it is uncertain whether any of these, or
patent applications filed of which the Company may not have any knowledge, will
require the Company to alter its potential products or processes, pay licensing
fees or cease certain activities.

The Company also relies on unpatented technology, trade secrets and
information and no assurance can be given that others will not independently
develop substantially equivalent information and techniques or otherwise gain
access to the Company's technology or disclose such technology, or that the
Company can meaningfully protect its rights in such unpatented technology, trade
secrets and information. The Company requires each of its employees to execute a
confidentiality agreement at the commencement of an employment relationship with
the Company. The agreements generally provide that all inventions conceived by
the individual in the course of employment or in the providing of services to
the Company and all confidential information developed by, or made known to, the
individual during the term of the relationship shall be the exclusive property
of the Company 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 meaningful protection for the Company in the
event of unauthorized use or disclosure of such confidential information.

<PAGE>

Competition

All of the Company's proposed products will face competition from
existing therapies. The development by others of novel treatment methods for
those indications for which the Company is developing compounds could render the
Company's compounds non-competitive or obsolete. This competition potentially
includes all of the pharmaceutical concerns in the world that are developing
pharmaceuticals for the diagnosis and treatment of cancer. Competition in
pharmaceuticals is generally based on performance characteristics, 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.

Most of the Company's existing or potential competitors have
substantially greater financial, technical and human resources than the Company
and may be better equipped to develop, manufacture and market products. In
addition, many of these companies have extensive experience in pre-clinical
testing, human clinical trials and the regulatory approval process. These
companies may develop and introduce products and processes competitive with or
superior to those of the Company. See "-- Research and Development Programs --
Fungal Paclitaxel Production System Program" for a discussion of a CRADA granted
to Bristol-Myers.

The Company's competition also will be determined in part by the
potential indications for which the Company's compounds are developed. For
certain of the Company's potential products, an important factor in competition
may be the timing of market introduction of its own or competitive products.
Accordingly, the relative speed with which the Company can develop products,
complete the clinical trials and regulatory approval processes and supply
commercial quantities of the products to the market are expected to be important
competitive factors. The Company expects that competition among products
approved for sale will be based on, among other things, product efficacy,
safety, reliability, availability, price and patent position.

The Company's competitive position also depends upon its ability to
attract and retain qualified personnel, obtain patent protection or otherwise
develop proprietary products or processes and secure sufficient capital
resources for the often lengthy period between technological conception and
commercial sales.

Government Regulation

The production and marketing of the Company's products and its research
and development activities are subject to regulation for safety and efficacy by
numerous governmental authorities in the United States and other countries. In
the United States, drugs and pharmaceutical products are subject to rigorous FDA
review. The Federal Food, Drug, and Cosmetic Act, the Public Health Service Act
and other federal statutes and regulations govern or influence the testing,
manufacture, safety, labeling, storage, record keeping, approval, advertising
and promotion of such products. Non-compliance with applicable requirements can
result in fines, recall or seizure of products, total or partial suspension of
production, refusal of the government to approve product license applications or
allow the Company to enter into supply contracts and criminal prosecution. The
FDA also has the authority to revoke product licenses and establishment licenses
previously granted.

In order to obtain FDA approval of a new product, the Company must
submit proof of safety, purity, potency and efficacy. In most cases such proof
entails extensive pre-clinical, clinical and laboratory tests. The testing,
preparation of necessary applications and processing of those applications by
the FDA is expensive and may take several years to complete. There is no
assurance that the FDA will act favorably or quickly in making such reviews, and
significant difficulties or costs may be encountered by the Company in its
efforts to obtain FDA approvals that could delay or preclude the Company from
marketing any products it may develop. The FDA may also require post-marketing
testing and surveillance to monitor the effects of approved products or place
conditions on any approvals that could restrict the commercial applications of
such products. Product approvals may be withdrawn if compliance with regulatory
standards is not maintained or if problems occur following initial marketing.
With respect to patented

<PAGE>

products or technologies, delays imposed by the governmental approval process
may materially reduce the period during which the Company will have the
exclusive right to exploit them.

The time period between when a promising new compound is identified and
when human testing is initiated is generally referred to as the pre-clinical
development period. During this time, a manufacturing process is identified and
developed to be capable of producing the compound in an adequately pure and well
characterized form for human use. Production of compounds for use in humans is
governed by a series of FDA regulations known as Good Manufacturing Practices
("GMP"), which govern all aspects of the manufacturing process. The FDA has
published a "Points to Consider" guidance document with respect to the
manufacture of MAbs for human use.

The FDA approval process for a new and unfamiliar term or drug involves
completion of pre-clinical studies and the submission of the results of these
studies to the FDA in an investigational new drug application ("IND").
Pre-clinical studies involve laboratory evaluation of product characteristics
and animal studies to assess the efficacy and safety of the product.
Pre-clinical studies are regulated by the FDA under a series of regulations
called the Good Laboratory Practices ("GLP") regulations. Violations of these
regulations can, in some cases, lead to invalidation of the studies, requiring
those studies to be replicated.

Once the IND is approved, human clinical trials may be conducted. Human
clinical trials are typically conducted in three sequential phases, but the
phases may overlap. Phase I trials consist of testing the product in a small
number of volunteers, primarily for safety at one or more doses. In Phase II, in
addition to safety, the efficacy of the product is evaluated in a patient
population somewhat larger than Phase I trials. Phase III trials typically
involve additional testing for safety and clinical efficacy in an expanded
population at geographically dispersed test sites. A clinical plan, or
"protocol," accompanied by the approval of the institution participating in the
trials, must be submitted to the FDA prior to commencement of each clinical
trial. The FDA may order the temporary or permanent discontinuation of a
clinical trial at any time.

To date an IND was submitted for the LCG-MAb clinical trials at Wadley.
The Company intends to file an IND for a humanized form of the LCG-MAb followed
by clinical trials in 1997. The results of the pre-clinical and clinical testing
are submitted to the FDA in the form of a New Drug Application ("NDA") or, in
the case of a biologic, such as LCG-MAb and other MAbs, as part of a product
license application ("PLA"). In a process which generally takes several years,
the FDA reviews this application and once, and if, it decides that adequate data
is available to show that the new compound is both safe and effective, approves
the drug or biologic product for marketing. The amount of time taken for this
approval process is a function of a number of variables including the quality of
the submission and studies presented, the potential contribution that the
compound will make in improving the treatment of the disease in question and the
workload at the FDA. There can be no assurance that any new drug will
successfully proceed through this approval process or that it will be approved
in any specific period of time.

The FDA may, during its review of an NDA or PLA, ask for the production
of additional test data. If the FDA does ultimately approve the product, it may
require post-marketing testing, including potentially expensive Phase IV
studies, and surveillance to monitor the safety and effectiveness of the drug.
In addition, the FDA may in some circumstances impose restrictions on the use of
the drug that may be difficult and expensive to administer and may seek to
require prior approval of promotional materials.

Manufacture of a biologic product must be in a facility covered by an
FDA-approved Establishment License Application. Manufacture, holding, and
distribution of both biologic and non-biologic drugs must be in compliance with
GMPs. Manufacturers must continue to expend time, money, and effort in the area
of production and quality control and record keeping and reporting to ensure
full compliance with those requirements. The labeling, advertising, and
promotion of a drug or biologic product must be in compliance with FDA
regulatory requirements. Failures to comply with applicable requirements
relating to manufacture, distribution, or promotion can lead to FDA demands that
production and shipment cease, and, in some cases, that products be recalled, or
to enforcement actions that can include seizures, injunctions, and criminal
prosecution. Such failures can also lead to FDA withdrawal of approval to market
the product.

<PAGE>

The FDA may designate a biologic or drug as an Orphan Drug for a
particular use, in which event the developer of the biologic or drug may request
grants from the government to defray the costs of certain expenses related to
the clinical testing of such drug and be entitled to a seven year marketing
exclusivity period.

The Company's ability to commercialize its products successfully may
also depend in part on the extent to which reimbursement for the cost of such
products and related treatment will be available from government health
administration authorities, private health insurers and other organizations.
Such third-party payors are increasingly challenging the price of medical
products and services. Several proposals have been made that may lead to a
government-directed national health care system. Adoption of such a system could
further limit reimbursement for medical products and services. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and there can be no assurance that adequate third-party coverage will
be available to enable the Company to maintain price levels sufficient to
realize an appropriate return on this investment in product development.

Sales of pharmaceutical products outside the United States are subject
to foreign regulatory requirements that vary widely from country to country.
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities of foreign countries must be obtained prior to
the commencement of marketing the product in those countries. The time required
to obtain such approval may be longer or shorter than that required for FDA
approval.

Manufacturing and Marketing

Neither the Company nor any of its officers or employees has
pharmaceutical marketing experience. Furthermore, the Company has never
manufactured or marketed any products and the Company does not have the
resources to manufacture or market on a commercial scale any products that it
may develop. The Company's long-term objective is to manufacture and market
certain of its products and to rely on independent third parties for the
manufacture of certain of its other products. For the foreseeable future, the
Company will be required to rely on corporate partners or others to manufacture
or market products it develops, although no specific arrangements have been
made. No assurance can be given that the Company will enter into any such
arrangements on acceptable terms.

Manufacturing. While the Company intends to select manufacturers that
comply with GMP and other regulatory standards, there can be no assurance that
these manufacturers will comply with such standards, that they will give the
Company's orders the highest priority or that the Company would be able to find
substitute manufacturers, if necessary. In order for the Company to establish a
manufacturing facility, the Company will require substantial additional funds
and will be required to hire and retain significant additional personnel and
comply with the extensive GMP regulations of the FDA applicable to such a
facility. No assurance can be given that the Company will be able to make the
transition successfully to commercial production, should it choose to do so.

Marketing. Despite the Company's strategy to develop products for sale
to concentrated markets, significant additional expenditures and management
resources will be required to develop an internal sales force, and there can be
no assurance that the Company will be successful in penetrating the markets for
any products developed. For certain products under development, the Company may
seek to enter into development and marketing agreements which grant exclusive
marketing rights to its corporate partners in return for royalties to be
received on sales, if any. Under certain of these agreements, the Company's
marketing partner may have the responsibility for all or a significant portion
of the development and regulatory approval. In the event that the marketing and
development partner fails to develop a marketable product or fails to market a
product successfully, the Company's business may be adversely affected. The

<PAGE>

sale of certain products outside the United States will also be dependent on the
successful completion of arrangements with future partners, licensees or
distributors in each territory. There can be no assurance that the Company will
be successful in establishing any additional collaborative arrangements, or
that, if established, such future partners will be successful in commercializing
products.

Product Liability Insurance

The testing, marketing and sale of human health care products entail an
inherent risk of allegations of product liability, and there can be no assurance
that product liability claims will not be asserted against the Company. The
Company intends to obtain product liability insurance for its ongoing clinical
trials. Such coverage may not be adequate as and when the Company further
develops products. There can be no assurance that the Company will be able to
obtain, maintain or increase its insurance coverage in the future on acceptable
terms or that any claims against the Company will not exceed the amount of such
coverage.

Human Resources

As of April 22, 1997, the Company had 18 full-time employees, 15 of
whom were engaged directly in research and development activities and three of
whom were in executive and administrative positions. The Company's employees are
not governed by any collective bargaining agreement and the Company believes
that its relationship with its employees is good.

Description of Property

The Company occupies an aggregate of approximately 10,200 square feet
of both office and laboratory space in Dallas, Texas at two separate facilities.
The Company leases approximately 4,800 square feet of office and laboratory
space pursuant to a lease agreement expiring in August 1997. In addition, the
Company occupies an additional approximate 5,400 square feet of office and
laboratory space pursuant to a lease assigned to the Company by the
Wadley/Phillips Partnership and which lease term has been extended until
December 31, 1997. The Company's lease payments for the fiscal year ended
December 31, 1996 were approximately $118,000. See Note I of Notes to Financial
Statements.

Legal Proceedings

As of the date hereof, the Company is not a party to any material legal
proceedings.

<PAGE>

MANAGEMENT

Executive Officers, Directors and Principal Scientists

The executive officers, directors and principal scientists of the Company
are as follows:

Name Age Position
---- --- --------

Arthur P. Bollon, Ph.D.(1) 54 Chairman, President and Chief
Executive Officer
Ira J. Gelb, M.D. (1) 68 Director
Irwin C. Gerson (1) 67 Director
Walter M. Lovenberg, Ph.D. 62 Director
Daniel Shusterman, J.D. 33 Vice President of Operations,
Treasurer and Chief Financial Officer
Susan L. Berent, Ph.D. 44 Director of Gene & Protein
Engineering and Computer Systems,
Co-Director Molecular Immunology and
Gene Expression Systems
Hakim Labidi, Ph.D. 39 Director of Vaccine Program
Rajinder Singh Sidhu, Ph.D. 48 Director of Fungal Paclitaxel Program,
Co-Director of Gene Expression
Systems
Richard M. Torczynski, Ph.D. 41 Director of Human Gene Discovery,
Mammalian Expression System and
Diagnostic Development, Co-Director
of Molecular Immunology
- -----------------
(1) Members of Audit and Compensation Committees

Arthur P. Bollon, Ph.D., a founder of the Company, has, since the
Company's inception in 1991, served as Chairman of the Board of Directors,
President, Chief Executive Officer and, until March 1995, Treasurer. Dr. Bollon
received his Ph.D. from the Institute of Microbiology at Rutgers University and
was a Post Doctoral Fellow at Yale University. He has served as consultant to a
number of major companies (including Merck, Sharp & Dohme and Diamond Shamrock)
and has previously served on the Board of Directors and Advisory Boards of
several biotechnology companies, including Viragen, Inc., Wadley Biosciences
Corp. and American Bio-netics, Inc. From 1987 to 1991, Dr. Bollon served as
President and Chief Executive Officer of the Wadley/Phillips Partnership. Prior
to that time, he was Director of Genetic Engineering and Chairman of the
Department of Molecular Genetics at Wadley Institutes of Molecular Medicine. In
his capacities at the Wadley/Phillips Partnership and Wadley Institutes, Dr.
Bollon has played a leading role in bringing the technology that forms the basis
of CPI from conception to reality.

Ira J. Gelb, M.D. has been a director of the Company since April 1994.
Dr. Gelb received his M.D. from New York University School of Medicine in 1951.
After finishing his training in cardiology at the Mount Sinai Hospital in New
York City in 1957, he continued his association with that institution until his
retirement in 1992. During this period, he was appointed Attending Cardiologist
and Associate Clinical Professor at the Mount Sinai School of Medicine. Other
appointments included Associate Clinical Professor of Cardiology at Cornell
Medical School, Adjunct Clinical Professor of Cardiology at New York Medical
College, Cardiology Consultant at Lawrence Hospital, Bronxville, N.Y. and United
Hospital, Portchester, N.Y. Dr. Gelb is a past President of the American Heart
Association, Westchester-Putnam Chapter and was a Senior Assistant Editor with
the American Journal of Cardiology from 1968-1983, when be became a founding
editor of the Journal of the American College of Cardiology (the "JACC"). Dr.
Gelb continued as a Senior Assistant Editor of JACC until his retirement in
1992. Since that time, he has served

<PAGE>

on the boards of various pharmaceutical companies. Dr. Gelb has been an Adjunct
Professor, Department of Chemistry and Biochemistry at Florida Atlantic
University and a member of its Foundation Board, since October 1996. Since
December 1996 he has also been a member of the Board of Directors of the
American Heart Association - Boca Raton Division.

