<SEC-DOCUMENT>0000950123-11-050892.txt : 20110516
<SEC-HEADER>0000950123-11-050892.hdr.sgml : 20110516
<ACCEPTANCE-DATETIME>20110516170936
ACCESSION NUMBER:		0000950123-11-050892
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20110331
FILED AS OF DATE:		20110516
DATE AS OF CHANGE:		20110516

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			Cyclacel Pharmaceuticals, Inc.
		CENTRAL INDEX KEY:			0001130166
		STANDARD INDUSTRIAL CLASSIFICATION:	PHARMACEUTICAL PREPARATIONS [2834]
		IRS NUMBER:				911766850
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-50626
		FILM NUMBER:		11848331

	BUSINESS ADDRESS:	
		STREET 1:		200 CONNELL DRIVE
		STREET 2:		SUITE 1500
		CITY:			BERKELEY HEIGHTS
		STATE:			NJ
		ZIP:			07922
		BUSINESS PHONE:		908-517-7330

	MAIL ADDRESS:	
		STREET 1:		200 CONNELL DRIVE
		STREET 2:		SUITE 1500
		CITY:			BERKELEY HEIGHTS
		STATE:			NJ
		ZIP:			07922

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	XCYTE THERAPIES INC
		DATE OF NAME CHANGE:	20001218
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>c17361e10vq.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>Form 10-Q</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">


<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 10pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 10pt"><B>FORM 10-Q</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">(Mark One)
</DIV>


<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 0pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT style="font-family: Wingdings">&#254;</FONT> </TD>
    <TD>&nbsp;</TD>
    <TD><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>


<!-- xbrl,dc -->
<DIV align="center" style="font-size: 10pt; margin-top: 10pt; margin-left: 0%"><B>For the quarterly period ended March&nbsp;31, 2011</B></DIV>
<!-- /xbrl,dc -->

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>OR</B></DIV>


<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 10pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT style="font-family: Wingdings">&#111;</FONT> </TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>
Commission file number 0-50626</B>
</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 10pt"><B>CYCLACEL PHARMACEUTICALS, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt">
(Exact name of registrant as specified in its charter)</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Delaware</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>91-1707622</B></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(State or Other Jurisdiction <BR>
of Incorporation or Organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer<BR>
Identification No.)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>200 Connell Drive, Suite&nbsp;1500</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>Berkeley Heights, New Jersey</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>07922</B></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(Address of principal executive offices)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Zip Code)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Registrant&#146;s telephone number, including area code: (<B>908) 517-7330</B></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for
such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days. Yes <FONT style="font-family: Wingdings">&#254;</FONT> No <FONT style="font-family: Wingdings">&#111;</FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule&nbsp;405 of Regulation&nbsp;S-T (&#167;232.405 of this chapter) during the preceding 12&nbsp;months
(or for such shorter period that the registrant was required to submit and post such files).
Yes <FONT style="font-family: Wingdings">&#111;</FONT> No <FONT style="font-family: Wingdings">&#111;</FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of &#147;large accelerated
filer,&#148; &#147;accelerated filer&#148; and &#147;smaller reporting company&#148; in Rule&nbsp;12b-2 of the Exchange Act.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left" valign="top">Large accelerated filer <FONT style="font-family: Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Accelerated filer <FONT style="font-family: Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Non-accelerated filer <FONT style="font-family: Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" nowrap>Smaller reporting filer <FONT style="font-family: Wingdings">&#254;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" nowrap>(Do not check if a smaller reporting company)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Indicate by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of the
Exchange Act). Yes <FONT style="font-family: Wingdings">&#111;</FONT> No <FONT style="font-family: Wingdings">&#254;</FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">As of May&nbsp;16, 2011 there were 46,601,758 shares of the registrant&#146;s common stock outstanding.
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>








<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">



<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="C17361tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>CYCLACEL PHARMACEUTICALS, INC.</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 10pt"><B>INDEX</B>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Page</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 10pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#C17361101">Part I. Financial Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#C17361102">Item&nbsp;1. Financial Statements (Unaudited)</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#C17361103">Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">24</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#C17361104">Item&nbsp;3. Quantitative and Qualitative Disclosures About Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">33</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#C17361105">Item&nbsp;4. Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">34</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#C17361106">Part II. Other Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#C17361107">Item&nbsp;1. Legal Proceedings</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">36</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#C17361108">Item&nbsp;1A. Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">36</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#C17361109">Item&nbsp;2. Unregistered Sales of Equity Securities and Use of Proceeds</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">61</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#C17361110">Item&nbsp;3. Defaults upon Senior Securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">61</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#C17361111">Item&nbsp;4. (Removed and Reserved)</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">61</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#C17361112">Item&nbsp;5. Other Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">61</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#C17361113">Item&nbsp;6. Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">61</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#C17361114">SIGNATURE PAGE</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">62</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c17361exv31w1.htm">Exhibit 31.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c17361exv31w2.htm">Exhibit 31.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c17361exv32w1.htm">Exhibit 32.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c17361exv32w2.htm">Exhibit 32.2</A></FONT></TD></TR>
</TABLE>
</DIV>
<DIV align="left">
<!-- /TOC -->
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">



<DIV align="left">
<A name="C17361101"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>PART I. FINANCIAL INFORMATION</B>
</DIV>

<DIV align="left">
<A name="C17361102"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>Item&nbsp;1.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>Financial Statements.</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>CYCLACEL PHARMACEUTICALS, INC.<BR>
(A Development Stage Company)<BR>

<!-- xbrl,bs -->
CONDENSED CONSOLIDATED BALANCE SHEETS
<!-- xbrl,body -->

<BR>
(In $000s, except share amounts)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(Unaudited)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Current assets:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">25,350</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,382</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,401</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>Total current assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,866</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment (net)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">331</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">31,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">27,197</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>LIABILITIES AND STOCKHOLDERS&#146; EQUITY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Current liabilities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,723</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">947</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued liabilities and other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,264</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Warrant liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">602</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>Total current liabilities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,535</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,813</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total liabilities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,535</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,813</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Stockholders&#146; equity:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Preferred stock, $0.001 par value; 5,000,000 shares
authorized at December&nbsp;31, 2010 and March&nbsp;31, 2011;
1,213,142 shares issued and outstanding at December
31, 2010 and March&nbsp;31, 2011. Aggregate preference
in liquidation of $13,344,562 (including undeclared
cumulative dividends) at December&nbsp;31, 2010 and
March&nbsp;31, 2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common stock, $0.001 par value; 100,000,000 shares
authorized at December&nbsp;31, 2010 and March&nbsp;31, 2011;
46,564,914 and 46,577,860 shares issued and
outstanding at December&nbsp;31, 2010 and March&nbsp;31, 2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">266,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">266,737</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated other comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deficit accumulated during the development stage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(241,821</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(246,409</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>Total stockholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,384</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total liabilities and stockholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">31,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">27,197</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">The accompanying notes are an integral part of these consolidated financial
statements.
</DIV>

<!-- /xbrl,bs -->
<P align="center" style="font-size: 10pt">&nbsp;


<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">



<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>CYCLACEL PHARMACEUTICALS, INC.<BR>
(A Development Stage Company)<BR>
<!-- xbrl,op -->
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<!-- xbrl,body -->
<BR>
(In $000s, except share and per share amounts)<BR>
(Unaudited)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Period from</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>August 13, 1996</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(inception) to</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Revenues:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Collaboration and research and development revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,100</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Product revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,514</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Grant revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,648</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,262</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating expenses</B>:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cost of goods sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,498</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">179,673</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Selling, general and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,806</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,772</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Goodwill and intangible impairment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,934</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Restructuring costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,634</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total operating expenses</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,722</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275,511</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,451</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,800</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(266,249</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Costs associated with aborted 2004 IPO</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,550</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payment under guarantee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,652</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in valuation of derivative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(308</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in valuation of warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(789</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,104</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Foreign exchange (losses)/gains</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(68</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,323</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,691</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,677</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total other income (expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(793</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,285</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Loss before taxes</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,244</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,779</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(260,964</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,070</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net loss</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,111</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,588</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(242,894</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends on preferred ordinary shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(38,123</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deemed dividend on convertible exchangeable
preferred shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(419</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,515</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividend on convertible exchangeable preferred shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(289</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(182</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,111</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net loss applicable to common shareholders</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,819</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,770</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(287,643</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss per share &#151; Basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.18</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average common shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>31,721,822</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>46,572,180</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<!-- /xbrl,op -->

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">The accompanying notes are an integral part of these consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>CYCLACEL PHARMACEUTICALS, INC.<BR>
(A Development Stage Company)<BR>

<!-- xbrl,cf -->
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<!-- xbrl,body -->
<BR>
(In $000s)<BR>
(Unaudited)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Period from</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>August 13, 1996</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(inception) to</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from operating activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,111</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,588</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(242,894</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to reconcile net loss to net cash used in
operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accretion of interest on notes payable, net of
amortization of debt premium </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of investment premiums, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,297</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in valuation of derivative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">308</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in valuation of warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(78</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,148</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Warrant re-pricing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">886</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fixed asset impairment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">221</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Goodwill and intangibles impairment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,934</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unrealized foreign exchange loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,747</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(98</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Compensation for warrants issued to non employees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,215</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Shares issued for IP rights</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">446</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Gain) loss on disposal of property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,392</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Provision for restructuring</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,779</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of issuance costs of Preferred Ordinary &#147;C&#148;
shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,517</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Changes in operating assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Prepaid expenses, inventory and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(192</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts payable, accrued liabilities and other
current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,100</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,493</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net cash used in operating activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,771</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,892</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(203,034</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Investing activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of ALIGN </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,763</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,831</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from sale of property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">158</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of short-term investments </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(156,657</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Redemptions of short-term investments, net of maturities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162,729</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by (used in) investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,364</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Financing activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Payment of capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,719</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from issuance of ordinary and preferred ordinary
shares, net of issuance costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121,678</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from issuance of common stock and warrants, net of
issuance costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(80</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,324</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net proceeds from stock options and warrants exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">172</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>
<!-- xbrl -->
<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">
<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>CYCLACEL PHARMACEUTICALS, INC.<BR>
(A Development Stage Company)<BR>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>
(In $000s)<BR>
(Unaudited)</B>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Period from</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>August 13, 1996</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(inception) to</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Payment of preferred stock dividend</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(182</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,716</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Repayment of government loan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(455</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Government loan received</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">414</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loan received from Cyclacel Group Plc</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,103</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds of committable loan notes issued from shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,883</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loans received from shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,645</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents assumed on stock purchase</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,915</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Costs associated with stock purchase</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,951</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash (used in) provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(260</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">234,293</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes on cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(148</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">455</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,707</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,145</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,350</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash and cash equivalents at end of period</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">24,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">25,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">25,350</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Supplemental disclosure of cash flows information:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash received during the period for:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,718</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,522</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash paid during the period for:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,914</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Schedule of non-cash transactions:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisitions of equipment purchased through capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,470</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of common shares in connection with license
agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">592</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of ordinary shares on conversion of bridging loan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,638</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of preferred ordinary &#147;C&#148; shares on conversion of
secured convertible loan notes and accrued interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,893</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of ordinary shares in lieu of cash bonus</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of other long term payable on ALIGN acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,122</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<!-- /xbrl,cf -->
<DIV align="center" style="font-size: 10pt; margin-top: 10pt">The accompanying notes are an integral part of these consolidated financial statements.
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>
<!-- xbrl,ns -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>CYCLACEL PHARMACEUTICALS, INC.<BR>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Nature of Operations</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Cyclacel Pharmaceuticals, Inc. (&#145;&#145;Cyclacel&#146;&#146; or the &#145;&#145;Company&#146;&#146;) is a development-stage
biopharmaceutical company dedicated to the development and commercialization of novel,
mechanism-targeted drugs to treat human cancers and other serious diseases. Cyclacel&#146;s strategy is
to build a diversified biopharmaceutical business focused in hematology and oncology based on a
portfolio of commercial products and a development pipeline of novel drug candidates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Cyclacel&#146;s clinical development priorities are focused on sapacitabine in the following
indications:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Acute myeloid leukemia, or AML in the elderly;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Myelodysplastic syndromes, or MDS; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Non-small cell lung cancer or NSCLC.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On January&nbsp;11, 2011, the Company opened enrollment of the SEAMLESS pivotal Phase 3 trial for
the Company&#146;s sapacitabine oral capsules as a front-line treatment of elderly patients aged 70
years or older with newly diagnosed AML who are not candidates for intensive induction chemotherapy
under a Special Protocol Assessment, or SPA, reached with the U.S. Food &#038; Drug Administration, or
FDA.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company has advanced two additional product candidates, seliciclib in Phase 2 for NSCLC
and nasopharyngeal cancer or NPC, and CYC116 in Phase 1 clinical development. The combination of
sapacitabine with seliciclib is also being evaluated in a Phase 1 clinical trial. The Company will
determine the feasibility of pursuing further development and/or partnering these assets depending
on the availability of funding and further clinical data. In addition, the Company markets directly
in the United States Xclair<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Cream for radiation dermatitis and Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Liquid and Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP>
Lozenges for xerostomia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As a development stage enterprise, substantially all efforts of the Company to date have been
devoted to performing research and development, conducting clinical trials, developing and
acquiring intellectual property and raising capital.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Basis of Presentation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The condensed consolidated balance sheet as of March&nbsp;31, 2011, the condensed consolidated
statements of operations for the three months ended March&nbsp;31, 2011 and 2010 and the condensed
consolidated statements of cash flows for the three months ended March&nbsp;31, 2011 and 2010, and
related disclosures contained in the accompanying notes are unaudited. The condensed consolidated
balance sheet as of December&nbsp;31, 2010 is derived from the audited consolidated financial statements
included in the 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission
(&#147;SEC&#148;). The condensed consolidated financial statements are presented on the basis of accounting
principles that are generally accepted in the United States (&#147;GAAP&#148;) for interim financial
information and in accordance with the rules and regulations of the SEC. Accordingly, they do not
include all the information and footnotes required by accounting principles generally accepted in
the United States for a complete set of financial statements. In the opinion of management, all
adjustments, which include only normal recurring adjustments, necessary to present fairly the
condensed consolidated balance sheet as of March&nbsp;31, 2011, the results of operations for the three
months ended March&nbsp;31, 2011 and 2010 and the consolidated statements of cash flows for the three
months ended March&nbsp;31, 2011 and 2010 have been made. The interim results for the three months ended
March&nbsp;31, 2011 are not necessarily indicative of the results to be expected for the year ending
December&nbsp;31, 2011 or for any other year. The condensed consolidated financial statements should be
read
in conjunction with the audited consolidated financial statements and the accompanying notes
for the year ended December&nbsp;31, 2010, included in the Company&#146;s Annual Report on Form 10-K filed
with the SEC.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Recent Developments</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On February&nbsp;1, 2011, the Company paid a quarterly cash dividend in the amount of $0.15 per
share on the Company&#146;s 6% Convertible Exchangeable Preferred Stock (&#147;Preferred Stock&#148;). The
dividend was paid to holders of record of the Preferred Stock as of the close business on January
21, 2011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company&#146;s Board of Directors (the &#147;Board&#148;) considered numerous factors in determining
whether to declare the quarterly dividend, including the requisite financial analysis and
determination of a surplus. The Board will analyze the advisability of the declaration of dividends
in future quarters. There is no assurance that future quarterly dividends will be declared.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Subsequent Developments</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On April&nbsp;11, 2011, the Board declared a quarterly cash dividend in the amount of
$0.15 per share on the Company&#146;s Preferred Stock. The dividend was paid on May&nbsp;2, 2011 to holders
of record of the Preferred Stock on April&nbsp;22, 2011.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</B>
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Consolidation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The accompanying condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries for the indicated periods. All significant intercompany
transactions and balances have been eliminated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Use of Estimates</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The preparation of financial statements in accordance with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets, liabilities and related
disclosures of contingent assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting period. The Company reviews its
estimates on an ongoing basis. The estimates are based on historical experience and on various
other assumptions that the Company believes to be reasonable under the circumstances. Actual
results may differ from these estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Cash and Cash Equivalents</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Cash and cash equivalents are stated at cost, which is substantially the same as fair value.
The Company considers all highly liquid investments with an original maturity of three months or
less at the time of purchase to be cash equivalents. The Company&#146;s cash equivalents generally
include investments in money market funds and corporate commercial paper. The objectives of the
Company&#146;s cash management policy are to safeguard and preserve funds, to maintain liquidity
sufficient to meet Cyclacel&#146;s cash flow requirements and to attain a market rate of return.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Trade Accounts Receivable and Allowance for Doubtful Accounts</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">An allowance for doubtful accounts is provided, as necessary, on trade receivables based on
their respective aging categories and historical collection experience, taking into consideration
the type of payer, historical and projected collection outcomes, and current economic and business
conditions that could affect the collectability of the Company&#146;s receivables. The allowance for
doubtful accounts is reviewed, at a minimum, on a quarterly basis. Changes in the allowance for
doubtful accounts are recorded as an adjustment to bad debt expense within general and
administrative expenses. Material revisions to reserve estimates may result from adverse changes in
collection experience. The Company writes off accounts against the allowance for doubtful accounts
when reasonable collection efforts have been unsuccessful and it is likely the receivable will not
be recovered. At December&nbsp;31, 2010 and March&nbsp;31, 2011, all receivables were deemed collectible.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->8<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">For the three months ended March&nbsp;31, 2010 and 2011, approximately 91% and 90%, respectively,
of our product sales in the United States were to three wholesalers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Inventory</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Cyclacel values inventories at the lower of cost or market value. The Company determines cost
using the first-in, first-out method. As of December&nbsp;31, 2010 and March&nbsp;31, 2011, all inventories
were classified as finished goods. The Company analyzes its inventory levels at least quarterly to
identify any items that may expire prior to sale, inventory that has a cost basis in excess of net
realizable value, or inventory in excess of expected sales requirements. The determination of
whether or not inventory costs will be realizable requires estimates by the Company&#146;s management.
A critical input is future sales forecasts. The Company writes down the value of inventory to the
extent that inventory is expected to expire before being sold. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs may be required in
future periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Revenue Recognition</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>Product sales</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company recognizes revenue from product sales when persuasive evidence of an arrangement
exists; delivery has occurred or services have been rendered; the selling price is fixed or
determinable; and collectability is reasonably assured.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company offers a general right of return on these product sales, and has considered the
guidance in ASC 605-15, &#147;<I>Revenue Recognition -Products</I>&#148; (&#147;ASC 605-15&#148;) and ASC 605 &#151; 10 &#147;<I>Revenue
Recognition &#151; Overall</I>&#148; (&#147;ASC 605-10&#148;). Under these guidelines, the Company accounts for all product
sales using the &#147;sell-through&#148; method. Under the sell-through method, revenue is not recognized
upon shipment of product to distributors. Instead, the Company records deferred revenue at gross
invoice sales price and deferred cost of sales at the cost at which those goods were held in
inventory. The Company recognizes revenue when such inventory is sold through to pharmacies. To
estimate product sold through to pharmacies, the Company relies on third-party information,
including information obtained from significant distributors with respect to their inventory levels
and sell-through to pharmacies. The Company estimates product returns based on historical returns
experience and other factors that affect demand for the Company&#146;s products as well as the amount of
product subject to return.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Deferred revenue was $0.1&nbsp;million at March&nbsp;31, 2010 and 2011. Deferred cost of goods sold was
$0.1&nbsp;million and $32,000 at March&nbsp;31, 2010 and 2011, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>Collaboration, research and development, and grant revenue</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Certain of the Company&#146;s revenues are earned from collaborative agreements. The Company
recognizes revenue when persuasive evidence of an arrangement exists; delivery has occurred or
services have been rendered; the fee is fixed or determinable; and collectability is reasonably
assured. Determination of whether these criteria have been met is based on management&#146;s judgments
regarding the nature of the research performed, the substance of the milestones met relative to
those the Company must still perform, and the collectability of any related fees. Should changes in
conditions cause management to determine these criteria are not met for certain future
transactions, revenue recognized for any reporting period could be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Research and development revenues, which are earned under agreements with third parties for
contract research and development activities, are recorded as the related services are performed.
Milestone payments are non-refundable and recognized as revenue when earned, as evidenced by
achievement of the specified milestones and the absence of ongoing performance obligations. Any
amounts received in advance of performance are recorded as deferred revenue. None of the revenues
recognized to date are refundable if the relevant research effort is not successful.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->9<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Grant revenues from government agencies and private research foundations are recognized as the
related qualified research and development costs are incurred, up to the limit of the prior
approval funding amounts. All grants received are not refundable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Clinical Trial Accounting</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Data management and monitoring of all of the Company&#146;s clinical trials are performed by
contract research organizations (&#145;&#145;CROs&#146;&#146;) or clinical research associates (&#145;&#145;CRAs&#146;&#146;) in accordance
with the Company&#146;s standard operating procedures. Typically, CROs and some CRAs bill monthly for
services performed, and others bill based upon milestones achieved. For outstanding amounts, the
Company accrues unbilled clinical trial expenses based on estimates of the level of services
performed each period. Costs of setting up investigational sites for participation in the Company&#146;s
clinical trials are expensed immediately as research and development expenses. Clinical trial site
costs related to patient enrollment are accrued as patients are entered into the trial. Any initial
payment made to the clinical trial site is recognized upon execution of the clinical trial
agreements and expensed as research and development expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Research and Development Expenditures</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Research and development expenses consist primarily of costs associated with the Company&#146;s
product candidates, upfront fees, milestones, compensation and other expenses for research and
development personnel, supplies and development materials, costs for consultants and related
contract research, facility costs, amortization of purchased technology and depreciation.
Expenditures relating to research and development are expensed as incurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Foreign currency and currency translation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Transactions that are denominated in a foreign currency are remeasured into the functional
currency at the current exchange rate on the date of the transaction. Any foreign
currency-denominated monetary assets and liabilities are subsequently remeasured at current
exchange rates, with gains or losses recognized as foreign exchange (losses)/gains in the statement
of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The assets and liabilities of the Company&#146;s international subsidiary are translated from its
functional currency into United States dollars at exchange rates prevailing at the balance sheet
date. Average rates of exchange during the period are used to translate the statement of
operations, while historical rates of exchange are used to translate any equity transactions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Translation adjustments arising on consolidation due to differences between average rates and
balance sheet rates, as well as unrealized foreign exchange gains or losses arising from
translation of intercompany loans that are of a long-term-investment nature, are recorded in other
comprehensive income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Derivative Instruments</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The accounting for derivatives requires significant judgments and estimates in determining the
fair value in the absence of quoted market values. These estimates are based on valuation
methodologies and assumptions deemed appropriate in the circumstances. The use of different
assumptions may have a material effect on the estimated fair value amount and the Company&#146;s results
of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Inputs used to determine fair value of financial and non-financial assets and liabilities are
categorized using a fair value hierarchy that prioritizes observable and unobservable inputs into
three broad levels, from Level 1, which is the most reliable, to Level 3, which is the least
reliable (see &#147;Note 3 &#151; Fair Value Measurements&#148;). Management reviews the categorization of fair
value inputs on a periodic basis and may determine that it is necessary to transfer an input from
one level of the fair value hierarchy to another based on changes in events or circumstances, such
as a change in the observability of an input. Any such transfer will be recognized at the end of
the reporting period.
</DIV>
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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Income Taxes</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company accounts for income taxes under the liability method. Under this method, deferred
tax assets and liabilities are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized. The Company&#146;s
management has established a full valuation allowance against its deferred tax assets based on the
determination that it is not more likely than not that the Company will recognize the benefits of
those assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company adopted the guidance related to accounting for uncertainty in income taxes,
primarily codified in 740, <I>&#147;Income taxes&#148; </I>(&#147;ASC 740&#148;). ASC 740 specifies the accounting for
uncertainty in income taxes recognized in a company&#146;s financial statements by prescribing a minimum
probability threshold a tax position is required to meet before being recognized in the financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company records income tax benefits related to research and development tax credits, which
will be claimed from H. M. Revenue &#038; Customs, the United Kingdom&#146;s taxation and customs authority,
with respect to qualifying research and development costs incurred in the same accounting period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Stock-based Compensation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company grants stock options, restricted stock units and restricted stock to officers,
employees and directors under the Amended and Restated Equity Incentive Plan (&#147;2006 Plan&#148;), which
was approved on March&nbsp;16, 2006 and subsequently amended and restated on April&nbsp;14, 2008. The
Company also has outstanding options under various stock-based compensation plans for employees and
directors. These plans are described more fully in Note 6 &#151; &#147;Stock-Based Compensation
Arrangements&#148;. The Company accounts for these plans under ASC 718, &#147;<I>Compensation &#151; Stock
Compensation</I>&#148; (&#147;ASC 718&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">ASC 718 requires measurement of compensation cost for all stock-based awards at fair value on
date of grant and recognition of compensation over the requisite service period for awards expected
to vest. The fair value of restricted stock and restricted stock units is determined based on the
number of shares granted and the quoted price of the Company&#146;s common stock on the date of grant.
The determination of grant-date fair value for stock option awards is estimated using the
Black-Scholes model, which includes variables such as the expected volatility of our share price,
the anticipated exercise behavior of our employees, interest rates, and dividend yields. These
variables are projected based on our historical data, experience, and other factors. Changes in any
of these variables could result in material adjustments to the expense recognized for share-based
payments. Such value is recognized as expense over the requisite service period, net of estimated
forfeitures, using the straight-line attribution method. The estimation of stock awards that will
ultimately vest requires judgment, and to the extent actual results or updated estimates differ
from current estimates, such amounts are recorded as a cumulative adjustment in the period
estimates are revised. The Company considers many factors when estimating expected forfeitures,
including type of awards granted employee class, and historical experience. Actual results and
future estimates may differ substantially from current estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Segments</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company has determined its reportable segments in accordance with ASC 280, &#147;<I>Segment
Reporting</I>&#148; (&#147;ASC 280&#148;) and related disclosures about products, services, geographic areas and major
customers. After considering its business activities and geographic reach, the Company has
concluded that it operates in just one operating segment being the discovery, development and
commercialization of novel, mechanism-targeted drugs to treat cancer and other serious disorders,
with development operations in two geographic areas, namely the United States and the United
Kingdom.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->11<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Net Loss per Common Share</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company calculates net loss per common share in accordance with ASC 260, &#147;<I>Earnings Per
Share</I>&#148; (&#147;ASC 260&#148;). Basic and diluted net loss per common share was determined by dividing net loss
applicable to common stockholders by the weighted average number of common shares outstanding
during the period. The Company&#146;s potentially dilutive shares, which include outstanding common
stock options, restricted stock, restricted stock units, convertible preferred stock, and common
stock warrants, have not been included in the computation of diluted net loss per share for all
periods as the result would be anti-dilutive.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,300,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,347,033</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Restricted stock and restricted stock units </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,070</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Convertible preferred stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">818,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">516,228</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options to purchase common stock and common
stock warrants issued in connection with the
October&nbsp;2010 financing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,242,398</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common stock warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,843,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,005,192</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total shares excluded from calculation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,045,752</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,162,921</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Comprehensive Income (Loss)</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In accordance with ASC 220, &#147;<I>Comprehensive Income</I>&#148; (&#147;ASC 220&#148;) all components of comprehensive
income (loss), including net income (loss), are reported in the financial statements in the period
in which they are recognized. ASC 220 defines comprehensive income (loss)&nbsp;as the change in equity
during a period from transactions and other events and circumstances from non owner sources. Net
income (loss)&nbsp;and other comprehensive income (loss), including foreign currency translation
adjustments, are reported, net of any related tax effect, to arrive at comprehensive income (loss).
No taxes were recorded on items of other comprehensive income.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Period from</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>August 13, 1996</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(inception) to</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>$000</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,111</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,588</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(242,894</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Translation adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,965</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,813</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized foreign
exchange (loss)&nbsp;gain
on intercompany loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,988</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,942</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,805</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,079</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,611</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(242,886</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>3. FAIR VALUE MEASUREMENTS</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As defined in ASC 820, fair value is based on the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. In order to increase consistency and comparability in fair value measurements,
ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used
to measure fair value into three broad levels, which are described below:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Level 1: Quoted prices (unadjusted)&nbsp;in active markets that are accessible at the
measurement date for assets or liabilities. The fair value hierarchy gives the highest
priority to Level 1 inputs.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Level 2: Inputs other than quoted prices within Level 1 that are observable for the
asset or liability, either directly or indirectly.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Level 3: Unobservable inputs that are used when little or no market data is available.
The fair value hierarchy gives the lowest priority to Level 3 inputs.</TD>
</TR>

