hollis-eden

pharmaceuticals

Passages
of
Hollis-Eden
2002
creating the future:
products for
21st century
global medicine
2001
harnessing science
for the most important
health issues
of our time

2000
spanning the globe
to improve human
health

1999
bringing vision
to life

1998
from discovery
to medicine

1997
looking inside
the human body
 20 03 AN N UAL R E P O R T

Passages
of
Hollis-Eden

RAD IATI O N I NJ U RY / B I O D E FE N S E

CHEMOTHERAPY PROTECTION

I N FLAM MATI O N /AUTO I M M U N E D I S O R D E R S

GLOBAL INFECTIOUS DISEASES

I M M U N E R E G U LATI N G H O R M O N E S
“I believe it is every entrepreneur’s dream to list their company
on NASDAQ, take their idea, build a business and create value.
I’m quite honored to be here with the former mayor of New York,
Rudy Giuliani, who shares the same vision as Hollis-Eden – to
provide medical countermeasures to acts of terrorism to protect
all of our citizens and to add to our nation’s security.”
Richard B. Hollis, Founder, Chairman and CEO of Hollis-Eden, at the NASDAQ opening ceremony, September 26, 2003

On September 26, 2003, Hollis-Eden Pharmaceuticals rang the opening bell of the NASDAQ market, in part to elevate
awareness of the need to advance development of new medical countermeasures for weapons of mass destruction.
Joining management at the NASDAQ opening was former New York City Mayor Rudy Giuliani, who spoke on behalf
of the need for passage of Project BioShield to incentivize development of new biodefense drugs.
H O LLI S-E D E N 2003 AN N UAL R E P O RT

TO O U R VALU E D S HAR E H O L D E R S

It is with heartfelt gratitude that I welcome this opportunity to thank

our investors, both old and new, for providing the capital necessary
to create a company based on an entrepreneur’s dream. When I was
just a teenager, I remember reading a wonderful poem by Samuel Taylor
Coleridge that has stayed with me all these years and has continued
to spark my imagination:
What if you slept? And what if, in your sleep,
you dreamed? And what if in your dream you went to heaven
and there plucked a strange and beautiful flower?
And what if, when you awoke, you had the flower
in your hand? Ah! What then?
We have taken the seeds of this flower and over the last several years
cultivated its growth. But instead of just a single beautiful rose, we have
discovered and grown an enormous rose garden. The task before us now
is to further understand the secrets in this garden: grow the flowers,
share their beauty with the world, take them to the marketplace, and
let their value create wealth.
In any endeavor of wealth creation that is sustainable and worthwhile,
there must be real underlying intrinsic value coupled with a noble cause
that a company can be built upon; in other words, a solid foundation.
Our intrinsic value is in our underlying science and technology that we are
converting into pharmaceutical products. Our noble cause is to improve the
human condition by treating diseases and helping to alleviate suffering.
 2 | H O LLI S-E D E N 2003 AN N UAL R E P O RT
PASSAG E S O F CO R P O RAT E P R O G R E SS
Platform technology
identified
Therefore, your continued investment in Hollis-Eden
Pharmaceuticals has allowed us the privilege to
evolve through several key corporate passages
and progress from an entrepreneurial vision to a
company poised with the potential to make a sig-
nificant contribution to the world of science and
medicine; and in this noble endeavor of serving
humanity by improving the human condition, create
products that have the potential to generate
revenues for years to come. We are creating the
rare combination that all great companies strive
to achieve — the ability to do well by doing good.
Since inception, we have advanced Hollis-Eden
through numerous key passages necessary to lay
the solid foundation of science and technology,
managerial expertise and financial strength
required to sustain the inherent long-term nature
of drug discovery and development. By achieving
these “rites of passage” we have brought
Hollis-Eden today to a point where it has in place
multiple sustainable drivers of enterprise value:
- significant near-term revenue and profitability
potential in our radiation protection drug
candidate NEUMUNE™ (HE2100), with
the opportunity to extend our expertise in
hematopoiesis into the rapidly growing
chemotherapy protection market;
- a deep pipeline of proprietary drug candidates
with potential application in the areas of biode-
fense, chemotherapy protection/cancer, global
infectious disease, and diseases of inflamma-
tion/autoimmunity;
- a core technology platform and development
program yielding an evolving pipeline
of rationally designed, next-generation drug
candidates, supported by a strong intellectual
property position.
Company formed and
initial patents acquired
Building a company to develop drugs to treat and
cure human diseases is no small challenge. The
time and expense required to bring a new drug
to market can be staggering. On average, it is
now calculated that it can take from 10 to 15
years and up to $800 million to move a drug
from discovery through development and com-
mercialization. This is because the nature of drug
development is both time consuming, costly, and
fraught with failed experiments before a success-
ful drug is eventually commercialized.
In pursuing the journey of translating the entrepre-
neurial vision for Hollis-Eden into a reality, the
pivotal question is “what does it take to build a
successful pharmaceutical company… a company
that can truly make a difference?”
First and foremost you must have a clear and
steady corporate vision. At Hollis-Eden, we have
never wavered from our core vision of building
a world-class pharmaceutical company serving
humanity by improving quality of life. This vision is
backed by values and principles that provide the
compass and roadmap to keep the Company on
course regardless of the challenges and hurdles
that might arise. Our corporate statement of philos-
ophy and credo were implemented day one, and
have acted as our code of conduct.
In order to realize this vision, a company must
have a proprietary technology that meets unmet
medical needs, is novel and offers advantages
over currently available products. That technology
also should convert to multiple products off
a single platform, thereby allowing the company
to build a future pipeline and address multiple
market opportunities. Those products should be
easy to manufacture, providing the opportunity for
attractive margins with competitive pricing. They
 3 | H O LLI S-E D E N 2003 AN N UAL R E P O RT

Initial Public Offering Listed on NASDAQ

should address major markets that offer signifi-
cant revenue potential that can reward investors
and fund further research and development. The
technology should also be protected by a strong
intellectual property position that justifies the
investment of additional resources.
human molecules to treat medical diseases and
disorders. In other words, we trusted and built on
the biology. This is in contrast to most pharma-
ceutical companies that begin by identifying drug
targets and then design therapeutic molecules
that interact with those targets.

Proprietary Technology Platform In 2003, we enhanced our scientific understanding

Hollis-Eden’s core immune regulating hormone of our proprietary class of compounds and how
(IRH) technology — based on a class of hormones they are able to regulate immune function. We
in the human body that have been implicated in expanded our understanding of the metabolism,
most immune system related diseases – meets pharmacology and structure-activity relationships
each of those criteria and is a key value driver of of our proprietary class of IRH compounds
our company. Although known for decades in the across several different species, allowing us to
scientific and medical literature, the potential role now pursue development of even more potent
and benefit of IRHs in treating human disease and specific second-generation IRH compounds.
was not fully under- We also articulated
stood, and IRHs were B U S I N E SS MANAG E M E NT T E AM the potential cell
LEFT TO RIGHT Traci Campbell, Eric J. Loumeau, Heather Callahan, Ph.D., proliferation role
overlooked as thera-
Scott A. Rieger, Daniel D. Burgess, Robert L. Marsella, Robert W. Weber
peutic development of our IRHs in
candidates as a hematopoiesis.
result. In founding Further, in early
Hollis-Eden, there- 2004, we presented
fore, our first step data on the molecu-
was identifying this lar mechanisms by
promising technology which IMMUNITIN™
and then acquiring (HE2000) may
the initial patents on be producing
the technology. We beneficial effects,
endeavored to further including the ability
investigate the of the compound to
potential role these regulate a number
hormones could of important genes
play in the body and involved in control-
undertook the innova- ling the inflammatory
tive approach of response and
looking inside the immune function.
body to discover, We believe that
design and redirect increased scientific
 4 | H O LLI S-E D E N 2003 AN N UAL R E P O RT

PASSAG E S O F CO R P O RAT E P R O G R E SS

Initial HIV/AIDS Demonstrated broad-spectrum

studies in humans with benefit in other human and
first-generation compounds animal models

knowledge of our technology should enable us for acute radiation injury while working actively
to identify optimal development candidates and in Washington, D.C. and elsewhere in support
shorten development times, and ultimately reduce of securing a national stockpiling contract. With
investment risk. NEUMUNE, we demonstrated in two pilot non-
human primate studies that the compound could
Novel, Differentiated Products
provide significant protection for neutrophils and
Hollis-Eden’s proprietary technology platform has
platelets. NEUMUNE is being developed under
yielded to date a deep and diversified pipeline of
a new U.S. Food and Drug Administration (FDA)
both near-term and longer-term product opportu-
rule for medical countermeasures for weapons
nities addressing a variety of market needs.
of mass destruction, under which marketing
Currently, our focus is in the areas of biodefense,
approval may be gained based solely on the
chemotherapy protection/cancer, global infectious
demonstration of safety in humans and efficacy
diseases and inflammatory disorders.
in relevant animal species. We are now working
Our IRH drug candidates are small molecule to complete the process of optimizing dose and
compounds that are easy to manufacture and formulation with the objective of initiating pivotal
offer unique properties that may make them highly non-human primate efficacy studies and human
valuable as therapeutic agents. To date, they have safety studies in support of a New Drug
shown in either clinical or preclinical studies the Application filing with the FDA.
ability to regulate innate and adaptive immunity,
In early 2004, we expanded our product
decrease inflammation and oxidative stress, and
opportunities in radiation protection through the
stimulate bone marrow production. We have
acquisition of Congressional Pharmaceutical
demonstrated these properties of our IRHs in a
Corporation (CPC), a company that was formed
variety of indications, and have sought to trans-
to commercialize a series of compounds that
late from one indication to another the benefit of
have the potential to protect against DNA muta-
discoveries made. For example, it was in our HIV
tions that can occur as a result of radiation or
trials that we demonstrated the reduction of
chemotherapy injury. In addition to our work
inflammatory mediators, and we are now taking
with the military on radiation injury, in 2003 we
that discovery into other diseases and disorders
provided our investigational IRHs to a number of
where inflammation is a factor. Our opportunity in
governmental agencies to be tested for activity in
radiation protection stems from preclinical work
preclinical models against a variety of bioterrorism
conducted with the military, and from studies
agents as well as parasitic, bacterial and viral
in both chemotherapy models and HIV patients
infections of military interest.
showing protection of neutrophils. Again, we have
followed the biology in translating our technology In the chemotherapy protection area, last year
to product opportunity. we identified a substantially more potent second-
generation IRH for chemotherapy-induced
During 2003, we made significant progress in
immune suppression, and announced positive
advancing our drug development programs. In our
results from preclinical studies demonstrating the
biodefense program we moved NEUMUNE forward
ability to protect the bone marrow and increase
 5 | H O LLI S-E D E N 2003 AN N UAL R E P O RT

Embarked on biodefense Articulated differential

development program with metabolism of IRHs
radiation protection compound

neutrophils and platelets. The enhanced potency mental and international healthcare organizations
of this second-generation compound demon- about collaborating through a public/private
strates the tremendous leverage we may gain partnership to develop and potentially com-
from the recent discoveries we have made rela- mercialize IMMUNITIN for a number of global
tive to our underlying IRH technology. We are infectious diseases, specifically, HIV/AIDS, TB
preparing to select one or more of our IRH and malaria. We believe the compound is espe-
candidates for testing in Phase I/II clinical trials cially well-suited for these indications because it
in chemotherapy protection. is inexpensive to manufacture, has an attractive
safety profile to date, and is unlikely to result
In our global infectious disease program, we
in drug resistant strains of pathogens.
presented data from a Phase II clinical trial
conducted with IMMUNITIN in South Africa, In the area of inflammation/autoimmune disorders,
demonstrating a statistically significant reduction preclinical and clinical work conducted in past
in opportunistic infections in late-stage AIDS years has demonstrated promising anti-inflamma-
patients treated with tory potential for our
the compound as NAS DAQ MAR K ET O P E N I N G – S E P T E M B E R 2 6, 2 00 3 IRHs. As a result we
LEFT TO RIGHT John Vitalie, Regional Vice President, NASDAQ, Paul Bagley III,
a monotherapy. are very interested in
Daniel D. Burgess, Bruce Aust, Executive Vice President, NASDAQ,
In addition, we Rudy Giuliani, Former Mayor, New York City, Richard B. Hollis,
exploring the poten-
reported data from a Robert L. Marsella, James M. Frincke, Salvatore Zizza tial role for these
series of preclinical compounds in the
studies in tubercu- treatment of auto-
losis (TB) that immune disorders.
demonstrated the Toward that end, in
ability of IMMUNITIN 2003 we entered
to provide significant into a collaboration
benefit in either with the Cystic
acute or chronic TB Fibrosis Foundation
when used as a to test IMMUNITIN
monotherapy, and in a Phase I/II pilot
showed an additive study in cystic fibro-
effect in this model sis. We also are
system when the investigating
compound was com- numerous second-
bined with standard generation
triple antibiotic compounds for
therapy. We are potential develop-
continuing active ment for the
discussions with a autoimmune market.
number of govern-
 6 | H O LLI S-E D E N 2003 AN N UAL R E P O RT
PASSAG E S O F CO R P O RAT E P R O G R E SS
Advanced knowledge of IRH
structure-activity relationships
and mechanism of action
Throughout the year, we added to the value of
our technology platform by continuing to build our
intellectual property portfolio, and by publishing
and presenting preclinical and clinical findings
in international peer reviewed publications
and meetings.
Efficient Business Model
In building a pharmaceutical company, it is
critical to have a business model tailored for
the challenges and opportunities inherent in the
industry. Such a model should be efficient relative
to the use of capital and scalable in order to
adjust spending levels to align with capital market
trends. A successful model will have a well-
defined strategy to translate technology value
into market value, and a clear roadmap to revenue
and profitability, in order to generate an attractive
return to investors.
We believe our business model at Hollis-Eden,
what we consider to be a partially integrated
pharmaceutical company, served our investors
well in 2003. It enabled us to scale back our
spending in a difficult operating environment
that biotech companies in general have endured
over the past several years. At the same time,
however, we were able to make significant
achievements in 2003 and entered 2004 in a
position of strength. Due in part to the progress
we continued to demonstrate, we raised gross
proceeds of $87.5 million from three separate
financings, despite a difficult financial market
environment. Structured as we are, we have been
able to extend our technology platform, with a rel-
atively low level of investment and share dilution,
into a deep program pipeline with both near-term
and longer-term revenue opportunities. In some
cases, we plan to develop and commercialize
those product opportunities on our own, and
Demonstrated stem cell
differentiation, activation and
proliferation with IRHs
in others we may seek partners with relevant
scientific expertise or market clout. To date, it has
been our strategy to build as much technology
value as possible before seeking potential partners.
We have recently initiated dialog with a number
of companies to explore potential interest in
current and next-generation products.
Commitment to Integrity
Key to our progress to date has been the
extremely talented and dedicated employees of
Hollis-Eden. Employees, and the professional
environment in which they work, are critical
factors to the success of any pharmaceutical
company. At Hollis-Eden, we pledge to our
employees an environment where business and
personal achievements are accomplished to the
highest standard of integrity, excellence and
professionalism. We take this opportunity to
thank them for their contributions.
To investors, we pledge to prosper as a business
and to reward owners with an attractive return. As
this year’s annual report conveys, we are building
a company that we believe will grow into a signifi-
cant enterprise and generate an excellent return
on investment over the long-term. However, we
changed with the external environment and created
shorter-term opportunities that we are focused to
deliver on while maintaining our long-term vision
of bringing our diversified product pipeline to
fruition. These near and longer-term opportunities
should allow us to keep a regular news flow to
the marketplace in the future, which will continue
to create investor interest and shareholder value.
Before we get to that fortunate position of
commercializing our products and generating
revenues, we will, like all other emerging growth
companies in the pharmaceutical/biotech sector,
 7 | H O LLI S-E D E N 2003 AN N UAL R E P O RT

