UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2007

[

]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _________ to __________

Commission file number 000-50720

Raptor Pharmaceuticals Corp.
(Exact name of small business issuer as specified in its charter)

Delaware		98-0379350
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9 Commercial Blvd., Suite 200, Novato, CA 94949

(Address of principal executive offices)

(415) 382-8111

(Issuer’s telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso No x

The registrant has 32,929,166 shares of common stock outstanding as of June 26, 2007.

Transitional Small Business Disclosure Format (Check one):

Yeso

No x

RAPTOR PHARMACEUTICALS CORP.

Table of Contents

		Page
Part 1 - Financial Information
Item 1	Financial Statements
	Condensed Consolidated Balance Sheets as of May 31, 2007 (unaudited) and August 31, 2006	2
	Unaudited Condensed Consolidated Statements of Operations for the three months ended May 31, 2007 and 2006, the nine months ended May 31, 2007, the period from September 8, 2005 (inception) to May 31, 2006 and the cumulative period from September 8, 2005 (inception) to May 31, 2007	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended May 31, 2007, the period from September 8, 2005 (inception) to May 31, 2006 and the cumulative period from September 8, 2005 (inception) to May 31, 2007	5
	Notes to Condensed Consolidated Financial Statements	6

Item 2	Management’s Discussion and Analysis or Plan of Operation	16
Item 3	Controls and Procedures	33
Part II - Other Information
Item 1	Legal Proceedings	34
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3	Defaults Upon Senior Securities	35
Item 4	Submission of Matters to a Vote of Security Holders	35
Item 5	Other Information	35
Item 6	Exhibits	35
SIGNATURES		35

-2-

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Raptor Pharmaceuticals Corp.
(A Development Stage Company)
Condensed Consolidated Balance Sheets

				May 31, 2007		August 31, 2006
ASSETS					(unaudited)		(1)
Current assets:
	Cash and cash equivalents			$	3,630,482	$	3,648,538
	Prepaid expenses				329,843		103,255
	Receivables – other				-		640
Total current assets					3,960,325		3,752,433

Intangible assets, net					140,000		145,625
Fixed assets, net					328,942		387,317
Deposits					20,207		20,207
		Total assets		$	4,449,474	$	4,305,582

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities
Current liabilities:
	Accounts payable			$	237,216	$	52,068
	Due to stockholders				-		293
	Accrued liabilities				141,845		84,283
	Deferred rent				12,199		15,120
	Capital lease liability – current				2,432		2,241
Total current liabilities					393,692		154,005

Capital lease liability - long-term					2,953		4,801
Total liabilities					396,645		158,806

	Commitments and contingencies

Stockholders’ equity:
	Preferred stock, $0.001 par value, 10,000,000 shares authorized, zero shares issued and outstanding				-		-
	Common stock, $0.001 par value, 100,000,000 shares authorized 32,924,166 and 29,633,333 shares issued and outstanding as at May 31, 2007 and
	August 31, 2006, respectively				32,924		29,633
	Additional paid-in capital				7,408,724		5,086,393
	Deficit accumulated during development stage				(3,388,819)		(969,250)
Total stockholders’ equity					4,052,829		4,146,776
			Total liabilities and stockholders’ equity	$	4,449,474	$	4,305,582
(1) Derived from the Company’s audited consolidated financial statements as of August 31, 2006.
The accompanying notes are an integral part of these financial statements.

-3-

Raptor Pharmaceuticals Corp.
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Unaudited)

		For the three-month period from March 1, 2007 to May 31, 2007		For the three-month period from March 1, 2006 to May 31, 2006


Revenues:	$	-	$	-

Operating expenses:
General and administrative		322,410		53,928
Research and development		614,616		135,130
Total operating expenses		937,026		189,058

Loss from operations		(937,026)		(189,058)

Interest income		41,502		3,733
Interest expense		(247)		(3,333)
Net loss	$	(895,771)	$	(188,658)

Net loss per share:
Basic and diluted	$	(0.03)	$	(0.02)

Weighted average shares
outstanding used to compute:
Basic and diluted		32,533,503		11,395,604


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

-4-

Raptor Pharmaceuticals Corp.
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(unaudited)
							For the cumulative
			For the nine-month		For the period from		period from
			period from		September 8, 2005		September 8, 2005
			September 1, 2006 to		(inception) to		(inception) to
			May 31, 2007		May 31, 2006		May 31, 2007


Revenues:			$	-	$	-	$	-

Operating expenses:
	General and administrative			949,756		182,253		1,373,413
	Research and development			1,579,990		136,743		2,165,650
		Total operating expenses		2,529,746		318,996		3,539,063

Loss from operations				(2,529,746)		(318,996)		(3,539,063)

	Interest income			110,786		4,007		154,314
	Interest expense			(609)		(3,333)		(4,070)
		Net loss	$	(2,419,569)	$	(318,322)	$	(3,388,819)

Net loss per share:
	Basic and diluted		$	(0.08)	$	(0.03)	$	(0.17)

Weighted average shares
	outstanding used to compute:
		Basic and diluted		31,013,170		10,479,245		20,517,591


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

-5-

Raptor Pharmaceuticals Corp.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(unaudited)
			For the nine-month		For the period from		For the cumulative period from
			period		September 8, 2005		September 8, 2005
			from September 1, 2006 to		(inception) to		(inception) to
			May 31, 2007		May 31, 2006		May 31, 2007
Cash flows from operating activities:
	Net loss		$	(2,419,569)	$	(318,322)	$	(3,388,819)
	Adjustments to reconcile net loss to net cash
		used in operating activities:
	Employee stock options expensed			271,121		-		271,121
	Warrants issuable pursuant to consulting agreement			-		60		60
	Stock options expensed pursuant to consulting agreements			80,001		-		103,501
	Amortization of intangible assets			5,625		2,500		10,000
	Depreciation of fixed assets			86,109		2,015		104,938

	Changes in assets and liabilities:
		Prepaid expenses		(226,588)		(76,368)		(329,843)
		Receivables - other		640		(16,643)		-
		Intangible assets		-		(150,000)		(150,000)
		Deposits		-		(20,207)		(20,207)
		Accounts payable		185,148		344,253		237,216
		Accrued liabilities		57,562		106,652		141,845
		Deferred rent		(2,921)		16,034		12,199
		Net cash used in operating activities		(1,962,872)		(110,026)		(3,007,989)

	Cash flows from investing activities:
		Purchase of fixed assets		(27,734)		(122,338)		(426,483)

	Cash flows from financing activities:
		Proceeds from the sale of common stock		-		5,000,000		5,000,000
		Proceeds from the exercise of common stock warrants		1,970,000		-		1,970,000
		Proceeds from the exercise of common stock options		4,500		-		4,500
		Fundraising costs		-		(185,668)		(217,534)
		Proceeds from the sale of common stock to initial investors		-		310,000		310,000
		Proceeds from bridge loan		-		-		200,000
		Repayment of bridge loan		-		-		(200,000)
		Principal payments on capital lease		(1,657)		-		(2,012)
		Cash advances from stockholders, net of repayment		(293)		23,986		-
	Net cash provided by financing activities			1,972,550		5,148,318		7,064,954
	Net increase (decrease) in cash and cash equivalents			(18,056)		4,915,954		3,630,482
	Cash and cash equivalents, beginning of period			3,648,538		-		-
	Cash and cash equivalents, end of period		$	3,630,482	$	4,915,954	$	3,630,482

Supplemental disclosure of non-cash financing activities:
		Acquisition of equipment in exchange for capital lease	$	-	$	-	$	7,397
		Notes receivable issued in exchange for common stock	$	-	$	110,000	$	110,000

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

-6-

RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) NATURE OF OPERATIONS AND BUSINESS RISKS

The accompanying unaudited condensed consolidated financial statements reflect the results of operations of Raptor Pharmaceuticals Corp., formerly named Highland Clan Creations Corp. (the “Company” or “Raptor”) and have been prepared in accordance with the accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The interim condensed consolidated financial statements are unaudited and have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows for the periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

The Company is developing a drug-targeting platform and therapeutics, based on the use of Receptor-Associated Protein (“RAP”) and mesoderm development (“Mesd”). Raptor’s RAP-based delivery technology is being developed for the purpose of selectively targeting the delivery of engineered drugs to organs, tissues and cell types through the use of specific receptor systems. Raptor is also developing RAP and Mesd as potential therapeutics for the treatment of cancer and osteoporosis. The Company’s fiscal year end is August 31.

The Company is subject to a number of risks, including: the need to raise capital through equity and/or debt financings; the uncertainty whether the Company’s research and development efforts will result in successful commercial products; competition from larger organizations; reliance on the proprietary technology of others; dependence on key personnel; uncertain patent protection; and dependence on corporate partners and collaborators. See the section entitled “Factors that May Affect Future Results” in Item 2 of this Form 10-QSB.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-KSB for the period from September 8, 2005 (inception) to August 31, 2006.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

The Company’s condensed consolidated financial statements include the accounts of the Company’s wholly owned subsidiary, Raptor Pharmaceutical Inc., which was incorporated in Delaware on September 8, 2005 (date of inception.) All inter-company accounts have been eliminated. The Company’s condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. Through May 31, 2007, the Company had an accumulated deficit of approximately $3.4 million. Management expects to incur further losses for the foreseeable future. Management believes that the Company’s cash and cash equivalents at May 31, 2007, will be sufficient to meet the Company’s obligations into the first calendar quarter of 2008. Until the Company can generate sufficient levels of cash from its operations, the Company expects to finance future cash needs primarily through proceeds from equity or debt financings, loans, collaborative agreements with corporate partners, or through a business combination with a company that has such financing in order to be able to sustain its operations until the Company can achieve profitability and positive cash flows, if ever.