Irwin C. Gerson has been a director since March 1995. Mr. Gerson has
been Chairman of Lowe McAdams Healthcare since 1996 and prior thereto he had
been, since 1986, Chairman and Chief Executive Officer of William Douglas
McAdams, Inc., one of the largest advertising agencies in the U.S. specializing
in pharmaceutical communications to healthcare professionals. Mr. Gerson
received his B.S. in pharmacy from Fordham University and an MBA from the NYU
Graduate School of Business Administration. In 1992 Mr. Gerson received an
honorary Doctor of Humane Letters from the Albany College of Pharmacy. Mr.
Gerson serves as a Trustee of Long Island University, Chairman of The Council of
Overseers -- Arnold and Marie Schwartz College of Pharmacy, member of the Board
of Trustees of the Albany College of Pharmacy and, from 1967 through 1974, was a
lecturer on sales management pharmaceutical marketing at the Columbia College
School of Pharmacy. Mr. Gerson also serves as a Member of the Board of
Governors, New York Council, American Association of Advertising Agencies, a
Director (and past chairman) of Business Publications Audit ("BPA"), and a
Director of The American Foundation of Pharmacy Education. He has previously
served as a Director of the Connecticut Grand Opera, a Director of the Stamford
Chamber Orchestra, Director of the Foundation of Pharmacists and Corporate
Americans for AIDS Education, the Pharmaceutical Advertising Council, Penn Dixie
Industries, Continental Steel Corporation, the Nutrition Research Foundation and
as a Trustee of the Chemotherapy Foundation. Mr. Gerson is also a director of
Andrx Corp., a NASDAQ traded company.

Walter M. Lovenberg, Ph.D. has been a director since August 1995. Dr.
Lovenberg was an Executive Vice President and member of the Board of Directors
of Marion Merrell Dow Inc. from 1989 through August 1993. Dr. Lovenberg served
as the President of the Marion Merrell Dow Research Institute from 1989 to 1993
and Vice President from 1986 through 1989. Prior to joining Marion Merrell Dow
(1958-1985), he was a Senior Scientist and Chief of Biochemical Pharmacology at
the National Institutes of Health. Dr. Lovenberg has been President of Lovenberg
Associates, Inc. since 1993. He is also a member of the Board of Directors of
Oncogene Science Inc., Xenometrix Inc. and Inflazyme Pharmaceutics, Inc., each
of which is a NASDAQ listed company. Dr. Lovenberg received his Ph.D. from
George Washington University and his B.S. and M.S. from Rutgers University. Dr.
Lovenberg, who serves as Executive Editor of Analytical Biochemistry and Editor
(USA) of Neurochemistry International, is a consulting editor to several other
scientific journals. He has been the recipient of many awards, including a
Fulbright-Hays Senior Scholar Award and a Public Health Service Superior Service
Award. Dr. Lovenberg is a member of the American College of
Neuropsychopharmacology, the American Society of Neurochemistry and the American
Society of Biochemistry and Molecular Biology.

Daniel Shusterman, J.D. was named Vice President of Operations of the
Company in 1994 and Treasurer and Chief Financial Officer in March 1995, after
having served as Director of Operations since he joined the Company in 1991. Mr.
Shusterman received his M.S. degree with an emphasis on biotechnology from the
University of Texas in 1988. He was Director of Operations at Wadley/Phillips
Partnership for three years prior to joining CPI. Mr. Shusterman is a registered
Patent Agent and received his J.D. from Texas Wesleyan University School of Law
in 1993 and has been a member of the Texas bar since 1994. In addition to his
role as a V.P. of Operations, he is contributing to the implementation of an
intellectual property protection and maintenance system at CPI.

Susan L. Berent, Ph.D. has been with the Company since 1991 as Director
of Gene and Protein Engineering and Computer Systems. Dr. Berent received her
Pd.D. in Biological Chemistry from the University of Michigan and completed a
postdoctoral fellowship at the Department of Molecular Genetics, Wadley
Institutes of Molecular Medicine. She was appointed to Senior Scientist at
Wadley in 1984 and maintained that position in the Wadley/Phillips Partnership
until she joined the Company in 1991. Dr. Berent is an expert in protein
chemistry, DNA libraries, cytokines such as TNF, and production systems.

<PAGE>

Hakim Labidi, Ph.D. has been with the Company since 1991 as Director of
the Vaccine Program. Dr. Labidi received his Ph.D. in Microbiology at the
Pasteur Institute in Paris, France and has been a senior scientist at CPI since
1991. Prior to joining the Company, Dr. Labidi was a Senior Research
Investigator and Assistant Professor at the University of Texas from 1987 to
1989 and an Associate Professor at Kuwait University from 1989 until 1991. Dr.
Labidi was the first to isolate and sequence a plasmid from mycobacterium.

Rajinder Singh Sidhu, Ph.D. has been with the Company since 1991 as
Director of the Fungal Program and Co-Director of Gene Expression Systems. Dr.
Sidhu received his Ph.D. degree in Microbiology from Haryana Agricultural
University in Hissar, India, and completed a postdoctoral fellowship at Osaka
University in Japan. He was appointed to Senior Scientist at Wadley in 1984 and
maintained that position in the Wadley/Phillips Partnership until he joined the
Company. Dr. Sidhu is an expert on gene fusion and engineering, fungal genes and
secretion, cytokines such as TNF, and production systems.

Richard M. Torczynski, Ph.D. has been with the Company since 1991 as
Director of Human Gene Discovery, Mammalian Expression System and Diagnostic
Development, and Co-Director of Molecular Immunology. Dr. Torczynski received
his Ph.D. degree in Biology from the University of Texas and completed his
research fellowship under the direction of Dr. Arthur Bollon. He was appointed
to Senior Scientist at Wadley in 1984 and maintained that position in
Wadley/Phillips Partnership. Dr. Torczynski is an expert on certain specialized
gene libraries, monoclonal antibodies and cytokines such as interferon.

The Board of Directors currently consists of four members. All
directors hold office until the next annual meeting of stockholders and until
their successors are duly elected and qualified. Officers are elected to serve,
subject to the discretion of the Board of Directors, until their successors are
appointed.

Directors receive fees of $1,000 per month. Dr. Gelb has, to date, also
received options to purchase 69,000 shares of Common Stock, of which 50,000 are
exercisable at $4.125 per share, 10,000 are exercisable at $3.75 per share,
5,000 are exercisable at $5.00 per share and 4,000 are exercisable at $3.9375
per share. Mr. Gerson has, to date, received options to purchase 65,000 shares
of Common Stock of which 50,000 are exercisable at $4.125 per share, 6,000 are
exercisable at $4.375 per share, 5,000 are exercisable at $5.00 per share and
4,000 are exercisable at $3.9375 per share. Dr. Lovenberg has, to date, received
options to purchase 65,000 shares of Common Stock of which 50,000 are
exercisable at $4.125 per share, 11,000 are exercisable at $5.00 per share and
4,000 are exercisable at $3.9375 per share. See "Executive Compensation" for
information regarding stock option grants to Dr. Bollon. Directors are also
reimbursed for expenses actually incurred in connection with their attendance at
meetings of the Board of Directors.

The Company's Certificate of Incorporation includes certain provisions
permitted pursuant to Delaware law whereby officers and directors of the Company
are to be indemnified against certain liabilities. The Company's Certificate of
Incorporation also limits, to the fullest extent permitted by Delaware law, a
director's liability for monetary damages for breach of fiduciary duty,
including gross negligence, except liability for (i) breach of the director's
duty of loyalty, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) the unlawful
payment of a dividend or unlawful stock purchase or redemption and (iv) any
transaction from which the director derives an improper personal benefit.
Delaware law does not eliminate a director's duty of care and this provision has
no effect on the availability of equitable remedies such as injunction or
rescission based upon a director's breach of the duty of care. In addition, the
Company has obtained an insurance policy providing coverage for certain
liabilities of its officers and directors.

The Company has been advised that it is the position of the Securities
and Exchange Commission that insofar as the foregoing provision may be invoked
to disclaim liability for damages arising under the Securities Act, such
provision is against public policy as expressed in the Securities Act and is
therefore unenforceable.

<PAGE>

Scientific Advisors/consultants

The Company's Scientific Advisory Board currently consists of
individuals having extensive experience in the fields of molecular genetics,
chemistry, oncology and microbiology. At the Company's request, the scientific
advisors review and evaluate the Company's research programs and advise the
Company with respect to technical matters in fields in which the Company is
involved.

The following table sets forth the name and current position of each
scientific advisor:

<TABLE>
<CAPTION>
Name Position
- ---- --------

<S> <C>
Hugo David, M.D., Ph.D. Consultant, New University of Lisbon, Institute of Hygiene
and Topical Medicine

Donald M. Gray, Ph.D. Professor, Department of Molecular and Cell Biology,
University of Texas at Dallas

Sidney Pestka, M.D. Chairman & Professor, Department of Molecular
Genetics and Microbiology and Professor of Medicine,
University of Medicine and Dentistry of New Jersey,
Robert Wood Johnson Medical School

Jeffrey Schlom, Ph.D. Chief, Laboratory of Tumor Immunology and Biology,
Division of Cancer Biology and Diagnosis, National
Cancer Institute, National Institutes of Health

David A. Scheinberg, M.D., Ph.D. Chief, Leukemia Service; Head, Hematopoietic
Cancer Immunochemistry Laboratory,
Memorial Sloan-Kettering Cancer Center

Gary Strobel, Ph.D. Professor, Montana State University
</TABLE>

All of the scientific advisors are employed by other entities and some
have consulting agreements with entities other than the Company, some of which
entities may in the future compete with the Company. Four of the current
scientific advisors receive $1,000 per month from the Company. The scientific
advisors are expected to devote only a small portion of their time to the
Company and are not expected to participate actively in the day-to-day affairs
of the Company. Certain of the institutions with which the scientific advisors
are affiliated may adopt new regulations or policies that limit the ability of
the scientific advisors to consult with the Company. It is possible that any
inventions or processes discovered by the scientific advisors will remain the
property of such persons or of such persons' employers. In addition, the
institutions with which the scientific advisors are affiliated may make
available the research services of their personnel, including the scientific
advisors, to competitors of the Company pursuant to sponsored research
agreements.

Dr. Hugo David is consultant mycobacteriologist to the Institute of
Hygiene and Tropical Medicine at New University of Lisbon. He was chief of the
mycobacteriology branch at Center for Disease Control (CDC) and was Professor
and Head of the Mycobacterial and Tuberculosis Unit at Pasteur Institute in
Paris. Dr. David is an authority on mycobacterial infections and vaccine
development for tuberculosis and leprosy.

Dr. Donald M. Gray is a Professor and was, until August 1995, Chairman,
Department of Molecular and Cell Biology, University of Texas at Dallas. He is a
world authority on DNA structures in solution and is working with CPI on
anti-sense therapy.

<PAGE>

Dr. Sidney Pestka is Professor and Chairman of the Department of
Molecular Genetics and Microbiology and Professor of Medicine, University of
Medicine and Dentistry of New Jersey, Robert Wood Johnson Medical School. Dr.
Pestka was formerly head of the program at the Roche Institute of Molecular
Biology which resulted in the development of interferon for commercialization.

Dr. Jeffrey Schlom is Chief of the Laboratory of Tumor Immunology and
Biology, Division of Cancer Biology and Diagnosis at the National Cancer
Institute, National Institutes of Health and is one of the world leaders in the
development of monoclonal antibodies for cancer therapy.

Dr. David A. Scheinberg is Chief of Leukemia Service and Head of the
Hematopoietic Cancer Immunochemistry Laboratory at Memorial Sloan-Kettering
Cancer Center. He is an authority on the immunotherapy of cancer and has
directed many clinical trials for new anticancer products.

Dr. Gary Strobel is Professor at Montana State University. Dr. Strobel
and colleagues Dr. Andrea Stierle and Dr. Donald Stierle isolated the fungus,
Taxomyces andreanae, which is being used by the Company to make the anticancer
drug, Paclitaxel.

Executive Compensation

The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to the Chief Executive Officer and
to the four most highly compensated executive officers other than the Chief
Executive Officer whose annual compensation exceeded $100,000 for the fiscal
year ended December 31, 1996 (collectively, the "named executive officers") for
services during the fiscal years ended December 31, 1996, December 31, 1995 and
December 31, 1994:

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------- ------
Name and All other
Principal Position Year Salary Bonus Compensation (1) Stock Options (#)
------------------ ---- ------ ----- ------------ -------------
<S> <C> <C> <C> <C> <C>
Arthur P. Bollon 1996 $165,951 --- $6,000 150,000
Chairman and Chief 1995 $140,019 --- $6,000 ---
Executive Officer 1994 $136,542 --- $6,000 ---
</TABLE>
- ---------------
(1) Consisting of car allowances.

Employment Contracts and Termination of
Employment and Change-In-Control Arrangements

Arthur P. Bollon, Ph.D. is employed under an extension effective
November 7, 1995 to his 1992 employment agreement with the Company, which
agreement has been extended until November 6, 2000. As extended, the agreement
provides for the payment to Dr. Bollon of a base salary of $165,000 per year
with annual increases of not less that 5% per year. In addition, in the event
Dr. Bollon is terminated without just cause or due to a Disability (as defined
in the employment agreement), the employment agreement provides that Dr. Bollon
shall receive severance payments of equal monthly installments at the base rate
until the earlier of the expiration of the term or the expiration of 36 months.
Dr. Bollon also receives a car expense allowance of $500 per month under the
employment agreement. In November 1992, the Company granted Dr. Bollon options
to purchase 200,000 shares of Common Stock, at an exercise price of $1.65

<PAGE>

per share. In April 1996, the Company granted Dr. Bollon options to purchase
50,000 shares of Common Stock at an exercise price of $4.125 per share. In
December 1996, the Company granted Dr. Bollon options to purchase 100,000 shares
of Common Stock at an exercise price of $2.25 per share and in January 1997 the
Company granted Dr. Bollon options to acquire 50,000 shares of common Stock at
an exercise price of $2.375 per share. All such options are exercisable to the
extent of 40% after six months of continuous employment from the grant date and
to the extent of an additional 20% on and after each of the first three
anniversaries of the grant date. In March 1995, the Company's Board of Directors
approved an amendment to Dr. Bollon's employment agreement, effective November
7, 1995, to extend the term until November 6, 2000 and to increase his base
salary to $165,000 per annum. See "-- Stock Options."

Each of the Company's executive officers and the Company's principal
scientists have entered into confidentiality and patent assignment agreements
with the Company.

Stock Options

In October 1992, the Board of Directors of the Company adopted the
Cytoclonal Pharmaceutics Inc. 1992 Stock Option Plan (the "1992 Plan"). Under
the 1992 Plan, as amended, 520,000 shares of Common Stock were reserved for
issuance to officers, employees, consultants and advisors of the Company. As of
December 31, 1996, 21,500 shares are available for future grant and options to
acquire 418,500 shares remain outstanding under the 1992 Plan. The exercise
prices of such options range from $1.65 to $5.00 per share. The 1992 Plan
provides for the grant of incentive stock options intended to qualify as such
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and nonstatutory stock options which do not so qualify.

In April 1996, the Board of Directors of the Company adopted the
Cytoclonal Pharmaceutics Inc. 1996 Stock Option Plan (the "1996 Plan"). Under
the 1996 Plan, as amended, 750,000 shares of Common Stock were reserved for
issuance to officers, employees, consultants and advisors of the Company. As of
December 31, 1996, 415,000 shares are available for future grant and options to
acquire 335,000 shares remain outstanding under the 1996 Plan. The exercise
prices of such options range from $2.25 to $4.125 per share. The 1996 Plan
provides for the grant of incentive stock options intended to qualify as such
under Section 422 of the Code and nonstatutory stock options which do not so
qualify.

The 1992 Plan and the 1996 Plan are administered by the Board of
Directors. Subject to the limitations set forth in such Plans, the Board has the
authority to determine to whom options will be granted, the exercise term and
vesting schedule of such options and the exercise price of the options. The
maximum term of each incentive stock option granted under the 1992 Plan and the
1996 Plan is ten years. The exercise price of shares of Common Stock subject to
options qualifying as incentive stock options may not be less than the fair
market value of the Common Stock on the date of the grant. The exercise price of
incentive options granted under the 1992 Plan and the 1996 Plan to any
participant who owns stock possessing more than 10% of the total combined voting
power of all classes of outstanding stock of the Company must be at least equal
to 110% of the fair market value on the date of grant. Any incentive stock
options granted to such participants must also expire within five years from the
date of grant. Under the 1992 Plan, the exercise price of both incentive stock
options and nonstatutory stock options is payable in cash or, at the discretion
of the Board, in Common Stock or a combination of cash and Common Stock. Under
the 1996 Plan, the exercise price of options is payable in cash or such other
means which the Board determines are consistent with such Plan and with
applicable laws and regulations.

