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 endedFebruary 29, 2008

[ ] 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	98-0379351
(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 40,221,297 shares of common stock outstanding as of March 24, 2008.

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 February 29, 2008 (unaudited) and August 31, 2007	2
	Unaudited Condensed Consolidated Statements of Operations for the three and six months ended February 29, 2008 and February 28, 2007 and the cumulative period from September 8, 2005 (inception) to February 29, 2008	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended February 29, 2008 and February 28, 2007 and the cumulative period from September 8, 2005 (inception) to February 29, 2008	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2	Management’s Discussion and Analysis or Plan of Operation	17
Item 3	Controls and Procedures	42
Part II - Other Information
Item 1	Legal Proceedings	42
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3	Defaults Upon Senior Securities	42
Item 4	Submission of Matters to a Vote of Security Holders	43
Item 5	Other Information	43
Item 6	Exhibits	43
SIGNATURES		44

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Raptor Pharmaceuticals Corp.
(A Development Stage Company)
Condensed Consolidated Balance Sheets
				February 29, 2008		August 31, 2007
ASSETS				(unaudited)		(1)
Current assets:
	Cash and cash equivalents			$	2,252,573	$	2,627,072
	Prepaid expenses and other				188,708		197,093
Total current assets					2,441,281		2,824,165
Intangible assets, net					2,732,542		138,125
Fixed assets, net					238,250		308,428
Deposits					100,206		20,207
		Total assets		$	5,512,279	$	3,290,925
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Current liabilities:
	Accounts payable			$	292,387	$	115,679
	Accrued liabilities				297,559		201,320
	Deferred rent				8,646		11,015
	Capital lease liability – current				2,640		2,500
Total current liabilities					601,232		330,514
Capital lease liability - long-term					946		2,302
Total liabilities					602,178		332,816
	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 40,221,297 and 32,931,166 shares issued and outstanding as at February 29, 2008 and
	August 31, 2007, respectively				40,221		32,931
	Additional paid-in capital				12,861,268		7,526,504
	Deficit accumulated during development stage				(7,991,388)		(4,601,326)
Total stockholders’ equity					4,910,101		2,958,109
			Total liabilities and stockholders’ equity	$	5,512,279	$	3,290,925
(1) Derived from the Company’s audited consolidated financial statements as of August 31, 2007.
The accompanying notes are an integral part of these financial statements.

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Raptor Pharmaceuticals Corp.
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Unaudited)
		For the three-month period from December 1, 2007 to February 29, 2008		For the three-month period from December 1, 2006 to February 28, 2007
Revenues:	$	-	$	-
Operating expenses:
General and administrative		610,475		333,289
Research and development		1,252,968		424,320
Total operating expenses		1,863,443		757,609
Loss from operations		(1,863,443)		(757,609)
Interest income		20,879		36,685
Interest expense		(47,518)		(173)
Net loss	$	(1,890,082)	$	(721,097)
Net loss per share:
Basic and diluted	$	(0.05)	$	(0.02)
Weighted average shares
outstanding used to compute:
Basic and diluted		39,577,857		30,838,889
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 six-month period From September 1, 2007 to February 29, 2008		For the six-month period From September 1, 2006 to February 28, 2007		For the cumulative period from September 8, 2005 (inception) to February 29, 2008
Revenues:			$	-	$	-	$	-
Operating expenses:
	General and administrative			1,053,128		627,346		3,092,235
	Research and development			2,050,229		965,374		4,795,524
	In-process research and development			240,625		-		240,625
		Total operating expenses		3,343,982		1,592,720		8,128,384
Loss from operations				(3,343,982)		(1,592,720)		(8,128,384)
	Interest income			40,795		69,284		228,083
	Interest expense			(86,875)		(362)		(91,087)
		Net loss	$	(3,390,062)		(1,523,798)	$	(7,991,388)
Net loss per share:
	Basic and diluted		$	(0.09)	$	(0.05)	$	(0.32)
Weighted average shares
	outstanding used to compute:
		Basic and diluted		36,470,331		30,236,111		24,992,580
The accompanying notes are an integral part of these financial statements.
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Raptor Pharmaceuticals Corp.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(unaudited)
								For the six-month			For the cumulative period from
				For the six-month period from September 1, 2007 to				period from September 1, 2006 to			September 8, 2005 (inception) to
				February 29, 2008				February 28, 2007			February 29, 2008
Cash flows from operating activities:
	Net loss			$		(3,390,062)		$		(1,523,798)	$	(7,991,388)
	Adjustments to reconcile net loss to net cash
		used in operating activities:
	Employee stock options expensed					212,318				179,755		581,296
	Warrants issuable pursuant to consulting agreement					-				-		60
	Stock options expensed pursuant to consulting agreements					204,112				63,129		323,344
	Amortization of intangible assets					25,582				3,750		37,457
	Depreciation of fixed assets					70,178				54,934		209,536
	In-process research and development					240,625				-		240,625
	Amortization of capitalized finder’s fee					86,308				-		86,308
	Capitalized acquisition costs					38,000				-		38,000
	Changes in assets and liabilities:
		Prepaid expenses				24,077				(40,414)		(173,016)
		Receivables – other				-				640		-
		Intangible assets				-				-		(150,000)
		Deposits				(80,000)				-		(100,207)
		Accounts payable				176,708				36,316		292,387
		Accrued liabilities				96,239				10,142		297,559
		Deferred rent				(2,369)				(1,827)		8,646
		Net cash used in operating activities				(2,298,284)				(1,217,373)		(6,299,393)
	Cash flows from investing activities:
		Purchase of fixed assets				-				(21,728)		(440,390)
	Cash flows from financing activities:
		Proceeds from the sale of common stock				-				-		5,000,000
		Proceeds from the exercise of common stock warrants				1,925,000				1,620,000		3,895,000
		Proceeds from the exercise of common stock options				-				-		8,700
		Fundraising costs				-				-		(217,534)
		Proceeds from the sale of common stock to initial investors				-				-		310,000
		Proceeds from bridge loan				-				-		200,000
		Repayment of bridge loan				-				-		(200,000)
		Principal payments on capital lease				(1,215)				(1,090)		(3,810)
		Cash advances from stockholders, net of repayment				-				6,746		-
	Net cash provided by financing activities					1,923,785				1,625,656		8,992,356
	Net increase (decrease) in cash and cash equivalents					(374,499)				386,555		2,252,573
	Cash and cash equivalents, beginning of period					2,627,072				3,648,538		-
	Cash and cash equivalents, end of period			$		2,252,573		$		4,035,093	$	2,252,573
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
		Common stock issued for a finder’s fee		$		102,000		$		-	$	102,000
		Common stock issued in asset purchase	$		3,742,625		$		-		$	3,742,625
The accompanying notes are an integral part of these financial statements.
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RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) NATURE OF OPERATIONS AND BUSINESS RISKS

The accompanying 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.

Through one of its wholly-owned subsidiaries, Raptor Pharmaceutical Inc. (“Raptor Inc.”), formed on September 8, 2005, the Company is developing a drug-targeting platform and therapeutics, based on the use of Receptor-Associated Protein (“RAP”) and mesoderm development (“Mesd”). Raptor Inc.’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 Inc. is also developing Mesd as a potential therapeutic for the treatment of cancer. On August 1, 2007, the Company formed a wholly-owned subsidiary, Bennu Pharmaceuticals Inc. (“Bennu”), for the purpose of developing clinical-stage products to supplement the drug discovery, research and preclinical development performed by Raptor Inc. Bennu is developing two clinical-stage product candidates: Convivia, to treat acetaldehyde toxicity in aldehyde dehydrogenase (“ALDH2”) deficient individuals; and Delayed Release Cysteamine (“DR Cysteamine”), to treat nephropathic cystinosis and potentially other metabolic and neurodegenerative diseases. The two subsidiaries together form a continuous set of specialized competencies to develop the Company’s pipeline of drug product candidates from early stage to clinical stage. It is our goal to advance these competencies forward to commercialization. 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 Quarterly Report on Form 10-QSB.

(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 subsidiaries, Raptor Pharmaceutical Inc., which was incorporated in Delaware on September 8, 2005 (date of inception) and Bennu Pharmaceuticals Inc., which was incorporated in Delaware on August 1, 2007. 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 February 29, 2008, the Company had accumulated losses of approximately $8.0 million. Management expects to incur further losses for the foreseeable future. Management believes that the Company’s cash and cash equivalents at February 29, 2008, will be sufficient to meet the Company’s minimum obligations into the third calendar quarter of 2008. The Company is currently in the process of raising equity funds in order to fully fund its preclinical and clinical programs into the fourth calendar quarter of 2008, at which time the Company anticipates raising a more significant round of financing. Until the Company can generate sufficient levels of cash from its operations, the Company expects to continue to finance future cash needs primarily through proceeds from equity or debt financings, loans and 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.