-7-

RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s independent accountants have audited the Company’s consolidated financial statements for the period from September 8, 2005 (inception) to August 31, 2006 and in their audit report dated October 2, 2006 have included a paragraph indicating substantial doubt as to the Company’s ability to continue as a going concern due to the fact that the Company is in the development stage and has not generated any revenue to date. To address the negative cash flows, the Company closed a $5 million financing which produced net proceeds to the Company of approximately $4.6 million (net of stock issuance costs and the repayment of a $0.2 million bridge loan) plus an additional $1.97 million resulting from the subsequent exercises of common stock warrants issued in connection with the financing.

Management plans to seek additional debt and/or equity financing for the Company through private or public offerings or through a business combination, but it cannot assure that such financing will be available on acceptable terms, or at all. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

(b) Use of Estimates

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

(c) Fair Value of Financial Instruments

The carrying amounts of certain of the Company’s financial instruments including cash and cash equivalents, prepaid expenses, other receivables, accounts payable, due to stockholders, accrued liabilities and capital lease liability approximate fair value due to their short maturities.

(d) Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

(e) Intangible Assets

Intangible assets include the intellectual property and other rights relating to the RAP technology. The intangible assets are amortized using the straight-line method over the estimated useful life of 20 years, which is the life of the intellectual property patents.

(f) Fixed Assets

Fixed assets, which mainly consist of leasehold improvements, lab equipment, computer hardware and software and capital lease equipment, are stated at cost. Depreciation is computed using the straight-line method over the related estimated useful lives, except for leasehold improvements and capital lease equipment, which are depreciated over the shorter of the useful life of the asset or the lease term. Significant additions and improvements are capitalized, while repairs and maintenance are charged to expense as incurred.

-8-

RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(g) Impairment of Long-Lived Assets

The Company evaluates its long-lived assets for indicators of possible impairment by comparison of the carrying amounts to future net undiscounted cash flows expected to be generated by such assets when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s fair value or discounted estimates of future cash flows. The Company has not identified any such impairment losses to date.

(h) Income Taxes

Income taxes are recorded under the liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assts to the amount expected to be realized.

(i) Research and Development

The Company is an early development stage company. Research and development costs are charged to expense as incurred. Research and development expenses include scientists’ salaries, lab collaborations, lab supplies, lab services, lab equipment maintenance and small equipment purchased to support the research laboratory, patent counsel and patent fees and allocated executive, human resources and facilities expenses.

(j) Net Loss per Share

Net loss per share is calculated by dividing net loss by the weighted average shares of common stock outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average shares of common stock outstanding and potential shares of common stock during the period. For all periods presented, potentially dilutive securities are excluded from the computation of fully diluted net loss per share as their effect is anti-dilutive.

Potentially dilutive securities include:

	May 31, 2007	May 31, 2006
Warrants to purchase common stock	5,910,000	9,193,333
Options to purchase common stock	2,611,800	2,400,000
Total potentially dilutive securities	8,521,800	11,593,333

(k) Stock Option Plans

In May 2006 the Company’s stockholders approved the 2006 Equity Compensation Plan (the “Plan”). The Plan life is ten years and allows for the granting of options to employees, directors and consultants to the Company. Typical option grants are for ten years, have exercise prices at or above market price based on the last closing price the day prior to the grant date as quoted on the Over-the-Counter Bulletin Board and vest over three years as follows: 6/36ths on the six month anniversary of the date of grant and 1/36ths per month thereafter.

-9-

RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Effective September 1, 2006, the Company’s stock-based compensation is accounted for in accordance with the Statement of Financial Accounting Standards (“SFAS”) No. 123(revised - 2004), Share-Based Payment (“SFAS 123(R)”) and related interpretations. Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating future stock price volatility and employee stock option exercise behaviors. If actual results differ significantly from these estimates, stock-based compensation expense and results of operations could be materially impacted

In March 2005, the U.S. Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 107 (“SAB 107”), which offers guidance on SFAS 123(R). SAB 107 was issued to assist preparers by simplifying some of the implementation challenges of SFAS123(R) while enhancing the information that investors receive. SAB 107 creates a framework that is premised on two overarching themes: (a) considerable judgment will be required by preparers to successfully implement SFAS123(R), specifically when valuing employee stock options; and (b) reasonable individuals, acting in good faith, may conclude differently on the fair value of employee stock options. Key topics covered by SAB 107 include valuation models, expected volatility and expected term. The Company is applying the principles of SAB 107 in conjunction with its adoption of SFAS 123(R).

Stock-based compensation expense was based on the Black-Scholes option-pricing model assuming the following: risk-free interest rate of 5%; 8 year expected life; 100% volatility; 10% turnover rate and 0% dividend rate.

If factors change and different assumptions are employed in the application of SFAS 123(R), the compensation expense recorded in future periods may differ significantly from what was recorded in the current period. See Note 6 for further discussion of the Company’s accounting for stock based compensation.

The Company recognizes as an expense the fair value of options granted to persons who are neither employees nor directors. The fair value of expensed options was based on the Black-Scholes option-pricing model assuming the following: risk-free interest rate of 5%; 8 year expected life; 100% volatility; and 0% dividend rate.

On November 10, 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. FAS 123(R)-3 Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards. This FSP provides a practical transition election related to the accounting for the tax effects of share-based payment awards to employees, as an alternative to the transition guidance for the additional paid-in capital pool (“APIC pool”) in paragraph 81 of SFAS 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the APIC pool related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and statements of cash flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123(R). The guidance in this FSP is effective after November 10, 2005. The Company may take up to one year from the later of adoption of SFAS 123(R) or the effective date of this FSP to evaluate its available transition alternatives and make its one-time election. The Company is currently evaluating the transition alternatives.

-10-

RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(l) Recent Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48 Accounting For Uncertain Tax Positions, an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109 Accounting for Income Taxes. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Management does not believe adoption of this pronouncement will have an impact on the Company.

In September 2006, the SEC issued SAB No. 108 (“SAB 108”), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 is effective for fiscal years ending on or after November 15, 2006 and addresses how financial statement errors should be considered from a materiality perspective and corrected. The literature provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. Historically, there have been two approaches commonly used to quantify such errors: (i) the “rollover” approach, which quantifies the error as the amount by which the current year statement of operations is misstated, and (ii) the “iron curtain” approach, which quantifies the error as the cumulative amount by which the current year balance sheet is misstated. The SEC Staff believes that companies should quantify errors using both approaches and evaluate whether either of these approaches results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. Management does not believe adoption of this pronouncement will have an impact on the Company.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of SFAS 157 are to be applied prospectively as of the beginning of the fiscal year in which it is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. The provisions of SFAS 157 are effective for fiscal years beginning after November 15, 2007; therefore, the Company anticipates adopting SFAS 157 as of September 1, 2008. The Company is assessing the impact of the adoption of SFAS 157.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115, which permits the measurement of many financial instruments and certain other asset and liabilities at fair value on an instrument-by-instrument basis (the fair value option). The guidance is applicable for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of SFAS 159 on its financial position and results of operations.

-11-

RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(3) INTANGIBLE ASSETS

On January 27, 2006, BioMarin Pharmaceutical Inc. (“BioMarin”) assigned the intellectual property and other rights relating to the RAP technology to the Company. As consideration for the assignment of the RAP technology, BioMarin will receive milestone payments based on certain financing and regulatory triggering events. No other consideration was paid for this assignment. The Company has recorded $150,000 of intangible assets on the condensed consolidated balance sheets based on the estimated fair value of its agreement with BioMarin. The intangible assets are being amortized monthly over 20 years, which is the life of the intellectual property patents. During the three months ended May 31, 2007 and 2006, the nine months ended May 31, 2007, the period from September 8, 2005 (inception) to May 31, 2006 and the cumulative period from September 8, 2005 (inception) to May 31, 2007, the Company amortized $1,875, $1,875, $5,625, $2,500 and $10,000, respectively, of intangible assets to research and development expense.

The following table summarizes the estimated amortization expense for our intangible assets for the periods indicated:

Amortization period	Estimated amortization expense
Fiscal year ending August 31, 2007	$	7,500
Fiscal year ending August 31, 2008		7,500
Fiscal year ending August 31, 2009		7,500
Fiscal year ending August 31, 2010		7,500
Fiscal year ending August 31, 2011		7,500

(4) FIXED ASSETS

Fixed assets consisted of:

Category		May 31, 2007		August 31, 2006	Estimated useful lives
Leasehold improvements	$	108,035	$	92,371	Shorter of life of asset or lease term
Laboratory equipment		262,814		250,744	5 years
Computer hardware and software		55,634		55,634	3 years
Capital lease equipment		7,397		7,397	Shorter of life of asset or lease term
		433,880		406,146
Less: accumulated depreciation		(104,938)		(18,829)
Total fixed assets, net	$	328,942	$	387,317

-12-

RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Depreciation expense for the three months ended May 31, 2007 and 2006, the nine months ended May 31, 2007, the period from September 8, 2005 (inception) to May 31, 2006 and the cumulative period from September 8, 2005 (inception) to May 31, 2007 was $31,175, $2,015, $86,109, $2,015 and $104,938, respectively. Accumulated depreciation on capital lease equipment was $2,363 and $514 as of May 31, 2007 and August 31, 2006, respectively.