<PAGE>

The following table sets forth certain information with respect to
options granted during the year ended December 31, 1996 to the Named Executive
Officer:

Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------------------------------
% of Total
Options
Granted to Exercise of
Options Employees in Base
Name Granted(#) Fiscal Year Price ($/Sh) Expiration Date
---- ---------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
Arthur P. Bollon, Ph.D. 50,000 30.3% $4.125 April 1, 2006
100,000 60.6% $2.25 December 15, 2000
</TABLE>

The following table sets forth certain information with respect to each
exercise of stock options during the fiscal year ended December 31, 1996 by the
Named Executive Officer and the number and value of unexercised options held by
such Named Executive Officer as of December 31, 1996:

<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values

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

Value of
Number of Unexercised In-
Unexercised the-Money
Options at Options at
Shares FY-End(#) FY-End(#)
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized ($) Unexercisable Unexercisable(1)
---- ----------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Arthur P. Bollon, Ph.D. 0 0 280,000/120,000 $95,000/$-
</TABLE>

- ------------------
(1) Based on the fair market value of the Company's Common Stock on
December 31, 1996, as determined by the Company's Board of Directors.

<PAGE>

CERTAIN TRANSACTIONS

The Company completed a bridge financing in April 1995 (the "Bridge
Financing") and an initial public offering of its securities in December 1995
(the "IPO"). Janssen-Meyers Associates, L.P. ("JMA") acted as placement agent
for the Bridge Financing and as underwriter of the IPO and in consideration
thereof, received fees of $203,750 and $1,092,500, respectively, plus
non-accountable expense allowances of $61,125 and $345,000, respectively. In
addition, JMA was granted, in connection with its services as placement agent
for the Bridge Financing, a (i) five-year right of first refusal to act as agent
for offerings of securities by the Company and certain of its shareholders and
(ii) the right to receive certain fees in connection with any merger and
acquisition pursuant to an agreement with the Company. In connection with its
services as underwriter of the IPO, JMA was granted options to purchase 159,285
units ("Units") at a price equal to $8.25 per Unit, each Unit consisting of one
share of Common Stock, one redeemable Class C Warrant and one redeemable Class D
Warrant. Bruce Meyers is a principal of JMA and was Vice Chairman of the Board
of Directors and Vice President in charge of Business Development for the
Company until his resignation from the Company in April 1995.

In December 1996, the Company and JMA executed a one year non-exclusive
investment banking agreement with the Company which provides for a monthly fee
of $5,000 payable by the Company to JMA.

See "Bridge Financings" for additional transactions between the Company
and certain of its principal stockholders and former officers and directors.

<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding ownership
of Common Stock for (i) each person known by the Company to own beneficially
five percent or more of the outstanding shares of the Company's Common Stock,
(ii) each director of the Company, (iii) each of the executive officers named
under "Executive Compensation," and (iv) all officers and directors (including
nominees) of the Company as a group as of April 14, 1997:

<TABLE>
<CAPTION>
Common Stock Series A Preferred Stock
-------------------------------- ----------------------------------------------

Amount and
Amount and Nature Nature of Percent of
of Beneficial Percent of Beneficial Percent of all Voting
Name and Address of Beneficial Owner( Ownership (2) Class (2) Ownership (3) Class (3) Securities (4)
- ------------------------------------ ------------------ ---------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Janssen-Meyers Associates, L.P...... 1,639,500 (5) 19.9 50,000 4.2 18.0
Bruce Meyers........................ 829,500 (6) 10.1 20,000 1.7 9.1
Peter W. Janssen.................... 810,000 (7) 9.9 30,000 2.5 9.0
Kinder Investments, L.P............. 790,000 (8) 9.6 -- -- 8.4
Lindsay A. Rosenwald, M.D........... 630,000 (9) 7.7 -- -- 6.7
Arthur P. Bollon, Ph.D.............. 430,000 (10) 5.1 -- -- 4.6
Ira Gelb, M.D....................... 45,400 (11) * -- -- *
Irwin Gerson........................ 40,200 (12) * -- -- *
Walter Lovenberg, Ph.D.............. 41,000 (13) * -- -- *
Directors and executive officers as
a group (5 persons)................. 572,600 (14) 6.6 -- -- 6.1
</TABLE>

- -----------------------------
* less than 1%

A person is deemed to be a beneficial owner of any securities of which that
person has the right to acquire beneficial ownership of such securities within
60 days. Except as otherwise indicated, each of the persons named has sole
voting and investment power with respect to the shares shown below.

(1) Except as otherwise indicated, the address of each beneficial owner is
c/o the Company, 9000 Harry Hines Boulevard, Dallas, Texas 75235.
(2) Calculated on the basis of 8,180,556 shares of Common Stock outstanding
except that shares of Common Stock underlying options or warrants
exercisable within 60 days of the date hereof are deemed to be
outstanding for purposes of calculating the beneficial ownership of
securities of the holder of such options or warrants. This calculation
excludes shares of Common Stock issuable upon the conversion of Series
A Preferred Stock.
(3) Calculated on the basis of 1,201,404 shares of Series A Preferred Stock
outstanding.
(4) Calculated on the basis of an aggregate of 9,381,960 shares of Common
Stock and Series A Preferred Stock outstanding except that shares of
Common Stock underlying options and warrants exercisable within 60 days
of the date hereof are deemed to be outstanding for purposes of
calculating beneficial ownership of securities

<PAGE>

of the holder of such options or warrants. This calculation excludes
shares of Common Stock issuable upon the conversion of Series A
Preferred Stock.
(5) The address for Janssen-Meyers Associates, L.P. ("JMA") is 17 State
Street, New York, New York 10004. Messrs. Meyers and Janssen are each
50% stockholders and the sole officers and directors of the corporate
general partner of JMA. The aggregate number of shares of Common Stock
and Series A Preferred Stock, respectively, owned by Messrs. Meyers and
Janssen, or with respect to which they own warrants or options
exercisable within 60 days of the date hereof, are also set forth as
though owned by JMA.
(6) Mr. Meyers' address is c/o Janssen-Meyers Associates, L.P., 17 State
Street, New York, New York 10004. Consists of 829,500 shares of Common
Stock and 20,000 shares of Series A Preferred Stock (which are
convertible into 20,000 shares of Common Stock).
(7) Mr. Janssen's address is c/o Janssen-Meyers Associates, L.P., 17 State
Street, New York, New York 10004. Consists of 810,000 shares of Common
Stock and 30,000 shares of Series A Preferred Stock (which are
convertible into 30,000 shares of Common Stock).
(8) The address for Kinder Investments, L.P. is 779 CR403, Greenville, New
York 12083. Kinder Investments, L.P. is a Delaware limited partnership,
the general partner of which is the Chairman of the Board of D.H. Blair
& Co., Inc, and, whose limited partners consist of the children
(including the wife of Dr. Rosenwald) and grandchildren of J. Morton
Davis the sole stockholder of D.H. Blair Investment Banking Corp.
Consists of 750,000 shares of Common Stock and Class A Warrants to
acquire 40,000 shares of Common Stock, all of which are currently
exercisable. Does not include 150,000 shares of Common Stock owned by
D.H. Blair Investment Banking Corp. nor currently exercisable options
to acquire 202,500 shares of Common Stock held by D.H. Blair Investment
Banking Corp.
(9) The address for Dr. Rosenwald is c/o 375 Park Avenue, New York, New
York 10022. Dr. Rosenwald is a son-in-law of J. Morton Davis. Includes
153,500 shares of Common Stock owned of record by the Rosenwald
Foundation, Inc., a tax-exempt charitable organization, of which Dr.
Rosenwald is a trustee. See note (8) above.

(10) Consists of 200,000 shares of Common Stock and options to purchase
230,000 shares of Common Stock which are currently exercisable or
exercisable within 60 days of the date hereof. Does not include options
to purchase 170,000 shares of Common Stock not exercisable within 60
days of the date hereof.
(11) Consists of options to purchase 45,400 shares which are currently
exercisable or exercisable within 60 days of the date hereof. Does not
include options to purchase 23,600 shares of Common Stock not
exercisable within 60 days of the date hereof.
(12) Consists of options to purchase 40,200 shares which are currently
exercisable or exercisable within 60 days of the date hereof. Does not
include options to purchase 24,800 shares of Common Stock which are not
exercisable within 60 days of the date hereof.
(13) Consists of 2,000 shares of Common Stock and options to purchase 39,000
shares which are currently exercisable or exercisable within 60 days of
the date hereof. Does not include options to purchase 26,000 shares of
Common Stock which are not exercisable within 60 days of the date
hereof.
(14) Consists of 202,000 shares of Common Stock and options to purchase an
aggregate of 370,600 shares of Common Stock which are currently
exercisable or exercisable within 60 days of the date hereof. Does not
include options to purchase 253,400 shares of Common Stock not
exercisable within 60 days of the date hereof.

<PAGE>

DESCRIPTION OF SECURITIES

Units

Each Unit offered in the IPO consisted of one share of Common Stock,
one Class C Warrant and one Class D Warrant. Each Class C Warrant entitles the
holder thereof to purchase, until November 2, 2000, one share of Common Stock
and one Class D Warrant at an exercise price of $6.50, subject to adjustment.
Each Class D Warrant entitles the holder thereof to purchase one share of Common
Stock at an exercise price of $8.50, subject to adjustment. The Units were
separated into their components after the IPO.

Authorized Stock

The authorized capital stock of the Company consists of 30,000,000
shares of Common Stock, par value $.01 per share, and 10,000,000 shares of
Preferred Stock, par value $.01 per share.

Common Stock

Of the authorized Common Stock, 8,180,556 shares are currently
outstanding and are held by more than 300 record holders. Subject to the prior
rights of the holders of any shares of Preferred Stock currently outstanding or
which may be issued in the future, the holders of the Common Stock are entitled
to receive dividends from funds of the Company legally available therefor when,
as and if declared by the Board of Directors of the Company, and are entitled to
share ratably in all of the assets of the Company available for distribution to
holders of Common Stock upon the liquidation, dissolution or winding-up of the
affairs of the Company subject to the liquidation preference, if any, of any
then outstanding shares of Preferred Stock of the Company. Holders of the Common
Stock do not have any preemptive, subscription, redemption or conversion rights.
Holders of the Common Stock are entitled to one vote per share on all matters
which they are entitled to vote upon at meetings of stockholders or upon actions
taken by written consent pursuant to Delaware corporate law. The holders of
Common Stock do not have cumulative voting rights, which means that the holders
of a plurality of the outstanding shares can elect all of the directors of the
Company. All of the shares of the Common Stock currently issued and outstanding
are, and the shares of the Common Stock to be issued upon exercise of the
Warrants, when paid for in accordance with the terms will be, fully-paid and
nonassessable. No dividends have been paid to holders of the Common Stock since
the incorporation of the Company, and no dividends are anticipated to be
declared or paid in the reasonably foreseeable future. See "Dividend Policy."
The Common Stock, Class C Warrants and Class D Warrants are quoted on the Nasdaq
SmallCap Market under the symbols "CYPH," "CYPHW" and "CYPHZ," respectively.
There can be no assurance, however, that the securities will not be delisted
from the Nasdaq SmallCap Market. See "Risk Factors - Possible Delisting of
Securities from the Nasdaq Stock Market."

Preferred Stock

The Board of Directors of the Company has the authority, without
further action by the holders of the outstanding Common Stock, to issue
Preferred Stock from time to time in one or more classes or series, to fix the
number of shares constituting any class or series and the stated value thereof,
if different from the par value, and to fix the terms of any such series or
class, including dividend rights, dividend rates, conversion or exchange rights,
voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price and the liquidation preference of such class
or series. The Company presently has one series of Preferred Stock outstanding,
designated as the Company's Series A Convertible Preferred Stock (the "Series A
Preferred Stock"). The Company has no present plans to issue any other series or
class of Preferred Stock. The designations, rights and preferences of the Series
A Preferred Stock is set forth in the Certificate of Designations of Series A
Convertible Preferred Stock, which has been filed with the Secretary of State of
the State of Delaware.

Series A Preferred Stock. Of the authorized Preferred Stock, 4,000,000
shares have been designated Series A Preferred Stock, of which 1,201,404 shares
are currently issued and outstanding. Dividends are payable on the Series A
Preferred Stock in the amount of $.25 per share, payable annually in arrears. At
the option of the Board of Directors

<PAGE>

of the Company, dividends will be paid either (i) wholly or partially in cash or
(ii) in newly issued shares of Series A Preferred Stock valued at $2.50 per
share to the extent a cash dividend is not paid. Shares of Series A Preferred
Stock were issued in January 1993 as partial payment of the dividend due on the
Series A Preferred Stock for the year ended December 31, 1992 (the remaining
dividend was paid in cash), 104,869 shares of Series A Preferred Stock were
issued in January 1994 as full payment of the dividend due on the Series A
Preferred Stock for the year ended December 31, 1993, 115,307 shares of Series A
Preferred Stock were issued in January 1995 as full payment of the dividend due
on Series A Preferred Stock for the year ended December 31, 1994, 126,888 shares
of Series A Preferred Stock were issued in January 1996 as full payment of the
dividend due on the Series A Preferred Stock for the year ended December 31,
1995 and 122,788 shares of the Series A Preferred Stock were issued in January
1997 as full payment of the dividend due on the Series A Preferred Stock for the
year ended December 31, 1996. See "Dividend Policy." Holders of Series A
Preferred Stock have the right to convert their shares, at their option
exercisable at any time, into shares of Common Stock of the Company on a
one-for-one basis subject to anti-dilution adjustments. These anti-dilution
adjustments are triggered in the event of any subdivision or combination of the
Company's outstanding Common Stock, any payment by the Company of a stock
dividend to holders of the Company's Common Stock or other occurrences specified
in the Certificate of Designations relating to the Series A Preferred Stock. The
Company may elect to convert the Series A Preferred Stock into Common Stock or a
substantially equivalent preferred stock in case of a merger or consolidation of
the Company in which the Company does not survive, a sale of all or
substantially all of the Company's assets or a substantial reorganization of the
Company. Each share of Series A Preferred Stock is entitled to one vote on all
matters on which the Common Stock has the right to vote. Holders of Series A
Preferred Stock are also entitled to vote as a separate class on any proposed
adverse change in the rights, preferences or privileges of the Series A
Preferred Stock and any increase in the number of authorized shares of Series A
Preferred Stock. The Company, at its sole option, has the right to redeem all or
any portion of the Series A Preferred Stock at $2.50 per share plus accrued and
unpaid dividends. In the event of any liquidation or winding-up of the Company,
the holders of the Series A Preferred Stock will be entitled to receive $2.50
per share plus any accrued and unpaid dividends before any distribution to the
holders of the Common Stock.

The Series A Preferred Stock was originally sold by the Company as part
of a private placement of Units consisting of 10,000 shares of Series A
Preferred Stock and 20,000 shares of Common Stock (the "Private Placement
Units") in January and February 1992 (the "1992 Private Placement"). A total of
100 Private Placement Units were sold in the 1992 Private Placement at a
purchase price of $50,000 per unit. In addition, the placement agent for the
1992 Private Placement, D.H. Blair Investment Banking Corp. ("Blair"), received
options to purchase ten Private Placement Units, or an aggregate of 100,000
shares of Series A Preferred Stock and 200,000 shares of Common Stock, at a
purchase price of $50,000. Blair transferred to Peter Janssen options to
purchase three Private Placement Units and to Bruce Meyers options to purchase
two Private Placement Units. These options were exercised in February 1997. The
Company has filed a Registration Statement on Form S-3 registering 150,000 of
such shares.