Accelerating rational steroid Expanding extensive

design in pursuit of second- patent portfolio
generation compounds

both benefit and suffer from the swings of a to keeping you updated as we continue to
volatile and uncertain stock market. These fluctu- advance on our goal of serving humanity with
ating valuations may or may not be reflective of beneficial new global medicines. We are now in
our progress. They may have to do more with the the enviable position with our resources where
general market conditions and/or speculation and we can realize our entrepreneurial dream and
market timing of traders. Our success, until we bring our flowers to the marketplace.
generate revenues, is measured by a much
Sincerely,
broader set of parameters than temporary per-
formance in the stock market. Our discoveries
and fundamental development accomplishments
can sometimes be masked by perceptions of a Richard B. Hollis
stock price in a nervous market. I do not believe Chairman and Chief Executive Officer
that in the history of our market sector any emerg-
ing growth company has escaped stock market
volatility – it is just part of the environment. The
leadership in Hollis-Eden will remain focused on
the goals and execute the fundamentals that will
R I C HAR D B. H O L L I S
ultimately bring products to the marketplace. Founder, Chairman and CEO

Significant Market Opportunities

This is an especially opportune time for
Hollis-Eden. Significant corporate and scientific
passages lie ahead. Today, we are focused
on matters of grave concern to our nation –
Homeland defense and bioterrorism, and to the
world community — global infectious diseases.
Additionally, we are targeting major mainstream
markets with programs in chemotherapy-induced
neutropenia, and in autoimmune disorders and
inflammation. We also are poised to deliver on
the potential of an entirely new class of pharma-
ceuticals, not just a new compound, that could be
of significant therapeutic value to patients suffer-
ing from a wide array of diseases and disorders,
and of significant economic value to our share-
holders. We believe we have the financial and
human resources both to drive our short-term
opportunities home, and to take the Company
to the next level of opportunity. We look forward
 8 | H O LLI S-E D E N 2003 AN N UAL R E P O RT

H O L L I S-E D E N’S
I R H TECH NOLOGY
C E L LU L AR S I G NAL E R S
F O R H U MAN H E ALT H

Hollis-Eden is developing a proprietary class of PHOSPHONOL™, a non-IRH drug candidate for

small molecules known as immune regulating providing protection against DNA mutations from
hormones (IRHs). IRHs are cellular signalers within radiation exposure and chemotherapy treatment;
the body that control gene expression necessary for and IMMUNITIN™ (he2000), which has shown
proper immune function. Diseases, stress, trauma activity in a variety of infectious diseases, including
and aging can significantly alter the levels of these HIV/AIDS, tuberculosis and malaria. Hollis-Eden
hormones in the body and disrupt normal signaling is developing additional IRHs for protection from
pathways and gene expression, leading to immune chemotherapy and for other conditions of immune
dysregulation. The body then either over responds, dysregulation.
leading to inflammatory conditions, or under Much of Hollis-Eden’s IRH technology is based
responds, resulting in on the fundamental
immune suppression. S C I E NT I F I C MANAG E M E NT T E AM
premise that inflam-
LEFT TO RIGHT Dwight R. Stickney, M.D., James M. Frincke, Ph.D.,
Hollis-Eden’s goal
Christopher L. Reading, Ph.D. mation dysregulates
is to use its IRHs immunity and other
therapeutically to bodily functions
restore the signals that and is related to
are required for the virtually all diseases.
immune system and Increasingly, this
other organ systems hypothesis – which
of the body to function the Company has
properly and effectively been working on for
control a variety of the past ten years –
conditions. is being affirmed
Hollis-Eden has a as scientists link
number of investiga- inflammation with
tional compounds a growing number
under development, of major diseases
including NEUMUNE™ and disorders.
(he2100), which the
Hollis-Eden’s IRH
Company is co-devel- compounds are based
oping with the United on naturally occurring
States military for use molecules in the
in protection from androstene class of
radiation injury; steroid hormones.
 9 | H O LLI S-E D E N 2003 AN N UAL R E P O RT

I M M U N E R E G U L AT I O N

Stimulated immune mediators and reduced viral Reduced opportunistic infections in late-stage AIDS patien
load in HIV patients.

Viral Load in H IV Patients Cumulative Occurence of Opportunistic Infections

0.3 7.0
0.2 6.5
Log Change from Baseline

0.1 6.0

Cumulative # of Opportunistic
5.5
0
5.0
-0.1

Infections/Patient
4.5
-0.2 4.0
-0.3 3.5
-0.4 3.0
-0.5 2.5
2.0
-0.6
1.5
0 50 100 150 200
1.0
Days 0.5
Placebo IMMUNITIN Dosing 0.0
0 60 120 180 240 300 360 420
Days
Placebo IMMUNITIN

ANT I-I N F L AM MATO RY

Regulated inflammatory cytokines in HIV patients, with durable effect.

I L-6 I L-1 beta C OX-2 TN F-alpha

100 10 6 14
90 12
Expression Level
Expression Level

Expression Level

80
70
8
Expression Level 10
4
Relative
Relative

Relative

Relative

60 6 8
50
40 4 6
30 2
4
20 2
10 2
0 0 0 0
Healthy Pre-Dosing 43 Days After Healthy Pre-Dosing 43 Days After Healthy Pre-Dosing 43 Days After Healthy Pre-Dosing
IMMUNITIN IMMUNITIN IMMUNITIN
Treatment Treatment Treatment

C E L L P R O L I F E RAT I O N

Accelerated neutrophil and platelet recovery in non-human primates Accelerated neutrophil and platele
treated with chemotherapy.

Neutrophils Platelets Neutrophils Neutrophils

10 Days Dosing 10 Days Dosing 5 Days Dosing 8 Days Dosing
Neutrophils (x10 - 9 / L)

Neutrophils (x10 - 9 / L)

18 600 100.0 10.0 1000

Neutrophils (x10 - 9 / L)
Platelets (x10 - 9 / L)

Platelets (x10 - 9 / L)

16 500
14
12 400 10.0
10 300
8 1.0 100
6 200 1.0
4 100
2 NEUMUNE NEUMUNE NEUMUNE NEUMUNE
0 0 0.1 0.1 10
60 -5 1 3 6 8 10 13 15 16 17 20 -5 1 3 6 8 10 13 15 0 10 20 30 40 0 5 10 15 20 25 30 35 0
Chemotherapy Days Chemotherapy Days Chemotherapy Days Days
carboplatin (35 mg/kg) carboplatin (35 mg/kg) carboplatin (35 mg/kg) Radiation (4 00 cGy) R
Severe Neutropenia Severe Neutropenia Severe Neutropenia
Placebo NEUMUNE Placebo NEUMUNE Placebo NEUMUNE
Placebo NEUMUNE
 10 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

ents. Demonstrated activity in preclinical models Cleared malaria parasites in infected patients.
of tuberculosis, including additive benefits
to standard triple antibiotic therapy.

IRH and Antibiotic Therapy in Mouse Model of TB

IMMUNITIN
7
TB Colony-forming Units
6 N = 21 Per Study Buccal IM
CFU 106/LUNG

5
4 Median time to 50% clearance (study endpoint) 6 hr 6 hr
3
2 Median time to 90% parasite clearance 24 hr 12 hr
1
Median time to 100% parasite clearance 42 hr 36 hr
0
0 1 2 4 6 Number of patients who cleared parasites by day 7 15/21 16/21
Weeks of Treatment
Placebo RIP (Rifampin, Isoniazid, Pyrazinamide) RIP+IMMUNITIN Median time normal temperature 12 hr 24 hr

Number of patients who cleared fever by day 7 18/21 8/8

C E L L P R O L I F E RAT I O N

Demonstrated activity in preclinical models Induced neutrophils in HIV patients.

of autoimmune disorders, including multiple
sclerosis, lupus and others.

IRH in Mouse EAE Model of Multiple Sclerosis Neutrophils /µL

4.5 100
4.0
Mean % Change

80
from Baseline
Mean Clinical Score

3.5 60
3.0 40
2.5 20
2.0 0
1.5 -20
1.0 O 20 40 60 80 100 120 140 160
43 Days After 0.5 Median Days
IMMUNITIN 0.0
Treatment
IMMUNITIN Dosing
Days Post-Immunization
Placebo HE2200

et recovery in irradiated non-human primates. Stimulated bone marrow production in

in vitro models.

Mouse Hematopoietic
Platelets Neutrophils Platelets Stem Cells
8 Days Dosing 5 Days Dosing 5 Days Dosing +33 0% versus
D M S O (p<0.0 5)
Neutrophils (x10 - 9 / L)

10.0 1000
Platelets (x10 - 9 / L)

1.0E+05
Colony-Foaming Cells

1.0E+04
per Culture

1.0 100 1.0E+03

1.0E+02
NEUMUNE NEUMUNE NEUMUNE 1.0E+01
0.1 10
10 20 30 40 0 10 20 30 40 0 10 20 30 40 1.0E+00
Days Days Days 1 2 3 4
Radiation (4 00 cGy) Radiation (4 00 cGy) Radiation (4 00 cGy) Week of Culture
Severe Neutropenia
Placebo NEUMUNE Placebo NEUMUNE Placebo NEUMUNE Solvent Control NEUMUNE(10 ng/mL)
 11 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T
The metabolic precursor to this class of hormones
is pregnenalone, which is also the precursor to the
glucocorticosteroid class of hormones. These include
cortisol and other corticosteroids, frequently pre-
scribed today for their potent anti-inflammatory
properties. Like corticosteroids, for which 67 million
prescriptions are written each year in the U.S. alone,
Hollis-Eden’s IRHs appear to be potent anti-
inflammatory agents. However, unlike corticosteroids,
which can be immune suppressive, IRHs are potent
immune modulators enhancing immune response.
I R Hs
OPE N F OR G RAPH S
To date, IRHs have shown activity in a variety of
clinical and preclinical studies that demonstrate their
potential benefit in a broad spectrum of diseases.
Through these studies, it has been clearly established
that IRHs have three important properties that distin-
guish them as unique drug candidates – they appear
to regulate innate and adaptive immunity, decrease
inflammation and oxidative stress, and stimulate
cell proliferation in the bone marrow. Specific
demonstrations of these properties include those
listed below (graphs for which are presented inside
this foldout.)
I M M U N E R E G U LATI ON
- Stimulated immune mediators
and reduced viral load in HIV patients.
- Reduced opportunistic infections (including
tuberculosis) in late-stage AIDS patients.
- Demonstrated activity in preclinical models
of tuberculosis, including additive benefits
to standard triple antibiotic therapy.
- Cleared malaria parasites in infected patients.
ANTI-I N FLAM MATORY
- Regulated inflammatory cytokines in HIV
patients, with durable effect.
- Demonstrated activity in preclinical models
of autoimmune disorders, including multiple
sclerosis, lupus and others.
CE LL PR OLI FE RATI ON
- Induced neutrophils in HIV patients.
- Accelerated neutrophil and platelet recovery in
non-human primates treated with chemotherapy.
- Accelerated neutrophil and platelet recovery in
irradiated non-human primates.
- Stimulated bone marrow production in
in vitro models.
 12 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

PASSAG E S O F S C I E NT I F I C P R O G R E SS

Immune Regulation: Immune Regulation: Anti-inflammatory:

HIV/AIDS Malaria HIV

K EY D I S COVE R I E S metabolized has led to key discoveries by Hollis-Eden

in structure-activity relationships for this series of
I N 2 00 3
drug candidates.
2003 was a breakthrough year for Hollis-Eden in
advancing the Company’s knowledge of how to Structure-Activity Relationships
translate its IRHs into an important new class of During 2003 Hollis-Eden presented data from a
therapeutics. Through its ongoing drug development preclinical model demonstrating for the first time
efforts, the Company made substantial progress in the relationship between the chemical structure of
understanding the metabolism, structure-activity specific IRHs and their ability to regulate specific
relationships, and mechanism of action for these immune responses associated with human disease.
compounds, as well as their pharmacology profile. In this study, different compounds were able to limit
and stimulate discrete arms of the immune response,
Metabolism apparently based on functional groups and their
Volumes of publications show impressive activity orientation at specific positions on the steroid ring.
of precursors to IRHs in many rodent models of
immune-mediated and other diseases. However, Mechanism of Action
scientists have been perplexed for decades as to why Hollis-Eden made significant discoveries in 2003 that
those compounds demonstrated limited activity in have greatly illuminated the mechanism of action of
humans. During the year, Hollis-Eden made a key IRHs. Among these, IRHs were shown to have potent
finding regarding cell proliferation
IRHs and their C H E M I ST RY G R O U P properties in the
LEFT TO RIGHT Steven White, Ph.D., (Director), Yu Ge, Ph.D., bone marrow.
precursors. The
Yujin Huang, Ph.D.
Company’s scientists The Company
found that rodents learned that, not only
metabolize this do IRHs increase
chemical series very neutrophil and
differently than do platelet recovery
humans and non- following radiation or
human primates. In chemotherapy injury,
rodents, compounds but that cells pro-
are metabolized duced following
largely into immuno- treatment with IRHs
logically active IRHs, are more effective at
whereas in primates, killing pathogens
they are metabolized than untreated cells.
primarily into sex The ability of IRHs
steroids that have very to regulate reactive
different biological oxygen species (see
properties. An under- text below) may also
standing of how these help to prevent the
compounds are death of key bone
marrow stem cells.
 13 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T
Anti-inflammatory:
Autoimmune Disorders
Therefore, IRHs appear both to accelerate the rate at
which new cells are generated and to protect the
proliferative potential of residual bone marrow cells
after injury. In early 2004, the Company presented
molecular findings indicating that IMMUNITIN can
up-regulate specific antioxidant response genes and
down-regulate a number of important inflammatory
mediators. This new data represents a major advance-
ment in the Company’s molecular understanding of
how immune regulating hormones may be able to
control a number of different, difficult disease
processes.
Pharmacology
Recently, the Company made major advances in
understanding the pharmacology of its compounds
and how the pharmacology differs between species.
This is very important in understanding how to best
B I O LO GY G R O U P
LEFT TO RIGHT Mei Li, Ph.D., Urszula Orlinksa, Ph.D., David J. Bell,
G. Stuart Williams, Ph.D., Sonia Villegas, Ph.D.,
Jaime Flores-Riveros, Ph.D., (Vice President)
Immune Regulation: Cell Proliferation:
Tuberculosis (OIs) Chemotherapy
use IRHs in humans, so as to enhance their potency
and efficacy as pharmaceuticals. Hollis-Eden scientists
are now utilizing this knowledge to improve the
performance of the Company’s existing compounds,
as well as to design second-generation candidates
with improved pharmaceutical attributes. To further
improve the therapeutic value of its IRHs, the
Company is also identifying novel ways of modifying
the bioavailability of the candidate drugs, as well
as formulating them so as to better preserve the
appropriate immunological activities in humans.
Harnessing the Potential of IRHs
Together, these discoveries give Hollis-Eden a
much better understanding of how its IRHs may
be harnessed to provide benefit in a wide variety
of disease conditions. Hollis-Eden believes that
by applying the latest tools of pharmaceutical drug
P HAR MACO LO GY G R O U P
LEFT TO RIGHT Donald D. Xu, M.D., Clarence N. Ahlem, (Director),
Ted Page, Ph.D.
 14 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

Cell Proliferation: Immune Regulation: Cell Proliferation:

Radiation Injury Biowarfare Bone Marrow Production

development technologies, it has the potential to compound, NEUMUNE. Hollis-Eden scientists are
translate the great promise of the androstene series testing several additional compounds in non-human
that was seen in so many animal models of disease primate models that could produce even further
into real clinical benefit in a variety of indications in improvements. Similar efforts in the infectious
humans. The fact that IRHs are chemically similar to disease, autoimmune and inflammatory areas are
corticosteroids and sex steroids should greatly assist underway. In support of these efforts, the Company
in this effort, given the rich history of this chemical has hired additional chemists and biologists and
series in medicine. Results from many decades of added lab space to identify and formulate promising
hormone research afford Hollis-Eden the chemical next-generation candidates for development.
solutions that were previously developed to improve
Hollis-Eden has moved strategically and aggressively
the potency, bioavailability and pharmacological
to build and protect the intellectual property relating
properties of the current “steroid class” of FDA
to its discoveries on its core IRH technology. The
approved hormone therapies. This should also
Company continued to add considerably to the value
benefit the development of new, second-generation
of its intellectual property position in 2003, and now
compounds that will improve upon the properties
has more than 100 issued U.S. and foreign patents
of the Company’s lead drug candidates.
and more than 100 pending U.S. and foreign applica-
Data on one such second-generation candidate was tions in its portfolio. Furthermore, the Company’s
presented in late 2003 from new studies performed progress in understanding the mechanism of action
in non-human primate models of chemotherapy- for these compounds as well as their structure-activity
induced neutropenia. In these studies, the Company relationships and pharmacology profile will allow it
showed that a second-generation compound was to maintain a leadership position in this technology.
substantially more potent than its first-generation

S E CO N D-G E N E RAT I O N I R Hs

In addition to pursuing opportunities that can lead to near-term revenue streams with first-generation IRHs, such as NEUMUNE™
in acute radiation injury, Hollis-Eden is developing even more potent second-generation IRHs that can be used in large, chronic
conditions, such as chemotherapy protection. During 2003, the Company reported data (presented below) on a new IRH that,
at 1/20th the dose of NEUMUNE, eliminated severe neutropenia and had a beneficial effect on platelets in non-human primates
following chemotherapy. The Company is also developing second-generation compounds for other indications such as infectious
diseases, autoimmune disorders and inflammatory conditions.