The Company’s independent registered public accounting firm has audited our consolidated financial statements for the period from September 8, 2005 (inception) to August 31, 2006 and for the year ended August 31, 2007 and in their audit reports dated October 2, 2006, and November 2, 2007, respectively, 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.

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RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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. The uncertainty of this situation raises 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, capitalized finder’s fees, accounts payable, accrued liabilities and capital lease liability approximate fair value due to their short maturities.

(d) Segment Reporting

The Company has determined that in the current fiscal year it operates as two operating segments, preclinical development (Raptor Inc.) and clinical development (Bennu). In the prior fiscal years, the Company operated only as one (preclinical) segment. Operating segments are components of an enterprise for which separate financial information is available and are evaluated regularly by the Company in deciding how to allocate resources and in assessing performance. The Company’s chief executive officer assesses the Company’s performance and allocates its resources. Below is a break-down of the Company’s net loss and total assets by operating segment:

	For the three-month period from December 1, 2007 to February 29, 2008			For the six-month period from September 1, 2007 to February 29, 2008
	Preclinical	Clinical	Total	Preclinical	Clinical	Total
Net loss	$ (982,920)	$ (907,162)	$ (1,890,082)	$ (1,838,894)	$ (1,551,168)	$(3,390,062)
Total assets	2,732,536	2,779,743	5,512,279	2,732,536	2,779,743	5,512,279

(e) Cash and Cash Equivalents

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

(f) Intangible Assets

Intangible assets include the intellectual property and other rights relating to DR Cysteamine and 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. The 20 year estimated useful life is also based upon the typical development, approval, marketing and life cycle management timelines of pharmaceutical drug products.

-7-

RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(g) 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.

(h) 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.

(i) 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 assets to the amount expected to be realized.

(j) 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, preclinical studies, regulatory and clinical consultants, lab supplies, lab services, lab equipment maintenance and small equipment purchased to support the research laboratory and allocated executive, human resources and facilities expenses.

(k) In-Process Research and Development

The Company records in-process research and development expense for a product candidate acquisition where there is not more than one potential product or usage for the assets being acquired. The Company reviews each product candidate acquisition to determine if the purchase price should be expensed as in-process research and development or capitalized and amortized over the life of the asset.

(l) 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:

	February 29, 2008	February 28, 2007
Warrants to purchase common stock	1,158,276	6,493,333
Options to purchase common stock	3,530,727	2,619,300
Total potentially dilutive securities	4,689,003	9,112,633

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RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(m) Stock Option Plans

Effective September 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”) in accounting for its 2006 Equity Incentive Plan, as amended. Under SFAS 123R, compensation cost is measured at the grant date based on the fair value of the equity instruments awarded and is recognized over the period during which an employee is

required to provide service in exchange for the award, or the requisite service period, which is usually the vesting period. The fair value of the equity award granted is estimated on the date of the grant. The Company previously applied Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations and provided the required pro forma disclosures required by SFAS No. 123, Accounting for Stock-Based Compensation. See Note 7, “Stock Option Plan” for further discussion of employee stock-based compensation.

(n) Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“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; therefore, the Company anticipates adopting SFAS 159 as of September 1, 2008... The Company is currently evaluating the impact of SFAS 159 on its financial position and results of operations.

In December 2007, FASB issued Statement No. 141 (Revised 2007), Business Combinations  (“SFAS 141(R)”) and SFAS No. 160,  Accounting and Reporting of Non-controlling Interests in Consolidated Financial Statements , an amendment of ARB No. 51 (“SFAS 160”). These statements will significantly change the financial accounting and reporting of business combination transactions and non-controlling (or minority) interests in consolidated financial statements. SFAS 141(R) requires companies to: (i) recognize, with certain exceptions, 100% of the fair values of assets acquired, liabilities assumed, and non-controlling interests in acquisitions of less than a 100% controlling interest when the acquisition constitutes a change in control of the acquired entity; (ii) measure acquirer shares issued in consideration for a business combination at fair value on the acquisition date; (iii) recognize contingent consideration arrangements at their acquisition-date fair values, with subsequent changes in fair value generally reflected in earnings; (iv) with certain exceptions, recognize pre-acquisition loss and gain contingencies at their acquisition-date fair values; (v) capitalize in-process research and development (“IPR&D”) assets acquired; (vi) expense, as incurred, acquisition-related transaction costs; (vii) capitalize acquisition-related restructuring costs only if the criteria in SFAS No. 146,  Accounting for Costs Associated with Exit or Disposal Activities , are met as of the acquisition date; and (viii) recognize changes that result from a business combination transaction in an acquirer’s existing income tax valuation allowances and tax uncertainty accruals as adjustments to income tax expense. SFAS 141(R) is required to be adopted concurrently with SFAS 160 and is effective for business combination transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (our fiscal 2009). Early adoption of these statements is prohibited. The Company believes the adoption of these statements will have a material impact on significant acquisitions completed after September 1, 2009.

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RAPTORPHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements ("SFAS 160"), an amendment of ARB No. 51. SFAS 160 will change the accounting and reporting for minority interests which will be recharacterized as non-controlling interests and classified as a component of equity. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. The Company is assessing the impact that SFAS 160 may have on its financial position, consolidated results of operations and consolidated cash flows.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). This statement will require enhanced disclosures about derivative instruments and hedging activities to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Management is assessing the impact of the adoption of SFAS 161.

(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 as of February 29, 2008 and August 31, 2007 based on the estimated fair value of its agreement with BioMarin.

On December 14, 2007, the Company acquired the intellectual property and other rights to develop DR Cysteamine to treat various indications from the University of California at San Diego (“UCSD”) by way of a merger with Encode Pharmaceuticals, Inc. (“Encode”), a privately held research and development company, which held the license with UCSD. The intangible assets recorded at approximately $2.6 million acquired in the merger with Encode were primarily based on the value of the Company’s common stock and warrants issued to the Encode stockholders. The intangible assets are being amortized monthly over 20 years, which are the life of the intellectual property patents and the estimated useful life. The 20 year estimated useful life is also based upon the typical development, approval, marketing and life cycle management timelines of pharmaceutical drug products. During the three and six months ended February 29, 2008, the three and six months ended February 28, 2007 and the cumulative period from September 8, 2005 (inception) to February 29, 2008, the Company amortized $23,708, $25,582, $1,875, $3,750 and $37,457, respectively, of intangible assets to research and development expense.

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

Amortization period	Amortization expense
September 8, 2005 (inception) to August 31, 2006 – actual	$	4,375
Fiscal year ending August 31, 2007 – actual		7,500
Fiscal year ending August 31, 2008 – estimate		94,833
Fiscal year ending August 31, 2009 – estimate		138,500
Fiscal year ending August 31, 2010 – estimate		138,500
Fiscal year ending August 31, 2011 – estimate		138,500
Fiscal year ending August 31, 2012 – estimate		138,500

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RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(4) FIXED ASSETS

Fixed assets consisted of:

Category		February 29, 2008		August 31, 2007	Estimated useful lives
Leasehold improvements	$	113,422	$	113,422	Shorter of life of asset or lease term
Laboratory equipment		269,334		269,334	5 years
Computer hardware and software		57,634		57,634	3 years
Capital lease equipment		7,397		7,397	Shorter of life of asset or lease term
		447,787		447,787
Less: accumulated depreciation		(209,537)		(139,359)
Total fixed assets, net	$	238,250	$	308,428

Depreciation expense for the three and six months ended February 29, 2008, the three and six months ended February 28, 2007 and the cumulative period from September 8, 2005 (inception) to February 29, 2008 was $35,088, $70,178, $28,668, $54,934 and $209,537, respectively. Accumulated depreciation on capital lease equipment was $4,213 and $2,980, as of February 29, 2008 and August 31, 2007, respectively.

(5) ACCRUED LIABILITIES

Accrued liabilities consisted of:

		February 29, 2008		August 31, 2007
Research consulting	$	128,154	$	-
Auditing and tax preparation fees		62,457		44,877
Salaries and wages		35,935		29,664
Legal fees		35,774		66,647
Lab collaborations		-		22,188
Travel		12,804		-
Patent costs		9,000		13,086
Accrued vacation		7,070		7,070
Scientific subscriptions		-		5,328
Preclinical studies		-		5,000
Other		6,365		7,460
Total	$	297,559	$	201,320

(6) CONVERTIBLE LOAN

            On September 12, 2007, the Company entered into a loan agreement pursuant to which the lender extended to the Company a line of credit in the amount of $5.0 million to be drawn down by the Company at any time during the term of the loan. The loan bears interest at the annual rate of ten percent and matures on April 1, 2008, at which

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RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

time all principal and interest on the loan shall become due. At the option of the lender, the repayment of the loan (including all accrued interest thereon) may be made in common stock of the Company at a discount of ten percent of the closing bid price of the Company’s common stock as of the trading day immediately preceding the repayment date, such amount shall not to be lower than $0.60 per share. Pursuant to the loan agreement, the Company issued 200,000 shares of its restricted, unregistered common stock as a finder’s fee to the lender. To-date the Company has not drawn down on this loan.