(5) ACCRUED LIABILITIES

Accrued liabilities consisted of:

	May 31, 2007	August 31, 2006
Auditing and tax preparation fees	$ 46,900	$ 40,102
Salaries and wages	34,632	22,462
Legal fees	22,100	11,100
Pre-clinical studies	18,255	-
Patent costs	15,000	6,300
Lab supplies and reagents	-	2,153
Franchise tax	-	800
Other	4,958	1,366
Total	$141,845	$ 84,283

(6) STOCK OPTION PLAN

Effective September 1, 2006, the Company began recording compensation expense associated with stock options and other forms of equity compensation in accordance with SFAS 123(R), as interpreted by SAB 107. Prior to September 1, 2006, the Company accounted for stock options according to the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and therefore no related compensation expense was recorded for awards granted with no intrinsic value. The Company adopted the modified prospective transition method provided for under SFAS 123(R), and consequently has not retroactively adjusted results from prior periods. Under this transition method, compensation cost associated with stock options now includes: (1) quarterly amortization related to the remaining unvested portion of all stock option awards granted prior to September 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123; and (2) quarterly amortization related to all stock option awards granted subsequent to September 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). In addition, the Company records consulting expense over the vesting period of stock options granted to consultants. The compensation expense for stock-based compensation awards includes an estimate for forfeitures and is recognized over the requisite service period of the options, which is typically the period over which the options vest, using the straight-line method.

Employee stock compensation costs for the three months ended May 31, 2007, the nine months ended May 31, 2007 and for the cumulative period from September 8, 2005 (inception) to May 31, 2007 totaled $91,368, $271,121 and $271,121, respectively, of which cumulatively $224,091 was included in general and administrative expense and $47,030 was included in research and development expense No employee stock compensation costs were recognized for the period from September 8, 2005 (inception) to May 31, 2006, which was prior to the Company’s adoption of SFAS123(R).

-13-

RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For stock options granted prior to the adoption of SFAS 123(R), if compensation expense for the Company’s stock option plan had been determined based upon estimated fair values at the grant dates in accordance with SFAS 123, the Company’s pro forma net loss, and basic and diluted loss per share would have been as follows:

	For the period from September 8, 2005 (inception) to May 31, 2006		For the period from September 8, 2005 (inception) to August 31, 2006
Net loss, as reported	$	$ (318,322)	$	(969,250)
Add back: stock based compensation expense included in reported net loss		--		-
Deduct: Total stock-based compensation expense determined under fair value based method for all awards		(198,536)		(97,327)
Pro forma net loss	$	$ (516,858)	$	(1,066,577)

Net loss per share as reported, basic and diluted	$	(0.03)	$	(0.08)
Pro forma net loss per share, basic and diluted	$	(0.05)	$	(0.09)

A summary of the activity in the 2006 Equity Compensation Plan is as follows:

	Option shares	Weighted average exercise price	Exercisable	Weighted average fair value of options granted
Outstanding at September 8, 2005	-	-
Granted	2,488,400	$0.62		$0.54
Exercised	-	-
Canceled	-	-
Outstanding at August 31, 2006	2,488,400	$0.62	17,200	$0.54
Granted	130,900	$0.59		$0.51
Exercised	-	-
Canceled	-	-
Outstanding at November 30, 2006	2,619,300	$0.61	454,012	$0.54
Granted	-	-
Exercised	-	-
Canceled	-	-
Outstanding at February 28, 2007	2,619,300	$0.61	703,934	$0.54
Granted	-	-
Exercised	(7,500)	$0.60
Canceled	-	-
Outstanding at May 31, 2007	2,611,800	$0.61	946,357	$0.54

The weighted average intrinsic value of stock options outstanding and exercisable as of May 31, 2007 was $0.54.

-14-

RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

There were 3,380,700 options available for grant under the 2000 Equity Compensation Plan as of May 31, 2007. As of May 31, 2007, the options outstanding consisted of the following:

Options outstanding					Options exercisable
Range of exercise prices	Number of options outstanding	Weighted average remaining contractual life	Weighted average exercise price		Number of options exercisable	Weighted average exercise price
$0.01 to $0.60	2,023,400	9.0	$	0.60	691,289	$	0.60
$0.601 to $0.70	588,400	9.0	$	0.67	255,068	$	0.67
	2,611,800	9.0	$	0.61	946,357	$	0.62

At May 31, 2007, the total unrecognized compensation cost was approximately $721,000. The weighted average period for which it is expected to be recognized is 2 years.

(7) ISSUANCE OF COMMON STOCK

INITIAL INVESTORS

On May 25, 2006, in exchange for all of the outstanding common stock of Raptor Pharmaceutical Inc., the Company issued 8,000,000 shares of common stock to the Raptor Pharmaceutical Inc. stockholders including 3,000,000 shares of common stock to each of Christopher M. Starr, Ph.D., and Todd C. Zankel, Ph.D., the Company’s Chief Executive Officer and Chief Scientific Officer, respectively, 1,000,000 shares of common stock to Erich Sager, a member of the Company’s Board of Directors and 1,000,000 shares of common stock to an unrelated third party. These initial stockholders of Raptor Pharmaceutical Inc. purchased common stock of Raptor Pharmaceutical Inc. when it was a privately held company for the following amounts of proceeds: Dr. Starr $5,000; Dr. Zankel $5,000; Mr. Sager $100,000 and the unrelated third party $200,000.

$5 MILLION FINANCING AND REVERSE MERGER

Pursuant to a binding agreement dated March 8, 2006, with Highland Clan Creations Corp. (“HCCC”), on May 25, 2006, the Company closed a $5 million financing concurrent with a reverse merger (the “May 2006 Financing”). As part of the binding agreement, HCCC loaned $0.2 million to be repaid with accrued interest upon the earlier of six months or the closing of the financing. Also, the agreement stated that pending the closing of at least a $3.5 million financing, HCCC would be obligated to issue 800,000 units as fees to a placement agent and $30,000 in commissions to an investment broker. In the financing HCCC sold 8,333,333 units at $0.60 per unit. Each unit consists of one share of common stock and one common stock purchase warrant exercisable for one share of common stock at $0.60 per share. The warrants are exercisable for 18 months commencing May 25, 2006.

Gross proceeds from the financing were $5 million and net proceeds after the repayment of the $0.2 million loan plus interest and the deduction of commissions and legal fees totaled approximately $4.6 million. The loan was repaid with interest upon closing of the financing. The 8,333,333 warrants issued as part of the May 2006 financing were valued using the Black-Scholes model using a 4.9% risk-free interest rate, an 18-month term, zero dividend rate and 100% volatility totaling $1.6 million. The 800,000 units of stock and warrants issued to the placement agent were valued at $710,000 (based on a value of $0.60 per share for the common stock totaling $480,000 and based on the Black-Scholes model for the warrants, using the same calculations as the 8.3 million warrants, totaling $230,000) and were recorded as both an increase and a decrease to additional paid-in capital on the Company’s

-15-

RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

condensed consolidated balance sheets, and such transaction has netted out to zero. 12,500,000 shares of common stock that were held by the original stockholders of HCCC prior to the reverse merger are reflected in the Company’s common stock outstanding on its condensed consolidated balance sheets. Prior to the reverse merger, certain previous stockholders of HCCC agreed to retire 26,805,000 shares of the Company’s common stock.

During the nine months ended May 31, 2007, the Company received $1,970,000 from the exercise of common stock warrants issued in the financing discussed above. The Company issued 3,283,333 shares of common stock for the warrants. During the three months ended May 31, 2007, the Company received $4,500 from the exercise of stock options resulting in the issuance of 7,500 shares of common stock for a total of 32,924,166 shares of common stock outstanding as of May 31, 2007.

The Company treated the merger of Raptor Pharmaceuticals Corp. into its subsidiary, Raptor Pharmaceutical Inc., as a reverse acquisition pursuant to the guidance in Appendix B of SEC Accounting Disclosure Rules and Practices Official Text. Accordingly, these transactions are recorded as capital transactions in substance, rather than business combinations. Therefore, the transaction is equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation, accompanied by a recapitalization. Accordingly, the reverse acquisition has been accounted for as a recapitalization. For accounting purposes, Raptor Pharmaceutical Inc. is considered the acquirer in the reverse acquisition. The historical financial statements are those of Raptor Pharmaceutical Inc. consolidated with the parent, Raptor Pharmaceuticals Corp. Earnings per share for periods prior to the merger are restated to reflect the number of equivalent shares received by the acquiring company.

-16-

Item 2.

Management’s Discussion and Analysis or Plan of Operation.

FORWARD-LOOKING STATEMENTS

This Form 10-QSB contains “forward-looking statements” as defined under applicable securities laws. Many of these statements can be identified by the use of terminology such as “believes,” “expects,” “anticipates,” “plans,” “may,” “will,” “projects,” “continues,” “estimates,” “potential,” “opportunity” and similar expressions. These forward-looking statements may be found in “Factors That May Affect Future Results,” and other sections of this Form 10-QSB. Our actual results or experience could differ significantly from the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Factors That May Affect Future Results,” as well as those discussed elsewhere in this Form 10-QSB. You should carefully consider that information before you make an investment decision.

You should not place undue reliance on these statements, which only reflect information available as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we may issue in the future. We do not undertake any obligation to release publicly any revisions to these forward-looking statements after the filing of this Form 10-QSB to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes thereto appearing elsewhere in this quarterly report. In addition to the other information in this Form 10-QSB, investors should carefully consider the following discussion and the information under “Factors That May Affect Future Results” when evaluating us and our business.

