CYTOCLONAL PHARMACEUTICS INC /DE, POS AM, 1999-07-22

CYTOCLONAL PHARMACEUTICS INC /DE
POS AM, 1999-07-22
PHARMACEUTICAL PREPARATIONS

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As filed with the Securities and Exchange Commission on July 22, 1999 Registration No. 33-91802
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

POST-EFFECTIVE AMENDMENT NO. 6
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

CYTOCLONAL PHARMACEUTICS INC.
(Name of Small Business Issuer in its Charter)

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DELAWARE 2834 75-2402409
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification number)
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9000 HARRY HINES BOULEVARD
SUITE 621
DALLAS, TEXAS 75235
(214) 353-2922
(Address and Telephone Number of Principal Executive Offices)

9000 HARRY HINES BOULEVARD
SUITE 621
DALLAS, TEXAS 75235
(Address of Principal Place of Business or
Intended Principal Place of Business)

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ARTHUR P. BOLLON, PH.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CYTOCLONAL PHARMACEUTICS INC.
9000 HARRY HINES BOULEVARD
SUITE 621
DALLAS, TEXAS 75235
(214) 353-2922
(Name, Address and Telephone Number of Agent for Service)

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

Copies to:

ROBERT H. COHEN, ESQ.
PHILIP MAGRI, 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 this form is a post-effective amendment filed pursuant to Rule
462(d) 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. [ ]

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

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.

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EXPLANATORY NOTE

This registration statement contains two forms of prospectus relating
to our initial public offering of units in November 1995:

(i) one for use by us in connection with our offering of:

(a) shares of common stock and class D warrants that an
investor receives when he exercises his class C
warrants for $6.50 per share, subject to adjustment;
and

(b) shares of common stock that an investor receives
when he exercises his class D warrants for $8.75 per
share, subject to adjustment

(ii) the other for use by the underwriter of our initial
public offering, Janssen-Meyers Associates, L.P., in
market-making transactions.

The prospectus and the market-making prospectus are identical except
for the following:

(i) the outside front cover page;

(ii) page 59, which will contain different language for the
"Plan of Distribution" section; and

(iii) the outside back cover page.

Different language for the market-making prospectus is labeled
"Alternate Language for Market-Making Prospectus."

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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.

Subject to completion, dated July 22, 1999

Cytoclonal Pharmaceutics Inc.

6,523,073 shares of common stock
2,006,073 class D warrants

This prospectus relates to our 6,523,073 shares of common stock, par
value $.01 per share, and 2,006,073 class D warrants which were included in the
units we sold in our initial public offering in November 1995. Each unit
consisted of one share of common stock, one class C warrant to purchase one
share of common stock and one class D warrant for $6.50, subject to
anti-dilution adjustment, until November 2, 2000, and one class D warrant to
purchase one share of common stock for $8.75, subject to anti-dilution
adjustment, until November 2, 2000. We have the right to redeem the class C
warrants and class D warrants on at least 30 days' prior written notice, at a
price of $.05 per warrant, if the average closing bid price of our common stock
as reported on the Nasdaq SmallCap Market System for any 30 consecutive
business day period ending within 15 business days of the date on which we give
notice of redemption, exceeds $9.10 for the class C warrants and $12.25 for the
class D warrants.

Three classes of our securities are currently quoted on the Nasdaq
SmallCap Market System. Our common stock is quoted under the symbol, "CYPH."
Our class C warrants are quoted under the symbol, "CYPHW." Our class D warrants
are quoted under the symbol, "CYPHZ." There can be no assurance that an active
trading market in the securities will be sustained.

See "Risk Factors" beginning on page 6 of this prospectus and
"Dilution."

Neither the Securities And Exchange Commission nor any state
securities commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of this prospectus. any representation to the
contrary is a criminal offense.

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The date of this Prospectus is July ___, 1999.

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TABLE OF CONTENTS

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Page

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Prospectus Summary ..............................................................................................3
Risk Factors ....................................................................................................6
Market for Equity and Related Stockholder Matters ..............................................................15
Dividend Policy ................................................................................................15
Dilution .......................................................................................................16
Use of Proceeds ................................................................................................17
Capitalization .................................................................................................18
Selected Financial Data ........................................................................................19
Management's Discussion and Analysis of Financial Condition and Results of Operations ..........................20
Business .......................................................................................................22
Management .....................................................................................................37
Security Ownership of Certain Beneficial Owners and Management .................................................45
Certain Relationships and Related Transactions .................................................................48
Description of Securities ......................................................................................48
Shares Eligible for Future Sale ................................................................................53
Plan of Distribution ...........................................................................................54
Legal Matters ..................................................................................................54
Experts ........................................................................................................54
Additional Information .........................................................................................55
Index to Financial Statements .................................................................................F-1
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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that
you should consider before investing in the securities. You should read the
entire prospectus carefully. Unless we otherwise say so, when we discuss our
outstanding securities, we exclude all of our shares of common stock issuable
upon the exercise of currently outstanding warrants and options and the
conversion of our convertible securities.

We are a biopharmaceutical company located in Dallas, Texas. Our goal
is to develop products to identify, treat and prevent cancer and other
diseases. To date, our strategy has been to license technologies in their early
development stages from research and educational institutions and further
develop such technologies to the point where we can then sublicense them to
commercial entities. Through our research and development efforts and
agreements with other research institutions and biotechnology companies, we
have acquired and developed rights to certain proprietary technology.

At the present time, we are focusing our attention and resources on a
collaboration agreement we have with Bristol-Myers Squibb Company, Inc. for the
production of Paclitaxel. Paclitaxel is a drug which has proven to be effective
in treating refractory ovarian, breast and non-small cell lung cancer and
Kaposi's Sarcoma. In addition, Paclitaxel has shown potential in treating other
cancer indications in preliminary clinical trials. Presently, however,
Paclitaxel is made from the inner bark and needles of the slow-growing Pacific
yew tree. Our scientists are working in cooperation with Bristol-Myers Squibb
to develop a system for manufacturing Paclitaxel in commercial quantities and
at lower costs. Other areas of focus include the development of the Paclitaxel
treatment of polycystic kidney disease, a drug design program using Quantum
Core TechnologyTM, a peptide to suppress breast cancer, and our Human Gene
Discovery Program. Other programs, which involve potential anti-leukemia drugs
and drugs called "anti-sense therapeutics," are being pursued at modest levels.
"Anti-sense therapeutics" are drugs designed to essentially "turn off" genes
involved in different diseases and to prevent such genes from growing or
duplicating. Such therapeutics may help us develop future products or
alternatives to our main programs if unforeseen problems develop.

ORGANIZATIONAL HISTORY

We were originally incorporated in the state of Texas in September
1991 under the name of Bio Pharmaceutics, Inc. In November 1991, we changed our
name to Cytoclonal Pharmaceutics Inc. We were then reincorporated in the state
of Delaware by merger into a wholly-owned Delaware subsidiary in January 1992.
Our executive offices are located at 9000 Harry Hines Boulevard, Suite 621,
Dallas, Texas 75235 and our telephone number is (214) 353-2922.

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THE OFFERING

We are using this prospectus to offer common stock and class D
warrants underlying units we sold in our initial public offering in November
1995. Each unit consisted of one share of our common stock, one class C warrant
and one class D warrant. Each class C warrant is exercisable until November 2,
2000 for one share of common stock and one class D warrant for $6.50, subject
to adjustment in certain circumstances. Each class D warrant is exercisable
until November 2, 2000 for one share of common stock for $8.75, subject to
adjustment in certain circumstances. Of the 6,523,073 shares of common stock
included in this prospectus, 2,006,073 are issuable upon the exercise of class
C warrants, 2,006,073 are issuable upon the exercise of class D warrants
underlying such class C warrants and 2,510,927 are issuable upon the exercise
of the class D warrants included in the units. All of the 2,006,073 class D
warrants included in this prospectus are issuable upon the exercise of the
class C warrants included in the unit.

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o unit-----------------> o common stock

o class C warrant--------> o common stock
- included in this
prospectus
o class D warrant
- included in this
prospectus-------> o common stock
- included in this
prospectus
o class D warrant-------> o common stock
- included in this
prospectus
</TABLE>

We have the right to redeem the class C warrants and class D warrants on
at least 30 days' prior written notice, at a price of $.05 per warrant, if the
average closing bid price of our common stock as reported on the Nasdaq
SmallCap Market System for any 30 consecutive business day period ending within
15 business days of the date on which we give notice of redemption, exceeds
$9.10 for the class C warrants and $12.25 for the class D warrants.

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SECURITIES:

Before this offering as of July 6, 1999:

Common Stock outstanding,
excluding 10,884,742 shares of
common stock which are issuable
upon the exercise of existing
warrants and options............... 10,343,412

Class C warrants outstanding....... 2,006,073

Class D warrants outstanding,
excluding 2,006,073 class D
warrants issuable upon the
exercise of 2,006,073 class C
warrants........................... 2,510,927

Upon the completion of this offering:

Common Stock outstanding,
assuming all of the class C
warrants and class D warrants
are exercised, including
2,006,073 class D warrants
issuable upon the exercise of
the 2,006,073 class C warrants..... 16,866,485

RISK FACTORS: See page 6

USE OF PROCEEDS: We will receive the proceeds when the
class C warrants and class D warrants
are exercised. We intend to utilize
the net proceeds from the exercise of
the class C warrants and class D
warrants to fund our research and
development activities, including
paying royalties and licensing fees,
and for general working capital
purposes and operating expenses. See
"Use of Proceeds."

DIVIDEND POLICY: We currently intend to retain all
future earnings to fund the
development and growth of our
business. We do not anticipate paying
cash dividends. See "Dividend
Policy."

NASDAQ SMALLCAP MARKET SYMBOLS: Common stock - CYPH
Class C warrants - CYPHW
Class D warrants - CYPHZ

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RISK FACTORS

You should carefully consider the following factors and other
information in this prospectus before deciding to invest in the securities we
are offering in this prospectus.

INVESTORS WILL EXPERIENCE A LOSS IN THE BOOK VALUE OF THEIR COMMON STOCK DUE TO
OUR ACCUMULATED DEFICIT.

We had an accumulated deficit of $18,917,000 as of the quarter ended
March 31, 1999 (unaudited) and $17,832,000 as of the fiscal year ended December
31, 1998. Our statement of operations for the fiscal year ended December 31,
1997 shows net losses of $3,252,000, which means a loss of $.42 per share of
common stock. Our statement of operations for the fiscal year ended December
31, 1998 shows net losses of $2,728,000, which means a loss of $.30 per share
of common stock. Investors purchasing shares of our common stock will
experience a loss in the book value of their shares due to our net losses.

BECAUSE WE CONTINUE TO EXPERIENCE LOSSES DUE TO OUR RESEARCH AND DEVELOPMENT
ACTIVITIES, WE MAY HAVE DIFFICULTY IN RAISING CAPITAL AND OUR STOCKHOLDERS
COULD EXPERIENCE A DECREASE IN THE VALUE OF THEIR INVESTMENT.

From our formation in 1991 to the date of this prospectus, we have been
experiencing substantial operating losses due to our increasing research and
development activities and general and administrative expenditures. We expect
to have additional losses in the future. Although we had revenue in 1998 from
our license agreement with Bristol-Myers Squibb, it was and remains our sole
source of revenue. We cannot say with any certainty that we will have any
future revenue or, if we do have revenue, that it will be profitable. Our
failure to become profitable may make it more difficult for us to raise
additional capital on favorable terms, if at all. Such failure could have a
materially adverse effect on our business.

WE WILL NEED SUBSTANTIAL FUNDS IN THE FUTURE, AND WE MAY HAVE TO ISSUE
ADDITIONAL SECURITIES TO DO SO, WHICH WILL RESULT IN DILUTION TO THE VALUE OF
OUR SECURITYHOLDERS' INVESTMENT.

Since our formation in 1991, we have relied on loans, private
financings, and our November 1995 initial public offering to allow us to
continue our operations. Our cash requirements in the future may be
significantly different from our current estimates because of changes in our
research and development programs, increased competition, advances in
technology and other factors. We cannot say with any certainty that required
financing will be available to us on favorable terms, if at all. If we decide
to raise additional money by issuing more of our securities, securityholders
will experience a dilution to the value of their securities at the time of
issuance.

WE DO NOT HAVE ANY PRODUCTS TO DATE AND RELY HEAVILY ON OUR LICENSE
AGREEMENTS-THE LOSS OF ANY OF WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS AND CAUSE A DECREASE IN THE VALUE OF OUR SECURITYHOLDERS' INVESTMENT.

We have key license and collaborative agreements with several pharmaceutical
companies and research institutions, including, but not limited to,
Bristol-Myers Squibb, Enzon, the Research & Development Institute at Montana
State University, the Washington State University Research Foundation, the
University of California at Los Angeles, and the University of Texas at Dallas.
We have also entered into a joint venture agreement with Pestka Biomedical
Laboratories, Inc. In general, we have annual milestone and royalty fee
obligations under these agreements. Although we are currently compliant under
these agreements and do not foresee any future noncompliance, our industry is
extremely competitive and volatile. Generally, if we fail to satisfy such
obligations or cure any other default listed in such agreements, the other
parties may terminate them. Also, we cannot give any assurance that the other
parties to our agreements will honor their obligations, or that we will be able
to extend any of the agreements if they expire. We also cannot give any
assurance that we will be able to enter into new collaborative agreements with
existing or new partners. If we are unable to make the other parties to our
agreements honor their contractual obligations or to extend our current
agreements or if we fail to enter into any additional arrangements, we may
require additional money to continue our current activities. The termination or
breach of our agreements or licenses, or our failure to enter into

<PAGE> 9

additional agreements and licenses may have a material adverse effect on our
business. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations-Business-Collaborative Agreements."

ALTHOUGH WE DO NOT HAVE ANY PRODUCTS TO DATE, EVEN IF WE DO HAVE THEM IN THE
FUTURE, THEY MIGHT NOT WORK OR THEY MIGHT BE TOXIC, DIFFICULT TO PRODUCE ON A
COMMERCIAL SCALE OR DISLIKED BY OUR CUSTOMERS. THIS COULD MATERIALLY ADVERSELY
AFFECT OUR BUSINESS AND CAUSE OUR SECURITYHOLDERS TO LOSE THEIR INVESTMENT.

Research and development of anti-cancer drugs is a lengthy and costly
process. We cannot say with any certainty that we will be able to develop or
produce any products or, if we do, that they will work as intended, be
non-toxic, that customers will like them or that they will be capable of being
manufactured on a large scale. Furthermore, our products will be in the
biotechnology field which has historically had a large number of unsuccessfully
developed products, or if developed, such products have been commercially,
scientifically or medically unacceptable. Any of these impediments could have a
material adverse effect on our business and cause a decrease in the value of
our securityholders' investment.

WE MIGHT NOT HAVE ENOUGH RESOURCES TO COMPETE WITH THE BIOTECHNOLOGY LEADERS,
AND INVESTORS COULD LOSE THEIR MONEY.

We have less than 20 employees in the heavily regulated, competitive and
quickly changing biotechnology industry. Most of our competitors have more
personnel, research and development experience, experience in getting
governmental approval and money than us. Our business may be materially
adversely affected if our competitors develop products before us or produce
superior products to ours.

IF COMPETITORS ARE SUCCESSFUL IN THEIR CHALLENGE OF BRISTOL-MYERS SQUIBB'S
PATENT, WE COULD BE INDIRECTLY HURT UNDER OUR LICENSE AGREEMENT WITH
BRISTOL-MYERS SQUIBB, AND OUR SECURITYHOLDERS COULD EXPERIENCE A DECREASE IN
THE VALUE OF THEIR INVESTMENT.

In June 1998, we entered into license agreement with Bristol-Myers
Squibb, an industry leader, for the development of Paclitaxel production
system. To date, this license agreement has been our sole source of revenue. In
June 1991, the National Cancer Institute entered into a collaborative research
and development agreement with Bristol-Myers Squibb to develop Paclitaxel, and
it granted Bristol-Myers Squibb the exclusive use of the Institute's clinical
data in Bristol-Myers' search for FDA approval until December 1997. This
significantly shortened the approval process and prevented any other party from
obtaining the Food & Drug Administration's approval using the Institute's data.
Although Bristol-Myers Squibb has since lost its right of exclusivity under the
agreement, it has patented its method of delivering Paclitaxel intravenously to
a patient. Such patent has in fact kept the Institute's data exclusive and has
put other companies at a competitive disadvantage by effectively preventing
them from using the data. Other companies are currently contesting the
exclusivity of this data in the courts. If such competitors are successful in
their challenge, Bristol-Myers Squibb could suffer which in turn would decrease
the value of our license agreement with them and our securityholders could
experience a decrease in the value of their investment. See "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations-Business-Collaborative Agreements-Bristol-Myers Squibb."

WE RELY ON BROAD PATENT PROTECTION FOR OUR TECHNOLOGY BUT WE MAY NOT HAVE
ENOUGH RESOURCES TO CONDUCT OR DEFEND OURSELVES FROM LONG AND EXPENSIVE
LITIGATION CLAIMS REGARDING THE BREADTH OF PATENTS, AND OUR SECURITYHOLDERS
COULD EXPERIENCE A DECREASE IN THE VALUE OF THEIR INVESTMENT.

Our success will depend on our ability to get patent protection for our
products and processes in the United States and elsewhere. We have filed and
intend to continue to file patent applications as we need them. We cannot say
with any certainty, however, 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 our technology. Also, we cannot say with any
certainty that any patents issued to us or licensed by us can withstand
challenges made by others or that we will able to protect our rights. Our
business may be materially adversely affected if we are unable to obtain or
enforce patent protection.

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We are aware of patent applications and issued patents belonging to our
competitors, and we are uncertain whether any of these, or of any patent
applications which we do not know about, will require us to alter or cease our
potential products or processes. We cannot say with any certainty that we will
be able to obtain any licenses to technology that we will require or, if
obtainable, that the cost of them will be reasonable. Our failure to obtain any
necessary licenses to any technology could substantially hurt our business.
Expensive and drawn-out litigation may also be necessary for us to assert any
of our rights or to determine the scope and validity of rights claimed by other
parties. Litigation could be too expensive for us to pursue without great cost
and uncertainty as to the outcome. Our failure to pursue litigation could
result in the loss of our rights which could substantially hurt our business.

WE ARE IN DIRECT COMPETITION WITH OTHER BIOPHARMACEUTICAL COMPANIES TO DEVELOP
AND PRODUCE ANTI-CANCER PRODUCTS. OUR BUSINESS WOULD BE MATERIALLY ADVERSELY
AFFECTED IF OUR TRADE SECRETS AND CONFIDENTIAL INFORMATION WERE DISCLOSED TO
OUR COMPETITORS, AND INVESTORS COULD EXPERIENCE A DECREASE IN THE VALUE OF
THEIR INVESTMENTS.

We also rely on trade secrets and confidential information which we try
to protect by entering into confidentiality agreements with other parties. We
cannot say with any certainty that any of the confidentiality agreements will
be honored or, if breached, we would have enough remedies to protect the
confidential information, or that our competitors will not independently learn
our trade secrets. The loss of our trade secrets would substantially hurt our
business.

WE ARE A SMALL COMPANY WITH LITTLE REVENUE, AND WE MAY NOT HAVE THE HUMAN AND
FINANCIAL RESOURCES TO WITHSTAND THE REQUIRED LENGTHY FDA TESTING AND APPROVAL
PROCESSES.

The Food & Drug Administration and other similar agencies in foreign
countries have lengthy and detailed laboratory testing and approval
requirements for therapeutic and diagnostic pharmaceutical and biological
products. It often takes companies several years and large sums of money to
satisfy these requirements, depending on the complexity and novelty of the
products. Since we are a small company within limited personnel and financial
resources, we might not be able to withstand the rigorous and time consuming
FDA approval process as compared to our larger competitors. Furthermore, since
we are in the highly competitive biopharmaceutical industry, any failure or
delay in obtaining any FDA approvals could substantially hurt our company, and
investors could lose their money. We cannot say with any certainty that the FDA
or other regulatory agencies will grant us approval for any of our products on
a timely basis, if at all.

WE HAVE LITTLE REVENUE AND MAY NOT HAVE THE FINANCIAL RESOURCES TO COMPLY WITH
OSHA, EPA AND OTHER AGENCIES' REQUIREMENTS.

We have to comply with the Occupational Safety and Health
Administration, Environmental Protection Agency, Toxic Substances Control Act,
Resource Conservation and Recovery Act and other regulatory laws. In the
future, we could also be subject to other federal, state or local regulations.
OSHA or the EPA may establish regulations which could affect our research and
development programs. We are unable to predict whether any agency will adopt
any rule which could substantially hurt our business.

OUR PRODUCTS, IF ANY, WILL BE INNOVATIVE AND MAY NOT BE COVERED BY INSURANCE
COMPANIES OR OTHER THIRD-PARTY PAYERS WHICH MAY MAKE OUR PRODUCTS LESS
MARKETABLE TO OUR CUSTOMERS AND CAUSE A DECREASE IN THE VALUE OF OUR
SECURITYHOLDERS' INVESTMENT.

Our success in developing our products may depend, in part, on whether
we will be reimbursed by government health administration authorities, private
health insurers and other organizations. There is significant uncertainty if
costs associated with newly-approved health care products will be reimbursed.
We cannot say with any certainty whether sufficient insurance coverage will be
available for us to establish and maintain price levels sufficient to realize
an appropriate return on developing new products. Government and other
third-party payers are attempting to contain health care costs more every day
by limiting both coverage and the level of reimbursement of new therapeutic and
diagnostic products approved for marketing by FDA and by refusing, in some
cases, to provide any coverage of uses of approved products for disease
indications for which FDA has not granted marketing approval. If adequate
coverage

<PAGE> 11

and reimbursement levels are not provided by government and third-party payers
for uses of our products, it will make it very difficult for us to market our
products to doctors and hospitals because their patients might not be able to
pay for the products without any insurance coverage or reimbursement. Such
refusal by insurance companies and third-party payers to reimburse the costs of,
expenses associated with, our products might have a material adverse effect on
our business.

OUR LICENSE AGREEMENT WITH BRISTOL-MYERS SQUIBB, AN INDUSTRY LEADER, HAS, TO
DATE, BEEN OUR SOLE SOURCE OF REVENUE. OUR SECURITYHOLDERS COULD EXPERIENCE A
DECREASE IN THE VALUE OF THEIR INVESTMENTS IF SUCH AGREEMENT IS TERMINATED OR
CEASES TO GENERATE REVENUE.