Neutrophils Platelets
Days of Grade 4 Neutropenia: Vehicle = 5.3 I R H = 0
P=0.03 versus vehicle
100 10000
Neutrophils (x10 -9 / L)

Platelets (x10 -9 / L)

10.0

1000

1.0

IRH IRH
0.1 100
0 10 20 30 40 0 10 20 30 40
Days Days
Chemotherapy Chemotherapy
carboplatin (3 5 mg/kg) carboplatin (3 5 mg/kg)

Severe Neutropenia

Placebo I R H Candidate Placebo I R H Candidate

 15 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

PRODUCT PI PE LI N E
ADVAN C E D D EVE LO P M E NT P R O G RAM S
indications preclinical phase i phase ii phase iii

Biodefense Drugs
neumune ™
Radiation Injury FDA Animal Rule: Phase II/III Not Required**
Protection

phosphonol ™
Radiation Injury FDA Animal Rule: Phase II/III Potentially
Protection Not Required***

Hematopoiesis
irh candidate
Chemotherapy-
Induced Neutropenia

Infectious Diseases
immunitin ™
HIV/AIDS*
Tuberculosis
Malaria*
Biowarfare Pathogens FDA Animal Rule: Phase II/III Potentially
Not Required***
Inflammation/Autoimmune Disorders
immunitin ™
Cystic Fibrosis

AD D IT I O NAL D EVE LO P M E NT P R O G RAM S

Hollis-Eden’s immune regulating hormones have also shown activity in preclinical models of a number
of the following indications. The Company is currently identifying optimal lead candidates for potential
further study in these indications.

Biodefense Drugs
Biowarfare Pathogens

Inflammation/Autoimmune Disorders
Asthma Lupus
Arthritis IBD
Multiple Sclerosis Trauma

Metabolism
Cardiovascular Disease
Obesity
Diabetes

Immune Enhancement
Immune Senescence

* Evidence of activity shown in human studies.

** FDA rule requires demonstration of safety in humans and efficacy in relevant animal species for approval.
*** The Company has not received any guidance from the FDA on whether or not the animal rule will be applicable to these indications.
 16 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T
B IODE FE NSE
M E D I CAL
CO U NT E R M E AS U R E S
AGAI N ST N U C L E AR
AN D B I O LO G I CAL
T E R R O R I ST WE AP O N S
In today’s post 9/11 environment,
Hollis-Eden is well-positioned to
make a significant near-term contri-
bution to the nation’s Homeland
defense efforts. The Company’s
lead biodefense compound,
NEUMUNE™ (HE2100), is being
co-developed with the U.S. military
for use in protecting the body from
acute radiation injury. In early 2004,
Hollis-Eden acquired Congressional
Pharmaceutical Corporation, adding
to its biodefense program a series of
compounds that have the potential
to protect against DNA mutations
that can occur as a result of
radiation or chemotherapy injury.
In addition, the Company’s com-
pounds are being screened by
a number of governmental agencies
as countermeasures against a
variety of pathogens that could
be used as biowarfare agents.
NEUMUNE
Hollis-Eden is developing
NEUMUNE for use in protecting
military personnel, first responders
and civilians from acute radiation
injury in the event of a terrorist act
using a nuclear device or dirty
bomb, or from an attack on a
nuclear power plant or facility.
The primary cause of acute radiation
injury is bone marrow suppression,
which leads to depletion of neutro-
phils and platelets. Neutrophils are
white blood cells that are part of
the body's key defense mechanism
against infections. Platelets are
actively involved in blood clotting
that stems bleeding. Depletion of
neutrophils or platelets can lead
to rapid fatalities.
NEUMUNE is being developed with
the Armed Forces Radiobiology
Research Institute (AFRRI) — a
leader in studying the short-term and
long-term effects of radiation injury.
Over the past several years, AFRRI
has screened thousands of com-
pounds in an effort to find an acute
radioprotectant suitable for wide-
spread use. Out of this screening
and profiling effort, NEUMUNE
emerged as a leading candidate
based on its efficacy in preclinical
models, its safety profile, and the
comparatively low-cost nature of its
manufacturing process.
Hollis-Eden is developing NEUMUNE
pursuant to a new U.S. Food and
Drug Administration (FDA) rule,
under which marketing approval
may be gained based solely on the
demonstration of safety in humans
and efficacy in relevant animal
species. This rule, adopted in 2002,
is applied in cases where it would
be unethical, such as in the case of
radiation, to expose humans to life-
threatening substances in an effort
to determine clinical efficacy. As a
result, development of NEUMUNE
under this rule will not require large-
scale clinical studies prior to seeking
marketing approval from the FDA.
During 2003, Hollis-Eden conducted
and reported on two pilot preclinical
radiation injury studies conducted
as part of a program to test several
different formulations of NEUMUNE
versus a vehicle placebo and to
determine the optimum formulation,
dose and dose schedule for the
compound. At the Annual Scientific
Meeting of the British Society of
Hematology, the Company reported
results from an initial pilot study in
rhesus macaques showing that 8
days of dosing with a high dose of
NEUMUNE could, on average, almost
eliminate severe neutropenia after
exposure to 400 cGy of whole body
irradiation, and could significantly
reduce the number of days of severe
neutropenia in animals given a lower
dose of NEUMUNE for 10 days.
At the American Society of
Hematology (ASH) meeting,
Hollis-Eden presented positive
results from a second pilot study in
non-human primates that were given
 17 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

400 cGy of whole body irradiation
and several hours later received five
once-daily injections of either a
vehicle placebo, a high dose of
NEUMUNE, or one of three different
formulations of a lower dose of NEU-
MUNE. In the placebo-treated group,
animals experienced an average of
12.5 days of severe neutropenia
through the 36-day follow-up period.
In contrast, those animals treated with
NEUMUNE in the three lower dose
groups experienced an average of
5 to 6 days of severe neutropenia
(50–60% reduction), and in the high
dose group, severe neutropenia was
not observed in any animal at any
time. The reduction in the number
of days of severe neutropenia in
each of the three lower dose
groups and the high dose group
was statistically significant compared
with the placebo group. NEUMUNE
was generally well tolerated in this
study, with injection site irritation and
transient swelling being the only
drug-related adverse events reported.
(See graphs pages 9–10)
In both studies, NEUMUNE also
had a positive effect on preserving
platelets. In the study presented at
to demonstrate efficacy under the
new FDA rule. Phase I studies in
humans to demonstrate safety are
also planned. Given the potentially
accelerated development path for
NEUMUNE and the significant
market opportunity for compounds
that can treat acute radiation injury,
Hollis-Eden has made development
of NEUMUNE a top priority. The
Company is collaborating with
AFRRI to establish all of the manu-
facturing, toxicology, efficacy and
human safety data that will be
needed to support a New Drug
Application (NDA) with the FDA.
Hollis-Eden management has
worked actively in Washington, D.C.
and elsewhere over the past year
in support of securing a national
stockpiling contract for NEUMUNE.
Management has met with members
of the Administration, with leading
members of both the U.S. Senate
and the House of Representatives,
as well as with top officials at key
agencies such as the Department
of Homeland Security and the
Department of Health and Human
P R OJ E C T B I OS H I E L D
Services. In those meetings,
Hollis-Eden executives have
re-enforced the need for an effective
radioprotectant compound in the
national drug stockpile, and
informed officials about the promis-
ing potential of NEUMUNE to
provide protection against acute
radiation injury.
Management has also supported
passage of Project BioShield and its
potential impact on spurring devel-
opment of important new medical
countermeasures. Project BioShield,
introduced by President Bush and
subject to Congressional approval, is
groundbreaking legislation that would
enable the government to enter into
advance purchase contracts with
biotech and pharmaceutical compa-
nies, guaranteeing payment upon
delivery of approved next-generation
medical countermeasures for
biological, chemical and radiological
threats. An appropriations bill pro-
viding $890 million for BioShield in
2004 has been passed by Congress
and signed by President Bush.
Funding for Project BioShield over

ASH, for example, animals in the Meeting in 2003 with Senate Majority Leader Bill Frist (third from left) to discuss
Project BioShield and Hollis-Eden’s radiation protection drug candidate NEUMUNE™
placebo group experienced on
are Richard Hollis, Dwight Stickney, and Robert Marsella.
average 3 days of grade-3 or 4
thrombocytopenia, whereas those
in the groups treated with lower
doses of NEUMUNE experienced
an average of only 1.3 to 2 days of
thrombocytopenia (33 – 60% reduc-
tion) and those in the high dose
group on average did not encounter
grade-3 or 4 thrombocytopenia.

Upon completion of additional

optimization studies in non-human
primates, Hollis-Eden plans to
conduct a pivotal study with
NEUMUNE in non-human primates
 18 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T
the next 10 years is expected to total
$5.6 billion, $2.5 billion of which is
included in President Bush’s pro-
posed budget for fiscal year 2005.
PHOSPHONOL
In early 2004, Hollis-Eden acquired
Congressional Pharmaceutical
Corporation, a closely held
company with exclusive rights to
intellectual property licensed from
the University of Chicago to develop
a series of compounds that have
the potential to protect against DNA
mutations that can occur as a result
of radiation or chemotherapy injury.
This DNA damage (mutagenesis) has
been associated with an increased
risk of a variety of cancers and is
believed to be a primary cause of
the harmful long-term effects of
radiation injury.
Hollis-Eden’s lead candidate to pre-
vent DNA mutations from radiation
exposure is PHOSPHONOL™.
Hollis-Eden expects to begin
profiling PHOSPHONOL in a
series of early-stage animal studies
designed to assess the safety,
efficacy and oral bioavailability of
the compound. The Company
believes that PHOSPHONOL may
be eligible for review by the FDA as
a biodefense drug pursuant to its
new animal efficacy rule. If PHOS-
PHONOL can be successfully
developed it may serve not only
as a radioprotectant from acts of
terrorism but also may serve to
protect people from other forms of
inadvertent environmental radiation
exposure. With NEUMUNE and
PHOSPHONOL, Hollis-Eden poten-
tially could have products to treat
both the short and long-term effects
of radiation injury.
The broader intellectual property
rights acquired by Hollis-Eden con-
sist of a series of patents and patent
applications that relate to discover-
ies made by David J. Grdina, Ph.D.,
Professor of Radiation and Cellular
Oncology at the University of
Chicago. Dr. Grdina, who has agreed
to an exclusive consulting arrange-
ment with Hollis-Eden for the
development of this technology, is
widely recognized as an expert in
radiobiology and has worked closely
with AFRRI and the Walter Reed
Army Institute of Research (WRAIR)
over the last 20 years in the devel-
opment of products for use against
radiation injury.
The Threat of
Nuclear Terrorism
The possibility of a terrorist attack,
either through the use of a nuclear
weapon, a “dirty bomb” or an attack
on a nuclear power plant or waste
site, is a significant concern of the
U.S. government today. With the
large number of deployed nuclear
weapons and active nuclear power
generating facilities around the
world today, coupled with the
emerging black market in nuclear
technologies and radiological materi-
als, the threat of a “suitcase nuke” is
very real. According to an article that
appeared in The Lancet (Vol 355,
4/29/00), “a terrorist organization
could explode a crude weapon
made of stolen plutonium with a
yield of 0.1 to 20 kilotons.” The
British Medical Journal has esti-
mated that a 12.5-kiloton nuclear
bomb (equivalent to the bomb used
at Hiroshima) detonated in New York
City would cause 50,000 deaths
immediately from the explosion and
an additional 200,000 deaths from
radiation injuries. A nuclear incident
also could come in the form of an
attack on or accident at a nuclear
facility. There are 103 nuclear power
plants in the U.S. today, and over
430 nuclear power plants world-
wide. Should a terrorist succeed in
causing a breach in the reactor core
of one of these plants, a plume of
radioactive materials could be
released into the atmosphere, result-
ing in immediate health risks to
those nearby as well as longer term
risks at greater distances. Of equal
concern is the vulnerability of spent
fuel pools. A Nuclear Regulatory
Commission study stated that
breaching a cask used to store
spent fuel could release lethal radia-
tion in an area many times larger
than that caused by a 10-kiloton
nuclear weapon.
Radiation Effects
and Treatments
The effect of a nuclear explosion
on the body depends upon the size
and nature of the device, as well as
the proximity to the device. Some
deaths from an explosion would
result from the direct effects of the
explosion and contact with debris.
The majority of deaths, however,
would result from infections
attributable to a loss of the infection-
fighting capability of the body due to
a severe loss of neutrophils. Longer
term threats include damage to the
DNA, or mutagenesis, that can lead
to a variety of cancers.
The only pharmaceutical agent that
has been widely stockpiled to date
for use in the event of an act of
nuclear terrorism or a nuclear acci-
dent is potassium iodide (KI).
Potassium iodide is only effective
against the long-term risk of thyroid
cancer 10 to 15 years after expo-
 19 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

sure to certain types of radiation,
and does not protect the body from
the acute effects radiation has on
the bone marrow, which can lead
to rapid fatalities. Despite the limita-
tions of potassium iodide, the drug
has been stockpiled broadly for
years in Europe and Japan for civil-
ians living within close proximity of
nuclear power plants, and the U.S.
has begun purchasing millions of
doses of the drug for stockpiling
in this country.
Prussian Blue has recently been
approved to reduce the net exposure
to certain radioactive elements, but
does not protect the bone marrow.
Currently there are no pharmaceuti-
cals approved for use in preventing
DNA mutations or protecting bone
marrow from acute radiation injury.
However, Hollis-Eden's investiga-
tional drug NEUMUNE may offer
such protection against the acute
life-threatening effects of radiation
exposure. In addition, PHOS-
PHONOL offers the potential to
include those stationed at any
military installation or theater of
operations, first responders and
civilians living or working in any
urban or metropolitan area that
is at risk of a radiological attack,
and residents living within a 10 to
50 mile radius around any nuclear
power plant or spent fuel facility.
In the U.S., this could total more
than 20 million people. The Company
believes similar market opportunities
may exist in Europe and Asia.
Biowarfare
In addition to its collaboration with
AFRRI on radiation injury, Hollis-Eden
has provided its investigational
IRHs to a number of governmental
agencies to be tested for activity in
preclinical models against a variety
of bioterrorism agents as well as
parasitic, bacterial and viral infec-
tions of military interest. The broad
spectrum of activity IRHs have
demonstrated against viral, parasitic
S C I E NT I F I C D I R E C TO R S
and bacterial pathogens has stimu-
lated interest in researchers looking
for drugs to treat new or drug-resist-
ant organisms. Hollis-Eden believes
this class of compounds may be
particularly attractive in that it is
unlikely to lose activity against drug
resistant forms, is cost effective to
produce and has an attractive safety
profile to date. Their anti-inflammatory
properties also make them attractive
since runaway inflammation is known
to be a key part of the pathogenesis
associated with a number of the
infectious agents that would poten-
tially be used as bioterrorist
weapons. Ongoing research with a
number of governmental agencies
is underway to determine the best
applications in the area of biodefense.