<PAGE>

Bridge Warrants

There are currently outstanding Bridge Warrants ("Bridge Warrants") to
purchase an aggregate of 607,500 shares of Common Stock. Each warrant entitles
the holder to purchase four-tenths of a share of Common Stock. The Bridge
Warrants consist of 500,000 Class A Warrants to purchase 200,000 shares of
Common Stock and 1,018,750 Class B Warrants to purchase 407,500 shares of Common
Stock. The Class A Warrants are exercisable at $3.75 per share of Common Stock
and the Class B Warrants are exercisable at $4.375 per share of Common Stock.
The Bridge Warrants are all currently exercisable and expire in November, 2000.
The Bridge Warrants contain provisions that protect holders thereof from
dilution by adjustment of the exercise price and rate in the event of a merger,
acquisition, recapitalization or split-up of shares of the Company, the issuance
by the Company of a stock dividend, sales of stock below current market price
and other unusual events. In addition, Blair was granted options to acquire up
to 506,250 Bridge Warrants to purchase 202,500 shares of Common Stock at an
exercise price of $3.75 per share. These options were granted to Blair as part
of its compensation for services as placement agent in the Company's Bridge
Financing which was completed in August 1994 and in connection with the waiver
of certain rights. See "Bridge Financings."

The Warrants

The following discussion of the terms and provisions of the Class C and
Class D Warrants is qualified in its entirety by reference to the warrant
agreement (the "Warrant Agreement") between the Company, JMA and American Stock
Transfer and Trust Company, the warrant agent (the "Warrant Agent"). The
Warrants will be evidenced by warrant certificates in registered form.

As of the date of this Prospectus, the Company has 2,300,000 Class C
Warrants and 2,300,000 Class D Warrants (other than the Bridge
Warrants)outstanding.

Class C Warrants. The holder of each Class C Warrant is entitled to
purchase one share of Common Stock and one Class D Warrant at an aggregate
exercise price of $6.50. The Class C Warrants are exercisable at any time until
November 2, 2000, provided that at such time a current prospectus under the
Securities Act relating to the Common Stock and the Class D Warrants is then in
effect and the Common Stock and the Class D Warrants are qualified for sale or
exempt from qualification under applicable state securities laws. The Class C
Warrants are subject to redemption, as described below.

Class D Warrants. The holder of each Class D Warrant is entitled to
purchase one share of Common Stock at an exercise price of $8.75. The Class D
Warrants are exercisable at any time after issuance until November 2, 2000,
provided that at such time a current prospectus under the Securities Act
relating to the Common Stock is then in effect and the Common Stock is qualified
for sale or exempt from qualification under applicable state securities laws.
The Class D Warrants issuable upon exercise of the Class C Warrants are, upon
issuance, transferable separately from the Common Stock and Class C Warrants.
The Class D Warrants are subject to redemption, as described below.

Redemption. Commencing November 2, 1996, the Warrants are subject to
redemption at the option of the Company, on not less than 30 days' prior written
notice, at a price of $.05 per Warrant, if the average closing bid price of the
Common Stock for any 30 consecutive business day period ending within 15
business days of the date on which the notice of redemption is given exceeds
$9.10 per share, subject to adjustment, with respect to the Class C Warrants and
$12.25 per share, subject to adjustment, with respect to the Class D Warrants.
For these purposes, the closing bid price of the Common Stock shall be
determined by the closing bid price, as reported by Nasdaq, so long as the
Common Stock is quoted on the Nasdaq SmallCap Market or if the Common Stock is a
Nasdaq National Market ("NNM") security or listed on a securities exchange,
shall be determined by the last reported sales price. The Company's redemption
rights will be in effect only if the Common Stock is either quoted on Nasdaq or
listed on a securities exchange. Holders of Warrants will automatically forfeit
their rights to purchase the shares of Common Stock issuable upon exercise of
such Warrants unless the Warrants are exercised before they are redeemed. All of
the outstanding

<PAGE>

Warrants of a class, except for those underlying the Unit Purchase Option, must
be redeemed if any portion of that class are to be redeemed. The Warrants
underlying the Unit Purchase Option are subject to redemption if, at the time of
a call for redemption, the Unit Purchase Option has been exercised and such
Warrants are then outstanding. A notice of redemption will be mailed to each of
the registered holders of the Warrants no later than 30 days before the date
fixed for redemption. The notice of redemption shall specify the redemption
price, the date fixed for redemption, the place where the Warrant certificates
shall be delivered and the date of expiration of the right to exercise the
Warrants.

Unit Purchase Option. Pursuant to an agreement by and between the
Company and the Underwriters in the IPO, the Company sold to the Underwriters,
or their designee(s), for nominal consideration, a Unit Purchase Option (the
"Unit Purchase Option") to purchase up to an aggregate of 200,000 Units at $8.25
per Unit, subject to certain anti-dilution adjustments. The Units purchasable
upon exercise of the Unit Purchase Option are identical to the Units offered in
the IPO, except that the Warrants issuable in connection therewith are subject
to redemption, if at the time of a call for redemption the Unit Purchase Option
has been exercised and such Warrants are then outstanding, and have certain
different anti-dilution provisions. The Unit Purchase Option will be exercisable
during the two-year period commencing on November 2, 1998. The Unit Purchase
Option is not transferable for the three-year period commencing on the date of
issuance, except that it may be assigned in whole or in part to any officer of
the underwriters or member of the selling group. During the term of the Unit
Purchase Option, the holder thereof is given, at nominal cost, the opportunity
to profit from a rise in the market price of the Common Stock by exercising such
Option, with a resulting dilution in the interests of other Company
stockholders. As a result, the Company may find it more difficult to raise
additional equity capital if it should be needed for the operation of the
Company while the Unit Purchase Option is outstanding. Moreover, at any time
when the holder(s) of the Unit Purchase Option might be expected to exercise it,
the Company would probably be able to obtain additional equity capital on terms
more favorable than those provided by the Unit Purchase Option. The Company has
agreed to register under the Securities Act on two separate occasions, the first
at its own expense, the Unit Purchase Option and/or the securities underlying it
at the request of the holder thereof. The Company has also agreed to provide
certain "piggy-back" registration rights for the holder(s) of the Unit Purchase
Option and/or the securities underlying it.

General. The Warrants may be exercised upon surrender of the
certificate therefor on or prior to the expiration or redemption date (as
explained above) at the offices of the Company's Warrant Agent with the form of
"Election to Purchase" on the reverse side of the certificate filled out and
executed as indicated, accompanied by payment (in the form of a certified or
cashier's check payable to the order of the Company) of the full exercise price
for the number of Warrants being exercised. The Company, in its discretion, has
the right to reduce the exercise price of either or both classes of Warrants
subject to compliance with Rule 13e-4 promulgated under the Exchange Act, if
applicable.

The Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price and rate in certain events,
such as stock dividends, stock splits or combinations, mergers, sales of all or
substantially all of the Company's assets at less than market value, sales of
stock at below market price and other unusual events.

The Company is not required to issue fractional shares and in lieu
thereof will make a cash payment based upon the current market value of such
fractional shares (determined as the mean between the last reported bid and
asked prices reported or, if the Common Stock is an NNM security or traded on a
securities exchange, the last reported sales price, in each case as of the last
business day prior to the date of exercise). The holder of a Warrant will not
have any rights as a stockholder of the Company unless and until the Warrant is
exercised.

Transfer Agent and Warrant Agent

American Stock Transfer and Trust Company will serve as the Transfer
Agent for the Common Stock and Warrants and as Warrant Agent for the Warrants.

Registration Rights

<PAGE>

Holders of (i) 2,000,000 shares of Common Stock outstanding, (ii)
options to purchase 200,000 shares of Common Stock, (iii) 1,201,404 shares of
Series A Preferred Stock convertible into an equal number of shares of Common
Stock and (iv) options to purchase 100,000 shares of Series A Preferred Stock
convertible into an equal number of shares of Common Stock (the Common Stock
referred to in (i) through (iv) above, collectively, the "Registrable
Securities") are entitled to demand and "piggy-back" registration rights with
respect to such Registrable Securities having commenced on December 2, 1996 and
ending November 2, 2000. The holders of more than 50% of the Registrable
Securities may request that the Company file a registration statement under the
Securities Act, and, subject to certain conditions, the Company generally will
be required to use its best efforts to effect any such registration. In
addition, if the Company proposes to register any of its securities, either for
its own account or for the account of other stockholders, the Company is
required, with certain exceptions, to notify the holders described above and,
subject to certain limitations, to include in the first two such registration
statements filed by November 2, 2000, all of the shares of the Registrable
Securities requested to be included by such holders. In addition, the Company
has registered the Bridge Warrants (including the warrants underlying the option
granted to the placement agent of the 1994 Bridge Financing) and the 810,000
shares of Common Stock issuable upon the exercise of such warrants. Holders of
20,000 shares of Common Stock issued by the Company in connection with the
formation of the joint venture with Pestka Biomedical Laboratories, Inc. also
have certain "piggy-back" registration rights. Holders of options and warrants
to acquire an aggregate of 211,000 shares of Common Stock granted and issued in
connection with financial advisory and public relations rendered to the Company
and pursuant to a license agreement also have "piggy-back" registration rights.
The exercise of one or more of these registration rights may involve substantial
expense to the Company and may adversely affect the terms upon which the Company
may obtain additional financing. The Company is generally obligated to bear the
expenses, other than underwriting discounts and sales commissions, of all of
these registrations. Any exercise of such registration rights may hinder efforts
by the Company to arrange future financings of the Company and may have an
adverse effect on the market price of the Company's securities.

Business Combination Provisions

The Company is subject to a Delaware statute regulating "business
combinations," defined to include a broad range of transactions, between
Delaware corporations and "interested stockholders," defined as persons who have
acquired at least 15% of a corporation's stock. Under the law, a corporation may
not engage in any business combination with any interested stockholder for a
period of three years from the date such person became an interested stockholder
unless certain conditions are satisfied. The statute contains provisions
enabling a corporation to avoid the statute's restrictions.

At this time, the Company will not seek to "elect out" of the statute
and, therefore, upon closing of this offering and the registration of its
securities under the Exchange Act, the restrictions imposed by such statute will
apply to the Company.

BRIDGE FINANCINGS

In order to fund its continuing operations, the Company completed two
Bridge Financings, one in August 1994 ("1994 Bridge Financing") and one in April
1995 ("1995 Bridge Financing"). In connection with the 1994 Bridge Financing,
the Company issued (i) an aggregate of $1,000,000 in principal amount of 9%,
Subordinated Notes ("1994 Notes") and (ii) an aggregate of 500,000 Bridge
Warrants ("Class A Warrants") to purchase an aggregate of 200,000 shares of the
Company's Common Stock exercisable at $3.75, which Class A Warrants are
exercisable until November 2, 2000. In connection with the 1995 Bridge
Financing, the Company issued (i) an aggregate of $2,037,500 in principal amount
of 9% Subordinated Notes ("1995 Notes") and (ii) an aggregate of 1,018,750
Bridge Warrants ("Class B Warrants") to purchase an aggregate of 407,500 shares
of the Company's Common Stock exercisable at $4.375, which Class B Warrants are
exercisable until November 2, 2000. The Company repaid the 1994 Notes and 1995
Notes in 1995, including $400,000 of the Notes which were past due, from the net
proceeds of the IPO. In addition, warrants were issued to the placement agent of
the 1994 Bridge Financing, as described below.

<PAGE>

In connection with the 1994 Bridge Financing, Blair acted as placement
agent. In consideration of these services, the Company paid to Blair a fee equal
to $120,000, a non-accountable expense allowance of $10,000 and an option to
acquire warrants to purchase up to an aggregate of 66,667 shares of the
Company's Common Stock at an exercise price of $3.75 per share. In addition, in
connection with the 1994 Bridge Financing, the Company executed a merger and
acquisition agreement ("M/A Agreement") with Blair and granted Blair a right of
first refusal with respect to offerings of securities of the Company. In
anticipation of the 1995 Bridge Financing, all such rights of Blair with respect
to the M/A Agreement and right of first refusal were canceled in consideration
of the payment by the Company to Blair of $50,000. In addition, pursuant to a
consulting agreement with the Company, Blair rendered investment banking advice
and assistance in structuring the 1995 Bridge Financing. In consideration of
these services, the Company granted Blair an option to acquire warrants equaling
33-1/3% of all warrants issued in connection with the 1995 Bridge Financing.
Such warrants to purchase an aggregate of 135,833 shares of Common Stock provide
for an exercise price of $3.75 per share. The holders of these warrants issued
to the placement agent of the 1994 Bridge Financing have certain demand and
"piggy-back" registration rights.

JMA acted as placement agent for the 1995 Bridge Financing and in
consideration thereof received a fee of $203,750 plus a non-accountable expense
allowance of $61,125. In addition, JMA was granted, in connection with its
services as Placement Agent for the 1995 Bridge Financing, a (i) five-year right
of first refusal to act as agent for offerings of securities by the Company and
certain of its shareholders and (ii) merger and acquisition agreement.

The aggregate net proceeds to the Company from the issuance of its
Bridge Notes and Bridge Warrants was approximately $2,500,000. The Company used
the proceeds from the 1994 Bridge Financing to fund its operations (including
paying for research and development activities, operating expenses and accrued
liabilities, and for officers compensation) and a portion of the expenses of the
1994 Bridge Financing and the 1995 Bridge Financing.

SHARES ELIGIBLE FOR FUTURE SALE

The Company has 8,180,556 shares of Common Stock outstanding. Holders
of the Class C and Class D Warrants will be entitled to purchase an aggregate of
6,900,000 additional shares of Common Stock upon the exercise of such Warrants
until November 2, 2000, provided that the Company satisfies certain securities
registration and qualification requirements with respect to the securities
underlying such Warrants. All shares of Common Stock purchased upon exercise of
the Warrants will be freely tradeable without restriction under the Securities
Act (provided that such registration and qualification requirements are met),
except for any shares purchased by any person who is or thereby becomes an
"affiliate" of the Company, which shares may be subject to the resale
limitations contained in Rule 144 promulgated under the Securities Act.

Up to 800,000 additional shares of Common Stock, may be purchased by
the Underwriters in connection with the IPO through the exercise of the Unit
Purchase Option and the warrants included therein (including the Class D
Warrants issuable upon exercise of the Class C Warrants included therein)
(collectively, the "Option Warrants"). Any and all shares of Common Stock
purchased upon exercise of the Option Warrants may be freely tradeable, provided
that the Company satisfies certain securities registration and qualification
requirements in accordance with the terms of the Unit Purchase Option.

A significant number of shares of Common Stock and shares of Common
Stock issuable upon the conversation of the Series A Preferred Stock, none of
which are being offered hereby, are "restricted securities" within the meaning
of Rule 144 promulgated under the Securities Act and, commencing April 29, 1997,
if held for at least one year (which a substantial portion, if not all, of the
shares are), may be eligible for sale in the public market in reliance upon Rule
144 following the expiration of such period.

In general, under Rule 144, as in effect as of April 29, 1997, a person
(or persons whose shares are aggregated), including a person who may be deemed
to be an "affiliate" of the Company as that term is defined under the Securities
Act, will be entitled to sell within any three-month period a number of shares
beneficially owned for at least one year

<PAGE>

that does not exceed the greater of (i) one (1%) percent of the then outstanding
shares of Common Stock, or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain requirements as to the manner of sale, notice and
the availability of current public information about the Company. Moreover,
commencing April 29, 1997, a person who is not deemed to have been an affiliate
of the Company during the 90 days preceding a sale by such person, and who has
beneficially owned shares of Common Stock for at least two years, may sell such
shares without regard to the volume, manner of sale or notice requirements of
Rule 144.

The Company cannot predict the effect, if any, that sales of Common
Stock pursuant to Rule 144 or otherwise, or the availability of such shares for
sale, will have on the market price prevailing from time to time. Nevertheless,
sales by the existing stockholders of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices for the Common
Stock. In addition, the availability for sale of a substantial amount of Common
Stock acquired through the exercise of the Warrants and the Unit Purchase Option
could adversely affect prevailing market prices for the Common Stock.