(7) 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 123R, as interpreted by Staff Accounting Bulletin No. 107 (“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 123R, 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 123R. 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. The Company accounts for stock options issued to third parties, including consultants, in accordance with the provisions of the Emerging Issues Task Force (“EITF”) Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services.

Employee stock compensation expense for the three and six months ended February 29, 2008, the three and six months ended February 28, 2007 and for the cumulative period from September 8, 2005 (inception) to February 29, 2008 was $107,539, $212,318, $89,381, $179,754 and $581,296, of which cumulatively $484,458 was included in general and administrative expense and $96,838 was included in research and development expense No employee stock compensation costs were recognized for the period from September 8, 2005 (inception) to August 31, 2006, which was prior to the Company’s adoption of SFAS 123R.

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RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock-based compensation expense was based on the Black-Scholes option-pricing model assuming the following:

Period*	Risk-free interest rate	Expected life of stock option	Volatility	Turnover Rate
September 8, 2005 (inception) to August 31, 2006**	5%	10 years	100%	0%
Quarter ended November 30, 2006	5%	8 years	100%	10%
Quarter ended February 28, 2007	5%	8 years	100%	10%
Quarter ended May 31, 2007	5%	8 years	100%	10%
Quarter ended August 31, 2007	4%	8 years	99.75%	10%
Quarter ended November 30, 2007	3.75%	8 years	109%	10%
Quarter ended February 29, 2008	2%	8 years	119%	10%

*Dividend rate is 0% for all period presented.

**Stock-based compensation expense was recorded on the condensed consolidated statements of operations commencing on the effective date of SFAS 123R, September 1, 2006. Prior to September 1, 2006, stock based compensation was reflected only in the footnotes to the condensed consolidated statements of operations, with no effect on the condensed consolidated statements of operations, per the guidelines of APB No. 25. Consultant options expense has been recorded on the condensed consolidated statements of operations since inception.

If factors change and different assumptions are employed in the application of SFAS 123R, the compensation expense recorded in future periods may differ significantly from what was recorded in the current period.

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 same factors shown in the stock-based compensation expense table above. Stock option expense for consultants for the three and six months ended February 29, 2008, three and six months ended February 28, 2007 and for the cumulative period from September 8, 2005 (inception) to February 29, 2008, were $196,708, $204,112, $38,346, $63,129 and $323,344, respectively, of which cumulatively $55,421 was included in general and administrative expense and $267,923 was included in research and development expense.

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RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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	-	$0.48
Exercised	-	-	-	-
Canceled	-	-	-	-
Outstanding at August 31, 2006	2,488,400	$0.62	17,200	$0.61
Granted	460,900	$0.60	-	$0.52
Exercised	(14,500)	$0.60	-	$0.52
Canceled	-	-		-
Outstanding at August 31, 2007	2,934,800	$0.61	1,172,081	$0.53
Granted	238,500	$0.53	-	$0.48
Exercised	-	-	-	-
Canceled	-	-	-	-
Outstanding at November 30, 2007	3,173,300	$0.61	1,404,804	$0.55
Granted	357,427	$0.57	-	$0.52
Exercised	-	-	-	-
Canceled	-	-	-	-
Outstanding at February 29, 2008	3,530,727	$0.60	2,038,725	$0.55

The weighted average intrinsic values of stock options outstanding and stock options exercisable as of February 29, 2008 were $116,783 and $62,965, respectively.

There were 2,454,773 options available for grant under the 2006 Equity Compensation Plan as of February 29, 2008. As of February 29, 2008, 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 to $0.60	2,942,327	8.67	$	0.59	1,658,659	$	0.59
$0.601 to $0.70	588,400	8.26	$	0.67	380,066	$	0.67
	3,530,727	8.60	$	0.60	2,038,725	$	0.61

At February 29, 2008, the total unrecognized compensation cost was approximately $643,000. The weighted average period over which it is expected to be recognized is 2 years.

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RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(8) ISSUANCE OF COMMON STOCK

ISSUANCE OF COMMON STOCK PURSUANT TO COMMON STOCK WARRANT EXERCISES AND STOCK OPTION EXERCISES

During the three months ended November 30, 2007 and the cumulative period from September 8, 2005 (inception) through November 30, 2007, the Company received $1.925 million and $3.895 million, respectively, from the exercises of common stock warrants issued in the Company’s May 2006 financing. The Company issued an aggregate of 6,491,667 shares of common stock for the warrants, which had an exercise price of $0.60 per share and expired on November 25, 2007.

During the three and six months ended February 29, 2008, no stock options were exercised. During the cumulative period from September 8, 2005 (inception) through February 29, 2008, the Company received $8,700 from the exercise of stock options resulting in the issuance of 14,500 shares of common stock. Total common stock outstanding as of February 29, 2008 was 40,221,297 shares.

ISSUANCE OF COMMON STOCK PURSUANT TO AN ASSET PURCHASE AGREEMENT WITH CONVIVIA, INC.

On October 18, 2007, the Company purchased certain assets of Convivia, Inc. (“Convivia”) including intellectual property, know-how and research reports related to a product candidate targeting liver aldehyde dehydrogenase (“ALDH2”) deficiency, a genetic metabolic disorder. Bennu hired Convivia’s chief executive officer and founder, Thomas E. (Ted) Daley, as its President. In exchange for the assets related to the ALDH2 deficiency program, the Company issued to Convivia 200,000 shares of its restricted, unregistered common stock, an additional 200,000 shares of its restricted, unregistered common stock to a third party in settlement of a convertible loan between the third party and Convivia, and another 37,500 shares of restricted, unregistered common stock in settlement of other obligations of Convivia. Mr. Daley, as the former sole stockholder of Convivia (now dissolved), may earn additional shares of the Company based on certain triggering events or milestones related to the development of Convivia assets. In addition, Mr. Daley may earn cash bonuses based on the same triggering events pursuant to his employment agreement. Pursuant to FAS 2, the accounting guidelines for expensing research and development costs, the Company has expensed the value of the stock issued in connection with this asset purchase as in-process research and development expense in the amount of $240,625 on its condensed consolidated statement of operations during the quarter ended November 30, 2007.

MERGER OF BENNU PHARMACEUTICALS INC. AND ENCODE PHARMACEUTICALS, INC.

            On December 14, 2007, the Company entered into a Merger Agreement (the “Merger Agreement”), dated as of the same date, by and between the Company, Bennu and Encode Pharmaceuticals, Inc. (“Encode”), a privately held development stage company. Pursuant to the Merger Agreement, a certificate of merger was filed with the Secretary of State of the State of Delaware and Encode was merged with and into Bennu. The existence of Encode ceased as of the date of the Merger Agreement. Pursuant to the Merger Agreement and the certificate of merger, Bennu, as the surviving corporation, continued as a wholly-owned subsidiary of the Company. Under the terms of and subject to the conditions set forth in the Merger Agreement, the Company issued 3,444,297 shares of restricted, unregistered shares of the Company’s common stock, par value $.001 per share (the “Common Stock”) to the stockholders of Encode (the “Encode Stockholders”), options (“Company Options”) to purchase 357,427 shares of Common Stock to the optionholders of Encode (the “Encode Optionholders”), and warrants (“Company Warrants”) to purchase 1,098,276 restricted, unregistered shares of Common Stock to the warrantholders of Encode (the “Encode Warrantholders”, and together with the Encode Stockholders and Encode Optionholders, the “Encode Securityholders”), as of the date of such Agreement. Such Common Stock, Company Options to purchase Common

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RAPTOR PHARMACEUTICALS CORP.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock, and Company Warrants to purchase Common Stock combine for an aggregate amount of 4.9 million shares of Common Stock issuable to the Encode Securityholders as of the closing of the Merger. The purchase price was valued at $2.6 million, which was recorded as intangible assets on the Company’s condensed consolidated balance sheet as of February 29, 2008, primarily based on the value the Company’s common stock and warrants issued to Encode stockholders. The Encode Securityholders are eligible to receive up to an additional 2.4 million shares of Common Stock, Company Options and Company Warrants to purchase Common Stock in the aggregate based on certain triggering events related to regulatory approval of DR Cysteamine, an Encode product program described below, if completed within the five year anniversary date of the Merger Agreement. The Company recorded this transaction as an asset purchase rather than a business combination, as Encode had not commenced planned principle operations, such as generating revenues from its drug product candidate.