LEFT TO RIGHT Richard Trauger, Ph.D., Daryl D. Muenchau, Ph.D., J.D.,

protect against DNA mutations and
Charles R. Dowding, Ph.D., Dominick Auci, Ph.D.
subsequent cancers that can occur
as a result of radiation or chemo-
therapy injury.

Potential Radiation Market

The market opportunity for drugs
that reduce the effects of acute
radiation injury and protect against
mutagenesis could be significant.
In order to be practical, drugs to
treat these conditions need to be
very safe, inexpensive to manufac-
ture and easy to store and distribute.
Because the window of opportunity
to treat radiation injury is short,
such drugs would likely need to be
stockpiled on a local level to be
appropriately available for high-risk
populations. Such populations may
 20 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T
H E MATOP OI ESIS
TAR G ET I N G T H E
C H E M OT H E RAPY
P R OT E C T I O N
MAR K ET
As in radiation injury, chemotherapy
can cause significant bone marrow
toxicity leading to depletion of neu-
trophils and platelets which can be
life threatening. These effects are
the primary dose-limiting side effects
for many chemotherapy regimens.
Currently marketed drugs for neu-
tropenia generate sales in excess
of $2.5 billion per year and are
projected to grow to more than
$3 billion in annual sales by 2006.
These drugs are designed to treat
neutropenia and not severe platelet
loss, yet up to 25% of chemotherapy
patients are estimated to experience
severe platelet deficiencies.
Compared to currently available
drugs for neutropenia, Hollis-Eden’s
IRHs may offer several advantages,
including the potential to provide
greater neutrophil protection as well
as the ability to boost platelets. In
addition, IRHs are expected to be
more cost effective to manufacture
than existing therapies and may
stimulate cell-mediated immunity,
which may benefit cancer treatment.
Hollis-Eden has demonstrated posi-
tive results with its IRHs in a number
of chemotherapy-induced immune
suppression studies in non-human
primates. Among these, at the
American Society of Hematology
(ASH) meeting in December 2003,
Hollis-Eden presented positive data
on chemotherapy-induced neutrope- the new IRH did not experience any
nia. In the study, which confirmed an days of grade-4 neutropenia. As in
earlier study, non-human primates radiation experiments, Hollis-Eden’s
were given carboplatin (a front-line IRHs also appeared to have a
chemotherapy agent) followed by beneficial effect on platelets.
once daily doses for 5 days of (See graphs pages 9–10, 14)
a placebo, NEUMUNE™ (HE2100)
Based on the promising results
or a new, second-generation IRH
with its initial second-generation
designed specifically for use in
compound in chemotherapy pro-
chemotherapy. In this study, placebo-
tection, Hollis-Eden is conducting
treated animals experienced an
additional studies with several
average of 5.3 days of grade-4
second-generation compounds in
neutropenia, whereas animals receiving
non-human primates. The Company
NEUMUNE or the new IRH, which
plans to select one or more of its
was given at only 1/20th the dose
IRH drug candidates for testing
of NEUMUNE, had a substantially
in Phase I/II clinical trials for
improved profile. Animals receiving
chemotherapy protection.
B O N E MAR R OW P R O D U C T I O N
Bone marrow samples, before and after chemotherapy treatment, demonstrate
the ability of Hollis-Eden’s NEUMUNE™ to protect neutrophils and platelets.
The Company is now testing second-generation IRHs for potential development
for the chemotherapy protection market.
Baseline
Placebo at Day 16 NEUMUNE-treated at Day 16
 21 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T
IMMUNE
R EG U LATION
B O OST I N G I M M U N IT Y
TO F I G HT G LO BAL
I N F E C T I O U S D I S E AS E S
Hollis-Eden believes that its immune
regulating hormones (IRHs) have
the potential to make a significant
difference in the war on global
infectious diseases. IRHs are
inexpensive to manufacture, have
an attractive safety profile to date,
and are unlikely to result in drug
resistant strains of pathogens.
Hollis-Eden’s lead drug candidate
for global infectious diseases is
IMMUNITIN™ (HE2000). To date,
IMMUNITIN has shown immune
enhancing activity against a broad
spectrum of pathogens, including
viruses, parasites and bacteria.
In 2003, the Company released data
from its Phase I/II clinical trial con-
ducted with IMMUNITIN in South
Africa in HIV patients who had pro-
gressed to late-stage AIDS. Patients
in this study who were treated with
IMMUNITIN experienced a statisti-
cally significant reduction in the
cumulative number of all oppor-
tunistic infections (OIs) over the
13-month study period when com-
pared to patients receiving placebo.
OIs, such as tuberculosis (TB), are
a leading cause of death in this
disease. The Company believes this
is the first time an immune modulator
has shown significant benefit against
a hard clinical endpoint.
The OI data reported in 2003 build
on previously released results from
the Phase I/II HIV study that demon-
strated statistically significant
declines in transcripts of inflamma-
tory mediators, significant increases
in a wide variety of immune cell
types that have been associated
with delaying disease progression
towards AIDS, and a fall in viral load.
The ability of IMMUNITIN to reduce
inflammation while stimulating innate
and adaptive cell-mediated immunity
has possible implications for a number
of other infectious diseases, includ-
ing malaria and TB. Tuberculosis,
a common opportunistic infection
experienced by AIDS patients,
has reached epidemic proportions
in the developing world, and
antibiotic-resistant TB is increasingly
being seen in both the developed
and developing world. In 2003,
Hollis-Eden presented data from a
confirmatory preclinical study in an
animal model of chronic TB demon-
strating that IMMUNITIN reduced
the TB bacterial load when given
as a monotherapy, compared to
placebo-treated animals. Furthermore,
IMMUNITIN appears to have an
additive effect when combined with
the current three-drug regimen of
antibiotic treatment in this model
system. (See graphs pages 9 –10)
Given its study findings relative to
HIV/AIDS, opportunitic infections
such as tuberculosis, and malaria,
Hollis-Eden is in active discussions
with a number of governmental and
international healthcare organiza-
tions about collaborating through a
public/private partnership to develop
and potentially commercialize
IMMUNITIN for a number of global
infectious diseases. The Company
believes the compound is especially
well-suited for these indications
because it is inexpensive to manu-
facture, has an attractive safety
profile to date, and is unlikely to
result in drug resistant strains of
pathogens. Given recent changes
in the global political and economic
environment, however, Hollis-Eden
will seek assurances that its intellec-
tual property will be protected and
that the Company can expect to
make an attractive commercial return
prior to entering large-scale clinical
programs for infectious diseases.
 22 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T
I N FLAM MATION /
AUTOI M M U N E
DISOR DE RS
S E CO N D-G E N E RAT I O N
CO M P O U N DS WIT H B R OAD-
S P E C T R U M P OT E NT IAL
Immune regulating hormones have
demonstrated impressive activity in
preclinical models of inflammation
and autoimmune disorders, including
multiple sclerosis, inflammatory
bowel disease (IBD), rheumatoid
arthritis, lupus and trauma. In addi-
tion, IMMUNITIN™ (HE2000) has
demonstrated the ability to normalize
a broad spectrum of inflammatory
mediators in HIV/AIDS patients.
(See graphs pages 9–10) As a
result of these preclinical and clinical
findings, Hollis-Eden is now profiling
potent second-generation compounds
in in vivo models for selection as
development candidates for the
treatment of inflammatory and
autoimmune conditions.
C L I N I CAL/ R E G U L ATO RY D I R E C TO R S
LEFT TO RIGHT Elizabeth Morgan, Barry S. Miller, Armando Garsd, Ph.D.,
Nanette Onizuka-Handa
The potential opportunity for Hollis-
Eden’s second-generation IRHs in
autoimmune disorders could be
significant, given the unique profile
of the compounds and the size of
the market. Hollis-Eden is targeting
potential applications in autoimmunity
at a time when inflammation is
increasingly viewed by the scientific
and medical communities as funda-
mental to a wide variety of diseases.
It has always been a premise of
Hollis-Eden’s IRH technology that
inflammation dysregulates immunity
and is related to a broad spectrum
of major diseases and disorders.
The Company now stands to benefit
from its work in this area as this view
becomes more mainstream.
Cystic Fibrosis
An example of the opportunity in
chronic inflammation is cystic fibrosis
(CF). In 2003 Hollis-Eden entered
into a collaboration with Cystic
Fibrosis Foundation Therapeutics,
Inc, (CFFT), the non-profit drug dis-
covery and development affiliate of
the Cystic Fibrosis Foundation, to
test IMMUNITIN in a Phase I/II pilot
study in CF. CFFT is expected to
award approximately $1.7 million
in funding toward the study. CF is
a genetic disorder that causes the
build-up of thick mucus in the lungs
and pancreas. The mucus in the
lungs leads to chronic infections and
subsequent pulmonary inflammation
and deterioration. Based on data
regarding the anti-inflammatory
effects and attenuation of oppor-
tunistic infections in early clinical
studies in patients with HIV and
AIDS, and based on anti-mycobacte-
rial activity in preclinical models of
tuberculosis, the Company believes
IMMUNITIN may decrease the
chronic inflammation in lungs which
can lead to the damage associated
with CF. In addition, by stimulating
the immune system, IMMUNITIN may
be able to limit and prevent pulmonary
infections in these patients.
 23 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

MANAG E M E NT’S D I S C U SS I O N AN D ANALYS I S

The following discussion contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking
Statements” above. This discussion and analysis should be read in conjunction with the financial statements and notes
included elsewhere in this report.

General Hollis-Eden Pharmaceuticals, Inc., a development-stage pharmaceutical company, is engaged in the

discovery, development and commercialization of products for the treatment of diseases and disorders in which
the body is unable to mount an appropriate immune response. Our initial development efforts target radiation
and chemotherapy induced immune suppression and immune dysregulation caused by infectious diseases such
as HIV, malaria and tuberculosis. Our initial technology development efforts are primarily focused on a series
of potent hormones and hormone analogs that we believe are key components of the body’s natural regulatory
system. We believe these immune regulating hormones (IRHs) can be used to reestablish host immunity in
situations of dysregulation.
We have been unprofitable since our inception and we expect to incur substantial additional operating losses
for at least the next few years as we increase expenditures on research and development and begin to allocate
significant and increasing resources to clinical testing and other activities. In addition, during the next few years,
we may have to meet the substantial new challenge of developing the capability to market products. Accordingly,
our activities to date are not as broad in depth or scope as the activities we must undertake in the future, and
our historical operations and financial information are not indicative of the future operating results or financial
condition or ability to operate profitably as a commercial enterprise when and if we succeed in bringing any
drug candidates to market.
On March 26, 1997, Hollis-Eden, Inc., a Delaware corporation, was merged with and into us, then known
as Initial Acquisition Corp. (“IAC”), a Delaware corporation. Upon consummation of the merger of Hollis-Eden,
Inc. with IAC (the “Merger”), Hollis-Eden, Inc. ceased to exist, and IAC changed its name to Hollis-Eden
Pharmaceuticals, Inc.

Results of Operations We have not generated any revenues for the period from August 15, 1994 (inception
of Hollis-Eden Inc.) through December 31, 2003. We have devoted substantially all of our resources to the
payment of research and development expenses and general and administrative expenses. From inception until
December 31, 2003, we have incurred expenses of approximately $67.5 million in research and development
and $39.7 million in general and administrative expenses. We have incurred $0.1 million in net other income
comprised of $7.6 million in deemed discount expense, $0.4 million in interest expense and $8.1 million in
interest income. The combination of these resulted in a net loss of $107.1 million for the period from inception
until December 31, 2003.
Research and development expenses were $10.8 million, $13.1 million and $11.9 million in 2003, 2002
and 2001, respectively. The research and development expenses relate primarily to the ongoing development,
preclinical testing, and clinical trials for IMMUNITIN, NEUMUNE and HE2200, as well as our investment in
Aeson Therapeutics, which has been expensed as in-process R&D. Research and development expenses decreased
$2.3 million in 2003 compared to 2002. The decrease in research and development expenses was due mainly to
reduced preclinical and clinical trial activities after streamlining our operations and focusing our research and
development expenditures in the second half of 2002. Research and development expenses increased $1.2 million
in 2002 compared to 2001 due to increased staffing, license fees and clinical trials expenses, which was offset by
reduced expenditures for preclinical work. We expect research and development expenses to increase in 2004 and
beyond as our products move into the more expensive later stages of development.
General and administrative expenses were $7.3 million, $4.8 million and $5.1 million in 2003, 2002 and 2001,
respectively. General and administrative expenses relate to salaries and benefits, facilities, legal, investor relations,
 24 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

insurance and travel. General and administrative expenses increased $2.5 million in 2003 compared to 2002
primarily due to non-cash charges totaling $2.2 million for 2003. The non-cash charges are comprised of:
$0.7 million in non-cash charges related to the issuance of a warrant and a change in the terms of a warrant
to a service provider; $1.3 million in non-cash charges related to the issuance of a warrant to a director and
issuance of stock options to an officer and a director; and $0.2 million in non-cash charges related to stock
options issued to consultants.
General and administrative expenses decreased $0.3 million in 2002 compared to 2001 due to decreased
consulting fees and legal expenses that were partially offset by an increase in facilities and investor relations
expenses. We expect general and administrative expenses to increase in 2004 and beyond as a result of the
increased costs of compliance with new audit regulations, including section 404 of the Sarbanes Oxley Act,
and costs associated with preparing for the potential launch of our products.
Other income and expenses were $(7.6) million, $0.4 million and $1.2 million in 2003, 2002 and 2001,
respectively. For 2003, other income and expense was comprised of the following: an expense of $(7.6) million
for the non-cash amortization of the deemed discount and deferred issuance costs on the convertible debentures
issued and converted to common stock during 2003; interest income of $0.4 million; and interest expense on the
convertible debentures totaling $(0.4) million. Other income and expense for 2002 and 2001 was interest income
totaling $0.4 million and $1.2 million for each year respectively. The interest income declined in 2002 compared
to 2001 due to lower cash balances and lower interest rates.