</TABLE>
</DIV><P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->12<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>
<!-- xbrl -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">


<DIV style="margin-top: 10pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In determining fair value, the Company utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs to the extent possible as well as
considers counterparty credit risk in its assessment of fair value.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Financial assets and liabilities carried at fair value on a recurring basis as of December&nbsp;31,
2010 are classified in the table below in one of the three categories described above:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Level 1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Level 2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Level 3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>$000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>$000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>$000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>$000</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt"><TD>&nbsp;</TD></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,066</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,746</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Financial assets and liabilities carried at fair value on a recurring basis as of March&nbsp;31,
2011 are classified in the table below in one of the three categories described above:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Level 1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Level 2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Level 3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>$000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>$000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>$000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>$000</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt"><TD>&nbsp;</TD></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,027</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,027</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">602</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,027</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,629</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Warrants Liability</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company issued warrants to purchase shares of common stock under the registered direct
financing completed in February&nbsp;2007. These warrants are being accounted for as a liability in
accordance with ASC 815, &#147;<I>Derivatives and Hedging&#148; </I>(&#147;ASC 815&#148;). At the date of the transaction,
the fair value of the warrants of $6.8&nbsp;million was determined utilizing the Black-Scholes option
pricing model utilizing the following assumptions: risk free interest rate &#151; 4.68%, expected
volatility &#151; 85%, expected dividend yield &#151; 0%, and a remaining contractual life of 7&nbsp;years. The
fair value of the warrant is being remeasured each reporting period, with a derivative gain or loss
recognized in the consolidated statement of operations. Such gains or losses will continue to be
reported until the warrants are exercised or expired. The Company used the Black-Scholes
option-pricing model with the following assumptions to value the warrants:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercise price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8.44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8.44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected term</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">3.13 Yrs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">2.88 Yrs</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1.02</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1.28</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">121</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">121</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected dividend yield over expected term</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->13<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>
<!-- xbrl -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During the three months ended March&nbsp;31, 2011, the Company recognized the change in the
value of warrants of approximately $0.1&nbsp;million as a gain on the consolidated statement of
operations. During the three months ended March&nbsp;31, 2010, the Company recognized the change in the
value of warrants as a loss of approximately $0.8&nbsp;million on the consolidated statement of
operations. The following table reconciles the beginning and ending balance of Level 3 inputs for
the three months ended March&nbsp;31, 2011:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"  style="border-bottom: 1px solid #000000"><B>Level 3</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>$000</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of December&nbsp;31, 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain from change in valuation of warrants liability reported in earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(78</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of March&nbsp;31, 2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">602</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>4. PREPAID EXPENSES AND OTHER CURRENT ASSETS</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%">Prepaid expenses and other current assets consist of the following:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>($000s)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development tax credit receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">875</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Prepayments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">317</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">245</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,382</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,401</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>5. ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Accrued and other current liabilities consisted of the following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>($000</B>s)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,874</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued licensing fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,579</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">811</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,264</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>6. STOCK BASED COMPENSATION</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Stock based compensation has been reported within expense line items on the consolidated
statement of operations for the three months ended March&nbsp;31, 2010 and 2011 as shown in the
following table:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>For the three months</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>ended March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>($000s)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">201</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock-based compensation costs before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">251</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At the Company&#146;s annual shareholder meeting on May&nbsp;14, 2008, the stockholders approved and
amended the number of shares reserved under the 2006 Plan to 5,200,000 shares of the Company&#146;s
common
stock, up from 3,000,000 shares. The awards granted under the 2006 Plan have a maximum
maturity of 10&nbsp;years and generally vest over a four-year period from the date of grant.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->14<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>
<!-- xbrl -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">A summary of activity for the options under the Company&#146;s 2006 Plan for the three months ended
March&nbsp;31, 2011 is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Remaining</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Aggregate</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Contractual</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Intrinsic</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Term (years)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(in $000s)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options outstanding at December&nbsp;31, 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,489,932</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">938</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,131</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cancelled / forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(137,768</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options outstanding at March&nbsp;31, 2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,347,033</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.87</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">894</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unvested at March&nbsp;31, 2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">935,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">247</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vested and exercisable at March&nbsp;31, 2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,411,356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">647</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">ASC 718 requires compensation expense
associated with share-based awards to be recognized over the requisite service period, which for
the Company is the period between the grant date and the date the award vests or becomes
exercisable. Most of the awards granted by the Company (and still outstanding), vest ratably over
four years, with 1/4 of the award vesting one year from the date of grant and 1/48 of the award
vesting each month thereafter. However, certain awards made to executive officers vest over three
to five years, depending on the terms of their employment with the Company. In addition, recent
awards made to rank-in-file employees vest ratably over four years, with 1/48 of the award vesting
each month.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Effective January&nbsp;1, 2006, the Company elected to recognize all share-based awards issued
after the adoption of ASC 718 under the straight-line attribution method. ASC 718 requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. This analysis is evaluated quarterly and the
forfeiture rate adjusted as necessary. Ultimately, the actual expense recognized over the vesting
period is based on only those shares that vest.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company used the Black-Scholes option-pricing model with the following assumptions for
stock option grants to employees and directors for the three months ended March&nbsp;31, 2010 and 2011:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>For the three months</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>ended March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected term</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">5 &#150; 6Yrs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">2.37 &#150; 2.96</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">90 &#150; 100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected dividend yield over expected term</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Resulting weighted average grant fair value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">There were no options granted during the three months ended March&nbsp;31, 2011. For grants made
during the three months ended March&nbsp;31, 2010, the expected term assumption was estimated using past
history of early exercise behavior and estimated expectations of future exercise behavior. Starting
with the December
2010 annual grants to the Company&#146;s employees, the Company relied exclusively on its
historical volatility as an input to the option pricing model as the Company&#146;s management believes
that this rate will be representative of future volatility over the expected term of the options.
Prior to December&nbsp;2010, because the Company had been publicly traded for a limited period, the
expected volatility assumption was based on the historical volatility of peer companies over the
expected term of the option awards.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->15<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>
<!-- xbrl -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Estimates of pre-vesting option forfeitures are based on the Company&#146;s experience. For
outstanding options, the Company uses a forfeiture rate of 0 &#151; 50% depending on when and to whom
the options are granted. The Company adjusts its estimate of forfeitures over the requisite service
period based on the extent to which actual forfeitures differ, or are expected to differ, from such
estimates. Changes in estimated forfeitures are recognized through a cumulative adjustment in the
period of change and may impact the amount of compensation expense to be recognized in future
periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The weighted average risk-free interest rate represents interest rate for treasury constant
maturities published by the Federal Reserve Board. If the term of available treasury constant
maturity instruments is not equal to the expected term of an employee option, Cyclacel uses the
weighted average of the two Federal Reserve securities closest to the expected term of the employee
option.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During the three months ended March&nbsp;31, 2010, 39,277 stock options were exercised resulting in
approximately $17,000 of cash proceeds to the Company. During the three months ended March&nbsp;31,
2011, there were 5,131 stock options exercised totaling approximately $2,000 in proceeds. As the
Company presently has tax loss carry forwards from prior periods and expects to incur tax losses in
2011, the Company is not able to benefit from the deduction for exercised stock options in the
current reporting period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>Restricted Stock</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In November&nbsp;2008, the Company issued restricted common stock to an employee subject to certain
forfeiture provisions. Specifically, one quarter of the award vested one year from the date of
grant and 1/48 of the award effectively vests each month thereafter. This restricted stock grant
is accounted for at fair value at the date of grant and an expense is recognized during the vesting
term. Summarized information for the restricted stock grant for the three months ended March&nbsp;31,
2011 is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted Average Grant</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Restricted Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Date Value Per Share</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt"><TD>&nbsp;</TD></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-vested at December&nbsp;31, 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,954</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,126</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-vested at March&nbsp;31, 2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.44</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->16<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>
<!-- xbrl -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>Restricted Stock Units</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Restricted stock units were issued to senior executives of the Company in November&nbsp;2008, which
entitle the holders to receive a specified number of shares of the Company&#146;s common stock over the
four year vesting term. A restricted stock unit grant is accounted for at fair value at the date
of grant which is equivalent to the market price of a share of the Company&#146;s common stock, and an
expense is recognized during the vesting term. There were no restricted stock unit grants prior to
November&nbsp;2008. Summarized information for restricted stock grants for the three months ended March
31, 2011 is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted Average Grant</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Restricted Stock Units</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Date Value Per Share</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt"><TD>&nbsp;</TD></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-vested at December&nbsp;31, 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,689</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-vested at March&nbsp;31, 2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.44</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>7. COMMITMENTS AND CONTINGENCIES</B>
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Licensing Agreements</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company has entered into licensing agreements with academic and research organizations.
Under the terms of these agreements, the Company has received licenses to technology and patent
applications. The Company is required to pay royalties on future sales of product employing the
technology or falling under claims of patent applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pursuant to the Daiichi-Sankyo license under which the Company licenses certain patent rights
for sapacitabine, its lead drug candidate, the Company is under an obligation to use reasonable
endeavors to develop a product and obtain regulatory approval to sell a product and has agreed to
pay Daiichi-Sankyo an up-front fee, reimbursement for Daiichi-Sankyo&#146;s enumerated expenses,
milestone payments and royalties on a country-by-country basis. As a result of the SEAMLESS trial
entering Phase 3 during the first quarter of 2011, $1.6&nbsp;million was recorded under accrued
liabilities and other current liabilities in the Company&#146;s consolidated balance sheet as of March
31, 2011. Under this agreement, aggregate milestone payments totaling $11.7&nbsp;million could be
payable subject to achievement of all the specific contractual milestones and the Company&#146;s
decision to continue with these projects. The up-front fee and certain past reimbursements have
been paid. Royalties are payable in each country for the term of patent protection in the country
or for ten years following the first commercial sale of licensed products in the country, whichever
is later. Royalties are payable on net sales. Net sales are defined as the gross amount invoiced by
the Company or its affiliates or licensees, less discounts, credits, taxes, shipping and bad debt
losses. The agreement extends from its commencement date to the date on which no further amounts
are owed under it. If the Company wishes to appoint a third party to develop or commercialize a
sapacitabine-based product in Japan, within certain limitations, Daiichi-Sankyo must be notified
and given a right of first refusal to develop and/or commercialize in Japan. In general, the
license may be terminated by the Company for technical, scientific, efficacy, safety, or commercial
reasons on six months notice, or twelve months, if after a launch of a sapacitabine-based product,
or by either party for material default. In addition, pursuant to the Daiichi-Sankyo license, the
Company is required to use commercially reasonable efforts to commercialize products based on the
licensed rights and to use reasonable efforts to obtain regulatory approval to sell the products in
at least one country by September&nbsp;2011, unless we are prevented from doing so by virtue of an
&#147;exceptional cause,&#148; which generally constitutes a scientific or other technical cause outside of
the Company&#146;s control or arising from the activities of third parties, difficulties outside of the
Company&#146;s reasonable control in patient recruitment into trials or any significant, unexpected
change in the regulatory requirements in a country affecting the development of our drug candidate.
If regulatory approval is not obtained by September&nbsp;2011, and there has been no exceptional cause
responsible for the delay, the
agreement provides that Daiichi-Sankyo may terminate the license. On termination, if
Daiichi-Sankyo wishes to acquire an exclusive license to sapacitabine intellectual property
developed by us during the term of the license, Daiichi-Sankyo may notify the Company and the
parties will meet to negotiate commercial terms in good faith. If agreement cannot be reached, the
terms of the exclusive license are to be determined by an expert.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Guarantee</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On July&nbsp;28, 2005 and amended on March&nbsp;27, 2006, Cyclacel Group plc (&#147;Group&#148;) signed a
convertible Loan Note Instrument constituting convertible unsecured loan notes (the &#147;Loan&#148;) and
entered into a Facility Agreement (&#147;Agreement&#148;) with Scottish Enterprise (&#147;SE&#148;), as lender, whereby
SE subscribed for &#163;5&nbsp;million, or approximately $9&nbsp;million at the time, of the convertible loan
notes. The loan was subsequently converted into 1,231,527 preferred D shares of the Group in
satisfaction of all amounts owed by Group under the convertible loan notes. The number of preferred
D shares that SE received was calculated by dividing the principal amount outstanding under the
loan note by &#163;4.06. The preferred D shares were exchanged for shares in Xcyte Therapies, Inc. on
March&nbsp;27, 2006 as part of the transaction between Xcyte and Cyclacel Limited. However, Scottish
Enterprise retained the ability it had under the Agreement to receive a cash payment should the
research operations in Scotland be significantly reduced. The Company had guaranteed
approximately &#163;5&nbsp;million, the amount potentially due to SE, which will be calculated as a maximum
of &#163;5&nbsp;million less the market value of the shares held by SE at the time of any significant reduction in research facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On June&nbsp;22, 2009, the Company amended the March&nbsp;2006 Agreement with SE, in order to allow the
Company to implement a reduction of the Company&#146;s research operations located in Scotland in
exchange for the parties&#146; agreement to modify the payment terms of the Agreement in the principal
amount of &#163;5&nbsp;million (approximately $8.0&nbsp;million at December&nbsp;31, 2009), which SE had previously
entered into with the Company. The original agreement dated March&nbsp;27, 2006, provided for repayment
of &#163;5&nbsp;million in the event the Company significantly reduced its Scottish research operations.
Pursuant to the terms of the Amendment, in association with Cyclacel&#146;s material reduction in staff
at its Scottish research facility, the parties agreed to a modified payment of &#163;1&nbsp;million
(approximately $1.7&nbsp;million at June&nbsp;22, 2009) payable in two equal tranches. On July&nbsp;1, 2009 the
first installment of &#163;0.5&nbsp;million (approximately $0.8&nbsp;million) was paid and the remaining amount of
&#163;0.5&nbsp;million (approximately $0.8&nbsp;million) was paid on January&nbsp;6, 2010. In addition, should a
further reduction below current minimum staff levels be effectuated before July&nbsp;2014 without SE&#146;s
prior consent, the Company will guarantee approximately &#163;4&nbsp;million, the amount potentially due to
SE, which will be calculated as a maximum of &#163;4&nbsp;million less the market value of the shares held
 by SE at the time of any further
reduction in research facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">This arrangement is accounted for as a liability and is measured at fair value. Changes in
fair value are recognized in earnings. Due to the nature of the associated contingency and its likelihood of occurence, the
Company has concluded the fair value of this liability is immaterial as of December&nbsp;31, 2010 and
March&nbsp;31, 2011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Legal proceedings</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On April&nbsp;27, 2010, the Company was served with a complaint filed by Celgene Corporation in the
United States District Court for the District of Delaware seeking a declaratory judgment that four
of its own patents, claiming the use of romidepsin injection in T-cell lymphomas, are invalid and
not infringed by Celgene&#146;s products, but directly involve the use and administration of Celgene&#146;s
ISTODAX<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> (romidepsin for injection) product. On June&nbsp;17, 2010, the Company filed its answer and
counterclaims to the declaratory judgment complaint. The Company filed counterclaims charging
Celgene with infringement of each of its four patents and seeking damages for Celgene&#146;s
infringement as well as injunctive relief. The four patents directly involve the use and
administration of Celgene&#146;s ISTODAX<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> (romidepsin for injection) product.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->18<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