PLAN OF DISTRIBUTION

The securities offered hereby are being offered directly by the Company
pursuant to the terms of the Warrants. No underwriter is being utilized in
connection with this offering.

The Company has agreed to pay JMA a fee (the "Solicitation Fee") equal
to 5% of the aggregate exercise price of all Warrants exercised after November
2, 1996, if (i) the market price of the Common Stock on the date that the
Warrants are exercised is greater than the Warrant exercise price; (ii) the
exercise of the Warrants was solicited by JMA or its representative or agent and
the warrantholder designates in writing that the exercise was solicited thereby;
(iii) the Warrants are not held in a discretionary account; (iv) disclosure of
this compensation arrangement is made by JMA at the time of the exercise of the
Warrants; and (v) the solicitation of the exercise of the Warrants was not in
violation of Rule 10b-6 promulgated under the Exchange Act. JMA will generally
be prohibited, pursuant to Rule 10b-6, from engaging in market-making activities
with regard to the Company's securities for a period specified by Rule 10b-6
promulgated under the Exchange Act prior to any solicitation of the exercise of
Warrants until the termination of such solicitation. Accordingly, JMA may be
unable to provide a market for the Company's securities during certain periods
while the Warrants are exercisable.

LEGAL MATTERS

The validity of the securities offered hereby will be passed upon for
the Company by Morrison Cohen Singer & Weinstein, LLP, New York, New York.
Robert H. Cohen, Esq., a partner of Morrison Cohen Singer & Weinstein, LLP,
holds an option to acquire shares of Common Stock. Certain legal matters with
respect to information contained in this Prospectus under the headings "Risk
Factors -- Royalty Obligations; Possible Loss of Patents and Other Proprietary
Rights," " -- Uncertain Ability to Protect Proprietary Technology" and "Business
- -- Patents, Licenses and Proprietary Rights" will be passed upon for the Company
by Warren & Perez, Dallas, Texas.

EXPERTS

The balance sheet as at December 31, 1996 and the statements of
operations, changes in stockholders' equity (capital deficiency) and cash flows
for each of the years in the two-year period ended December 31, 1996 and for the
period from inception (September 11, 1991) through December 31, 1996 included in
this Prospectus have been audited by, and are included herein in reliance upon
the report of Richard A. Eisner & Company, LLP, independent auditors, given on
the authority of that firm as experts in accounting and auditing.

<PAGE>

ADDITIONAL INFORMATION

The Company has filed Post-Effective Amendment No. 2 to the
Registration Statement on Form SB-2 (the "Registration Statement") under the
Securities Act with the Securities and Exchange Commission (the "Commission") in
Washington, D.C. with respect to the shares of Common Stock and Warrants offered
hereby. This Prospectus, which is part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company, the Common Stock and the Warrants offered hereby, reference is hereby
made to the Registration Statement and such exhibits and schedules, which may be
inspected without charge at the office of the Commission at 450 Fifth Street,
NW, Washington, D.C. 20549 and at its regional offices at 7 World Trade Center,
New York, New York 10048. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission. The
Commission maintains a World Wide Web site on the Internet at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.

<PAGE>

CYTOCLONAL PHARMACEUTICS INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>

REPORT OF INDEPENDENT AUDITORS.................................................................................F-2

BALANCE SHEETS AS AT DECEMBER 31, 1996 ........................................................................F-3

STATEMENTS OF OPERATIONS FOR EACH OF THE YEARS IN THE TWO-YEAR
PERIOD ENDED DECEMBER 31, 1996, AND FOR THE PERIOD FROM
SEPTEMBER 11, 1991 (INCEPTION) THROUGH DECEMBER 31, 1996.....................................................F-4

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
FOR THE PERIOD FROM SEPTEMBER 11, 1991 (INCEPTION) THROUGH
DECEMBER 31, 1991, AND FOR EACH OF THE YEARS IN THE
FIVE-YEAR PERIOD ENDED DECEMBER 31, 1996.....................................................................F-5

STATEMENTS OF CASH FLOWS FOR EACH OF THE YEARS IN THE TWO-YEAR
PERIOD ENDED DECEMBER 31, 1996, AND FOR THE PERIOD
FROM SEPTEMBER 11, 1991 (INCEPTION) THROUGH DECEMBER 31, 1996................................................F-6

NOTES TO FINANCIAL STATEMENTS..................................................................................F-7
</TABLE>

F-1

<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Cytoclonal Pharmaceutics Inc.
Dallas, Texas

We have audited the accompanying balance sheet of Cytoclonal
Pharmaceutics Inc. (a development stage company) as at December 31, 1996, and
the related statements of operations, changes in stockholders' equity (capital
deficiency) and cash flows for each of the years in the two-year period ended
December 31, 1996 and for the period September 11, 1991 (inception) through
December 31, 1996. 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 generally accepted auditing
standards. 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 enumerated above present
fairly, in all material respects, the financial position of Cytoclonal
Pharmaceutics Inc. at December 31, 1996, and results of its operations and its
cash flows for each of the years in the two-year period ended December 31, 1996
and for the period September 11, 1991 (inception) through December 31, 1996 in
conformity with generally accepted accounting principles.

Richard A. Eisner & Company, LLP

New York, New York
February 7, 1997

With respect to Note K[2]
February 21, 1997

F-2

<PAGE>

CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

BALANCE SHEET

AS AT DECEMBER 31, 1996

A S S E T S

Current assets:

Cash and cash equivalents (Note B[6]) . . . . . . . . . $ 2,858,000

Prepaid expenses and other current assets . . . . . . . 35,000
------------

Total current assets . . . . . . . . . . . . . . 2,893,000

Equipment, net (Notes B[1] and E). . . . . . . . . . . . . 104,000

Patent rights, less accumulated amortization of $386,000
(Notes B[2] and C). . . . . . . . . . . . . . . . . . . 864,000

Investment in joint venture - at equity
(Note D[2]) . . . . . . . . . . . . . . . . . . . . . . 16,000

Other assets . . . . . . . . . . . . . . . . . . . . . . . 4,000
------------

T O T A L. . . . . . . . . . . . . . . . . . . . $ 3,881,000
============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses (Note F). . . . . $ 319,000

Current portion of royalties payable (Note C) . . . . . 31,000
------------

Total current liabilities. . . . . . . . . . . . 350,000
------------

Royalties payable (Note C) . . . . . . . . . . . . . . . . 1,219,000
------------

Total liabilities. . . . . . . . . . . . . . . . 1,569,000
------------

Commitments and other matters (Notes C, D, J, and K)

Stockholders' equity (Note G):

Preferred stock - $.01 par value, 10,000,000 shares
authorized; 1,228,629 shares of Series A convertible
preferred issued and outstanding (liquidation value
$3,072,000). . . . . . . . . . . . . . . . . . . . . . 12,000

Common stock - $.01 par value, 30,000,000 shares
authorized; 7,730,546 shares issued and outstanding. . 78,000

Additional paid-in capital . . . . . . . . . . . . . . . 14,074,000

Deficit accumulated during the development stage . . . . (11,852,000)
-------------

Total stockholders' equity . . . . . . . . . . . 2,312,000
-------------

T O T A L. . . . . . . . . . . . . . . . . . . . $ 3,881,000
=============

The accompanying notes to financial statements are an integral part hereof.

F-3

<PAGE>

CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

STATEMENTS OF OPERATIONS

September 11,
1991
Year Ended (Inception)
December 31, through
-------------------------------- December 31,
1995 1996 1996
------ ------ ---------------
<S> <C> <C> <C>
Operating expenses:

Research and development. . $ 1,181,000 $ 1,576,000 $ 6,307,000

General and administrative. 1,138,000 1,530,000 5,326,000
------------ ------------ -----------

2,319,000 3,106,000 11,633,000
------------ ------------ -----------

Other (income) expenses:

Interest (income) . . . . . (47,000) (216,000) (419,000)

Interest expense. . . . . . 419,000 559,000
------------ ------------ -----------

372,000 (216,000) 140,000
------------ ------------ -----------

NET (LOSS) . . . . . . . . . . $(2,691,000) $(2,890,000) $11,773,000
============ ============ ===========

Net loss per common share. . . $(.53) $(.42)
====== ======

Weighted average number of
shares outstanding
(Note B[5]) . . . . . . . . 5,695,000 7,640,000
========== =========

</TABLE>

The accompanying notes to financial statements
are an integral part hereof.

F-4

<PAGE>
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(Note G)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
Shares Amount Shares Amount
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Common stock issued, no par . . . . . . . . . . . . . . . . . . . . . . 3,200,000
Value assigned to 300,000 warrants ($0.01 per warrant),
issued in conjunction with a bridge
loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange of shares of no par shares for $.01
par value shares . . . . . . . . . . . . . . . . . . . . . . . . . . . $32,000
Net (loss) for the period September 11, 1991
(inception) through December 31, 1991. . . . . . . . . . . . . . . . .
---------- --------
Balance - December 31, 1991 . . . . . . . . . . . . . . . . . . . . . . 3,200,000 32,000

Stock issued in connection with private placement
of 100 units ($50,000 per unit) less
expenses of $649,000 . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 $10,000 2,000,000 20,000
Common stock issued, $1.65 per share (Note D[2]). . . . . . . . . . . . 20,000
Net (loss) for the year . . . . . . . . . . . . . . . . . . . . . . . .
---------- -------- ---------- --------
Balance - December 31, 1992 . . . . . . . . . . . . . . . . . . . . . . 1,000,000 10,000 5,220,000 52,000

Value assigned to 20,000 options ($0.65 per option)
issued and charged to research and
development (Note D[1]). . . . . . . . . . . . . . . . . . . . . . . .
Preferred dividend (cash and stock) . . . . . . . . . . . . . . . . . . 48,611 1,000
Net (loss) for the year . . . . . . . . . . . . . . . . . . . . . . . .
---------- -------- ---------- --------
Balance - December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . 1,048,611 11,000 5,220,000 52,000

Value assigned to warrants issued in private
placement of debt securities ($0.17 and $0.18
per warrant) (Note G[4]) . . . . . . . . . . . . . . . . . . . . . . .
Preferred dividend (stock). . . . . . . . . . . . . . . . . . . . . . . 104,869 1,000
Net (loss) for the year . . . . . . . . . . . . . . . . . . . . . . . .
---------- ------- ---------- --------
Balance - December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . 1,153,480 12,000 5,220,000 52,000

Value assigned to warrants issued in private
placement of debt securities ($0.18 per warrant)
(Note G[4]). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred dividend (stock). . . . . . . . . . . . . . . . . . . . . . . 115,307 1,000
Simultaneous exercise of options ($1.825
per share) and purchase of treasury
stock ($4.00 per share). . . . . . . . . . . . . . . . . . . . . . . . 80,000 1,000
Retirement of treasury stock. . . . . . . . . . . . . . . . . . . . . . (36,500)
Issuance of common stock in initial
public offering - (net of costs of
$2,135,000) ($5.00 per unit) . . . . . . . . . . . . . . . . . . . . . 2,300,000 23,000
Net (loss) for the year . . . . . . . . . . . . . . . . . . . . . . . .
---------- -------- ---------- --------
Balance - December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . 1,268,787 13,000 7,563,500 76,000

Preferred dividend (stock). . . . . . . . . . . . . . . . . . . . . . . 126,888 1,000
Preferred stock converted to common stock . . . . . . . . . . . . . . . (167,046) (2,000) 167,046 2,000
Value assigned to 20,000 ($2.29) and 100,000
($0.84) options issued for professional services . . . . . . . . . . .
Value assigned to 36,000 warrants ($1.17) issued and charged to
research and development . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) for the year . . . . . . . . . . . . . . . . . . . . . . . .
---------- -------- ---------- --------
BALANCE - DECEMBER 31, 1996 . . . . . . . . . . . . . . . . . . . . . . 1,228,629 $12,000 7,730,546 $78,000
========== ======== ========== ========
</TABLE>
(RESTUBBED FROM ABOVE)
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated Treasury Stock
Additional During ----------------------
Paid-in Development Common
Capital Stage Shares Amount Total
--------- ------------- -------- ------ -----
<S> <C> <C> <C> <C> <C>
Common stock issued, no par . . . . . . . . . . . . . . . . $ 1,000 $ 1,000
Value assigned to 300,000 warrants ($0.01 per warrant),
issued in conjunction with a bridge
loan . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 3,000
Exchange of shares of no par shares for $.01
par value shares . . . . . . . . . . . . . . . . . . . . . 47,000 $ (79,000) - 0 -
Net (loss) for the period September 11, 1991
(inception) through December 31, 1991. . . . . . . . . . . (218,000) (218,000)
------------ ------------ -----------
Balance - December 31, 1991 . . . . . . . . . . . . . . . . 51,000 (297,000) (214,000)

Stock issued in connection with private placement
of 100 units ($50,000 per unit) less
expenses of $649,000 . . . . . . . . . . . . . . . . . . . 4,321,000 4,351,000
Common stock issued, $1.65 per share (Note D[2]). . . . . . 33,000 33,000
Net (loss) for the year . . . . . . . . . . . . . . . . . . (1,317,000) (1,317,000)
------------ ------------ -----------
Balance - December 31, 1992 . . . . . . . . . . . . . . . . 4,405,000 (1,614,000) 2,853,000

Value assigned to 20,000 options ($0.65 per option)
issued and charged to research and
development (Note D[1]). . . . . . . . . . . . . . . . . . 13,000 13,000
Preferred dividend (cash and stock) . . . . . . . . . . . . (123,000) (122,000)
Net (loss) for the year . . . . . . . . . . . . . . . . . . (2,392,000) (2,392,000)
------------ ------------ -----------
Balance - December 31, 1993 . . . . . . . . . . . . . . . . 4,295,000 (4,006,000) 352,000

Value assigned to warrants issued in private
placement of debt securities ($0.17 and $0.18
per warrant) (Note G[4]) . . . . . . . . . . . . . . . . . 187,000 187,000
Preferred dividend (stock). . . . . . . . . . . . . . . . . (1,000) - 0 -
Net (loss) for the year . . . . . . . . . . . . . . . . . . (2,265,000) (2,265,000)
----------- ------------ -----------
Balance - December 31, 1994 . . . . . . . . . . . . . . . . 4,481,000 (6,271,000) (1,726,000)

Value assigned to warrants issued in private
placement of debt securities ($0.18 per warrant)
(Note G[4]). . . . . . . . . . . . . . . . . . . . . . . . 82,000 82,000
Preferred dividend (stock). . . . . . . . . . . . . . . . . (1,000) - 0 -
Simultaneous exercise of options ($1.825
per share) and purchase of treasury
stock ($4.00 per share). . . . . . . . . . . . . . . . . . 145,000 (36,500) $(146,000) - 0 -
Retirement of treasury stock. . . . . . . . . . . . . . . . (146,000) 36,500 146,000 - 0 -
Issuance of common stock in initial
public offering - (net of costs of
$2,135,000) ($5.00 per unit) . . . . . . . . . . . . . . . 9,342,000 9,365,000
Net (loss) for the year . . . . . . . . . . . . . . . . . . (2,691,000) (2,691,000)
----------- ------------ ------- --------- -----------
Balance - December 31, 1995 . . . . . . . . . . . . . . . . 13,903,000 (8,962,000) - 0 - - 0 - 5,030,000

Preferred dividend (stock). . . . . . . . . . . . . . . . . (1,000) - 0 -
Preferred stock converted to common stock . . . . . . . . . - 0 -
Value assigned to 20,000 ($2.29) and 100,000
($0.84) options issued for professional services . . . . . 130,000 130,000
Value assigned to 36,000 warrants ($1.17) issued
and charged to research and development. . . . . . . . . . 42,000 42,000
Net (loss) for the year . . . . . . . . . . . . . . . . . . (2,890,000) (2,890,000)
----------- ------------ ------- ------- -----------
BALANCE - DECEMBER 31, 1996 . . . . . . . . . . . . . . . . $14,074,000 $(11,852,000) $ - 0 - $ - 0 - $ 2,312,000
=========== ============ ======= ======= ===========
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.