In June 1998, we entered into a license agreement and a research and
development agreement with Bristol-Myers Squibb. As of March 31, 1999, we
received $1,416,000 in revenue from the license agreement. Such agreement has
been our sole source of revenues to date. Under the license agreement, we
granted to Bristol-Myers Squibb exclusive sublicenses under our agreements with
the Research & Development Institute at Montana State University and the
Washington State University Research Foundation relating to technologies for
the production of Paclitaxel. Our license agreement with Bristol-Myers Squibb
requires them to pay us royalty and milestone payments. The term of our license
agreement with Bristol-Myers Squibb ends on the later ten (10) years from the
first commercial sale of the licensed products or such time as neither the
making, use nor sale at the time by Bristol-Myers Squibb, its affiliates or
sublicensees does not infringe any U.S. or foreign patents or patent
applications, copyrights or trademarks owned and licensed by the Research &
Development Institute and the Washington State University Research Foundation.
Bristol-Myers Squibb may terminate the license agreement upon 90 days notice.
We cannot say with any certainty that Bristol-Myers Squibb will successfully
manufacture or market the licensed property, if at all, or that we will be able
to maintain our agreements with the Research & Development Institute or the
Washington State University Research Foundation. Although we do not have any
reason to believe Bristol-Myers Squibb is unwilling to work with us under our
license agreement with them, it is a possibility that Bristol-Myers Squibb
might, in the future, decide not to utilize our technology, use other
technology they find superior or enter into a license agreement or agreements
with another party or parties, thereby decreasing their need to utilize our
technology under our license agreement with them or even cause them to
terminate the license agreement. Our loss of the license agreement with
Bristol-Myers Squibb could have a material adverse effect on our business and
stockholders could experience a decrease in the value of their investments.

WE LACK MANUFACTURING EXPERIENCE AND FACILITIES, AND IF WE HAVE TO EXPEND
RESOURCES TO BUILD FACILITIES OR IF WE FAIL TO HIRE COMPETENT OUTSIDE
MANUFACTURERS, OUR SECURITYHOLDERS COULD EXPERIENCE A DECREASE IN THE VALUE OF
THEIR INVESTMENT.

We currently do not have facilities or personnel capable of
manufacturing any products in commercial quantities. In the future, we may
establish our own manufacturing facilities to manufacture products if it
becomes economically attractive to do so. Building and operating production
facilities would require substantial additional funds and other resources and
well as interrupt our daily operations. We cannot be sure, however, whether
sufficient funds to build satisfactory manufacturing facilities would be
available on favorable terms to us, if at all. If we cannot obtain sufficient
financing, we will most likely have to retain outside manufacturers. We cannot
be sure, however, whether we will be able to retain competent manufacturers at
affordable rates, or that the manufacturers will be able to produce and deliver
our products pursuant to our instructions concerning quality, quantity and time
as well as other factors. If we are unable to manufacture our products, if any,
or have them manufactured by others our business would be materially adversely
affected and our securityholders would experience a decrease in the value of
their investment.

WE LACK MARKETING EXPERIENCE. IF WE FAIL TO RETAIN COMPETENT MARKETING
PERSONNEL OR OUTSIDE MARKETERS, OR IF WE HAVE INSUFFICIENT RESOURCES TO MARKET
OUR PRODUCTS, OUR SECURITYHOLDERS COULD EXPERIENCE A DECREASE IN THE VALUE OF
THEIR INVESTMENTS.

As of July 6, 1999, we currently have 19 employees, none of whom have
any experience in marketing pharmaceutical products. We would have to spend
significant funds and dedicate a significant amount of management

<PAGE> 12

resources to develop our own sales force. We cannot say with any certainty that
any funds or resources for such purposes will be available on favorable terms,
if at all. Further, we cannot say with any certainty that, with a sales force,
we would successfully penetrate the markets for any of our products. For certain
products under development, we may seek to enter into marketing agreements with
other entities which would grant them exclusive marketing rights in return for
royalties based on sales, if any. Under some of these agreements, the other
entity may have the responsibility for all or a significant part of the
development and obtaining regulatory approval. In the event that the marketing
and development partner fails to develop a marketable product or fails to
successfully market a product, our business could be substantially hurt. The
sale of certain products outside the United States will also be dependent upon
the successful completion of arrangements with future partners, licensees or
distributors in each territory. We cannot give any assurance, however, that we
will successfully establish any additional collaborative arrangements or that,
if established, such future partners will successfully commercialize any
products, if at all.

WE ARE A SMALL COMPANY AND HEAVILY DEPEND UPON OUR OFFICERS, DIRECTORS AND
SCIENTISTS WHO ARE HIGHLY SKILLED IN BIOPHARMACOLOGY, ESPECIALLY OUR CHIEF
EXECUTIVE OFFICER AND PRESIDENT, ARTHUR P. BOLLON, PH.D. OUR BUSINESS WOULD BE
MATERIALLY ADVERSELY AFFECTED BY THE LOSS OF ANY SUCH PERSONS, AND
SECURITYHOLDERS COULD EXPERIENCE A DECREASE IN THE VALUE OF THEIR INVESTMENT.

Much of our success depends upon the continued contributions of our
executive officers, scientific and technical personnel and consultants. We are
particularly dependent upon Arthur P. Bollon, Ph.D., the Chairman of our Board
of Directors, Chief Executive Officer and President, and Daniel Shusterman, the
Vice President of Operations, Treasurer and Chief Financial Officer, Dorit
Arad, Ph.D., our Vice President of Drug Design, as well as our senior
scientists, Susan L. Berent, Ph.D., Hakim Labidi, Ph.D., Rajinder S. Sidhu,
Ph.D. and Richard M. Torczynski, Ph.D. As of July 6, 1999, we had 19 full-time
employees, 15 of whom are engaged directly in research and development
activities, including 6 Ph.D.s, and 4 of whom are in executive and
administrative positions. Our employees are not governed by any collective
bargaining agreement, and we believe that our relationship with our employees
is good. We currently have an employment agreement with Dr. Bollon which
expires on November 6, 2003. Although we maintain "key person" life insurance
which provides that upon the death or incapacity of Dr. Bollon, we will receive
$2 million, Dr. Bollon's death or incapacity could substantially hurt our
business. The competition for qualified personnel is intense, and the loss of
services of certain key personnel could substantially hurt our business.

OUR SCIENTISTS WORK FOR OTHER COMPANIES AND INSTITUTIONS, AND WE MAY NOT HAVE
THE RIGHT TO THEIR INVENTIONS AND DISCOVERIES, WHICH MIGHT HAVE A MATERIALLY
ADVERSE EFFECT ON OUR BUSINESS.

Our scientific collaborators and advisors are employed by companies and
institutions other than us, and some of them have consulting or other advisory
arrangements with other entities and institutions which could conflict or
compete with their obligations to us. Inventions or processes discovered by
such persons will not necessarily become our property but may remain the
property of such persons or of such persons' full-time employers. Our failure
to successfully assert our rights to any inventions or processes discovered by
our scientists might have a material adverse affect on our business.

IF WE CANNOT OBTAIN SATISFACTORY PRODUCT LIABILITY INSURANCE FOR OUR FUTURE
PRODUCTS, IF ANY, WE MAY NOT BE ABLE TO ENTER INTO MATERIAL AGREEMENTS WHICH
REQUIRE US TO HAVE SUCH INSURANCE, AND INVESTORS COULD, THEREFORE, EXPERIENCE A
DECREASE IN THE VALUE OF THEIR INVESTMENT.

To date, we have not had any product liability claims filed or
threatened against us. In the future, however, when and if we develop products,
our products could expose us to product liability claims. Although we intend to
obtain product liability insurance for our ongoing clinical trials, we cannot
say with any certainty that we will be able to obtain, maintain or increase our
insurance coverage in the future on terms favorable to us, if at all, or that
any claims against us will not be greater than the amount of such coverage.
Distributors of pharmaceutical and biological products often

<PAGE> 13

require minimum product liability insurance coverage as a condition before they
start purchasing or accepting products for distribution. Our failure to satisfy
such insurance requirements could decrease our ability to achieve broad
distribution of our proposed products and have a material adverse effect on our
business and investors could experience a decrease in the value of their
investment.

THE VALUE OF OUR SECURITYHOLDERS' INVESTMENT MAY BE SUPPRESSED BECAUSE OUR
COMPANY MAY BE A LESS ATTRACTIVE TAKEOVER CANDIDATE DUE TO THE FACT THAT A
MAJORITY OF OUR STOCK IS OWNED BY AFFILIATES.

Our current officers, directors and stockholders who own more than 5% of
our securities beneficially own or control approximately 57.0% of our
outstanding shares of common stock, which represents approximately 54.0% of our
total outstanding voting securities. Such officers, directors and principal
stockholders may, therefore, be able to elect all of our directors, to
determine the outcome of most corporate actions requiring stockholder approval,
and otherwise to control the direction of our business which may cause the
price of our common stock to be suppressed. See " Security Ownership of Certain
Beneficial Owners and Management."

ALTHOUGH WE DO NOT PAY DIVIDENDS ON OUR COMMON STOCK, WE PAY ANNUAL DIVIDENDS
ON OUR SERIES A PREFERRED STOCK BY GIVING THE HOLDERS THEREOF MORE SERIES A
PREFERRED STOCK. OUR SERIES A PREFERRED STOCK IS CONVERTIBLE INTO COMMON STOCK,
AND SUCH CONVERSION WILL DILUTE THE BOOK VALUE OF THE COMMON STOCK PURCHASED IN
THIS OFFERING.

Since 1991, we have not paid any dividends on our common stock. We
intend to retain future earnings, if any, to provide funds for the operation of
our business and, accordingly, do not anticipate paying any cash dividends on
our common stock in the future. Furthermore, the terms of our 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. Historically
speaking, we have paid dividends on our series A preferred stock with
payment-in-kind. Our series A preferred stock is convertible into an equal
number of shares of common stock. As more holders of the series A preferred
stock convert their preferred stock into common stock, investors in this
offering will experience a decline in the book value of their common stock. See
"Dividend Policy" and "Description of Securities."

WE ARE OBLIGATED TO INDEMNIFY OUR OFFICERS AND DIRECTORS, ABSENT CERTAIN
CIRCUMSTANCES, WHICH MAY REQUIRE US TO SPEND TIME AND MONEY OTHERWISE
ALLOCATED, AND CAUSE A DECREASE IN THE VALUE OF OUR SECURITYHOLDERS'
INVESTMENT.

We are incorporated under the laws of the state of Delaware. Our
certificate of incorporation includes certain provisions permitted under the
Delaware General Corporation Law, whereby our officers and directors are
indemnified by us against certain liabilities. Our certificate of incorporation
also limits, to the fullest extent permitted by Delaware General Corporate Law,
a director's liability for monetary damages for breach of fiduciary duty,
including gross negligence, except liability for breach of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, the unlawful payment of a dividend or unlawful
stock purchase or redemption and any transaction from which the director
derives an improper personal benefit. An insurance policy, which provides for
coverage for certain liabilities of its officers and directors has been issued
to us. However, although we do not currently know of any conduct of any officer
or director which may have a material effect on our business, if such insurance
proves to be inadequate, we will have to use funds otherwise allocated to
indemnify any director. The use of funds and resources, including management's
time and energy, to properly indemnify or otherwise prepare for the defense of
any director might have a material adverse effect on our business.

WE ARE RELIANT UPON THE MARKET-MAKING ACTIVITIES OF JANSSEN-MEYERS ASSOCIATES,
L.P., WHICH IS ALSO AN AFFILIATE. WITHOUT JANSSEN-MEYERS' MARKET-MAKING
ACTIVITIES, INVESTORS MAY HAVE DIFFICULTY RESELLING THEIR SECURITIES.

Upon the completion of this offering, Messrs. Bruce Meyers and Peter
Janssen will beneficially own approximately 10.5% and 6.9%, respectively, of
our outstanding shares of common stock, which represents approximately 10.1%
and 6.6%, respectively, of the total outstanding voting securities. Messrs.
Meyers and Janssen are the principals of the corporate general partner of one
of our market-makers who was also the underwriter of our

<PAGE> 14

initial public offering, Janssen-Meyers Associates, L.P. If Janssen-Meyers or
its affiliates are deemed to have control of our business, regulatory
requirements of the SEC, Nasdaq and the New York Stock Exchange, Inc. could
prevent them from engaging in market-making activities relating to our
securities. If Janssen-Meyers is unable to make a market in our securities
because it is deemed to have effective voting control or if, for any other
reason, it chooses not to or is unable to make a market in our securities, there
can be no assurance that any other broker-dealers would make a market in our
securities. Without market-makers, it would be very difficult for holders of our
securities to sell their securities in the secondary market, and the market
prices for such securities would be substantially harmed. Also, we cannot give
any assurances that an active trading market for our securities be maintained
whether or not Janssen-Meyers makes a market in our securities. In the absence
of such a market, investors may be unable to liquidate their investment.

IF WE FAIL TO MEET NASDAQ'S MAINTENANCE REQUIREMENTS AND ARE DELISTED FROM
NASDAQ, INVESTORS MAY HAVE DIFFICULTY SELLING THEIR SECURITIES, WHICH WOULD
CAUSE A DECREASE IN THE VALUE OF THEIR INVESTMENT.

Our common stock, class C warrants and class D warrants are currently
quoted on the Nasdaq SmallCap Market System. Our common stock is quoted under
the symbol, "CYPH." Our class C warrants are quoted under the symbol, "CYPHW."
Our class D warrants are quoted under the symbol, "CYPHZ." Nasdaq has certain
requirements that every company must meet in order to have their securities
quoted on the Nasdaq SmallCap System. Although we currently meet Nasdaq's
criteria for continued listing, we cannot say with any certainty that we will
continue to meet such criteria.

For continued inclusion on the Nasdaq SmallCap Market System, a company
has to maintain the following:

o either:

o net tangible assets of $2 million,

o market capitalization of $35 million or

o net income of $500,000 in the most recently
completed fiscal year or in two of the last three
most recently completed fiscal years;

o a minimum bid price of $1.00 per share;

o in the case of a convertible debt security, a principal
amount outstanding of at least $5 million;

o in the case of common stock, at least 300 round lot
holders; and

o 500,000 publicly held shares having a market value of at
least $1 million.

If we are unable to meet the continued listing criteria of the Nasdaq
SmallCap Market System any time in the future due to our continued operating
losses or otherwise, and our securities are delisted, trading of our
securities, if any, would 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, investors could find it more difficult to dispose of, or
to obtain accurate quotations as to the value of, our securities.

IF WE ARE DELISTED FROM NASDAQ, BROKER-DEALERS MAY BE UNWILLING TO SELL
INVESTORS' STOCK, AND INVESTORS WOULD EXPERIENCE A DECREASE IN THE VALUE OF
THEIR INVESTMENT.

If our securities are delisted from the Nasdaq SmallCap Market System,
they may become subject to Rule 15g-9 under the Exchange Act of 1934, which
imposes additional sales practice requirements on broker-dealers that sell such
securities. There are exceptions to Rule 15g-9 and they include transactions
meeting the safe-harbor requirements of Rules 505 or 506 under Regulation D of
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 which have to comply with the requirements of Rule 15g-9 under the
Exchange Act of 1934, a broker-dealer must determine whether or not the
purchaser meets a special suitability standard, and the broker-dealer must
receive the purchaser's written consent to the transaction before the sale.
These requirements could make

<PAGE> 15

broker-dealers unwilling or even unable to sell our securities which could make
it more difficult for our investors to resell their securities to other parties.

IF OUR STOCK IS DELISTED BY NASDAQ AND BECOMES A "PENNY STOCK," INVESTORS MIGHT
EXPERIENCE A DECREASE IN THE VALUE OF THEIR INVESTMENTS DUE TO THE RESTRICTIONS
ON BROKER-DEALERS IN SELLING "PENNY STOCK."

The SEC defines a "penny stock" to be any equity security that has a
market price under $5.00 per share or has an exercise price under $5.00 per
share, subject to certain exceptions. Unless exempt, the rules require the
delivery, prior to any transaction in a penny stock, of SEC material telling
the purchaser certain information about the penny stock. Purchasers must also
be told about the commissions that the broker-dealers and the registered
representatives will get and they must be told about the securities current
prices. Finally, purchasers must also be given statements every month which
have to tell the purchaser about his or her securities' recent prices and about
the limitations of the penny stock market. These penny stock restrictions will
not apply to our securities if they stay quoted on the Nasdaq SmallCap Market
System, and if they have certain price and volume information provided on a
current and continuing basis or if they meet certain minimum net tangible
assets or average revenue criteria. We cannot say with any certainty, however,
that our securities will continue to meet the Nasdaq SmallCap Market
requirements in the future and if we do not, the prices of our securities could
decrease and investors could find it difficult to sell their securities. If we
were to remain exempt from the penny-stock restrictions, we still have to
comply with Section 15(b)(6) under the Exchange Act of 1934, which gives the
SEC the authority to stop any person who breaks the law when selling penny
stock from selling any more penny stock or from working with any broker-dealer.

WE HAVE GRANTED REGISTRATION RIGHTS TO SEVERAL PARTIES HOLDING OUR COMMON STOCK
OR WHO HAVE THE RIGHT TO PURCHASE OUR COMMON STOCK. THE REGISTRATION OF SUCH
SECURITIES WILL INCREASE THE NUMBER OF FREELY TRADEABLE SHARES OF OUR COMMON
STOCK AND MAY DECREASE THE BOOK VALUE OF OUR SECURITYHOLDERS' SHARES OF OUR
COMMON STOCK.

There will be 16,866,485 registered shares of our common stock
outstanding upon the completion of this offering. All of these shares will be
freely transferrable without restriction if we continue to comply with the SEC
and certain states' registration requirements. Certain of our other outstanding
securities are not registered with the SEC, and are considered to be
"restricted securities" as that term is defined in Rule 144 under the
Securities Act and may only be sold in certain circumstances.

We have also granted certain investors demand and piggyback
registration rights to have their common stock registered with the SEC. We will
have to pay for the expense of registration if one or more of these groups
exercise their demand registration rights or "piggy-back" registration rights.
The expense could be high. Also, because there would be a high number of shares
outstanding, we could find it more difficult to obtain future financing.

The sale, or availability for sale, of substantial amounts of common
stock in the public market pursuant to Rule 144 or registration could cause the
market price of the common stock and our other securities to decrease which
could hurt our ability to raise additional money through the sale of our
securities or through debt financing. Also, to the extent that outstanding
options and warrants are exercised, securityholders' ownership interest will
drop. Also, if and to the extent that we reduce the exercise price of
outstanding warrants or options, our stockholders could experience additional
dilution. See "Description of Securities--Registration Rights."

THE VALUE OF THE SECURITYHOLDERS' INVESTMENT MAY BE SUPPRESSED BECAUSE OUR
COMPANY MAY BE A LESS ATTRACTIVE TAKEOVER CANDIDATE DUE TO THE FACT THAT OUR
BOARD OF DIRECTORS HAS THE DISCRETION TO ISSUE 10,000,000 SHARES OF PREFERRED
STOCK SUPERIOR TO OUR COMMON STOCK WITHOUT STOCKHOLDER APPROVAL.

Our certificate of incorporation authorizes our board of directors to
issue a maximum of 10,000,000 shares of preferred stock on terms which may be
determined by them without getting stockholder approval. Of these 10,000,000
shares, 4,000,000 shares have already been designated as series A preferred
stock of which 714,641 remain outstanding as of July 6, 1999. The series A
preferred stock may be converted by the holder into an equal number of shares
of common stock. Also, the terms of the series A preferred stock include
dividend and liquidation preferences which could

<PAGE> 16

also hurt the rights of holders of the common stock being offered hereby. 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 entitled to vote as a separate class on any proposed adverse change in
their rights, preferences or privileges 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 hurt the rights of
the holders of the common stock being offered hereby. Other than the series A
preferred stock, we have not issued any other preferred stock, and we do not
plan to issue any additional preferred stock other than payment-in-kind
dividends. Investors should also know that if too much preferred stock is
outstanding, it could make it more difficult for a third party to take control
of our business or to remove our board of directors and executive officers.
Hostile bids for control of a company usually result in the market prices for a
company's securities to increase. It would also dilute or subordinate the rights
of holders of common stock and cause the market price of the common stock to
drop.

INVESTORS WILL BE PREVENTED FROM RESELLING THEIR SECURITIES IF WE FAIL TO MEET
APPLICABLE FEDERAL AND STATE REGISTRATION REQUIREMENTS OR FIND EXEMPTIONS FROM
SUCH REQUIREMENTS.

The common stock and class D warrants offered in this offering can be
resold by the investors only if a current registration statement relating to
them is in effect with the SEC under the Securities Act, and if they are
registered, qualified, or exempt therefrom, under the applicable state blue sky
laws. We cannot say with any certainty that we will be able to meet the SEC and
states' registration or exemption requirements. If we cannot meet the
requirements, the investors will be unable to resell their common stock and
class D warrants.

IF WE REDEEM THE CLASS D WARRANTS, INVESTORS MAY HAVE TO MAKE AN INVESTMENT
DECISION AT A TIME WHICH MAY BE DISADVANTAGEOUS FOR THEM.

In addition, we have the right to redeem the class D warrants at $.05
per warrant 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 $12.25 per share. If the class D warrants are
redeemed, holders of the warrants will lose their right to exercise them,
except during such 30-day notice of redemption period. Upon the receipt of a
notice of redemption of the class D warrants, the holders thereof will 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.

<PAGE> 17

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock, class C warrants and class D warrants are quoted in
the over-the-counter market on the Nasdaq SmallCap Market System under the
symbols "CYPH," "CYPHW" and "CYPHZ," respectively. The following table sets
forth the respective high and low bid prices for the common stock, class C
warrants and class D warrants as reported by the National Association of
Securities Dealers, Inc. for the periods indicated. The prices set forth below
represent quotes between dealers and do not include commissions, mark-ups or
mark-downs, and may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
Common stock Class C warrants Class D warrants
-------------------- ---------------------- --------------------
High Low High Low High Low
------- ------- ------- ------- ------- ------

Fiscal 1997
- -----------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $4-7/16 $2-1/8 $1-7/8 $11/16 $11/16 $5/32
2nd Quarter 3-1/4 2-1/2 1 3/8 5/8 1/4
3rd Quarter 10-1/16 2-7/16 5-7/8 9/16 2-11/16 3/16
4th Quarter 11-1/2 5-7/8 9-3/8 2-13/16 5 1-3/8

Fiscal 1998
- -----------
1st Quarter 12 5-3/4 9-3/4 4-1/2 5 2-1/8
2nd Quarter 14-3/4 6-7/6 14-5/16 4-1/4 6-3/8 2-7/8
3rd Quarter 9-5/8 3-1/8 7-1/8 2 3-11/16 15/16
4th Quarter 7-7/16 4-3/8 4-1/4 1-5/8 2-1/4 15/16

Fiscal 1999
- -----------
1st Quarter 9-7/16 6-7/8 6-3/4 3-5/8 3-5/8 1-3/8
2nd Quarter 7-1/2 6-1/16 3-5/16 2-3/8 1-5/16 7/8
3rd Quarter (July 6, 1999) 8-7/16 5-3/8 4-5/8 1-15/16 2 3/4
</TABLE>

We believe that as of July 6, 1999, there were in excess of 1,000
beneficial holders of our common stock.