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<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>8. STOCKHOLDERS&#146; EQUITY</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Preferred stock</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As of March&nbsp;31, 2011, there were 1,213,142 shares of Preferred Stock issued and outstanding at
an issue price of $10.00 per share. Dividends on the Preferred Stock are cumulative from the date
of original issuance at the annual rate of 6% of the liquidation preference of the Preferred Stock,
payable quarterly on the first day of February, May, August and November, commencing February&nbsp;1,
2005. Any dividends must be declared by the Company&#146;s Board of Directors and must come from funds
that are legally available for dividend payments. The Preferred Stock has a liquidation preference
of $10 per share, plus accrued and unpaid dividends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Preferred Stock is convertible at the option of the holder at any time into the Company&#146;s
shares of common stock at a conversion rate of approximately 0.42553 shares of common stock for
each share of Preferred Stock based on a price of $23.50. During 2010, 833,671 shares of Preferred
Stock were converted into 1,655,599 shares of the Company&#146;s common stock, which is described in
more detail below. Since inception through March&nbsp;31, 2011, holders have voluntarily converted
1,776,858 shares of Preferred Stock into common stock. The Company has reserved 516,228 shares of
common stock for issuance upon conversion of the remaining shares of Preferred Stock outstanding at
March&nbsp;31, 2011. The converted shares of Preferred Stock have been retired and canceled and shall
upon cancellation be restored to the status of authorized but unissued shares of preferred stock,
subject to reissuance by the Board of Directors as shares of Preferred Stock of one or more series.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company may automatically convert the Preferred Stock into common stock if the closing
price of the Company&#146;s common stock has exceeded $35.25, which is 150% of the conversion price of
the Preferred Stock, for at least 20 trading days during any 30-day trading period, ending within
five trading days prior to notice of automatic conversion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Certificate of Designations governing the Preferred Stock provides that if the Company
fails to pay dividends on its Preferred Stock for six quarterly periods, holders of Preferred Stock
are entitled to nominate and elect two directors to the Company&#146;s Board of Directors. This right
accrued to the Preferred Stock Stockholders as of August&nbsp;2, 2010. On October&nbsp;4, 2010, the Company
held a special meeting of the holders of its Preferred Stock for the purpose of electing two
directors to the Company&#146;s Board of Directors. The meeting was adjourned to Monday, November&nbsp;1,
2010, because a quorum of the holders of the Company&#146;s Preferred Stock was not present in person or
represented by proxy to transact business at the meeting. The adjournment was approved by a vote of
324,678 shares of Preferred Stock, with no shares voted against the adjournment, thus constituting
approval by more than the majority of the holders of the Preferred Stock represented in person or
by proxy at the meeting and entitled to vote on the adjournment. The previously adjourned meeting
was held on November&nbsp;1, 2010. A quorum was not reached at the November&nbsp;1, 2010 meeting either,
with 505,773 shares of Preferred Stock represented in person and by proxy at the meeting,
representing only 41.69% of the issued and outstanding shares of the Company&#146;s Preferred Stock.
The meeting was not further adjourned. The holders of the Company&#146;s preferred stock will have the
opportunity at the 2011 annual meeting of stockholders to elect two directors to the Company&#146;s
Board of Directors. Once elected, the directors will have the ability to participate in the
management of the Company until all such dividends have been paid in full.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Preferred Stock has no maturity date and no voting rights prior to conversion into common
stock, except under limited circumstances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">From November&nbsp;6, 2007, the Company may, at its option, redeem the Preferred Stock in whole or
in part, out of funds legally available at the redemption prices per share stated below, plus an
amount equal to accrued and unpaid dividends up to the date of redemption:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year from November&nbsp;1, 2010 to October&nbsp;31, 2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year from November&nbsp;1, 2011 to October&nbsp;31, 2012</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year from November&nbsp;1, 2012 to October&nbsp;31, 2013</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year from November&nbsp;1, 2013 to October&nbsp;31, 2014</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.06</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">November&nbsp;1, 2014 and thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.00</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->19<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Preferred Stock is exchangeable, in whole but not in part, at the option of the Company on
any dividend payment date beginning on November&nbsp;1, 2005 (the &#147;Exchange Date&#148;) for the Company&#146;s 6%
Convertible Subordinated Debentures (&#147;Debentures&#148;) at the rate of $10 principal amount of
Debentures for each share of Preferred Stock. The Debentures, if issued, will mature 25&nbsp;years after
the Exchange Date and have terms substantially similar to those of the Preferred Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>Conversion of Convertible Preferred Stock</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During the first quarter of 2010, Cyclacel entered into an agreement to exchange shares of the
Company&#146;s Preferred Stock into shares of common stock. The table below provides details of the
aggregate activities:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">For the three months ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">March 31, 2010</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Preferred shares exchanged</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common shares issued:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At stated convertible option</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,510</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt"><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Incremental shares issued under an inducement
offer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">186,886</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total common shares issued:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">239,396</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">ASC 260, EITF Topic D-42, &#147;<I>The Effect of the Calculation of Earnings per Share for the
Redemption or Induced Conversion of Preferred Stock&#148; </I>(&#147;ASC 260&#148;) requires that if convertible
preferred stock is converted to other securities pursuant to an inducement offer, the Company
should record the excess of (1)&nbsp;the fair value of all securities and other consideration
transferred to the holders of the convertible preferred stock and (2)&nbsp;the fair value of securities
issuable to the original conversion terms as an increase to net loss to arrive at a net loss
attributable to common shareholders. The stockholder received more shares of the Company&#146;s common
stock than would have been delivered pursuant to the original conversion terms of the Preferred
Stock, pursuant to a short term inducement offer. The excess of the fair value of the common stock
transferred to the stockholder over the carrying amount of the preferred stock in the Company&#146;s
balance sheet at the time of the transfer was considered to be an additional return to the
Preferred Stockholders. Accordingly, the Company recorded deemed dividends related to the
incremental shares issued under an inducement offer of approximately $0.4&nbsp;million during the first
quarter of 2010 to additional paid in capital on the consolidated balance sheet. The Company
subtracted this additional return of $0.4&nbsp;million from net loss to arrive at net loss available to
common shareholders in the calculation of earnings per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Common Stock</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>October&nbsp;2010 Private Placement</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On October&nbsp;7, 2010, the Company completed a private placement pursuant to which it sold
approximately $15.2&nbsp;million of its units to several institutional investors, for net proceeds of
approximately $14.0&nbsp;million. The units consist of one share of common stock and 0.5 of a warrant,
with each whole
warrant representing the right to purchase one share of common stock at an exercise price of
$1.92 per share for a period of five years. As of March&nbsp;31, 2011, all options and warrants issued
to the investors are outstanding and have been classified as equity. The investors purchased a
total of 8,323,190 units at a price of $1.82625 per unit. The investors also have the right to
acquire up to 4,161,595 additional units at a price of $1.67 per unit (for $6.9&nbsp;million in gross
proceeds) at any time up to nine months after closing or by July&nbsp;6, 2011. As of March&nbsp;31, 2011,
none of the additional units had been exercised. The transaction date fair value of the warrants
and additional optional units was $5.1&nbsp;million and $2.8&nbsp;million, respectively. Net proceeds of
approximately $14.0&nbsp;million were allocated based on relative transaction date fair values in the
following manner: $8.9&nbsp;million ($1.07 per share), $3.3&nbsp;million ($0.79 per warrant) and $1.8&nbsp;million
($0.43 per optional unit) to common shares, warrants and the additional optional units,
respectively.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->20<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In connection with the October&nbsp;2010 private placement, the Company granted to the investors
certain registration rights pursuant to a Registration Rights Agreement, dated October&nbsp;7, 2010, in
which the Company agreed, among other things, to register all of the shares of common stock
acquired from the Company (including upon exercise of the warrants and/or the options) within
thirty calendar days after the Company becomes eligible to use a registration statement on Form
S-3, and use commercially reasonable efforts to have the registration statement declared effective
as promptly as practicable thereafter. Upon the Company&#146;s failure to comply with the terms of the
Registration Rights Agreement and certain other conditions, the Company will be required to make
pro rata payments to each investor, as liquidated damages, in an amount equal to 1.5% of the
aggregate purchase price paid by such investor. The Company also agreed to other customary
obligations regarding registration, including indemnification and maintenance of the effectiveness
of the registration statement. The Company is currently in compliance with the applicable terms of
the Registration Rights Agreement, and the securities that were registrable under the terms of the
Registration Rights Agreement are currently subject to an effective registration statement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>January&nbsp;2010 Registered Direct Financings</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On January&nbsp;25, 2010, the Company completed the sale of 2,350,000 units in a &#147;registered
direct&#148; offering at a purchase price of $2.50 per unit to certain institutional investors of the
Company for gross proceeds of approximately $5.9&nbsp;million. Each unit consisted of one share of the
Company&#146;s common stock and one warrant to purchase 0.30 of one share of its common stock. The
warrants have a five-year term from the date of issuance, are exercisable beginning six months from
the date of issuance at an exercise price of $2.85 per share of common stock. As of March&nbsp;31, 2011,
warrants issued to the investors have been classified as equity. The transaction date fair value of
the warrants of $1.0&nbsp;million was determined utilizing the Black-Scholes option pricing model
utilizing the following assumptions: risk free interest rate &#151; 2.39%, expected volatility &#151; 90%,
expected dividend yield &#151; 0%, and a remaining contractual life of 5.00&nbsp;years. As of March&nbsp;31, 2011,
all the warrants are outstanding. Net proceeds of approximately $5.4&nbsp;million were allocated based
on relative transaction date fair values in the following manner: $4.5&nbsp;million ($1.93 per share) to
common shares and $0.9&nbsp;million ($1.29 per warrant) to the warrants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On January&nbsp;13, 2010, the Company completed the sale of 2,850,000 units in a &#147;registered
direct&#148; offering to certain institutional investors. Each unit was sold at a purchase price of
$2.51 per unit and consists of one share of the Company&#146;s common stock and one warrant to purchase
0.25 of one share of its common stock for gross proceeds of approximately $7.2&nbsp;million. The
warrants have a five-year term from the date of issuance, are exercisable beginning six months from
the date of issuance at an exercise price of $3.26 per share of common stock. As of March&nbsp;31, 2011,
warrants issued to the investors have been classified as equity. The transaction date fair value of
the warrants of $1.3&nbsp;million was determined utilizing the Black-Scholes option pricing model
utilizing the following assumptions: risk free interest rate &#151; 2.55%, expected volatility &#151; 90%,
expected dividend yield &#151; 0%, and a remaining contractual life of 5.00&nbsp;years. As of March&nbsp;31, 2011,
all the warrants are outstanding. Net proceeds of approximately $6.5&nbsp;million were allocated based
on relative transaction date fair values in the following manner: $5.6&nbsp;million ($1.95 per share) to
common shares and $0.9&nbsp;million ($1.32 per warrant) to the warrants.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->21<!-- /Folio -->
</DIV>

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<!-- xbrl -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>July&nbsp;2009 Registered Direct Financing</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On July&nbsp;29, 2009, the Company sold its securities to select institutional investors consisting
of 4,000,000 units in a &#147;registered direct&#148; offering at a purchase price of $0.85 per unit (each, a
&#147;Unit&#148;). Each Unit consisted of (i)&nbsp;one share of the Company&#146;s common stock, (the &#147;Common Stock&#148;),
(ii)&nbsp;one warrant to purchase 0.625 of one share of Common Stock (a &#147;Series&nbsp;I Warrant&#148;) and (iii)
one warrant to purchase 0.1838805 of one share of Common Stock (a &#147;Series&nbsp;II Warrant&#148;). The Series
I Warrants had a seven-month term from the date of issuance, were exercisable beginning six months
from the date of issuance at an exercise price of $1.00 per share of Common Stock. During the first
quarter of 2010, all of The Series&nbsp;I Warrants were exercised for $2.5&nbsp;million. The Series&nbsp;II
Warrants have a five-year term from the date of issuance, are exercisable beginning six months from
the date of issuance at an exercise price of $1.00 per share of Common Stock. During the first
quarter of 2010, 43,266 common shares were issued upon exercise of Series&nbsp;II Warrants with proceeds
of $43,266. There were no exercises during the quarter ended March&nbsp;31, 2011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The sale of the Units was made pursuant to Subscription Agreements, dated July&nbsp;23, 2009, with
each of the investors. The net proceeds to the Company from the sale of the Units, after deducting
for the placement agent&#146;s fees and offering expenses, were approximately $2.9&nbsp;million. As of March
31, 2011, the remaining Series&nbsp;II Warrants outstanding and exercisable into 692,256 of the
Company&#146;s shares of common stock have been classified as equity. The transaction date fair value of
the Series&nbsp;II Warrants of $0.6&nbsp;million was determined utilizing the Black-Scholes option pricing
model utilizing the following assumptions: risk free interest rate &#151; 2.69%, expected volatility -
90%, expected dividend yield &#151; 0%, and a remaining contractual life of 5.00&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>December&nbsp;2007 Committed Equity Financing Facility</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On December&nbsp;10, 2007 and as amended on November&nbsp;24, 2009, Cyclacel entered into a Committed
Equity Financing Facility, or CEFF, with Kingsbridge, in which Kingsbridge committed to purchase
the lesser of 4,084,590 shares of common stock or $60&nbsp;million of common stock from Cyclacel over a
three-year period. The CEFF lapsed on December&nbsp;10, 2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During March&nbsp;2010, the Company sold 1,563,208 shares of its common stock to Kingsbridge under
the CEFF, in consideration of aggregate proceeds of $3.1&nbsp;million. During December&nbsp;2009 and January
2010, the Company sold an aggregate of 1,583,626 shares of its common stock to Kingsbridge under
the terms of the CEFF in consideration of an aggregate of $1.3&nbsp;million, of which approximately $1.0
million was received in 2009, with the balance of $0.3&nbsp;million in respect of common shares
subscribed but unissued at December&nbsp;31, 2009, received by the Company in January&nbsp;2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>Common Stock Warrants</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In connection with the Company&#146;s February&nbsp;16, 2007 &#147;registered direct&#148; offering the Company
issued to investors warrants to purchase 1,062,412 shares of common stock. The warrants issued to
the investors are being accounted for as a liability. At the date of the transaction, the fair
value of the warrants of $6.8&nbsp;million was determined utilizing the Black-Scholes option pricing
model utilizing the following assumptions: risk free interest rate &#151; 4.58%, expected volatility -
85%, expected dividend yield &#151; 0%, and a remaining contractual life of 6.88&nbsp;years. The value of the
warrant is being marked to market each reporting period as a derivative gain or loss on the
consolidated statement of operations until exercised or expiration. See &#147;Note 3 &#151; Fair Value&#148; for
further details.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->22<!-- /Folio -->
</DIV>

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<!-- xbrl -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table summarizes information about warrants outstanding at March&nbsp;31, 2011:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted</B><br><B>Average</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Expiration</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Common Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Exercise </B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Issued in Connection With</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Date</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Issuable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Price</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">April&nbsp;2006 stock issuance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,571,429</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">February&nbsp;2007 stock issuance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,062,412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8.44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;2007 CEFF</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">July&nbsp;2009 Series&nbsp;II stock issuance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">692,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">January&nbsp;2010 stock issuance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">712,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">January&nbsp;2010 stock issuance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">705,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.85</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">October&nbsp;2010 stock issuance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,161,595</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.92</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,005,192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4.01</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Exercise of Stock Options</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During the three months ended March&nbsp;31, 2010, there were 39,277 stock option exercises totaling
approximately $17,000. During the three months ended March&nbsp;31, 2011, there were 5,131 stock option
exercises totaling approximately $2,000.
</DIV>




<!-- xbrl,n -->
<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>10. SUBSEQUENT EVENTS</B>
</DIV>

<!-- xbrl,body -->
<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On April&nbsp;11, 2011, the Board declared a quarterly cash dividend in the
amount of $0.15 on the Company&#146;s Preferred Stock. The dividend was paid on May&nbsp;2, 2011 to holders
of record of the Preferred Stock on the close of business on April&nbsp;22, 2011.
</DIV>
<!-- /xbrl,ns -->