            As a result of the Merger, Bennu received the exclusive worldwide license to DR Cysteamine (“License Agreement”), developed by clinical scientists at the UCSD, School of Medicine. DR Cysteamine is a proprietary enterically coated formulation of cysteamine bitartrate, a cystine depleting agent currently approved by the U.S. Food and Drug Administration (“FDA”). Cysteamine bitartrate is prescribed for the management of the genetic disorder known as nephropathic cystinosis (“cystinosis”), a lysosomal storage disease. The active ingredient in DR Cysteamine has also demonstrated potential in studies as a treatment for other metabolic and neurodegenerative diseases, such as Batten Disease, Huntington’s Disease and Non-alcoholic steatohepatitis (“NASH”).

            In consideration of the grant of the license, prior to the merger with Bennu, Encode paid an initial license fee and Bennu will be obligated to pay an annual maintenance fee until Bennu begins commercial sales of any products developed pursuant to the License Agreement. In addition to the maintenance fee, Bennu will be obligated to pay during the life of the License Agreement: milestone payments ranging from $20,000 to $750,000 for orphan indications and from $80,000 to $1,500,000 for non-orphan indications upon the occurrence of certain events, if ever; royalties on commercial net sales from products developed pursuant to the License Agreement ranging from 1.75% to 5.5%; a percentage of sublicense fees ranging from 25% to 50%; a percentage of sublicense royalties; and a minimum annual royalty commencing the year Bennu begins commercially selling any products pursuant to the License Agreement, if ever. Under the License Agreement, Bennu is obligated to fulfill predetermined milestones within a specified number of years ranging from 0.75 to 6 years from the effective date of the License Agreement, depending on the indication. To the extent that Bennu fails to perform any of the obligations, the University may terminate the license or otherwise cause the license to become non-exclusive.

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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

Future Activities

Over the next 12 months, we plan to conduct research and development activities based upon our RAP-based platform, our Mesd-based peptides, our Convivia product candidate, our Delayed Release Cysteamine (DR Cysteamine) product candidate, and other current and future in-licensed technologies and acquired 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.

Preclinical Development Programs

We are developing what we believe is a promising novel drug-targeting platform, based on the proprietary use of a human protein called Receptor-Associated-Protein, or RAP and the protein mesoderm development, or Mesd. We believe there may be applications and conditions that our technology may be applied to, including cancer and neurodegenerative diseases. These applications are based on the assumption that our targeting molecules can be engineered to bind to a selective subset of receptors with restricted tissue distribution under particular conditions of administration. We believe these selective tissue distributions can be used to deliver drugs to the liver, as described below, or to other tissues, such as the brain. In addition to selectively transporting drugs to specific tissues, selective receptor binding constitutes a means by which receptor function might be specifically controlled, either through modulating its binding capacity or its prevalence on the cell surface. Mesd is being engineered for this latter application.

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Development of HepTide^TM for Hepatocellular Carcinoma (HCC) and Hepatitis C

Drugs currently used to treat primary liver cancer are often toxic to other organs and tissues. We believe that the pharmacokinetic behavior of RAP (i.e., the determination of the fate or disposition of RAP once administered externally to a living organism) may diminish the non-target toxicity and increase the on-target efficacy of attached therapeutics. In recent preclinical studies of our radio-labeled HepTide^TM (a variant of the receptor-associated protein, or RAP), HepTide^TM was shown to distribute predominately to the liver. Radio-labeled HepTide^TMwhich was tested in a preclinical research model of HCC, or primary liver cancer, at the National Research Council in Winnipeg, Manitoba, Canada showed 4.5 times more delivery to the liver than the radio-labeled control. Another study of radio-labeled HepTide^TM in a non-HCC preclinical model, showed 7 times more delivery to the liver than the radio-labeled control, with significantly smaller amounts of radio-labeled HepTide^TM delivery to other tissues and organs. We are also evaluating how HepTide^TM could aid in the treatment of hepatitis. We are currently reviewing the capabilities of contract manufacturers to produce preclinical material of HepTide^TM fused with a primary liver cancer therapeutic and hepatitis therapeutic in order to perform preclinical toxicology studies in the appropriate research models. Our plan over the next 12 months is to work toward filing an Investigational New Drug Application or IND with the U.S. Food and Drug Administration, or FDA, in order to initiate a clinical trial to test HepTide^TM fused with a liver cancer therapeutic and commence the planning of the clinical trial.

Development of NeuroTrans^TM to Treat Brain Diseases

NeuroTrans^TM is envisioned as a transporter to deliver neurotrophic factors and other therapeutics to treat certain brain diseases. We have renewed our grant with Dr. William Mobley’s neuroscience laboratory at Stanford University, due to promising early results in blood-brain barrier (BBB) transport models from our collaboration initiated in August 2006. In the first year of the collaboration, a number of RAP peptides were tested for their ability to cross the BBB. From these experiments, we were able to select a lead candidate transport peptide we call RAP-2s. Through this collaboration, we plan to continue to assess the bio-distribution of RAP-2s within various brain compartments, commence testing of RAP-2s’ ability to deliver Nerve Growth Factor (NGF) across the BBB, and investigate the effects of the RAP-NGF conjugates to the brain in preclinical models.

Development of WntTide^TM for the Treatment of Cancer

In November 2006, we licensed Mesd from Washington University, St. Louis, for the treatment of osteoporosis and cancer. Preliminary results from our preclinical study of Mesd and Mesd-based peptides, which we call WntTide^TM, in an osteoporosis model, suggests that WntTide inhibits signaling through the cell-surface receptor LRP5, making it a potential treatment of breast cancer. Therefore, in the next 12 months, we will be testing WntTide^TM for the ability to inhibit the growth of certain types of cancer including breast cancer, in a preclinical xenograft model.

Clinical Development Programs

We also develop clinical-stage drug product candidates which are: internally discovered therapeutic candidates based on our novel drug delivery platforms and in-license or purchased clinical-stage products which may be new chemical entities in mid-to-late stage clinical development, currently approved drugs with potential efficacy in additional indications, and treatments that we could repurpose or reformulate as potentially more effective or convenient treatments for a drug’s currently approved indications.

Development of Convivia^TM for Liver Aldehyde Dehydrogenase (ALDH2) Deficiency

Convivia™ is our proprietary oral formulation of 4-methylpyrazole (4-MP) intended for the treatment of acetaldehyde toxicity resulting from ALDH2 deficiency, which is an inherited disorder of the body’s ability to breakdown ethanol, commonly referred to as alcohol intolerance. 4-MP is presently marketed in the U.S. and E.U. in

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an intravenous form as an anti-toxin. Within the next 12 months, we plan to complete a clinical trial in patients to determine appropriate dosing utilizing the existing liquid formulation of 4-MP, we will formulate and manufacture clinical grade material of our proprietary oral formulation of 4-MP, known as Convivia^TM to support our planned clinical trial and we will submit an IND to commence a clinical trial in patients utilizing our proprietary oral formulation of 4-MP. Due to the fact that 4-MP is an already FDA approved drug for anti-freeze (ethylene glycol) poisoning, data exists regarding the safety of 4-MP, which should aid us in the development of our proprietary oral formulation. We also plan to begin discussions with companies and regulators in selected Asian countries regarding the offshore development of Convivia^TM.

Development of DR Cysteamine for the Treatment of Nephropathic Cystinosis and Other Diseases

In December 2007, through a merger between Encode Pharmaceuticals, Inc. and our wholly owned subsidiary, Bennu, we purchased certain assets, including the clinical development rights to DR Cysteamine, a proprietary enterically coated formulation of cysteamine bitartrate, a cystine depleting agent currently approved by the FDA for nephropathic cystinosis (cystinosis). Cysteamine bitartrate is prescribed for the management of the genetic disorder known as cystinosis, a lysosomal storage disease characterized by the poor transport of cystine out of lysosomes. If left untreated, this disorder is associated with a high morbidity rate, including renal failure. DR Cysteamine has received orphan drug designation from the FDA’s Office of Orphan Products Development for the treatment of cystinosis. An evaluation of the product’s efficacy is currently underway in a clinical trial treating cystinosis patients at University of California at San Diego (UCSD) and is currently receiving financial support from the Cystinosis Research Foundation of Irvine, CA. The active ingredient in DR Cysteamine has also demonstrated potential in preclinical studies as a treatment for other metabolic and neurodegenerative diseases, including Batten Disease and Huntington’s Disease. In the next 12 months we plan to manufacture our proprietary drug product candidate and test it in patients enrolled in the existing cystinosis trial at UCSD. We also plan to initiate clinical trials, if approved by regulatory agencies, in other indications such as Huntington’s Disease and non-alcoholic steatohepatitis (NASH).

Other Development Areas

Securing Additional and Complementary Technology Licenses from Others

We intend to continue to extend our development of RAP, RAP-variants and Mesd to applications in other potential therapeutics. We plan to establish additional research collaborations with prominent universities and research labs currently working on the development of potential targeting 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 and product candidate acquisition activities on identifying complementary therapeutics, therapeutic platforms that offer a number of therapeutic targets, and clinical-stage therapeutics based on existing approved drugs in order to create proprietary reformulations to improve safety and efficacy or to expand such drugs’ clinical indications through additional clinical trials.