DIVIDEND POLICY

Since 1991, we have not declared or paid any cash dividends on our
common stock. We intend for the foreseeable future to reinvest earnings, if
any, and to fund the development and expansion of our business. The declaration
of dividends in the future will be at the discretion of our Board of Directors
and will depend upon our earnings, capital requirements and financial position,
general economic conditions and other pertinent factors. The terms of our
series A preferred stock do not allow us to pay cash dividends on the common
stock unless and until all accrued and unpaid dividends on the series A
preferred stock are paid or set apart for payment. We paid dividends in cash of
$121,491 and in-kind of shares of series A preferred stock in payment of our
1992 dividend on the series A preferred stock. For the fiscal years ended
December 31, 1993, 1994, 1995, 1996, 1997 and 1998, we paid in-kind dividends
on our series A preferred stock of 104,869; 115,307; 126,888; 122,788; 94,680
and 74,648 shares of series A preferred stock, respectively.

<PAGE> 18

DILUTION

At March 31, 1999, our common stock had a net tangible book value of
$4,601,000, or $.45 per share, which represents the amount of our total
tangible assets less liabilities, based on 10,291,322 outstanding shares of
common stock. Giving effect to the exercise of our outstanding class C
warrants, the pro forma net tangible book value of the shares of common stock
at March 31, 1999 would have been $1.37 per share, representing an immediate
dilution per share of $5.13 to individuals exercising their class C warrants.
Giving additional effect to the exercise of our outstanding class D warrants
and the 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 March 31, 1999 would have been $3.24 per share, representing an immediate
dilution per share of $5.51 to individuals exercising their class D warrants
and 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.

The following table illustrates the per share dilution to be
experienced by individuals exercising their class C warrants and class D
warrants, assuming they are all exercised:

<TABLE>
<CAPTION>
Class D
warrants-assuming
Class C prior exercise of all
warrants class C warrants
-------- ---------------

<S> <C> <C>
Exercise price $ 6.50 $ 8.75
Net tangible book value per share .45 .45
before exercise of warrants
Increase per share attributable .92 2.79
to exercise of warrants
Pro forma net tangible book value 1.37 3.24
after exercise (1)
Dilution to new investors $ 5.13 $ 5.51
====== ======
</TABLE>

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

(1) Assumes the entire exercise price, less expenses, is allocated to the common
stock obtained upon exercise.

<PAGE> 19

USE OF PROCEEDS

Holders of our warrants are not obligated to exercise any of their
warrants, and there can be no assurance that any holders will choose to do so.
We cannot predict the timing of any exercise, although holders are likely to
exercise warrants at such time when the market price of our common stock is
above the exercise price of the warrants. In the event that all of the
2,006,073 outstanding class C warrants are exercised, our net proceeds will be
approximately $12,303,000 after deducting expenses, including the 5%
solicitation fee to Janssen-Meyers Associates, L.P. In the event that all of
the 2,510,927 outstanding class D warrants and 2,006,073 class D warrants
issuable upon exercise of the outstanding class C warrants are exercised, we
will receive net proceeds of approximately $49,850,000 after deducting
expenses, including the 5% solicitation fee to Janssen-Meyers Associates, L.P.
We will use any of the net proceeds from the exercise of warrants for research
and development and general corporate purposes.

The foregoing represents our 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 our business operations, 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 our business
and the success, or lack thereof, of our marketing efforts, may cause us to
change the allocation of funds.

Prior to expenditure, we will invest the net proceeds in
high-liquidity, U.S. government and corporate obligations, interest-bearing
money market funds and other financial instruments.

<PAGE> 20

CAPITALIZATION

The following table sets forth our actual and adjusted capitalization
as of March 31, 1999. This table should be read in conjunction with the
financial statements and notes thereto included elsewhere in this prospectus.

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

STOCKHOLDERS' EQUITY

<S> <C> <C> <C>
Preferred stock--$.01 par value;
10,000,000 shares authorized;
series A preferred stock, 791,731 shares
issued and outstanding actual and as adjusted ...... 8,000 8,000 8,000

Common stock--$.01 par value;
30,000,000 shares authorized, 10,291,322 shares
issued and outstanding actual (1) ......... 103,000 123,000 168,000

Additional paid-in capital .................................. 24,282,000 36,564,000 74,067,000

Accumulated deficit ......................................... (18,917,000) (18,917,000) (18,917,000)

Total stockholders' equity ......................... 5,476,000 17,778,000 55,326,000

Total capitalization ............................... $5,476,000 17,778,000 55,326,000
</TABLE>

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

(1) Does not include the possible issuance of:

o 1,796,100 shares of common stock issuable upon the exercise of options
authorized for grant under our 1992 and 1996 stock option plans;

o 303,088 shares of common stock issuable upon the exercise of our
outstanding class A and B warrants;

o 714,641 shares of common stock issuable upon the conversion of our
outstanding series A preferred stock;

o 800,000 shares of common stock issuable upon the full exercise of an
option we granted to the underwriter of our initial public offering in
November 1995;

o 335,540 shares of common stock issuable upon the exercise of our
outstanding class E warrants;

o 201,300 shares of common stock issuable upon the full exercise of an
option we granted to the placement agent of our 1998 private placement;

o 175,000 shares of common stock issuable upon the exercise of options and
warrants we granted to professionals for their services; and

o 36,000 shares of common stock issuable upon the exercise of warrants
granted for research and development.

(2) Gives effect to the exercise of 2,006,073 outstanding class C warrants at
$6.50 per share.

(3) Gives effect to the exercise of 2,006,073 outstanding class C warrants at
$6.50 per share and 4,517,000 class D warrants at $8.75 per share.

<PAGE> 21

SELECTED FINANCIAL DATA

The following selected financial data has been derived from our
audited and unaudited financial statements. Our financial statements for the
years ended December 31, 1998 and 1997, including the notes thereto, have been
audited by Richard A. Eisner & Company, LLP, our independent auditors, and are
included elsewhere in this prospectus. The following data should be read in
conjunction with such financial statements.

STATEMENT OF OPERATIONS DATA

<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
--------------------------- ---------------------------
1997 1998 1998 1999
----------- ----------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Revenue (1) ................................................ $ -- $ 1,183,000 $ -- $ 233,000
Research and development expenses .......................... 1,469,000 1,692,000 360,000 872,000
General and administrative expenses ........................ 1,888,000 2,500,000 447,000 513,000
Net interest expense (income) .............................. (105,000) (281,000) (17,000) (67,000)
----------- ----------- ---------- -----------
Net (loss) ................................................. (3,252,000) (2,728,000) (790,000) (1,085,000)
=========== =========== ========== ===========
Net (loss) per share of common stock ....................... $ (.42) $ (.30) $ (.10) $ (.11)
Weighted average number of shares .......................... 8,268,000 9,742,000 8,840,000 10,268,000
=========== =========== ========== ===========

<CAPTION>
At March 31, 1999
BALANCE SHEET DATA: -------------------------------------------------
As As
Actual Adjusted (2) Adjusted (3)
------------ ------------ ------------
<S> <C> <C> <C>
Working capital ................................... $ 5,440,000 $ 17,743,000 $ 55,290,000
Total assets ...................................... 7,452,000 19,754,000 57,302,000
Total liabilities ................................. 1,976,000 1,976,000 1,976,000
Accumulated deficit ............................... (18,917,000) (18,917,000) (18,917,000)
Total stockholders' equity ........................ 5,476,000 17,778,000 55,326,000
</TABLE>

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

(1) Through June 1998, we have not generated any sales revenues.

(2) Gives effect to the exercise of 2,006,073 class C warrants, the application
on the net proceeds therefrom, and assumes that a 5% solicitation fee is
paid to for each warrant exercise.

(3) Gives effect to the exercise of 2,006,073 class C warrants and 4,517,000
class D warrants, the application on the net proceeds therefrom, and assumes
that a 5% solicitation fee is paid to for each warrant exercise.

<PAGE> 22

MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We were originally incorporated in the state of Texas in September
1991. Until June 1998, we were still in the development stage. To this day, our
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 our scientific and
management personnel and advisors and raising capital.

Our plan of operation for the next 12 months will consist of research and
development and related activities aimed at:

o continued collaboration with Bristol-Myers Squibb on the production
of Paclitaxel from fermentation and Paclitaxel-specific genes;

o further development of the Paclitaxel treatment of Polycystic Kidney
Disease, a potential new Paclitaxel indication;

o development of a drug design program using Quantum Core
Technology(TM);

o evaluation of potential new microbial anti-cancer drugs with
Bristol-Myers Squibb;

o further development of a diagnostic test which may indicate a
predisposition to, or early sign of, lung or other cancers;

o further testing of peptide licensed from UCLA to suppress breast
cancer;

o further analysis of the technology resulting from our collaborative
agreement with Pestka Biomedical Laboratories, Inc. as an
anti-cancer agent in animal studies;

o further development and potential marketing of the anti-sense
technology currently being conducted at the University of Texas at
Dallas;

o developing an anti-body or peptide for the protein associated with
the lung cancer gene and, if successful, submission of an
investigational new drug application for clinical trials;

o making improvements to our laboratory facilities and corporate
facilities;

o hiring additional research technicians and a financial vice
president;

o seeking to establish strategic partnerships for the development,
marketing, sales and manufacturing of our proposed products;

Our actual research and development and related activities may vary
significantly from current plans depending on numerous factors, including
changes in the costs of such activities from current estimates, the results of
our 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 our operations will also be dependent upon the establishment of
collaborative arrangements with other companies, the availability of financing
and other factors.

For the period from January 1, 1999 to March 31, 1999, we incurred a
net loss of $1,085,000 compared to a net loss of $790,000 for the same period
in 1998. The increase for the three month period from the previous year was
attributable to increased operating expenses, partially offset by an increase
in revenue received from licensing and research and development agreements and
an increase in interest income. We expect to incur additional losses in the
foreseeable future.

We incurred general and administrative expenses of $513,000 and
$447,000 for the three months ended March 1999 and March 1998, respectively.
The increase from the previous year was attributable to increased expenses for
contract labor and travel and lodging expenses, partially offset by a decrease
in legal and professional expenses.

We incurred research and development expenses of $872,000 and $360,000
for the three months ended March 1999 and March 1998, respectively. The
increase was attributable to a large extent to a non-recurring expense for the
acquisition of the drug design technology, Quantum Core TechnologyTM developed
by Dr. Dorit Arad, and for research activities in Israel. Additionally, the
increase was attributable to funding for the research programs at Washington
State University and Research & Development Institute, Inc. (RDI), an increase
in laboratory supplies and an increase in

<PAGE> 23

research salaries and payroll taxes. Included in research and development
expenses for the three months ended March 1999 was a non-cash charge of $291,000
relating to the valuations of common stock and options issued in connection with
services rendered in identifying and securing the drug design technology.

We incurred net losses of $2,890,000, $3,252,000 and $2,728,000 for
the twelve months ended December 1996, 1997 and 1998, respectively. The
increase in net losses from 1996 to 1997 was attributable to decrease in
interest income and an increase in general and administrative expenses. The
decrease from 1997 to 1998 was attributable to revenue received from our
license and research and development agreements with Bristol-Myers Squibb and
an increase in interest income, partially offset by an increase in research and
development expenses and general and administrative expenses. We expect to
incur additional losses in the foreseeable future.

We incurred general and administrative expenses of $1,530,000,
$1,888,000 and $2,500,000 for the twelve months ended December 1996, 1997 and
1998, respectively. The increase from 1996 to 1997 was attributable to
increased legal and professional fees, as well as, increased consulting fees
and travel expenses. Included in general and administrative expenses for 1997
was a non-cash charge of $133,000 related to the valuation of stock options we
issued to consultants. The increase from 1997 to 1998 was attributable to
increased legal and professional fees, including increased patent expenses, as
well as increased insurance costs, increased public relations and financial
relations expenses, partially offset by a decrease in consulting fees and a
decrease in travel and lodging expenses. Included in general and administrative
expenses for 1998 was a non-cash charge of $197,000 related to the valuation of
stock options we issued to consultants,

We incurred research and development expenses of $1,576,000,
$1,469,000 and $1,692,000 for the twelve months ended December 1996, 1997 and
1998, respectively. The decrease from 1996 to 1997 was attributable to the
completion of our funding obligation to the Research & Development Institute at
Montana State University and was partially offset by increased expenses for
contract research and development at the Washington State University Research
Foundation and increased rent expenses. The increase from 1997 to 1998 was
attributable to increased funding for the research programs at the Washington
State University Research Foundation and the Research & Development Institute
at Montana State University, an increase in contract labor costs and an
increase in license fees, partially offset by a decrease in laboratory supply
expenses.

In April 1998, we received net proceeds of approximately $4,837,000
from the sale of 56 units consisting of 671,026 shares of common stock and
class E warrants to purchase 335,540 shares of our common stock at exercise
prices ranging from $9.82 to $11.35 per share, subject to adjustment upon the
occurrence of certain events. During the year ended December 31, 1998, we also
received proceeds of approximately $2,630,000 from the exercise of options and
warrants. We believe that we have sufficient capital to finance our plan of
operation in excess of 12 months. However, there can be no assurance that we
will generate sufficient revenues, if any, to fund our 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.

<PAGE> 24

BUSINESS

GENERAL

We are a biopharmaceutical company focused on the development of
diagnostic and therapeutic products for the identification, treatment and
prevention of cancer and infectious diseases. To date, we have been involved
solely in research and development activities relating to several products that
are at various stages of development. Our research and development activities
relate principally to our proprietary Paclitaxel fermentation production
system, diagnostic and imaging lung cancer products, human gene discovery
program, Quantum Core Technology(TM) and our vaccine program. Taxol(R) is the
brand name for Paclitaxel and has been designated by the National Cancer
Institute as the most important cancer drug introduced in the past decade.

Our strategy is to focus on:

o collaborating with Bristol-Myers Squibb Company, Inc. pursuant to
our license and research and development agreements with them to
develop Paclitaxel in commercial quantities and at lower costs;

o our Paclitaxel fermentation production system program since
Paclitaxel has been approved by FDA as a treatment for breast
cancer, ovarian cancer, Kaposi's Sarcoma and lung cancer;

o the treatment of Polycystic Kidney Disease using Paclitaxel;

o our Quantum Core Technology(TM) for drug design;

o our human gene discovery program for the diagnosis and treatment of
lung cancer, the second most common form of cancer;

o our vaccine program and

o the use of an anti-estrogen peptide for breast cancer.

We were created in September 1991 to acquire rights to certain
proprietary cancer and viral therapeutic technology developed at the Wadley
Institutes in Dallas, Texas. Through our own research and development efforts
and agreements with other research institutions and biotechnology companies, we
have acquired and developed additional proprietary technology and rights.
However, to date, we have not developed any commercial products, and we will
require significant additional financing to complete development of, and obtain
regulatory approvals for, our proposed products which, if ever received, can
take several years. See "-Collaborative Agreements-WadTech."

In June 1993, we received an exclusive, world-wide license to use
patented fungal technology to synthesize Paclitaxel from the Research &
Development Institute at Montana State University. Paclitaxel has proven to be
effective in treating refractory ovarian and breast cancers, lung cancer and
Kaposi's sarcoma, and in preliminary clinical trials, has shown potential in
treating other cancer indications. Presently, Paclitaxel is made from the inner
bark and needles of the slow-growing Pacific yew tree. Our scientists, in
cooperation with the inventors of the microbial Paclitaxel technology, are
using this technology and fermentation technology to develop a system for
manufacturing Paclitaxel in commercial quantities and at lower costs than
currently available production methods. In 1994, a patent covering the original
fungal strain that produces Paclitaxel issued. In March 1999, a broad patent
issued for the production of Paclitaxel by utilizing the technology licensed to
us pursuant to our agreement with the Research & Development Institute at
Montana State University to isolate microorganisms from the slow growing
Pacific yew tree.

In February 1996, we obtained exclusive rights to a technology and
pending patent developed at the University of California at Los Angeles for the
Paclitaxel treatment of Polycystic Kidney Disease. The patent issued in 1998.

<PAGE> 25

In June 1996, we entered into a patent license agreement with the
Board of Regents of the University of Texas. Pursuant to this agreement we
received an exclusive royalty-bearing license to manufacture, have
manufactured, use, sell and sublicense products related to a U.S. patent
application entitled, "A Method for Ranking Sequences to Select Target Sequence
Zones of 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 issued in 1999. This discovery potentially has broad applications to
many human and viral genes involved in human disease.

In July 1996, we entered into an agreement with the Washington State
University Research Foundation. Pursuant to this agreement, we received an
exclusive, world-wide license to use and sublicense patented technology or
prospective patented technology relating to genes and the associated gene
products, including the enzymes, in the biosynthetic pathway for Paclitaxel
from the yew tree. The genes will be used to further optimize our Paclitaxel
production system.

In August 1998, we obtained exclusive world-wide rights to a
technology and pending patent developed at UCLA for a peptide anti-estrogen
breast cancer therapy for a term of the life of the patent, subject to
termination in certain circumstances.

In December 1998, we obtained an exclusive license to technology for
the fungal production of Telomerase, the so-called "immortality enzyme," from
the Research & Development Institute at Montana State University.

On January 1999, we acquired proprietary technology for rational-based
drug design developed by Dorit Arad, Ph.D. and employed Dr. Arad as our Vice
President of Drug Design.

We were originally incorporated in the state of Texas in September
1991. Our name was Bio Pharmaceutics, Inc. In November 1991, we changed our
name to Cytoclonal Pharmaceutics Inc. We were then reincorporated in Delaware
by merger into a wholly-owned Delaware subsidiary in January 1992.

RESEARCH AND DEVELOPMENT PROGRAMS

MICROBIAL PACLITAXEL PRODUCTION SYSTEM PROGRAM

Our scientists, in collaboration with the inventors of the microbial
Paclitaxel technology, have developed a system for the production of Paclitaxel
utilizing microbial fermentation. Microbial fermentation is considered one of
the most cost-effective systems for drug production. We have established
agreements with Bristol-Myers Squibb to develop microbial fermentation for the
commercial production 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
expensive. The technology licensed to us by the Research & Development
Institute at Montana State University utilizes Paclitaxel producing
micro-organisms, such as 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 Taxol(R) produced from the Pacific yew tree; Science, 260,
214-216 (1993). Additional micro-organisms have been isolated and are under
development.

<PAGE> 26

The Paclitaxel producing fungus was discovered by Dr. Gary Strobel of
Montana State University, Dr. Andrea Stierle and Dr. Donald Stierle of the
Montana College of Mineral Science and Technology. Dr. Strobel and Dr. Stierle
assigned their rights to the microbial Paclitaxel technology to the Research &
Development Institute at Montana State University, a non-profit corporation
which manages intellectual property for Montana State University and the
Montana Collage of Mineral Science and Technology. The Research & Development
Institute at Montana State University was issued a U.S. patent on the microbial
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, we entered
into an agreement with the Research & Development Institute at Montana State
University whereby they granted us worldwide exclusive rights to their
technology. It has been reported that over ten companies, including several
major pharmaceutical companies, were competing to license this technology. In
March 1999, a broad patent issued for the production of Paclitaxel by
microorganisms isolated from the slow growing Pacific yew tree utilizing this
technology. We believe that the experience of Dr. Arthur P. Bollon, our
Chairman, President and Chief Executive Officer, in the area of fungi, which
originated from his Post-Doctoral Fellowship at Yale University, combined with
our research and development activities in anti-cancer products, contributed to
our obtaining the license.

Our Paclitaxel fermentation production system may also produce 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 using
Taxotere as a therapeutic for use in the treatment of lung cancer.

Development efforts are continuing with respect to our Paclitaxel
fermentation production system with the goal of generating commercial
quantities of Paclitaxel at reduced costs. Our scientists, in conjunction with
the inventors of the microbial Paclitaxel technology, have increased the level
of Paclitaxel production over 3,000 fold from the initial levels of production
under the Paclitaxel fermentation production system. Media, growth conditions
and strain improvements continue to be used to improve the Paclitaxel
fermentation production system. Our participation in this development program
is under the direction of Dr. Rajinder Sidhu, the director of our fungal
Paclitaxel program, and Dr. Bollon.

Furthermore, in July 1996, we and the Washington State University
Research Foundation entered into an agreement whereby we were granted 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 a critical step for
Paclitaxel production. The gene and other Paclitaxel genes isolated by Dr.
Croteau are expected to be utilized to further increase the efficiency of
Paclitaxel synthesis by fermentation. 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 has recognized Taxol(R) 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 to render
fast growing cells, such as cancer cells, 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
treatment-resistant ovarian and breast cancers, and forms of lung cancer 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 anti-cancer agents are free
from toxicity, Paclitaxel's comparatively 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 some patients' use of
Paclitaxel. In addition, Paclitaxel has been shown to produce a loss of
sensation or pain and tingling in the extremities and low white blood cell
counts, which also may, in certain cases, limit some patients' use of
Paclitaxel.

<PAGE> 27

In June 1991, the National Cancer Institute formalized a Collaborative
Research and Development Agreement for the development of Taxol(R) with
Bristol-Myers Squibb as its pharmaceutical manufacturing and marketing partner.
The agreement granted Bristol-Myers Squibb the exclusive use, until December
1997, of the National Cancer Institute's clinical data relating to Paclitaxel
in seeking approval from FDA, which significantly shortened the approval
process and prevented any other party from obtaining FDA approval using the
National Cancer Institute data. Although Bristol-Myers Squibb has since lost
its right of exclusivity under the agreement, effective Paclitaxel exclusivity
is still being maintained by Bristol-Myers Squibb due to a patent on its
Taxol(R) infusion method. That exclusivity is currently being contested by
other competitors in the courts. Bristol-Myers Squibb received FDA approval for
the commercial sale of its Taxol(R) as a treatment for refractory ovarian
cancer in December 1992, refractory breast cancer in April 1994 and Kaposi's
Sarcoma in August 1997. In 1998, Bristol-Myers Squibb received approval for
Taxol(R) treatment of lung cancer. Since December 1992, Bristol-Myers Squibb
has been the sole source of Taxol(R) for commercial purposes. It is our
understanding that Bristol-Myers Squibb is currently conducting clinical trials
required for The Food & Drug Administration approval of Taxol(R) for treating
other cancers. See "-Competition."

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

POLYCYSTIC KIDNEY DISEASE

In February 1996, we entered into two license agreements with the
University of California at Los Angeles granting us exclusive rights to a
pending patent entitled, "Inhibition of Cyst Formation By Cytoskeletal Specific
Drugs" that makes use of various drugs, one of which is Paclitaxel, and
technology for the treatment of Polycystic Kidney Disease.

Approximately 500,000 individuals in the U.S. and 5 million
individuals world-wide are afflicted with Polycystic Kidney Disease. There is
no treatment except management by dialysis or transplantations. Dr. David Woo
of UCLA has shown in an animal model system that Taxol(R) inhibits cyst
enlargement, resulting in increased survival of treated animals. In
collaboration with Dr. Woo, we are attempting to develop, although there can be
no assurance of successful completion, this potential new use of Taxol(R).
There can be no assurance that we will be able to perform human clinical
studies for Taxol(R) treatment or, if performed, such studies will be
successful. Also, a patent for treatment of Polycystic Kidney Disease by
Taxanes, of which Paclitaxel is included, issued in 1998. We are currently in
negotiations with potential strategic partners for the Paclitaxel treatment of
Polycystic Kidney Disease. However, there can be no assurances that such
negotiations will be successful.