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->23<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">
<DIV align="left">
<A name="C17361103"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>Item&nbsp;2.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><I>This Quarterly Report on </I><I>Form 10-Q</I><I>, including, without limitation, Management&#146;s Discussion and
Analysis of Financial Condition and Results of Operations, contains &#147;forward-looking statements&#148;
within the meaning of Section&nbsp;27A of the Securities Act and Section&nbsp;21E of the Securities Exchange
Act of 1934, as amended (the &#147;Exchange Act&#148;). We intend that the forward-looking statements be
covered by the safe harbor for forward-looking statements in the Exchange Act. The forward-looking
information is based on various factors and was derived using numerous assumptions. All statements,
other than statements of historical fact, that address activities, events or developments that we
intend, expect, project, believe or anticipate will or may occur in the future are forward-looking
statements. Such statements are based upon certain assumptions and assessments made by our
management in light of their experience and their perception of historical trends, current
conditions, expected future developments and other factors they believe to be appropriate. These
forward-looking statements are usually accompanied by words such as &#147;believe,&#148; &#147;anticipate,&#148;
&#147;plan,&#148; &#147;seek,&#148; &#147;expect,&#148; &#147;intend&#148; and similar expressions.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><I>Forward-looking statements necessarily involve risks and uncertainties, and our actual results
could differ materially from those anticipated in the forward looking statements due to a number of
factors, including those set forth in Part&nbsp;I, Item&nbsp;1A, entitled &#147;Risk Factors,&#148; of our Annual
Report on </I><I>Form 10-K</I><I> for the year ended December&nbsp;31, 2010, as updated and supplemented by Part&nbsp;II,
Item&nbsp;1A, entitled &#147;Risk Factors,&#148; of our Quarterly Reports on </I><I>Form 10-Q</I><I>, and elsewhere in this
report. These factors as well as other cautionary statements made in this Quarterly Report on Form
10-Q, should be read and understood as being applicable to all related forward-looking statements
wherever they appear herein. The forward-looking statements contained in this Quarterly Report on
Form&nbsp;10-Q represent our judgment as of the date hereof. We encourage you to read those descriptions
carefully. We caution you not to place undue reliance on the forward-looking statements contained
in this report. These statements, like all statements in this report, speak only as of the date of
this report (unless an earlier date is indicated) and we undertake no obligation to update or
revise the statements except as required by law. Such forward-looking statements are not guarantees
of future performance and actual results will likely differ, perhaps materially, from those
suggested by such forward-looking statements. In this report, &#147;Cyclacel,&#148; the &#147;Company,&#148; &#147;we,&#148;
&#147;us,&#148; and &#147;our&#148; refer to Cyclacel Pharmaceuticals, Inc.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Overview</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are a development-stage biopharmaceutical company dedicated to the development and
commercialization of novel, mechanism-targeted drugs to treat human cancers and other serious
disorders. Our strategy is to build a diversified biopharmaceutical business focused in hematology
and oncology based on a portfolio of commercial products and a development pipeline of novel drug
candidates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our clinical development priorities are focused on sapacitabine in the following indications:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Acute myeloid leukemia, or AML in the elderly;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Myelodysplastic syndromes, or MDS; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Non-small cell lung cancer or NSCLC.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On January&nbsp;11, 2011, the Company opened enrollment of the SEAMLESS pivotal Phase 3 trial for
the Company&#146;s sapacitabine oral capsules as a front-line treatment of elderly patients aged 70
years or older with newly diagnosed AML who are not candidates for intensive induction chemotherapy
under a Special Protocol Assessment, or SPA, reached with the U.S. Food &#038; Drug Administration, or
FDA.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company has advanced two additional product candidates, seliciclib in Phase 2 for NSCLC
and nasopharyngeal cancer or NPC, and CYC116 in Phase 1 clinical development. The combination of
sapacitabine with seliciclib is also being evaluated in a Phase 1 clinical trial. The Company will
determine
the feasibility of pursuing further development and/or partnering these assets depending on
the availability of funding and further clinical data. In addition, we market directly in the
United States Xclair<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Cream for radiation dermatitis and Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Liquid and Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Lozenges
for xerostomia.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->24<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Our pipeline and expertise in cell cycle biology</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our core area of expertise is in cell cycle biology and we focus primarily on the development
of orally-available anticancer agents that target the cell cycle with the aim of slowing the
progression or shrinking the size of tumors, and enhancing the quality of life and improving
survival rates of cancer patients. We are generating several families of anticancer drug candidates
that act on the cell cycle including nucleoside analogues, cyclin dependent kinase, or CDK
inhibitors and Aurora kinase/Vascular Endothelial Growth Factor Receptor 2, or AK/VEGFR2
inhibitors. Although a number of pharmaceutical and biotechnology companies are currently
attempting to develop nucleoside analogues, CDK inhibitor and AK inhibitor drugs, we believe that
our drug candidates are differentiated in that they are orally-available and interact with unique
target profiles and mechanisms. For example we believe that our sapacitabine is the only
orally-available nucleoside analogue to be tested in a Phase 3 trial for AML and in a Phase 2 trial
in MDS and seliciclib is the most advanced orally-available CDK inhibitor in Phase 2 trials.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Although our resources are primarily directed towards advancing our anticancer drug candidate
sapacitabine through in-house development activities we are also progressing, but with lower levels
of investment than in previous years, our other novel drug series which are at earlier stages. As a
consequence of our focus on sapacitabine clinical development, research and development
expenditures for the three months ended March&nbsp;31, 2011 increased by $0.9&nbsp;million, or 41%, to $3.1
million, compared to $2.2&nbsp;million for the three months ended March&nbsp;31, 2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We have retained rights to commercialize our clinical development candidates and our business
strategy is to enter into selective partnership arrangements with these programs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our corporate headquarters is located in Berkeley Heights, New Jersey, with a research
facility located in Dundee, Scotland.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">From our inception in 1996 through March&nbsp;31, 2011, we have devoted substantially all our
efforts and resources to our research and development activities. We have incurred significant net
losses since inception. As of March&nbsp;31, 2011, our accumulated deficit during the development stage
was approximately $246.4&nbsp;million. We expect to continue incurring substantial losses for the next
several years as we continue to develop our clinical and preclinical drug candidates. Our operating
expenses are comprised of research and development expenses and selling and general and
administrative expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">To date, we have not generated significant product revenue but have financed our operations
and internal growth through private placements, licensing revenue, interest on investments,
government grants and research and development tax credits. Prior to October&nbsp;2007, our revenue
consisted of collaboration and grant revenue. Beginning in 2008, we recognized revenue from sales
of commercial products, for the first time, following the ALIGN acquisition in October&nbsp;2007. We
have recognized revenues from inception through March&nbsp;31, 2011 totaling approximately $9.3&nbsp;million
of which approximately $2.5&nbsp;million is derived from product sales, approximately $3.1&nbsp;million from
fees under collaborative agreements and approximately $3.7&nbsp;million of grant revenue from various
United Kingdom government grant awards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Recent Developments</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On February&nbsp;1, 2011, we paid a quarterly cash dividend in the amount of $0.15 per share on our
6% Convertible Exchangeable Preferred Stock (&#147;Preferred Stock&#148;). The dividend was paid to holders
of record of the Preferred Stock as of the close business on January&nbsp;21, 2011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Board of Directors (the &#147;Board&#148;) considers numerous factors in determining whether to declare a
quarterly dividend, including the requisite financial analysis and determination of a surplus.
While the Board will
analyze the advisability of the declaration of dividends in future quarters, there is no
assurance that future quarterly dividends will be declared.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->25<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Subsequent Events</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On April&nbsp;11, 2011, our Board declared a quarterly cash dividend in the amount of
$0.15 on our Preferred Stock. The dividend was paid on May&nbsp;2, 2011 to holders of record of the
Preferred Stock on the close of business on April&nbsp;22, 2011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Results of Operations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Three Months Ended March&nbsp;31, 2009 and 2010</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Revenues</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table summarizes the components of our revenues for the three months ended March
31, 2010 and 2011:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>Three months ended March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Difference</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Difference</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>($000s)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>%</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Product revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(62</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Grant revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(17</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(100</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(79</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(29</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Product revenue is derived from the sale of Xclair<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Cream, Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Liquid and Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP>
Lozenges following the ALIGN asset acquisition on October&nbsp;5, 2007. During the three months ended
March&nbsp;31, 2010 and 2011, we recognized approximately $0.3&nbsp;million and $0.2&nbsp;million, respectively in
accordance with our revenue recognition policy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Grant revenue is recognized as we incur and pay for qualifying costs and services under the
applicable grant. Grant revenue is primarily derived from various United Kingdom government grant
awards. We did not recognize any grant revenue for the three months ended March&nbsp;31, 2011, which
represents a 100% decrease from the recognized grant revenue of approximately $17,000 for the three
months ended March&nbsp;31, 2010. This was as a result of finalization of a three-year European Union
grant in 2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>The future</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We expect to continue to maintain the sales of ALIGN products in 2011 through the support of a
small sales and marketing infrastructure. We do not expect to earn any grant revenue during the
remainder of year, as no awards are expected from the year ended December&nbsp;31, 2011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Cost of goods sold</I></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>Three months ended March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Difference</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Difference</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>($000s)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>%</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of goods sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(36</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(25</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Total cost of sales represented 56% and 55% of product revenue for the three months ended
March&nbsp;31, 2010 and 2011, respectively.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->26<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Research and development expenses</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We expense all research and development costs as they are incurred. Research and development
expenses primarily include:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>clinical trial and regulatory-related costs;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>payroll and personnel-related expenses, including consultants and contract
research;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>preclinical studies and laboratory supplies and materials;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>technology license costs; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>rent and facility expenses for our laboratories.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table provides information with respect to our research and development
expenditure for the three months ended March&nbsp;31, 2010 and 2011:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>Three months ended March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Difference</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Difference</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>($000s)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>%</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sapacitabine</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,622</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Seliciclib</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(52</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(85</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CYC116</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(81</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other research and development costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(382</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(80</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total research and development expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">902</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Total research and development expenses represented 46% and 62% of our operating expenses for
the three months ended March&nbsp;31, 2010 and 2011, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Research and development expenditure increased by $0.9&nbsp;million to $3.1&nbsp;million for the three
month period ended March&nbsp;31, 2011 from $2.2&nbsp;million for the three month period ended March&nbsp;31,
2010. The increase in costs of $0.9&nbsp;million is primarily due to $1.6&nbsp;million of contractual
expenses, resulting from an achievement of a milestone triggered by the opening of enrollment in
our SEAMLESS trial, pursuant to the Daiichi-Sankyo license under which we license certain patent
rights for sapacitabine. This cost was partially offset by reductions of $0.4&nbsp;million in stock-based and other employee related compensation and $0.2&nbsp;million related to completed or discontinued clinical trials
and programs. The $1.6&nbsp;million license expense, partially offset by a $0.2&nbsp;million reduction in
employment related and overhead costs and a $0.1&nbsp;million reduction in clinical trial expenses,
explains the $1.3&nbsp;million increase in Sapacitabine costs from $1.6&nbsp;million for the three months
ended March&nbsp;31, 2010 to $3.0&nbsp;million for the three months ended March&nbsp;31, 2011. Seliciclib costs
decreased by $52,000 from $61,000 for the three months ended March&nbsp;31, 2010 to $9,000 for three
months ended March&nbsp;31, 2011 primarily due to the completion of clinical trials. In the CYC116
program expenditures were lower by $13,000, which reflects a minimal level of activity with regard
to the program. Other research and development costs were reduced by approximately $0.4&nbsp;million
from approximately $0.5&nbsp;million for the three months ended March&nbsp;31, 2010 to approximately $0.1
million for three months ended March&nbsp;31, 2011 due to lower employment related costs, overhead costs
and stock-based compensation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>The future</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We will continue to concentrate our resources on the development of sapacitabine. We
anticipate that overall research and development expenditures in 2011 will increase as we enroll
the SEAMLESS pivotal Phase 3 trial.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->27<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Selling, general and administrative expenses</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Selling, general and administrative expenses include costs for sales and marketing and
administrative personnel, legal and other professional expenses and general corporate expenses. The
following table summarizes the selling, general and administrative expenses for the three months
ended March&nbsp;31, 2010 and 2011:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>Three months ended March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Difference</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Difference</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>($000s)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>%</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total selling, general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,806</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(596</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(25</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Total selling, general and administration expenses represented 51% and 36% of our operating
expenses for the three months ended March&nbsp;31, 2010 and 2011, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our selling, general and administrative expenditure decreased by $0.6&nbsp;million from $2.4
million for the three months ended March&nbsp;31, 2010 to $1.8&nbsp;million for the three months ended March
31, 2011. The decrease of $0.6&nbsp;million in expenses was primarily attributable to a net decrease in
professional and consultancy costs of $0.3&nbsp;million and a decrease in employee compensation of $0.3
million, mostly due to incentive compensation, which was recorded during the three months ended
March&nbsp;31, 2010 with no corresponding expense for the three months ended March&nbsp;31, 2011. These
amounts were partially offset by a $0.1&nbsp;million increase in stock-based compensation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>The future</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We expect our selling, general and administrative expenditures in 2011 to remain at the same
level or to be less than our expenditures in 2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Other income (expense)</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table summarizes other income (expense)&nbsp;for the three months ended March&nbsp;31,
2010 and 2011:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>Three months ended March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Difference</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Difference</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>($000s)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>%</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in valuation of warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(789</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">867</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(110</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign exchange gains (losses)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(68</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(79</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(718</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(100</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total other income (expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(793</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(103</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Total other income and expense, net, increased by approximately $0.8&nbsp;million, from an expense
of $0.8&nbsp;million for the three months ended March&nbsp;31, 2010, to income of $21,000 for the three
months ended March&nbsp;31, 2011. The most significant impact is the change in the valuation of the
warrant liability due to the decrease in our common share price as noted below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The change in valuation of warrants relates to the issue of warrants to purchase shares of our
common stock under the registered direct financing completed in February&nbsp;2007. The warrants issued
to the investors meet the requirements of and are being accounted for as a liability in accordance
with ASC 480, &#147;<I>Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled
in, a Company&#146;s Own Stock.</I>&#148; The fair value of the warrants is remeasured each reporting period with
a derivative gain or loss recognized in the consolidated statement of operations. Such gains or
losses will continue to be reported until the warrants are exercised or expired. For the three
months ended March&nbsp;31, 2010 and 2011, the change in the value of warrants was a $0.8&nbsp;million
increase and a $0.1&nbsp;million decrease, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Foreign exchange gains (losses)&nbsp;decreased by $79,000 to a loss of $68,000 for the three months ended
March&nbsp;31, 2011 compared to a gain of  $11,000 for the three months ended March&nbsp;31, 2010. Foreign
exchange gains/(losses) are reported in the consolidated statement of operations as a separate line
item within other income (expense).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Interest income increased by approximately $2,000 to $11,000 for the three months to March&nbsp;31,
2010 from $9,000 for the three months ended March&nbsp;31, 2010. This is mostly attributed to a higher
average
daily balance of cash and cash equivalents during the three months ended March&nbsp;31, 2011
compared to the same period in 2010.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->28<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Interest expense decreased by $24,000 from $24,000 for the three months ended March&nbsp;31, 2010
to $0 for the three months ended March&nbsp;31, 2011. This reduction was primarily due to the elimination of the
accretion expense associated with the restructured Bothell lease, which expired in December&nbsp;2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>The future</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The valuation of the warrant liability will continue to be re-measured at the end of each
reporting period. The valuation of the warrants is dependent upon many factors, including our stock
price, interest rates and the remaining term of the instrument and may fluctuate significantly,
which may have a significant impact on our statement of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Conversions of preferred stock into ordinary shares could result in a charge to the
consolidated statement of operations for any premium upon conversion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Income tax benefit</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Credit is taken for research and development tax credits, which are claimed from the United
Kingdom&#146;s revenue and customs authority, or HMRC, in respect of qualifying research and development
costs incurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table summarizes research and development tax credits for the three months ended
March&nbsp;31, 2010 and 2011:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>Three months ended March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Difference</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Difference</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>($000s)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>%</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total income tax benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Research and development tax credits recoverable increased by $60,000 to $0.2&nbsp;million for the
three months ended March&nbsp;31, 2011 from $0.1&nbsp;million for three months ended March&nbsp;31, 2010. The
level of tax credits recoverable is linked directly to qualifying research and development
expenditure incurred in any one year, but restricted to payroll taxes paid by us in the United
Kingdom in that same year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>The future</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We expect to continue to be eligible to receive United Kingdom research and development tax
credits for the foreseeable future and will elect to do so. However, as a result of our revised
operating plan announced in September&nbsp;2008 and the subsequent reduction in workforce in 2009 the
amount of payroll taxes payable in future periods will be lower than in previous periods,
restricting available income tax credits to that lower amount.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->29<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Liquidity and Capital Resources</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following is a summary of our key liquidity measures at December&nbsp;31, 2010 and March&nbsp;31, 2011:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>%</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>$ Difference</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Difference</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14"><B>($000s)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">25,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,145</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14</TD>
    <TD nowrap>)%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Working capital:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">31,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">26,866</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,185</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13</TD>
    <TD nowrap>)%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,535</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,813</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(278</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">4</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Working capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">24,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,053</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,463</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18</TD>
    <TD nowrap>)%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At March&nbsp;31, 2011, we had cash and cash equivalents of $25.4&nbsp;million as compared to $29.5
million at December&nbsp;31, 2010. The decrease in balance at March&nbsp;31, 2010 was primarily due to normal
cash outflows required to operate our business. Since our inception, we have not generated any
significant revenue and have relied primarily on the proceeds from sales of equity and preferred
securities to finance our operations and internal growth. Additional funding has come through
interest on investments, licensing revenue, government grants and research and development tax
credits. We have incurred significant losses since our inception. As of March&nbsp;31, 2011, we had an
accumulated deficit during the development stage of $246.4&nbsp;million. We believe that existing funds together with cash generated
from operations and recent financing activities are sufficient to satisfy our planned working
capital, capital expenditures, debt service and other financial commitments for at least the next
twelve months. Current business and capital market risks could have a detrimental affect on the
availability of sources of funding and our ability to access them in the future which may delay or
impede our progress of advancing our drugs currently in the clinic to approval by the FDA for
commercialization.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>Cash provided by (used in) operating, investing and financing activities</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Cash provided by (used in) operating, investing and financing activities for the three months
ended March&nbsp;31, 2009 and 2010, is summarized as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Three        months ended March 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2011</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>($000s)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,771</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,892</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by (used in) financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(260</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>Operating activities</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Net cash used in operating activities decreased $0.9&nbsp;million, from $4.8&nbsp;million for the three
months ended March&nbsp;31, 2010 to $3.9&nbsp;million for the three months ended March&nbsp;31, 2011. Net cash
used in operating activities during the three months ended March&nbsp;31, 2011 resulted from our net
operating loss of $4.6&nbsp;million, adjusted for material non-cash activities comprising of change in
valuation of liability-classified warrants, depreciation and amortization and non-cash stock based
compensation expense, amounting to $0.3&nbsp;million and a net decrease in working capital of $0.4
million due to an increase in prepaid expenses combined with an increase in accounts payable and
other current liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>Investing activities</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Net cash provided by investing activities for the three months ended March&nbsp;31, 2010 was
$30,000 as a result of the sale of laboratory equipment. There were no cash flows from investing
activities during the three months ended March&nbsp;31, 2011.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->30<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>Financing activities</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Net cash used in financing activities for the three months ended March&nbsp;31, 2011 was $0.3
million. Net cash provided by financing activities was $17.6 million for the three months ended
March&nbsp;31, 2010. During the three months ended March&nbsp;31, 2010, we completed two registered direct
offerings in January&nbsp;2010 for gross proceeds of approximately $13.0&nbsp;million, drew down the
Kingsbridge CEFF totaling approximately $2.8&nbsp;million and had investors exercising warrants totaling
$2.7&nbsp;million. During the three months ended March&nbsp;31, 2011, we paid a cash dividend to our
Preferred Shareholders of approximately $0.2&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>Operating Capital and Capital Expenditure Requirements</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We expect to continue to incur substantial operating losses in the future. While we have
generated modest product revenues from ALIGN product sales from October&nbsp;2007 through March&nbsp;31,
2011, we can not guarantee that we will generate any significant product revenues until a product
candidate has been approved by the FDA or similar regulatory agencies in other countries and
successfully commercialized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We currently anticipate that our cash and cash equivalents will be sufficient to fund our
operations for at least the next 12&nbsp;months. We can not be certain that any of our programs will be
successful or that we will be able to raise sufficient funds to complete the development and
commercialize any of our product candidates currently in development, should they succeed.
Additionally, we plan to continue to evaluate in-licensing and acquisition opportunities to gain
access to new drugs or drug targets that would fit with our strategy. Any such transaction would
likely increase our funding needs in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our future funding requirements will depend on many factors, including but not limited to:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the rate of progress and cost of our clinical trials, preclinical studies and
other discovery and research and development activities;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the costs associated with establishing manufacturing and commercialization
capabilities;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the costs of acquiring or investing in businesses, product candidates and
technologies;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the costs of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the costs and timing of seeking and obtaining FDA and other regulatory
approvals;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the effect of competing technological and market developments; and</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the economic and other terms and timing of any collaboration, licensing or
other arrangements into which we may enter.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Until we can generate a sufficient amount of product revenue to finance our cash requirements,
which we may never do, we expect to finance future cash needs primarily through public or private
equity offerings, debt financings or strategic collaborations. Although we are not reliant on
institutional credit finance and therefore not subject to debt covenant compliance requirements or
potential withdrawal of credit by banks, the current economic climate has also impacted the
availability of funds and activity in equity markets. We do not know whether additional funding
will be available on acceptable terms, or at all. If we are not able to secure additional funding
when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical
trials or research and development programs or make changes to our operating plan similar to the
revision made in September&nbsp;2008. In addition, we may have to partner one or more of our product
candidate programs at an earlier stage of development, which would lower the economic value of
those programs to us.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->31<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Critical Accounting Policies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our discussion and analysis of our financial condition and results of operations is based on
our financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets, liabilities and
expenses and related disclosure of contingent assets and liabilities. We review our estimates on an
ongoing basis. We base our estimates on historical experience and on various other assumptions that
we believe to be reasonable under the circumstances. Actual results may differ from these estimates
under different assumptions or conditions. We believe the judgments and estimates required by the
following accounting policies to be critical in the preparation of our consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Revenue Recognition</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><I>Product sales</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We have adopted the following revenue recognition policy related to the sales of Xclair<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP>
Cream, Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Liquid and Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Lozenges. We recognize revenue from these product sales when
persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered;
the price is fixed and determinable; and collectability is reasonably assured.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As we offer a general right of return on these product sales, we must consider the guidance in
ASC Topic 605. Under these guidelines, we account for all product sales using the &#147;sell-through&#148;
method. Under the sell-through method, revenue is not recognized upon shipment of product to
distributors. Instead, we record deferred revenue at gross invoice sales price and deferred cost of
sales at the cost at which those goods were held in inventory. We recognize revenue when such
inventory is sold through to the end user. To estimate products sold through to end users, we rely
on third-party information, including information obtained from significant distributors with
respect to their inventory levels and sell-through to customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Stock-based Compensation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company grants stock options, restricted stock units and restricted stock to officers,
employees, directors and consultants under the Company&#146;s 2006 Amended and Restated 2006 Equity
Incentive Plan, which was amended and restated as of April&nbsp;14, 2008. We also have outstanding
options under various stock-based compensation plans for employees and directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">ASC 718 requires measurement of compensation cost for all stock-based awards at fair value on
date of grant and recognition of compensation over the requisite service period for awards expected
to vest. The fair value of restricted stock and restricted stock units is determined based on the
number of shares granted and the quoted price of our common stock on the date of grant. The
determination of grant-date fair value for stock option awards is estimated using an option-pricing
model, which includes variables such as the expected volatility of our share price, the anticipated
exercise behavior of our employees, interest rates, and dividend yields. These variables are
projected based on our historical data, experience, and other factors. Changes in any of these
variables could result in material adjustments to the expense recognized for share-based payments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Such value is recognized as an expense over the requisite service period, net of estimated
forfeitures, using the straight-line attribution method. The estimation of stock awards that will
ultimately vest requires judgment, and to the extent actual results or updated estimates differ
from our current estimates, such amounts will be recorded as a cumulative adjustment in the period
estimates are revised. We consider many factors when estimating expected forfeitures, including
types of awards, employee class, and historical experience.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Warrants Liability</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">ASC 480 requires freestanding contracts that are settled in our own stock, including common
stock warrants to be designated as an equity instrument, asset or liability. Under the provisions
of ASC 480, a
contract designated as an asset or a liability must be carried at fair value until exercised
or expired, with any changes in fair value recorded in the results of operations. A contract
designated as an equity instrument must be included within equity, and no subsequent fair value
adjustments are required. We review the classification of the contracts at each balance sheet date.
With respect to warrants issued in February&nbsp;2007 as part of a financing and pursuant to ASC 480,
since we are unable to control all the events or actions necessary to settle the warrants in
registered shares the warrants have been recorded as a current liability at fair value. The fair
value of the outstanding warrants is evaluated at each reporting period with any resulting change
in the fair value being reflected in the consolidated statements of operations. During the three
months ended March&nbsp;31, 2011, the Company recognized the change in the value of warrants of
approximately $0.1&nbsp;million as a gain on the consolidated statement of operations. During the three
months ended March&nbsp;31, 2010, the Company recognized the change in the value of warrants as a loss
of approximately $0.8&nbsp;million, on the consolidated statement of operations. Fair value is estimated
using an option-pricing model, which includes variables such as the expected volatility of our
share price, interest rates, and dividend yields. These variables are projected based on our
historical data, experience, and other factors. Changes in any of these variables could result in
material adjustments to the expense recognized for changes in the valuation of the warrants
liability.
</DIV>
<DIV align="left">
<A name="C17361104"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>Item&nbsp;3.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>Quantitative and Qualitative Disclosures About Market Risk.</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are exposed to market risk related to fluctuations in foreign currency exchange rates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Foreign Currency Risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are exposed to foreign currency rate fluctuations related to the operation of our
subsidiary in the United Kingdom. At the end of each reporting period, income and expenses of the
subsidiary are remeasured into U.S. dollars using the average currency rate in effect for the
period and assets and liabilities are remeasured into U.S. dollars using either historical rates or
the exchange rate in effect at the end of the period. Intercompany loans with this subsidiary are
denominated in U.S. dollars and unrealized foreign exchange gains and losses arising on these loans
have been recorded in the consolidated statement of operations within the separate line item
foreign exchange gains/(losses) within other income (expense)&nbsp;up to September&nbsp;30, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We currently do not engage in foreign currency hedging. We enter into certain transactions
denominated in foreign currencies in respect of underlying operations and, therefore, we are
subject to currency exchange risks. We realized losses $68,000 and gains of $11,000 for the three
months ended March&nbsp;31, 2011 and 2010, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Common Stock Price Risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In February&nbsp;2007, we issued common stock and warrants. Pursuant to ASC 480, we recorded the
fair value of the warrants as a current liability. The fair value of the outstanding warrants is
evaluated at each reporting period with any resulting change in the fair value being reflected in
the condensed consolidated statements of operations. During the three months ended March&nbsp;31, 2011,
we recognized the change in the value of warrants of approximately $0.1&nbsp;million as a gain on the
consolidated statement of operations. During the three months ended March&nbsp;31, 2010, we recognized
the change in the value of warrants as a loss of approximately $0.8&nbsp;million on the consolidated
statement of operations. Fair value of the derivative instruments will be affected by estimates of
various factors that may affect the respective instrument, including our stock price, the risk free
rate of return and expected volatility in the fair value of our stock price. As the fair value of
this derivative may fluctuate significantly from period to period, the resulting change in
valuation may have a significant impact on our results of operations.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">
<DIV align="left">
<A name="C17361105"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>Item&nbsp;4.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>Controls and Procedures</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Evaluation of Disclosure Controls and Procedures</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Under the supervision and with the participation of our management, including our chief
executive officer and principal financial and accounting officer, we conducted an evaluation of the
effectiveness, as of March&nbsp;31, 2011, of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
The purpose of this evaluation was to determine whether as of the evaluation date our disclosure
controls and procedures were effective to provide reasonable assurance that the information we are
required to disclose in our filings with the Securities and Exchange Commission, or SEC, under the
Exchange Act (i)&nbsp;is recorded, processed, summarized and reported within the time periods specified
in the SEC&#146;s rules and forms and (ii)&nbsp;accumulated and communicated to our management, including our
chief executive officer and principal financial and accounting officer, as appropriate to allow
timely decisions regarding required disclosure. Based on that evaluation, management has concluded
that as of March&nbsp;31, 2011, our disclosure controls and procedures were not effective at the
reasonable assurance level due to the material weaknesses in our internal controls described in the
amendment to our 2010 Annual Report on Form 10-K in the section captioned &#147;Item&nbsp;9A &#151; Controls and
Procedures &#151; Management&#146;s Report on Internal Control Over Financial Reporting&#148; that remain
present.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Changes in Internal Control Over Financial Reporting</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">There have been no changes in our internal control over financial reporting during the quarter
ended March&nbsp;31, 2011 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting other than those described below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In response to the material weaknesses in our internal controls noted in our Annual Report on
Form 10-K for the year ended December&nbsp;31, 2010, filed on March&nbsp;31, 2011, management presented a
proposed remediation plan to our audit committee concerning our internal controls over financial
reporting, and the audit committee adopted management&#146;s remediation plan. We are in the process of
implementing this plan. Remediation of the material weaknesses will require management time and
attention over the coming quarters and will result in additional incremental expenses, which
includes increasing the size of our finance organization and retaining outside consultants. Any
failure on our part to remedy our identified weaknesses or any additional errors or delays in our
financial reporting would have a material adverse effect on our business and results of operations
and could have a substantial adverse impact on the trading price of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Subject to oversight by our board of directors, our chief executive officer will be
responsible for implementing management&#146;s internal control remediation plan, adopted by our audit
committee and approved by our board of directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Specifically, the remediation plan consists of strengthening the financial reporting function
through the hiring of qualified finance personnel, with experience in the interpretation and
application of accounting principles generally accepted in the United States (&#147;GAAP&#148;), and
designing and placing into operation appropriate controls to prevent or detect on a timely basis
any potential material misstatements in the accounting, presentation and disclosure of cumulative
preferred dividends. It is anticipated that the remediation plan, once implemented, will
materially affect our internal control over financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We anticipate that the actions described above will remediate the December&nbsp;31, 2010 material
weakness. The material weakness will only be considered remediated when the revised internal
controls are operational for a period of time and are tested and management has concluded that the
controls are operating effectively.
</DIV>
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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Inherent Limitation on the Effectiveness of Internal Controls</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The effectiveness of any system of internal control over financial reporting, including ours,
is subject to inherent limitations, including the exercise of judgment in designing, implementing,
operating, and evaluating the controls and procedures, and the inability to eliminate misconduct
completely. Accordingly, any system of internal control over financial reporting, including ours,
no matter how well designed and operated, can only provide reasonable, not absolute assurances. In
addition, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. We intend to continue to monitor and
upgrade our internal controls as necessary or appropriate for our business, but cannot assure you
that such improvements will be sufficient to provide us with effective internal control over
financial reporting.
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->35<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">