PLAN OF OPERATION

We treated the merger of Raptor Pharmaceuticals Corp., a Delaware corporation, into its subsidiary, Raptor Pharmaceutical Inc., as a reverse acquisition and the reverse acquisition has been accounted for as a recapitalization. For accounting purposes, Raptor Pharmaceutical Inc. is considered the acquirer in the reverse acquisition. The historical financial statements are those of Raptor Pharmaceutical Inc. consolidated with its parent, Raptor Pharmaceuticals Corp. Earnings per share for periods prior to the merger have been restated to reflect the number of equivalent shares received by the acquiring company.

Milestones

Over the next 12 months, we plan to conduct research and development activities based upon our RAP based platform and other current and future in-licensed technologies. A brief summary of our primary objectives in the next 12 months for our research and development activities is provided below. There can be no assurances that our research and development activities will be successful. We will need to achieve at least one of our major clinical objectives in the next 12 months or our ability to continue as a going concern will be adversely impacted.

1. Development of the Blood-Brain Barrier Therapeutic Delivery Technology

We intend to develop and conduct pre-clinical tests on RAP-based molecules, we call NeuroTrans^TM, that selectively bind to transport receptors reported to reside on the blood side of the blood-brain barrier in humans. Such receptors may provide a potential means of transporting drugs into the brain.

We continue to work with Dr. William Mobley’s neuroscience laboratory at Stanford University, which has expertise in the study of neurotrophic factors, particularly Nerve Growth Factor (NGF). The laboratory at Stanford is testing our engineered RAP peptides in cell culture and pre-clinical models for the ability to enhance the transport of molecules from blood to the brain.

-17-

2. Development of HepTide^TM for Hepatocellular Carcinoma (“HCC”)

Drugs currently used to treat primary liver cancer often are toxic to other organs and tissues. In our limited animal studies of our RAP technology, RAP has distributed predominately to the liver. Radio-labeled RAP peptides have been tested in a pre-clinical research model of HCC at the National Research Council in Winnipeg, Manitoba, Canada and tissue distribution of RAP is currently being evaluated by whole-body imaging at Charles River Laboratories, Montreal, Quebec, Canada. Following this study, we intend to conduct pre-clinical tests involving engineered RAP peptides fused with drugs currently used to treat primary liver cancer to determine if a RAP-chemotherapeutic or a RAP-radiotherapeutic fusion, which we call HepTide, would target the liver and reduce the toxicity of the cancer drug in other organs and tissues. We are currently reviewing the capabilities of contract manufacturers to produce pre-clinical material of our RAP peptides fused with two widely-used primary liver cancer therapeutics in order to perform pre-clinical toxicology studies in the appropriate research models. Based on the results of such studies and our ability to make cGMP clinical-grade study material, we hope to start our first clinical study in humans within the next 12 to 18 months.

3. Development of AmpTide^TM for Lung Cancer (Mesothelioma)

We have engineered a RAP peptide, called AmpTide, to selectively bind a critical part of matriptase, a protein that is over-produced on lung cancer (mesothelioma) cells. Matriptase has been shown to enable tumor cells to aggressively invade surrounding tissues and thereby support tumor growth. We plan to perform pre-clinical tests to determine whether AmpTide interferes with the tumor-promoting activity of matriptase. Such interference may be useful in the treatment of a variety of cancers, including mesothelioma, which are known to over-produce matriptase.

4. Development of Mesd (“WntTide”) for the Treatment of Cancer and Osteoporosis

In November 2006, we licensed Mesd from Washington University, St. Louis, for the treatment of osteoporosis and cancer. We will be testing the ability of Mesd and engineered Mesd-based peptides, which we call WntTide, acting through LRP5, a known determinant of bone density, to combat osteoporosis and increase bone density in a pre-clinical study. We will also seek to determine whether there is an appropriate cancer target for Mesd.

5. Securing Additional and Complementary Technology Licenses from Others

We intend to continue to extend our development of RAP, RAP-variants and Mesd to include other potential therapeutics. We plan to establish additional research collaborations with prominent universities and research labs currently working on the development of potential molecules, and to secure licenses from these universities and labs for technology resulting from the collaboration. No assurances can be made regarding our ability to establish such collaborations over the next 12 months, or at all. We intend to focus our in-licensing activities on identifying complementary therapeutics and therapeutic platforms that offer a number of therapeutic targets.

6. Out-licensing Activities

As part of our ongoing business development activities, we intend to seek out industry partners interested in potential clinical applications of our molecules. In the brain delivery program, we plan to contact institutions and companies that have experience and expertise using therapeutic RAP fusion as partners. In the cancer area, we plan to contact institutions and companies with an expressed interest in developing therapeutics to our potential anti-cancer targets. Out-licensing arrangements with these companies may include technology transfer, partnerships, or joint ventures. Joint activities may include drug product candidate development, drug product candidate manufacturing, pre-clinical testing or clinical research studies. There can be no assurance that we will be able to identify appropriate industry partners or, if we are able to, that we will be able to enter into agreements with them on terms that are satisfactory to us, or at all.

-18-

Capital Resource Requirements

For the next 12 months we intend to expend a total of approximately $5.6 million to implement our operating plan of researching and developing our RAP based platform and licensed technologies which are designed to provide therapies that we believe may be safer, less intrusive, and more effective than current approaches in treating a wide variety of brain disorders, neurodegenerative diseases, genetic diseases and cancer. Specifically, we estimate our operating expenses and working capital requirements for the next 12 months to be as follows:

Estimated Spending for the Next 12 Months:
Research and Development Activities		$ 3,540,000
Research and Development Compensation and Benefits		950,000
General and Administrative Activities		730,000
General and Administrative Compensation and Benefits		350,000
Capital Expenditures		30,000
Total	$	5,600,000

As of May 31, 2007, we had approximately $3.6 million in cash, approximately $394,000 in current liabilities and approximately $3.6 million of net working capital.

To date, our cash and cash equivalents have been raised through the sale of our securities and through a bridge loan of $0.2 million, which was repaid in May 2006. Our May 2006 private placement raised gross proceeds of $5 million, which net of stock issuance costs and the repayment of our $0.2 million bridge loan plus accrued interest, totaled $4.6 million. Prior to the May 2006 private placement, we raised $310,000 through the sale of our common stock. During the nine months ended May 31, 2007, we received $1,970,000 in proceeds from the exercise of common stock warrants. During the three months ended May 31, 2007, we received $4,500 from the exercise of stock options. During the nine months ended May 31, 2007, we spent approximately $2.0 million on operations and $28,000 on leasehold improvements and lab equipment. We anticipate that our spending will significantly increase over the next 12 months as we ramp up our operations.

We anticipate that we will not be able to generate revenues from the sale of products until we further develop our drug product candidates and obtain the necessary regulatory approvals to market our future drug product candidates, which could take several years or more, if we are able to do so at all. Accordingly, our cash flow projections are subject to numerous contingencies and risk factors beyond our control, including successfully developing our drug product candidates, market acceptance of our drug product candidates, competition from well-funded competitors, and our ability to manage our expected growth. It is likely that we will not be able to generate cash flow sufficient to meet our operating and capital expenditure requirements. If we do not generate significant cash flow from the exercise of our common stock purchase warrants or through the receipt of collaboration support, we will require additional funds during the next 12-month period from other sources to execute our business plan. We believe that our cash and cash equivalents balances as of May 31, 2007 of approximately $3.6 million will be sufficient to meet our operating and capital requirements into the first calendar quarter of 2008.

There can be no assurance that we will be able to obtain funds required for our continued operation. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease the operation of our business. This also may be the case if we become insolvent or if we breach our asset purchase agreement with BioMarin and/or our licensing agreement with Washington University due to non-payment (and we do not cure our non-payment within the stated cure period). If this happens, we would lose all rights to the RAP technology assigned to us by BioMarin or the rights to Mesd licensed to us by Washington University, depending on which agreement is breached.

-19-

There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further long-term financing, the successful development of our drug product candidates and related technologies, the successful and sufficient market acceptance of any product offerings that we may introduce and, finally, achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

Research and Development Activities

We plan to conduct further research and development, seeking to improve upon our RAP-based and in-licensed technology in the next 12 months. We plan to conduct research and development activities through our own laboratory staff and also by engaging contract research organizations and contract manufacturing organizations. We also plan to incur costs for patent legal fees and consulting and collaboration fees. We anticipate our research and development costs for the next 12 months, excluding in-house research and development compensation, will be approximately $3,540,000.

Officer and Employee Compensation

We have hired three executive officers including a Chief Executive Officer, a Chief Financial Officer and a Chief Scientific Officer. We also have hired two permanent scientific staff members and one temporary part-time research intern. We anticipate spending up to approximately $1,300,000 in officer and employee compensation during the next 12 months, of which $950,000 is allocated to research and development expenses and $350,000 is allocated to general and administrative expenses. We plan to hire at least two executive level clinical/regulatory specialists to manage our pre-clinical and clinical studies and regulatory filings for our lead drug product candidates and one finance staff member.

General and Administrative

We anticipate spending approximately $730,000 on general and administrative costs in the next 12 months. These costs will consist primarily of legal and auditing fees, rent and facility support expenses excluding finance and administrative compensation.