QUANTUM CORE TECHNOLOGY(TM)

In connection with our employment of Dorit Arad, Ph.D. as Vice
President of Drug Design in January 1999, we acquired rights to certain
proprietary molecular scaffolds and technology for the mechanism-based design
of novel protease inhibitors as well as certain anti-cancer and anti-viral
agents developed by Dr. Arad in Tel Aviv, Israel. The design of mechanism-based
protease regulators is built upon an understanding of target structure and
chemical mechanism. Unlike structure-based rational drug design and
combinatorial chemistry where large numbers of molecules based upon known
substrate structure, with non-selective chemistry, may be screened for high
affinity binding and/or activity, we begin with an "active" core or scaffold of
low molecular weight known to be mechanism specific. Affinity maturation to
optimize enzyme binding (selectivity) is then achieved by standard
combinatorial chemistry approaches. Through our own proposed research and
development efforts as well as through potential future collaborative
agreements with research institutions and other pharmaceutical companies, we
anticipate, although there can be no assurance, developing additional
proprietary technology to serve as the basis for the eventual introduction of
commercial products. Commercial development of these products will require
significant additional financing for completion of development, clinical
studies and obtainment of regulatory approvals.

<PAGE> 28

HUMAN GENE DISCOVERY PROGRAM/LUNG CANCER PROGRAM

Our human gene discovery program focuses on identifying and isolating
human genes by utilizing biological markers employing monoclonal antibodies 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 our human gene discovery program is our
proprietary human gene expression libraries and our RetroselectionTM approach
to isolating human genes with a defined function. Currently, these libraries
consist of over 50,000 human gene clones which we isolated 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, we hope 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. Our human
gene discovery program concentrates on gene products with associated biological
or medical use as opposed to only DNA sequences. At present, we are focusing on
creating monoclonal antibodies and DNA probes products for diagnostic and
imaging applications.

We are developing a proprietary monoclonal antibody which recognizes a
specific protein on the surface of some lung cancer cells which is believed to
represent approximately 65% of lung cancers. In addition, the cancer related
human gene that makes this surface protein has been isolated by our scientists
by a process which we call "Retroselection." The specificity of this protein to
some lung cancers is based upon studies of biopsy material, biodistribution
studies of animal model systems and Phase I clinical trials. We filed a U.S.
patent application for this gene in July 1994 and such patent issued in
December 1996. A patent for the lung cancer gene marker issued in June 1998.

We are developing the lung cancer gene and lung cancer monoclonal
antibody 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 lung cancer monoclonal
antibody 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 determine whether the cancer has spread to other sites in the body. In
Phase I human clinical trials performed at Wadley, the lung cancer monoclonal
antibody made from mouse cells and labeled with a radioactive marker showed
strong specificity in 5 of 6 patients. In these trials, the lung cancer
monoclonal antibody 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 lung cancer monoclonal antibody which is presently under development by
Cytoclonal Pharmaceutics Inc. Working with cells in culture, Cytoclonal
Pharmaceutics Inc. is studying whether the lung cancer gene itself may be
potentially useful as a genetic probe to test for the presence of the lung
cancer gene expression where the lung cancer protein has not been made or has
been made at low levels.

Additional potential products under development using the lung cancer
gene and lung cancer monoclonal antibody are products for the delivery of
therapeutic drugs, such as Paclitaxel, to the cancer. The involvement of the
lung cancer gene in the formation and metabolism of the lung cancer is also
under investigation. In addition, the lung cancer protein could possibly be
used as an antigen for a vaccine against non-small cell lung cancer. We have
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.

Our human gene discovery program is also being used to isolate
additional novel cancer related genes utilizing specific monoclonal antibodies
for breast and ovarian cancer and melanoma which are proprietary to Cytoclonal

<PAGE> 29

Pharmaceutics Inc. A U.S. patent for the melanoma monoclonal antibody was issued
to WadTech and assigned to us. A U.S. patent for a melanoma antigen was issued
to us in August 1997.

Our human gene discovery program is conducted under the direction of
Dr. Richard Torczynski and Dr. Bollon. Dr. Torczynski and Dr. Bollon have
extensive experience isolating human genes including the lung cancer gene. The
human-related form of the lung cancer monoclonal antibody is under the direction
of Dr. Susan Berent.

OTHER PROGRAMS

In addition to our Paclitaxel fermentation production system program,
Paclitaxel treatment of Polycystic Kidney Disease, Quantum Core TechnologyTM
and human gene discovery program/lung cancer program, we are pursuing other
programs at modest levels which may serve as platforms for the development of
future products or alternatives to such primary programs. These include the
following programs:

o Vaccine Program;

o Anti-Sense Therapeutics Program;

o Production of Telomerase-the so-called "immortality enzyme";

o TNF-PEG: Broad Range Anti-cancer Drug Program;

o IL-T: Prevention of Radiation and Chemotherapy Damage Program; and

o IL-P Anti-leukemic Product Program.

Vaccine Program. The main objective of our vaccine program is to
develop genetically engineered live vaccines for diseases that are life
threatening. Our current strategy consists of identifying bacterial host
strains that are best suited for delivering recombinant immunogens and cancer
markers; developing proprietary cloning and expression vectors that can
transfer, maintain and express recombinant immunogens and cancer markers in the
delivery system; and 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.

We have identified three host strains of mycobacteria that appear well
suited for expressing and delivering protein and lipid antigens. Furthermore,
we have 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 lung cancer gene and other
cancer genes for breast cancer and melanoma which are under development. Our
goal is to license 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, the
director of our 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 Dr. Labidi is Dr. Hugo David, a consultant and member of
our Scientific Advisory Board. Dr. David was formerly the head of the
tuberculosis program at the Center for Disease Control in the U.S. and at the
Pasteur Institute.

Anti-sense Therapeutics Program. Anti-sense has the potential of
regulating genes involved in various disease states. We sponsor anti-sense
research and development under the direction of Dr. Donald Gray, Professor of
Molecular and Cell Biology at University of Texas at Dallas. We obtained an
exclusive world-wide license for certain anti-sense technology developed by Dr.
Gray. Pursuant to this program, Dr. Gray has developed proprietary technology
which may improve the efficiency of anti-sense reagents potentially applicable
to a broad spectrum of diseases. A patent for

<PAGE> 30

this technology issued in 1999. The capability has recently been computerized,
which will be contained in a related patent continuation-in-part.

Production of Telomerase. We have acquired an exclusive license from
the Research & Development Institute at Montana State University for rights to
a fungus that produces Telomerase, the so-called "immortality enzyme," which is
also expressed in most human cancers. Telomerase is a protein that builds up in
telomerese, the repeated sequence of DNA that caps and seals the ends of
chromosomes, protecting them from damage. While in most cells the gene that
makes Telomerase shuts down, cancer cells reactivate that gene and begin
multiplying uncontrollably. Based on work at several university laboratories,
Telomerase has been implicated in most human malignancies and germ cell lines.
Identified as the body's "immortality chemical," researchers have also examined
Telomerase for potential use in treating degenerative diseases associated with
aging, founded on the premise of endlessly dividing cells. Our goal is to
produce Telomerase commercially through fermentation, compensating for the
enzyme's low availability from other sources, for use as a potential diagnostic
test for cancer and for the development of drugs that inhibit Telomerase, which
could stop cancer cells from proliferating.

TNF-PEG: Broad Range Anti-cancer Drug Program. TNF is a natural immune
protein made by human cells. It has been found to kill a high percentage of
different cancer cells in vitro compared to normal cells and is one of the most
potent anti-cancer agents tested in animals. We have acquired technology and
analogs 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. Phase I and II
human clinical trials were performed at Wadley using 23 patients with different
kinds of cancer. These studies showed no therapeutic benefits from TNF in
humans because of the high toxicity of TNF at therapeutic doses and its
relatively short half life.

Pursuant to our research collaboration with Enzon, Inc., we are
developing an anti-cancer agent combining our TNF technology with Enzon's
patented polyethylene glycol, "PEG," technology. The technology 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 our knowledge, Enzon has two products on the
market using PEG, PEG-adenosine deaminase, for treatment of the immune
deficiency disease know as the "bubble boy" syndrome, and PEG-Asparaginase, a
cancer chemotherapeutic drug. In preliminary animal studies at Sloan-Kettering
Institute for Cancer Research, a TNF-PEG construct has been tested in an animal
cancer model system and was shown to kill tumors with possibly reduced
toxicity. 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
investigational new drug application for clinical trials is expected to be
submitted by either us or Enzon. There can, however, be no assurance that
similar results will be found in humans. Our agreement with Enzon 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 our
current intention. There can, however, be no assurance that we will have the
financial resources to meet such obligations. The Enzon Agreement also
specifies that Enzon will work with only us on the construction of TNF-PEG,
unless we consent to Enzon working with a third party.

IL-T: Prevention of Radiation and Chemotherapy Damage Program. This
program involves a novel protein called IL-T. The Wadley/Phillips Partnership
and we constructed IL-T through genetic engineering by fusing together parts of
two human immune proteins, Interleukin and TNF. We are testing various
combinations of human immune proteins 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 confirmation of protection
against radiation damage could potentially lead to filing an investigational
new drug application with the FDA followed by Phase I clinical trials. Products
proprietary to others

<PAGE> 31

have shown protection against radiation damage and to potentiate weakened immune
cells. We have filed a patent application for IL-T.

IL-P Anti-Leukemic Product Program. Through our joint venture with
Pestka Biomedical Laboratories, Inc., we are participating in the development
of a novel anti-leukemic drug known as "IL-P." This research and development
involves the application of certain technology developed at Pestka and licensed
to the joint venture. Various constructs of IL-P have been tested at Pestka,
and we expect to provide additional funding to the joint venture for the
continuation of such tests.

For the fiscal years ended December 31, 1998 and 1997, we incurred
$1,692,000 and $1,469,000, respectively, of research and development expenses.

COLLABORATIVE AGREEMENTS

BRISTOL-MYERS SQUIBB

In June 1998, we entered into a license agreement and a research and
development agreement with Bristol-Myers Squibb. Pursuant to the license
agreement, we granted Bristol-Myers Squibb exclusive world-wide sublicenses
under our agreements with the Research & Development Institute at Montana State
University and the Washington State University Research Foundation.
Bristol-Myers Squibb has the world-wide exclusive right to utilize the
technology licensed to us by the Research & Development Institute at Montana
State University to produce, have made and/or sell Paclitaxel, which is to be
commercialized as Taxol(R), and other taxanes and compounds, although no
assurances can be given. Also pursuant to the license agreement, Bristol-Myers
Squibb has the world-wide exclusive right to practice the technology licensed
to us by the Washington State University Research Foundation to make, have
made, use, lease and sell the products covered in our agreement with The
Washington State University Research Foundation, although no assurances can be
given. The term of the license agreement runs, subject to earlier termination
in certain circumstances, as to each product in each country of the territory
until the later of ten (10) years from the first commercial sale of a product
or such time as the making, use or sale at the time by Bristol-Myers Squibb,
its affiliates or sublicensees in such country of such product would not
infringe any U.S. or foreign patents or patent applications.

Bristol-Myers Squibb has the right to terminate the license agreement,
effective upon 90 days notice, in which event the sublicenses would also
terminate. However, any payment obligations of Bristol-Myers Squibb to us would
survive such termination.

In addition, pursuant to our license agreement with Bristol-Myers
Squibb, Bristol-Myers Squibb has the right of first negotiation during the term
of the license agreement to obtain from us an exclusive, world-wide right to
license or sublease to all or a part of any technology involving Taxol(R) or
natural products for anti-cancer treatment from microorganisms. The license
agreement provides for royalty and milestone payments.

The research and development agreement between us and Bristol-Myers
Squibb is renewable by Bristol-Myers Squibb for successive one-year periods
provided that the license agreement remains in effect at the time, contemplates
a program directed toward developing technologies for the production of
Paclitaxel and other taxanes and potentially new anti-cancer products from
microorganisms.

WADTECH

In October 1991, we entered into a purchase agreement with WadTech
whereby we acquired certain of WadTech's right, title and interest in and to
technology. The technology includes, but is not limited to, technology related
to proteins, a novel interferon, and select melanoma, ovarian, breast, colon
and lung cancer monoclonal antibodies.

<PAGE> 32

Pursuant to our agreement with WadTech, we have agreed to pay WadTech
the sum of $1,250,000, to be earned out of royalties; to assume WadTech's
obligations under a license agreement to pay royalties of up to 3.75% on
products produced using recombinant yeast expression system; and to pay to
WadTech minimum annual royalties of $125,000. Our agreement with WadTech
provides that the royalties and other sums payable by us to WadTech are at a
higher rate until the original $1,250,000 has been paid in full. The term of
our agreement with WadTech is for 99 years but may be terminated earlier by
WadTech if we fail to cure a default or if we breach any material term or
condition of the agreement.

In order to secure our obligation to pay the original fee of
$1,250,000 to WadTech, we entered into a security agreement with WadTech
pursuant to which WadTech retains a security interest in all of the technology.
The security agreement also provides that in the event of a default, WadTech
has the right to license or sell the technology to a third party.

THE RESEARCH & DEVELOPMENT INSTITUTE AT MONTANA STATE UNIVERSITY

In June 1993, we entered a license agreement with the Research &
Development Institute, a non-profit entity which manages the intellectual
property of Montana State University. Pursuant to this agreement, we were
granted worldwide exclusive rights to microbial technology to produce
Paclitaxel. We are obligated to pay the Research & Development Institute
royalties on sales of products using the technology and a percentage of
royalties paid to us by sublicensees of the technology. We have also agreed to
pay the Research & Development Institute $100,000 each year the license is
retained. In 1994, we granted stock options to the Research & Development
Institute to purchase up to 20,000 shares of our common stock at $2.50 per
share exercisable over four years, all of which are currently exercisable.

Also in June 1993, we and the Research & Development Institute at
Montana State University entered into a research and development agreement. The
agreement provides for the Research & Development Institute to perform research
and development activities at Montana State University relating to Paclitaxel
production. Pursuant to the agreement, we agreed to pay four annual payments of
$250,000. In 1998, we and the Research & Development Institute agreed to renew
the research and development agreement for one year. To date, we have paid a
total of $1,637,000 under the license and research and development agreements
with the Research & Development Institute. In February 1995, we amended the
license and research and development agreements to include technology developed
and to be developed by Dr. Gary Strobel, Dr. Andrea Stierle and Dr. Donald
Stierle. 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 May 1998, the license agreement was amended to
require us to pay a percentage of all milestone and royalty payments we
received under our sublicenses with Bristol-Myers Squibb.

In February 1995, we entered into a license agreement with the
Research & Development Institute at Montana State University. Pursuant to this
agreement, we were granted worldwide exclusive rights to exercise all
intellectual property rights relating to a fungal strain identified as "FTS-2"
relating to breast cancer. In October 1995, we entered into a license agreement
with the Research & Development Institute at Montana State University where we
were granted worldwide exclusive rights to exercise all intellectual property
rights relating to a fungal strain identified as "Tbp-5" also relating to
breast cancer. Pursuant to the FTS-2 license agreement and the Tbp-5 license
agreement, we have agreed to pay the Research & Development Institute royalties
on sales of products or services using the intellectual property and a
percentage of royalties paid to us by sublicensees using the intellectual
property rights.

In March 1999, a broad patent was issued for the production of
Paclitaxel utilizing the technology licensed to Cytoclonal Pharmaceutics Inc.
pursuant to our agreement with the Research & Development Institute.

<PAGE> 33

THE UNIVERSITY OF CALIFORNIA AT LOS ANGELES

In February 1996, we entered into two license agreements with UCLA:

(i) the first for exclusive rights to a pending patent entitled,
"Inhibition of Cyst Formation By Cytoskeletal Specific Drugs,"
that makes use of various drugs, one of which is Paclitaxel;
and

(ii) the second for exclusive rights to technology in the field of
pharmacological treatment for Polycystic Kidney Disease.

Pursuant to our first license agreement with UCLA, we paid a fee of
$5,000 and have agreed to pay UCLA $10,000 upon issuance of a patent.

Pursuant to our second license agreement with UCLA, we paid a fee of
$5,000 and have agreed to pay UCLA $5,000 upon issuance of a patent. We are
obligated to pay a yearly license maintenance fee on both licenses until we
commercially sell products based upon the licensed technologies.

In August 1998, we entered into a third exclusive world-wide license
agreement with UCLA for any domestic and foreign patents and patents pending
based upon and including any subject matter claimed in or covered by a U.S.
patent pending entitled, "Peptide Antiestrogen Compositions and Methods for
Treating Breast Cancer." We have the exclusive right to make, use, sell, offer
for sale and import certain products involving the patent and to conduct any
process or method covered by the patent. Also, we may grant sublicenses to
third parties to make, use, sell, offer for sale and import products using the
patent, provided we retain exclusive rights thereto under the agreement. The
agreement requires us to pay up-front, royalty, milestone, annual and quarterly
payments. The term of the agreement ends upon the termination or cancellation
of the last patent covered by the patent application, subject to earlier
termination by UCLA if we fail to perform certain studies and clinical trials
by certain dates or to timely cure any defaults.

ENZON

In July 1992, Enzon and we entered into a collaborative research and
development agreement to develop an anti-cancer agent by combining our 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 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 is unable to share jointly, the continuing
party will receive exclusive worldwide licenses in the technology of the other
party and will pay the other party royalties. The term of the agreement is 15
years for each product developed under the program from the date of FDA
approval to market such product. Enzon and we also entered into a similar
agreement in March 1992 relating to combining various target proteins to be
developed by us with Enzon's technology pursuant to which Enzon funded certain
of our initial research and development activities thereunder.

SLOAN-KETTERING

Pursuant to a research agreement, dated April 1994, between us and
Sloan-Kettering, Sloan-Kettering has agreed to evaluate 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 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 us 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 evaluation.

<PAGE> 34

CYTOMUNE

Cytomune, Inc. is a 50/50 joint venture between us and Pestka
Biomedical Laboratories, Inc. A novel anti-leukemic drug called "IL-P" is in
development utilizing proprietary technology developed by Dr. Sidney Pestka.
The objective of the joint venture is to develop IL-P for the diagnosis and
treatment of leukemia. We 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 AT DALLAS

In June 1992, we entered into an agreement with the University of
Texas at Dallas, which has been amended, pursuant to which the University is to
perform certain research and development activities relating to anti-sense
compounds and related technology for use in humans. Pursuant to the agreement,
the University provides all necessary personnel, equipment supplies and
facilities in consideration for an amended budget not to exceed $347,712.
Inventions under the agreement, if any, will be the property of the University.
However, the University must grant us the right of first refusal to acquire a
license to develop and commercialize any intellectual property resulting from
the agreement for a royalty not to exceed 8% of the net sales of any
commercialized products. The agreement has been extended through August 1999 in
consideration for our agreement to increase the original funding commitment to
$347,712 of which we have paid in the amount of $293,132 as of March 31, 1999.

In June 1996, we entered into a patent license agreement with the
board of regents of the University of Texas whereby we have an exclusive
royalty-bearing license to manufacture, have manufactured, use, sell and
sublicense products related to a U.S. patent application entitled, "A Method
for Ranking Sequences to Select Target Sequence Zones of 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.
We are required to pay royalty and sublicensing fees. The agreement expires on
the later of 20 years or the expiration of patent rights. However, the
agreement will terminate automatically if we fail to make all required payments
or to timely cure any default.

HELM AG

We entered into a marketing agreement, effective in November 1994,
with Helm AG, a world-wide distributor of pharmaceutical and related products,
whereby we granted Helm AG the right, in certain parts of Europe, to market our
technology and products and to arrange business introductions for us on a
commission basis. The agreement may be terminated by either party upon six
months' notice. To date, we do not have any products available for
distribution, and no revenues have been derived from this agreement. There can
be no assurance that any revenues will be derived from this agreement in the
future.

THE WASHINGTON STATE UNIVERSITY RESEARCH FOUNDATION

In July 1996, we entered into an agreement with the Washington State
University Research Foundation whereby we received an exclusive, world-wide
license to use or sublicense the foundation's technology. We are required to
pay the foundation license fees of $7,500 per year as well as certain royalties
and sublicensing fees. The agreement shall be in full force and effect until
the last of the patents licensed under the technology expires. However, we may
terminate the agreement on 90 days' notice, provided that all amounts due to
the foundation are paid. The Washington State University Research Foundation
may terminate the agreement immediately if we cease to carry on its business or
within 90 days' notice upon an event of default or if we breach the agreement.
In connection with this agreement, we granted the foundation warrants to
purchase 36,000 shares of our common stock at $4.25 per share. Such warrants
vest annually in 12,000 increments, commencing July 1999 and expiring July
2002. In June 1998, we and the foundation amended our agreement to cover
additional patents and patent applications which are expected to be filed in
the future and to grant us an option, expiring July 2006, to license any
prospective technology as it is developed. There can be no assurance that we
will derive any revenues from this agreement.

<PAGE> 35

PATENTS, LICENSES AND PROPRIETARY RIGHTS

We own and have rights to a number of patents and patent applications.
In 1991, we entered into an agreement with WadTech, whereby we were assigned
two issued U.S. patents expiring in 2006 and 2007, respectively, three pending
U.S. patent applications and six pending foreign patent applications held by
WadTech. Our U.S. patent for the lung cancer gene issued in December 1996. A
patent for the lung cancer gene marker issued in June 1998.

Pursuant to our agreement with the Research & Development Institute at
Montana State University, we were granted an exclusive license to the
technology contained in the Paclitaxel fermentation production system,
including one issued U.S. patent, one U.S. patent application with allowed
claims and foreign patent applications.

Pursuant to our agreement with the University of Texas at Dallas, we
have the right of first refusal to acquire a license to develop and
commercialize products using anti-sense technology covered by a patent issued
to the University in 1999.

Pursuant to our first agreement with UCLA, we have an exclusive
license to technology involving a patent entitled, "Inhibition of Cyst
Formation By Cytoskeletal Specific Drugs," and related patents of which claims
have been allowed by the U.S. Patent and Trademark Office in August 1997.
Pursuant to our third agreement with UCLA, we have an exclusive, world-wide
license to technology involving a U.S. patent pending entitled, "Peptide
Antiestrogen Compositions and Methods for Treating Breast Cancer."

In connection with our employment of Dr. Dorit Arad in January 1999,
we were assigned patent applications for technology including "Pharmaceutical
Preparation Which Compromises Inhibitors of Cysteine Protease," "Modulators of
Cysteine Protease," "Novel Antiviral Compounds," and "Cysteine Protease
Inhibitors."

In March 1999, a broad patent issued for the production of Paclitaxel
by microorganisms isolated from the slow growing Pacific yew tree utilizing the
technology licensed to us pursuant to our agreement with the Research &
Development Institute at Montana State University.

Our policy is to protect our 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,
we have filed and intend to file, patent applications in foreign countries on a
selective basis. We have filed patent applications relating to our IL-T and
lung cancer gene technologies and are 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 our issued patents or any patents subsequently issued to us or
licensed by us will not be successfully challenged in the future. The validity
or enforceability of a patent after its issuance by the Patent and Trademark
Office can be challenged in litigation. If the outcome of the litigation is
adverse to the owner of the patent, third parties may then be able to use the
invention covered by the patent, in some cases without payment. There can be no
assurance that patents in which we have rights will not be infringed or
successfully avoided through design innovation.