F-5
<PAGE>
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

September 11,
1991
Year Ended (Inception)
December 31, through
----------------------------- December 31,
1995 1996 1996
------ ------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss). . . . . . . . . . . . . . . . $(2,691,000) $(2,890,000) $(11,773,000)
Adjustments to reconcile net (loss) to
net cash (used in) operating
activities:
Depreciation and amortization . . . . 112,000 115,000 569,000
Amortization of debt discount . . . . 205,000 269,000
Amortization of debt costs. . . . . . 374,000 554,000
Value assigned to warrants and
options . . . . . . . . . . . . . . 172,000 188,000
Equity in loss of joint venture . . . 23,000 23,000 216,000
Changes in operating assets and
liabilities:
(Increase) in other assets. . . . (16,000) (3,000) (43,000)
Increase (decrease) in accounts
payable and accrued expenses. . (45,000) 74,000 309,000
------------ ------------ ------------
Net cash (used in) operating
activities. . . . . . . . . (2,038,000) (2,509,000) (9,711,000)
------------ ------------ -------------
Cash flows from investing activities:
Purchase of equipment . . . . . . . . . . (75,000) (196,000)
Investment in joint venture . . . . . . . (233,000)
------------ -------------
Net cash (used in) investing
activities. . . . . . . . . (75,000) (429,000)
------------ -------------
Cash flows from financing activities:
Net proceeds from sales of preferred and
common stock. . . . . . . . . . . . . . 9,365,000 13,750,000
Proceeds from bridge loans, net of
expenses. . . . . . . . . . . . . . . . 758,000 2,684,000
Repayment of bridge loans . . . . . . . . (3,038,000) (3,238,000)
Principal payments of equipment notes . . (76,000)
Dividends paid. . . . . . . . . . . . . . (122,000)
------------ -------------
Net cash provided by
financing activities. . . . 7,085,000 12,998,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS. . . . . . . . . . . . . 5,047,000 (2,584,000) 2,858,000

Cash at beginning of period. . . . . . . . . 395,000 5,442,000
------------ ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . $ 5,442,000 $ 2,858,000 $ 2,858,000
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest. . . . . . . . . $ 267,000
Noncash investing activities:
Equipment acquired included in
accounts payable and accrued
expenses. . . . . . . . . . . . . . $ 10,000

</TABLE>
The accompanying notes to financial statements
are an integral part hereof.

F-6
<PAGE>
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

NOTES TO FINANCIAL STATEMENTS

(NOTE A) - The Company:

Cytoclonal Pharmaceutics Inc., (the "Company") was incorporated on
November 18, 1991. In December 1991, a Texas corporation, Cytoclonal
Pharmaceutics Inc. (formerly Bio Pharmaceutics, Inc.) was merged into the
Company. The accompanying financial statements include the operations of the
Texas corporation from its inception on September 11, 1991. The Company is in
the development stage and its efforts are devoted to the research and
development of various therapeutic and diagnostic pharmaceutical products for
the prevention of cancer, viral and immune diseases.

(NOTE B) - Summary of Significant Accounting Policies:

[1] Equipment:

Equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets which
range from five to seven years. Leasehold improvements are amortized over the
lesser of the economic useful life of the improvement or term of the lease
whichever is shorter.

[2] Patent rights and costs:

Purchased patents which were acquired in October 1991 are
stated at cost and are being amortized on the straight-line method over 17
years, the life of the patents, and charged to research and development expense.
Approximately 90% of these costs were allocated to issued patents. The Company
estimates undiscounted future cash flows from future products under development
and royalties which are covered by these patents. An impairment in the amount of
the shortfall would be recognized if those estimated future cash flows were less
than the unamortized costs (Note C).

[3] Research and development:

Research and development costs are charged to expense as
incurred.

[4] Concentration of credit risk:

Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash and cash equivalents
which are at one financial institution.

(continued)

F-7
<PAGE>

CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

NOTES TO FINANCIAL STATEMENTS

(NOTE B) - Summary of Significant Accounting Policies: (continued)

[5] Loss per common share:

Net loss per common share is based on the weighted average
number of common shares outstanding during the period as adjusted for the
reverse stock split referred to in Note G[2]. In accordance with Securities and
Exchange Commission requirements, common shares, options and warrants issued
during the twelve-month period prior to filing of the initial public offering
have been included in the calculation as if they were outstanding for all
periods prior to the offering.

[6] Cash equivalents:

The Company considers all highly liquid short-term investments
purchased with a maturity of three months or less to be cash equivalents.

[7] Stock-based compensation:

In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has elected to continue to account for its
stock-based compensation plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"). Under the provisions of APB No. 25, compensation cost
for stock options is measured as the excess, if any, of the quoted market price
of the Company's common stock at the date of the grant over the amount an
employee must pay to acquire the stock.

[8] Fair value of financial instruments:

The carrying value of cash, accounts payable and accrued
expenses approximates their fair value due to the short period to maturity of
these instruments.

[9] Use of estimates:

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

(continued)

F-8
<PAGE>

CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

NOTES TO FINANCIAL STATEMENTS

(NOTE C) - Agreement With Wadley Technologies, Inc. ("Wadtech"):

On October 10, 1991 the Company entered into an agreement to acquire
certain patent rights, technology and know-how (the "Technology") from Wadtech
for the fixed sum of $1,250,000 and ongoing royalties.

The agreement provides for the payment of royalties of up to 6.25% of
gross selling price of products incorporating the Technology and up to 50% of
all compensation received by the Company for sales by sublicensees of any
products covered by the Technology, which will be applied to reducing the fixed
sum of $1,250,000, until the fixed sum is paid. Thereafter the agreement
provides for the payment of royalties of up to 3.75% of gross selling price of
products incorporating the Technology and up to 50% of all compensation received
by the Company for sales by sublicensees of any products covered by the
Technology. The agreement also provides for minimum royalty payments of $31,250,
$62,500 and $125,000 during each twelve-month period beginning October 1, 1996,
1997 and 1998, respectively. Thereafter, during each twelve-month period
beginning October 1, 1999 the agreement provides for minimum royalty payments of
$125,000. As of December 31, 1996 the Company has not made any payments under
the agreement.

The Company granted Wadtech a security interest in the Technology until
the fixed sum is paid. The agreement continues for 99 years from October 10,
1991 and the Company has the option to terminate the agreement without cause on
three months notice to Wadtech.

(NOTE D) - Collaboration Agreements:

[1] Agreements with Research and Development Institute, Inc.
("RDI"):

During June 1993 the Company entered into a research and
license agreement with RDI of Montana State University pursuant to which the
Company finances and RDI conducts research and development at Montana State
University in the field of taxol producing organisms. In connection with the
agreement, RDI has granted the Company an exclusive license and licensing rights
to its patents and know-how throughout the world to develop and market products
relating to the technology for a payment of $150,000.

(continued)

F-9
<PAGE>

CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

NOTES TO FINANCIAL STATEMENTS

(NOTE D) - Collaboration Agreements: (continued)

[1] Agreements with Research and Development Institute, Inc.
("RDI"): (continued)

The Company has agreed to finance research to be conducted
under the agreement and is obligated to pay RDI an aggregate fixed fee of
$250,000 per annum for four years commencing in 1993. In addition, the Company
has agreed to pay RDI royalties of up to 6% of net sales of products derived
under the agreement with minimum royalty payments as follows: $25,000 in June
1994, $50,000 in June 1995, $75,000 in June 1996 and $100,000 in June 1997 and
thereafter. The Company has the option to extend the research under mutually
agreeable terms. In connection with the agreement, the Company issued an option
to RDI to purchase 20,000 shares of the Company's common stock at $2.50 per
share. The Company valued these options at approximately $13,000 which was
charged to research and development.

[2] Agreements with Pestka Biomedical Laboratories, Inc.
("Pestka"):

In September 1992 the Company formed a corporate joint venture
with Pestka for the purpose of developing, manufacturing and marketing a
therapeutic drug for blood related cancers such as leukemia and lymphomas. The
agreement provides for the Company to contribute $233,000, which was paid during
1992, and certain technology and for Pestka to grant the joint venture an
exclusive, worldwide license to certain patents and proprietary rights. The
stockholders of Pestka purchased 20,000 shares of the Company's common stock for
a price of $1.65 per share. The corporate stockholders have no further
obligations to fund the joint venture. The investment in the joint venture is
accounted for on the equity method. The equity in loss of joint venture,
included in research and development costs, was approximately $23,000 for each
of the years ended December 31, 1995 and December 31, 1996.

Under a related agreement, Pestka agreed to perform certain
research and development, as defined, for the joint venture, for $233,000.

(continued)

F-10
<PAGE>
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

NOTES TO FINANCIAL STATEMENTS

(NOTE D) - Collaboration Agreements: (continued)

[3] Agreements With Enzon, Inc. ("Enzon"):

In March and July 1992, the Company entered into agreements
with Enzon to jointly fund, research, develop, test and market anti-cancer
drugs. Terms of the agreements provide for the Company (i) to undertake research
and development using certain technology owned and developed by Enzon; and (ii)
to grant Enzon an exclusive, worldwide license to certain technology owned and
royalties and/or allocation of profits and losses from the sale of the products.
The agreements terminate on a product-by-product basis 15 years from the first
approval to market each such product.

In 1992 Enzon paid the Company $50,000; such payment was
recorded as a reduction of research and development costs.

(NOTE E) - Equipment:

Equipment at December 31, 1996 is summarized as follows:

Office equipment. . . . . . . . . . . . $ 36,000
Furniture and fixtures. . . . . . . . . 16,000
Computers and laboratory equipment. . . 224,000
Leasehold improvements. . . . . . . . . 8,000
--------
T o t a l . . . . . . . . . . 284,000

Less accumulated depreciation and
amortization . . . . . . . . . . . . 180,000
--------
Net . . . . . . . . . . . . . $104,000
========

(NOTE F) - Accounts Payable and Accrued Expenses:

Accounts payable and accrued expenses at December 31, 1996 consists of
the following:

Professional fees. . . . . . . . . . . $ 35,000
Equipment. . . . . . . . . . . . . . . 10,000
Payroll and related expenses . . . . . 145,000
Licensors and contractors. . . . . . . 89,000
Occupancy costs. . . . . . . . . . . . 11,000
Others . . . . . . . . . . . . . . . . 29,000
--------
$319,000
========
(continued)

F-11
<PAGE>

CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

NOTES TO FINANCIAL STATEMENTS

(NOTE G) - Stockholders' Equity:

[1] Public offering:

In November 1995, the Company effected an initial public
offering of its securities. A total of 2,300,000 units, each comprised of one
share of common stock, one redeemable Class C warrant and one redeemable Class D
warrant were sold for $5.00 a unit, yielding net proceeds of approximately
$9,365,000 after underwriting commissions and other expenses of the offering.

[2] Stock split:

In August 1995 the Company effected a reverse stock split of
one share of common stock for 2.5 shares of common stock held and an identical
reverse split for the preferred stock. The accompanying financial statements
have been adjusted to give retroactive effect to the reverse stock split.

[3] Preferred stock:

On January 6, 1992 the Board of Directors designated 4,000,000
shares of preferred stock as Series A convertible preferred stock. The holders
of Series A preferred stock are entitled to (i) convert on a one-for-one basis
to common stock subject to adjustment, as defined, (ii) voting rights equivalent
to voting rights of common stockholders, (iii) receive dividends equal to $.25
per share payable on or about January 15 each year in cash or newly-issued
shares of Series A preferred or a combination thereof (iv) liquidation
preferences of $2.50 per preferred share and (v) certain demand and piggyback
registration rights with respect to the common shares issuable upon conversion.

The Company, at its option has the right to redeem all or any
portion of the Series A convertible preferred stock at $2.50 per share plus
accrued and unpaid dividends.

[4] Warrants:

At December 31, 1996 shares of common stock were reserved for
issuance upon exercise of warrants as follows:

Warrant Exercise Expiration Number of
Type Price Date Shares Reserved
------- -------- ------------ ----------------

Class A $3.75 November 2000 200,000
Class B $4.375 November 2000 407,500
Class C $6.50 November 2000 4,600,000
Class D $8.75 November 2000 2,300,000

(continued)

F-12

<PAGE>

CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

NOTES TO FINANCIAL STATEMENTS

(NOTE G) - Stockholders' Equity:

[4] Warrants: (continued)

The Class A and Class B warrants were issued in connection
with two bridge financings completed in August 1994, and April 1995 where the
Company issued an aggregate of $3,037,500 in notes bearing interest at 9% per
annum (effective rate 18% to 24%) which were repaid in 1995, including $400,000
of these notes which were past due, from the net proceeds of the initial public
offering.

Effective November 1996, the Class C and Class D warrants are
subject to redemption at $.05 per warrant on 30 days prior written notice
provided the average of the closing bid prices of the common stock for any
period of 30 consecutive business days ending within 15 business days of the
date on which the notice of redemption is given shall have exceeded $9.10 per
share for redemption of the Class C warrants and $12.25 per share for redemption
of the Class D warrants.

Each Class C warrant entitles the holder to purchase a unit
consisting of one share of common stock and one redeemable Class D detachable
warrant. Each Class D warrant entitles the holder to purchase one share of
common stock.

[5] Stock options:

During 1992 the Board of Directors and the stockholders of the
Company approved a Stock Option Plan (the "1992 Plan") which provides for the
granting of options to purchase up to 520,000 shares of common stock, pursuant
to which officers, directors, key employees and the Company's Scientific
Advisory Board are eligible to receive incentive and/or nonstatutory stock
options.

During 1996 the Board of Directors and the stockholders of the
Company approved the 1996 Stock Option Plan (the "1996 Plan") which provides for
the granting of incentive and nonstatutory options for up to 750,000 shares of
common stock to officers, employees, directors and consultants of the Company.

Options granted under the 1992 plan and the 1996 plan are
exercisable for a period of up to 10 years from date of grant at an exercise
price which is not less than the fair value on date of grant, except that the
exercise period of options granted to a stockholder owning more than 10% of the
outstanding capital stock may not exceed five years and their exercise price may
not be less than 110% of the fair value of the common stock at date of grant.
Options generally vest 40% after six months of employment and thereafter 20%
annually on anniversary date of grant.

(continued)

F-13
<PAGE>
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

NOTES TO FINANCIAL STATEMENTS

(NOTE G) - Stockholders' Equity: (continued)

[5] Stock options: (continued)

Stock option activity under the 1992 plan and the 1996 plan is
summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1995 1996
---------------------------- ----------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year 502,000 $1.76 440,000 $2.01
Granted. . . . . . . . . . . . . . . . . 42,000 $4.53 335,000 $3.47
Exercised. . . . . . . . . . . . . . . . (80,000) $1.825
Cancelled. . . . . . . . . . . . . . . . (24,000) $1.80 (21,500) $1.81
-------- --------
Options outstanding at end of year . . . 440,000 $2.01 753,500 $2.67
======== ========
Options exercisable at end of year . . . 350,000 $1.73 475,500 $2.28
======== ========
</TABLE>
The following table presents information relating to stock
options outstanding at December 31, 1996.

<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
-------------------------------------------- -----------------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Range of Exercise Life in Exercise
Exercise Price Shares Price Years Shares Price
- -------------- -------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
$1.65 - $2.50 468,000 $1.81 6.91 363,200 $1.69
$3.25 - $4.125 258,500 $3.98 9.21 96,100 $4.08
$4.375 - $5.00 27,000 $4.86 8.54 16,200 $4.86
-------- ----- -------
753,500 7.76 475,500
======== ===== =======
</TABLE>

As of December 31, 1996, 21,500 options are available for
future grant under the 1992 Plan and 415,000 options are available under the
1996 Plan.