Contractual Obligations with BioMarin

Under the asset purchase agreement we entered into with BioMarin for the purchase of intellectual property related to our RAP based technology (including NeuroTrans^TM),which may aid therapeutics in crossing the blood brain barrier to treat diseases affecting the central nervous system, we are obligated to make the following milestone payments to BioMarin upon the achievement of the following events:

	•	$50,000 within 30 days after we receive total aggregate debt or equity financing of at least $2,500,000;
	•	$100,000 within 30 days after we receive total aggregate debt or equity financing of at least $5,000,000;
	•	$500,000 upon our filing and acceptance of an investigational new drug application for a drug product candidate based on our NeuroTrans product candidate;
	•	$2,500,000 upon our successful completion of a Phase II human clinical trial for a drug product candidate based on our NeuroTrans product candidate;
	•	$5,000,000 upon our successful completion of a Phase III human clinical trial for a drug product candidate based on our NeuroTrans product candidate;
	•	$12,000,000 within 90 days of our obtaining marketing approval from the FDA or other similar regulatory agencies for a drug product candidate based on our NeuroTrans product candidate;

•

-20-

$5,000,000 within 90 days of our obtaining marketing approval from the FDA or other similar regulatory agencies for a second drug product candidate based on our NeuroTrans product candidate;

•

$5,000,000 within 60 days after the end of the first calendar year in which our aggregated revenues derived from drug product candidates based on our NeuroTrans product candidate exceed $100,000,000; and

•

$20,000,000 within 60 days after the end of the first calendar year in which our aggregated revenues derived from drug product candidates based on our NeuroTrans product candidate exceed $500,000,000.

In addition to these milestone payments, we are also obligated to pay BioMarin a royalty at a percentage of our aggregated revenues derived from drug product candidates based on our NeuroTrans product candidate. On June 9, 2006, we made a milestone payment in the amount of $150,000 to BioMarin because we raised $5,000,000 in our May 25, 2006 private placement financing. If we become insolvent or if we breach our asset purchase agreement with BioMarin due to non-payment and we do not cure our non-payment within the stated cure period, all of our rights to RAP technology (including NeuroTrans) will revert back to BioMarin.

Off-Balance Sheet Arrangements

We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

Going Concern

Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on our audited financial statements for the period September 8, 2005 (inception) to August 31, 2006, our independent registered accountants, Burr, Pilger & Mayer, LLP included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that led to this disclosure by our independent auditors.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2006, the FASB issued FASB Interpretation No. 48 Accounting For Uncertain Tax Positions. An Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109 Accounting for Income Taxes. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We do not believe adoption of this pronouncement will have an impact on us.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 is effective for fiscal years ending on or after November 15, 2006 and addresses how financial statement errors should be considered from a materiality perspective and corrected. The literature provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. Historically, there have been two approaches commonly used to quantify such errors: (i) the “rollover” approach, which quantifies the error as the amount by which the current year statement of operations is misstated, and (ii) the “iron curtain” approach, which quantifies the error as the cumulative amount by which the current year balance sheet is misstated. The SEC Staff believes that companies should quantify errors using both approaches and evaluate whether either of these approaches results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. We do not believe adoption of this pronouncement will have an impact on us.

-21-

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of SFAS 157 are to be applied prospectively as of the beginning of the fiscal year in which it is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. The provisions of SFAS 157 are effective for fiscal years beginning after November 15, 2007; therefore, we anticipate adopting SFAS 157 as of September 1, 2008. We are assessing the impact of the adoption of SFAS 157.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115, which permits the measurement of many financial instruments and certain other asset and liabilities at fair value on an instrument-by-instrument basis (the fair value option). The guidance is applicable for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of SFAS 159 on our financial position and results of operations.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our condensed consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the U.S. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our condensed consolidated financial statements is critical to an understanding of our consolidated financial position.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our condensed consolidated financial statements.

Fair Value of Financial Instruments

The carrying amounts of certain of our financial instruments including cash and cash equivalents, prepaid expenses, other receivables, accounts payable, due to stockholders, accrued liabilities and capital lease liability approximate fair value due to their short maturities.

Cash and Cash Equivalents

We consider all highly liquid investments with original maturities of three months or less to be cash equivalents.

Intangible Assets

Intangible assets include the intellectual property and other rights relating to our RAP technology. Our intangible assets are amortized using the straight-line method over the estimated useful life of 20 years, which is the life of our intellectual property patents.

-22-

Fixed Assets

Impairment of Long-Lived Assets

We evaluate our long-lived assets for indicators of possible impairment by comparison of the carrying amounts to future net undiscounted cash flows expected to be generated by such assets when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s fair value or discounted estimates of future cash flows. We have not identified any such impairment losses to date.

Income Taxes

Research and Development

Research and development costs are charged to expense as incurred.

Going Concern

Our condensed consolidated financial statements included with this Form 10-QSB have been prepared on the going concern basis which assumes that adequate sources of financing will be obtained as required and that our assets will be realized and liabilities settled in the ordinary course of business. Accordingly, our condensed consolidated financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.

In order to continue as a going concern, we will require additional financing. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to continue as a going concern, we would likely be unable to realize the carrying value of our assets reflected in our condensed consolidated financial statements.

Stock-Based Compensation

In May 2006, our stockholders approved the 2006 Equity Compensation Plan (the Plan). The Plan life is ten years and allows for the granting of options to our employees, directors and consultants. Typical option grants are for ten years with exercise prices at or above market price based on the last closing price as of the date prior to the grant date as quoted on the Over-the-Counter Bulletin Board and vest over three years as follows: 6/36ths on the six month anniversary of the date of grant and 1/36ths per month thereafter.

Effective September 1, 2006, our stock-based compensation is accounted for in accordance with SFAS 123(R), Share-Based Payment and related interpretations. Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating future stock price volatility and employee stock option exercise behavior. If actual results differ significantly from these estimates, stock-based compensation expense and results of operations could be materially impacted.

-23-

In March 2005, the SEC issued SAB 107, which offers guidance on SFAS 123(R). SAB 107 was issued to assist preparers by simplifying some of the implementation challenges of SFAS123(R) while enhancing the information that investors receive. SAB 107 creates a framework that is premised on two overarching themes: (a) considerable judgment will be required by preparers to successfully implement SFAS123(R), specifically when valuing employee stock options; and (b) reasonable individuals, acting in good faith, may conclude differently on the fair value of employee stock options. Key topics covered by SAB 107 include valuation models, expected volatility and expected term. We are applying the principles of SAB 107 in conjunction with our adoption of SFAS 123(R).

If factors change and different assumptions are employed in the application of SFAS 123(R), the compensation expense recorded in future periods may differ significantly from what was recorded in the current period. See Note 6 of our condensed consolidated financial statements for further discussion of our accounting for stock based compensation.

We recognize as consulting expense the fair value of options granted to persons who are neither employees nor directors. The fair value of expensed options was based on the Black-Scholes option-pricing model assuming the following: risk-free interest rate of 5%; 8 year expected life; 100% volatility; and 0% dividend rate.

On November 10, 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 123(R)-3 Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards. This FSP provides a practical transition election related to the accounting for the tax effects of share-based payment awards to employees, as an alternative to the transition guidance for the additional paid-in capital pool (APIC pool) in paragraph 81 of SFAS 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the APIC pool related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and statements of cash flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123(R). The guidance in this FSP is effective after November 10, 2005. We may take up to one year from the later of adoption of SFAS 123(R) or the effective date of this FSP to evaluate its available transition alternatives and make its one-time election. We are currently evaluating the transition alternatives.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Shares of our common stock are considered speculative during the development stage of our business operations. We operate in a dynamic and rapidly changing industry that involves numerous risks and uncertainties. The risks and uncertainties described below are not the only ones we face. Other risks and uncertainties, including those that we do not currently consider material, may impair our business. If any of the risks discussed below actually occur, our business, financial condition, operating results or cash flows could be materially adversely affected. This could cause the trading price of our securities to decline, and you may lose all or part of your investment. Prospective investors should consider carefully the risk factors set out below.

RISKS RELATED TO OUR BUSINESS

If we fail to obtain the capital necessary to fund our operations, our financial results and financial condition will be adversely affected and we will have to delay or terminate some or all of our product development programs.

Our condensed consolidated financial statements as of May 31, 2007 have been prepared assuming that we will continue as a going concern. As of May 31, 2007, we had an accumulated deficit of approximately $3.4 million. We expect to continue to incur losses for the foreseeable future and will have to raise substantial cash to fund our planned operations. Even though we raised approximately $5,000,000 of gross proceeds in a recent private placement offering of our securities and have received $1,970,000 in proceeds from the exercise of common stock warrants, we expect to continue to spend substantial amounts of capital on our operations for the foreseeable future. The amount of additional capital we will need depends on many factors, including:

-24-

	•	the progress, timing and scope of our pre-clinical studies and clinical trials;
	•	the time and cost necessary to obtain regulatory approvals;
	•	the time and cost necessary to develop commercial manufacturing processes, including quality systems, and to build or acquire manufacturing capabilities;
	•	the time and cost necessary to respond to technological and market developments; and
	•	any changes made or new developments in our existing collaborative, licensing and other corporate relationships or any new collaborative, licensing and other commercial relationships that we may establish.

Moreover, our fixed expenses such as rent, collaboration and license payments and other contractual commitments are substantial and will likely increase in the future. These fixed expenses are likely to increase because we expect to enter into:

	•	additional licenses and collaborative agreements;
	•	contracts for consulting, maintenance and administrative services; and
	•	financing facilities.