Business Development Activities

As part of our ongoing business development activities, we intend to seek out industry partners interested in potential clinical applicationsof our proprietary molecules and co-development or drug partnerships. 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, preclinical 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 mutually acceptable agreements with them on terms that are satisfactory to us, or at all.

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Recent Developments

Purchase of Convivia^TM

In October 2007, we purchased certain assets of Convivia, Inc. (Convivia) including intellectual property, know-how and research reports related to a product candidate targeting liver aldehyde dehydrogenase (ALDH2) deficiency, a genetic metabolic disorder. Bennu Pharmaceuticals Inc. (Bennu), our wholly-owned subsidiary hired Convivia’s chief executive officer and founder, Thomas E. (Ted) Daley, as its President. In exchange for the assets related to the ALDH2 deficiency program, what we now call Convivia^TM, we issued to Convivia 200,000 shares of common stock, par value $0.001 per share (Common Stock), an additional 200,000 shares of Common Stock to a third party in settlement of a convertible loan between the third party and Convivia, and another 37,500 shares Common Stock in settlement of other obligations of Convivia. Mr. Daley, as the former sole stockholder of Convivia, may earn additional shares of the Company based on certain triggering events or milestones related to the development of the Convivia assets. In addition, Mr. Daley may earn cash bonuses based on the same triggering events pursuant to his employment agreement. In January 2008, Mr. Daley earned a $30,000 cash bonus pursuant to his employment agreement for executing the Patheon formulation agreement for manufacturing Convivia^TM. In March 2008, Mr. Daley earned 100,000 shares of Common Stock pursuant to our Convivia purchase agreement for the execution of an agreement to supply the Company with the active pharmaceutical ingredient for Convivia^TM and a $10,000 cash bonus pursuant to his employment agreement for reaching his six-month employment anniversary.

Purchase of DR Cysteamine

In December 2007, through a merger between Encode Pharmaceuticals, Inc. (Encode) and our wholly owned subsidiary, Bennu, we purchased certain assets, including the clinical development rights to DR Cysteamine.

Under the terms of and subject to the conditions set forth in the merger agreement, we issued 3,444,297 shares of Common Stock to the stockholders of Encode (Encode Stockholders), options (Company Options) to purchase 357,427 shares of Common Stock to the optionholders of Encode (Encode Optionholders), and warrants (Company Warrants) to purchase 1,098,276 shares of Common Stock to the warrantholders of Encode (Encode Warrantholders, and together with the Encode Stockholders and Encode Optionholders, the Encode Securityholders), as of the date of such agreement. Such Common Stock, Company Options to purchase Common Stock, and Company Warrants to purchase Common Stock combine for an aggregate amount of 4.9 million shares of Common Stock issuable to the Encode Securityholders as of the closing of the merger. The Encode Securityholders are eligible to receive up to an additional 2.4 million shares of Common Stock, Company Options and Company Warrants to purchase Common stock in the aggregate based on certain triggering events related to regulatory approval of DR Cysteamine, an Encode product program, if completed within the five year anniversary date of the merger agreement.

As a result of the merger, we received the exclusive worldwide license to DR Cysteamine (License Agreement), developed by clinical scientists at the UCSD, School of Medicine.

In consideration of the grant of the license, prior to the merger with Bennu, Encode paid an initial license fee and we will be obligated to pay an annual maintenance fee of $15,000 until we begin commercial sales of any products developed pursuant to the License Agreement. In addition to the maintenance fee, we will be obligated to pay during the life of the License Agreement: milestone payments ranging from $20,000 to $750,000 for orphan indications and from $80,000 to $1,500,000 for non-orphan indications upon the occurrence of certain events, if ever; royalties on commercial net sales from products developed pursuant to the License Agreement ranging from 1.75% to 5.5%; a percentage of sublicense fees ranging from 25% to 50%; a percentage of sublicense royalties; and a minimum annual royalty commencing the year we begin commercially selling any products pursuant to the License Agreement, if ever. Under the License Agreement, we are obligated to fulfill predetermined milestones within a specified number of years ranging from 0.75 to 6 years from the effective date of the License Agreement, depending on the indication. In addition, we are obligated to, among other things, secure $1 million in funding prior to December 18, 2008 and annually spend at least $200,000 for the development of products pursuant to the License Agreement. To the extent that we fail to perform any of our obligations under the License Agreement, then UCSD may terminate the license or otherwise cause the license to become non-exclusive.

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Capital Resource Requirements

As of February 29, 2008, we had approximately $2.3 million in cash, approximately $601,000 in current liabilities and approximately $1.8 million of net working capital. Our current monthly cash expenditures are about $400,000. We anticipate that our spending will significantly ramp up over the next 12 months as we execute our clinical development operations.

We believe that our cash and cash equivalents balances as of at February 29, 2008 of approximately $2.3 million, will be sufficient to meet the Company’s minimum obligations into the third calendar quarter of 2008. The Company is currently attempting to raise equity funds in order to continue to fund its preclinical and clinical programs into the fourth calendar quarter of 2008, at which time the Company anticipates raising an additional financing.

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 (including the financing that we are currently pursuing) 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 or our licensing agreements with Washington University and UCSD 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 and/or the rights to Mesd licensed to us by Washington University and/or the rights to DR Cysteamine licensed to us by UCSD, depending on which agreement is breached.

If we are able to raise additional financing, for the next 12 months, we intend to expend a total of approximately $11.1 million to implement our operating plan of researching and developing our RAP based platform, our licensed technologies, Convivia^TM and DR Cysteamine, which are designed to provide therapies that we believe may address unmet medical needs or provide safer, less intrusive, and more effective than current approaches in treating certain brain disorders, neurodegenerative diseases, genetic diseases, metabolic disorders 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		$ 8,750,000
Research and Development Compensation and Benefits		780,000
General and Administrative Activities		990,000
General and Administrative Compensation and Benefits		560,000
Capital Expenditures		20,000
Total	$	11,100,000

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. From September 8, 2005 (inception) through February 29, 2008, we received approximately $3.9 million in proceeds from the exercise of Common Stock warrants and $8,700 from the exercise of Common Stock options. In September 2007, we entered into a convertible loan agreement with Jupili Investment SA pursuant to which we have the right to borrow up to $5 million in aggregate. The loan bears interest at a rate of 10% per annum and matures on April 1, 2008, at which time all principal and accrued interest on the loan shall become due and payable in cash or in the Company’s Common Stock, at the lender’s discretion. We issued 200,000 shares of Common Stock as a finder’s fee in connection with this convertible loan. We did not draw any advances under this loan agreement and it expired unused on April 1, 2008. During the quarter ended February 29, 2008, we spent approximately $1.3 million on operations.

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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 for many years, we will not be able to generate internal positive cash flow from the sales of our drug product candidates, sufficient to meet our operating and capital expenditure requirements.

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, the achievement of 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 and run several clinical trials for Convivia^TM and DR Cysteamine in the next 12 months. We plan to conduct research and development activities by our own laboratory staff and also by engaging contract research organizations, clinical research organizations and contract manufacturing organizations. We also plan to incur costs for the production of clinical study drug candidates including HepTide^TM, Convivia^TM and DR Cysteamine, clinical trials, clinical and medical advisors 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 $8,750,000. We will need to scale down our research and development plans and expenses detailed herein for the next twelve months if we are not able to raise additional financing in 2008 as detailed in the section titled “Capital Resource Requirements.”

Officer and Employee Compensation

Our wholly-owned subsidiary, Raptor Pharmaceutical Inc., employs three executive officers including a Chief Executive Officer, a Chief Financial Officer and a Chief Scientific Officer, who also serve as our executive officers. Our other wholly-owned subsidiary, Bennu employs a President. We also have two permanent scientific staff members, one permanent finance staff member and one temporary part-time research intern. We anticipate spending up to approximately $1,340,000 in officer and employee compensation during the next 12 months, of which $780,000 is allocated to research and development expenses and $560,000 is allocated to general and administrative expenses. We are currently searching to hire a medical director to oversee our clinical trials. We will need to scale down our officer and employee compensation expenses detailed herein for the next twelve months if we are not able to raise additional financing in 2008 as detailed in the section titled “Capital Resource Requirements.”

General and Administrative

We anticipate spending approximately $990,000 on general and administrative costs in the next 12 months. These costs will consist primarily of legal and accounting fees, patent legal fees, investor relations expenses, board fees and expenses, insurance, rent and facility support expenses excluding finance and administrative compensation. We will need to scale down our general and administrative plans and expenses detailed herein for the next twelve months if we are not able to raise additional financing in 2008 as detailed in the section titled “Capital Resource Requirements.”

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Capital Expenditures

We anticipate spending approximately $20,000 in the next 12 months on capital expenditures for lab equipment and office furniture. We will need to scale down our capital expenditures detailed herein for the next twelve months if we are not able to raise additional financing in 2008 as detailed in the section titled “Capital Resource Requirements.”