There can be no assurance that patent applications owned by us or
licensed to us 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 needed by us. 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 us from using certain
technology or from further developing or commercializing certain products. If
licenses from third parties are necessary but cannot be obtained,
commercialization of the related products would be delayed or prevented. We are
aware of patent applications and issued patents belonging to competitors but we
are uncertain whether any of these, or patent applications filed of which we
may not have any knowledge, will require us to alter our potential products or
processes, pay licensing fees or cease certain activities.

<PAGE> 36

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

COMPETITION

All of our proposed products will face competition from existing
therapies. The development by others of novel treatment methods for those
indications for which we are developing compounds could render our 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 as well as price and timing of
market introduction of competitive products. Acceptance by hospitals,
physicians and patients is crucial to the success of a product. Price
competition may become increasingly important as a result of an increased focus
by insurers and regulators on the containment of health care costs. In
addition, the various federal and state agencies have enacted regulations
requiring rebates of a portion of the purchase price of many pharmaceutical
products.

Most of our existing or potential competitors have substantially
greater financial, technical and human resources than us 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
ours.

Our competition also will be determined in part by the potential
indications for which our compounds are developed. For certain 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 we 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. We expect that
competition among products approved for sale will be based on, among other
things, product efficacy, safety, reliability, availability, price and patent
position.

Our competitive position also depends upon our 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 our products and our 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
review by the Food & Drug Administration. 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 us to enter into supply
contracts and criminal prosecution. The FDA also has the authority to revoke
product licenses and establishment licenses previously granted.

<PAGE> 37

In order to obtain approval of a new product from the Food & Drug
Administration, we 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 us in our efforts to obtain FDA approvals that could delay or
preclude us 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 products or technologies,
delays imposed by the governmental approval process may materially reduce the
period during which we 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," which govern all aspects of the manufacturing
process. The FDA has published a "Points to Consider" guidance document with
respect to the manufacturing of monoclonal antibodies 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.
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" regulations. Violations of these
regulations can, in some cases, lead to invalidation of the studies, requiring
those studies to be replicated.

Once the investigational new drug 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 investigational new drug application was submitted for the
lung cancer monoclonal antibody clinical trials at Wadley. We intend to file an
investigational new drug application for a humanized form of the lung cancer
monoclonal antibody followed by clinical trials. The results of the
pre-clinical and clinical testing are submitted to the FDA in the form of a new
drug application or, in the case of a biologic, such as lung cancer monoclonal
antibody and other monoclonal antibodies, as part of a product license
application. In a process which generally takes several years, the FDA reviews
this application and, when or 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 a new drug application, 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.

<PAGE> 38

The manufacturing of a biologic product must be in a facility covered
by the Food & Drug Administration-approved Establishment License Application.
The 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 the Food & Drug Administration demanding 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 the Food & Drug Administration withdrawal of approval to
market the product.

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.

Our ability to successfully commercialize our products may depend 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 payers 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 us
to maintain price levels sufficient to realize an appropriate return on this
investment in product development.

We are also subject to regulation by the Occupational Safety and
Health Administration and the Environmental Protection Agency 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 our research and development programs.
We are unable to predict whether any agency will adopt any regulation which
could have a material adverse effect on our operations.

Sales of pharmaceutical products outside the United States are subject
to foreign regulatory requirements that vary widely from country to country.
Whether or not the Food & Drug Administration 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 the Food & Drug Administration approval.

MANUFACTURING AND MARKETING

Neither we nor any of our officers or employees has pharmaceutical
marketing experience. Furthermore, we have never manufactured or marketed any
products and we do not have the resources to manufacture any products on a
commercial scale. Our long-term objective is to manufacture and market certain
of our products and to rely upon independent third parties for the manufacture
of certain of our other products. For the foreseeable future, we will be
required to rely upon corporate partners or others to manufacture or market our
products. No assurance can be given that will be able to enter into any such
arrangements on such acceptable terms, if at all.

Manufacturing. While we intend to select manufacturers that comply
with regulatory standards, there can be no assurance that these manufacturers
will comply with such standards, that they will give our orders the highest
priority or that we will be able to find substitute manufacturers, if
necessary, if our selected manufacturers prove to be unsatisfactory. In order
for us to establish a manufacturing facility, we will require substantial
additional funds and will be required to hire and retain significant additional
personnel and comply with the extensive regulations of the FDA

<PAGE> 39

applicable to such a facility. No assurance can be given that we will be able to
make the transition successfully to commercial production, should it choose to
do so.

Marketing. Despite our 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 we will be successful in penetrating the markets for any
products developed. For certain products under development, we may seek to
enter into development and marketing agreements which grant exclusive marketing
rights to our corporate partners in return for royalties to be received on
sales, if any. Under certain agreements, our marketing partner may have the
responsibility for all or a significant portion of the development and
regulatory approval. In the event that our marketing and development partners
fail to develop a marketable product or to successfully market a product, our
business may be materially 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 we 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 us. We
intend to obtain product liability insurance for our ongoing clinical trials.
Such coverage may not be adequate as and when we develop our products. There
can be no assurance that we will be able to obtain, maintain or increase its
insurance coverage in the future on acceptable terms or that any claims against
us will not exceed the amount of such coverage.

HUMAN RESOURCES

As of July 6, 1999, we had 19 full-time employees, 15 of whom were
engaged directly in research and development activities, including eight
Ph.D.s, and four of whom were in executive and administrative positions. Our
employees are not governed by any collective bargaining agreement, and we
believe that our relationship with our employees is good.

PROPERTY

We occupy an aggregate of approximately 21,400 square feet of both
office and laboratory space in Dallas, Texas at two separate facilities. We
lease approximately 4,800 square feet of office and laboratory space pursuant
to a lease agreement expiring in August 1999. In addition, we occupy an
additional approximate 16,600 square feet of office and laboratory space,
including approximately 11,000 square feet added in 1999, pursuant to a lease
assigned to us by the Wadley/Phillips Partnership and which lease term has been
extended until December 2000. Our lease payments for the fiscal year ended
December 31, 1998 were approximately $142,000. We believe that its current
facilities are suitable for our present needs.

LEGAL PROCEEDINGS

As of the date hereto, we are not a party to any material legal
proceedings.

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL SCIENTISTS

The following persons serve as our executive officers, directors and
principal scientists:

<TABLE>
<CAPTION>
Name: Age: Position:
----- ---- ---------

<S> <C> <C>
Arthur P. Bollon, Ph.D. 56 Chairman of the Board of Directors, President, Chief
</TABLE>

<PAGE> 40

<TABLE>
<CAPTION>
Name: Age: Position:
----- ---- ---------

<S> <C> <C>
Executive Officer and Member of the Audit Committee of
the Board of Directors

Ira J. Gelb, M.D. 71 Director and Member of the Audit Committee and
Compensation Committee of the Board of Directors

Irwin C. Gerson 69 Director and Member of the Audit Committee and
Compensation Committee of the Board of Directors

Walter M. Lovenberg, Ph.D. 64 Director and Member of the Compensation Committee of
the Board of Directors

Gary E. Frashier 63 Director

Daniel Shusterman, J.D. 35 Vice President of Operations, Treasurer and Chief
Financial Officer

Dorit Arad, Ph.D. 39 Vice President of Drug Design

Susan L. Berent, Ph.D. 46 Director of Gene & Protein Engineering and Information
Systems, Co-Director Molecular Immunology and Gene
Expression Systems

Hakim Labidi, Ph.D. 41 Director of Vaccine Program

Rajinder Singh Sidhu, Ph.D. 50 Director of Fungal Paclitaxel Program, Co-Director of
Gene Expression Systems

Richard M. Torczynski, Ph.D. 43 Director of Human Gene Discover, Mammalian Expression
system and Diagnostic Development, Co-Director of
Molecular Immunology
</TABLE>

Arthur P. Bollon, Ph.D., a founder of the Company, has since the
Company's inception in 1991 served as the Company's 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. Dr. Bollon has
served as consultant to a number of major companies, including Merck, Sharp &
Dohme and Diamond, Shamrock, and has 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 the Wadley Institutes of
Molecular Medicine. In his capacities at the Wadley/Phillips Partnership and
Wadley Institutes, Dr. Bollon played a leading role in bringing the technology
that forms the basis of the Company 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, Dr. Gelb 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 Adjunct 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 former
President of the American Heart Association, Westchester-Putnam Chapter, and was
a Senior Assistant Editor with the American Journal of Cardiology from 1968 to
1983, when he 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 on the boards of
various pharmaceutical companies. Since 1992, Dr. Gelb has been an Honorary
Lecturer at The Mount Sinai School of Medicine. Dr. Gelb has also served as the
Clinical Coordinator of Biomedical Programs and

<PAGE> 41

Professor of Chemistry & Biochemistry at Florida Atlantic University, "FAU,"
since 1998, an Adjunct Professor and a member of FAU's Foundation Board since
October 1996 and FAU's Steering Committee since 1997. Dr. Gelb has served as a
member of the Board of Directors of the American Heart Association, Boca Raton
Division since December 1996 and was appointed President in June 1999. In 1998,
Boca Raton Community Hospital added Dr. Gelb as a member to its Foundation
Board. In November 1998, Dr Gelb was appointed Voluntary Professor of Medicine
at the University of Miami School of Medicine.

Irwin C. Gerson has been a director of the Company since March 1995.
Since January 1998, Mr. Gerson has served as Chairman Emeritus of Lowe McAdams
Healthcare. From 1995 until December 1997, Mr. Gerson served as Chairman of
Lowe McAdams Healthcare and prior thereto 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 has a B.S. in Pharmacy from Fordham
University and an MBA from the NYU Graduate School of Business Administration.
He is a director of Andrx Corporation, a Nasdaq-listed public company. 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 has
served as a Member of the Board of Governors, New York Council, American
Association of Advertising Agencies, a Director of Business Publications Audit,
a Director of the Connecticut Grand Opera, and a Director of the Stamford
Chamber Orchestra. Mr. Gerson previously served as a 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.

Walter M. Lovenberg, Ph.D. has been a director of the Company since
August 1995. From 1989 to 1993, Dr. Lovenberg served as Executive Vice President
and member of the Board of Directors of Marion Merrell Dow Inc. Dr. Lovenberg
also 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 in 1958, Dr. Lovenberg was a Senior Scientist and Chief of
Biochemical Pharmacology at the National Institutes of Health. Dr. Lovenberg has
served President of Lovenberg Associates, Inc. since 1993. Since 1997, Dr.
Lovenberg has served as Chief Executive Officer of Helicon Therapeutics Inc., a
private company, and since 1992 and 1995, Dr. Lovenberg has served as a director
of Xenometrix, Inc. and a director of Inflazyme Pharmaceutics, Ltd. (which is
traded on the Toronto Exchange). Also, since 1994, Dr. Lovenberg has served as
director of OSI Pharmaceuticals, Inc., a Nasdaq-listed public company. Dr.
Lovenberg received a Ph.D. in Biochemistry from George Washington University in
1962 and a B.S. in Biochemistry and an M.S. in Agriculture from Rutgers
University in 1958 and 1956, respectively. 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. Dr.
Lovenberg 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.

Gary E. Frashier commenced serving as a director of the Company on June
28, 1999. Since December 1997, Mr. Frashier has served as Chairman of the Board
of Directors of OSI Pharmaceuticals, Inc., "OSIP," a Nasdaq-listed public
company engaged in the discovery and development of novel, small-molecule
pharmaceutical products for commercialization by the pharmaceutical industry.
Mr. Frashier was Chief Executive Officer of OSIP from March 1990 until October
1998. From March 1994 to December 1997, Mr. Frashier also served as Vice
Chairman of the Board of OSIP, and was President of OSIP from March 1990 to
March 1994. From April 1987 to February 1990, Mr. Frashier served as the
President, Chief Executive Officer and director of Genex Corporation, a then
publicly-traded biotechnology company specializing in protein engineering. From
January 1984 to March 1987, Mr. Frashier served as Chairman and Chief Executive
Officer of Continental Water Systems, Inc., a privately-held corporation. Mr.
Frashier currently serves as a director of Anaderm Research Corp. and Helicon
Therapeutics, Inc., both of which are privately-held companies. Mr. Frashier
received his B.S. in chemical engineering from Texas Tech University in 1958 and
M.S.

<PAGE> 42

in Management from MIT in 1970. Mr. Frashier also serves as a director of
Atlantic Biopharmaceutics, Inc. a privately-held company.

Daniel Shusterman, J.D. was named our Vice President of Operations in
1994 and Treasurer and Chief Financial Officer in March 1995, after having
served as our Director of Operations since he joined us 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 us. 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, Mr. Shusterman is contributing to our implementation of an
intellectual property protection and maintenance system.

Dorit Arad, Ph.D. joined us as Vice President of Drug Design in January
1999. From 1996 until 1998, Dr. Arad served as Scientific Director at Saturi
Medical Research LTD. From 1991 until 1993, Dr. Arad served as a consultant to
Teva-Israel Pharmaceutical Industries. In addition, Dr. Arad has served as an
instructor and lecturer at Technicon in Haifa, Israel and as a lecturer at the
Tel-Aviv University. Dr. Arad is the co-author of a number of scientific
articles and papers. Dr. Arad received her B.Sc., M.Sc. and D.Sc. Degrees in
Chemistry from Technicon, Haifa, Israel.

Susan L. Berent. Ph.D. has been with us since 1991 as the Director of
our Gene and Protein Engineering and Computer Systems. Dr. Berent received her
Ph.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 us. Dr. Berent is an expert in protein chemistry, DNA
libraries, cytokines such as TNF, and production Systems.

Hakim Labidi Ph.D. has been with us since 1991 as the Director of our
Vaccine Program. Dr. Labidi received his Ph.D. in Microbiology at the Pasteur
Institute in Paris, France and has been one of our senior scientists since 1991.
Prior to joining us, 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 us since 1991 as the Director
of our Fungal Program and Co-Director of our 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 us. 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 us since 1991 as the
Director of our Human Gene Discovery, Mammalian Expression System and Diagnostic
Development programs, and Co-Director of our Molecular Immunology program. 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.

Our 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.

As of July 1, 1999, directors receive fees of $1,500 per month, or an
annual fee of $18,000. Dr. Gelb has, to date, also received options to purchase
129,000 shares of common stock with exercise prices ranging from $2.69 to $5.00
per share. Mr. Gerson has, to date, received options to purchase 125,000 shares
of common stock with exercise prices ranging from $2.69 to $5.00 per share. Dr.
Lovenberg has, to date, received options to purchase 125,000 shares

<PAGE> 43

of common stock with exercise prices ranging from $2.69 to $5.00 per share. Mr.
Frashier has, to date, received options to purchase 50,000 shares of common
stock with an exercise price of $6.00 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. See "Security Ownership of Certain
Beneficial Owners and Management."

Our Certificate of Incorporation includes certain provisions permitted
pursuant to Delaware law whereby our officers and directors are to be
indemnified against certain liabilities. Our 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, we have obtained an insurance policy
providing coverage for certain liabilities of its officers and directors.

We have been advised that it is the position of the SEC 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.

SCIENTIFIC ADVISORS/CONSULTANTS

Our Scientific Advisory Board currently consists of individuals having
extensive experience in the fields of molecular genetics, chemistry, oncology
and microbiology. At our request, the scientific advisors review and evaluate
our research programs and advise us with respect to technical matters in fields
in which we are involved.

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

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

<S> <C>
Yitzhak Apeloig, Ph.D. ................................... Professor, Department of Chemistry at the
Technion-Israel Institute of Technology

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 and 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 Institute of Health

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

<PAGE> 44

<TABLE>
<S> <C>
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 other such entities, some of which may compete
with us. Four of the current scientific advisors receive $1,000 per month from
us. The scientific advisors are expected to devote only a small portion of
their time to us and are not expected to participate actively in our day-to-day
affairs. 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 us. 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 our
competitors.

Dr. Yitzak Apeloig is Professor and Chairman of the Department of
Chemistry at the Technion - Israel Institute of Technology in Haifa, Israel. He
is an authority in the areas of Organosilicon Chemistry, Computational Chemistry
and Mechanistic Organic Chemistry.

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 and a 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
of the 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 us on
anti-sense therapy.

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 anti-cancer 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 Cytoclonal Pharmaceutics Inc. to
make the anti-cancer drug, Paclitaxel.

EXECUTIVE COMPENSATION

The following table sets forth the aggregate compensation paid or
accrued by us for services rendered during the last three fiscal years to Dr.
Arthur P. Bollon, our Chief Executive Officer. Under the Securities Act, we are
required to disclose the same information for our four most highly compensated
executive officers, in addition to our Chief Executive Officer, whose annual
compensation exceeded $100,000 for the fiscal year ended December 31, 1998.
However, since none of our executive officer's, other than Dr. Bollon's,
compensation exceeded $100,000 for the last fiscal year, we are only required
to disclose Dr. Bollon's compensation for the past three fiscal years.

<PAGE> 45

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------------------- ---------------
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION YEAR SALARY BONUS (CAR ALLOWANCE) STOCK OPTIONS #
------------------ ---- ------ ----- --------------- ---------------

<S> <C> <C> <C> <C> <C>
Arthur P. Bollon, 1998 $186,230 -- $6,000 100,000
- -Chairman of the Board, 1997 $180,856 -- $6,000 95,000
President and Chief 1996 $165,951 -- $6,000 150,000
Executive Officer
</TABLE>

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

Arthur P. Bollon, Ph.D. is employed by us under an employment
agreement, expiring November 6, 2003. The employment agreement provides for the
payment to Dr. Bollon of a base salary of $200,000 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, 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.

We granted Dr. Bollon the following options:

o In November 1992, we granted Dr. Bollon options to purchase
200,000 shares of our common stock at an exercise price of $1.65
per share.

o In April 1996, we granted Dr. Bollon options to purchase 50,000
shares of our common stock at an exercise price of $4.125 per
share.

o In December 1996, we granted Dr. Bollon options to purchase
100,000 shares of our common stock at an exercise price of $2.25
per share.

o In January 1997, we granted Dr. Bollon options to purchase 50,000
shares of our common stock at an exercise price of $2.375 per
share.

o In June 1997, we granted Dr. Bollon options to purchase 20,000
shares of our common stock at an exercise price of $2.6875 per
share.

o In September 1997, we granted Dr. Bollon options to purchase
25,000 shares of our common stock at an exercise price of $4.3125
per share.

o In September 1998, we granted Dr. Bollon options to purchase
25,000 shares of our common stock at an exercise price equal to
$3.56 per share.

o In October 1998, we granted Dr. Bollon options to purchase 75,000
shares of our common stock at an exercise price of $4.75 per
share.

All but the October 1998 stock option grant has been registered under
the Securities Act. All such options are exercisable to the extent of 40% after
six months of continuous employment from the date of grant and to the extent of
an additional 20% on and after each of the first three anniversaries of the
date of grant.

<PAGE> 46

Each of our executive officers and principal scientists have entered
into confidentiality and patent assignment agreements with Cytoclonal
Pharmaceutics Inc..

STOCK OPTIONS

In October 1992, our Board of Directors adopted the Cytoclonal
Pharmaceutics Inc. 1992 Stock Option Plan. 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, and nonstatutory stock options which
do not so qualify. Under the 1992 Plan, as amended, 520,000 shares of our
common stock were reserved for issuance to our officers, employees, consultants
and advisors. As of March 31, 1999, options to purchase 218,500 shares of our
common stock have been exercised, no shares are available for future grant and
options to purchase 301,500 shares of common stock remain outstanding under the
1992 Plan. The exercise prices of such options range from $1.65 to $5.00 per
share.

In April 1996, our Board of Directors adopted the Cytoclonal
Pharmaceutics Inc. 1996 Stock Option Plan. Under the 1996 Plan, 750,000 shares
of our common stock have been reserved for issuance to our officers, employees,
consultants and advisors. The 1996 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, and nonstatutory stock options which do not
so qualify. In October 1998, stockholders approved an amendment to the 1996
Plan to increase the number of stock options available for grant under the plan
from 750,000 to 1,500,000. As of March 31, 1999, options to purchase 5,400
shares of our common stock have been exercised, options to purchase 487,000
shares of our common stock are available for future grant and options to
purchase 1,007,600 shares of our common stock remain outstanding. The exercise
prices of such options granted so far range from $2.25 to $8.375 per share. All
such options are 40% exercisable after six months of continuous employment from
the date of grant and increase by 20% increments on each of the first three
anniversaries of the date of grant.

Our stock option plans are administered by the Compensation Committee
of our Board of Directors. Subject to the limitations set forth in the plans,
the Compensation Committee has the authority to determine to whom options will
be granted, the term and vesting schedule of options and the exercise price.
The maximum term of each incentive stock option granted under the plans is ten
years. The exercise price of options qualifying as "incentive stock options"
may not be less than the fair market value of our common stock on the date of
the grant. The exercise price of incentive stock options granted to any
participant who owns more than 10% of the total combined voting power of all
classes of our outstanding stock must be not less than 110% of the fair market
value on the date of grant, and 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 options is payable in cash or, at the
discretion of the Board, in our 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.

The following table sets forth certain information with respect to
options granted during the year ended December 31, 1998 to Dr. Bollon, our
Chief Executive Officer. Besides Dr. Bollon, none of our executive officer's
1998 annual compensation exceeded $100,000, and therefore, are not listed in
accordance with the Securities Act.

<PAGE> 47

OPTION GRANTS IN FISCAL YEAR 1998

<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., 25,000 8.4 $3.56 September 1, 2008
- -Chairman of the Board of 75,000 25.3 $4.75 October 7, 2008
Directors, President and
Chief Executive Officer
</TABLE>

The following table sets forth certain information with respect to each
exercise of stock options during the fiscal year ended December 31, 1998 by Dr.
Bollon and the number and value of unexercised options held by Dr. Bollon as of
December 31, 1998:

AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND FY-END OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED IN-
NUMBER OF SECURITIES THE-MONEY
UNDERLYING OPTIONS AT
UNEXERCISED FY-END (#)
OPTIONS AT EXERCISABLE/
SHARES FY-END (#) UNEXERCISABLE BASED ON FAIR
ACQUIRED ON VALUE EXERCISABLE/ MARKET VALUE OF COMMON
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE STOCK ON DECEMBER 31, 1998
- ---- ------------ ------------ ------------- --------------------------

<S> <C> <C> <C> <C>
Arthur P. Bollon, Ph.D.
- -Chairman of the Board of
Directors, President and Chief
Executive Officer 0 0 387,000/158,000 $2,660,625/$1,086,250
</TABLE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

Generally, under the Securities Exchange Act of 1934, a person is
deemed to "beneficially own" securities which that person has the right to
acquire within 60 days. The following table sets forth certain information
regarding the beneficial ownership of our capital stock as of July 6, 1999 by
each person deemed to be the beneficial owner of more than 5% of any class of
our capital stock, each of our directors and all directors and executive
officers as a group, without naming them. Information as to Kinder Investments,
L.P.; Peyser Associates, L.L.C., the general partner of Kinder; and Brian A.
Wasserman, the managing partner of Peyser, was derived from the Schedules 13G,
as amended, filed by such stockholders with the SEC on April 8, 1998, and,
except for the percentage ownership, reflects the information contained therein
as of the date such Schedules 13G, as amended, were filed. Except as otherwise
indicated, each of the persons named has sole voting and investment power with
respect to the shares shown below.