We believe that our cash and cash equivalents balances as of May 31, 2007 of approximately $3.6 million will be sufficient to meet our operating and capital requirements into the first calendar quarter of 2008. These estimates are based on assumptions and estimates, excluding any debt or equity financing that may occur during this period. These estimates do not consider the potential cash generated from the exercise of outstanding warrants issued in our May 2006 private placement, which could generate up to an additional $3.5 million prior to the warrants expiring in November 2007. These assumptions and estimates may prove to be wrong. We will need to sell equity or debt securities to raise additional funds in order to complete our currently-pending research and development efforts. The sale of additional securities may result in additional dilution to our stockholders. Furthermore, additional financing may not be available in amounts or on terms satisfactory to us or at all. We may be unable to raise additional financing when needed due to a variety of factors, including our financial condition, the status of our research and development programs, and the general condition of the financial markets. If we fail to raise additional financing as we need such funds, we will have to delay or terminate some or all of our research and development programs, our financial condition and operating results will be adversely affected and we may have to cease our operations.

We are an early development stage biotechnology research and development company and may never be able to successfully develop marketable products.

We are an early development stage company and have not generated any revenues to date and have a limited operating history. All of our drug product candidates are in the concept stage and have not undergone significant testing in pre-clinical studies or any testing in clinical trials. Moreover, we cannot be certain that our research and development efforts will be successful or, if successful, that our drug product candidates will ever be approved for sale or generate commercial revenues. We have a limited relevant operating history upon which an evaluation of our performance and prospects can be made. We are subject to all of the business risks associated with a new enterprise, including, but not limited to, risks of unforeseen capital requirements, failure of drug product candidates either in pre-clinical testing or in clinical trials, failure to establish business relationships, and competitive disadvantages against larger and more established companies.

-25-

Even if we are able to develop our drug product candidates, we may not be able to receive regulatory approval, or if approved, we may not be able to generate significant revenues or successfully commercialize our products, which would adversely affect our financial results and financial condition and we would have to delay or terminate some or all of our research product development programs.

All of our drug product candidates are theoretical and will require extensive additional research and development, including pre-clinical testing and clinical trials, as well as regulatory approvals, before we can market them. We cannot predict if or when any of the drug product candidates we intend to develop will be approved for marketing. There are many reasons that we may fail in our efforts to develop our drug product candidates. These include:

	•	the possibility that pre-clinical testing or clinical trials may show that our drug product candidates are ineffective and/or cause harmful side effects;
	•	our drug product candidates may prove to be too expensive to manufacture or administer to patients;
	•	our drug product candidates may fail to receive necessary regulatory approvals from the FDA or foreign regulatory authorities in a timely manner, or at all;
	•	our drug product candidates, if approved, may not be produced in commercial quantities or at reasonable costs;
	•	our drug product candidates, if approved, may not achieve commercial acceptance;
	•	regulatory or governmental authorities may apply restrictions to our drug product candidates, which could adversely affect their commercial success; and
	•	the proprietary rights of other parties may prevent us or our potential collaborative partners from marketing our drug product candidates.

If we fail to develop our drug product candidates, our financial results and financial condition will be adversely affected, we will have to delay or terminate some or all of our research product development programs and may be forced to cease operations.

If we are limited in our ability to utilize acquired or licensed technologies, we may be unable to develop, out-license, market and sell our product candidates, which could cause delayed new product introductions, and/or adversely affect our reputation, any of which could have a material adverse effect on our business, prospects, financial condition, and operating results.

We have acquired and licensed certain proprietary technologies and plan to further license and acquire various patents and proprietary technologies owned by third parties. These agreements are critical to our product development programs. These agreements may be terminated, and all rights to the technologies and product candidates will be lost, if we fail to perform our obligations under these agreements and licenses in accordance with their terms including, but not limited to, our ability to make all payments due under such agreements. Our inability to continue to maintain these technologies could materially adversely affect our business, prospects, financial condition, and operating results. In addition, our business strategy depends on the successful development of these licensed and acquired technologies into commercial products, and, therefore, any limitations on our ability to utilize these technologies may impair our ability to develop, out-license, market and sell our product candidates, delay new product introductions, and/or adversely affect our reputation, any of which could have a material adverse effect on our business, prospects, financial condition, and operating results.

If the asset purchase or licensing agreements we entered into are terminated, we will lose the right to use or exploit our owned and licensed technologies, in which case we will have to delay or terminate some or all of our research and development programs, our financial condition and operating results will be adversely affected and we may have to cease our operations.

We entered into an asset purchase agreement with BioMarin for the purchase of intellectual property related to the RAP technology and we entered into a licensing agreement with Washington University for Mesd. BioMarin and Washington University may terminate their respective agreements with us upon the occurrence of certain events, including if we enter into certain bankruptcy proceedings or if we materially breach our payment obligations and fail to remedy the breach within the permitted cure period. Although we are not currently involved in any bankruptcy proceedings or in breach of these agreements, there is a risk that we may be

-26-

in the future, giving BioMarin and/or Washington University the right to terminate their respective agreements with us. We also have the right to terminate these agreements at any time by giving prior written notice. If these agreements are terminated by either party, we would be forced to assign back to BioMarin all of our rights, title and interest in and to the intellectual property related to the RAP technology and would lose our rights to the Mesd technology (depending on which agreement is terminated.) Under such circumstances, we would have no further right to use or exploit the patents, copyrights or trademarks in the respective technologies. If this happens, we will have to delay or terminate some or all of our research and development programs, our financial condition and operating results will be adversely affected, and we may have to cease our operations.

If we fail to compete successfully with respect to acquisitions, joint venture and other collaboration opportunities, we may be limited in our ability to develop our drug product candidates.

Our competitors compete with us to attract established biotechnology and pharmaceutical companies or organizations for acquisitions, joint ventures, licensing arrangements or other collaborations. Collaborations include licensing proprietary technology from, and other relationships with, academic research institutions. If our competitors successfully enter into partnering arrangements or license agreements with academic research institutions, we will then be precluded from pursuing those specific opportunities. Since each of these opportunities is unique, we may not be able to find a substitute. Other companies have already begun many drug development programs, which may target diseases that we are also targeting, and have already entered into partnering and licensing arrangements with academic research institutions, reducing the pool of available opportunities.

Universities and public and private research institutions also compete with us. While these organizations primarily have educational or basic research objectives, they may develop proprietary technology and acquire patents that we may need for the development of our drug product candidates. We will attempt to license this proprietary technology, if available. These licenses may not be available to us on acceptable terms, if at all. If we are unable to compete successfully with respect to acquisitions, joint venture and other collaboration opportunities, we may be limited in our ability to develop new products.

If we do not achieve our projected development goals in the time frames we announce and expect, the credibility of our management and our technology may be adversely affected and, as a result, our financial condition may suffer.

For planning purposes, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the submission of regulatory filings. From time to time, we may publicly announce the expected timing of some of these milestones. All of these milestones will be based on a variety of assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in many cases for reasons beyond our control. If we do not meet these milestones as publicly announced, our stockholders may lose confidence in our ability to meet these milestones and, as a result, our financial condition may suffer.

Our product development programs will require substantial additional future funding which could impact our operational and financial condition

It will take several years before we are able to develop marketable drug product candidates, if at all. Our product development programs will require substantial additional capital to successfully complete them, arising from costs to:

	•	conduct research, pre-clinical testing and human studies;
	•	establish pilot scale and commercial scale manufacturing processes and facilities; and
	•	establish and develop quality control, regulatory, marketing, sales, finance and administrative capabilities to support these programs.

-27-

Our future operating and capital needs will depend on many factors, including:

	•	the pace of scientific progress in our research and development programs and the magnitude of these programs;
	•	the scope and results of pre-clinical testing and human studies;
	•	our ability to obtain, and the time and costs involved in obtaining regulatory approvals;
	•	our ability to prosecute, maintain, and enforce, and the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;
	•	competing technological and market developments;
	•	our ability to establish additional collaborations;
	•	changes in our existing collaborations;
	•	the cost of manufacturing scale-up; and
	•	the effectiveness of our commercialization activities.

We base our outlook regarding the need for funds on many uncertain variables. Such uncertainties include the success of our research initiatives, regulatory approvals, the timing of events outside our direct control such as negotiations with potential strategic partners and other factors. Any of these uncertain events can significantly change our cash requirements as they determine such one-time events as the receipt or payment of major milestones and other payments.

Additional funds will be required to support our operations and if we are unable to obtain them on favorable terms, we may be required to cease or reduce further development or commercialization of our drug product programs, to sell some or all of our technology or assets, to merge with another entity or cease operations.

If we fail to demonstrate efficacy in our pre-clinical studies and clinical trials our future business prospects, financial condition and operating results will be materially adversely affected.

The success of our development and commercialization efforts will be greatly dependent upon our ability to demonstrate drug product candidate efficacy in pre-clinical studies, as well as in clinical trials. Pre-clinical studies involve testing drug product candidates in appropriate non-human disease models to demonstrate efficacy and safety. Regulatory agencies evaluate these data carefully before they will approve clinical testing in humans. If certain pre-clinical data reveals potential safety issues or the results are inconsistent with an expectation of the drug product candidate’s efficacy in humans, the regulatory agencies may require additional more rigorous testing, before allowing human clinical trials. This additional testing will increase program expenses and extend timelines. We may decide to suspend further testing on our drug product candidates or technologies if, in the judgment of our management and advisors, the pre-clinical test results do not support further development.

Moreover, success in pre-clinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and pre-clinical testing. The clinical trial process may fail to demonstrate that our drug product candidates are safe for humans and effective for indicated uses. This failure would cause us to abandon a drug product candidate and may delay development of other drug product candidates. Any delay in, or termination of, our pre-clinical testing or clinical trials will delay the filing of our investigational new drug application and new drug application with the U.S. Food and Drug Administration (FDA) and, ultimately, our ability to commercialize our drug product candidates and generate product revenues. In addition, our clinical trials will involve small patient populations. Because of the small sample size, the results of these early clinical trials may not be indicative of future results. Following successful pre-clinical testing, drug product candidates will need to be tested in a clinical development program to provide data on safety and efficacy prior to becoming eligible for product approval and licensure by regulatory agencies. From the first human trial through product approval can take many years.