Contractual Obligations with BioMarin

Pursuant to the terms of the asset purchase agreement we entered into with BioMarin for the purchase of intellectual property related to our RAP based technology (including NeuroTrans^TM), we are obligated to make the following milestone payments to BioMarin upon the achievement of the following events:

• $50,000 (paid by us in June 2006) within 30 days after we receive total aggregate debt or equity financing of at least $2,500,000;

• $100,000 (paid by us in June 2006) 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^TM 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^TM 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^TM 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^TM product candidate;

• $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^TM 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^TM 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^TM 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^TM 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^TM) will revert back to BioMarin.

Contractual Obligations with Thomas E. Daley (assignee of the dissolved Convivia, Inc.)

Pursuant to the terms of the asset purchase agreement (Asset Purchase Agreement), Bennu and we entered into with Convivia, Inc. and Thomas E. Daley for the purchase of intellectual property related to our 4-MP product candidate program, Mr. Daley will be entitled to receive the following, if at all, in such amounts and only to the extent certain future milestones are accomplished by Bennu (or any subsidiary thereof, or us), as set forth below:

• 100,000 shares of our restricted, unregistered Common Stock within fifteen (15) days after Bennu enters into a manufacturing license or other agreement to produce any product that is predominantly based upon or derived from any assets purchased from Convivia (Purchased Assets) in quantity (Product) if such license agreement is executed within one (1) year of execution of the Asset Purchase Agreement or, if thereafter, 50,000 shares of our restricted, unregistered Common Stock. Should Bennu obtain a second such license or agreement for a Product, Mr. Daley will be entitled to receive 50,000 shares of our restricted, unregistered Common Stock within 30 days of execution of such second license or other agreement. On March 31, 2008, we issued 100,000 shares of our Common Stock to Mr. Daley pursuant to this milestone reflecting the execution of an agreement to supply the active pharmaceutical ingredient for Convivia^TM for our planned clinical trials, combined with the execution of a formulation agreement to produce the oral formulation of Convivia^TM for our planned clinical trials.

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• 100,000 shares of our restricted, unregistered Common Stock within fifteen (15) days after Bennu receives its first patent allowance on any patents which constitute part of the Purchased Assets in any one of certain predetermined countries (Major Market).

• 50,000 shares of our restricted, unregistered Common Stock within fifteen (15) days after Bennu receives its second patent allowance on any patents which constitute part of the Purchased Assets different from the patent referenced in the immediately preceding bullet point above in a Major Market.

• 100,000 shares of our restricted, unregistered Common Stock within fifteen (15) days of completion of predetermined benchmarks in a Major Market by Bennu or its licensee of the first phase II human clinical trial for a Product (Successful Completion) if such Successful Completion occurs within one (1) year of execution of the Asset Purchase Agreement or, if thereafter, 50,000 shares of our restricted, unregistered Common Stock within thirty (30) days of such Successful Completion.

• 50,000 shares of our restricted, unregistered Common Stock within fifteen (15) days of a Successful Completion in a Major Market by Bennu or its licensee of the second  phase II human clinical trial for a Product (other than the Product for which a distribution is made under the immediately preceding bullet point above).

• 100,000 shares of our restricted, unregistered Common Stock within fifteen (15) days after Bennu or its licensee applies for approval to market and sell a Product in a Major Market for the indications for which approval is sought (Marketing Approval).

• 50,000 shares of our restricted, unregistered Common Stock within fifteen (15) days after Bennu or its licensee applies for Marketing Approval in a Major Market (other than the Major Market for which a distribution is made under the immediately preceding bullet point above).

• 200,000 shares of our restricted, unregistered Common Stock within fifteen (15) days after Bennu or its licensee obtains the first Marketing Approval for a Product from the applicable regulatory agency in a Major Market.

• 100,000 shares of our restricted, unregistered Common Stock within fifteen (15) days after Bennu or its licensee obtains Marketing Approval for a Product from the applicable regulatory agency in a Major Market (other than the Major Market for which a distribution is made under the immediately preceding bullet point above).

Contractual Obligations with Former Encode Stockholders

Pursuant to the terms of the merger agreement (Merger Agreement) Bennu and we entered into with Encode Pharmaceuticals, Inc. and Nicholas Stergis, former Encode securityholders will be entitled to receive the following, if at all, in such amounts and only to the extent certain future milestones are accomplished by Bennu (or any subsidiary thereof, or us), as set forth below:

• Restricted, unregistered Common Stock, stock options to purchase our Common Stock, and warrants to purchase our Common Stock in an amount equal to, in the aggregate, Five Hundred Thousand (500,000) shares of our Common Stock upon the receipt by Bennu at any time prior to the fifth-year anniversary of the Merger Agreement of approval to market and sell a product for the treatment of Cystinosis predominantly based upon and derived from the assets acquired from Encode (Cystinosis Product), from the applicable regulatory agency (e.g., FDA and European Agency for the Evaluation of European Medical Products or EMEA) in a given major market in the world.

• Restricted, unregistered Common Stock, stock options to purchase our Common Stock, and warrants to purchase our Common Stock in an amount equal to One Million Nine Hundred Thousand (1,900,000) shares of our Common Stock upon the receipt by Bennu at any time prior to the fifth anniversary of the Merger Agreement of approval to market and sell a product, other than a Cystinosis Product, predominantly

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based upon and derived from the assets acquired from Encode, from the applicable regulatory agency (e.g., FDA and EMEA) in a given major market in the world.

If within five years from the date of the Merger Agreement, there occurs a transaction or series of related transactions that results in the sale of all or substantially all of the assets acquired from Encode other than to our affiliate or Bennu in such case where such assets are valued at no less than $2.5 Million, the former Encode securityholders will be entitled to receive, in the aggregate, restricted, unregistered Common Stock, stock options to purchase our Common Stock, and warrants to purchase our Common Stock in an amount equal to Two Million Four Hundred Thousand (2,400,000) shares of Common Stock, less the aggregate of all milestone payments previously made or owing, if any.

Pursuant to the terms of the Merger Agreement, we will at any time following 140 days from the closing date of the merger and prior to the expiration of the fourth anniversary of the Merger Agreement, grant to an Encode stockholder the right to demand the registration of its portion of the initial restricted, unregistered Common Stock issued to it in connection with the execution of the Merger Agreement and future restricted, unregistered Common Stock issued to it in the future relating to the milestone payments outlined above, if any.

Pursuant to the terms of the Merger Agreement, if at any time prior to the 140th day following the date of the Merger Agreement, we file a registration statement with the U.S Securities and Exchange Commission (SEC) (other than a Form S-4 or Form S-8), the former Encode securityholders shall have the right to include in the registration statement their respective portion of the restricted, unregistered Common Stock initially issued to them in connection with the execution of the Merger Agreement.

Contractual Obligations with UCSD

As a result of the merger of Bennu and Encode, we received the exclusive worldwide license to DR Cysteamine (License Agreement) for use in the field of human therapeutics for metabolic and neurologic disorders, developed by clinical scientists at the UCSD, School of Medicine. DR Cysteamine is a proprietary enterically coated formulation of cysteamine bitartrate, a cystine depleting agent currently approved by the FDA. Cysteamine bitartrate is prescribed for the management of the genetic disorder known as nephropathic cystinosis (cystinosis), a lysosomal storage disease. The active ingredient in DR Cysteamine has also demonstrated potential in studies as a treatment for other metabolic and neurodegenerative diseases, such as Batten Disease, Huntington’s Disease and Non-alcoholic steatohepatitis (NASH).

In consideration of the grant of the license, prior to the merger with Bennu, Encode paid an initial license fee and we will be obligated to pay an annual maintenance fee of $15,000 until we begin commercial sales of any products developed pursuant to the License Agreement. In addition to the maintenance fee, we will be obligated to pay during the life of the License Agreement: milestone payments ranging from $20,000 to $750,000 for orphan indications and from $80,000 to $1,500,000 for non-orphan indications upon the occurrence of certain events, if ever; royalties on commercial net sales from products developed pursuant to the License Agreement ranging from 1.75% to 5.5%; a percentage of sublicense fees ranging from 25% to 50%; a percentage of sublicense royalties; and a minimum annual royalty commencing the year we begin commercially selling any products pursuant to the License Agreement, if ever. Under the License Agreement, we are obligated to fulfill predetermined milestones within a specified number of years ranging from 0.75 to 6 years from the effective date of the License Agreement, depending on the indication. In addition, we are obligated to, among other things, secure $1 million in funding prior to December 18, 2008 and annually spend at least $200,000 for the development of products pursuant to the License Agreement. To the extent that we fail to perform any of our obligations under the License Agreement, UCSD may terminate the license or otherwise cause the license to become non-exclusive.

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.