(continued)

F-14
<PAGE>

CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

NOTES TO FINANCIAL STATEMENTS

(NOTE G) - Stockholders' Equity: (continued)

[5] Stock options: (continued)

The weighted-average fair value at date of grant for options
granted during 1995 and 1996 was $1.67 and $2.16 per option, respectively. The
fair value of options at date of grant was estimated using the Black-Scholes
option pricing model utilizing the following assumptions:

1995 1996
---------- --------

Risk-free interest rates. . . . . 6% to 7.1% 6.3% to 6.8%
Expected option life in years . . 10 10
Expected stock price volatility . 38% 33% - 53%
Expected dividend yield . . . . . 0% 0%

Had the Company elected to recognize compensation cost based
on the fair value of the options at the date of grant as prescribed by SFAS No.
123, net (loss) in 1995 and 1996 would have been ($2,706,000) and ($3,185,000)
or ($0.53) per share and ($0.46) per share, respectively.

[6] Other options and warrants:

In connection with its private offerings to sell preferred and
common stock, during the year ended December 31, 1992, the placement agent has
an option to purchase 10 units; each unit consists of 10,000 shares of preferred
stock and 20,000 shares of common stock. The option is exercisable through
February 21, 1997 at a price of $50,000 per unit (Note K[2]).

In connection with its bridge financings, the placement agent
received options to purchase 506,250 warrants at $.10 per warrant. These
warrants are exercisable into an aggregate of 202,500 shares of common stock
through November 2000 at a price of $3.75 per share.

In connection with its initial public offering the Company
sold to the underwriter, at a nominal amount, a unit purchase option to purchase
up to an aggregate of 200,000 additional units at $8.25. The units purchasable
upon exercise of the unit purchase option are identical to the units offered in
the initial public offering except that the warrants included therein are not
subject to redemption by the Company. These units become exercisable November
1998 for a two year period.

(continued)

F-15
<PAGE>
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

NOTES TO FINANCIAL STATEMENTS

(NOTE G) - Stockholders' Equity: (continued)

[6] Other options and warrants: (continued)

In February and August 1996, the Company granted options to
purchase 100,000 and 20,000 shares of common stock at $4.25 and $3.25 per share,
respectively, as compensation for professional services. The Company determined
the fair value of these options to be approximately $130,000 which was charged
to operations.

In July 1996 the Company granted a licensor (Note I[4])
warrants to purchase 36,000 shares of common stock at $4.25 per share. An
aggregate of 12,000 warrants per annum are exercisable commencing July 1999 and
expire July 2002. The Company determined the fair value of these warrants to be
approximately $42,000 which was charged to research and development.

(NOTE H) - Related Party Transaction:

In connection with certain of the private placements during 1995,
Janssen-Meyers Associates, L.P. ("JMA"), an affiliate of a former officer, acted
as placement agent and received $118,000, as compensation.

Effective December 1996, the Company entered into a one year agreement
with JMA whereby the Company will receive financial and investment banking
services for a consulting fee of $5,000 per month plus commissions, as defined.

(NOTE I) - Income Taxes:

At December 31, 1996, the Company had approximately $11,200,000 of net
operating loss carryforwards for federal income tax purposes which expire
through 2011.

At December 31, 1996 the Company has a deferred tax asset of
approximately $3,900,000 representing the benefits of its net operating loss
carryforward and certain expenses not currently deductible. The Company's
deferred tax asset has been fully reserved by a valuation allowance since
realization of its benefit is uncertain. The difference between the statutory
tax rate of 34% and the Company's effective tax rate of 0% is substantially due
to the increase in the valuation allowance of $1,000,000 (1995) and $1,000,000
(1996). The Company's ability to utilize its net operating loss carryforwards
may be subject to an annual limitation in future periods pursuant to Section 382
of the Internal Revenue Code of 1986, as amended.

(continued)

F-16
<PAGE>
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

NOTES TO FINANCIAL STATEMENTS

(NOTE J) - Commitments and Other Matters: (continued)

[1] Leases:

The Company is obligated to pay $119,000 for office and laboratory
space under leases expiring through December 31, 1997.

Rent expense was approximately $115,000 and $123,000 for the years
ended December 31, 1995 and 1996, respectively.

[2] Employment agreements:

The Company has employment agreements with two officers which
provide for annual base salaries of $165,000 and $75,000, (subject to annual
increases of not less than 5% per year and bonuses at the discretion of the
Board of Directors) for a period of five years and three years, respectively,
commencing November 1995.

[3] Contract research:

The Company had contracted with an institution to conduct research
through May 31, 1996 at a cost of approximately $150,000. In April 1996 this
agreement was extended to May 31, 1998 providing for additional funding of
$90,000 (aggregate $240,000). As of December 31, 1996 the Company has incurred
approximately $137,000 of such costs.

[4] Consulting agreement:

During 1996 the Company entered into an agreement with a
consulting firm whereby the Company has agreed to pay a fee of $3,000 per month
and to grant warrants to purchase 75,000 shares of common stock at $4.25 per
share in return for financial advisory services. The warrants become exercisable
in the event a transaction introduced to the Company by the consulting firm is
consummated, at which time the Company will record a noncash charge representing
the fair value of the warrants.

[5] Other:

In February 1996, the Company entered into two license agreements
("Agreements") with the Regents of the University of California, granting to the
Company exclusive rights to certain technology and patent rights. Pursuant to
the Agreements, the Company paid license fees of $10,000 and has agreed to pay
$10,000 upon issuance of each patent. In addition, the Company must pay a yearly
license maintenance fee on both licenses until the Company is commercially
selling a product based on the technology derived from these License Agreements,
at which time a royalty based on net sales will be due.

(continued)

F-17
<PAGE>
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)

NOTES TO FINANCIAL STATEMENTS

(NOTE J) - Commitments and Other Matters: (continued)

[5] Other: (continued)

In July 1996, the Company entered into an agreement with
Washington State University Research Foundation ("WSURF") whereby the Company
received an exclusive, world-wide license to use and/or sublicense patented
technology or prospective patented technology (the "WSURF Technology"). The
Company is required to pay WSURF license fees of $7,500 per year commencing on
July 1, 1997 as well as certain royalties and sublicensing fees. This Agreement
shall be in full force and effect until the last to expire of the patents
licensed under the WSURF Technology, subject to termination by either party as
defined. In conjunction with this agreement the Company granted WSURF 36,000
warrants (Note G[6]).

(NOTE K) - Subsequent Events:

[1] Preferred stock dividend:

During January 1997, the Board of Directors declared a 10%
dividend on Series A preferred stock.

[2] Placement agent unit option exercise:

On February 21, 1997, the Company received aggregate proceeds of
$500,000 from the exercise of 10 unit purchase options, and issued 50,000
preferred shares and 250,000 common shares.

F-18

<PAGE>

No dealer, sales representative or any other person has been authorized to give
any information or to make any representations in connection with this Offering
other than those contained in this Prospectus and, if given or made, such other
information and representations must not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company or that the information
contained herein is correct as of any time subsequent to the date hereof. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the registered securities to which it relates.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful.

TABLE OF CONTENTS

Page
----
Prospectus Summary....................................3
Risk Factors..........................................8
Dilution.............................................17
Dividend Policy......................................19
Use of Proceeds......................................19
Capitalization.......................................20
Selected Financial Data..............................21
Plan of Operation....................................22
Business.............................................24
Management...........................................38
Certain Transactions.................................45
Principal Stockholders...............................46
Description of Securities............................48
Bridge Financings....................................53
Shares Eligible for Future Sale......................53
Plan of Distribution.................................54
Legal Matters........................................54
Experts..............................................55
Additional Information...............................55
Index to Financial Statements........................56

CYTOCLONAL PHARMACEUTICS INC.

Consisting of
6,900,000 Shares of Common Stock,
and 2,300,000 Redeemable Class D Warrants

P R O S P E C T U S

April , 1997

[ALTERNATE LANGUAGE FOR MARKET MAKING PROSPECTUS]

<PAGE>

PRELIMINARY PROSPECTUS DATED APRIL 25, 1997
SUBJECT TO COMPLETION

CYTOCLONAL PHARMACEUTICS INC.

Shares of Common Stock and
Redeemable Common Stock Purchase Warrants

----------

This Prospectus will be used by Janssen-Meyers Associates, L.P.
("JMA") in connection with offers and sales in market making transactions in the
common stock, par value $.01 per share ("Common Stock") and Redeemable Common
Stock Purchase Warrants ("Warrants") of Cytoclonal Pharmaceutics Inc. (the
"Company"). JMA may act as a principal or agent in such transactions. The Common
Stock and Warrants may be offered in negotiated transactions or otherwise. Sales
will be made at prices related to prevailing market prices at the time of sale.

----------

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE
LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is April , 1997.

<PAGE>

[ALTERNATE LANGUAGE FOR MARKET MAKING PROSPECTUS]

PLAN OF DISTRIBUTION

All offers and sales of Common Stock and Redeemable Common Stock
Purchase Warrants of the Company pursuant to this Prospectus will be for the
account of Janssen-Meyers Associates, L.P. ("JMA")in connection with market
making transactions. The stockholders, officers and directors of the corporate
general partner of JMA beneficially own in the aggregate of 19.9% of the
outstanding shares of Common Stock (which represents approximately 18.0% of the
voting securities of the Company) as of April 14, 1997. JMA may act as a
principal or agent in such transactions. The Common Stock and Redeemable Common
Stock Purchase Warrants may be offered in negotiated transactions or otherwise.
Sales will be made at prices related to prevailing market prices at the time of
sale.

<PAGE>

[ALTERNATE LANGUAGE FOR MARKET MAKING PROSPECTUS]

No dealer, sales representative or any other person has been authorized to give
any information or to make any representations in connection with this Offering
other than those contained in this Prospectus and, if given or made, such other
information and representations must not be relied upon as having been
authorized by the Company or Janssen-Meyers Associates, L.P. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company or that the information contained herein is correct as of
any time subsequent to the date hereof. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities other than the
registered securities to which it relates. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful.

TABLE OF CONTENTS

Page
----
Prospectus Summary............................................................3
Risk Factors..................................................................8
Dilution.....................................................................17
Dividend Policy..............................................................19
Use of Proceeds..............................................................19
Capitalization...............................................................20
Selected Financial Data......................................................21
Plan of Operation............................................................22
Business.....................................................................24
Management...................................................................38
Certain Transactions.........................................................45
Principal Stockholders.......................................................46
Description of Securities....................................................48
Bridge Financings............................................................53
Shares Eligible for Future Sale..............................................53
Plan of Distribution.........................................................54
Legal Matters................................................................54
Experts......................................................................55
Additional Information.......................................................55
Index to Financial Statements................................................56

CYTOCLONAL PHARMACEUTICS INC.

Shares of Common Stock
and
Redeemable Stock Purchase Warrants

P R O S P E C T U S

JANSSEN-MEYERS ASSOCIATES, L.P.

April , 1997
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers

The Certificate of Incorporation and By-Laws of the Registrant
provides that the Company shall indemnify any person to the full extent
permitted by the Delaware General Corporation Law (the "GCL"). Section 145 of
the GCL, relating to indemnification, is hereby incorporated herein by
reference.

Insofar as indemnification for liabilities under the Securities Act
may be permitted to Directors, officers or controlling persons of the Company
pursuant to the Company's By-laws and the Delaware General Corporation Law, the
Company has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.

The Company's Certificate of Incorporation includes certain provisions
permitted pursuant to Delaware law whereby officers and Directors of the Company
are to be indemnified against certain liabilities. The Company's Restated
Certificate of Incorporation also limits, to the fullest extent permitted by
Delaware law, a director's liability for monetary damages for breach of
fiduciary duty, including gross negligence, except liability for (i) breach of
the director's duty of loyalty, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
the unlawful payment of a dividend or unlawful stock purchase or redemption and
(iv) any transaction from which the director derives an improper personal
benefit. Delaware law does not eliminate a director's duty of care and this
provision has no effect on the availability of equitable remedies such as
injunction or rescission based upon a director's breach of the duty of care. In
addition, the Company has obtained an insurance policy providing coverage for
certain liabilities of its officers and Directors.

In accordance with Section 102(a)(7) of the GCL, the Certificate of
Incorporation of the Registrant eliminates the personal liability of directors
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director with certain limited exceptions set forth in Section
102(a)(7).

Item 25. Other Expenses of Issuance and Distribution

The estimated expenses payable by the Registrant in connection with
the issuance and distribution of the securities being registered are as follows:

Amount
------
Printing Expenses.................................. $ 10,000
Accounting Fees and Expenses....................... 12,500
Legal Fees and Expenses............................ 60,000
Miscellaneous Expenses............................. 2,500
-----
Total. . . . . . . . .............................. $ 85,000
==========

II-1

<PAGE>

Item 26. Recent Sales of Unregistered Securities

In the three years preceding the filing of this Registration Statement,
the Company has issued the following unregistered securities.

In August 1994, the Company sold 40 units consisting of (i) an
aggregate of $1,000,000 in principal amount of 9% Subordinated Notes (the "1994
Notes") and (ii) warrants to purchase an aggregate of 200,000 shares of Common
Stock exercisable at $3.75 per share to for a purchase price of $25,000 per unit
to 33 accredited investors (the "1994 Bridge Financing"). At the same time, the
Company issued an option to acquire warrants to purchase 66,667 shares of the
Company's stock exercisable at $3.75 per share to the placement agent for the
1994 Bridge Financing as partial consideration for its services. The Company
repaid the 1994 Notes, including amounts past due, from the net proceeds from
the Company's November 1995 initial public offering. Such sale and issuance were
pursuant to the exemption afforded by Regulation D promulgated under the
Securities Act based on the fact that all of the investors were "accredited
investors" as defined in Regulation D promulgated under the Securities Act of
1933, as amended (the "Securities Act").

In January 1995, the Company issued 115,350 shares of Series A
Preferred Stock as full payment of the dividend due on the Series A Preferred
Stock for the year ended December 31, 1994 to the 134 holders of such preferred
stock. Such issuance was pursuant to Section 3(a)(9) promulgated under the
Securities Act based on the fact that it involved an exchange by the issuer
exclusively with its existing security-holders and no commission or other
remuneration was paid or given directly or indirectly for soliciting such
exchange.

In April 1995, the Company sold 40 units consisting of (i) an aggregate
of $2,000,000 in principal amount of 9% Subordinated Notes (the "1995 Notes")
and (ii) warrants to purchase an aggregate of 400,000 shares of Common Stock
exercisable at $4.375 per share to for a purchase price of $50,000 per unit to
44 accredited investors. At the same time, the Company issued an option to
acquire warrants to purchase 133,334 shares of the Company's stock exercisable
at $3.75 per share to the placement agent for the 1994 Bridge Financing as
consideration for such placement agent's agreement to cancel its rights under a
certain merger and acquisition agreement and right of first refusal with respect
to offerings of securities of the Company which the Company granted to such
placement agent as partial consideration for services in connection with the
1994 Bridge Financing. The Company repaid the 1995 Notes, including amounts past
due, from the net proceeds of the Company's November 1995 initial public
offering. Such sale and issuance were pursuant to the exemption afforded by
Regulation D promulgated under the Securities Act based on the fact that all of
the investors were "accredited investors" as defined in Regulation D promulgated
under the Securities Act.

In April 1995, pursuant to the Company 1992 Stock Option Plan (the
"1992 Plan), the Company granted options to purchase 6,000 and 5,000 shares,
respectively, of Common Stock at an exercise price of $3.75 and $5.00 per share,
respectively, to one of its directors. In July 1995, a former director exercised
an option previously granted under the 1992 Plan to acquire 80,000 shares of its
Common Stock. In August 1995, the Company granted options under its 1992 Plan to
purchase 5,000 shares of its Common Stock at an exercise price of $5.00 per
share to each of two of its directors. The options were granted pursuant to the
exemption afforded the Company by Rule 701 of Regulation E promulgated under the
Securities Act based on the fact that the grant was for compensation, authorized
by the Board of Directors and pursuant to a duly approved Stock Option Plan.