<PAGE> 48

<TABLE>
<CAPTION>
COMMON STOCK SERIES A PREFERRED STOCK
------------------------------- ----------------------------
PERCENT OF ALL
AMOUNT AND NATURE AMOUNT AND NATURE VOTING
NAME AND ADDRESS OF BENEFICIAL PERCENT OF OF BENEFICIAL PERCENT OF SECURITIES
OF BENEFICIAL OWNER(1) OWNERSHIP (2) CLASS (2) OWNERSHIP (3) CLASS (3) (4)
---------------------- ----------------- ---------- ----------------- ---------- --------------

<S> <C> <C> <C> <C> <C>
Janssen-Meyers Associates, L.L.P.(5)... 2,684,279 24.2% 24,200 3.4% 22.7%

Bruce Meyers(6)........................ 1,840,446 16.8% 24,200 3.4% 15.7%

Peter W. Janssen(7).................... 1,187,547 11.0% -- -- 10.3%

Kinder Investments, L.P.(8)............ 708,000 6.8% -- -- 6.4%

Peyser Associates, L.L.C.(9)........... 708,000 6.8% -- -- 6.4%

Brian A. Wasserman(10)................. 708,000 6.8% -- -- 6.4%

Arthur P. Bollon, Ph.D.(11)............ 625,400 5.8% -- -- 5.7%

Ira J. Gelb, M.D.(12).................. 110,000 1.1% -- -- 1.0%

Irwin C. Gerson(13).................... 110,000 1.1% -- -- 1.0%

Walter M. Lovenberg, Ph.D.(14)......... 112,500 1.1% -- -- 1.0%

Gary E. Frashier(15)................... -- -- -- -- --

Directors and executive officers
as a group (6 persons)(16)............. 1,004,900 9.0% -- -- 8.5%
</TABLE>

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

* Less than 1%

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
Cytoclonal Pharmaceutics Inc., 9000 Harry Hines Boulevard, Suite 621,
Dallas, Texas 75235.

(2) Calculated on the basis of 10,343,412 shares of common stock outstanding.
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.

(3) Calculated on the basis of 714,641 shares of preferred stock outstanding.

(4) Calculated on the basis of an aggregate of 11,058,053 shares of common stock
and preferred stock. 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 of the holder
of such options or warrants. This calculation excludes shares of common
stock issuable upon the conversion of preferred stock.

(5) The address for Janssen-Meyers Associates, L.P. is 17 State Street, New
York, New York 10004. Messrs. Bruce Meyers and Peter Janssen are each 50%
stockholders and the sole officers and directors of the corporate general
partner of Janssen-Meyers. Calculation includes (i) 262,184 shares of common
stock issuable upon the exercise of options granted Janssen-Meyers in
connection with our initial public offering in November 1995, (ii) 81,530
shares of common stock issuable upon the exercise of an option granted
Janssen-Meyers in connection with our private placement in April 1998, and
(iii) shares of common stock and preferred stock beneficially owned by
Messrs. Meyers and Janssen. See (6) and (7) below.

(6) Mr. Meyers' address is c/o Janssen-Meyers referenced in note (5) above.
Calculation includes (i) 1,139,208 shares of common stock, (ii) 24,200
shares of common stock issuable upon the conversion of preferred stock,
(iii) 159,284 shares of common stock issuable upon the exercise of options
originally granted Janssen-Meyers in connection with our initial public
offering in November 1995 which were transferred to Mr. Meyers, (iv) 14,000
shares of common stock issuable upon the exercise of Class C Warrants and
underlying Class D Warrants, (v) 9,650 shares of common stock issuable upon
the exercise of Class D Warrants, (vi) 50,327 shares

<PAGE> 49

of common stock issuable upon the exercise of an option originally granted
Janssen-Meyers in connection with our private placement in April 1999 which
were transferred to Mr. Myers, (vii) 30,563 shares of common stock issuable
upon the exercise of class E warrants, (viii) 62,000 shares of common stock
held by The Meyers Foundation of which Mr. Meyers has voting control, (ix)
7,500 shares of common stock which Mr. Meyers has the right to receive from
us within 60 days from the date hereof and (x) shares of common stock held
by Janssen-Meyers or which Janssen-Meyers has the right to acquire within
60 days hereof. See note (5) above.

(7) Mr. Janssen's address is c/o Janssen-Meyers referenced in note (5) above.
Calculation includes (i) 720,563 shares of common stock, (ii) 123,270
shares of common stock issuable upon the exercise of options, and (iii)
shares of common stock held by Janssen-Meyers or which Janssen-Meyers has
the right to acquire within 60 days hereof. Does not include 397,575 shares
of common stock issuable upon the exercise of warrants not exercisable
within 60 days hereof. See note (5) above.

(8) The address for Kinder Investments, L.P. is 779 CR403, Greenville, New York
12083. Ownership consists of 668,000 shares of common stock and 40,000
shares of common stock issuable upon the exercise of Class A Warrants.

(9) Ownership consists of securities beneficially owned by Kinder Investment,
L.P. Peyser Associates, L.L.C. is the general partner of Kinder
Investments, L.P. See note (8) above.

(10) Ownership consists of securities beneficially owned by Kinder Investments,
L.P. Mr. Wasserman is the managing partner of Peyser Associates, L.L.C.,
and has sole voting and dispositive control of shares owned by Kinder
Investments, L.P. See note (8) above.

(11) Calculation includes 184,400 shares of common stock and 441,000 shares of
common stock issuable upon the exercise of options. Does not include
options to purchase 104,000 shares of common stock not exercisable within
60 days of the date hereof.

(12) Calculation includes 110,000 shares of common stock issuable upon the
exercise of options. Does not include options to purchase 19,000 shares of
common stock not exercisable within 60 days of the date hereof.

(13) Calculation includes 110,000 shares of common stock issuable upon the
exercise of options. Does not include options to purchase 19,000 shares of
common stock which are not exercisable within 60 days of the date hereof.

(14) Calculation includes 2,500 shares of common stock, 110,000 shares of common
stock issuable upon the exercise of options and 3,000 shares of common
stock issuable upon the exercise of warrants. Does not include options to
purchase 19,000 shares of common stock which are not exercisable within 60
days of the date hereof.

(15) Calculation does not include options to purchase 50,000 shares of common
stock which are not exercisable within 60 days of the date hereof.

(16) Calculation includes 191,900 shares of common stock and 813,000 shares of
common stock issuable upon the exercise of options and warrants. Does not
include options to purchase 216,000 shares of common stock not exercisable
within 60 days of the date hereof.

<PAGE> 50

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Janssen-Meyers Associates, L.P. acted as the placement agent for our
1995 bridge financing. In consideration for their services rendered, they
received fees of $203,750 and a non-accountable expense allowance of $61,125. In
addition, Janssen-Meyers was granted, a five-year right of first refusal to act
as agent for offerings of our securities by us and certain of our shareholders
and the right to receive certain fees in connection with any merger and
acquisition pursuant to an agreement.

Janssen-Meyers also acted as the underwriter of our initial public
offering in November 1995. In consideration for their services rendered, they
received fees of $1,092,500 and a non-accountable expense allowance $345,000. We
also granted Janssen-Meyers options to purchase 200,000 units exercisable at
$8.25 per unit. Each unit consists of one share of our common stock, one class C
warrant and one class D warrant.

Janssen-Meyers also acted as the placement agent of our 1998 private
placement. In consideration for its services rendered, they received fees of
$563,368, a non-accountable expense allowance of $169,010, an accountable
out-of-pocket expense allowance of $13,658, and legal and blue sky fees of
$48,610. We also granted Janssen-Meyers warrants, exercisable for a five-year
period commencing April 2, 1998, to purchase 134,199 shares of our common stock
and class E warrants to purchase 67,101 shares of our common stock.

Bruce Meyers is a principal of Janssen-Meyers and was the Vice Chairman
of our Board of Directors and Vice President in charge of Business Development
until his resignation from our company in April 1995. In December 1996, we and
Janssen-Meyers executed a one year nonexclusive investment banking agreement
,which was extended to January 1999, under which we are obligated to pay
Janssen-Meyers a monthly fee of $5,000. During each of 1997 and 1998, we paid
Janssen-Meyers $60,000 under this agreement. This agreement expired in January
1999.

DESCRIPTION OF SECURITIES

AUTHORIZED STOCK

Our authorized capital stock 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, 10,343,412 shares were outstanding as
of July 6, 1999 and were held by more than approximately 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 our
common stock are entitled to receive dividends from our funds legally available
for payment when, as and if declared by our Board of Directors, and are entitled
to share ratably in all of our assets upon our liquidation, dissolution or
winding-up, subject to the liquidation preference, if any, of any then
outstanding shares of our preferred stock. Holders of our common stock do not
have any preemptive, subscription, redemption or conversion rights. Holders of
our common stock are entitled to one vote per share on all matters upon which
they are entitled to vote 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 our Board
of Directors. All of the shares of our 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 Cytoclonal Pharmaceutics Inc., 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.

<PAGE> 51

PREFERRED STOCK

Our Board of Directors has the authority, without approval by the
stockholders, 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. We presently have one series of preferred stock
outstanding, designated as series A preferred stock. We do not have any 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 for such series, which has been filed with the
Secretary of State of the State of Delaware.

Series A Preferred Stock. Of our 10,000,000 authorized preferred stock,
4,000,000 shares have been designated series A preferred stock. As of July 6,
1999, there were 714,641 outstanding shares of series A preferred stock.
Dividends are payable on the series A preferred stock in the amount of $.25 per
share, payable annually in arrears. At the option of our Board of Directors,
dividends are paid either wholly or partially in cash or in newly issued shares
of series A preferred stock valued at $2.50 per share to the extent a cash
dividend is not paid.

The following is a history of our dividends on the series A preferred
stock:

o In January 1993, shares of series A preferred stock were issued
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).

o In January 1994, 104,869 shares of series A preferred stock were
issued as full payment of the dividend due on the series A
preferred stock for the year ended December 31, 1993.

o In January 1995, 115,307 shares of series A preferred stock were
issued as full payment of the dividend due on series A preferred
stock for the year ended December 31, 1994.

o In January 1996, 126,888 shares of series A preferred stock were
issued as full payment of the dividend due on the series A
preferred stock for the year ended December 31, 1995.

o In January 1997, 122,788 shares of series A preferred stock were
issued as full payment of the dividend due on the series A
preferred stock for the year ended December 31, 1996.

o In January 1998, 94,680 shares of series A preferred stock were
issued as full payment of the dividend due on the series A
preferred stock for the year ended December 31, 1997.

o In January 1999, 74,648 shares of the series A preferred stock
were issued as full payment of the dividends due the series A
preferred stock for the year ended December 31, 1998. See
"Dividend Policy."

The holders of our series A preferred stock have the right to convert
their shares, at their option exercisable at any time, into shares of our common
stock 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 our common stock, any payment by us of a stock dividend to
holders of our common stock or other occurrences specified in our Certificate of
Designations relating to the series A preferred stock. We may elect to convert
the series A preferred stock into common stock or a substantially equivalent
preferred stock in case of our merger or consolidation with another entity in
which we do not survive, a sale of all or substantially all of our assets or our
substantial reorganization. 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

<PAGE> 52

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. We, at our sole option, have the right to redeem all or any
portion of our series A preferred stock at $2.50 per share plus accrued and
unpaid dividends. In the event of our liquidation or winding-up, the holders of
our 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.

UNITS

We sold units in our initial public offering in November 1995. Each
unit consisted of one share of our common stock, one class C warrant and one
class D warrant.

Each class C warrant entitles the holder thereof to purchase one share
of common stock and one class D warrant at an exercise price of $6.50, subject
to adjustment, until November 2, 2000.

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, until
November 2, 2000. The units were separated into their components after the
initial public offering.

CLASS C WARRANTS AND CLASS D WARRANTS

The following discussion of the terms and provisions of the class C
warrants and class D warrants is qualified in its entirety by reference to the
warrant agreement between us, the underwriter of the initial public offering and
the warrant agent. The warrants will be evidenced by warrant certificates in
registered form.

As of July 6, 1999, there were 2,006,073 outstanding class C warrants
and 2,510,927 outstanding class D warrants.

Class C warrants. The holder of each class C warrant is entitled to
purchase one share of our common stock and one class D warrant at an aggregate
exercise price of $6.50, subject to adjustment in certain circumstances. 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 our common stock at an exercise price of $8.75 per share,
subject to adjustment in certain circumstances. The class D warrants are
exercisable 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, immediately transferable.
The class D warrants are subject to redemption, as described below.

Redemption. We have the right to redeem the class C warrants and class
D warrants 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
security or listed on a securities exchange, shall be determined by the last
reported sales price. Our redemption rights will be in effect only if our common
stock is either quoted on Nasdaq or listed on a securities exchange. Holders of
the class C warrants and class D warrants will automatically forfeit exercise
rights purchase after they are redeemed. All of the outstanding warrants of a
class, except

<PAGE> 53

for those underlying the option we granted to the underwriter of our initial
public offering, must be redeemed if any portion of that class is to be
redeemed. 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.

Initial Public Offering Unit Purchase Option. In consideration for
their services rendered, we granted the underwriter, Janssen-Meyers Associates,
L.P., of our initial public offering in November 1995, an option to purchase
200,000 units for $8.25 per unit, subject to adjustment in certain
circumstances. The units purchasable upon exercise of the option are identical
to the units we sold in our initial public offering, except that the underlying
warrants are subject to redemption only if the option has been exercised. The
option is exercisable until November 2, 2000. The option 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 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 the option, with a resulting dilution in the interests of
other stockholders. As a result, we may find it more difficult to raise
additional equity capital if it should be needed for our operation while the
option is outstanding. Moreover, at any time when the holders of the option
might be expected to exercise it, we would probably be able to obtain additional
equity capital on terms more favorable than those provided by the exercise
proceeds of the option. We have agreed to register under the Securities Act on
two separate occasions, the first at our own expense, the option and the
securities underlying it at the request of the holder thereof. We have also
agreed to provide certain "piggy-back" registration rights for the holders of
the option and the securities underlying it.

General. The class C warrants and class D warrants may be exercised
upon surrender of the certificate therefor on or prior to the expiration or
redemption date at our warrant agent, American Stock Transfer & Trust Company,
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 Cytoclonal Pharmaceutics
Inc. of the full exercise price for the number of warrants being exercised. We,
in our sole discretion, have the right to reduce the exercise price of either or
both classes of warrants subject to compliance with Rule 13e-4 under the
Exchange Act, if applicable.

The class C and D 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 our assets at less than market value, sales of stock
at below market price and other unusual events.

We are 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 our common stock is quoted on the Nasdaq National Market System
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 unless and until the warrant
is exercised.

CLASS A WARRANTS AND CLASS B WARRANTS

As of July 6, 1999, there were 287,500 class A warrants and 470,220
class B warrants outstanding. Both classes of warrants are exercisable for 0.4
shares of our 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 until November 2000. The warrants contain provisions that
protect holders from dilution by adjustment of the exercise price and number of
underlying shares in the event of our merger, acquisition, recapitalization or
split-up of shares of common stock, the issuance by us of a stock dividend,
sales of stock below current market price and other unusual events.

<PAGE> 54

CLASS E WARRANTS

In April 1998, we completed a private placement of 56.3 units in eight
separate closings. Each unit consisted of shares of our common stock and class E
warrants. The number of shares of our common stock each investor purchased was
determined by dividing the $100,000 price of a unit by the 30-day average
closing bid price of our common stock as reported by the Nasdaq SmallCap Market.
The average closing bid price ranged from $8.18 to $9.46 during the eight
separate closings of the private placement. The number of class E warrants each
investor purchased was one-half the number of shares of common stock he
purchased in the same closing. The exercise price of each class E warrant was
120% of the purchase price of the common stock. Each class E warrant entitles
the holder to purchase one share of our common stock at any time until April 2,
2003. In consideration for services rendered, we granted the placement agent of
the private placement, Janssen-Meyers Associates, L.P., options to purchase 20%
of the units sold in the private placement. The options are exercisable until
April 2, 2003 and have different exercise prices equal to the purchase prices of
the units in the eight separate closing. The unit purchase option is exercisable
for 134,199 shares of our common stock at prices ranging from $8.18 to $9.46 per
share and class E warrants to purchase 67,101 shares of our common stock at
exercise prices ranging from $9.82 to $11.35 per share.

TRANSFER AGENT AND WARRANT AGENT

American Stock Transfer and Trust Company serves as our transfer agent
and warrant agent.

REGISTRATION RIGHTS

As of July 6, 1999, holders of the following securities have demand and
piggyback registration rights until November 2, 2000:

(i) 2,000,000 shares of common stock;

(ii) 200,000 shares of common stock issuable upon the exercise of
outstanding options,

(iii) 714,641 shares of common stock issuable upon the conversion of
outstanding series A preferred stock

(iv) 100,000 shares of common stock issuable upon the conversion of
series A preferred stock underlying outstanding options.

In addition, Cytoclonal Pharmaceutics Inc. has registered the following
securities:

(i) 810,000 shares of common stock issuable upon the exercise of
outstanding class A and B warrants;

(ii) 150,000 shares of common stock issuable upon exercise of the
warrants granted to a private placement agent;

(ii) 1,796,100 shares of common stock issuable upon the exercise of
options authorized for grant under our 1992 and 1996 stock option
plans.

(iii) granted certain "piggy-back" registration rights to the holders
of 20,000 shares of Common stock issued by Cytoclonal
Pharmaceutics Inc. in connection with the formation of the joint
venture with Pestka Biomedical Laboratories, Inc.; (v) granted
certain "piggy-back" registration rights to the holders of
options and warrants to acquire an aggregate of 170,000 shares of
common stock granted and issued in connection with financial
advisory and public relations services rendered to Cytoclonal
Pharmaceutics Inc. and pursuant to a license agreement. The
exercise of one or more of these registration rights may involve
substantial expense to Cytoclonal Pharmaceutics Inc. and may
adversely affect the terms upon which Cytoclonal Pharmaceutics
Inc. may obtain additional financing.

<PAGE> 55

BUSINESS COMBINATION PROVISIONS

We are incorporated under the laws of Delaware. As such, we are subject
to Delaware law 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 this 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, we will not seek to be exempted from this statute, and,
therefore, upon closing of this offering and the registration of our securities
under the Exchange Act, the restrictions imposed by such statute will apply to
us.

SHARES ELIGIBLE FOR FUTURE SALE

As of July 6, 1999, we had 10,343,412 shares of common stock
outstanding. Holders of the class C warrants and class D warrants will be
entitled to purchase an aggregate of 6,523,073 additional shares of our common
stock upon the exercise of such warrants until November 2, 2000, provided that
we satisfy 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" may be subject to the resale
limitations contained in Rule 144 under the Securities Act.

Up to 800,000 additional shares of our common stock may be purchased
upon the exercise of options we granted to the underwriters of our initial
public offering in November 1995. Any and all shares of common stock purchased
upon exercise of this option may be freely tradeable, provided that we satisfy
certain securities registration and qualification requirements.

A significant number of shares of our common stock and shares of common
stock issuable upon the conversation of our series A preferred stock, none of
which are being offered hereby, are "restricted securities" within the meaning
of Rule 144 under the Securities Act and, if held for at least one year, 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, a person, including a person who may be
deemed to be our "affiliate," as that term is defined under the Securities Act,
will be entitled to sell within any three-month period a number of shares of
common stock beneficially owned for at least one year which does not exceed the
greater of:

o one (1%) percent of our shares of outstanding common stock, or

o 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
our company. A person who is not deemed to have been our affiliate during the 90
days preceding a sale by such person, and who has beneficially owned shares of
our 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.

We cannot predict the effect, if any, that sales of our 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 our common stock in the
public market could adversely affect prevailing market prices for our common
stock. In addition, the availability for sale of a substantial amount of common

<PAGE> 56

stock acquired through the exercise of the warrants could adversely affect
prevailing market prices for the common stock.

PLAN OF DISTRIBUTION

We are offering the common stock and class D warrants pursuant to the
terms of the class C warrants and class D warrants. No underwriter is being
utilized in connection with this offering.

We have agreed to pay Janssen-Meyers Associates, L.P., the underwriter
of our initial public offering in which we sold the class C warrants and class D
warrants, a solicitation fee equal to 5% of the aggregate exercise price of all
warrants exercised, provided that:

o the market price of our common stock on the date that the
warrants are exercised is greater than the warrant exercise
price;

o the exercise of the warrants was solicited by Janssen-Meyers or
their representative or agent and the warrantholder designates in
writing that the exercise was solicited thereby;

o the warrants are not held in a discretionary account;

o disclosure of the solicitation fee is made by Janssen-Meyers at
the time of the exercise of the warrants; and

o the solicitation of the exercise of the warrants was not in
violation of Rule 10b-6 under the Exchange Act.

Janssen-Meyers will generally be prohibited from engaging in
market-making activities regarding our securities for a period specified by Rule
10b-6 under the Exchange Act prior to any solicitation of the exercise of
warrants until the termination of such solicitation. Accordingly, Janssen-Meyers
may be unable to provide a market for our securities during certain periods
while the warrants are exercisable.

LEGAL MATTERS

The validity of our securities offered hereby will be passed upon by
the law firm of Morrison Cohen Singer & Weinstein, LLP, New York, New York. A
partner of Morrison Cohen Singer & Weinstein, LLP holds options to acquire
shares of our common stock.

EXPERTS

The balance sheets as at December 31, 1998 and 1997 and the related
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1998, 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> 57

ADDITIONAL INFORMATION

We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may ready and copy any reports, statements
or other information on file with the SEC's public reference room in Washington,
D.C. You can request copies of those documents, upon payment of a duplicating
fee, by writing to the SEC.

We have filed a Post-Effective Amendment No. 6 to Registration
Statement on Form SB-2 (File No.: 33-91802) with the SEC. This prospectus, which
forms a part of the post-effective amendment to the registration statement, does
not contain all of the information included in the amendment. Certain
information is omitted and you should refer to the amendment and its exhibits.
With respect to references made in this prospectus to any of our contracts or
documents, such references are not necessarily complete, and you should refer to
the exhibits attached to the registration statement for copies of the actual
contract or document. You may review a copy of the post-effective amendment to
the registration statement at the SEC's public reference room in Washington,
D.C., and at the SEC's regional offices in Chicago, Illinois and New York City.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our SEC filings and the Post-Effective Amendment
No. 6 can also be reviewed by accessing the SEC's Internet site at
http://www.sec.gov.

<PAGE> 58

CYTOCLONAL PHARMACEUTICS INC.
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE NUMBER
-----------

<S> <C>
INDEPENDENT AUDITORS' REPORT ...........................................F-2

BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997 ........................F-3

STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996 .......................................F-4

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 ...................F-5

STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED DECEMBER 31, 1998, 1997 AND 1996 .................................F-6

NOTES TO FINANCIAL STATEMENTS ..........................................F-7

BALANCE SHEET AS OF MARCH 31, 1999 (UNAUDITED) ........................F-16

STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 1998 (UNAUDITED) .............................F-17

STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND 1998 (UNAUDITED) .............................F-18

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) .............................F-19
</TABLE>

F-1

<PAGE> 59

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheets of Cytoclonal Pharmaceutics
Inc. as of December 31, 1998 and 1997, and the related statements of operations,
changes in stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1998. 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. as of December 31, 1998 and 1997, and results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.