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Reverse Acquisition

We treated the merger of Raptor Pharmaceuticals Corp., a Delaware corporation, into its subsidiary, Raptor Pharmaceutical Inc., as a reverse acquisitionand 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. and its other subsidiary, Bennu Pharmaceuticals Inc. Earnings per share for periods prior to the merger have been restated to reflect the number of equivalent shares received by the acquiring company.

Going Concern

Due to the uncertainty of our ability to meet our current operating and capital expenses, in their reports on our audited financial statements for the year ended August 31, 2007 and for the period September 8, 2005 (inception) to August 31, 2006, our independent registered public accounting firm, 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 registered public accounting firm.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2006, the Financial Accounting Standards Board (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. This pronouncement did not have any impact on us.

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.

In December 2007, FASB issued Statement No. 141(Revised 2007), Business Combinations  (SFAS 141(R)) and Statement No. 160,  Accounting and Reporting of Non-controlling Interests in Consolidated Financial Statements , an amendment of ARB No. 51 (SFAS 160). These statements will significantly change the financial accounting and reporting of business combination transactions and non-controlling (or minority) interests in consolidated financial statements. SFAS 141(R) requires companies to: (i) recognize, with certain exceptions, 100% of the fair values of assets acquired, liabilities assumed, and non-controlling interests in acquisitions of less than a 100% controlling interest when the acquisition constitutes a change in control of the acquired entity; (ii) measure acquirer shares issued in consideration for a business combination at fair value on the acquisition date; (iii) recognize

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contingent consideration arrangements at their acquisition-date fair values, with subsequent changes in fair value generally reflected in earnings; (iv) with certain exceptions, recognize pre-acquisition loss and gain contingencies at their acquisition-date fair values; (v) capitalize in-process research and development (IPR&D) assets acquired; (vi) expense, as incurred, acquisition-related transaction costs; (vii) capitalize acquisition-related restructuring costs only if the criteria in SFAS 146,  Accounting for Costs Associated with Exit or Disposal Activities , are met as of the acquisition date; and (viii) recognize changes that result from a business combination transaction in an acquirer’s existing income tax valuation allowances and tax uncertainty accruals as adjustments to income tax expense. SFAS 141(R) is required to be adopted concurrently with SFAS 160 and is effective for business combination transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (our fiscal 2009). Early adoption of these statements is prohibited. We believe the adoption of these statements will have a material impact on significant acquisitions completed after September 1, 2009.

In December 2007, the FASB issued Statement No. 160, Non-controlling Interests in Consolidated Financial Statements (SFAS 160), an amendment of ARB No. 51. SFAS 160 will change the accounting and reporting for minority interests which will be recharacterized as non-controlling interests and classified as a component of equity. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. The Company is assessing the impact that SFAS 160 may have on its financial position, consolidated results of operations and consolidated cash flows.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). This statement will require enhanced disclosures about derivative instruments and hedging activities to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Management is assessing the impact of the SFAS 161.

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, capitalized finder’s fee, accounts payable, 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 DR Cysteamine and 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. The 20 year estimated useful life is also based upon the typical development, approval, marketing and life cycle management timelines of pharmaceutical drug products.

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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.

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

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 assets to the amount expected to be realized.

Research and Development

We are 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, preclinical studies, regulatory and clinical consultants, lab services, lab equipment maintenance and small equipment purchased to support the research laboratory and allocated executive, human resources and facilities expenses.

In-Process Research and Development

We record in-process research and development expense for a product candidate acquisition where there is not more than one potential product or usage for the assets being acquired. We review each product candidate acquisition to determine if the purchase price should be expensed as in-process research and development or capitalized and amortized over the life of the asset.

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 within the next three months. 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’s term 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 four years as follows: 6/48ths on the six month anniversary of the date of grant; and 1/48th per month thereafter.

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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.

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 SFAS 123(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 SFAS 123(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).

For the three months ended February 29, 2008, stock-based compensation expense was based on the Black-Scholes option-pricing model assuming the following: risk-free interest rate of 2%; 8 year expected life; 119% 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 7 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 is based on the Black-Scholes option-pricing model assuming the same factors as stock-based compensation expense discussed above.

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 our available transition alternatives and make our one-time election. We have elected the “short-form” method to calculating excess tax benefits available for use in offsetting future tax shortfalls in accordance with FSP FAS 123R-3.

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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, financial condition and our ability to continue as a going concern 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 February 29, 2008 have been prepared assuming that we will continue as a going concern. As of February 29, 2008, we had an accumulated deficit of approximately $8 million. We expect to continue to incur losses for the foreseeable future and will have to raise substantial cash to fund our planned operations.

We believe that our cash and cash equivalents balances as of at February 29, 2008 of approximately $2.3 million, will be sufficient to meet the Company’s minimum obligations into the third calendar quarter of 2008. The Company is currently attempting to raise equity funds in order to continue to fund its preclinical and clinical programs into the fourth calendar quarter of 2008, at which time the Company anticipates raising an additional financing. These estimates are based on assumptions and estimates. These assumptions and estimates may prove to be wrong. We will need to sell equity or debt securities to raise additional funds. The sale of additional securities may result in additional dilution to our stockholders. Additional financing, including the financing that the Company is currently pursuing, 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.

If we obtain additional financing, 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:

	•	the progress, timing and scope of our preclinical 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.
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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 manufacturing, clinical and preclinical research, consulting, maintenance and administrative services; and

• Financing facilities.

We are an early development stage biotechnology research and development company and may never be able to successfully develop marketable products. If we are unable to achieve at least one of our major clinical objectives in the next 12 months, our ability to continue as a going concern will be adversely impacted.

We are an early development stage company and have not generated any revenues to date and have a limited operating history. Many of our drug product candidates are in the concept stage and have not undergone significant testing in preclinical 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 preclinical testing or in clinical trials, failure to establish business relationships, and competitive disadvantages against larger and more established companies. 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, as outlined under “Plan of Operation” above, in the next 12 months or our ability to continue as a going concern will be adversely impacted.

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 preclinical 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 preclinical 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. -31-

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 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 orterminate some or all of our research and developmentprograms, 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, an asset purchase agreement with Convivia for the purchase of intellectual property related to the ALDH2 deficiency program, a licensing agreement with Washington University for Mesd, and a licensing agreement with UCSD for DR Cysteamine. BioMarin, Washington University and UCSD 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 periods. Although we are not currently involved in any bankruptcy proceedings or in breach of these agreements, there is a risk that we may be in the future, giving BioMarin, Washington University, UCSD the right to terminate their respective agreements with us. Except for the Convivia agreement, we have the right to terminate these agreements at any time by giving prior written notice. If the BioMarin, Washington University or UCSD agreements are terminated by either party, we would be forced to assign back to BioMarin, in the case of the BioMarin agreement, all of our rights, title and interest in and to the intellectual property related to the RAP technology, would lose our rights to the Mesd technology, in the case of the Washington University agreement and would lose our rights to DR Cysteamine, in the case of UCSD. Under such circumstances, we would have no further right to use or exploit the patents, copyrights or trademarks in those 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.

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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, the price of our Common Stock may decline.

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, preclinical 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.

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 preclinical testing and human clinical trials;

• 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.

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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 preclinical 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 preclinical studies, as well as in clinical trials. Preclinical 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 preclinical 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 preclinical test results do not support further development.

Moreover, success in preclinical 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 preclinical 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 preclinical testing or clinical trials will delay the filing of our investigational new drug application (IND) and new drug application (NDA) with the FDA and, ultimately, our ability to commercialize our drug product candidates and generate product revenues. In addition, some of 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 preclinical 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.

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.

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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.

If we fail to obtain or maintain orphan drug exclusivity for some of our drug product candidates, our competitors may sell products to treat the same conditions and our revenues will be reduced.

As part of our business strategy, we intend to develop some drugs that may be eligible for FDA and European Union (EU) orphan drug designation. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, defined as a patient population of less than 200,000 in the U.S. The company that first obtains FDA approval for a designated orphan drug for a given rare disease receives marketing exclusivity for use of that drug for the stated condition for a period of seven years. Orphan drug exclusive marketing rights may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug. Similar regulations are available in the EU with a 10-year period of market exclusivity.

Because the extent and scope of patent protection for some of our drug products is particularly limited, orphan drug designation is especially important for our products that are eligible for orphan drug designation. For eligible drugs, we plan to rely on the exclusivity period under Orphan Drug Act designation to maintain a competitive position. If we do not obtain orphan drug exclusivity for our drug products that do not have patent protection, our competitors may then sell the same drug to treat the same condition and our revenues will be reduced.

Even though we have obtained orphan drug designation for DR Cysteamine for the treatment of nephropathic cystinosis, and even if we obtain orphan drug designation for our future drug product candidates, due to the uncertainties associated with developing pharmaceutical products, we may not be the first to obtain marketing approval for any orphan indication. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug, nor gives the drug any advantage in the regulatory review or approval process.