Liquidity and Capital Resources We have financed our operations since inception primarily through
the sale of shares of common stock. During the year ended December 31, 1995, we received cash proceeds
of $250,000 from the sale of securities. In May 1996, we completed a private placement of shares of common
stock, from which we received aggregate gross proceeds of $1.3 million. In March 1997, the Merger of IAC
and Hollis-Eden, Inc. provided us with $6.5 million in cash and other receivables. In May 1998, we completed
a private placement of common stock and warrants, from which we received gross proceeds of $20 million.
During January 1999, we completed two private placements of common stock raising approximately $25 million.
In December 2001, we completed a private placement of common stock and warrants, from which we received
gross proceeds of $11.5 million. In February 2003, we completed a private placement of convertible debentures
and warrants, from which we received gross proceeds of $10.0 million. In June 2003, we completed a private
placement of common stock and warrants, from which we received gross proceeds of $14.7 million. In October
2003 we completed a public offering of our common stock from which we received $62.5 million in gross
proceeds. In addition, we have received a total of $17.3 million from the exercise of warrants and stock
options from inception.
On June 20, 2003, convertible debentures with a face value of $0.5 million were converted into 87,720 shares
of our common stock, leaving a $9.5 million aggregate principal amount of convertible debentures outstanding.
We became entitled to convert the outstanding debentures into common stock as of the close of market on
Friday, August 8, 2003, at which point the volume weighted average price of our common stock had exceeded
$14.25 for 15 consecutive trading days. On August 11, 2003, the remaining aggregate principal amount of
convertible debentures with a face value of $9.5 million were converted into 1,666,680 shares of our common
stock with a value of $5.70 per share.
A summary of our current contractual obligations is as follows (in thousands):

Payments Due by Period

Contractual Obligations Total Less than One to Three to More than

one year three years five years five years

Operating Leases $1,045 $810 $213 $22 $-

 25 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

Our operations to date have consumed substantial capital without generating any revenues, and we
will continue to require substantial and increasing amounts of funds to conduct necessary research and
development and preclinical and clinical testing of our drug candidates, and to market any drug candidates that
receive regulatory approval. With the possible exception of sales of our NEUMUNE product for radiation
treatment, we do not expect to generate revenue from operations for the foreseeable future, and our ability
to meet our cash obligations as they become due and payable may depend for at least the next several years
on our ability to sell securities, borrow funds or some combination thereof. Based upon our current plans,
we believe that our existing capital resources, together with interest thereon, will be sufficient to meet our
operating expenses and capital requirements at least well into 2006. However, changes in our research and
development plans or other events affecting our operating expenses may result in the expenditure of such cash
before that time. We may not be successful in raising necessary funds.
Our future capital requirements will depend upon many factors, including progress with preclinical testing
and clinical trials, the number and breadth of our programs, the time and costs involved in preparing, filing,
prosecuting, maintaining and enforcing patent claims and other proprietary rights, the time and costs involved
in obtaining regulatory approvals, competing technological and market developments, and our ability to establish
collaborative arrangements, effective commercialization, marketing activities and other arrangements. We may
incur increasing negative cash flows and net losses for the foreseeable future. We may seek additional funding
through public or private financing or through collaborative arrangements with strategic partners.

Critical Accounting Policies Certain of our accounting policies require the application of judgment and
estimates by management, which may be affected by different assumptions and conditions. These estimates are
typically based on historical experience, terms of existing contracts, trends in the industry and information available
from other outside sources, as appropriate. We believe the estimates and judgments associated with our reported
amounts are appropriate in the circumstances. Actual results could vary from those estimates under different
assumptions or conditions. Given the nature of our current operations, there are no other critical accounting
policies that affect us.

Impact of Recently Issued Accounting Pronouncements On December 31, 2002, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148,
Accounting for Stock-Based Compensation –– Transition and Disclosure. SFAS No.148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition to the fair value
method of accounting for stock-based employee compensation under SFAS No. 123. SFAS No. 148 also amends
the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting, to require
disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with
respect to stock-based employee compensation on reported earnings in annual and interim financial statements.
While the Statement does not amend SFAS No. 123 to require companies to account for employee stock
options using the fair value method, the disclosure provisions of SFAS No. 148 are applicable to all companies
with stock-based employee compensation, regardless of whether the accounting for that compensation is using
the fair value method of SFAS No. 123 or the intrinsic value method of Opinion 25. The company has elected
to continue using the intrinsic value method and has incorporated these expanded disclosures into our Notes
To Financial Statements.
 26 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

Hollis-Eden Pharmaceuticals, Inc. (A Development Stage Company)

BALAN CE S H E ETS
December 31,
2003 2002
(in thousands)

Assets:
Current Assets:
Cash and cash equivalents $ 84,852 $ 13,087
Prepaid expenses 134 123
Deposits 27 87
Receivable from related party (Note 4) 18 –
Total current assets 85,031 13,297
Property and equipment, net of accumulated depreciation
of $434 and $327 282 398
Deposits 68 –
Receivable from related party (Note 4) – 274
Other receivable – 13
Total assets $ 85,381 $ 13,982

Liabilities and Stockholders’ Equity:

Current Liabilities:
Accounts payable and accrued expenses $ 3,329 $ 2,950
Total current liabilities 3,329 2,950
Commitments and contingencies
(Notes 6, 11, 12)

Stockholders’ Equity:
(Notes 3, 7, 8, 9, 10)
Preferred stock, no par value, 10,000 shares authorized;
no shares outstanding – –
Common stock, $.01 par value, 50,000 and 50,000 shares
authorized respectively; 19,272 and 12,972 shares issued,
respectively 193 130
Paid-in capital 189,296 92,322
Cost of treasury stock (59 shares) as of December 31, 2003 (346) –
Deficit accumulated during development stage (107,091) (81,420)
Total stockholders’ equity 82,052 11,032
Total liabilities and stockholders’ equity $ 85,381 $ 13,982

The accompanying notes are an integral part of these financial statements.

 27 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

Hollis-Eden Pharmaceuticals, Inc. (A Development Stage Company)

STATE M E NTS OF OPE RATI ON S

Period from
Inception
(Aug. 15, 1994)
For the year ended December 31,
to December 31,
2003 2002 2001 2003
(in thousands, except per share amounts)

Operating Expenses:
Research and development
R&D operating expenses $ 10,442 $ 13,017 $ 11,774 $ 61,823
R&D costs related to common stock and
stock option grants for collaborations
and technology purchases 322 66 96 5,664
Total research and development 10,764 13,083 11,870 67,487
General and administrative
G&A operating expenses 5,161 4,523 4,804 27,475
G&A costs related to
options/warrants granted 2,166 264 287 12,207
Total general and administrative 7,327 4,787 5,091 39,682
Total operating expenses 18,091 17,870 16,961 107,169

Other Income (expense):

Gain/loss on disposition of assets (2) (21) – (23)
Non-cash amortization of deemed discount and
deferred issuance costs on convertible debentures (7,627) – – (7,627)
Interest income 387 389 1,199 8,116
Interest expense (338) – – (388)
Total other income (7,580) 368 1,199 78
Net loss $(25,671) $(17,502) $(15,762) $(107,091)
Net loss per share, basic and diluted $ (1.67) $ (1.35) $ (1.35)
Weighted average number
of common shares outstanding 15,381 12,932 11,654
The accompanying notes are an integral part of these financial statements.
 28 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

Hollis-Eden Pharmaceuticals, Inc. (A Development Stage Company)

STATE M E NTS OF STOCK H OLD E R S’ E QU ITY

Preferred Stock
at Par Value
Shares Amount
(in thousands)

Contribution by stockholder – $ –
Common stock issued for cash – –
Common stock issued as consideration for the license agreements (Note 6) – –
Net loss – –
Balance at December 31, 1994 – –
Common stock issued for cash – –
Common stock issued as consideration for amendments to the license agreements (Note 6) – –
Net loss – –
Balance at December 31, 1995 – –
Common stock issued in conversion of debt (Note 7) – –
Common stock issued for cash, net of expenses (Note 7) – –
Common stock issued as consideration for termination of a finance agreement – –
Warrants issued to consultants for services rendered – –
Net loss – –
Balance at December 31, 1996 – –
Recapitalization of Company upon the merger with Initial Acquisition Corp. (Note 3) – –
Warrants issued to a certain director upon the successful closure of the merger (Note 3) – –
Exercise of warrants, net of expenses – –
Deferred compensation – stock options (Note 9) – –
Amortization of deferred compensation – –
Exercise of stock options – –
Net loss – –
Balance at December 31, 1997 – –
Exercise of warrants – –
Exercise of stock options – –
Private Placement, net of expenses (Note 7) 4 –
Warrants issued for services in lieu of cash (Note 10) – –
Stock issued for license fee (Note 6) – –
Stock issued for services in lieu of cash – –
Options issued for services in lieu of cash (Note 9) – –
Amortization of deferred compensation – –
Net Loss – –
Balance at December 31, 1998 4 –
Exercise of warrants – –
Exercise of stock options – –
Private Placement, net of expenses (Note 7) – –
Preferred Stock Conversion (Note 7, 8) (4) –
Deferred compensation – Options forfeited (Note 9) – –
Amortization of non-employee options – –
Warrants issued for services in lieu of cash (Note 10) – –
Options accelerated vesting (Note 9) – –
Net Loss – –
Balance at December 31, 1999 – $ –
 29 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

Deficit
Accumulated
Common Stock Capital in Cost of Repurchased During
at Par Value Excess of Common Stock Deferred Development
Shares Amount Par Value Shares Amount Compensation Stage Total

– $ – $ 103 – $ – $ – $ – $ 103
2,853 – 25 – – – – 25
543 – 5 – – – – 5
– – – – – – (1,277) (1,277)
3,396 – 133 – – – (1,277) (1,144)
679 – 250 – – – – 250
76 – 28 – – – – 28
– – – – – – (672) (672)
4,151 – 411 – – – (1,949) (1,538)
165 – 371 – – – – 371
580 – 1,234 – – – – 1,234
15 – 34 – – – – 34
– – 24 – – – – 24
– – – – – – (692) (692)
4,911 – 2,074 – – – (2,641) (567)
883 58 6,213 – – – – 6,271
– – 570 – – – – 570
978 10 5,619 – – – – 5,629
– – 1,848 – – (1,848) – –
– – – – – 282 – 282
– – 1 – – – – 1
– – – – – – (5,253) (5,253)
6,772 68 16,325 – – (1,566) (7,894) 6,933
399 4 1,196 – – – – 1,200
53 1 155 – – – – 156
1,329 13 19,877 – – – – 19,890
– – 408 – – – – 408
33 – 500 – – – – 500
6 – 95 – – – – 95
– – 240 – – – – 240
– – – – – 308 – 308
– – – – – – (5,427) (5,427)
8,592 86 38,796 – – (1,258) (13,321) 24,303
755 8 5,136 – – – – 5,144
10 – 75 – – – – 75
1,368 14 24,759 – – – – 24,773
346 3 (3) – – – – –
– – (1,207) – – 1,258 – 51
– – 559 – – – – 559
– – 2,140 – – – – 2,140
– – 4,900 – – – – 4,900
– – – – – – (15,320) (15,320)
11,071 $ 111 $75,155 – $ – $ – $(28,641) $ 46,625
 30 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

Hollis-Eden Pharmaceuticals, Inc. (A Development Stage Company)

STATE M E NTS OF STOCK H OLD E R S’ E QU ITY Continued

Preferred Stock
at Par Value
Shares Amount
(in thousands)

Balance at December 31, 1999 – $ –

Exercise of warrants – –
Exercise of stock options – –
Common Stock issued for 401k / 401m plan – –
Common Stock issued for In-Process R & D (Note 6) – –
Options granted for license fee – –
Amortization of non-employee options – –
Common Stock issued for purchase of technology – –
Net Loss – –
Balance at December 31, 2000 – –
Exercise of stock options – –
Common Stock issued for 401k/401m plan – –
Private Placement, net of expenses (Note 7) – –
Warrants issued for services in lieu of cash (Note 10) – –
Amortization of non-employee options – –
Warrants issued for services – –
Net Loss – –
Balance at December 31, 2001 – –
Exercise of stock options – –
Common Stock issued for 401k/401m plan – –
Common Stock issued for sublicense agreement (Note 6) – –
Common Stock issued to consultatnts – –
Amortization of non-employee options – –
Warrants issued for services – –
Net Loss – –
Balance at December 31, 2002 – –
Common Stock issued for 401k/401m plan – –
Exercise of warrants – –
Exercise of stock options – –
Stock options issued – –
Private Placement, net of expenses – –
Common Stock issued for sublicense agreement (Note 6) – –
Common Stock issued for milestone payment – –
Debt Conversion – –
Common Stock issued in lieu of cash/interest – –
Public Offering, net of expenses – –
Deemed discount on convertible debentures – –
Warrants issued for services – –
Amortization of non-employee options – –
Purchase of treasury stock – –
Net Loss – –
Balance at December 31, 2003 – $ –

The accompanying notes are an integral part of these financial statements.

 31 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

Deficit
Accumulated
Common Stock Capital in Cost of Repurchased During
at Par Value Excess of Common Stock Deferred Development
Shares Amount Par Value Shares Amount Compensation Stage Total

11,071 $ 111 $75,155 – $ – $ – $(28,641) $46,625

133 2 758 – – – – 760
1 – 5 – – – – 5
6 – 63 – – – – 63
209 2 1,998 – – – – 2,000
38 – 598 – – – – 598
– – 79 – – – – 79
132 1 1,847 – – – – 1,848
– – – – – – (19,515) (19,515)
11,590 116 80,503 – – – (48,156) 32,463
10 – 22 – – – – 22
16 – 96 – – – – 96
1,280 13 10,644 – – – – 10,657
– – 80 – – – – 80
– – 96 – – – – 96
– – 208 – – – – 208
– – – – – – (15,762) (15,762)
12,896 129 91,649 – – – (63,918) 27,860
– – 2 – – – – 2
26 – 137 – – – – 137
50 1 204 – – – – 205
– – 17 – – – – 17
– – 66 – – – – 66
– – 247 – – – – 247
– – – – – – (17,502) (17,502)
12,972 130 92,322 – – – (81,420) 11,032
32 – 223 – – – – 223
467 5 3,323 – – – – 3,328
85 1 955 – – – – 956
– – 561 – – – – 561
1,283 13 14,290 – – – – 14,303
119 1 644 – – – – 645
50 1 281 – – – – 282
1,755 17 9,983 – – – – 10,000
9 – 142 – – – – 142
2,500 25 58,576 – – – – 58,601
– – 6,470 – – – – 6,470
– – 1,398 – – – – 1,398
– – 128 – – – – 128
– – – (59) (346) – – (346)
– – – – – – (25,671) (25,671)
19,272 $ 193 $189,296 (59) $(346) $ – $(107,091) $ 82,052
 32 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

Hollis-Eden Pharmaceuticals, Inc. (A Development Stage Company)

STATE M E NTS OF CAS H FLOWS

Period from
Inception
(Aug. 15, 1994)
For the year ended December 31,
to December 31,
2003 2002 2001 2003
(in thousands)

Cash Flows from Operating Activities:

Net loss $(25,671) $(17,502) $(15,762) $(107,091)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 118 122 131 576
Disposal of assets 2 21 – 30
Amortization of deemed discount on
convertible debentures 6,470 6,470
Amortization of deferred issuance cost 1,157 1,157
Common stock issued for 401k / 401m plan 223 137 96 519
Common stock issued as consideration for
amendments to the license agreements – – – 33
Common stock issued as consideration
for termination of a finance agreement – – – 34
Common stock and options issued as
consideration for license fees, milestone
payment, interest and services 552 271 176 2,692
Expense related to warrants issued
as consideration to consultants 1,518 247 208 4,113
Expense related to warrants issued to
a director for successful closure of merger – – – 570
Expense related to stock options issued 561 17 – 5,718
Expense related to common stock issued
for the purchase of technology – – – 1,848
Common stock issued as consideration
for In-Process R&D – – – 2,000
Deferred compensation expense
related to options issued – – – 1,210

Changes in Assets and Liabilities:

Prepaid expenses (11) 46 (73) (134)
Deposits (8) (60) – (95)
Other receivable 13 (13) – –
Loan receivable from related party 3 3 (21) (18)
Accounts payable and accrued expenses 1,024 (652) 966 3,974
Net cash used in operating activities $(14,049) $(17,363) $(14,279) $ (76,394)
 33 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

Hollis-Eden Pharmaceuticals, Inc. (A Development Stage Company)

STATE M E NTS OF CAS H FLOWS Continued

Period from
Inception
(Aug. 15, 1994)
For the year ended December 31,
to December 31,
2003 2002 2001 2003
(in thousands)

Cash Flows Provided by Investing Activities:

Purchase of property and equipment $ (4) $ (119) $ (132) $ (887)
Payback of loan by a company officer 253 – – –
Net cash provided by/used in investing activities 249 (119) (132) (887)

Cash Flows from Financing Activities:

Contributions from stockholder – – – 104
Net proceeds from sale of preferred stock – – – 4,000
Net proceeds from sale of common stock 72,413 10,657 125,242
Net proceeds from issuance
of convertible debentures and warrants 9,214 – – 9,214
Purchase of treasury stock (346) – – (346)
Proceeds from issuance of debt – – – 371
Net proceeds from recapitalization – – – 6,271
Net proceeds from warrants/options exercised 4,284 2 23 17,277
Net cash from financing activities 85,565 2 10,680 162,133
Net increase (decrease) in cash and equivalents 71,765 (17,480) (3,731) 84,852
Cash and equivalents at beginning of period 13,087 30,567 34,298 –
Cash and equivalents at end of period $ 84,852 $ 13,087 $ 30,567 $ 84,852

Supplemental disclosure
of cash flow information
Interest paid $ 338 $ – $ – $ 388
Conversion of debt to equity 10,000 – – 10,371
Warrants issued to consultants
in lieu of cash, no vesting – 247 288 559
Warrants issued in lieu of cash,
commissions on private placement – – – 733
Warrants issued in connection with
convertible debentures 371 – – 371
The accompanying notes are an integral part of these financial statements.
 34 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

N OT E S TO F I NAN C IAL STAT E M E NTS

1. The Company
Hollis-Eden Pharmaceuticals, Inc. (“Hollis-Eden” or the “Company”), a development stage pharmaceutical
company, is engaged in the discovery, development and commercialization of products for the treatment
of diseases and disorders in which the body is unable to mount an appropriate immune response. From
inception (August 15, 1994) through March 1997, the Company's efforts were directed toward organizing,
licensing technology and preparing for offerings of shares of its common stock. Since 1997, the Company has
been expanding its intellectual property, developing its lead drug candidates, performing preclinical tests and
has entered into multiple Phase II clinical studies. Our initial technology development efforts are focused on
a series of potent hormones and hormone analogs that we believe are key components of the body’s natural
regulatory system. We believe these immune regulating hormones can be used to reestablish host immunity
in situations of dysregulation. To date, the Company has not developed commercial products or generated
sales for the period since inception (August 15, 1994) through December 31, 2003.

2. Summary of Accounting Policies

Cash Equivalents The Company considers any liquid investments with a maturity of three months or less when
purchased to be cash equivalents. At December 31, 2003, the Company's cash equivalents are approximately
$84.9 million and are deposited primarily in a money market mutual fund with a large financial institution.
Property and Equipment Property and equipment is stated at cost and depreciated over the estimated useful
lives of the assets (five and seven years) using the straight-line method.
Research and development Research and development costs consist of license fee expenses related to license
agreements, preclinical and clinical trial expenses, as well as research and development expenses with related
parties. Such amounts paid to related parties aggregated $11.5 million in the form of cash and stock for
the period from inception (August 15,1994) to December 31, 2003 (see Note 6, “Colthurst, Edenland and
Mr. Prendergast” and “Aeson Therapeutics”). Such expenses are recognized as incurred.
Accounting for Stock-Based Compensation During 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 123, Accounting for Stock-Based Compensation No. 123, which
defines a fair-value-based method of accounting for stock compensation plans. However, it also allows an entity
to continue to measure compensation cost related to employee stock compensation plans using the method of
accounting prescribed by the Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock
Issued to Employees. Entities electing to follow APB 25 must make pro forma disclosures of net income, as if
the fair-value-based method of accounting defined in SFAS 123 had been applied.
If the Company had accounted for stock options issued to employees and directors in accordance with SFAS 123,
the Company’s net loss would have been reported as follows (in thousands, except per share amounts):
Year ended December 31,
2003 2002 2001

Net loss - As reported $(25,671) $(17,502) $(15,762)

Deduct: Total stock-based employee compensation expense
determined under fair-value-based method for all awards $ (4,690) $ (5,570) $ (767)

Net loss – Pro forma $(30,361) $(23,072) $(16,529)

Basic and diluted net loss per share - As reported $ (1.67) $ (1.35) $ (1.35)
Basic and diluted net loss per share - Pro forma $ (1.97) $ (1.78) $ (1.42)
 35 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

Income Taxes The Company provides for income taxes under the principles of SFAS 109 which requires that
provision be made for taxes currently due and for the expected future tax effects of temporary differences
between book and tax bases of assets and liabilities.
Financial instruments The Company's financial instruments consist primarily of cash, other receivables and
accounts payable. These financial instruments are stated at their respective carrying values, which approximate
their fair values, due to their short term nature.
Use of estimates The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Net loss per share Basic net loss per share is computed by dividing net loss by the weighted average number
of common shares outstanding during the period. Diluted net loss per share is computed in a manner consistent
with basic net loss per share after giving effect to potentially dilutive securities. Potential common shares of
7,097,978, 6,254,853, and 6,297,364 related to the Company’s outstanding stock option and warrants were
excluded from the computation of diluted net loss per share for the years ended December 31, 2003, 2002
and 2001 because their effect on net loss per share is anti-dilutive.
Recent accounting pronouncements On December 31, 2002, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based
Compensation –– Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition to the fair value method of accounting for stock-
based employee compensation under SFAS No. 123. SFAS No. 148 also amends the disclosure provisions of
SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting, to require disclosure in the summary
of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based
employee compensation on reported earnings in annual and interim financial statements. While the Statement
does not amend SFAS No. 123 to require companies to account for employee stock options using the fair value
method, the disclosure provisions of SFAS No. 148 are applicable to all companies with stock-based employee
compensation, regardless of whether the accounting for that compensation is using the fair value method of
SFAS No. 123 or the intrinsic value method of Opinion 25. The company has elected to continue using the
intrinsic value method and has incorporated these expanded disclosures into these notes.

3. Recapitalization
During March 1997, Hollis-Eden Inc. was merged (the “Merger”) with and into the Company (then known
as Initial Acquisition Corp. (IAC)). Upon consummation of the Merger, Hollis-Eden Inc. ceased to exist, and
IAC changed its name to Hollis-Eden Pharmaceuticals, Inc. IAC (now called Hollis-Eden Pharmaceuticals,
Inc.) remains the continuing legal entity and registrant for Securities and Exchange Commission reporting
purposes. The Merger was accounted for as a recapitalization of Hollis-Eden Inc. by an exchange of Common
Stock of Hollis-Eden Inc., for the net assets of IAC, consisting primarily of $6.5 million in cash and other
receivables.
Under the terms of the merger agreement, each share of Hollis-Eden Inc. Common Stock outstanding
converted into one share of Common Stock of Hollis-Eden Pharmaceuticals, Inc. Common Stock (“Company
Common Stock”), and all warrants and options to purchase Hollis-Eden Inc. Common Stock outstanding
converted into the right to receive the same number of shares of Company Common Stock.
Upon the consummation of the Merger, pursuant to an agreement, the Company issued warrants to
purchase an aggregate of 50,000 shares of Company Common Stock at an exercise price of $0.10 per share
 36 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

to a director and former officer. Additional paid-in capital was increased by $570,000 with an offsetting
$570,000 charge recorded to operations during the three months ended March 31, 1997.

4. Note Receivable from Related Party

On April 23, 2001, the Company entered into a promissory note with a stockholder/officer in the amount of
$16,875. Interest is at 4.5% per annum. Two payments totaling two-thirds of the note was paid by each of the
due dates during April 2002 and 2003 and the remaining one third payment is due and payable on April 23
of 2004.
On May 22, 1998, the Company entered into a promissory note with a stockholder/officer in the amount
of $200,000. Interest was at 5.5% per annum. The note was repaid in full during May 2003.

5. Income Taxes
The Company has available a net operating loss carryforward of approximately $79 million at December 31,
2003 which may be carried forward as an offset to taxable income, if any, in future years through its expiration
in 2012 to 2023. The Company has a net deferred tax asset of approximately $30 million at December 31, 2003
comprised of capitalized start-up costs, research and development credits, and the net operating loss carryfor-
ward. The net deferred tax asset has been fully reserved due to the uncertainty of the Company being able to
generate taxable income under the more likely than not criteria of SFAS 109. If certain substantial changes in
the Company’s ownership should occur, there would potentially be an annual limitation on the amount of the
carryforwards, which could be utilized in a tax year.

6. Related Party Licenses and other Agreements and Contingencies

Colthurst, Edenland and Mr. Prendergast During 1994, the Company entered into two license agreements
and one research, development and option agreement as discussed in the following paragraphs.
Pursuant to a license agreement dated May 18, 1994 (“Colthurst License Agreement”) with related parties,
Patrick T. Prendergast, a significant stockholder at the time, and with Colthurst Limited, a company controlled
by Mr. Prendergast, the Company acquired the exclusive worldwide rights of Mr. Prendergast's patent rights,
know-how and background technology relating to the treatment of human/animal immunodeficiency. The
agreement was amended on August 11, 1995 to change the license fee payment terms as discussed below in
paragraph four of this Note. Per the license agreement, the Company agreed to pay royalties on product rev-
enues.
On August 25, 1994, the Company entered into a license agreement (“Edenland License Agreement”) with
a related party, Edenland Inc., a company controlled by Mr. Prendergast, for the exclusive worldwide rights of
Mr. Prendergast's patent rights, know-how and background technology related to the substance tradenamed
HE317 and to any other pharmaceutical product that became subject to the license agreement under the
research, development and option agreement discussed below The agreement was amended on August 11, 1995
to change the license fee payment terms as discussed in the following paragraph. Per the Edenland License
Agreement, the Company agreed to pay royalties on product revenues.
Effective August 11, 1995, Edenland, Inc., Colthurst Limited and the Company entered into amendments
concerning the license fee payment terms to the two agreements described above. Under this amendment,
the Company agreed to pay a license fee by April 28, 1996 plus additional license fees within 24 months of
April 1996. The balances of these fees were paid in full by May 1997. As consideration for entering into
certain amendments, the Company issued 75,472 shares of the Company's common stock to Edenland, Inc.
and Colthurst Limited.
Per the amended Colthurst License Agreement, a renewal annual license fee was payable commencing May
1998. The Company paid this fee in 1998 by issuing shares of its common stock and, in 1999, paid in cash.
 37 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

In August 1994, the Company entered into a Research, Development and Option Agreement, with
Edenland, Inc. and Mr. Prendergast. The agreement provided for the development of HE317 to a certain
stage of development and granted the Company the right of first option on new products developed by
Edenland, Inc. The agreement committed the Company to pay for certain development costs up to the
amount of $3.0 million with certain contingencies for funding. In October 1996, the Company and Edenland,
Inc. entered into an amendment, which accelerated the date that the $3.0 million payment for HE317 or other
product development costs was to be made. The Company paid $2.7 million during 1997 and the remaining
$300,000 in April 1998.
During November 1999, the Company filed two separate requests for arbitration with Mr. Prendergast,
Colthurst and Edenland. The first arbitration sought clarification of certain operational issues with respect to
roles and responsibilities set forth in the license agreement covering IMMUNITIN. The second arbitration
sought to rescind both of the agreements with Edenland covering future potential drug candidates other than
IMMUNITIN.
On January 20, 2000, Hollis-Eden reached a settlement on its pending arbitrations with Mr. Prendergast,
Colthurst and Edenland. The Settlement and Mutual Release Agreement completely disposed of all of the
matters that were at issue in the pending arbitrations. In addition, the parties entered into two new technology
agreements, the Technology Assignment Agreement and the Sponsored Research and License Agreement.
The Technology Assignment Agreement replaces the Colthurst License Agreement. Pursuant to the
Technology Assignment Agreement, Mr. Prendergast and Colthurst assigned to Hollis-Eden ownership of
all patents, patent applications and current or future improvements of the technology under the Colthurst
License Agreement, including IMMUNITIN, Hollis-Eden’s lead clinical compound. The annual license fee
of $500,000 and the royalty obligations under the Colthurst License Agreement were eliminated. In
consideration for the foregoing, Hollis-Eden agreed to issue to Colthurst 660,000 shares of Common Stock
and a warrant to purchase an aggregate of 400,000 shares of Common Stock at $25 per share. Only 132,000
of such shares of Common Stock were issued in 2000, with the remaining 528,000 shares to be issued over the
next four years conditioned on continued compliance with the agreement and, in particular, satisfaction of the
Conditions (as defined below). In addition, all of the shares under the warrant vest over four years conditioned
on continued compliance with the agreement and, in particular, satisfaction of the Conditions (as defined
below). The Sponsored Research and License Agreement replaces the Edenland License Agreement and the
Research, Development and Option Agreement. Pursuant to the Sponsored Research and License Agreement,
Edenland exclusively licensed to Hollis-Eden a number of compounds, together with all related patents and
patent applications, and Hollis-Eden agreed to fund additional preclinical research projects conducted by
Edenland. Hollis-Eden will also have exclusive license rights to all results of such research and will have
royalty obligations to Edenland on sales of new products, if any, resulting from such research.
As stated above, the issuance of the additional shares of Common Stock and the vesting of the warrant was
dependent upon the satisfaction of certain conditions (the “Conditions”), including (i) support of Hollis-Eden’s
actions by Mr. Prendergast and Colthurst, by voting their shares of Hollis-Eden stock in favor of management
and (ii) Mr. Prendergast and his affiliated companies not conducting research and development activities
relating to the transferred technology. In accordance with Emerging Issues Task Force No. 96-18,
“Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services,” these future events could not be determined at the date of the
agreements (January 2000). Accordingly, the shares and warrants are accounted for as they vest or are issued.
During 2000, the Company recorded a research and development charge for $1.9 million representing the fair
value of the 132,000 shares issued under the agreement.
Because all of the Conditions have not been satisfied, Hollis-Eden has not issued any additional shares to
Colthurst and believes it has no obligation to issue any additional shares and that the warrant will not vest as
 38 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

to any shares of Common Stock. While Hollis-Eden is confident in its analysis, if any dispute should arise in
this matter, Hollis-Eden cannot guarantee that, as a result of such dispute, additional equity will not be issued
or that an additional accounting charge will not be made.
Aeson Therapeutics In October 2000, the Company acquired a 21% equity stake in Aeson Therapeutics Inc.
(“Aeson”) and an exclusive worldwide sublicense to three issued patents in the area of adrenal steroids in
exchange for $2.0 million in cash and 208,672 shares of Common Stock valued at $2 million. The cash and
shares were expensed as in-process R&D during the fourth quarter of 2000. As part of the transaction, Aeson
and its shareholders granted the Company an exclusive option to acquire the remainder of Aeson at a predeter-
mined price.
In March 2002, the Company amended certain of its agreements with Aeson. Under the amendments, the
Company paid Aeson $1.2 million, which extended the initial date by which the Company could exercise its
option to acquire the remainder of Aeson to September 30, 2002. Hollis-Eden also received additional equity
securities as a result of its $1.2 million payment and now has approximately a 25% equity stake in Aeson.
The $1.2 million payment was expensed as in-process R&D.
Hollis-Eden elected not to exercise the option to acquire the remainder of Aeson by September 30, 2002.
Accordingly, the option to acquire Aeson has now expired. The Company continues to hold a 25% equity
interest in Aeson.
Pharmadigm In August 2002, we entered into a Sublicense Agreement with Pharmadigm, Inc. Under the
agreement, we obtained exclusive worldwide rights to certain intellectual property of Pharmadigm and the
University of Utah and we agreed to make aggregate payments of $0.9 million in cash or in shares of our
common stock, at our option, over the next year. This cost was expensed in the third quarter of 2002. We
elected to make such payments in equity and have issued a total of 168,921 shares of our common stock in
complete satisfaction of this requirement (of which 118,921 were issued the quarter ended March 31, 2003).
We may also make additional milestone and royalty payments to Pharmadigm if we meet specified develop-
ment and commercialization milestones for products covered by the patents. The principal patents licensed
under the agreement, originally licensed to Pharmadigm from the University of Utah, relate to inventions by
Dr. Raymond Daynes and Dr. Barbara A. Areneo. Dr. Daynes is currently a scientific consultant to Hollis-Eden.