Richard A. Eisner & Company, LLP

New York, New York
February 6, 1999

F-2
<PAGE> 60

CYTOCLONAL PHARMACEUTICS INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note B[5])..................... $ 6,826,000 $ 1,849,000
Prepaid expenses and other current assets................. 85,000 35,000
------------ ------------
Total current assets.............................. 6,911,000 1,884,000
Equipment, net (Notes B[1] and E)........................... 121,000 127,000
Patent rights, less accumulated amortization of $540,000 and
$463,000 (Notes B[2] and C)............................... 710,000 787,000
Other assets................................................ 4,000 4,000
------------ ------------
$ 7,746,000 $ 2,802,000
============ ============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses (Note F)............ $ 461,000 $ 460,000
Deferred revenue.......................................... 67,000
Current portion of royalties payable (Note C)............. 156,000 94,000
------------ ------------
Total current liabilities......................... 684,000 554,000
Royalties payable (Note C).................................. 1,000,000 1,125,000
------------ ------------
1,684,000 1,679,000
------------ ------------
Commitments and other matters (Notes C and I)

STOCKHOLDERS' EQUITY (NOTE G)

Preferred stock -- $.01 par value, 10,000,000 shares
authorized; 746,864 and 934,563 shares of Series A
convertible preferred issued and outstanding (liquidation
value $1,872,000 and $2,336,000).......................... 7,000 9,000
Common stock -- $.01 par value, 30,000,000 shares
authorized; 10,209,844 and 8,793,998 shares issued and
outstanding............................................... 102,000 88,000
Additional paid-in capital.................................. 23,785,000 16,130,000
Accumulated deficit......................................... (17,832,000) (15,104,000)
------------ ------------
6,062,000 1,123,000
------------ ------------
$ 7,746,000 $ 2,802,000
============ ============
</TABLE>

See notes to financial statements

F-3
<PAGE> 61

CYTOCLONAL PHARMACEUTICS INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
License and research fees (Note D).................. $ 1,183,000
-----------
Operating expenses:
Research and development............................ 1,692,000 $ 1,469,000 $ 1,576,000
General and administrative.......................... 2,500,000 1,888,000 1,530,000
----------- ----------- -----------
4,192,000 3,357,000 3,106,000
----------- ----------- -----------
Other (income) expenses:
Interest income..................................... (286,000) (107,000) (216,000)
Interest expense.................................... 5,000 2,000
----------- ----------- -----------
(281,000) (105,000) (216,000)
----------- ----------- -----------
Net loss.............................................. $(2,728,000) $(3,252,000) $(2,890,000)
=========== =========== ===========
Basic and diluted net loss per common share........... $ (.30) $ (.42) $ (.42)
=========== =========== ===========
Weighted average number of shares outstanding -- basic
and diluted (Note B[4])............................. 9,742,000 8,268,000 7,640,000
=========== =========== ===========
</TABLE>

See notes to financial statements

F-4
<PAGE> 62

CYTOCLONAL PHARMACEUTICS INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (NOTE G)

<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- --------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ---------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- DECEMBER 31, 1995.... 1,268,787 $13,000 7,563,500 $ 76,000 $13,903,000 $ (8,962,000) $ 5,030,000
Preferred dividend (stock)...... 126,888 1,000 (1,000) 0
Preferred stock converted to
common stock.................. (167,046) (2,000) 167,046 2,000 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.... 1,228,629 12,000 7,730,546 78,000 14,074,000 (11,852,000) 2,312,000
Preferred dividend (stock)...... 122,788 1,000 (1,000) 0
Preferred stock converted to
common stock.................. (466,854) (5,000) 466,854 5,000 0
Exercise of unit purchase
option........................ 50,000 1,000 250,000 2,000 497,000 500,000
Exercise of warrants............ 277,098 2,000 1,309,000 1,311,000
Exercise of options............. 69,500 1,000 118,000 119,000
Value assigned to 10,000 ($1.45)
and 40,000 ($2.88) options
issued for professional
services...................... 133,000 133,000
Net loss for the year........... (3,252,000) (3,252,000)
--------- ------- ---------- -------- ----------- ------------ -----------
BALANCE -- DECEMBER 31, 1997.... 934,563 9,000 8,793,998 88,000 16,130,000 (15,104,000) 1,123,000
Preferred dividend (stock)...... 94,680 1,000 (1,000) 0
Preferred stock converted to
common stock.................. (282,379) (3,000) 282,379 3,000 0
Exercise of warrants............ 389,241 4,000 2,495,000 2,499,000
Exercise of options............. 73,200 1,000 130,000 131,000
Value assigned to 5,000 ($3.11),
12,500 ($3.47) and 37,500
($3.68) options issued for
professional services......... 197,000 197,000
Private placement............... 671,026 6,000 4,831,000 4,837,000
Other........................... 3,000 3,000
Net loss for the year........... (2,728,000) (2,728,000)
--------- ------- ---------- -------- ----------- ------------ -----------
BALANCE -- DECEMBER 31, 1998.... 746,864 $ 7,000 10,209,844 $102,000 $23,785,000 $(17,832,000) $ 6,062,000
========= ======= ========== ======== =========== ============ ===========
</TABLE>

See notes to financial statements

F-5
<PAGE> 63

CYTOCLONAL PHARMACEUTICS INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(2,728,000) $(3,252,000) $(2,890,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 131,000 116,000 115,000
Value assigned to warrants and options........... 197,000 133,000 172,000
Equity in loss of joint venture.................. 16,000 23,000
Changes in:
Other assets..................................... (50,000) (3,000)
Deferred revenue................................. 67,000
Accounts payable and accrued expenses............ 29,000 123,000 74,000
----------- ----------- -----------
Net cash used in operating activities....... (2,354,000) (2,864,000) (2,509,000)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of equipment............................... (76,000) (44,000) (75,000)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from private placement................. 4,837,000
Payment of royalties payable........................ (63,000) (31,000)
Proceeds from exercise of options and warrants...... 2,630,000 1,430,000
Other............................................... 3,000
Proceeds from exercise of unit purchase option...... 500,000
----------- -----------
Net cash provided by financing activities... 7,407,000 1,899,000
----------- -----------
Net increase (decrease) in cash and cash
equivalents......................................... 4,977,000 (1,009,000) (2,584,000)
Cash and cash equivalents at beginning of year........ 1,849,000 2,858,000 5,442,000
----------- ----------- -----------
Cash and cash equivalents at end of year.............. $ 6,826,000 $ 1,849,000 $ 2,858,000
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest.............................. $ 5,000 $ 2,000
Noncash investing activities:
Equipment acquired included in accounts payable
and accrued expenses........................... $ 28,000 $ 10,000
</TABLE>

See notes to financial statements

F-6
<PAGE> 64

CYTOCLONAL PHARMACEUTICS INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997

NOTE A -- THE COMPANY

Cytoclonal Pharmaceutics Inc. (the "Company") is involved in the research
and development of various therapeutic and diagnostic pharmaceutical products
for the prevention of cancer, viral and immune diseases. Through June 1998, the
Company was in the development stage and its efforts had been principally
devoted to research and development, capital formation and organizational
development.

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 using the straight-line method over the 17 year life of
the patents.

[3] RESEARCH AND DEVELOPMENT:

Research and development costs are charged to expense as incurred.

[4] LOSS PER COMMON SHARE:

Basic and diluted loss per common share is based on the net loss increased
by dividends on preferred stock ($187,000 in 1998, $234,000 in 1997 and $307,000
in 1996) divided by the weighted average number of common shares outstanding
during the year. No effect has been given to outstanding options, warrants or
convertible preferred stock in the diluted computation as their effect would be
antidilutive.

[5] CASH AND CASH EQUIVALENTS AND CONCENTRATION OF CREDIT RISK:

Financial instruments which potentially subject the Company to
concentration of credit risk consist of cash equivalents which amount to
$6,826,000 at December 31, 1998. Cash equivalents consist of interest bearing
cash deposits placed with a single financial institution. The Company considers
all highly liquid short-term investments purchased with a maturity of three
months or less to be cash equivalents.

[6] STOCK-BASED COMPENSATION:

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.

[7] FAIR VALUE OF FINANCIAL INSTRUMENTS:

The carrying value of cash equivalents, accounts payable and accrued
expenses approximates their fair value due to the short period to maturity of
these instruments. It is not practicable to estimate the fair value of royalties
payable due to repayment terms varying based on sales of products by the Company
and the lack of such sales at December 31, 1998.

F-7
<PAGE> 65
CYTOCLONAL PHARMACEUTICS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997

[8] 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.

[9] REVENUE RECOGNITION:

Revenue from research support agreements is recognized as the expenses for
research and development activities performed under the terms of the agreements
are incurred. Revenue from nonrefundable license fees is recognized upon signing
the agreement. Revenue resulting from the achievement of milestones is
recognized when the milestone is achieved. Amounts received in advance of
services to be performed are recorded as deferred revenue.

NOTE C -- ROYALTIES PAYABLE

On October 10, 1991, the Company entered into an agreement to acquire
certain patent rights, technology and know-how (the "Technology") from Wadley
Technologies, Inc. ("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 annual royalty payments of $31,250, $62,500
and $125,000 payable quarterly 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 annual
royalty payments of $125,000 payable quarterly. As of December 31, 1998, the
Company has made payments of $93,750.

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 -- LICENSE AND RESEARCH AGREEMENT

In June 1998, the Company entered into a license and research agreement
with Bristol Myers Squibb ("BMS") applicable to two technologies, which are
being sublicensed by the Company to BMS, related to production of Paclitaxel,
the active ingredient in BMS's largest selling cancer product. The agreement,
which is for a term of ten years, subject to earlier termination at the option
of BMS, includes fees, milestone payments, research and development support and
minimum and sales-based royalties to be paid to the Company. During the year
ended December 31, 1998, revenues of $1,183,000 were earned under the agreement.

F-8
<PAGE> 66
CYTOCLONAL PHARMACEUTICS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997

NOTE E -- EQUIPMENT

Equipment is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Office equipment........................................ $ 42,000 $ 36,000
Furniture and fixtures.................................. 16,000 16,000
Computers and laboratory equipment...................... 327,000 286,000
Leasehold improvements.................................. 8,000 8,000
-------- --------
Total......................................... 393,000 346,000
Less accumulated depreciation and amortization.......... 272,000 219,000
-------- --------
Net........................................... $121,000 $127,000
======== ========
</TABLE>

NOTE F -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Professional fees....................................... $ 99,000 $ 73,000
Equipment............................................... 28,000
Payroll and related expenses............................ 170,000 171,000
Licensors and contractors............................... 167,000 150,000
Occupancy costs......................................... 12,000 12,000
Other................................................... 13,000 26,000
-------- --------
$461,000 $460,000
======== ========
</TABLE>

NOTE G -- STOCKHOLDERS' EQUITY

[1] PRIVATE PLACEMENT:

In April and May 1998, the Company completed a private placement for an
aggregate of 671,026 shares of common stock and 335,540 Class E warrants and
received net proceeds of approximately $4,837,000.

[2] 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.

F-9
<PAGE> 67
CYTOCLONAL PHARMACEUTICS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997

[3] WARRANTS:

At December 31, 1998, outstanding warrants to acquire shares of the
Company's common stock are as follows:

<TABLE>
<CAPTION>
NUMBER OF
WARRANT EXERCISE EXPIRATION SHARES
TYPE PRICE DATE RESERVED
- ------- -------- ---------- ---------
<S> <C> <C> <C>
Class A............................ $3.75 November 2000 125,000
Class B............................ $4.375 November 2000 193,088
Class C............................ $6.50 November 2000 2,006,073
Class D............................ $8.75 November 2000 4,517,000
Class E............................ $9.82 to $11.35 April 2003 335,540
Other.............................. $4.25 to $9.00 July 2002-August 2003 111,000(a)
---------
7,287,701
=========
</TABLE>

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

(a) See Notes I[3] and I[4]

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. The
Class D warrants reflected in the above table include 2,006,073 warrants
issuable upon the exercise of the Class C warrants.

In addition to the above, options are outstanding 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 per unit. The units purchasable
upon exercise of the unit purchase option are comprised of one share of common
stock, one Class C warrant and one Class D warrant. The warrants included
therein are not subject to redemption by the Company. These units became
exercisable November 1998 for a two-year period.

See Note I[5] for unit purchase option issued in connection with private
placement in 1998.

[4] 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.
During October 1998, the Board of Directors and the stockholders of the Company
approved an amendment to the Plan to allow for the granting of an additional
750,000 options.

F-10
<PAGE> 68
CYTOCLONAL PHARMACEUTICS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997

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 the
anniversary date of the grant.

Stock option activity under the 1992 Plan and the 1996 Plan is summarized
as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year...... 1,032,500 $3.04 753,500 $2.67 440,000 $2.01
Granted.................. 351,000 $4.52 350,000 $3.57 335,000 $3.47
Exercised................ (73,200) $1.80 (69,500) $1.71
Cancelled................ (1,500) $3.94 (21,500) $1.81
--------- --------- -------
Options outstanding at
end of year............ 1,310,300 $3.50 1,032,500 $3.04 753,500 $2.67
========= ========= =======
Options exercisable at
end of year............ 786,380 $3.08 604,700 $2.57 475,500 $2.28
========= ========= =======
</TABLE>

The following table presents information relating to stock options
outstanding under the plans as of December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
EXERCISE LIFE IN EXERCISE
RANGE OF EXERCISE PRICE SHARES PRICE YEARS SHARES PRICE
- ----------------------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
$1.65 -- $2.6875................. 479,500 $2.09 6.16 399,500 $2.01
$3.25 -- $4.125.................. 342,000 $3.88 7.82 240,000 $4.00
$4.3125 -- $5.00.................. 482,800 $4.58 9.04 144,480 $4.42
$8.38............................. 6,000 $8.38 9.23 2,400 $8.38
--------- ----- ---- ------- -----
1,310,300 $3.50 7.67 786,380 $3.08
========= ===== ==== ======= =====
</TABLE>

As of December 31, 1998, no more options are available for future grant
under the 1992 Plan and 487,000 options are available under the 1996 Plan.

In addition to options issued under the plans, in February 1996, the
Company granted options to purchase 100,000 shares of common stock at $4.25 as
compensation for professional services. Such options, which are exercisable and
expire in 2001, are outstanding at December 31, 1998.

F-11
<PAGE> 69
CYTOCLONAL PHARMACEUTICS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997

The weighted average fair value at date of grant for options granted during
1998, 1997 and 1996 was $3.27, $2.34 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:

<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Risk-free interest rates..... 4.41% to 5.63% 6.38% to 6.55% 6.30% to 6.80%
Expected option life in
years...................... 10 10 10
Expected stock price
volatility................. 49% to 86% 44% to 51% 33% to 53%
Expected dividend yield...... 0% 0% 0%
</TABLE>

Had the Company elected to recognize compensation cost based on the fair
value of the options at the date of grant as prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," net loss in 1998, 1997 and 1996 would have been $3,199,000,
$3,593,000 and $3,195,000 or $.35, $.46 and $.46 per share, respectively.

NOTE H -- INCOME TAXES

At December 31, 1998, the Company had approximately $16,700,000 of net
operating loss carryforwards for federal income tax purposes which expire
through 2018.

At December 31, 1998, the Company has a deferred tax asset of approximately
$5,900,000 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 due to the increase in the valuation
allowance of $1,000,000 (1998), $1,000,000 (1997) 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.

NOTE I -- COMMITMENTS AND OTHER MATTERS

[1] LEASES:

The Company occupies office and laboratory space under two leases expiring
through December 31, 2000. Minimum future annual rental payments are $177,000 in
1999 and $201,000 in 2000.

Rent expense was approximately $142,000, $140,000 and $123,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.

[2] EMPLOYMENT AGREEMENTS:

The Company has extended the employment agreements of two officers which
provide for annual base salaries of $200,000 and $90,000 (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 1998.

On December 31, 1998, the Company entered into an employment agreement with
its Vice President for Drug Design. In connection with the employment agreement,
the employee assigned to the Company certain technology. The agreement is for a
period of three years commencing January 4, 1999, and shall be extended for
successive twelve-month periods unless terminated by either party. The agreement
provides for an annual base salary of $100,000 (subject to annual increases of
5% at the beginning of each calendar year, commencing on January 1, 2000).
Additionally, the employee will receive 25,000 shares of the Company's common
stock in full consideration for the assignment of the technology. The Company
agreed to

F-12
<PAGE> 70
CYTOCLONAL PHARMACEUTICS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997

grant the employee options to purchase 75,000 shares of the Company's common
stock at an exercise price not to exceed fair market value on the date of grant.
The Company also agreed to grant the employee bonus options to purchase up to
16,000 shares of the Company's common stock exercisable only upon reaching a
certain milestone. The Company further agreed to pay royalties based on net
revenues received from the sales of products that incorporate the technology and
on net sublicense fees received from sublicensing the technology. The Company
also agreed to reimburse the employee for certain expenses and to assume
liability for certain payments upon the realization of profit from the
technology.

[3] CONSULTING AGREEMENTS:

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, until the
agreement is terminated by either party 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 will be granted and 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.

In August 1998, the Company entered into an agreement with a consulting
firm whereby the Company has agreed to pay a fee of $35,000 in return for
financial advisory services. In connection with the agreement, the Company
issued five-year warrants to purchase 75,000 shares of common stock. Warrants
for 50,000 shares vest on December 31, 1998 of which 37,500 have an exercise
price of $7.00 per share and 12,500 have an exercise price of $8.00 per share.
The Company determined the fair value of these warrants to be approximately
$181,000 which was charged to operations. The remaining 25,000 warrants have an
exercise price of $9.00 per share and vest only if 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.

[4] COLLABORATION AGREEMENTS:

(a) 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.

The Company has agreed to finance research to be conducted under the
agreement and paid RDI an aggregate fixed fee of $250,000 per annum for
four years commencing in 1993. In July 1998, the Company agreed to finance
research for an additional year for $250,000. 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 annually thereafter. The agreement was amended during May 1998 to
require the Company to pay a percentage of royalties received with respect
to the manufacture, use or sale of the inventions by sublicensees and a
percentage of all up-front, milestone, and royalty payments which may be
received under the agreement with Bristol-Myers Squibb (see Note D). Under
the agreement, the minimum royalties shall be credited against royalties
paid in connection with the amendment.

F-13
<PAGE> 71
CYTOCLONAL PHARMACEUTICS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997

During August 1998, the Company entered into an additional license
agreement with RDI whereby RDI has granted the Company an exclusive license
and licensing rights to its patents and know-how throughout the world to
research, develop and market products developed with or from the
pestalotiopsis microspora organism. The Company paid a license fee of
$10,000 and agreed to pay sales-based royalties.

(b) 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. Under a related agreement, Pestka agreed to perform certain
research and development, as defined, for the joint venture, for $233,000.
The stockholders of Pestka purchased 20,000 shares of the Company's common
stock for a price of $1.65 per share. The investment in the joint venture
is accounted for on the equity method. As of December 31, 1997, the
Company's share of cumulative losses from the venture equaled its
investment and accordingly, the investment has no carrying amount in the
accompanying balance sheets. The equity in loss of joint venture, included
in research and development costs, was $0 for the year ended December 31,
1998, $16,000 for the year ended December 31, 1997 and $23,000 for the year
ended December 31, 1996. The venture is presently inactive, and the Company
has no further obligation to fund the venture.

In July 1996, the Company entered into an agreement with WSURF whereby
the Company received an exclusive, world-wide license to use and/or
sublicense patented technology or prospective patented technology (the
"WSURF Technology"). In June 1998, the agreement was amended to cover
additional patents. The Company was required to pay WSURF license fees of
$7,500 per year commencing on July 1, 1997. The agreement was amended
during May 1998 to require the Company to pay a percentage of royalties
received with respect to the manufacture, use or sale of the inventions by
sublicensees and a percentage of all up-front, milestone and royalty
payments which may be received under the agreement with Bristol Myers
Squibb (see Note D). In addition, the Company agreed to pay minimum
royalties of $50,000 per year payable on July 1, 1999, $75,000 payable on
July 1, 2000, and $100,000 payable on July 1, 2001 and annually thereafter.
This agreement will remain in effect until the last to expire of the
patents licensed under the WSURF Technology, subject to termination by
either party. In conjunction with this agreement, the Company granted WSURF
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 in 1996.

In July 1996, the Company entered into a research agreement with WSURF
for research to be conducted on behalf of the Company. In August 1998, the
agreement was extended through July 2000 providing for additional funding
of $500,000. As of December 31, 1998, the Company has incurred
approximately $104,000 of research costs under the agreement.

(d) Agreements with Regents of the University of California:

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
$15,000 upon issuance of the patents. In addition, the Company must pay a
yearly license maintenance fee of $8,000, increasing by $4,000 per year
until it reaches a maximum of $24,000 on both licenses until the

F-14
<PAGE> 72
CYTOCLONAL PHARMACEUTICS INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997

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.

In August 1998, the Company entered into an additional license
agreement with the Regents of the University of California, granting to the
Company exclusive rights to certain technology and patent rights. Pursuant
to the agreement, the Company paid license fees of $20,000 and has agreed
to pay $25,000 upon issuance of a patent. In addition, the Company must pay
a yearly license maintenance fee of $2,000, increasing by $2,000 per year
until it reaches a maximum of $12,000 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.

[5] RELATED PARTY TRANSACTION:

Effective December 1996, the Company entered into a one-year agreement,
which was extended in January 1998 for an additional year, with a stockholder of
the Company, whereby the Company will receive financial and investment banking
services for a consulting fee of $5,000 per month plus commissions, as defined.
The Company paid $60,000 during each of 1997 and 1998 under this agreement.

In addition, the stockholder acted as placement agent for the Company's
1998 private placement and, in consideration for its services as such, received
a sales commission equal to 10% of the $5,633,675 gross proceeds, or $563,368,
plus approximately $229,000 as an expense allowance together with other costs.
The stockholder also received a unit purchase option, exercisable for a
five-year period commencing April 2, 1998, to purchase 134,199 shares of Common
Stock at prices ranging from $8.18 to $9.46 and Class E Warrants to purchase
67,101 shares of Common Stock exercisable at prices ranging from $9.82 to
$11.35.

NOTE J -- SUBSEQUENT EVENT

During January 1999, the Board of Directors declared a 10% dividend on
Series A preferred stock.