<DIV align="left">
<A name="C17361106"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>PART II. Other Information</b>
</DIV>

<DIV align="left">
<A name="C17361107"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>Item&nbsp;1.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>Legal proceedings</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">From time to time, we may be involved in routine litigation incidental to the conduct of our
business. On April&nbsp;27, 2010, we were served with a complaint filed by Celgene Corporation in the
United States District Court for the District of Delaware seeking a declaratory judgment that four
of our own patents, claiming the use of romidepsin injection in T-cell lymphomas, are invalid and
not infringed by Celgene&#146;s products, but directly involve the use and administration of Celgene&#146;s
ISTODAX<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> (romidepsin for injection) product. On June&nbsp;17, 2010, we filed our answer and
counterclaims to the declaratory judgment complaint. We have filed counterclaims charging Celgene
with infringement of each of our four patents and seeking damages for Celgene&#146;s infringement as
well as injunctive relief. The four patents directly involve the use and administration of
Celgene&#146;s ISTODAX<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> (romidepsin for injection) product.
</DIV>
<DIV align="left">
<A name="C17361108"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>Item&nbsp;1A.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>Risk Factors</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><I>In analyzing our company, you should consider carefully the following risk factors, together
with all of the other information included in Part&nbsp;I, &#147;Item&nbsp;1A. Risk Factors&#148; in our Annual Report
on </I><I>Form 10-K</I><I> for the year ended December&nbsp;31, 2010. Factors that could cause or contribute to
differences in our actual results include those discussed in the following subsection, as well as
those discussed above in &#147;Management&#146;s Discussion and Analysis of Financial Condition and Results
of Operations&#148; and elsewhere throughout this Quarterly Report on </I><I>Form 10-Q</I><I>. Each of the following
risk factors, either alone or taken together, could adversely affect our business, operating
results and financial condition, as well as adversely affect the value of an investment in our
common stock.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Risks Associated with Development and Commercialization of Our Drug Candidates</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Clinical trial designs that were discussed with the authorities prior to their commencement may
subsequently be considered insufficient for approval at the time of application for regulatory
approval. Thus, our SPA regarding our SEAMLESS trial does not guarantee marketing approval or
approval of our sapacitabine oral capsules for the treatment of acute myeloid leukemia.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On September&nbsp;13, 2010, we reached agreement with the FDA regarding an SPA on the design of a
pivotal Phase 3 trial for our sapacitabine oral capsules as a front-line treatment in elderly
patients aged 70&nbsp;years or older with newly diagnosed acute myeloid leukemia, or AML, who are not
candidates for intensive induction chemotherapy, or the SEAMLESS trial. An SPA provides trial
sponsors with an agreement from the FDA that the design and analysis of the trial adequately
address objectives in support of a submission for a marketing application if the trial is performed
according to the SPA. The SPA may only be changed through a written agreement between the sponsor
and the FDA or if the FDA becomes aware of a substantial scientific issue essential to product
efficacy or safety. On January&nbsp;11, 2011, we opened enrollment of the SEAMLESS trial.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">An SPA, however, neither guarantees approval nor provides any assurance that a marketing
application would be approved by the FDA. There are companies that have been granted SPAs but have
ultimately failed to obtain final approval to market their drugs. The FDA may revise previous
guidance or decide to ignore previous guidance at any time during the course of clinical activities
or after the completion of clinical trials. The FDA may raise issues relating to, among other
things, safety, study conduct, bias, deviation from the protocol, statistical power, patient
completion rates, changes in scientific or medical parameters or internal inconsistencies in the
data prior to making its final decision. The FDA may also seek the guidance of an outside advisory
committee prior to making its final decision. Even with successful clinical safety and efficacy
data, including such data from a clinical trial conducted pursuant to an SPA, we may be required to
conduct additional, expensive clinical trials to obtain regulatory approval.
</DIV>
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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>The development program for our lead drug candidate sapacitabine is based, in part, on intellectual
property rights we license from others and any termination of this license could seriously harm our
business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pursuant to the Daiichi-Sankyo license under which we license certain patent rights for
sapacitabine, our lead drug candidate, we are required to use commercially reasonable efforts to
commercialize products based on the licensed rights and to use reasonable efforts to obtain
regulatory approval to sell the products in at least one country by September&nbsp;2011, unless we are
prevented from doing so by virtue of an &#147;exceptional cause,&#148; which generally constitutes a
scientific or other technical cause outside of our control or arising from the activities of third
parties, difficulties outside of our reasonable control in patient recruitment into trials or any
significant, unexpected change in the regulatory requirements in a country affecting the
development of our drug candidate. If regulatory approval is not obtained by September&nbsp;2011, and
there has been no exceptional cause responsible for the delay, the agreement provides that
Daiichi-Sankyo may terminate the license. As it is unlikely that regulatory approval for the
product will be obtained by September&nbsp;2011, it is the Company&#146;s intention to negotiate an
appropriate amendment to this date on various grounds, among other things, changes that have taken
place in the regulatory environment, as provided within the agreement. If negotiation was not
successful, litigation could ensue and there would be no assurances as to the result thereof.
Termination of the license agreement could seriously harm our business. On termination, if
Daiichi-Sankyo wishes to acquire an exclusive license to sapacitabine intellectual property
developed by us during the term of the license, Daiichi-Sankyo may notify us and the parties will
meet to negotiate commercial terms in good faith. If agreement cannot be reached, the terms of the
exclusive license are to be determined by an expert.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In general, the license may be terminated by us for technical, scientific, efficacy, safety,
or commercial reasons on six months notice, or twelve months if after a launch of a
sapacitabine-based product, or by either party for material default.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Although we are currently in compliance with all of our material obligations under this
license, if we were to breach any such obligations, our counterparty may be entitled to terminate
the license. This would restrict or delay or eliminate our ability to develop and commercialize
these drug candidates, which could adversely affect our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>If we fail to enter into and maintain successful strategic alliances for our drug candidates, we
may have to reduce or delay our drug candidate development or increase our expenditures.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">An important element of our strategy for developing, manufacturing and commercializing our
drug candidates is entering into strategic alliances with pharmaceutical companies or other
industry participants to advance our programs and enable us to maintain our financial and
operational capacity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We face significant competition in seeking appropriate alliances. We may not be able to
negotiate alliances on acceptable terms, if at all. In addition, these alliances may be
unsuccessful. If we fail to create and maintain suitable alliances, we may have to limit the size
or scope of, or delay, one or more of our drug development or research programs. If we elect to
fund drug development or research programs on our own, we will have to increase our expenditures
and will need to obtain additional funding, which may be unavailable or available only on
unfavorable terms.
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Clinical trials are expensive, time consuming, subject to delay and may be required to continue
beyond our available funding.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Clinical trials are expensive, complex can take many years to conduct and may have uncertain
outcomes. We estimate that clinical trials of our most advanced drug candidates may be required to
continue beyond our available funding and may take several years more to complete. The designs used
in some of our trials have not been used widely by other pharmaceutical companies. Failure can
occur at any stage of the testing and we may experience numerous unforeseen events during, or as a
result of, the clinical trial process that could delay or prevent commercialization of our current
or future drug candidates, including but not limited to:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>delays in securing clinical investigators or trial sites for our clinical
trials;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>delays in obtaining institutional review board, or IRB, and other regulatory
approvals to commence a clinical trial;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>slower than anticipated rates of patient recruitment and enrollment, or
reaching the targeted number of patients because of competition for patients from
other trials or other reasons;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>negative or inconclusive results from clinical trials;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>unforeseen safety issues;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>uncertain dosing issues may or may not be related to suboptimal pharmacokinetic
and pharmacodynamic behaviors;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>approval and introduction of new therapies or changes in standards of practice
or regulatory guidance that render our clinical trial endpoints or the targeting
of our proposed indications obsolete;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>inability to monitor patients adequately during or after treatment or problems
with investigator or patient compliance with the trial protocols;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>inability to replicate in large controlled studies safety and efficacy data
obtained from a limited number of patients in uncontrolled trials;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>inability or unwillingness of medical investigators to follow our clinical
protocols; and</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>unavailability of clinical trial supplies.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>If we suffer any significant delays, setbacks or negative results in, or termination of, our
clinical trials, we may be unable to continue development of our drug candidates or generate
revenue and our development costs could increase significantly. Adverse events have been observed
in our clinical trials and may force us to stop development of our product candidates or prevent
regulatory approval of our product candidates.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Adverse or inconclusive results from our clinical trials may substantially delay, or halt
entirely, any further development of our drug candidates. Many companies have failed to demonstrate
the safety or effectiveness of drug candidates in later stage clinical trials notwithstanding
favorable results in early stage clinical trials. Previously unforeseen and unacceptable side
effects could interrupt, delay or halt clinical trials of our drug candidates and could result in
the FDA or other regulatory authorities denying approval of our drug candidates. We will need to
demonstrate safety and efficacy for specific indications of use, and monitor safety and compliance
with clinical trial protocols throughout the development process. To date, long-term safety and
efficacy has not been demonstrated in clinical trials for any of our drug candidates. Toxicity and
&#147;serious adverse events&#148; as defined in trial protocols have been noted in preclinical and clinical
trials involving certain of our drug candidates. For example, neutropenia and gastro-intestinal
toxicity were observed in patients receiving sapacitabine and elevations of liver enzymes and
decrease in potassium levels have been observed in patients receiving seliciclib.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In addition, we may pursue clinical trials for sapacitabine and seliciclib in more than one
indication. There is a risk that severe toxicity observed in a trial for one indication could
result in the delay or suspension of all trials involving the same drug candidate. Even if we
believe the data collected from clinical trials of our drug candidates are promising with respect
to safety and efficacy, such data may not be deemed sufficient by regulatory authorities to warrant
product approval. Clinical data can be interpreted in different ways. Regulatory officials could
interpret such data in different ways than we do which could delay, limit or prevent regulatory
approval. The FDA, other regulatory authorities or we may suspend or
terminate clinical trials at any time. Any failure or significant delay in completing clinical
trials for our drug candidates, or in receiving regulatory approval for the commercialization of
our drug candidates, may severely harm our business and reputation.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>If our understanding of the role played by CDKs or AKs in regulating the cell cycle is incorrect,
this may hinder pursuit of our clinical and regulatory strategy.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our development of small molecule inhibitors of CDK and AK is based on our understanding of
the mechanisms of action of CDK and AK inhibitors and their interaction with other cellular
mechanisms. One of our drug candidates, seliciclib, is a CDK inhibitor, and CYC116 is an AK and
VEGFR2 inhibitor. Although a number of pharmaceutical and biotechnology companies are attempting to
develop CDK or AK inhibitor drugs for the treatment of cancer, no CDK or AK inhibitor has yet
reached the market. If our understanding of the role played by CDK or AK inhibitors in regulating
the cell cycle is incorrect, seliciclib and/or CYC116 may fail to produce therapeutically relevant
results hindering our ability to pursue our clinical and regulatory strategy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We are making use of biomarkers, which are not scientifically validated, and our reliance on
biomarker data may thus lead us to direct our resources inefficiently.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are making use of biomarkers in an effort to facilitate our drug development and to
optimize our clinical trials. Biomarkers are proteins or other substances whose presence in the
blood can serve as an indicator of specific cell processes. We believe that these biological
markers serve a useful purpose in helping us to evaluate whether our drug candidates are having
their intended effects through their assumed mechanisms, and thus enable us to identify more
promising drug candidates at an early stage and to direct our resources efficiently. We also
believe that biomarkers may eventually allow us to improve patient selection in connection with
clinical trials and monitor patient compliance with trial protocols.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">For most purposes, however, biomarkers have not been scientifically validated. If our
understanding and use of biomarkers is inaccurate or flawed, or if our reliance on them is
otherwise misplaced, then we will not only fail to realize any benefits from using biomarkers, but
may also be led to invest time and financial resources inefficiently in attempting to develop
inappropriate drug candidates. Moreover, although the FDA has issued for comment a draft guidance
document on the potential use of biomarker data in clinical development, such data are not
currently accepted by the FDA or other regulatory agencies in the United States, the European Union
or elsewhere in applications for regulatory approval of drug candidates and there is no guarantee
that such data will ever be accepted by the relevant authorities in this connection. Our biomarker
data should not be interpreted as evidence of efficacy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Due to our reliance on contract research organizations or other third parties to conduct clinical
trials, we may be unable to directly control the timing, conduct and expense of our clinical
trials.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We do not have the ability to independently conduct clinical trials required to obtain
regulatory approvals for our drug candidates. We must rely on third parties, such as contract
research organizations, data management companies, contract clinical research associates, medical
institutions, clinical investigators and contract laboratories to conduct our clinical trials. In
addition, we rely on third parties to assist with our preclinical development of drug candidates.
If these third parties do not successfully carry out their contractual duties or regulatory
obligations or meet expected deadlines, if the third parties need to be replaced or if the quality
or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical
protocols or regulatory requirements or for other reasons, our preclinical development activities
or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to
obtain regulatory approval for or successfully commercialize our drug candidates.
</DIV>
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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>To the extent we are able to enter into collaborative arrangements or strategic alliances, we will
be exposed to risks related to those collaborations and alliances.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Although we are not currently party to any collaboration arrangement or strategic alliance
that is material to our business, in the future we expect to be dependent upon collaborative
arrangements or
strategic alliances to complete the development and commercialization of some of our drug
candidates particularly after the Phase 2 stage of clinical testing. These arrangements may place
the development of our drug candidates outside our control, may require us to relinquish important
rights or may otherwise be on terms unfavorable to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We may be unable to locate and enter into favorable agreements with third parties, which could
delay or impair our ability to develop and commercialize our drug candidates and could increase our
costs of development and commercialization. Dependence on collaborative arrangements or strategic
alliances will subject us to a number of risks, including the risk that:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we may not be able to control the amount and timing of resources that our
collaborators may devote to the drug candidates;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our collaborators may experience financial difficulties;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we may be required to relinquish important rights such as marketing and
distribution rights;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>business combinations or significant changes in a collaborator&#146;s business
strategy may also adversely affect a collaborator&#146;s willingness or ability to
complete our obligations under any arrangement;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a collaborator could independently move forward with a competing drug candidate
developed either independently or in collaboration with others, including our
competitors; and</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>collaborative arrangements are often terminated or allowed to expire, which
would delay the development and may increase the cost of developing our drug
candidates.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We have no manufacturing capacity and will rely on third party manufacturers for the late stage
development and commercialization of any drugs or devices we may develop or sell.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We do not currently operate manufacturing facilities for clinical or commercial production of
our drug candidates under development or our currently marketed ALIGN products. We currently lack
the resources or the capacity to manufacture any of our products on a clinical or commercial scale.
We depend upon a third party, Sinclair, to manufacture the commercial products sold by our ALIGN
subsidiary and we can not rely upon Sinclair to continue to supply the products. We anticipate
future reliance on a limited number of third party manufacturers until we are able, or decide to,
expand our operations to include manufacturing capacities. Any performance failure on the part of
manufacturers could delay late stage clinical development or regulatory approval of our drug, the
commercialization of our drugs or our ability to sell our commercial products, producing additional
losses and depriving us of potential product revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">If the FDA or other regulatory agencies approve any of our drug candidates for commercial
sale, or if we significantly expand our clinical trials, we will need to manufacture them in larger
quantities and will be required to secure alternative third-party suppliers to our current
suppliers. To date, our drug candidates have been manufactured in small quantities for preclinical
testing and clinical trials and we may not be able to successfully increase the manufacturing
capacity, whether in collaboration with our current or future third-party manufacturers or on our
own, for any of our drug candidates in a timely or economic manner, or at all. Significant scale-up
of manufacturing may require additional validation studies, which the FDA and other regulatory
bodies must review and approve. If we are unable to successfully increase the manufacturing
capacity for a drug candidate whether for late stage clinical trials or for commercial sale or are
unable to secure alternative third-party suppliers to our current suppliers, the drug development,
regulatory approval or commercial launch of any related drugs may be delayed or blocked or there
may be a shortage in supply. Even if any third party manufacturer makes improvements in the
manufacturing process
for our drug candidates, we may not own, or may have to share, the intellectual property
rights to such innovation.
</DIV>
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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>As we evolve from a company primarily involved in discovery and development to one also involved in
the commercialization of drugs and devices, we may encounter difficulties in managing our growth
and expanding our operations successfully.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In order to execute our business strategy, we will need to expand our development, control and
regulatory capabilities and develop financial, manufacturing, marketing and sales capabilities or
contract with third parties to provide these capabilities for us. If our operations expand, we
expect that we will need to manage additional relationships with various collaborative partners,
suppliers and other third parties. Our ability to manage our operations and any growth will require
us to make appropriate changes and upgrades, as necessary, to our operational, financial and
management controls, reporting systems and procedures wherever we may operate. Any inability to
manage growth could delay the execution of our business plan or disrupt our operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>The failure to attract and retain skilled personnel and key relationships could impair our drug
development and commercialization efforts.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are highly dependent on our senior management and key scientific, technical and sales and
marketing personnel. Competition for these types of personnel is intense. The loss of the services
of any member of our senior management, scientific, technical or sales or marketing staff may
significantly delay or prevent the achievement of drug development and other business objectives
and could have a material adverse effect on our business, operating results and financial
condition. We also rely on consultants and advisors to assist us in formulating our strategy. All
of our consultants and advisors are either self-employed or employed by other organizations, and
they may have conflicts of interest or other commitments, such as consulting or advisory contracts
with other organizations, that may affect their ability to contribute to us. The success of the
commercialization of the ALIGN products depends, in large part, on our continued ability to develop
and maintain important relationships with distributors and research and medical institutions.
Failure to do that could have a material adverse effect on our ability to commercialize the ALIGN
products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We intend to expand and develop new drug candidates. We will need to hire additional employees
in order to continue our clinical trials and market our drug candidates and medical devices. This
strategy will require us to recruit additional executive management and scientific and technical
personnel. There is currently intense competition for skilled executives and employees with
relevant scientific and technical expertise, and this competition is likely to continue. The
inability to attract and retain sufficient scientific, technical and managerial personnel could
limit or delay our product development efforts, which would adversely affect the development of our
drug candidates and commercialization of our potential drugs and growth of our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Our drug candidates are subject to extensive regulation, which can be costly and time-consuming,
and we may not obtain approvals for the commercialization of any of our drug candidates.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The clinical development, manufacturing, selling and marketing of our drug candidates are
subject to extensive regulation by the FDA and other regulatory authorities in the United States,
the European Union and elsewhere. These regulations also vary in important, meaningful ways from
country to country. We are not permitted to market a potential drug in the United States until we
receive approval of an NDA from the FDA. We have not received an NDA approval from the FDA for any
of our drug candidates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Obtaining an NDA approval is expensive and is a complex, lengthy and uncertain process. The
FDA approval process for a new drug involves completion of preclinical studies and the submission
of the results of these studies to the FDA, together with proposed clinical protocols,
manufacturing information, analytical data and other information in an Investigational New Drug, or
IND, which must become effective before human clinical trials may begin. Clinical development
typically involves three phases of study: Phase 1, 2 and 3. The most significant costs associated
with clinical development are the pivotal or suitable for
registration late Phase 2 or Phase 3 clinical trials as they tend to be the longest and
largest studies conducted during the drug development process. After completion of clinical trials,
an NDA may be submitted to the FDA. In responding to an NDA, the FDA may refuse to file the
application, or if accepted for filing, the FDA may grant marketing approval, request additional
information or deny the application if it determines that the application does not provide an
adequate basis for approval. In addition, failure to comply with the FDA and other applicable
foreign and U.S. regulatory requirements may subject us to administrative or judicially imposed
sanctions. These include warning letters, civil and criminal penalties, injunctions, product
seizure or detention, product recalls, total or partial suspension of production and refusal to
approve either pending NDAs, or supplements to approved NDAs.
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Despite the substantial time and expense invested in preparation and submission of an NDA or
equivalents in other jurisdictions, regulatory approval is never guaranteed. The FDA and other
regulatory authorities in the United States, the European Union and elsewhere exercise substantial
discretion in the drug approval process. The number, size and design of preclinical studies and
clinical trials that will be required for FDA or other regulatory approval will vary depending on
the drug candidate, the disease or condition for which the drug candidate is intended to be used
and the regulations and guidance documents applicable to any particular drug candidate. The FDA or
other regulators can delay, limit or deny approval of a drug candidate for many reasons, including,
but not limited to:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>those discussed in the risk factor which immediately follows;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the fact that the FDA or other regulatory officials may not approve our or our
third party manufacturer&#146;s processes or facilities; or</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the fact that new regulations may be enacted by the FDA or other regulators may
change their approval policies or adoption of new regulations requiring new or
different evidence of safety and efficacy for the intended use of a drug
candidate.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>With regard to the ALIGN products, and following regulatory approval of any of our drug candidates,
we are subject to ongoing regulatory obligations and restrictions, which may result in significant
expense and limit our ability to commercialize our potential products.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">With regard to our ALIGN products and our drug candidates, if any, approved by the FDA or by
another regulatory authority, we are held to extensive regulatory requirements over product
manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and
record keeping. Regulatory approvals may also be subject to significant limitations on the
indicated uses or marketing of the drug candidates. Potentially costly follow-up or post-marketing
clinical studies may be required as a condition of approval to further substantiate safety or
efficacy, or to investigate specific issues of interest to the regulatory authority. Previously
unknown problems with the product or drug candidate, including adverse events of unanticipated
severity or frequency, may result in restrictions on the marketing of the drug or device, and could
include withdrawal of the drug or device from the market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In addition, the law or regulatory policies governing pharmaceuticals may change. New
statutory requirements may be enacted or additional regulations may be enacted that could prevent
or delay regulatory approval of our drug candidates. We cannot predict the likelihood, nature or
extent of adverse government regulation that may arise from future legislation or administrative
action, either in the United States or elsewhere. If we are not able to maintain regulatory
compliance, we might not be permitted to market our drugs and our business could suffer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Our applications for regulatory approval could be delayed or denied due to problems with studies
conducted before we in-licensed the rights to some of our product candidates.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We currently license some of the compounds and drug candidates used in our research programs
from third parties. These include sapacitabine which was licensed from Daiichi-Sankyo. Our present
research involving these compounds relies upon previous research conducted by third parties over
whom we had no control and before we in-licensed the drug candidates. In order to receive
regulatory approval of a drug
candidate, we must present all relevant data and information obtained during our research and
development, including research conducted prior to our licensure of the drug candidate. Although we
are not currently aware of any such problems, any problems that emerge with preclinical research
and testing conducted prior to our in-licensing may affect future results or our ability to
document prior research and to conduct clinical trials, which could delay, limit or prevent
regulatory approval for our drug candidates.
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We face intense competition and our competitors may develop drugs that are less expensive, safer,
or more effective than our drug candidates.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">A large number of drug candidates are in development for the treatment of leukemia, lung
cancer, lymphomas and nasopharyngeal cancer. Several pharmaceutical and biotechnology companies
have nucleoside analogs or other products on the market or in clinical trials which may be
competitive to sapacitabine in both hematological and oncology indications. These include Celgene,
Cephalon, Eisai, Johnson &#038; Johnson, Eli Lilly, Genzyme, GlaxoSmithKline, Hospira, Pfizer, Seattle
Genetics, Sunesis and Vion. There are two other-orally available CDK inhibitor in Phase 2 clinical
trials. PD-0332991 (Pfizer/Onyx) and PHA-848125 (Nerviano Medical Sciences) target different
subsets of CDK enzymes and have a different mechanism of action from seliciclib. We believe that
seliciclib is currently the most advanced orally available CDK-specific agent in Phase 2 clinical
trials but that there are a number of companies, including AstraZeneca, Bayer-Schering, Eisai,
Merck, Nerviano Medical Sciences, Pfizer, Piramal Life Sciences, and Roche that are developing CDK
inhibitors in early stage clinical trials in cancer patients. Although Aventis, a predecessor of
Sanofi-Aventis, had previously announced that it has ceased Phase 2 development of alvocidib or
flavopiridol, a CDK inhibitor, we believe that the National Cancer Institute&#146;s Cancer Therapy
Evaluation Program, or CTEP, is continuing to enroll patients in a CTEP sponsored trial in patients
with chronic leukemia. A number of companies are pursuing discovery and research activities in each
of the other areas that are the subject of our research and drug development programs. We believe
that AstraZeneca, Entremed, Merck, jointly with Vertex, Nerviano Medical Sciences, Pfizer, Rigel,
Sunesis and Takeda-Millennium have commenced Phase 1 or Phase 2 clinical trials of Aurora kinase
inhibitors in patients with advanced cancers. Several companies have reported selection of Aurora
kinase inhibitor candidates for development and may have started or are expected to start clinical
trials within the next twelve months. We believe that Boehringer Ingelheim, GlaxoSmithKline,
Nerviano Medical Sciences, Onconova, Takeda-Millennium and Tekmira Pharmaceuticals Corporation have
commenced Phase 1 or Phase 2 clinical trials with Plk inhibitor candidates for oncology
indications. For our ALIGN products, we believe that Beiersdorf, Daiichi-Sankyo, Eisai, Johnson &#038;
Johnson, MPM Medical and other companies market products for radiation dermatitis and xerostomia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our competitors, either alone or together with collaborators, may have substantially greater