7. Common Stock
Reverse Stock Splits During February 1995, there was a 3 for 5 reverse stock split of the Company's common
stock and in March 1996, a 1 for 2.65 reverse stock split of the Company's common stock. Both reverse stock
splits have been retroactively reflected for all periods presented.
Common Stock Financings In January 1996, the Company completed a $367,522 round of debt financing
with a group of private investors. These notes, with an 8% interest rate, were due on or before the earlier of
(i) January 21, 1997 or (ii) the closing of a private or public offering of securities. During April 1996, the debt
financing, plus accrued interest, was converted into 164,962 shares of common stock at a price of $2.25 per
share. In April 1996, the Company privately issued 580,005 shares of the Company's common stock at an
offering price of $2.25 per share. Total proceeds from this offering aggregated $1,234,499.
During May 1998, the Company completed a private financing totaling $20.6 million in gross proceeds.
The Company issued 1,329,201 shares of common stock, (of which 192,061 shares were subject to adjustment
based on future average stock price (“Adjustable Common Stock”)), 4,000 shares of 5% Series A Convertible
Preferred Stock and warrants to purchase 1,437,475 shares of common stock in the financing. The warrants
entitled the holders to purchase up to a total of 1,437,475 shares of common stock at a price of $17.00 per share.
The Convertible Preferred Stock had an initial conversion price of $20.30 for the first seven months, after
which it could be adjusted, either up or down, based on the future stock prices of the Company’s common
stock. The Convertible Preferred Stock was converted to common stock in January 1999 (See Note 8).
 39 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

In January 1999, the Company completed two private placements of an aggregate of 1,367,868 shares of
common stock at prices ranging from $18.00 to $18.50 per share. In connection with the private placements,
the Company issued warrants to purchase an aggregate of 90,000 shares of the Company’s common stock,
with an exercise price of $18.25 per share, as a finder’s fee. The Company raised approximately $25.0 million
in gross proceeds.
During December 2001, the Company raised $11.5 million in gross proceeds from the sale of 1.28 million
shares of newly issued common stock in a private placement at a price of $9.00 per share. The investors were a
group of qualified institutional buyers and institutional accredited investors. The Company also issued warrants
to purchase up to 128,000 shares of common stock having an exercise price of $12.00 per share to investors.
As a finders fee, the Company issued to its placement agent two warrants for a total of 112,640 shares of
common stock, one warrant with an exercise price of $9.00 and the other with an exercise price of $12.00.
On February 25, 2003, we completed a private placement in which we issued $10.0 million aggregate
principal amount of three-year convertible debentures (“debentures”), bearing interest at 7.5% per year, and
warrants to purchase up to 701,760 shares of common stock. The debentures were convertible into common
stock at a price of $5.70 per share, which represented a discount from the price of our common stock on the
commencement date. Also issued in connection with this private placement were warrants to purchase up to
350,880 shares of common stock which are exercisable at a price per share of $6.17, subject to adjustment, and
warrants to purchase up to 350,880 shares of common stock which are exercisable at a price per share of $6.71,
subject to adjustment. The warrants are exercisable until February 25, 2007.
In connection with the issuance of the debentures and warrants, we recorded approximately $3.5 million
related to the beneficial conversion feature and approximately $3.0 million for the detachable warrants on the
debentures. The total amount of the deemed discount on the debentures as a result of the warrant issuance
and the beneficial conversion feature amounts to $6.5 million. The beneficial conversion feature and warrant
value (deemed discount) were amortized over the term of the debentures and as conversion of the debentures
occurred.
On June 20, 2003, convertible debentures with a face value of $0.5 million were converted into 87,720
shares of our common stock leaving a $9.5 million aggregate principal amount of convertible debentures out-
standing. On August 11, 2003, the remaining aggregate principal amount of convertible debentures with a face
value of $9.5 million were converted into 1,666,680 shares of our common stock with a value of $5.70 per share.
During June 2003, the Company completed a private placement of common stock and warrants, from
which it received gross proceeds of $14.7 million. In October 2003 the Company completed a public offering
of an aggregate of 2,500,000 shares of common stock at a price of $25.00 per share and received $62.5 million
in gross proceeds from this offering.

8. Preferred Stock
During May 1998, as part of a private placement, the Company issued 4,000 shares of Convertible Preferred Stock
for proceeds of $4.0 million. The proceeds of the offering is included in the proceeds to the May 1998 financing
described in Note 7, above.
During January 1999, the Company issued 346,127 shares of common stock in connection with the
conversion of the Series A Convertible Preferred Stock and additional shares relating to the Adjustable
Common Stock. The Adjustable Common Stock was issued during the private placement of May 1998 and
was subject to adjustment based on the future average stock price of the Company’s common stock as described
in Note 7. Upon conversion, all outstanding Preferred shares and Adjustable Common shares were eliminated.
In November 1999, the Company adopted a Shareholders Rights Plan in which Preferred Stock purchase
rights (“Rights”) were distributed as a dividend at the rate of one Right for each share of common stock held
as of the close of business on November 29, 1999. Each right entitles stockholders to buy, upon certain events,
one one-hundredth of a share of a new Series B junior participating preferred stock of the Company at an
 40 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

exercise price of $100.00. The Rights are designed to guard against partial tender offers and other abusive
tactics that might be used in an attempt to gain control of the Company or to deprive stockholders of their
interest in the long-term value of the Company. The Rights are exercisable only if a person or group acquires
15% or more of the Company’s common stock or announces a tender offer of which the consummation would
result in ownership by a person or group of 15% or more of the Company’s common stock. The Rights are
redeemable for one cent per Right at the option of the Board of Directors prior to this event occurring.
The Rights expire on November 14, 2009.

9. Stock Options
1997 Stock Option Plan The 1997 Stock Option Plan (the “Plan”) was approved by the Company’s stock-
holders in 1997. Under the Plan, 4,400,000 shares of common stock have been reserved for issuance to
employees, officers, directors, and consultants of the Company and provides for the grant of incentive and
nonstatutory stock options. The Board of Directors determines terms of the stock option agreements, including
vesting requirements. The exercise price of incentive stock options must equal at least the fair market value
on the date of grant. The options expire not later than ten years from the date of the grant and become
exercisable immediately or generally are exercisable ratably over a three-year or four-year period beginning
one year from the date of the grant. The following table summarizes stock option activity under the Plan
for 1997 through 2003 (in thousands, except per share amounts):
Price Per Share
Weighted
Shares Range Average

1997 Granted 518 $ 6.75 – 8.70 $ 7.13

Outstanding, December 31, 1997 518 6.75 – 8.70 7.13
1998 Granted 341 13.25 –16.75 14.52
1998 Forfeited 100 8.70 8.70
Outstanding, December 31, 1998 759 6.75 –16.75 10.24
1999 Granted 776 10.56 –16.63 12.70
1999 Forfeited 61 14.06 –14.63 14.63
Outstanding, December 31, 1999 1,474 6.75 –16.75 11.36
2000 Granted 774 6.50 –15.06 8.18
2000 Exercised 1 6.75 6.75
2000 Forfeited 24 6.75 –15.13 14.22
Outstanding, December 31, 2000 2,223 6.50 –16.75 10.22
2001 Granted 170 3.53 –11.84 6.13
2001 Forfeited 65 5.09 –16.63 13.31
Outstanding, December 31, 2001 2,328 3.53–16.75 9.80
2002 Granted 696 5.15–10.10 9.48
2002 Forfeited 55 5.13–13.13 8.17
Outstanding, December 31, 2002 2,969 3.53 –16.75 10.98
2003 Granted 943 2.25–17.83 6.59
2003 Exercised 85 4.50–13.13 11.25
2003 Forfeited 66 4.00–16.75 12.17
Outstanding, December 31, 2003 3,761 $ 2.25–17.83 $ 8.88
 41 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

The Company entered into stock option agreements with certain directors, officers and consultants. These
options became exercisable according to a schedule of vesting as determined by the Board of Directors. During
2002 and 2003 the Company granted options to certain directors, officers, and consultants, and will recognize
$17,000 and $730,000, respectively, in expense related to these options over the vesting periods. Expenses
related to options for consultants and directors were $96,000, $66,000 and $630,000 in 2001, 2002 and 2003,
respectively. The remaining $144,000 charge for these options will be expensed over the vesting period of
the options.
Non-Plan Options During 1995 and 1996, the Company granted non-statutory stock options to purchase a
total of 608,000 shares to directors, officers and consultants. As of December 31, 2003, options to purchase
250,000 shares were outstanding.
In February 1997, as part of an employment agreement, the Company granted a non-statutory stock option
to an executive to purchase 2,400,000 shares of the Company’s common stock at a price of $5.00 per share, which
option vested ratably over a six-year period. The intrinsic value of the options was $1,848,000. As a result, the
Company recorded as deferred compensation a non-cash charge of $1,848,000, which was being amortized
ratably over the six-year vesting period. Through February 1999, the Company had amortized a total of
$641,333. In March 1999, the Company announced the resignation of this executive, at which time the Company
and the executive agreed that the option would remain outstanding for a total of 1,200,000 shares, including
the acceleration of vesting of 300,000 shares. This acceleration is considered to be a new grant of options and,
as such, the Company took a one-time non-cash charge of $4.9 million during the first quarter of 1999.
In March 1999, the Company granted a non-statutory stock option to purchase 300,000 shares to an officer.
The following table summarizes stock option activity not pursuant to the Plan for 1995 through 2003
(in thousands, except per share amounts):
Price Per Share
Weighted
Shares Range Average

1995 Granted 38 $2.65 – 7.95 $ 4.64

Outstanding, December 31, 1995 38 2.65 – 7.95 4.64
1996 Granted 570 2.25 2.25
Outstanding, December 31, 1996 608 2.25 – 7.95 2.40
1997 Granted 2,400 5.00 5.00
1997 Forfeited 50 2.25 2.25
Outstanding, December 31, 1997 2,958 2.25 – 7.95 4.51
1998 Exercised 53 2.25 – 5.30 2.93
1998 Forfeited 50 2.25 2.25
Outstanding, December 31, 1998 2,855 2.25 – 7.95 4.58
1999 Granted 300 16.63 16.63
1999 Exercised 10 7.95 7.95
1999 Forfeited 1,220 2.25 – 5.00 4.95
Outstanding, December 31, 1999 1,925 2.25 – 16.63 6.16
Outstanding, December 31, 2000 1,925 2.25 – 16.63 6.16
2001 Exercised 10 2.25 2.25
Outstanding, December 31, 2001 1,915 2.25 – 16.63 6.23
Outstanding, December 31, 2002 1,915 2.25 – 16.63 6.23
2003 Forfeited 165 2.25 2.25
Outstanding, December 31, 2003 1,750 $2.25 – 16.63 $ 6.60
 42 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

For various price ranges, weighted average characteristics of outstanding stock options at December 31, 2003
were as follows:
Outstanding Options Exercisable Options
Range of Remaining Weighted Weighted
Exercise Prices Shares Life (years) Average Price Shares Average Price

$ 2.25 – $ 4.99 445,000 3.3 $ 2.39 433,417 $ 2.34

$ 5.00 – $ 8.99 2,857,503 6.3 5.66 2,110,795 5.69
$ 9.00 – $12.99 1,237,698 7.4 10.51 843,851 10.44
$13.00 – $17.99 971,250 5.6 15.24 877,146 15.26

Pro Forma Disclosures of Net Income The Company has elected to account for its stock-based compensation
plans under APB 25; however, for pro forma disclosure purposes, the Company has computed the value of all
options granted to employees during 2001 through 2003, using the Black-Scholes option pricing model with
the following weighted average assumptions:
2003 2002 2001

Risk free interest rate 3.27% 4.25% 4.66%

Expected dividend yield 0% 0% 0%
Expected lives 5 years 5 years 5 years
Expected volatility 122% 93% 137%

The stock options are assumed to be exercised in five years. The total value of warrants and options was
computed to be the following approximate amounts, which would be amortized on the straight-line basis over
the vesting period of the options (in thousands):
Year ended December 31, 2001 $ 767
Year ended December 31, 2002 $5,570
Year ended December 31, 2003 $4,690
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In addition, option valuation models require
the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s
employee stock options have characteristics significantly different from those of traded options, and because
changes in subjective input assumptions can materially affect the fair value estimate, in management’s opinion,
the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s options.
The weighted average, estimated fair values of employee stock options granted during fiscal 2003, 2002 and
2001 were $6.31, $8.00 and $4.50 per share, respectively.