F-15
<PAGE> 73

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CYTOCLONAL PHARMACEUTICS INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31,
1999 1998
ASSETS (UNAUDITED)
------------ ------------

<S> <C> <C>
Current assets:

Cash (principally money market) $ 6,241,000 $ 6,826,000

Prepaid expenses and other current assets 175,000 85,000
------------ ------------

Total current assets 6,416,000 6,911,000

Equipment, net 157,000 121,000

Patent rights, less accumulated amortization of
$691,000 and $540,000 875,000 710,000

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

T O T A L $ 7,452,000 $ 7,746,000
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable and accrued expenses $ 518,000 $ 461,000
Deferred revenue from research and development
collaborative contract 333,000 67,000

Current portion of royalties payable 125,000 156,000
------------ ------------

Total current liabilities 976,000 684,000
------------ ------------

Royalties payable less current portion 1,000,000 1,000,000
------------ ------------

Total liabilities 1,976,000 1,684,000
------------ ------------

Stockholders' equity:

Preferred stock - $.01 par value, 10,000,000 shares authorized; 791,731 and
746,864 shares of Series A convertible preferred issued and outstanding at
March 31, 1999 and December 31, 1998, respectively (liquidation value
$1,979,000 and $1,872,000 at
March 31, 1999 and December 31, 1998, respectively) 8,000 7,000

Common Stock - $.01 par value, 30,000,000 shares authorized: 10,291,322 and
10,209,844 shares issued and outstanding at March 31, 1999 and December 31,
1998, respectively 103,000 102,000

Additional paid-in capital 24,282,000 23,785,000

Accumulated Deficit (18,917,000) (17,832,000)
------------ ------------

Total Stockholders' Equity 5,476,000 6,062,000
------------ ------------

T O T A L $ 7,452,000 $ 7,746,000
============ ============
</TABLE>

F-16
<PAGE> 74

CYTOCLONAL PHARMACEUTICS INC.

STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1999 1998
------------ ------------

<S> <C> <C>
Revenue:
Licensing & research collaborative
agreement $ 233,000 --
------------ ------------
Operating Expenses:
Research and development 872,000 $ 360,000
General and administrative 513,000 447,000
------------ ------------
1,385,000 807,000
------------ ------------

Operating (loss) (1,152,000) (807,000)
------------ ------------

Other (Income) expenses:
Interest (income) (69,000) (19,000)
Interest expense 2,000 2,000
------------ ------------
(67,000) (17,000)

NET (LOSS) $ (1,085,000) $ (790,000)

Basic and diluted
loss per common share $ (0.11) $ (0.10)

Weighted average number of
shares outstanding - basic and
diluted 10,268,000 8,840,000
</TABLE>

F-17
<PAGE> 75
CYTOCLONAL PHARMACEUTICS INC.

STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1999 1998
--------------- ----------------

<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (1,085,000) $ (790,000)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation and amortization 30,000 31,000
Value assigned to common shares and options 291,000
Changes in:
Other assets (90,000) (4,000)
Deferred revenue 266,000 --
Accounts payable and accrued expenses 57,000 125,000
------------ ------------
Net cash (used in) operating activities (531,000) (638,000)
------------ ------------

Cash flows from investing activities:
Purchase of equipment (47,000) (56,000)
------------ ------------

Cash flows from financing activities:
Proceeds from exercise of options and warrants 24,000 18,000
Payment of royalties (31,000) (31,000)
------------ ------------
Net cash (used in)financing activities (7,000) (13,000)
------------ ------------

NET INCREASE (DECREASE) IN CASH (585,000) (707,000)
Cash at beginning of period 6,826,000 1,849,000
------------ ------------

CASH AT END OF PERIOD $ 6,241,000 $ 1,142,000
============ ============
</TABLE>

F-18
<PAGE> 76

CYTOCLONAL PHARMACEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
(unaudited)

(1) FINANCIAL STATEMENT PRESENTATION

The unaudited financial statements of Cytoclonal Pharmaceutics Inc., a
Delaware corporation (the "Company"), included herein have been
prepared in accordance with the rules and regulations promulgated by
the Securities and Exchange Commission and, in the opinion of
management, reflect all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the results of
operations for the interim periods presented. Certain information and
footnote disclosures normally included in financial statements,
prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such rules and regulations.
However, management believes that the disclosures are adequate to make
the information presented not misleading. These financial statements
and the notes thereto should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998. The
results for the interim periods are not necessarily indicative of the
results for the full fiscal year.

Through June 1998, the Company was in the development stage and its
efforts had been principally devoted to research and development,
capital formation and organizational development.

(2) RESEARCH AND COLLABORATIVE AGREEMENT

In June 1998, the Company entered into a license and research agreement
with Bristol-Myers Squibb ("BMS") on two technologies related to
production of paclitaxel, the active ingredient in BMS's largest
selling cancer product, Taxol(R). The agreement includes fees,
milestone payments, research and development support and minimum and
sales based royalties.

(3) LOSS PER COMMON SHARE

In 1997, the Financial Accounting Standards Board issued Statement No.
128 "Earnings Per Share". Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of option, warrants and
convertible securities. Dilutive earnings per share is very similar to
the previously reported fully diluted earnings per share. In accordance
with Statement No. 128, which was adopted by the Company in 1997, basic
and diluted net loss per common share is based on the net loss
increased by dividends on preferred stock divided by the weighted
average number of common shares outstanding during the year. No effect
has been given to outstanding options, warrants or convertible
preferred stock in the diluted computation as their effect would be
antidilutive.

(4) REVENUE RECOGNITION

Revenue from licensing and research agreements is recognized as the
expenses for research and development activities performed under the
terms of the agreements are incurred. Revenues from nonrefundable
licenses and up front fees is recognized upon signing the agreement.
Revenue resulting from the achievement of milestones is recognized when
the milestone is achieved. Amounts received in advance of services to
be performed are recorded as deferred revenue.

F-19
<PAGE> 77

================================================================================
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 Cytoclonal Pharmaceutics Inc. 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 Cytoclonal
Pharmaceutics Inc. 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.

================================================================================

CYTOCLONAL PHARMACEUTICS INC.

Consisting of

6,523,073 shares of common stock

and 2,006,073 redeemable class D warrants

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

P R O S P E C T U S

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

_______________, 1999

================================================================================

<PAGE> 78

[ALTERNATE LANGUAGE FOR MARKET-MAKING PROSPECTUS]
SUBJECT TO COMPLETION
Cytoclonal Pharmaceutics Inc.

shares of common stock and
class D warrants

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

This prospectus will be used by Janssen-Meyers Associates, L.P. in
connection with offers and sales in market-making transactions in our common
stock, par value $.01 per share, and class D warrants. Janssen-Meyers 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.

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

See "Risk Factors" beginning on page 6 of this prospectus and
"Dilution."

Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.

The date of this prospectus is ______________ ___, 1999.

<PAGE> 79

[ALTERNATE LANGUAGE FOR MARKET-MAKING PROSPECTUS]

PLAN OF DISTRIBUTION

All offers and sales of our common stock and class D warrants pursuant
to this prospectus will be for the account of Janssen-Meyers Associates, L.P. in
connection with market-making transactions. The stockholders, officers and
directors of the corporate general partner of Janssen-Meyers beneficially own in
the aggregate of 26.5% of the outstanding shares of common stock (which
represents approximately 24.9% of our voting securities as of July 6, 1999).
Janssen-Meyers 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.

<PAGE> 80

================================================================================
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 Cytoclonal Pharmaceutics Inc. 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 Cytoclonal Pharmaceutics Inc. 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.

================================================================================

CYTOCLONAL PHARMACEUTICS INC.

shares of common stock

and

class D warrants

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

P R O S P E C T U S

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

Janssen-Meyers Associates, L.P.

_____________ ___, 1999

================================================================================

<PAGE> 81

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 Cytoclonal Pharmaceutics Inc. 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 Cytoclonal
Pharmaceutics Inc. pursuant to Cytoclonal Pharmaceutics Inc.'s By-Laws and the
Delaware General Corporation Law, Cytoclonal Pharmaceutics Inc. 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.

Cytoclonal Pharmaceutics Inc.'s Certificate of Incorporation includes
certain provisions permitted pursuant to Delaware law whereby officers and
Directors of Cytoclonal Pharmaceutics Inc. are to be indemnified against
certain liabilities. Cytoclonal Pharmaceutics Inc.'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,
Cytoclonal Pharmaceutics Inc. 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 Cytoclonal Pharmaceutics Inc. 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:

<TABLE>
<CAPTION>
Amount
----------

<S> <C>
Printing Expenses $ 10,000

Accounting Fees and Expenses 12,500

Legal Fees and Expenses 60,000

Miscellaneous Expenses 2,500

Total............. $ 85,000
==========
</TABLE>

II-1

<PAGE> 82

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

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

In July 1996, Cytoclonal Pharmaceutics Inc. issued The Washington
State University Research Foundation a six year warrant in connection with the
execution of Cytoclonal Pharmaceutics Inc.'s license agreement with The
Washington State University Research Foundation. Such warrant entitles The
Washington State University Research Foundation to acquire an aggregate of
36,000 shares of Cytoclonal Pharmaceutics Inc.'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.

In January 1997, Cytoclonal Pharmaceutics Inc. 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.

In February and September 1997, Cytoclonal Pharmaceutics Inc. granted
options to purchase 10,000 and 40,000 shares of common stock at exercise prices
of $4.38 and $4.31 per share, respectively, as compensation for professional
services. The options were granted 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.

In January and March 1998, Cytoclonal Pharmaceutics Inc. issued an
aggregate of 94,680 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,
1997 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.

In April 1998, Cytoclonal Pharmaceutics Inc. completed a private
placement of 671,026 shares of common stock and 335,540 common stock purchase
class E warrants to purchase an equal amount of shares of common stock pursuant
to Section 4(2) and the provisions of Regulation D promulgated under the
Securities Act. In connection with such private placement, Cytoclonal
Pharmaceutics Inc. issued to an option to the placement agent to purchase
134,207 shares of common stock and warrants to purchase 67,108 shares of common
stock pursuant to Section 4(2) and the provisions of Regulation D promulgated
under the Securities Act.

On October 8, 1998, Cytoclonal Pharmaceutics Inc. granted options
under Cytoclonal Pharmaceutics Inc.'s 1996 Stock Option Plan, as amended, to
purchase 265,000 shares of common stock at an exercise price equal to $4.75 per
share, the fair market value of Cytoclonal Pharmaceutics Inc.'s common stock on
such date, to certain of its executive officers, directors and employees and
counsel in consideration for professional services rendered Cytoclonal
Pharmaceutics Inc. granted such options pursuant to the exemption afforded by
Section 4(2) promulgated under the Securities Act based on the fact that the
grant didn't involve a public offering.

In January 1999, Cytoclonal Pharmaceutics Inc. granted 25,000 shares
of common stock and options to purchase 75,000 shares of its common stock
pursuant to a three-year employment agreement between Cytoclonal Pharmaceutics
Inc. and its Vice President of Drug Design in consideration for such
individual's assignment of technology to Cytoclonal Pharmaceutics Inc. The
shares of common stock were granted 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 individual non involving a public offering.

In January 1999, Cytoclonal Pharmaceutics Inc. granted 10,000 shares
of common stock and options to purchase 30,000 shares of its common stock in
connection with services rendered in identifying and securing the
aforementioned drug design

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<PAGE> 83

technology. The securities were granted 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 individual not involving a public offering.

In January 1999, Cytoclonal Pharmaceutics Inc. issued 74,648 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, 1998 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 to soliciting such exchange.

In February 1999, Cytoclonal Pharmaceutics Inc. granted 7,000 shares
and 3,000 shares of its common stock to two individuals, respectively, in
consideration for services rendered to Cytoclonal in identifying drug design
technology. The shares of common stock were granted 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 individual not involving a public offering.

ITEM 27. EXHIBITS

<TABLE>
<S> <C>
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 Cytoclonal
Pharmaceutics Inc., Janssen/Meyers Associates, L.P. and American Stock
Transfer and Trust Company (1)

4.3 Form of Unit Purchase Option in connection with Cytoclonal
Pharmaceutics Inc.'s Initial Public Offering (1)

5.1 Opinion of Morrison Cohen Singer & Weinstein regarding the legality of
securities offered

10.1 Form of Consulting Agreement between Cytoclonal Pharmaceutics Inc. and
Janssen-Meyers Associates, L.P. (1)

10.2 Employment Agreement dated March 1, 1992 between Cytoclonal
Pharmaceutics Inc. and Arthur P. Bollon, Ph.D. (1)

10.3 Employment Agreement dated March 1, 1992 between Cytoclonal
Pharmaceutics Inc. and Bruce Meyers, as amended (1)

10.4 Employment Agreement effective November 7, 1995 between Cytoclonal
Pharmaceutics Inc. and Daniel Shusterman (1)

10.5 1992 Stock Option Agreement (1)

10.6 Form of Stock Option Agreement (1)

10.7 Lease Agreement dated September 1, 1993 between Cytoclonal
Pharmaceutics Inc. and Mutual Benefit Life Insurance Company In
Rehabilitation (l)

10.8 Lease Agreement dated October 1, 1991 between Cytoclonal Pharmaceutics
Inc. and J.K. and Susie Wadley Research Institute and Blood Bank, as
amended (l)

10.9 Purchase Agreement dated October 10, 1991 between Cytoclonal
Pharmaceutics Inc. and Wadley Technologies, Inc. ("Wadley")(1)

10.10 Security Agreement dated October 10, 1991 between Cytoclonal
Pharmaceutics Inc. and Wadley(l)

10.11 License Agreement dated March 15, 1989 between Cytoclonal Pharmaceutics
Inc. and Phillips Petroleum Company, as amended(l)

10.12 License Agreement dated June 10, 1993 between Cytoclonal Pharmaceutics
Inc. and Research & Development Institute, Inc. ("The Research &
Development Institute at Montana State University"), as amended,
relating to the Paclitaxel Fermentation Production System(l)

10.13 Research and Development Agreement effective June 10, 1993 between
Cytoclonal Pharmaceutics Inc. and The Research & Development Institute
at Montana State University, as amended(l)

10.14 License Agreement dated February 22, 1995 between Cytoclonal
Pharmaceutics Inc. and The Research & Development Institute at Montana
State University, as amended, relating to FTS-2(l)

10.15 Research, Development and License Agreement dated March 26, 1992
between Cytoclonal Pharmaceutics Inc. and Enzon, Inc. ("Enzon"), as
amended(l)

10.16 Research, Development and License Agreement dated July 13, 1992 between
Cytoclonal Pharmaceutics Inc. and Enzon relating to Cytoclonal
Pharmaceutics Inc.'s tumor necrosis factor technology(l)

10.17 Agreement effective June 30, 1992 between Cytoclonal Pharmaceutics Inc.
and University of Texas at Dallas ("UTD"), as amended(l)
</TABLE>

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<PAGE> 84

<TABLE>
<S> <C>
10.18 Research Agreement effective April 8, 1994 between Cytoclonal
Pharmaceutics Inc. and Sloan-Kettering Institute for Cancer Research(l)

10.19 Joint Venture Agreement dated September 17, 1992 between Cytoclonal
Pharmaceutics Inc. and Pestka Biomedical Laboratories, Inc.
("Pestka")(1)

10.20 Stock Purchase Agreement dated September 17, 1992 between Cytoclonal
Pharmaceutics Inc. and Pestka(l)

10.21 License Agreement dated September 17, 1992 between Cytomune, Inc. and
Pestka(l)

10.22 Research and Development Agreement dated September 17, 1992 between
Cytomune, Inc. and Pestka(l)

10.23 Marketing Agreement dated as of November 1, 1994 between Helm AG and
Cytoclonal Pharmaceutics Inc.(l)

10.24 Extension Agreement with The Research & Development Institute at
Montana State University dated June 5, 1995(l)

10.25 Third Amendment to Lease Agreement dated April 30, 1995(l)

10.26 Form of Subordinated Note Extension(l)

10.27 Form of Note Extension(l)

10.28 September 25, 1995 The Research & Development Institute at Montana
State University Extension(l)

10.29 October 25, 1995 The Research & Development Institute at Montana State
University 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 Cytoclonal Pharmaceutics Inc. and The Research
& Development Institute at Montana State University (2)

10.31 License Agreement No. W960206 effective February 27, 1996 between
Cytoclonal Pharmaceutics Inc. and The Regents of the University of
California(2)

10.32 License Agreement No. W960207 effective February 27, 1996 between
Cytoclonal Pharmaceutics Inc. and The Regents of the University of
California(2)

10.33 License Agreement with the Washington State University, dated July 2,
1996(3)*

10.34 Amendment to Agreement, effective June 30, 1992, as amended, between
Cytoclonal Pharmaceutics Inc. and the University of Texas at Dallas(3)

10.35 1996 Stock Option Plan and Amendment No. 1 thereto (7)

10.36 Patent License Agreement, dated August 4, 1998, between The Regents of
the University of California and Cytoclonal Pharmaceutics Inc. for
Peptide Anti-estrogen for Breast Cancer Therapy (5)*

10.37 Master License Agreement, dated as of June 12, 1998, between Cytoclonal
Pharmaceutics Inc. and Bristol-Myers Squibb Company (6)*

10.38 Sublicense Agreement, dated May 27, 1998, between Cytoclonal
Pharmaceutics Inc. and Bristol-Myers Squibb under The Research &
Development Institute, Inc. License Agreement, as amended, dated June
10, 1998 (6)*

10.39 Sublicense Agreement, dated May 19, 1998, between Cytoclonal
Pharmaceutics Inc. and Bristol-Myers Squibb Company under the
Washington State University Research Foundation License Agreement,
dated June 8, 1996 (6)*

10.40 Amended and Restated License Agreement, dated June 3, 1998, between the
Washington State University Research Foundation and Cytoclonal
Pharmaceutics Inc. (6)*

10.41 Amendment, dated May 27, 1998, to the License Agreement, dated June 10,
1993, between The Research and Development Institute, Inc. and
Cytoclonal Pharmaceutics Inc. (6)*

21 List of Subsidiaries - None

23.1 Consent of Morrison Cohen Singer & Weinstein, LLP (included in Exhibit
5.1 hereto)

23.2 Consent of Independent Accountants

24.1 Power of Attorney (1)
</TABLE>

- ------------------------
* Confidential portions omitted and filed separately with the U.S.
Securities Commission pursuant to Rule 24b-2 promulgated under the
Securities Exchange Act of 1934, as amended.

(1) Previously filed as an exhibit to Cytoclonal Pharmaceutics Inc.'s
Registration Statement on Form SB-2 (File No. 33-91802) and are
incorporated by reference herein.

(2) Previously filed as an exhibit to Cytoclonal Pharmaceutics Inc.'s
Annual Report on Form 10-KSB (File No. 000-26078) for the year ended
December 31, 1995 and incorporated by reference herein.

(3) Previously filed as an exhibit to Cytoclonal Pharmaceutics Inc.'s
Post-Effective Amendment No. 1 to Form SB-2 (File No. 33-91802) and are
incorporated by reference herein.

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<PAGE> 85

(4) Previously filed as an exhibit to Cytoclonal Pharmaceutics Inc.'s
Registration Statement on Form SB-2 (File No. 333-13409) and is
incorporated by reference herein.

(5) Previously filed as an exhibit to the Post-Effective Amendment to
Cytoclonal Pharmaceutics Inc.'s Registration Statement on Form SB-2 on
Form S-3 (File No. 333-13409) and is incorporated by reference herein.

(6) Previously filed as an exhibit to Cytoclonal Pharmaceutics Inc.'s
Current Report on Form 8-K (File No. 000-26078) and is incorporated by
reference herein.

(7) Previously filed as an exhibit to Cytoclonal Pharmaceutics Inc.'s
Annual Report on Form 10-K (File No. 000-26078) for the year ended
December 31, 1998 and is incorporated by reference herein.

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<PAGE> 86

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 within 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 Securities 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
Securities Act and will be governed by the final adjudication of such issue.

II-6

<PAGE> 87

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. 6 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 July 21, 1999.

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. 6 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 July 21, 1999
- ----------------------------------- Executive Officer and Director
Arthur P. Bollon, Ph.D. (principal executive officer)

/s/ Daniel Shusterman Vice President Operations, July 21, 1999
- ----------------------------------- Treasurer and Chief Financial
Daniel Shusterman, J.D. Officer (principal financial
and accounting officer)

* Director
- -----------------------------------
Ira Gelb, M.D.

* Director
- -----------------------------------
Irwin C. Gerson

* Director
- -----------------------------------
Walter M. Lovenberg

Director
- -----------------------------------
Gary E. Frashier

*By: /s/ Arthur P. Bollon July 21, 1999
----------------------------------
Arthur P. Bollon, Attorney-in-Fact
</TABLE>

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<PAGE> 88

EXHIBIT INDEX

<TABLE>
<CAPTION>
Page No.
--------

<S> <C>
5.1 Opinion of Morrison Cohen Singer & Weinstein, LLP

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

II-8

<PAGE> 1

EXHIBIT 5.1

[MORRISON COHEN SINGER & WEINSTEIN, LLP LETTERHEAD]

July 21, 1999

Cytoclonal Pharmaceutics Inc.
9000 Harry Hines Boulevard, Suite 621
Dallas, Texas 75235

Re: Post Effective Amendment No. 6 to
Registration Statement on Form SB-2
(File No. 33-91802)

Dear Sirs:

We hereby refer to Post-Effective Amendment No. 6 to the Registration
Statement on Form SB-2 (Reg. No. 33-91802) (the "Registration Statement") filed
by you, Cytoclonal Pharmaceutics Inc., a Delaware corporation (the "Company"),
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended, thereby registering an aggregate amount of (i) 6,523,073
shares of common stock, $.01 par value per share (the "Common Stock"), of
Cytoclonal Pharmaceutics Inc. and (ii) 2,006,073 Redeemable Class D Warrants
(the "Class D Warrants") issued in connection with Cytoclonal Pharmaceutics
Inc.'s initial public offering completed in November 1995 (the "IPO"). The
6,523,073 shares of Common Stock referenced in item (i) above consists of (a)
2,006,073 shares of Common Stock issuable upon the exercise of the Class C
Warrants (the "Class C Warrants") at an exercise price of $6.50 until November
2, 2000 (the "Expiration Date") issued in connection with the IPO (the "Class C
Warrant Shares"), (b) 2,006,073 shares of Common Stock issuable upon the
exercise of the Class D Warrants underlying the class C warrants (the
"Underlying Class D Warrants") at an exercise price of $8.75 until the
Expiration Date (the "Underlying Class D Warrants Shares") and (c) 2,510,927
shares of Common Stock issuable upon the exercise of the Class D Warrants at an
exercise price of $8.75 until the Expiration Date (the "Class D Warrant
Shares").

We have examined and are familiar with originals, or copies certified
or otherwise identified to our satisfaction, of such corporate records of
Cytoclonal Pharmaceutics Inc., certificates of officers of Cytoclonal
Pharmaceutics Inc. 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 Underlying Class D Warrants and Class D 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 Class C Warrant Shares, Underlying Class D
Warrant Shares and the Class D Warrant Shares have
been duly and validly authorized and when sold, paid
for, and issued upon exercise of the respective
Warrants in accordance with the terms of such
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

<PAGE> 1

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to inclusion in this Post-Effective Amendment No. 6 to the
Registration Statement on Form SB-2 of our report dated February 6, 1999 on our
audits of the financial statements of Cytoclonal Pharmaceutics Inc., a Delaware
corporation, as of December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998. 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
- ----------------------------------------
Richard A. Eisner & Company, LLP
New York, New York
July 19, 1999