financial resources and research and development staff. Our competitors may also have more
experience:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>developing drug candidates;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>conducting preclinical and clinical trials;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>obtaining regulatory approvals; and</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>commercializing product candidates.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our competitors may succeed in obtaining patent protection and regulatory approval and may
market drugs before we do. If our competitors market drugs that are less expensive, safer, more
effective or more convenient to administer than our potential drugs, or that reach the market
sooner than our potential drugs, we may not achieve commercial success. Scientific, clinical or
technical developments by our competitors may render our drug candidates obsolete or
noncompetitive. We anticipate that we will face increased competition in the future as new
companies enter the markets and as scientific developments progress. If our drug candidates obtain
regulatory approvals, but do not compete effectively in the marketplace, our business will suffer.
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>The commercial success of the ALIGN products and our drug candidates depends upon their market
acceptance among physicians, patients, healthcare providers and payors and the medical community.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">It is necessary that our and our distribution partners&#146; products, including Xclair<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Cream,
Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Liquid and Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Lozenges achieve and maintain market acceptance. If our drug
candidates are approved by the FDA or by another regulatory authority, the resulting drugs, if any,
may not gain market acceptance among physicians, healthcare providers and payors, patients and the
medical community. The degree of market acceptance of any of our approved drugs or devices will
depend on a variety of factors, including:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>timing of market introduction, number and clinical profile of competitive
drugs;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to provide acceptable evidence of safety and efficacy;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>relative convenience and ease of administration;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>cost-effectiveness;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>availability of coverage, reimbursement and adequate payment from health
maintenance organizations and other third party payors;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>prevalence and severity of adverse side effects; and</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other potential advantages over alternative treatment methods.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">If our drugs fail to achieve market acceptance, we may not be able to generate significant
revenue and our business would suffer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>If we are unable to compete successfully in our market place, it will harm our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">There are existing products in the marketplace that compete with our products. Companies may
develop new products that compete with our products. Certain of these competitors and potential
competitors have longer operating histories, substantially greater product development capabilities
and financial, scientific, marketing and sales resources. Competitors and potential competitors may
also develop products that are safer, more effective or have other potential advantages compared to
our products. In addition, research, development and commercialization efforts by others could
render our products obsolete or non-competitive. Certain of our competitors and potential
competitors have broader product offerings and extensive customer bases allowing them to adopt
aggressive pricing policies that would enable them to gain market share. Competitive pressures
could result in price reductions, reduced margins and loss of market share. We could encounter
potential customers that, due to existing relationships with our competitors, are committed to
products offered by those competitors. As a result, those potential customers may not consider
purchasing our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>There is uncertainty related to coverage, reimbursement and payment by healthcare providers and
payors for the ALIGN products and newly approved drugs, if any. The inability or failure to obtain
or maintain coverage could affect our ability to market the ALIGN products and our future drugs and
decrease our ability to generate revenue.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The availability and levels of coverage and reimbursement of newly approved drugs by
healthcare providers and payors is subject to significant uncertainty. The commercial success of
the ALIGN products and our drug candidates in both the United States and international markets is
substantially dependent on whether third party coverage and reimbursement is available. The United
States Centers for Medicare and Medicaid Services, health maintenance organizations and other third
party payors in the United States, the European Union and other jurisdictions are increasingly
attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of
new drugs and, as a result, they may not cover or provide adequate payment for our potential drugs.
The ALIGN products and our drug candidates may not be
considered cost-effective and reimbursement may not be available to consumers or may not be
sufficient to allow the ALIGN products or our drug candidates to be marketed on a competitive
basis.
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In some countries, pricing of prescription drugs is subject to government control. In such
countries, pricing negotiations with governmental authorities can take three to 12&nbsp;months or longer
following application to the competent authorities. To obtain reimbursement or pricing approval in
such countries may require conducting an additional clinical trial comparing the cost-effectiveness
of the drug to other alternatives. In the United States, the Medicare Part&nbsp;D drug benefit
implemented in 2006 will limit drug coverage through formularies and other cost and utilization
management programs, while Medicare Part&nbsp;B limits drug payments to a certain percentage of average
price or through restrictive payment policies of &#147;least costly alternatives&#148; and &#147;inherent
reasonableness&#148; Our business could be materially harmed if coverage, reimbursement or pricing is
unavailable or set at unsatisfactory levels.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Intellectual property rights and distribution rights for our drug candidate seliciclib and ALIGN
products are licensed from others, and any termination of these licenses could harm our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We have in-licensed certain patent rights in connection with the development program of our
drug candidate seliciclib. Pursuant to the CNRS and Institut Curie license under which we license
seliciclib, we are obligated to pay license fees, milestone payments and royalties and provide
regular progress reports. We are also obligated to use reasonable efforts to develop and
commercialize products based on the licensed patents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We have in-licensed from Sinclair the distribution rights to the ALIGN products. This license
agreement imposes obligations on us and expires in 2015. Although we are currently in compliance
with all of our material obligations under this license, if we were to breach any such obligations,
Sinclair would be permitted to terminate the license. In addition, if
we are unable to extend the term
of the license agreement, it would prevent us from distributing the ALIGN products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Although we are currently in compliance with all of our material obligations under these
licenses, if we were to breach any such obligations our counterparties may be entitled to terminate
the licenses. This would restrict or delay or eliminate our ability to develop and commercialize
the seliciclib or sell the ALIGN products, which could adversely affect our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We may be exposed to product liability claims that may damage our reputation and we may not be able
to obtain adequate insurance.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Because we conduct clinical trials in humans, we face the risk that the use of our drug
candidates will result in adverse effects. We believe that we have obtained reasonably adequate
product liability insurance coverage for our trials. We cannot predict, however, the possible harm
or side effects that may result from our clinical trials. Such claims may damage our reputation and
we may not have sufficient resources to pay for any liabilities resulting from a claim excluded
from, or beyond the limit of, our insurance coverage.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As we market commercialized products through our ALIGN subsidiary we are exposed to additional
risks of product liability claims. These risks exist even with respect to drugs and devices that
are approved for commercial sale by the FDA or other regulatory authorities in the United States,
the European Union or elsewhere and manufactured in facilities licensed and regulated by the FDA or
other such regulatory authorities. We have secured limited product liability insurance coverage,
but may not be able to maintain such insurance on acceptable terms with adequate coverage, or at a
reasonable cost. There is also a risk that third parties that we have agreed to indemnify could
incur liability. Even if we were ultimately successful in product liability litigation, the
litigation would consume substantial amounts of our financial and managerial resources and may
exceed insurance coverage creating adverse publicity, all of which would impair our ability to
generate sales of the litigated product as well as our other potential drugs.
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We may be required to defend lawsuits or pay damages in connection with the alleged or actual
violation of healthcare statutes such as fraud and abuse laws, and our corporate compliance
programs can never guarantee that we are in compliance with all relevant laws and regulations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our commercialization efforts in the United States are subject to various federal and state
laws pertaining to promotion and healthcare fraud and abuse, including federal and state
anti-kickback, fraud and false claims laws. Anti-kickback laws make it illegal for a manufacturer
to offer or pay any remuneration in exchange for, or to induce, the referral of business, including
the purchase of a product. The federal government has published many regulations relating to the
anti-kickback statutes, including numerous safe harbors or exemptions for certain arrangements.
False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be
presented for payment to third-party payers including Medicare and Medicaid, claims for reimbursed
products or services that are false or fraudulent, claims for items or services not provided as
claimed, or claims for medically unnecessary items or services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our activities relating to the sale and marketing of our products will be subject to scrutiny
under these laws and regulations. It may be difficult to determine whether or not our activities,
comply with these complex legal requirements. Violations are punishable by significant criminal
and/or civil fines and other penalties, as well as the possibility of exclusion of the product from
coverage under governmental healthcare programs, including Medicare and Medicaid. If the government
were to investigate or make allegations against us or any of our employees, or sanction or convict
us or any of our employees, for violations of any of these legal requirements, this could have a
material adverse effect on our business, including our stock price. Our activities could be subject
to challenge for many reasons, including the broad scope and complexity of these laws and
regulations, the difficulties in interpreting and applying these legal requirements, and the high
degree of prosecutorial resources and attention being devoted to the biopharmaceutical industry and
health care fraud by law enforcement authorities. During the last few years, numerous
biopharmaceutical companies have paid multi-million dollar fines and entered into burdensome
settlement agreements for alleged violation of these requirements, and other companies are under
active investigation. Although we have developed and implemented corporate and field compliance
programs as part of our commercialization efforts, we cannot assure you that we or our employees,
directors or agents were, are or will be in compliance with all laws and regulations or that we
will not come under investigation, allegation or sanction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In addition, we may be required to prepare and report product pricing-related information to
federal and state governmental authorities, such as the Department of Veterans Affairs and under
the Medicaid program. The calculations used to generate the pricing-related information are complex
and require the exercise of judgment. If we fail to accurately and timely report product
pricing-related information or to comply with any of these or any other laws or regulations,
various negative consequences could result, including criminal and/or civil prosecution,
substantial criminal and/or civil penalties, exclusion of the approved product from coverage under
governmental healthcare programs including Medicare and Medicaid, costly litigation and restatement
of our financial statements. In addition, our efforts to comply with this wide range of laws and
regulations are, and will continue to be, time-consuming and expensive.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>If our supplier upon whom we rely fails to produce on a timely basis the finished goods in the
volumes that we require or fails to meet quality standards and maintain necessary licensure from
regulatory authorities, we may be unable to meet demand for our products, potentially resulting in
lost revenues.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our licensor and supplier Sinclair contracts with third party manufacturers to supply the
finished goods to us to meet our needs. If any of Sinclair&#146;s third party manufacturers service
providers do not meet our or our licensor&#146;s requirements for quality, quantity or timeliness, or do
not achieve and maintain compliance with all applicable regulations, demand for our products or our
ability to continue supplying such products could substantially decline. As the third party
manufacturers are the sole supplier of the products any delays may impact our sales.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In all the countries where we sell or may sell our products, governmental regulations exist to
define standards for manufacturing, packaging, labeling and storing. All of our suppliers of raw
materials and
contract manufacturers must comply with these regulations. Failure to do so could result in
supply interruptions. In the United States, the FDA requires that all suppliers of pharmaceutical
bulk material and all manufacturers of pharmaceuticals for sale in or from the United States
achieve and maintain compliance with the FDA&#146;s Current Good Manufacturing Practice or cGMP
regulations and guidelines. Failure of our third-party manufacturers to comply with applicable
regulations could result in sanctions being imposed on them or us, including fines, injunctions,
civil penalties, disgorgement, suspension or withdrawal of approvals, license revocation, seizures
or recalls of products, operating restrictions and criminal prosecutions, any of which could
significantly and adversely affect supplies of our products. In addition, before any product batch
produced by our manufacturers can be shipped, it must conform to release specifications
pre-approved by regulators for the content of the pharmaceutical product. If the operations of one
or more of our manufacturers were to become unavailable for any reason, any required FDA review and
approval of the operations of an alternative supplier could cause a delay in the manufacture of our
products.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Our customer base is highly concentrated.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our principal customers are a small number of wholesale drug distributors. These customers
comprise a significant part of the distribution network for pharmaceutical products in the United
States. Three large wholesale distributors, AmerisourceBergen Corporation, Cardinal Health, Inc.
and McKesson Corporation, control a significant share of the market in the United States. Our
ability to distribute any product, including Xclair<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Cream, Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Liquid and Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Lozenges
and to recognize revenues on a timely basis is substantially dependent on our ability to maintain
commercially reasonable agreements with each of these wholesale distributors and the extent to
which these distributors, over whom we have no control, comply with such agreements. Our agreements
with wholesaler distributors may contain terms that are not favorable, given our relative lack of
market leverage as a company with only three approved products or other factors, which could
adversely affect our commercialization of Xclair<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Cream, Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Liquid and Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Lozenges.
The loss of any of these customers could materially and adversely affect our ability to distribute
our products, resulting in a negative impact on our operations and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We may be unable to accurately estimate demand and monitor wholesaler inventory of Xclair<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Cream,
Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Liquid or Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Lozenges. Although we attempt to monitor wholesaler inventory of
Xclair<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Cream, Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Liquid or Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Lozenges, we also rely on third party information,
which is inherently uncertain and may not be accurate, to assist us in monitoring estimated
inventory levels and prescription trends. Inaccurate estimates of the demand and inventory levels
of the product may cause our revenues to fluctuate significantly from quarter to quarter and may
cause our operating results for a particular quarter to be below expectations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Inventory levels of Xclair<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Cream, Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Liquid or Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Lozenges held by wholesalers
can also cause our operating results to fluctuate unexpectedly. For the three months ended March
31, 2010 and 2011, approximately 91% and 90%, respectively, of our product sales in the United
States were to three wholesalers, Cardinal Health, Inc., McKesson Corporation and
AmerisourceBergen. Inventory levels held by those wholesalers can cause our operating results to
fluctuate unexpectedly if our sales to wholesalers do not match customer demand. We have entered
into inventory management agreements with these U.S. wholesalers under which they provide us with
data regarding inventory levels at these wholesalers. However, these wholesalers may not be
completely effective in matching inventory levels to customer demand, as they make estimates to
determine customer demand. In addition, inventory is held at retail pharmacies and other
non-wholesaler locations, for which we have no inventory management agreements and have no control
in respect to their buying patterns. Also, the non-retail sector in the United States, which
includes government institutions and large health maintenance organizations, tends to be less
consistent in terms of buying patterns, and often causes quarter-over-quarter fluctuations in
inventory and ordering patterns. We attempt to monitor inventory of Xclair<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP>, Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Liquid or
Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Lozenges in the United States through the use of internal sales forecasts and the
expiration dates of product shipped, among other factors.
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>The commercialization of our products is substantially dependent on our ability to develop
effective sales and marketing capabilities.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our successful commercialization of Xclair<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Cream, Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Liquid and Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Lozenges in
the United States will depend on our ability to establish and maintain an effective sales and
marketing organization in the United States. We hired trained and deployed additional marketing
personnel and a small oncology specialty sales force. We may increase or decrease the size of our
sales force in the future, depending on many factors, including the effectiveness of the sales
force, the level of market acceptance of Xclair<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Cream, Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Liquid and Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Lozenges and
the results of our clinical trials. Prior to our launches of these products, we had never sold or
marketed any products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">For our product candidates currently under development, our strategy is to develop compounds
through the Phase 2 stage of clinical testing and market or co-promote certain of our drugs on our
own. We have limited sales, marketing or distribution capabilities. We will depend primarily on
strategic alliances with third parties, which have established distribution systems and sales
forces, to commercialize our drugs. To the extent that we are unsuccessful in commercializing any
drugs or devices ourselves or through a strategic alliance, product revenues will suffer, we will
incur significant additional losses and our share price will be negatively affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Defending against claims relating to improper handling, storage or disposal of hazardous chemical,
radioactive or biological materials could be time consuming and expensive.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our research and development involves the controlled use of hazardous materials, including
chemicals, radioactive and biological materials such as chemical solvents, phosphorus and bacteria.
Our operations produce hazardous waste products. We cannot eliminate the risk of accidental
contamination or discharge and any resultant injury from those materials. Various laws and
regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. We
may be sued for any injury or contamination that results from our use or the use by third parties
of these materials. Compliance with environmental laws and regulations may be expensive, and
current or future environmental regulations may impair our research, development and production
efforts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Risks Related to Our Business and Financial Condition</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>The current economic conditions and financial market turmoil could adversely affect our business
and results of operations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Economic conditions remain difficult with the continuing uncertainty in the global credit
markets, the financial services industry and the United States capital markets and with the United
States economy as a whole experiencing a period of substantial turmoil and uncertainty
characterized by unprecedented intervention by the United States federal government and the
failure, bankruptcy, or sale of various financial and other institutions. We believe the current
economic conditions and financial market turmoil could adversely affect our operations, business
and prospects, as well as our ability to obtain funds. If these circumstances persist or continue
to worsen, our future operating results could be adversely affected, particularly relative to our
current expectations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We are at an early stage of development as a company and we do not have, and may never have, any
products that generate significant revenues.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are at an early stage of development as a company and have a limited operating history on
which to evaluate our business and prospects. While we have earned modest product revenues from the
ALIGN business acquired in October&nbsp;2007, since beginning operations in 1996, we have not generated
any product revenues from our product candidates currently in development. We cannot guarantee that
any of our product candidates currently in development will ever become marketable products and we
do not anticipate material revenues from the ALIGN products in the foreseeable future. We must
demonstrate that our drug candidates satisfy rigorous standards of safety and efficacy for their
intended uses before the FDA, and other regulatory authorities in the United States, the European
Union and elsewhere. Significant additional research, preclinical testing and clinical testing is
required before we can file applications with the FDA or
other regulatory authorities for premarket approval of our drug candidates. In addition, to
compete effectively, our drugs must be easy to administer, cost-effective and economical to
manufacture on a commercial scale. We may not achieve any of these objectives. Sapacitabine, our
most advanced drug candidates for the treatment of cancer, is currently in Phase 3 for AML and
Phase 2 for MDS. Seliciclib is currently in Phase 2 clinical trials. A combination trial of
sapacitabine and seliciclib is currently in a Phase 1 clinical trial. We cannot be certain that the
clinical development of these or any other drug candidates in preclinical testing or clinical
development will be successful, that we will receive the regulatory approvals required to
commercialize them or that any of our other research and drug discovery programs will yield a drug
candidate suitable for investigation through clinical trials. Our commercial revenues from our
product candidates currently in development, if any, will be derived from sales of drugs that will
not become marketable for several years, if at all.
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We have a history of operating losses and we may never become profitable. Our stock is a highly
speculative investment.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We have incurred operating losses in each year since beginning operations in 1996 due to costs
incurred in connection with our research and development activities and selling, general and
administrative costs associated with our operations, and we may never achieve profitability. As of
December&nbsp;31, 2010 and March&nbsp;31, 2011, our accumulated deficit was $241.8&nbsp;million and $246.4
million, respectively. Our net loss for the three months ended March&nbsp;31, 2010 and 2011 was $5.1
million and $4.6&nbsp;million, respectively. Our net loss applicable to common stockholders from
inception through March&nbsp;31, 2011 was $287.7&nbsp;million. Our drug candidates are in the mid-stages of
clinical testing and we must conduct significant additional clinical trials before we can seek the
regulatory approvals necessary to begin commercial sales of our drugs. We expect to incur continued
losses for several years, as we continue our research and development of our drug candidates, seek
regulatory approvals, commercialize any approved drugs and market and promote the ALIGN products:
Xclair<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Cream, Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Liquid and Numoisyn<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> Lozenges. If our drug candidates are unsuccessful in
clinical trials or we are unable to obtain regulatory approvals, or if our drugs are unsuccessful
in the market, we will not be profitable. If we fail to become and remain profitable, or if we are
unable to fund our continuing losses, particularly in light of the current economic conditions, you
could lose all or part of your investment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Capital markets are currently experiencing a period of disruption and instability, which has had
and could continue to have a negative impact on the availability and cost of capital.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The general disruption in the United States capital markets has impacted the broader worldwide
financial and credit markets and reduced the availability of debt and equity capital for the market
as a whole. These global conditions could persist for a prolonged period of time or worsen in the
future. Our ability to access the capital markets may be restricted at a time when we would like,
or need, to access those markets, which could have an impact on our flexibility to react to
changing economic and business conditions. The resulting lack of available credit, lack of
confidence in the financial sector, increased volatility in the financial markets could materially
and adversely affect the cost of debt financing and the proceeds of equity financing may be
materially adversely impacted by these market conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>If we fail to comply with the continued listing requirements of the NASDAQ Global Market our common
stock price may be delisted and the price of our common stock and our ability to access the capital
markets could be negatively impacted.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our common stock is currently listed for trading on the NASDAQ Global Market. We must satisfy
NASDAQ&#146;s continued listing requirements, including among other things, a minimum stockholders&#146;
equity of $10.0&nbsp;million and a minimum bid price for our common stock of $1.00 per share, or risk
delisting, which would have a material adverse affect on our business. A delisting of our common
stock from the NASDAQ Global Market could materially reduce the liquidity of our common stock and
result in a corresponding material reduction in the price of our common stock. In addition,
delisting could harm our ability to raise capital through alternative financing sources on terms
acceptable to us, or at all, and may result in the potential loss of confidence by investors,
suppliers, customers and employees and fewer business development opportunities. During 2009,
Cyclacel received notification from the NASDAQ Stock Market
that the Company was not in compliance with the minimum $10&nbsp;million stockholders&#146;
equity requirement for continued listing set forth in NASDAQ Marketplace Rule&nbsp;5450(b)(1)(A). On
January&nbsp;27, 2010, NASDAQ notified the Company that it regained compliance with the minimum $50
million market value of listed securities requirement and that it currently complies with all other
applicable standards for continued listing on The NASDAQ Global Market. Accordingly, the Company&#146;s
shares of common and preferred stock will continue to trade on The NASDAQ Global Market.
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Raising additional capital in the future may not be available to us on reasonable terms, if at all,
when or as we require additional funding. If we issue additional shares of our common stock or
other securities that may be convertible into, or exercisable or exchangeable for, our common
stock, our existing stockholders would experience further dilution. If we fail to obtain additional
funding, we may be unable to complete the development and commercialization of our lead drug
candidate, sapacitabine, or continue to fund our research and development programs.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We have funded all of our operations and capital expenditures with proceeds from the issuance
of public equity securities, private placements of our securities, interest on investments,
licensing revenue, government grants, research and development tax credits and product revenue. In
order to conduct the lengthy and expensive research, preclinical testing and clinical trials
necessary to complete the development and marketing of our drug candidates, we will require
substantial additional funds. Based on our current operating plans of focusing on the advancement
of sapacitabine, we expect our existing resources to be sufficient to fund our planned operations
for at least the next twelve months. To meet our long-term financing requirements, we may raise
funds through public or private equity offerings, debt financings or strategic alliances. Raising
additional funds by issuing equity or convertible debt securities may cause our stockholders to
experience substantial dilution in their ownership interests and new investors may have rights
superior to the rights of our other stockholders. Raising additional funds through debt financing,
if available, may involve covenants that restrict our business activities and options. To the
extent that we raise additional funds through collaborations and licensing arrangements, we may
have to relinquish valuable rights to our drug discovery and other technologies, research programs
or drug candidates, or grant licenses on terms that may not be favorable to us. Additional funding
may not be available to us on favorable terms, or at all, particularly in light of the current
economic conditions. If we are unable to obtain additional funds, we may be forced to delay or
terminate our current clinical trials and the development and marketing of our drug candidates
including sapacitabine.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>To the extent we elect to fund the development of a drug candidate or the commercialization of a
drug at our expense, we will need substantial additional funding.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We plan to market drugs on our own, with or without a partner, that can be effectively
commercialized and sold in concentrated markets that do not require a large sales force to be
competitive. To achieve this goal, we will need to establish our own specialized sales force,
marketing organization and supporting distribution capabilities. The development and
commercialization of our drug candidates is very expensive, including our anticipated Phase 3
clinical trials for sapacitabine. To the extent we elect to fund the full development of a drug
candidate or the commercialization of a drug at our expense, we will need to raise substantial
additional funding to:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>fund research and development and clinical trials connected with our research;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>fund clinical trials and seek regulatory approvals;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>build or access manufacturing and commercialization capabilities;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>implement additional internal control systems and infrastructure;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>commercialize and secure coverage, payment and reimbursement of our drug
candidates, if any such candidates receive regulatory approval;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>maintain, defend and expand the scope of our intellectual property; and</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>hire additional management, sales and scientific personnel.</TD>
</TR>