10. Common Stock Purchase Warrants

Series A warrants During April 1996, in accordance with anti-dilution privileges triggered by an offering in
March 1995, the Company issued 1,018,866 Series A Warrants to all stockholders of record as of March 1995
to purchase the same number of shares of common stock at a price of $11.02 per share. The warrants expired
January 2002, except for one warrant for 393,250 shares, which expires January 7, 2006.
IAC Management Warrants During April 1994, the Company issued warrants, to existing shareholders and
management, to purchase 160,000 units (the “Units”) at $10.00 per Unit, each unit to be identical to the Units
issued as part of its initial public offering. Each Unit consists of (i) one share of common stock, $.01 par value
per share and (ii) one Class A Warrants entitling the holder to purchase one share of common stock at a price
of $9.00 per share. The warrants have expired except for one warrant to purchase 50,000 units, which expires
March 18, 2005.
 43 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

Representatives warrants In connection with the Company’s initial public offering, the Company issued
warrants to the underwriters for 60,000 Units at an exercise price of $11.00 per Unit and 24,000 Class B
Warrants at an exercise price of $5.775 per warrant and were exercisable until May 2000. Each Class B Warrant
entitled the holder to purchase one Unit (i.e. one share of common stock and one Class A Warrant). The
unexercised warrants have expired.
Investor Relations Warrants During February 1998, as part of payment for services relating to investor
relations, the Company issued a warrant to purchase 150,000 shares with an exercise price of $14.75 per share
and an expiration date of February 1999. The warrant was estimated to have a value of $408,000, which was
expensed in 1998. This warrant was exercised.
1998 Private Placement Warrants In connection with the May 1998 private placement, the Company issued
warrants to purchase 1,437,475 shares of common stock at an exercise price of $17.00 per share. The warrants
were exercisable until May 2001. Of the warrants issued, 157,000 were issued as finders fees, and 1,280,475 were
issued to the private placement investors. These warrants have expired.
1999 Agent Warrants In connection with the January 1999, private placement, the Company issued warrants
as a finders fee to purchase 90,000 shares of common stock at an exercise price of $18.25 per shares. The
warrants expired January 2002.
1999 Consulting Warrants During March 1999, the Company entered into a three-year agreement with a
financial consulting organization affiliated with a director of the Company. The Company agreed to issue as
compensation for services, a warrant to purchase 500,000 shares of common stock with an exercise price of
$20.50 per share and an expiration date of March 2002. The warrant was not subject to any vesting provisions.
The warrant was estimated to have a value of approximately $2.1 million, which was expensed as a non-cash
charge during the first quarter of 1999. During 2001, the expiration date for this warrant was extended to
March 2003. The warrant extension did not result in an additional non-cash charge.
During March 2003, the Company amended the consulting arrangement with the same financial organization
affiliated with a director. The Company amended the warrant so that the warrant is now exercisable into an
aggregate of 250,000 shares of common stock with an exercise price of $10.00 per share and an expiration date
of the earlier of March 12, 2006 or thirty days after the consulting agreement is terminated. A non-cash charge
of approximately $0.8 million was expensed. For accounting purposes, the original warrant was considered
cancelled and a new warrant issued as a replacement.
2001 Consulting Warrants During April 2001, the Company issued warrants to purchase 25,000 shares
of common stock at an exercise price of $3.09. The warrants expire April 30, 2006. During July 2001, the
Company issued warrants to purchase 25,000 shares of common stock at an exercise price of $6.225. These
warrants are exercisable until July 31, 2006. These warrants, collectively, were issued for compensation for
services and were estimated to have a combined value of approximately $208,000, which was expensed as a
non-cash charge. Approximately 15% of these warrants have been exercised.
During the fourth quarter of 2001, the Company issued three-year warrants to purchase 16,870 shares
of common stock with exercise prices ranging from $4.72 to $10.10. The warrants have no vesting period, an
estimated value of approximately $80,000, and were issued in lieu of cash for services. The majority of these
warrants have not been exercised.
2001 Private Placement Warrants In connection with the December 2001 private placement, the Company
issued warrants to purchase 128,000 shares of common stock to investors with an exercise price of $12.00.
Warrants to purchase 68,329 shares of our common stock were exercised and the remaining warrants expired
December 11, 2003.
As a finders fee, the Company issued two warrants with an expiration date of December 11, 2006 to the
placement agent for a total of 112,640 shares of common stock. One warrant has an exercise price of $9.00 and
 44 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

the other an exercise price of $12.00. The value ascribed to these warrants based on the Black-Scholes pricing
model was $1.5 million and was included as a charge to equity. These warrants have not been exercised.
2002 Consulting Warrants In March 2002, the Company agreed to issue a three-year warrant to a
consultant, Dr. Joseph Hollis, to purchase up to 60,000 shares of common stock at an exercise price of $11.00
per share. Dr. Hollis is the brother of Richard B. Hollis.
During the fourth quarter of 2002, the Company issued a three-year warrant to purchase up to 10,000
shares of common stock at exercise price of $4.54 per share. The warrants were issued in lieu of cash for
consulting services performed for the Company.
All of the 2002 warrants were valued at a total of $247,000 using the Black-Scholes pricing model.
The value of the warrants was expensed and is included in the 2002 operating expenses.
2003 Convertible Note Warrants On February 25, 2003, we completed a private placement in which
we issued $10.0 million aggregate principal amount of three-year convertible debentures (“debentures”),
bearing interest at 7.5% per year, and warrants to purchase up to 701,760 shares of common stock.
The debentures are convertible into common stock at a price of $5.70 per share, which represented a discount
from the price of common stock on the commencement date. Also issued in connection with this private
placement were warrants to purchase up to 350,880 shares of common stock which are exercisable at a price
per share of $6.17, subject to adjustment, and warrants to purchase up to 350,880 shares of common stock
which are exercisable at a price per share of $6.71, subject to adjustment. The warrants are exercisable until
February 25, 2007. Approximately half of these warrants have been exercised.
In connection with the issuance of the debentures and warrants, we recorded approximately $3.5 million
related to the beneficial conversion feature and approximately $3.0 million for the detachable warrants
on the debentures. The total amount of the deemed discount on the debentures as a result of the warrant
issuanc and the beneficial conversion feature amounts to $6.5 million. The beneficial conversion feature
and warrant value (deemed discount) were amortized over the term of the debentures and as conversion of
the debentures occurred.
The placement agent received a warrant to purchase 73,684 shares of common stock having an exercise price
of $5.99 This warrant is exercisable until February 25, 2008. The value ascribed to this warrant based on the
Black-Scholes pricing model was $0.4 million and was expensed as a non-cash charge. This warrant has not
been exercised.
2003 Private Placement Warrants In connection with the June 2003 private placement, the Company issued
warrants to purchase 192,456 shares of common stock to investors with an exercise price of $15.45. These
warrants expire June 19, 2007. These warrants have not been exercised.
As a finders fee, the Company issued a warrant with an expiration date of June 19, 2008 to the placement
agent, for a total of 44,266 shares of common stock with an exercise price of $13.22. The value ascribed to this
warrant based on the Black-Scholes pricing model was $0.5 million and was expensed as a non-cash charge.
This warrant has not been exercised.
 45 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

The following table summarizes stock warrant activity for 2001 through 2003 (in thousands, except per
share amounts):
Price Per Share
Weighted
Shares Range Average

Outstanding, December 31, 2000 3,534 $ 9.00–25.00 $16.52

2001 Issued 308 3.09–12.00 9.48
2001 Forfeited 1,837 17.00–25.00 18.74
Outstanding, December 31, 2001 2,005 3.09–20.50 13.40
2002 Issued 70 4.54–11.00 10.08
2002 Forfeited 704 11.02–18.25 11.94
Outstanding, December 31, 2002 1,371 3.09–20.50 13.97
2003 Issued 1,262 5.99–15.45 8.73
2003 Exercised 467 3.09–15.45 7.49
2003 Forfeited 579 3.09–20.50 19.26
Outstanding, December 31, 2003 1,587 $ 3.09–15.45 $ 9.85

For various price ranges, the following table summarizes the weighted average prices of outstanding
warrants as of December 31, 2003 (in thousands, except per share amounts):
Outstanding Warrants Exercisable Warrants
Range of Weighted Weighted
Exercise Prices Shares Average Price Shares Average Price

$ 3.00 – $ 5.00 37 $ 3.78 37 $ 3.78

$ 5.01 – $10.00 871 8.05 871 8.05
$10.01 – $15.00 455 11.03 455 11.03
$15.01 – $20.00 224 15.45 224 15.45

11. Employment Agreement

Pursuant to an employment agreement between Hollis-Eden and Mr. Richard B. Hollis entered into in
November 1996 (the “Hollis Employment Agreement”), Mr. Hollis’ annual base salary was increased to
$225,000 upon the consummation of the Merger, with bonuses, future salary increases and equity compensation
as determined by the Hollis-Eden Pharmaceuticals Board of Directors. On July 1, 2003, Mr. Hollis’ base salary
was increased from $440,000 to $462,000. If Mr. Hollis' employment is terminated “without cause,” “for
insufficient reason” or pursuant to a “change in control” (as such terms are defined in the Hollis Employment
Agreement), Mr. Hollis will receive as severance (i) an amount equal to five times his then current annual base
salary plus five times the amount of the bonus awarded to him in the prior calendar year, (ii) immediate vesting
of all unvested stock options of Hollis-Eden Pharmaceuticals (or the Surviving Corporation, if applicable) held
by him and (iii) continued benefits under all employee benefit plans and programs for a period of three years.
All of such payments are to be made in one lump sum within 30 days of termination. If Mr. Hollis' employment
is terminated “with cause” or if Mr. Hollis resigns other than for “sufficient reason,” Mr. Hollis' compensation
and benefits will cease immediately and Mr. Hollis will not be entitled to severance benefits.
 46 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

12. Leases
Rental expenses for principally leased facilities under non-cancelable operating leases were approximately
$754,000, $644,000 and $435,000 for 2003, 2002 and 2001 respectively. Future minimum payments for oper-
ating leases are as follows (in thousands):
Operating Leases

2004 $ 827
2005 183
2006 13
2007 13
2008 9
Total minimum lease payments $1,045

13. Subsequent Event

In February 2004, the Company acquired Congressional Pharmaceutical Corporation (“CPC”) and replaced
CPC as the exclusive licensee to certain intellectual property rights held by the University of Chicago. These
intellectual property rights consist of a series of patents and patent applications that relate to discoveries made
by David J. Grdina, Ph.D., Professor of Radiation and Cellular Oncology at the University of Chicago. The
patented technology covers a series of compounds that have the potential to protect against DNA mutations
that can occur as a result of radiation injury or chemotherapy. In the acquisition the Company will issue
approximately 50,000 shares of common stock to the former stockholders of CPC valued at approximately
$650,000, in accordance with Emerging Issues Task Force No. 99-12. In addition, if the Company achieves
certain development milestones, it will be required to issue additional shares of our common stock to the former
stockholders of CPC. In the event all of the milestones are achieved, the total number of additional shares
that the Company would be required to issue to the former stockholders of CPC is 275,000, more than half
of which would be issued only upon FDA approval of CPC’s product. Furthermore, upon regulatory approval
and commercialization of products covered by the licensed intellectual property, the Company may be required
to pay royalties to the former stockholders of CPC and the University of Chicago. Following the acquisition,
Dr. Grdina agreed to an exclusive consulting arrangement with the Company in the fields of hematopoiesis
and radiation and chemotherapy exposure.

Supplementary Financial Data Interim Financial Information (Unaudited)

Quarter
Total
Mar Jun Sep Dec Year

Year ended December 31, 2003

R&D expenses $ 2,305 $ 1,741 $ 2,619 $ 3,777 $10,442
G&A expenses 973 1,155 1,197 1,836 5,161
Non-cash charges 1,656 725 91 16 2,488
Net loss 5,197 4,731 10,328 5,415 25,671
Net loss per share (0.40) (0.36) (0.66) (0.28) (1.67)
Cash and cash equivalents $19,424 $32,796 $29,720 $84,852 $84,852

Year ended December 31, 2002

R&D expenses $ 2,916 $ 4,462 $ 3,572 $ 2,067 $13,017
G&A expenses 1,180 1,245 995 1,103 4,523
Non-cash charges 238 17 31 44 330
Net loss 4,218 5,616 4,515 3,153 17,502
Net loss per share (0.33) (0.43) (0.35) (0.24) (1.35)
Cash and cash equivalents $25,523 $20,484 $16,441 $13,087 $13,087
 47 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T

To the Board of Directors and Stockholders of

Hollis-Eden Pharmaceuticals, Inc.:
San Diego, CA

We have audited the accompanying balance sheets of Hollis-Eden Pharmaceuticals, Inc. (a development stage
company) as of December 31, 2003 and 2002 and the related statements of operations, stockholders’ equity,
and cash flows for each of the three years in the period ended December 31, 2003 and for the period from
inception (August 15, 1994) to December 31, 2003. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly in all material respects, the financial
position of Hollis-Eden Pharmaceuticals, Inc. as of December 31, 2003 and 2002 and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2003 and for the
period from inception (August 15, 1994) to December 31, 2003, in conformity with accounting principles
generally accepted in the United States.

BDO Seidman, LLP

New York, NY
February 3, 2004 (except for Note 13 which is as of February 24, 2004)
 48 | H O L L I S - E D E N 2 0 0 3 A N N U A L R E P O R T
B OAR D O F D I R E C TO R S
Richard B. Hollis
Founder, Chairman and CEO
Paul Bagley III
Managing Partner
Stone Pine Companies
Brendan R. McDonnell
Partner, Preston Gates & Ellis, LLP
Thomas C. Merigan, Jr., M.D.
Becker Professor of Medicine and Director
of the Center for AIDS Research
Stanford University School of Medicine
William H. Tilley
Chairman and CEO
The Jacmar Companies
Salvatore Zizza
Former Chairman and President
Initial Acquisition Corporation
S E R VI N G H U MAN IT Y AWAR D
Through this annual award, Hollis-Eden recognizes the individuals who
made the most significant contribution during the year to the realization
of the Company’s vision.
2 00 2 – 2 00 3 AWAR D R E C I P I E NTS
LEFT TO RIGHT Daniel D. Burgess,
Dwight R. Stickney, M.D.,
Daryl D. Muenchau, Ph.D., J.D.,
MANAG E M E NT
Richard B. Hollis
Founder, Chairman and CEO
Daniel D. Burgess
Chief Operating Officer
Chief Financial Officer
James M. Frincke, Ph.D.
Chief Scientific Officer
Eric J. Loumeau
Vice President
General Counsel
Robert L. Marsella
Vice President
Business Development
Christopher L. Reading, Ph.D.
Executive Vice President
Scientific Development
Dwight R. Stickney, M.D.
Vice President
Medical Affairs
Robert W. Weber
Vice President
Chief Accounting Officer
Chief Operating Officer and CFO;
Vice President, Medical Affairs;
Director, Intellectual Property.
S E N I O R S C I E NT I F I C STAF F
Clarence N. Ahlem
Director, Product Development
Dominick Auci, Ph.D.
Director, Allergy, Autoimmunity and Inflammation
Charles R. Dowding, Ph.D.
Director, Hematology and Immunology
Jaime Flores-Riveros, Ph.D.
Vice President, Endocrinology and Metabolism
Armando Garsd, Ph.D.
Director, Biostatistics
Barry S. Miller
Director, Data Management
Elizabeth Morgan
Director, Clinical Development
Daryl D. Muenchau, Ph.D., J.D.
Director, Intellectual Property
Nanette Onizuka-Handa
Director, Regulatory Affairs
Richard Trauger, Ph.D.
Director, Infectious Disease and Cancer
Steven White, Ph.D.
Director, Medicinal Chemistry
AU D ITO R S
BDO Seidman, LLP
New York, New York
O UTS I D E CO R P O RAT E
CO U N S E L
Cooley Godward, LLP
San Diego, California
T RAN S F E R AG E NT
American Stock Transfer and Trust
AN N UAL STO C K H O L D E R S
M E ET I N G
June 18, 2004, 2:00 pm (pdt)
Hilton La Jolla Torrey Pines
10950 North Torrey Pines Road
La Jolla, CA
H O L L I S-E D E N
H E AD Q UAR T E R S
4435 Eastgate Mall, Suite 400
San Diego, CA 92121
t: 858 587 9333
f: 858 558 6470
www.holliseden.com
NASDAQ Symbol: HEPH
This annual report, including the Letter to Shareholders, contains for-
ward-looking statements concerning the potential and prospects of
the Company’s drug discovery program and its drug candidates. Any
statement describing a goal, expectation, intention or belief of the
Company is a forward-looking statement and should be considered
an at-risk statement. Such statements are subject to certain risks and
uncertainties, including the failure to successfully complete clinical
trials, the Company’s future capital needs, the Company’s ability to
obtain additional funding and required regulatory approvals, the ability
of the Company to protect its intellectual property rights and to not
infringe the intellectual property rights of others, the development of
competitive products by other companies, and other risks detailed
from time to time in the Company’s filings with the Securities and
Exchange Commission. The actual results may differ materially from
those contained in this annual report.
DESIGN: ALDEN, SAN DIEGO
 CREDO

Our vision
F O R O U R E M P L OY E E S

We pledge to create
an environment where business and
personal achievements are accomplished
to the highest standards of integrity,
excellence and professionalism.

is to build a world-class
F O R O U R PAT I E N T S

We pledge to provide
safe, affordable and effective treatments
that improve the quality of life.

pharmaceutical company
FOR OU R PRODUCTS

We pledge to remain
steadfast in our commitment to turn
our innovative science into pharmaceutical
products for global health.

serving humanity
FOR OU R SHAR E HOLDE RS

We pledge to prosper
as a business and to reward our owners
with an attractive return.

by improving quality of life.