-28-

If any of our future clinical development drug product candidates become the subject of problems, including those related to, among others:

	•	efficacy or safety concerns with the drug product candidates, even if not justified;
	•	unexpected side-effects;
	•	regulatory proceedings subjecting the drug product candidates to potential recall;
	•	publicity affecting doctor prescription or patient use of the drug product candidates;
	•	pressure from competitive products; or
	•	introduction of more effective treatments;

our ability to sustain our development programs will become critically compromised. For example, efficacy or safety concerns may arise, whether or not justified, that could lead to the suspension or termination of our clinical programs.

Each clinical phase is designed to test attributes of drug product candidates and problems that might result in the termination of the entire clinical plan can be revealed at any time throughout the overall clinical program. The failure to demonstrate efficacy in our clinical trials would have a material adverse effect on our future business prospects, financial condition and operating results.

If we do not obtain the support of new, and maintain the support of existing, key scientific collaborators, it may be difficult to establish products using our technologies as a standard of care for various indications, which may limit our revenue growth and profitability and could have a material adverse effect on our business, prospects, financial condition and operating results.

We will need to establish relationships with additional leading scientists and research institutions. We believe that such relationships are pivotal to establishing products using our technologies as a standard of care for various indications. Although we have established a Medical and Scientific Advisory Board and research collaborations, there is no assurance that our Advisory Board members and our research collaborators will continue to work with us or that we will be able to attract additional research partners. If we are not able to maintain existing or establish new scientific relationships to assist in our research and development, we may not be able to successfully develop our drug product candidates.

We may not be able to market or generate sales of our products to the extent anticipated.

Assuming that we are successful in developing our drug product candidates and receive regulatory clearances to market our products, our ability to successfully penetrate the market and generate sales of those products may be limited by a number of factors, including the following:

	•	Certain of our competitors in the field have already received regulatory approvals for and have begun marketing similar products in the U.S., the European Union, Japan and other territories, which may result in greater physician awareness of their products as compared to ours.
	•	Information from our competitors or the academic community indicating that current products or new products are more effective than our future products could, if and when it is generated, impede our market penetration or decrease our future market share.
	•	Physicians may be reluctant to switch from existing treatment methods, including traditional therapy agents, to our future products.
	•	The price for our future products, as well as pricing decisions by our competitors, may have an effect on our revenues.
	•	Our future revenues may diminish if third-party payers, including private healthcare coverage insurers and healthcare maintenance organizations, do not provide adequate coverage or reimbursement for our future products.

-29-

There are many difficult challenges associated with developing proteins that can be used to transport therapeutics across the blood-brain barrier.

Our RAP technology has a potential clinical use as a drug transporter through the blood-brain barrier. However, we do not know that our technology will work or work safely. Many groups and companies have attempted to solve the critical medical challenge of developing an efficient method of transporting therapeutic proteins from the blood stream into the brain. Unfortunately, these efforts to date have met with little success due in part to a lack of adequate understanding of the biology of the blood-brain barrier and to the enormous scientific complexity of the transport process itself.

In the research and development of our RAP technology, we will certainly face many of the same issues that have caused these earlier attempts to fail. It is possible that:

	•	we will not be able to produce enough RAP drug product candidates for testing;
	•	the pharmacokinetics, or where the drug distributes in the body, of our RAP drug product candidates will preclude sufficient binding to the targeted receptors on the blood-brain barrier;
	•	the targeted receptors are not transported across the blood-brain barrier;
	•	other features of the barrier, apart from the cells, block access molecules to brain tissue after transport across the cells;
	•	the targeted receptors are expressed on the blood-brain barrier at densities insufficient to allow adequate transport of our RAP drug product candidates into the brain;
	•	targeting of the selected receptors induces deleterious side-effects which prevent their use as drugs, or
	•	that our RAP drug product candidates themselves cause unacceptable side-effects.

Any of these conditions may preclude the use of RAP or RAP fusion compounds for treating the brain.

If our competitors succeed in developing products and technologies that are more effective than our own, or if scientific developments change our understanding of the potential scope and utility of our drug product candidates, then our technologies and future drug product candidates may be rendered less competitive.

We face significant competition from industry participants that are pursuing similar technologies that we are pursuing and are developing pharmaceutical products that are competitive with our drug product candidates. Nearly all of our industry competitors have greater capital resources, larger overall research and development staffs and facilities, and a longer history in drug discovery and development, obtaining regulatory approval and pharmaceutical product manufacturing and marketing than we do. With these additional resources, our competitors may be able to respond to the rapid and significant technological changes in the biotechnology and pharmaceutical industries faster than we can. Our future success will depend in large part on our ability to maintain a competitive position with respect to these technologies. Rapid technological development, as well as new scientific developments, may result in our compounds, drug product candidates or processes becoming obsolete before we can recover any of the expenses incurred to develop them. For example, changes in our understanding of the appropriate population of patients who should be treated with a targeted therapy like we are developing may limit the drug’s market potential if it is subsequently demonstrated that only certain subsets of patients should be treated with the targeted therapy.

Our reliance on third parties, such as university laboratories, contract manufacturing organizations and contract or clinical research organizations, may result in delays in completing, or a failure to complete, pre-clinical testing or clinical trials if they fail to perform under our agreements with them.

In the course of product development, we may engage university laboratories, other biotechnology companies or contract or clinical manufacturing organizations to manufacture drug material for us to be used in pre-clinical and clinical testing and contract or clinical research organizations to conduct and manage pre-clinical and clinical studies. If we engage these organizations to help us with our pre-clinical and clinical programs, many important aspects of this process have been and will be out of our direct control. If any of these organizations we may engage in the future fail to perform their obligations under our agreements with them or fail to perform pre-clinical testing and/or clinical trials in a satisfactory manner, we may face delays in completing our clinical trials, as well as

-30-

commercialization of any of our drug product candidates. Furthermore, any loss or delay in obtaining contracts with such entities may also delay the completion of our clinical trials, regulatory filings and the potential market approval of our drug product candidates.

The use of any of our drug product candidates in clinical trials may expose us to liability claims.

The nature of our business exposes us to potential liability risks inherent in the testing, manufacturing and marketing of our drug product candidates. While we currently do not have any drug product candidates in clinical trials, our drug product candidates could potentially harm people or allegedly harm people and we may be subject to costly and damaging product liability claims when they enter into clinical trials. Some of the patients who participate in clinical trials are already critically ill when they enter a trial. The waivers we obtain may not be enforceable and may not protect us from liability or the costs of product liability litigation. Although we currently carry a $2 million product liability insurance policy, it does not cover claims relating to clinical trials; and, while we intend to obtain clinical product liability insurance upon commencement of our first clinical trial in an amount we believe will be adequate, we may not be able to obtain such insurance at competitive rates. We are subject to the risk that our current insurance, as well as any clinical product liability insurance that we intend to obtain, will not be sufficient to cover future claims.

If we are unable to protect our proprietary technology, we may not be able to compete as effectively.

Where appropriate, we seek patent protection for certain aspects of our technology. Patent protection may not be available for some of the drug product candidates we are developing. If we must spend significant time and money protecting our patents, designing around patents held by others or licensing, potentially for large fees, patents or other proprietary rights held by others, our business and financial prospects may be harmed.

The patent positions of biopharmaceutical products are complex and uncertain.

We own or license patent applications related to certain of our drug product candidates. However, these patent applications do not ensure the protection of our intellectual property for a number of reasons, including the following:

	•	We do not know whether our patent applications will result in issued patents. For example, we may not have developed a method for treating a disease before others developed similar methods.
	•	Competitors may interfere with our patent process in a variety of ways. Competitors may claim that they invented the claimed invention prior to us. Competitors may also claim that we are infringing on their patents and therefore cannot practice our technology as claimed under our patents, if issued. Competitors may also contest our patents, if issued, by showing the patent examiner that the invention was not original, was not novel or was obvious. In litigation, a competitor could claim that our patents, if issued, are not valid for a number of reasons. If a court agrees, we would lose that patent. As a company, we have no meaningful experience with competitors interfering with our patents or patent applications.
	•	Enforcing patents is expensive and may absorb significant time of our management. Management would spend less time and resources on developing drug product candidates, which could increase our operating expenses and delay product programs.
	•	Receipt of a patent may not provide much practical protection. If we receive a patent with a narrow scope, then it will be easier for competitors to design products that do not infringe on our patent.

•

In addition, competitors also seek patent protection for their technology. Due to the number of patents in our field of technology, we cannot be certain that we do not infringe on those patents or that we will not infringe on patents granted in the future. If a patent holder believes our drug product candidate infringes on its patent, the patent holder may sue us even if we have received patent protection for our technology. If someone else claims we infringe on its technology, we would face a number of issues, including the following:

- Defending a lawsuit takes significant time and can be very expensive.

- If the court decides that our drug product candidate infringes on the competitor’s patent, we may have to pay substantial damages for past infringement.

-31-

- The court may prohibit us from selling or licensing the drug product candidate unless the patent holder licenses the patent to us. The patent holder is not required to grant us a license. If a license is available, we may have to pay substantial royalties or grant cross licenses to our patents.

- Redesigning our drug product candidates so it does not infringe may not be possible or could require substantial funds and time.