The fast-track designation for our drug product candidates, if obtained, may not actually lead to a faster review process and a delay in the review process or in the approval of our products will delay revenue from the sale of the products and will increase the capital necessary to fund these product development programs.

Although we have received Orphan Drug Designations from the FDA as described above, our drug product candidates may not receive an FDA fast-track designation or priority review. Under fast-track designation, the FDA may initiate review of sections of a fast-track drug’s NDA before the application is complete. However, the FDA’s time period goal for reviewing an application does not begin until the last section of the NDA is submitted. Additionally, the fast-track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process. Under the FDA policies, a drug candidate is eligible for priority review, or review within a six-month time frame from the time a complete NDA is accepted for filing, if the drug candidate provides a significant improvement compared to marketed drugs in the treatment, diagnosis or prevention of a disease. A fast-track designated drug candidate would ordinarily meet the FDA’s criteria for priority review.The fast-track designation for our drug product candidates, if obtained, may not actually lead to a faster review process and a delay in the review process or in the approval of our products will delay revenue from the sale of the products and will increase the capital necessary to fund these product development programs.

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Because the target patient populations for some of our products are small, we must achieve significant market share and obtain high per-patient prices for our products to achieve profitability.

Our clinical development of DR Cysteamine targets diseases with small patient populations, including nephropathic cystinosis, Huntington’s Disease and Batten Disease. If we are successful in developing DR Cysteamine and receive regulatory approval to market DR Cysteamine for a disease with a small patient population, the per-patient prices at which we could sell DR Cysteamine for these indications must be relatively high in order to recover our development costs and achieve profitability. We believe that we will need to market DR Cysteamine for these indications worldwide to achieve significant market penetration of each product.

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 EU, 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.

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 blood-brain 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 harmful 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.

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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, preclinical 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 preclinical and clinical testing and contract or clinical research organizations to conduct and manage preclinical studies and clinical trials. If we engage these organizations to help us with our preclinical 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 preclinical testing and/or clinical trials in a satisfactory manner, we may face delays in completing our clinical trials, as well as 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 which we are directly sponsoring, we are in the process of planning the testing of our drug product candidate in humans later this year, and when we are in clinical stage testing, our drug product candidates could potentially harm people or allegedly harm people and we may be subject to costly and damaging product liability claims. 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 clinical product liability insurance policy, it may 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.

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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.
	- 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.

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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 M. Starr, our Chief Scientific Officer, Dr. Todd C. Zankel, our Chief Financial Officer, Kim R. Tsuchimoto and Ted Daley, the President of our clinical development subsidiary. 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 success depends on our ability to manage our growth.

If we are able to raise additional financing, we expect to continue to grow our Company, which could strain our managerial, operational, financial and other resources. With the addition of our clinical-stage program and with our plans to in-license and acquire additional clinical-stage product candidates, we will be required to retain experienced personnel in the regulatory, clinical and medical areas over the next several years. Also, as our preclinical pipeline diversifies through the acquisition or in-licensing of new molecules, we will need to hire additional scientists to supplement our existing scientific expertise over the next several years.

Our staff, financial resources, systems, procedures or controls may be inadequate to support our operations and our management may be unable to take advantage of future market opportunities or manage successfully our relationships with third parties if we are unable to adequately manage our anticipated growth and the integration of new personnel.

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. 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.

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RISKS RELATED TO OUR COMMON STOCK

We are obligated to issue additional Common Stock based on our contractual obligations, if we meet certain triggering events, if at all. When we issue such additional Common Stock, this will result in dilution to Common Stockholders at the time such additional Common Stock is issued.

Future milestone payments, as more fully set forth under "Contractual Obligations with Thomas E. Daley (as assignee of the dissolved Convivia, Inc." and "Contractual Obligations with Former Encode Securityholders" above,

relating to our acquisition of the Convivia assets and merger with Encode will result in dilution. We may be required to make additional contingent payments of up to 3.3 million shares of our Common Stock, in the aggregate, under the terms of our acquisition of Convivia assets and merger with Encode, based on milestones related to certain future marketing and development approvals obtained with respect to Convivia and Encode product candidates. This would result in further dilution to our existing stockholders. In connection with other collaborations that we may enter into in the future, we may issue additional shares of Common Stock or other equity securities, and the value of the securities issued may be substantial and create additional dilution to our existing and future common stockholders.

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 Financial Industry Regulatory Authority (FINRA) 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 FINRA’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

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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-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 FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA 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 our preclinical 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. -41-

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 February 29, 2008, 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.

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.

Under the terms of and subject to the conditions set forth in the merger agreement between our wholly-owned subsidiary, Bennu Pharmaceuticals Inc. and Encode Pharmaceuticals, Inc. we issued 3,444,297 restricted, unregistered shares of our Common Stock, to the stockholders of Encode (Encode Stockholders), options (Company Options) to purchase 357,427 restricted, unregistered shares of Common Stock to the optionholders of Encode (Encode Optionholders), and warrants (Company Warrants) to purchase 1,098,276 restricted, unregistered shares of Common Stock to the warrantholders of Encode (Encode Warrantholders, and together with the Encode Stockholders and Encode Optionholders, the Encode Securityholders), as of the date of such agreement. Such Common Stock, Company Options to purchase Common Stock, and Company Warrants to purchase Common Stock in an aggregate amount equal to 4.9 million shares of Common Stock issuable to the Encode Securityholders (First Shares) as of the closing of the merger.

The sales and issuances of the First Shares under the merger agreement to the Encode Securityholders were exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. We relied upon the representations made by Encode pursuant to the merger agreement in determining that such exemptions were available. No underwriting discounts or commissions were paid by us in connection with these transactions.

Item 3. Defaults Upon Senior Securities.

None.

-42-

Item 4.Submission of Matters to a Vote of Security Holders.

The following items were submitted for stockholder vote at our annual meeting, held on February 7, 2008:

The total number of shares voted in person or by proxy was 24,775,100 out of 40,221,297 (61.6%) shares issued and outstanding on the record date of January 2, 2008.

The following directors were nominated to our Board of Directors:

Name of nominee	Number of shares voted FOR	Number of shares WITHHELD
Christopher M. Starr, Ph.D.	24,759,117	15,983
Raymond W. Anderson	24,755,117	19,983
Erich Sager	24,758,517	16,583

A proposal to ratify the appointment of Burr, Pilger & Mayer, LLP as our independent registered public accounting firm for the fiscal year ending August 31, 2008.

Number of shares voted FOR: 24,633,831

Number of shares voted AGAINST: 6,286

Number of shares ABSTAINING: 134,983

Number of shares BROKER NON-VOTES: 0

Item 5. Other Information.

None.

Item 6.	Exhibits.
(4)	Instruments Defining the Rights of Security Holders, Including Indentures
4.1	Warrant to purchase common stock dated December 14, 2007 issued to Flower Ventures, LLC
4.2	Warrant to purchase common stock dated December 14, 2007 issued to ICON Partners, LP
(10)	Material Contracts
10.1	Merger agreement between Bennu Pharmaceuticals Inc. and Encode Pharmaceuticals, Inc. dated December 14, 2007
10.2	Pharmaceutical development services agreement between Bennu Pharmaceuticals Inc. and Patheon Pharmaceuticals Inc. dated January 7, 2008*
10.3	License agreement between Encode Pharmaceuticals, Inc. and Regents of the University of California dated October 31, 2007*
10.4	Amendment number one to license agreement between Encode Pharmaceuticals, Inc. (acquired by Bennu Pharmaceuticals Inc.) and the Regents of the University of California dated February 29, 2008*
(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
* Certain portions of this agreement have been redacted and submitted to the Securities and Exchange Commission under a confidential treatment request pursuant to Rule 24b-2. -43-

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: April 14, 2008

By: /s/ Kim R. Tsuchimoto

Kim R. Tsuchimoto

Chief Financial Officer, Secretary and Treasurer

(Principal Financial Officer and Principal Accounting Officer)

Date: April 14, 2008

-44-

Exhibit Index
4.1	Warrant to purchase common stock dated December 14, 2007 issued to Flower Ventures, LLC
4.2	Warrant to purchase common stock dated December 14, 2007 issued to ICON Partners, LP
10.1	Merger agreement between Bennu Pharmaceuticals Inc. and Encode Pharmaceuticals, Inc. dated December 14, 2007
10.2	Pharmaceutical development services agreement between Bennu Pharmaceuticals Inc. and Patheon Pharmaceuticals Inc. dated January 7, 2008*
10.3	License agreement between Encode Pharmaceuticals, Inc. and Regents of the University of California dated October 31, 2007*
10.4	Amendment number one to license agreement between Encode Pharmaceuticals, Inc. (acquired by Bennu Pharmaceuticals Inc.) and the Regents of the University of California dated February 29, 2008*
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

* Certain portions of this agreement have been redacted and submitted to the Securities and Exchange Commission under a confidential treatment request pursuant to Rule 24b-2.