In January 1996, the Company issued 122,888 shares of Series A
Preferred Stock as full payment of the dividend due on the Series A Preferred
Stock for the year ended December 31, 1995 to the holders of such preferred
stock. Such issuance was pursuant to Section 3(a)(9) promulgated under the
Securities Act based on the fact that it involved an exchange by the issuer
exclusively with its existing security-holders and no commission or other
remuneration was paid or given directly or indirectly for soliciting such
exchange.

On February 13, 1996, the Company agreed to issue The Olmstead Group,
L.L.C. ("Olmstead") warrants in connection with the Company's retention of
Olmstead as a financial advisor. Such warrants entitle Olmstead to acquire an
aggregate of 75,000 shares of the Company's Common Stock at an exercise price of
$4.25 per share and vest in the

II-2

<PAGE>

event a transaction introduced to the Company by Olmstead is consummated. The
warrants were issued pursuant to the exemption afforded by Section 4(2)
promulgated under the Securities Act based on the fact that the issuance was to
a single entity not involving a public offering.

On February 20, 1996, the Company granted The Wall Street Group, Inc.
("WSG") a five year stock option in connection with the Company's retention of
WSG as its financial public relations advisor. Such option entitles WSG to
acquire an aggregate of 100,000 shares of the Company's Common Stock at an
exercise price of $4.25 per share and is fully vested. The option was granted
pursuant to the exemption afforded by Section 4(2) promulgated under the
Securities Act based on the fact that the grant was to a single entity not
involving a public offering.

On April 2, 1996, and pursuant to the Company's 1996 Stock Option Plan
(the "1996 Plan"), the Company granted a five year incentive stock option to
purchase an aggregate of 50,000 shares of Common Stock to Arthur P. Bollon,
Ph.D., the Company's Chairman, President and Chief Executive Officer, at an
exercise price of $4.125 per share. 40% of the options are exercisable after six
months of continuous employment from the grant date and to the extent of an
additional 20% on and after each of the first three anniversaries of the grant
date. The option was granted pursuant to the exemption afforded the Company by
Rule 701 of Regulation E promulgated under the Securities Act based on the fact
that the grant was for compensation, authorized by the Board of Directors and
pursuant to a duly approved Stock Option Plan.

On April 2, 1996, and pursuant to the 1996 Plan, the Company granted
five year nonqualified stock options to Ira J. Gelb, M.D., Irwin G. Gerson, both
members of the Company's Audit and Compensation Committees, and Walter M.
Lovenburg, M.D., all members of the Company's Board of Directors, to purchase
50,000 shares of Common Stock each at an exercise price of $4.125 per share. 40%
of the options are exercisable after six months of continuous employment from
the grant date and to the extent of an additional 20% on and after each of the
first three anniversaries of the grant date. The options were granted pursuant
to the exemption afforded the Company by Rule 701 of Regulation E promulgated
under the Securities Act based on the fact that the grants were compensation,
authorized by the Board of Directors and pursuant to a duly approved Stock
Option Plan.

On July 8, 1996, the Company issued WSURF a six year warrant in
connection with the execution of the Company's license agreement with WSURF.
Such warrant entitles WSURF to acquire an aggregate of 36,000 shares of the
Company's Common Stock at an exercise price of $4.25 per share. One third of the
warrants may be exercised after each of July 7, 1999, July 7, 2000 and July 2,
2001. The warrant was issued pursuant to the exemption afforded by Section 4(2)
promulgated under the Securities Act based on the fact that the issuance was to
a single entity not involving a public offering.

On August 8, 1996, and pursuant to the 1996 Plan, the Company granted a
five year incentive stock option to purchase an aggregate of 15,000 shares of
Common Stock to Daniel Shusterman, J.D., the Company's Vice President of
Operations, Treasurer and Chief Financial Officer, at an exercise price of $3.25
per share. 40% of the options are exercisable after six months of continuous
employment from the grant date and to the extent of an additional 20% on and
after each of the first three anniversaries of the grant date. The option was
granted pursuant to the exemption afforded the Company by Rule 701 of Regulation
E promulgated under the Securities Act based on the fact that the grant was for
compensation, authorized by the Board of Directors and pursuant to a duly
approved Stock Option Plan.

On August 8, 1996, the Company granted a five year nonqualified stock
option to purchase an aggregate of 20,000 shares of Common Stock to Robert H.
Cohen, Esq., a partner of the Company's counsel, Morrison Cohen Singer &
Weinstein, LLP, for legal services rendered. 40% of the options are exercisable
after six months of continuous employment from the grant date and to the extent
of an additional 20% on and after each of the first three anniversaries of the
grant date. The option was granted pursuant to the exemption afforded the
Company by Section 4(2) promulgated under the Securities Act based on the fact
that the grant was to an individual not involving a public offering.

II-3

<PAGE>

On December 16, 1996 and January 3, 1997, and pursuant to the 1996
Plan, the Company granted five year incentive stock options to purchase an
aggregate of 100,000 and 50,000 shares of Common Stock, respectively, to Arthur
P. Bollon, Ph.D., the Company's Chairman, President and Chief Executive Officer,
at exercise prices of $2.25 and $2.375 per share, respectively. 40% of the
options vested after six months of continuous employment from the grant date and
to the extent of an additional 20% on and after each of the first three
anniversaries of the grant date. The options were granted pursuant to the
exemption afforded the Company by Rule 701 of Regulation E promulgated under the
Securities Act based on the fact that the grant was for compensation, authorized
by the Board of Directors and pursuant to a duly approved Stock Option Plan.

In January 1997, the Company issued 122,788 shares of Series A
Preferred Stock as full payment of the dividend due on the Series A Preferred
Stock for the year ended December 31, 1996 to the holders of such preferred
stock. Such issuance was pursuant to Section 3(a)(9) promulgated under the
Securities Act based on the fact that it involved an exchange by the issuer
exclusively with its existing security-holders and no commission or other
remuneration was paid or given directly or indirectly for soliciting such
exchange.

<TABLE>
<CAPTION>
Item 27. Exhibits

<S> <C>
1.1 Amended Form of Underwriting Agreement between Registrant and the Underwriters (1)
1.2 Agreement Among Underwriters (1)
3.1 Certificate of Incorporation, as amended (1)
3.2 By-laws (1)
4.1 Specimen certificates representing Class C Warrants, Class D Warrants and Common Stock (1)
4.2 Form of Warrant Agreement with warrant certificates between Registrant, the Underwriters and
Warrant Agent (1)
4.3 Form of Unit Purchase Option (1)
4.4 Warrant Certificate issued to the Washington State University Research Foundation (1)
5.1 Opinion of Morrison Cohen Singer & Weinstein, LLP regarding legality of securities offered
10.1 Form of Consulting Agreement between the Registrant and JMA (1)
10.2 Employment Agreement dated March 1, 1992 between the Registrant and Arthur P. Bollon, Ph.D. (1)
10.3 Employment Agreement dated March 1, 1992 between the Registrant and Bruce Meyers, as amended (1)
10.4 Employment Agreement effective November 7, 1995 between the Registrant and Daniel Shusterman (1)
10.5 1992 Stock Option Plan, as amended (1)
10.6 Form of Stock Option Agreement (1)
10.7 Lease Agreement dated September 1, 1993 between the Registrant and Mutual Benefit Life Insurance
Company In Rehabilitation (1)
10.8 Lease Agreement dated October 1, 1991 between the Registrant and J.K. and Susie Wadley Research
Institute and Blood Bank, as amended (1)
10.9 Purchase Agreement dated October 10, 1991 between the Registrant and Wadley Technologies, Inc.
("Wadley") (1)
10.10 Security Agreement dated October 10, 1991 between the Registrant and Wadley (1)
10.11 License Agreement dated March 15, 1989 between the Registrant and Phillips Petroleum Company,
as amended (1)
10.12 License Agreement dated June 10, 1993 between Registrant and Research & Development Institute,
Inc. ("RDI"), as amended, relating to the Fungal Paclitaxel Production System (1)
10.13 Research and Development Agreement effective June 10, 1993 between Registrant and RDI, as
amended (1)
10.14 License Agreement dated February 22, 1995 between Registrant and RDI, as amended, relating to
FTS-2 (1)
</TABLE>

II-4

<PAGE>

<TABLE>
<CAPTION>
<S> <C>
10.15 Research, Development and License Agreement dated March 26, 1992 between Registrant and Enzon,
Inc. ("Enzon"), as amended (1)
10.16 Research, Development and License Agreement dated July 13,
1992 between Registrant and Enzon relating to the Registrant's
tumor necrosis factor technology (1)
10.17 Agreement effective June 30, 1992 between Registrant and University of Texas at Dallas ("UTD"),
as amended (1)
10.18 Research Agreement effective April 8, 1994 between Registrant and Sloan-Kettering Institute for
Cancer Research (1)
10.19 Joint Venture Agreement dated September 17, 1992 between Registrant and Pestka Biomedical
Laboratories, Inc. ("Pestka") (1)
10.20 Stock Purchase Agreement dated September 17, 1992 between Registrant and Pestka (1)
10.21 License Agreement dated September 17, 1992 between Cytomune, Inc. and Pestka (1)
10.22 Research and Development Agreement dated September 17, 1992 between Cytomune, Inc.
and Pestka (1)
10.23 Marketing Agreement dated as of November 1, 1994 between Helm AG and the Registrant (1)
10.24 Extension Agreement with RDI dated June 5, 1995 (1)
10.25 Third Amendment to Lease Agreement dated April 30, 1995 (1)
10.26 Form of Subordinated Note Extension (1)
10.27 Form of Note Extension (1)
10.28 September 25, 1995 RDI Extension (1)
10.29 October 25, 1995 RDI Extension (1)
10.30 Amendment to License Agreement dated June 10, 1993, as amended, and Research and Development
Agreement effective June 10, 1993, as amended, both agreements between the Company and RDI (1)
10.31 License Agreement No. W960206 effective February 27, 1996 between the Company and The
Regents of the University of California (2)
10.32 License Agreement No. W960207 effective February 27, 1996 between the Company and The
Regents of the University of California (2)
10.33 License Agreement with The Washington State University Research Foundation, dated
July 2, 1996 (3)*
10.34 Amendment to Agreement, effective June 30, 1992, as amended, between Registrant and the
University of Texas at Dallas (3)
10.35 1996 Stock Option Plan (4)
10.36 Patent License Agreement between the Registrant and The University of Texas System (1)
11 Statement re: Computation of per share earnings (5)
24.1 Consent of Morrison Cohen Singer & Weinstein, LLP (included in its opinion filed as Exhibit 5.1
hereto)
24.2 Consent of Warren & Perez
24.3 Consent of Richard A. Eisner & Company, LLP
25.1 Power of Attorney (1)
- ----------
* This exhibit is subject to a confidential treatment request pursuant to
Rule 24b-2 promulgated under the Exchange Act.
(1) Filed as an exhibit to the Company's Registration Statement on Form SB-2 (File No. 33-91802) and is
incorporated by reference herein.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995
and is incorporated by reference herein.
(3) Filed as an exhibit to the Company's Post-Effective Amendment No.1 to its Registration Statement on Form SB-2
(File No. 33-91802) and is incorporated by reference herein.
(4) Filed as an exhibit to the Company's Registration Statement on Form S-8 (File No. 333-11691) and is incorporated
by reference herein.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996
and is incorporated by reference herein.
</TABLE>

II-5

<PAGE>

Item 28. Undertakings

Undertakings Required by Regulation S-B, Item 512(a).

The undersigned registrant hereby undertakes to:

(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act;

(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement; and

(iii) Include any additional or changed material
information on the plan of distribution.

(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.

(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.

Undertaking Required by Regulation S-B, Item 512(e).

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or controlling persons of
the registrant pursuant to any arrangement, provision or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-6

<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Post-Effective Amendment No. 2 to the Registrant's Registration Statement on
Form SB-2 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas on April 24, 1997.

CYTOCLONAL PHARMACEUTICS INC.

By: /s/ Arthur P. Bollon
---------------------------------------------
Arthur P. Bollon, Ph.D., Chairman, President
and Chief Executive Officer

In accordance with the requirements of the Securities Act of 1933, as
amended, this Post-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form SB-2 has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----

<S> <C> <C>
/s/ Arthur P. Bollon Chairman, President, Chief April 24, 1997
- ------------------------------- Executive Officer and Director
Arthur P. Bollon, Ph.D. (principal executive officer)

* Vice President Operations, April 24, 1997
- ------------------------------- Treasurer and Chief Financial
Daniel Shusterman, J.D. Officer (principal financial
and accounting officer)

* Director April 24, 1997
- -------------------------------
Ira Gelb, M.D.

* Director April 24, 1997
- -------------------------------
Irwin C. Gerson

* Director April 24, 1997
- -------------------------------
Walter M. Lovenberg, Ph.D.

* By /s/ Arthur P. Bollon
- -------------------------------
Attorney-in-Fact

</TABLE>

II-7

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
5.1 Opinion of Morrison Cohen Singer & Weinstein, LLP regarding legality of securities offered

24.1 Consent of Morrison Cohen Singer & Weinstein, LLP
(included in its opinion filed as Exhibit 5.1 hereto)

24.2 Consent of Warren & Perez

24.3 Consent of Richard A. Eisner & Company, LLP
</TABLE>

II-8

<PAGE>

EXHIBIT 5.1

April 24, 1997

Cytoclonal Pharmaceutics Inc.
9000 Harry Hines Boulevard
Suite 330
Dallas, Texas 11040

Re: Post-Effective Amendment No. 2 to Registration Statement on Form SB-2

Dear Sirs:

We refer to Post-Effective Amendment No. 2 to the Registration Statement
on Form SB-2 (the "Registration Statement") filed by you with the Securities and
Exchange Commission relating to 6,900,000 shares of Common Stock, $.01 par value
per share, underlying Redeemable Class C Warrants and Redeemable Class D
Warrants and 2,300,000 Class D Warrants of Cytoclonal Pharmaceutics Inc., a
Delaware corporation (the "Company"). The Class C Warrants and Class D Warrants
are hereinafter referred to collectively as the "Warrants" and the shares of
Common Stock issuable upon exercise of the Warrants are hereinafter referred to
as the "Warrant Shares."

We have examined and are familiar with originals, or copies certified or
otherwise identified to our satisfaction, of such corporate records of the
Company, certificates of officers of the Company and of public officials and
such other documents as we have deemed appropriate as a basis for the opinions
expressed below.

Based upon the foregoing, we are of the opinion that:

1. The Warrants have been duly and validly authorized and when sold, paid
for and issued as contemplated by the Registration Statement will be duly and
validly issued and fully paid and nonassessable.

2. The Warrant Shares have been duly and validly authorized and when sold,
paid for, and issued upon exercise of the Warrants in accordance with the terms
of the Warrants will be duly and validly issued and fully paid and
nonassessable.

We hereby consent to the use of this opinion in the above-mentioned
Registration Statement and to the reference to our name under the heading "Legal
Matters" in the Prospectus constituting a part of such Registration Statement.

Very truly yours,

/s/ Morrison Cohen Singer & Weinstein, LLP
------------------------------------------
MORRISON COHEN SINGER & WEINSTEIN, LLP

II-9

<PAGE>

EXHIBIT 24.3

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this Post-Effective Amendment No. 2 to
the Registration Statement on Form SB-2 of our report dated February 7, 1997
(with respect to Note K[2], February 21, 1997) on our audits of the financial
statements of Cytoclonal Pharmaceutics Inc. We also consent to the reference of
our firm under the captions "Experts" and "Selected Financial Data" in the
Prospectus.

/s/ Richard A. Eisner & Company, LLP

New York, NY
April 21, 1997

<PAGE>

EXHIBIT 24.2

CONSENT OF COUNSEL

The undersigned hereby consents to the use of our name, and the
statement with respect to us appearing under the heading "Legal Matters"
included in Post-Effective Amendment No. 2 to the Registration Statement.

WARREN & PEREZ

Dated: April 15, 1997