</TABLE>
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<DIV style="margin-top: 10pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our future funding requirements will depend on many factors, including:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the scope, rate of progress and cost of our clinical trials and other research and
development activities;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the costs and timing of seeking and obtaining regulatory approvals;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the costs of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the costs associated with establishing sales and marketing capabilities;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the costs of acquiring or investing in businesses, products and technologies;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the effect of competing technological and market developments; and</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the payment, other terms and timing of any strategic alliance, licensing or other
arrangements that we may establish.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">If we are not able to secure additional funding when needed, especially in light of the
current economic conditions and financial market turmoil, we may have to delay, reduce the scope of
or eliminate one or more of our clinical trials or research and development programs or future
commercialization efforts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Any future workforce and expense reductions may have an adverse impact on our internal programs,
strategic plans, and our ability to hire and retain key personnel, and may also be distracting to
our management.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Further workforce and expense reductions in addition to those carried out in September&nbsp;2008
and June&nbsp;2009 could result in significant delays in implementing our strategic plans. In addition,
employees, whether or not directly affected by such reduction, may seek future employment with our
business partners or competitors. Although our employees are required to sign a confidentiality
agreement at the time of hire, the confidential nature of certain proprietary information may not
be maintained in the course of any such future employment. In addition, any additional workforce
reductions or restructurings would be expected to involve significant expense as a result of
contractual terms in certain of our existing agreements, including potential severance obligations
as well as any payments that may, under certain circumstances, be required under our agreement with
the Scottish Enterprise. Further, we believe that our future success will depend in large part upon
our ability to attract and retain highly skilled personnel. We may have difficulty retaining and
attracting such personnel as a result of a perceived risk of future workforce and expense
reductions. Finally, the implementation of expense reduction programs may result in the diversion
of the time and attention of our executive management team and other key employees, which could
adversely affect our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Budget constraints resulting from our restructuring plan may negatively impact our research and
development, forcing us to delay our efforts to develop certain product candidates in favor of
developing others, which may prevent us from commercializing our product candidates as quickly as
possible.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Research and development is an expensive process. As part of our restructuring plan, we have
decided to focus our clinical development priorities on sapacitabine, while still possibly
continuing to progress additional programs pending the availability of clinical data and the
availability of funds, at which time we will determine the feasibility of pursuing, if at all,
further advanced development of seliciclib, CYC116 or additional programs. Because we have had to
prioritize our development candidates as a result of budget constraints, we may not be able to
fully realize the value of our product candidates in a timely manner, if at all.
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We are exposed to risks related to foreign currency exchange rates.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Some of our costs and expenses are denominated in foreign currencies. Most of our foreign
expenses are associated with our research and development operations of our United Kingdom-based
wholly-owned subsidiary. When the United States dollar weakens against the British pound, the
United States dollar value of the foreign currency denominated expense increases, and when the
United States dollar strengthens against the British pound, the United States dollar value of the
foreign currency denominated expense decreases. Consequently, changes in exchange rates, and in
particular a weakening of the United States dollar, may adversely affect our results of operations
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Risks Related to our Intellectual Property</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We may be subject to damages resulting from claims that our employees or we have wrongfully used or
disclosed alleged trade secrets of their former employers.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Many of our employees were previously employed at universities or other biotechnology or
pharmaceutical companies, including our competitors or potential competitors. Although no claims
against us are currently pending, we may be subject to claims that these employees or we have
inadvertently or otherwise used or disclosed trade secrets or other proprietary information of
their former employers. Litigation may be necessary to defend against these claims. If we fail in
defending such claims, in addition to paying monetary damages, we may lose valuable intellectual
property rights or personnel. A loss of key research personnel or their work product could hamper
or prevent our ability to commercialize certain potential drugs, which could severely harm our
business. Even if we are successful in defending against these claims, litigation could result in
substantial costs and be a distraction to management.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>If we fail to enforce adequately or defend our intellectual property rights our business may be
harmed.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our commercial success depends in large part on obtaining and maintaining patent and trade
secret protection for our drug candidates, the methods used to manufacture those drug candidates
and the methods for treating patients using those drug candidates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Specifically, sapacitabine is covered in granted, composition of matter patents that expire in
2014 in the United States and 2012 outside the United States. Sapacitabine is further protected by
additional granted, composition of matter patents claiming certain, stable crystalline forms of
sapacitabine and their pharmaceutical compositions and therapeutic uses that expire in 2022 and
also patent applications claiming the combination of sapacitabine with decitabine which is being
tested as one of the arms of the SEAMLESS Phase 3 trial. In early development, amorphous
sapacitabine was used. We have used one of the stable, crystalline forms of sapacitabine in nearly
all our Phase 1 and in all of our Phase 2 clinical studies. We have also chosen this form for
commercialization. Additional patents claim certain medical uses and formulations of sapacitabine
which have emerged in our clinical trials. Seliciclib is protected by granted, composition of
matter patents that expire in 2016. Additional patents claim certain medical uses which have
emerged from our research programs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Failure to obtain, maintain or extend the patents could adversely affect our business. We will
only be able to protect our drug candidates and our technologies from unauthorized use by third
parties to the extent that valid and enforceable patents or trade secrets cover them.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our ability to obtain patents is uncertain because legal means afford only limited protections
and may not adequately protect our rights or permit it to gain or keep any competitive advantage.
Some legal principles remain unresolved and the breadth or interpretation of claims allowed in
patents in the United States, the European Union or elsewhere can still be difficult to ascertain
or predict. In addition, the specific content of patents and patent applications that are necessary
to support and interpret patent claims is highly uncertain due to the complex nature of the
relevant legal, scientific and factual issues. Changes in either patent laws or in interpretations
of patent laws in the United States, the European Union or elsewhere may diminish the value of our
intellectual property or narrow the scope of our patent protection. Our existing patents and any
future patents we obtain may not be sufficiently broad to prevent others from practicing our
technologies or from developing competing products and technologies. In addition, we generally
do not control the patent prosecution of subject matter that we license from others and have not
controlled the earlier stages of the patent prosecution. Accordingly, we are unable to exercise the
same degree of control over this intellectual property as we would over our own.
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Even if patents are issued regarding our drug candidates or methods of using them, those
patents can be challenged by our competitors who may argue such patents are invalid and/or
unenforceable. Patents also will not protect our drug candidates if competitors devise ways of
making or using these product candidates without legally infringing our patents. The U.S. Federal
Food, Drug and Cosmetic, or FD&#038;C, Act and FDA regulations and policies and equivalents in other
jurisdictions provide incentives to manufacturers to challenge patent validity or create modified,
noninfringing versions of a drug in order to facilitate the approval of abbreviated new drug
applications for generic substitutes. These same types of incentives encourage manufacturers to
submit new drug applications that rely on literature and clinical data not prepared for or by the
drug sponsor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Proprietary trade secrets and unpatented know-how are also very important to our business. We
rely on trade secrets to protect our technology, especially where we do not believe that patent
protection is appropriate or obtainable. However, trade secrets are difficult to protect. Our
employees, consultants, contractors, outside scientific collaborators and other advisors may
unintentionally or willfully disclose our confidential information to competitors, and
confidentiality agreements may not provide an adequate remedy in the event of unauthorized
disclosure of confidential information. Enforcing a claim that a third party obtained illegally and
is using trade secrets is expensive and time consuming, and the outcome is unpredictable. Moreover,
our competitors may independently develop equivalent knowledge, methods and know-how. Failure to
obtain or maintain trade secret protection could adversely affect our competitive business
position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Intellectual property rights of third parties may increase our costs or delay or prevent us from
being able to commercialize our drug candidates and/or the ALIGN products.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">There is a risk that we are infringing or will infringe the proprietary rights of third
parties because patents and pending applications belonging to third parties exist in the United
States, the European Union and elsewhere in the world in the areas of our research and/or the ALIGN
products. Others might have been the first to make the inventions covered by each of our or our
licensors&#146; pending patent applications and issued patents and might have been the first to file
patent applications for these inventions. We are aware of several published patent applications,
and understand that others may exist, that could support claims that, if granted, could cover
various aspects of our developmental programs, including in some cases particular uses of our lead
drug candidate sapacitabine, seliciclib or other therapeutic candidates, or gene sequences and
techniques that we use in the course of our research and development. In addition, we understand
that other applications and patents exist relating to potential uses of sapacitabine and seliciclib
that are not part of our current clinical programs for these compounds. Numerous third-party United
States and foreign issued patents and pending applications exist in the area of kinases, including
CDK, AK and Plk for which we have research programs. For example, some pending patent applications
contain broad claims that could represent freedom to operate limitations for some of our kinase
programs should they be issued unchanged. Although we intend to continue to monitor these
applications, we cannot predict what claims will ultimately be allowed and if allowed what their
scope would be. In addition, because the patent application process can take several years to
complete, there may be currently pending applications, unknown to us, which may later result in
issued patents that cover the production, manufacture, commercialization or use of our drug
candidates. If we wish to use the technology or compound claimed in issued and unexpired patents
owned by others, we will need to obtain a license from the owner, enter into litigation to
challenge the validity of the patents or incur the risk of litigation in the event that the owner
asserts that we infringe its patents. In one case we have opposed a European patent relating to
human aurora kinase and the patent has been finally revoked (no appeal was filed). We are also
aware of a corresponding U.S. patent containing method of treatment claims for specific cancers
using aurora kinase modulators which, if held valid, could potentially restrict the use of our
aurora kinase inhibitors once clinical trials are completed.
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">There has been substantial litigation and other proceedings regarding patent and other
intellectual property rights in the pharmaceutical and biotechnology industries. Defending against
third party claims, including litigation in particular, would be costly and time consuming and
would divert management&#146;s attention from our business, which could lead to delays in our
development or commercialization efforts. If third parties are successful in their claims, we might
have to pay substantial damages or take other actions that are adverse to our business. As a result
of intellectual property infringement claims, or to avoid potential claims, we might:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>be prohibited from selling or licensing any product that we may develop unless
the patent holder licenses the patent to us, which it is not required to do;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>be required to pay substantial royalties or grant a cross license to our
patents to another patent holder;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>decide to move some of our screening work outside Europe;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>be required to pay substantial damages for past infringement, which we may have
to pay if a court determines that our product candidates or technologies infringe
a competitor&#146;s patent or other proprietary rights; or</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>be required to redesign the formulation of a drug candidate so it does not
infringe, which may not be possible or could require substantial funds and time.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Risks Related to Securities Regulations and Investment in Our Securities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Failure to achieve and maintain internal controls is accordance with Sections&nbsp;302 and 404 of the
Sarbanes-Oxley Act of 2002 could have a material adverse affect on our business and stock price.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During March&nbsp;2011, we identified a deficiency in respect of our internal controls over
financial reporting, specifically our controls over the accounting for cumulative preferred stock
dividends, that constitutes a material weakness as described in the SEC&#146;s guidance regarding
Management&#146;s Report on Internal Control Over Financial Reporting as of December&nbsp;31, 2010. As a
result of this deficiency, the financial statements included in our Form 10-K for the year ended
December&nbsp;31, 2009, filed on March&nbsp;29, 2010, as amended by Amendment No.&nbsp;1 to our Annual Report of
Form 10-K/A for the year ended December&nbsp;31, 2009 filed on May&nbsp;17, 2010 and as further amended by
Amendment No.&nbsp;2 to our Annual Report on Form 10-K/A for the year ended December&nbsp;31, 2009 filed on
May&nbsp;19, 2010, included errors related to the presentation and disclosure of undeclared cumulative
preferred stock dividends in the consolidated balance sheet and in the statement of stockholders&#146;
equity. Unaudited balance sheets for the each of the first three quarters of 2009 and 2010 also
contained errors. In addition, in May&nbsp;2010, we filed an amendment to our Annual Report on Form 10-K
for the year ended December&nbsp;31, 2009, to report a restatement of our financial statements and
report a material weakness in our internal control over financial reporting as of December&nbsp;31,
2009, specifically related to the operational failure of the controls in place to ensure the
correct computation of net loss per share and presentation of preferred stock dividends in the
consolidated statement of cash flows. In March 2011, our auditors indentified a further error in
respect of the accounting, presentation and disclosure of cumulative undeclared preferred stock
dividends, specifically the inclusion of undeclared cumulative preferred stock dividends as a
current liability in its consolidated financial statements, which resulted from the material
weakness as described above. This has resulted in the restatement of our consolidated balance
sheets as of March 31, 2009, June 30, 2009, September 30, 2009, December 31, 2009, March 31, 2010,
June 30, 2010 and September 30, 2010 and consolidated statement of stockholders&#146; equity for
the year ended December 31, 2009 and selected financial data as of and for the year ended
December 31, 2009.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">If we fail to maintain our internal controls or fail to implement required new or improved
controls, as such control standards are modified, supplemented or amended from time to time, we may
not be able to conclude on an ongoing basis that we have effective internal controls over financial
reporting. Effective internal controls are necessary for us to produce reliable financial reports
and are important in the
prevention of financial fraud. If we cannot produce reliable financial reports or prevent
fraud, our business and operating results could be harmed.
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We incur increased costs and management resources as a result of being a public company, and we
still may fail to comply with public company obligations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As a public company, we face and will continue to face increased legal, accounting,
administrative and other costs and expenses as a public company that we would not incur as a
private company. Compliance with the Sarbanes Oxley Act of 2002, as well as other rules of the SEC,
the Public Company Accounting Oversight Board and the NASDAQ Global Market resulted in a
significant initial cost to us as well as an ongoing compliance costs. As a public company, we are
subject to Section&nbsp;404 of the Sarbanes Oxley Act relating to internal control over financial
reporting. We have completed a formal process to evaluate our internal controls for purposes of
Section&nbsp;404, and we concluded that as of December&nbsp;31, 2010, our internal control over financial
reporting was ineffective. As our business grows and changes, there can be no assurances that we
can maintain the effectiveness of our internal controls over financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Effective internal controls over financial reporting are necessary for us to provide reliable
financial reports and, together with adequate disclosure controls and procedures, are designed to
prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating
results could be harmed. We have completed a formal process to evaluate our internal control over
financial reporting. However, guidance from regulatory authorities in the area of internal controls
continues to evolve and substantial uncertainty exists regarding our on-going ability to comply by
applicable deadlines. Any failure to implement required new or improved controls, or difficulties
encountered in their implementation, could harm our operating results or cause us to fail to meet
our reporting obligations. Ineffective internal controls could also cause investors to lose
confidence in our reported financial information, which could have a negative effect on the trading
price of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Our common stock may have a volatile public trading price.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">An active public market for our common stock has not developed. Our stock can trade in small
volumes which may make the price of our stock highly volatile. The last reported price of our stock
may not represent the price at which you would be able to buy or sell the stock. The market prices
for securities of companies comparable to us have been highly volatile. Often, these stocks have
experienced significant price and volume fluctuations for reasons that are both related and
unrelated to the operating performance of the individual companies. In addition, the stock market
as a whole and biotechnology and other life science stocks in particular have experienced
significant recent volatility. Like our common stock, these stocks have experienced significant
price and volume fluctuations for reasons unrelated to the operating performance of the individual
companies. In addition, due to our existing stock price, we may not continue to qualify for
continued listing on the NASDAQ Global Market. To maintain listing, we are required to maintain a
minimum closing bid price of $1.00 per share and, among other requirements, to maintain a minimum
stockholders equity value of $10&nbsp;million. Factors giving rise to this volatility may include:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>disclosure of actual or potential clinical results with respect to product
candidates we are developing;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>regulatory developments in both the United States and abroad;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>developments concerning proprietary rights, including patents and litigation
matters;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>public concern about the safety or efficacy of our product candidates or
technology, or related technology, or new technologies generally;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>concern about the safety or efficacy of our product candidates or technology,
or related technology, or new technologies generally;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>public announcements by our competitors or others; and</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>general market conditions and comments by securities analysts and investors.</TD>
</TR>