It is also unclear whether our trade secrets are adequately protected. While we use reasonable efforts to protect our trade secrets, our employees or consultants may unintentionally or willfully disclose our information to competitors. Enforcing a claim that someone else illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the U.S. are sometimes less willing to protect trade secrets. Our competitors may independently develop equivalent knowledge, methods and know-how.

We may also support and collaborate in research conducted by government organizations, hospitals, universities or other educational institutions. These research partners may be unwilling to grant us any exclusive rights to technology or products derived from these collaborations prior to entering into the relationship.

If we do not obtain required licenses or rights, we could encounter delays in our product development efforts while we attempt to design around other patents or even be prohibited from developing, manufacturing or selling drug product candidates requiring these licenses. There is also a risk that disputes may arise as to the rights to technology or drug product candidates developed in collaboration with other parties.

Our future success depends, in part, on the continued service of our management team.

Our success is dependent in part upon the availability of our senior executive officers, including our Chief Executive Officer, Dr. Christopher Starr, our Chief Scientific Officer, Dr. Todd Zankel, and our Chief Financial Officer, Kim R. Tsuchimoto. The loss or unavailability to us of any of these individuals or key research and development personnel, and particularly if lost to competitors, could have a material adverse effect on our business, prospects, financial condition, and operating results. We have no key-man insurance on any of our employees.

Our executive offices and laboratory facility is located near known earthquake fault zones, and the occurrence of an earthquake or other catastrophic disaster could cause damage to our facility and equipment, or that of our third-party manufacturers or single-source suppliers, which could materially impair our ability to continue our product development programs.

Our executive offices and laboratory facility are located in the San Francisco Bay Area near known earthquake fault zones and are vulnerable to significant damage from earthquakes. We and the third-party manufacturers with whom we contract and our single-source suppliers of raw materials are also vulnerable to damage from other types of disasters, including fires, floods, power loss and similar events. If any disaster were to occur, our ability to continue our product development programs, could be seriously, or potentially completely impaired. The insurance we maintain may not be adequate to cover our losses resulting from disasters or other business interruptions.

We will incur increased costs as a result of recently enacted and proposed changes in laws and regulations.

We face burdens relating to the recent trend toward stricter corporate governance and financial reporting standards. New legislation or regulations such as Section 404 of the Sarbanes-Oxley Act of 2002 follow the trend of imposing stricter corporate governance and financial reporting standards have led to an increase in the costs of compliance for companies similar to ours, including increases in consulting, auditing and legal fees. The new rules could make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. A

-32-

failure to comply with these new laws and regulations may impact market perception of our financial condition and could materially harm our business. Additionally, it is unclear what additional laws or regulations may develop, and we cannot predict the ultimate impact of any future changes in law.

RISKS RELATED TO OUR COMMON STOCK

There is no active trading market for our common stock and if a market for our common stock does not develop, our investors will be unable to sell their shares.

There is currently no active trading market for our common stock and such a market may not develop or be sustained. Shares of our common stock are eligible for quotation on the National Association of Securities Dealers Inc.’s (NASD) Over-the-Counter Bulletin Board (OTC Bulletin Board) but there has been very limited trading of our common stock. We cannot provide our investors with any assurance that a public market will materialize.

Further, the OTC Bulletin Board is not a listing service or exchange, but is instead a dealer quotation service for subscribing members. If our common stock is not quoted on the OTC Bulletin Board or if a public market for our common stock does not develop, then investors may not be able to resell the shares of our common stock that they have purchased and may lose all of their investment. If we establish a trading market for our common stock, the market price of our common stock may be significantly affected by factors such as actual or anticipated fluctuations in our operating results, our ability or perceived ability to reach corporate milestones, general market conditions and other factors. In addition, the stock market has from time to time experienced significant price and volume fluctuations that have particularly affected the market prices for the shares of development stage companies. As we are a development stage company such fluctuations may negatively affect the market price of our common stock.

Because we do not intend to pay any dividends on our common stock, investors seeking dividend income or liquidity should not purchase shares of our common stock.

We have not declared or paid any dividends on our common stock since our inception, and we do not anticipate paying any such dividends for the foreseeable future. Investors seeking dividend income or liquidity should not invest in our common stock.

Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and the NASD’s sales practice requirements, which may limit a stockholder’s ability to buy and sell our stock.

Our stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and institutional accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

In addition to the “penny stock” rules promulgated by the SEC, the NASD has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-

-33-

institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The NASD requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.

Our stock price may be volatile, and an investment in our stock could suffer a decline in value.

If we establish a trading market for our common stock, the market price of that stock is likely to fluctuate due to factors including:

	•	results of pre-clinical studies and clinical trials;
	•	commencement and progress of our drug product candidates through the regulatory process;
	•	announcements of technological innovations or new products by us or our competitors;
	•	government regulatory action affecting our drug product candidates or our competitors’ drug products in both the U.S. and foreign countries;
	•	developments or disputes concerning patent or proprietary rights;
	•	general market conditions and fluctuations for the emerging growth biotechnology and pharmaceutical market sectors;
	•	economic conditions and broad market fluctuations in the U.S. or abroad; and
	•	actual or anticipated fluctuations in our operating results.

Anti-takeover provisions under Delaware law may make an acquisition of us, which may be beneficial to our stockholders, more difficult.

We are incorporated in Delaware. Certain anti-takeover provisions of Delaware law as currently in effect may make a change in control of our company more difficult, even if a change in control would be beneficial to the stockholders. Additionally, our board of directors has the authority to issue up to 10,000,000 shares of preferred stock which is currently authorized but not issued or outstanding and to determine the terms of those shares of stock without any further action by our stockholders. The rights of holders of our common stock are subject to the rights of the holders of any preferred stock that may be issued. The issuance of preferred stock could make it more difficult for a third-party to acquire a majority of our outstanding voting stock. Delaware law also prohibits corporations from engaging in a business combination with any holders of 15% or more of their capital stock until the holder has held the stock for three years unless, among other possibilities, the board of directors approves the transaction. Our board of directors may use these provisions to prevent changes in the management and control of our company. Also, under applicable Delaware law, our board of directors may adopt additional anti-takeover measures in the future.

Item 3.

Controls and Procedures.

As required by Rule 13a-15 under the Exchange Act, as of the end of the period covered by this report, being May 31, 2007, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report. There have been no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

-34-

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer as appropriate, to allow timely decisions regarding required disclosure.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

We are not involved in any material pending legal proceedings at this time, and management is not aware of any contemplated proceeding involving the Company by any governmental authority.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Warrant Issue

Date

Number of

Warrants Exercised

Exercise

Price

Expiration

Date

Exercise

Date

Shares Issued

Upon Exercise

Proceeds

Received

Warrant Holder

Swiss American Securities Inc. ITF Bank Sal. Oppenheim

5/25/2006

1,000,000

$0.60

11/25/2007

1/9/2007

1,000,000

$ 600,000

Finter Bank

5/25/2006

1,600,000

$0.60

11/25/2007

1/26/2007

1,600,000

960,000

Quotidian No. 2 Pty Limited

5/25/2006

333,333

$0.60

11/25/2007

4/17/2007

333,333

200,000

Banque SCS Alliance SA

5/25/2006

100,000

$0.60

11/25/2007

1/18/2007

100,000

60,000

Mapledown Limited

5/25/2006

250,000

$0.60

11/25/2007

5/17/2007

250,000

150,000

3,283,333

$ 1,970,000

The table above reflects common stock warrants exercised to-date. All of these warrants were issued in connection with a private placement of common stock and warrants in May 2006 in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the Act), and the common stock issued upon exercise of the warrants have been registered for re-sale pursuant to our Registration Statement on Form SB-2, as amended, which was declared effective on July 10, 2006. As a result of the exercise of the warrants, we received aggregate net cash proceeds of approximately $1.97 million and used the proceeds for working capital purposes.

We claim an exemption from the registration requirements of the Act for the issuance of common stock underlying the warrants pursuant to Section 4(2) of the Act because, among other things, the transaction did not involve a public offering, the investors were accredited investors and/or qualified institutional buyers and the investors had access to information about us and their investment.

-35-

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Submission of Matters to a Vote of Security Holders.

None.

Item 5.

Other Information.

None.

Item 6.	Exhibits.
(31)	Section 302 Certification
31.1	Certification of Christopher M. Starr, Ph.D., Chief Executive Officer and Director
31.2	Certification of Kim R. Tsuchimoto, Chief Financial Officer, Secretary and Treasurer
(32)	Section 906 Certification
32.1	Certification of Christopher M. Starr, Ph.D., Chief Executive Officer and Director, and of Kim R. Tsuchimoto, Chief Financial Officer, Secretary and Treasurer

SIGNATURES

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

RAPTOR PHARMACEUTICALS CORP.

By: /s/ Christopher M. Starr

Christopher M. Starr, Ph.D.

Chief Executive Officer and Director

(Principal Executive Officer)

Date: June 28, 2007

By: /s/ Kim R. Tsuchimoto

Kim R. Tsuchimoto

Chief Financial Officer, Secretary and Treasurer

(Principal Financial Officer and Principal Accounting Officer)

Date: June 28, 2007

-36-

Exhibit Index
31.1	Certification of Christopher M. Starr, Ph.D., Chief Executive Officer and Director
31.2	Certification of Kim R. Tsuchimoto, Chief Financial Officer, Secretary and Treasurer
32.1	Certification of Christopher M. Starr, Ph.D., Chief Executive Officer and Director, and of Kim R. Tsuchimoto, Chief Financial Officer, Secretary and Treasurer