</TABLE>
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</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Fluctuations in our operating losses could adversely affect the price of our common stock.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our operating losses may fluctuate significantly on a quarterly basis. Some of the factors
that may cause our operating losses to fluctuate on a period-to-period basis include the status of
our preclinical and clinical development programs, level of expenses incurred in connection with
our preclinical and clinical development programs, implementation or termination of collaboration,
licensing, manufacturing or other material agreements with third parties, non-recurring revenue or
expenses under any such agreement, and compliance with regulatory requirements. Period-to-period
comparisons of our historical and future financial results may not be meaningful, and investors
should not rely on them as an indication of future performance. Our fluctuating losses may fail to
meet the expectations of securities analysts or investors. Our failure to meet these expectations
may cause the price of our common stock to decline.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>If securities or industry analysts do not publish research or reports about us, if they change
their recommendations regarding our stock adversely or if our operating results do not meet their
expectations, our stock price and trading volume could decline.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The trading market for our common stock is influenced by the research and reports that
industry or securities analysts publish about us. If one or more of these analysts cease coverage
of us or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one
or more of the analysts who cover us downgrade our stock or if our operating results do not meet
their expectations, our stock price could decline.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Anti-takeover provisions in our charter documents and provisions of Delaware law may make an
acquisition more difficult and could result in the entrenchment of management.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are incorporated in Delaware. Anti-takeover provisions of Delaware law and our amended and
restated certificate of incorporation and amended and restated bylaws may make a change in control
or efforts to remove management more difficult. Also, under Delaware law, our Board of Directors
may adopt additional anti-takeover measures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We have the authority to issue up to 5&nbsp;million shares of preferred stock and to determine the
terms of those shares of stock without any further action by our stockholders. If the Board of
Directors exercises this power to issue preferred stock, it could be more difficult for a third
party to acquire a majority of our outstanding voting stock and vote the stock they acquire to
remove management or directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our amended and restated certificate of incorporation and amended and restated bylaws also
provides staggered terms for the members of our Board of Directors. Under Section&nbsp;141 of the
Delaware General Corporation Law, our directors may be removed by stockholders only for cause and
only by vote of the holders of a majority of voting shares then outstanding. These provisions may
prevent stockholders from replacing the entire board in a single proxy contest, making it more
difficult for a third party to acquire control of us without the consent of our Board of Directors.
These provisions could also delay the removal of management by the Board of Directors with or
without cause. In addition, our directors may only be removed for cause and amended and restated
bylaws limit the ability our stockholders to call special meetings of stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Under Section&nbsp;203 of the Delaware General Corporation Law, a corporation may not engage in a
business combination with any holder of 15% or more of its capital stock until the holder has held
the stock for three years unless, among other possibilities, the Board of Directors approves the
transaction. Our Board of Directors could use this provision to prevent changes in management. The
existence of the foregoing provisions could limit the price that investors might be willing to pay
in the future for shares of our common stock.
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We have the authority to issue up to 5&nbsp;million shares of preferred stock and to determine the terms
of those shares of stock without any further action by our stockholders. If the Board of Directors
exercises this power to issue preferred stock, it could be more difficult for a third party to
acquire a majority of our outstanding voting stock and vote the stock they acquire to remove
management or directors.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our amended and restated certificate of incorporation and amended and restated bylaws also
provides staggered terms for the members of our Board of Directors. Under Section&nbsp;141 of the
Delaware General Corporation Law, our directors may be removed by stockholders only for cause and
only by vote of the holders of a majority of voting shares then outstanding. These provisions may
prevent stockholders from replacing the entire board in a single proxy contest, making it more
difficult for a third party to acquire control of us without the consent of our Board of Directors.
These provisions could also delay the removal of management by the Board of Directors with or
without cause. In addition, our directors may only be removed for cause and amended and restated
bylaws limit the ability our stockholders to call special meetings of stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Under Section&nbsp;203 of the Delaware General Corporation Law, a corporation may not engage in a
business combination with any holder of 15% or more of its capital stock until the holder has held
the stock for three years unless, among other possibilities, the Board of Directors approves the
transaction. Our Board of Directors could use this provision to prevent changes in management. The
existence of the foregoing provisions could limit the price that investors might be willing to pay
in the future for shares of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Certain severance-related agreements in our executive employment agreements may make an acquisition
more difficult and could result in the entrenchment of management.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In March&nbsp;2008 (as subsequently amended, most recently as of January&nbsp;1, 2011), we entered into
employment agreements with our President and Chief Executive Officer and our Executive Vice
President, Finance, Chief Financial Officer and Chief Operating Officer, which contain severance
arrangements in the event that such executive&#146;s employment is terminated without &#147;cause&#148; or as a
result of a &#147;change of control&#148; (as each such term is defined in each agreement). The financial
obligations triggered by these provisions may prevent a business combination or acquisition that
would be attractive to stockholders and could limit the price that investors would be willing to
pay in the future for our stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>In the event of an acquisition of our common stock, we cannot assure our common stockholders that
we will be able to negotiate terms that would provide for a price equivalent to, or more favorable
than, the price at which our shares of common stock may be trading at such time.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We may not effect a consolidation or merger with another entity without the vote or consent of
the holders of at least a majority of the shares of our preferred stock (in addition to the
approval of our common stockholders), unless the preferred stock that remains outstanding and its
rights, privileges and preferences are unaffected or are converted into or exchanged for preferred
stock of the surviving entity having rights, preferences and limitations substantially similar, but
no less favorable, to our convertible preferred stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In addition, in the event a third party seeks to acquire our company or acquire control of our
company by way of a merger, but the terms of such offer do not provide for our preferred stock to
remain outstanding or be converted into or exchanged for preferred stock of the surviving entity
having rights, preferences and limitations substantially similar, but no less favorable, to our
preferred stock, the terms of the Certificate of Designation of our preferred stock provide for an
adjustment to the conversion ratio of our preferred stock such that, depending on the terms of any
such transaction, preferred stockholders may be entitled, by their terms, to receive up to $10.00
per share in common stock, causing our common stockholders not to receive as favorable a price as
the price at which such shares may be trading at the time of any such transaction. As of March&nbsp;31,
2011, there were 1,213,142 shares of our preferred stock issued and outstanding. If the transaction
were one in which proceeds were received by the Company for distribution to stockholders, and the
terms of the Certificate of Designation governing the preferred stock were strictly complied with,
approximately $13,344,563 would be paid to the preferred holders before any distribution to the
common
stockholders, although the form of transaction could affect how the holders of preferred stock
are treated. In such an event, although such a transaction would be subject to the approval of our
holders of common stock, we cannot assure our common stockholders that we will be able to negotiate
terms that would provide for a price equivalent to, or more favorable than, the price at which our
shares of common stock may be trading at such time. Thus, the terms of our preferred stock might
hamper a third party&#146;s acquisition of our company.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->57<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Our certificate of incorporation and bylaws and certain provisions of Delaware law may delay or
prevent a change in our management and make it more difficult for a third party to acquire us.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our amended and restated certificate of incorporation and bylaws contain provisions that could
delay or prevent a change in our Board of Directors and management teams. Some of these provisions:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>authorize the issuance of preferred stock that can be created and issued by the
Board of Directors without prior stockholder approval, commonly referred to as
&#147;blank check&#148; preferred stock, with rights senior to those of our common stock;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provide for the Board of Directors to be divided into three classes; and</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>require that stockholder actions must be effected at a duly called stockholder
meeting and prohibit stockholder action by written consent.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In addition, because we are incorporated in Delaware, we are governed by the provisions of
Section&nbsp;203 of the Delaware General Corporation Law, which limits the ability of large stockholders
to complete a business combination with, or acquisition of, us. These provisions may prevent a
business combination or acquisition that would be attractive to stockholders and could limit the
price that investors would be willing to pay in the future for our stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">These provisions also make it more difficult for our stockholders to replace members of our
Board of Directors. Because our Board of Directors is responsible for appointing the members of our
management team, these provisions could in turn affect any attempt to replace our current
management team. Additionally, these provisions may prevent an acquisition that would be attractive
to stockholders and could limit the price that investors would be willing to pay in the future for
our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We may have limited ability to pay cash dividends on our preferred stock, and there is no assurance
that future quarterly dividends will be declared.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Delaware law may limit our ability to pay cash dividends on our preferred stock. Under
Delaware law, cash dividends on our preferred stock may only be paid from surplus or, if there is
no surplus, from the corporation&#146;s net profits for the current or preceding fiscal year. Delaware
law defines &#147;surplus&#148; as the amount by which the total assets of a corporation, after subtracting
its total liabilities, exceed the corporation&#146;s capital, as determined by its Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Since we are not profitable, our ability to pay cash dividends will require the availability
of adequate surplus. Even if adequate surplus is available to pay cash dividends on our preferred
stock, we may not have sufficient cash to pay dividends on the convertible preferred stock or we
may choose not to declare the dividends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We will have to grant additional rights to our holders of preferred stock with respect to the
management of the Company as a result of having not declared quarterly dividends on our 6%
preferred stock for a total of six quarterly dividend periods.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Although our Board of Directors declared the quarterly cash dividends with respect to the
fourth quarter of fiscal year 2010 and the first quarter of fiscal year 2011, there are still
dividends that have accrued and are unpaid on the preferred stock for at least six quarters. As a
result, the holders of our preferred stock are now entitled to nominate and elect two directors to
the Company&#146;s board of directors. This right accrued to the Preferred Stockholders as of August&nbsp;2,
2010. We held a special meeting of the
holders of our preferred stock to elect two directors to our Board of Directors, which was
adjourned because a quorum of the holders of our preferred stock was not present in person or
represented by proxy to transact business at the meeting. A quorum was not reached at such
adjourned meeting either, and the meeting was not further adjourned. The holders of our preferred
stock will have the opportunity at our 2011 annual meeting of stockholders to elect two directors
to our Board of Directors. Once elected, the directors elected by the preferred stockholders will
have the ability to participate in the management of the Company until all such dividends have been
paid in full.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->58<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>Our common and convertible preferred stock may experience extreme price and volume fluctuations,
which could lead to costly litigation for the Company and make an investment in the Company less
appealing.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The market price of our common and convertible preferred stock may fluctuate substantially due
to a variety of factors, including:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>additions to or departures of our key personnel;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>announcements of technological innovations or new products or services by us or
our competitors;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>announcements concerning our competitors or the biotechnology industry in
general;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>new regulatory pronouncements and changes in regulatory guidelines;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>general and industry-specific economic conditions;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in financial estimates or recommendations by securities analysts;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>variations in our quarterly results;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>announcements about our collaborators or licensors; and</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in accounting principles.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The market prices of the securities of biotechnology companies, particularly companies like us
without product revenues and earnings, have been highly volatile and are likely to remain highly
volatile in the future. This volatility has often been unrelated to the performance of particular
companies. In the past, companies that experience volatility in the market price of their
securities have often faced securities class action litigation. Moreover, market prices for stocks
of biotechnology-related and technology companies frequently reach levels that bear no relationship
to the performance of these companies. These market prices generally are not sustainable and are
highly volatile. Whether or not meritorious, litigation brought against us could result in
substantial costs, divert our management&#146;s attention and resources and harm our financial condition
and results of operations. In addition, due to our stock price from time to time, we may not
continue to qualify for continued listing on the NASDAQ Global Market. Please see Risk Factor: <I>Our
common stock may have a volatile public trading price.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>The future sale of our common and preferred stock and future issuances of our common stock upon
conversion of our preferred stock, could negatively affect our stock price and cause dilution to
existing holders of our common stock.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">If our common or preferred stockholders sell substantial amounts of our stock in the public
market, or the market perceives that such sales may occur, the market price of our common and
preferred stock could fall. For example, we were approached by a preferred stockholder that elected
to convert 123,400 of its shares of preferred stock, which shares were converted into 239,396
shares of common stock in the first quarter of 2010. In addition, 710,271 shares of preferred stock
were converted to 1,416,203 shares of common stock during the second quarter of 2010. If
additional holders of preferred stock elect to convert their shares to shares of common stock at
renegotiated prices, such conversion as well as the sale of
substantial amounts of our common or preferred stock, could cause dilution to existing holders
of our common stock, thereby also negatively affecting the price of our common stock.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->59<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>If we exchange the convertible preferred stock for debentures, the exchange will be taxable but we
will not provide any cash to pay any tax liability that any convertible preferred stockholder may
incur.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">An exchange of convertible preferred stock for debentures, as well as any dividend make-whole
or interest make-whole payments paid in our common stock, will be taxable events for United States
federal income tax purposes, which may result in tax liability for the holder of convertible
preferred stock without any corresponding receipt of cash by the holder. In addition, the
debentures may be treated as having original issue discount, a portion of which would generally be
required to be included in the holder&#146;s gross income even though the cash to which such income is
attributable would not be received until maturity or redemption of the debenture. We will not
distribute any cash to the holders of the securities to pay these potential tax liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>If we automatically convert the convertible preferred stock, there is a substantial risk of
fluctuation in the price of our common stock from the date we elect to automatically convert to the
conversion date.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We may automatically convert the convertible preferred stock into common stock if the closing
price of our common stock has exceeded $35.30. There is a risk of fluctuation in the price of our
common stock between the time when we may first elect to automatically convert the preferred and
the automatic conversion date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We do not intend to pay cash dividends on our common stock in the foreseeable future.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any
payment of cash dividends will depend on our financial condition, results of operations, capital
requirements, the outcome of the review of our strategic alternatives and other factors and will be
at the discretion of our Board of Directors. Accordingly, investors will have to rely on capital
appreciation, if any, to earn a return on their investment in our common stock. Furthermore, we may
in the future become subject to contractual restrictions on, or prohibitions against, the payment
of dividends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>The number of shares of common stock which are registered, including the shares to be issued upon
exercise of our outstanding warrants, is significant in relation to our currently outstanding
common stock and could cause downward pressure on the market price for our common stock.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The number of shares of common stock registered for resale, including those shares which are
to be issued upon exercise of our outstanding warrants, is significant in relation to the number of
shares of common stock currently outstanding. If the security holder determines to sell a
substantial number of shares into the market at any given time, there may not be sufficient demand
in the market to purchase the shares without a decline in the market price for our common stock.
Moreover, continuous sales into the market of a number of shares in excess of the typical trading
volume for our common stock, or even the availability of such a large number of shares, could
depress the trading market for our common stock over an extended period of time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>If persons engage in short sales of our common stock, including sales of shares to be issued upon
exercise of our outstanding warrants, the price of our common stock may decline.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Selling short is a technique used by a stockholder to take advantage of an anticipated decline
in the price of a security. In addition, holders of options and warrants will sometimes sell short
knowing they can, in effect, cover through the exercise of an option or warrant, thus locking in a
profit. A significant number of short sales or a large volume of other sales within a relatively
short period of time can create downward pressure on the market price of a security. Further sales
of common stock issued upon exercise of our outstanding warrants could cause even greater declines
in the price of our common stock due to the number of additional shares available in the market
upon such exercise, which could encourage short sales that could further undermine the value of our
common stock. You could, therefore, experience a decline in the value of your investment as a
result of short sales of our common stock.
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->60<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B><I>We are exposed to risk related to the marketable securities we may purchase.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We may invest cash not required to meet short term obligations in short term marketable
securities. We may purchase securities in United States government, government-sponsored agencies
and highly rated corporate and asset-backed securities subject to an approved investment policy.
Historically, investment in these securities has been highly liquid and has experienced only very
limited defaults. However, recent volatility in the financial markets has created additional
uncertainty regarding the liquidity and safety of these investments. Although we believe our
marketable securities investments are safe and highly liquid, we cannot guarantee that our
investment portfolio will not be negatively impacted by recent or future market volatility or
credit restrictions.
</DIV>
<DIV align="left">
<A name="C17361109"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>Item&nbsp;2.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>Unregistered Sales of Equity Securities and Use of Proceeds.</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">None.
</DIV>

<DIV align="left">
<A name="C17361110"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>Item&nbsp;3.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>Defaults upon Senior Securities.</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">None
</DIV>

<DIV align="left">
<A name="C17361111"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>Item&nbsp;4.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>(Removed and Reserved).</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="left">
<A name="C17361112"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>Item&nbsp;5.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>Other Information</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">None.
</DIV>

<DIV align="left">
<A name="C17361113"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>Item&nbsp;6.</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>Exhibits</B></TD>
</TR>
</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="86%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">31.1</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Certification of Principal Executive Officer Pursuant to
Securities Exchange Act Rule&nbsp;13a-14(a) As Adopted Pursuant to
Section&nbsp;302 of the Sarbanes-Oxley Act of 2002</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">31.2</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Certification of Principal Financial Officer Pursuant to
Securities Exchange Act Rule&nbsp;13a-14(a) As Adopted Pursuant to
Section&nbsp;302 of the Sarbanes-Oxley Act of 2002</DIV></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">32.1</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Certification of Principal Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">32.2</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Certification of Principal Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->61<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#C17361tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">



<DIV align="left">
<A name="C17361114"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SIGNATURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><B>CYCLACEL PHARMACEUTICALS, INC.</B><BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: May 16, 2011 &nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Paul McBarron
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Paul McBarron&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" nowrap>Chief Operating Officer, Chief Financial Officer
and<BR>
Executive Vice President, Finance&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->62<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>c17361exv31w1.htm
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<HTML>
<HEAD>
<TITLE>Exhibit 31.1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="right" style="font-size: 10pt; margin-top: 10pt"><B>EXHIBIT 31.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Certification of Principal Executive Officer<BR>
Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002</B>
</DIV>


<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">

    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I, Spiro Rombotis, certify that:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this Quarterly Report on Form 10-Q for the three months ended March&nbsp;31, 2011
of Cyclacel Pharmaceuticals, Inc.;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>disclosed in this report any change in the registrant&#146;s internal control over
financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the
registrant&#146;s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant&#146;s internal control
over financial reporting: and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the
audit committee of the registrant&#146;s board of directors (or persons performing the equivalent
functions):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrant&#146;s ability to record, process, summarize and report financial information;
and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant&#146;s internal control over financial reporting.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Date: May&nbsp;16, 2011
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Spiro Rombotis
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Spiro Rombotis
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">President &#038; Chief Executive Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>(Principal Executive Officer)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>c17361exv31w2.htm
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
<HTML>
<HEAD>
<TITLE>Exhibit 31.2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="right" style="font-size: 10pt; margin-top: 10pt"><B>EXHIBIT 31.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Certification of Principal Financial Officer<BR>
Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">I, Paul McBarron, certify that:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this Quarterly Report on Form 10-Q for the three months ended March&nbsp;31, 2011
of Cyclacel Pharmaceuticals, Inc.;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report;</TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>disclosed in this report any change in the registrant&#146;s internal control over
financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the
registrant&#146;s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant&#146;s internal control
over financial reporting; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the
audit committee of the registrant&#146;s board of directors (or persons performing the equivalent
functions):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrant&#146;s ability to record, process, summarize and report financial information;
and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant&#146;s internal control over financial reporting.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Date: May&nbsp;16, 2011

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Paul McBarron
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Paul McBarron
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chief Operating Officer, Chief Financial Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">and Executive Vice President, Finance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>(Principal Financial Officer)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>4
<FILENAME>c17361exv32w1.htm
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
<HTML>
<HEAD>
<TITLE>Exhibit 32.1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="right" style="font-size: 10pt; margin-top: 10pt"><B>EXHIBIT 32.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Certification of Principal Executive Officer<BR>
Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pursuant to 18 U.S.C. s 1350, as created by Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, the
undersigned officer of Cyclacel Pharmaceuticals, Inc. ( the &#147;Company&#148;) hereby certifies, to such
officer&#146;s knowledge, that:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Quarterly Report on Form10-Q of the Company for the three months ended March&nbsp;31,
2011 (the &#147;Report&#148;) fully complies with the requirements of Section 13(a) or Section
15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.</TD>
</TR>

</TABLE>
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD align="left">Date: May 16, 2011 &nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Spiro Rombotis
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Spiro Rombotis&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">President &#038; Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>5
<FILENAME>c17361exv32w2.htm
<DESCRIPTION>EXHIBIT 32.2
<TEXT>
<HTML>
<HEAD>
<TITLE>Exhibit 32.2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in">

<DIV align="right" style="font-size: 10pt; margin-top: 10pt"><B>EXHIBIT 32.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Certification of Principal Financial Officer<BR>
Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pursuant to 18 U.S.C. s 1350, as created by Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, the
undersigned officer of Cyclacel Pharmaceuticals, Inc. ( the &#147;Company&#148;) hereby certifies, to such
officer&#146;s knowledge, that:
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    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Quarterly Report on Form10-Q of the Company for the three months ended March&nbsp;31,
2011 (the &#147;Report&#148;) fully complies with the requirements of Section 13(a) or Section
15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and</TD>
</TR>

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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.</TD>
</TR>

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</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD align="left">Date: May 16, 2011 &nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Paul McBarron
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Paul McBarron&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Chief Operating Officer, Chief Financial Officer
and Executive Vice President, Finance&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
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<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
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