UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB10-K

(Mark One)

x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

forFor the fiscal year ended December 31, 20022003

For the transition period from              to             

Commission File NumberNo. 000-32877

PRO-PHARMACEUTICALS, INC.

(Name of Small Business Issuer in its Charter)

(617) 559-0033

(Registrant’s telephone numberTelephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, Par Value $0.001

(Title of Class)None

CheckIndicate by check mark whether the issuerregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 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. YESx    NO¨

CheckIndicate by check mark if disclosure of delinquent filers in responsepursuant to Item 405 of Regulation S-BS-K is not contained in this form,herein, and no disclosure will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB10-K or any amendment to this Form 10-KSB.10-K.¨

State issuer’s revenues for its most recent fiscal year: The issuerIndicate by check mark whether the registrant is a development stage company and has no revenues to report at this time.an accelerated filer (as defined in Exchange Act Rule 12b-2). YES¨    NOx

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of March 20,June 30, 2003 was: $30,074,585

(ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS)

Check whether the issuer has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. YES¨    NO¨

NOT APPLICABLE

APPLICABLE ONLY TO CORPORATE REGISTRANTSwas $49,045,386.

The number of shares outstanding of the issuer’s Common Stock, $.001 par value,registrant’s common stock as of March 20, 200315, 2004 was 20,072,647.24,079,300.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the 20032004 Annual Meeting of Stockholders are incorporated by reference into Part III

Transitional Small Business Disclosure Format (check one): YES¨    NOx

of this Report.

TABLE OF CONTENTSINDEX TO FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

PART I

Item 1.    Description of Business

Forward-Looking StatementsFORWARD-LOOKING STATEMENTS

This annual report on Form 10-KSB10-K contains, in addition to historical information, forward-looking statements.statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in such statements. We caution investors that actual results or business conditions may differ materially from those projected or suggested in forward-looking statements as a result of various factors including, but not limited to, the following: uncertainties as to the utility and market for our potential products; uncertainties associated with preclinical and clinical trials of our drug delivery candidates; our limited experience in product development and expected dependence on potential licensees and collaborators for commercial manufacturing, sales, distribution and marketing of our potential products; possible development by competitors of competing products and technologies; lack of assurance regarding patent and other protection of our proprietary technology; compliance with and change of government regulation of our activities, facilities and personnel; uncertainties as to the extent of reimbursement for our potential products by government and private health insurers; our dependence on key personnel; our history of operating losses and accumulated deficit; and economic conditions related to the biotechnology and biopharmaceutical industry. We cannot assure you that we have identified all the factors that create uncertainties. Readers should not place undue reliance on forward-looking statements.

PART I

Item 1.    Business

Corporate Formation

We were incorporated as “DTR-Med Pharma Corp.” under Nevada law in January 2001 for the purpose of acquiring all the outstanding stock of our predecessor, Pro-Pharmaceuticals, Inc., which was a Massachusetts corporation engaged in a drug-development business we desired to acquire. From our incorporation until just before the acquisition, we were a wholly-owned subsidiary of Developed Technology Resource, Inc., a Minnesota corporation whose common stock is publicly traded on the Over-the-Counter Bulletin Board. In exchange for 1,221,890 shares of our common stock, Developed Technology transferred to us certain contractual rights. As part of that process, Developed Technology distributed its holdings of our common stock to its shareholders of record as of May 7, 2001. In anticipation of the acquisition of the Massachusetts company, we changed our name to “Pro-Pharmaceuticals, Inc.”

On May 15, 2001, we acquired all of the outstanding common stock of thea Massachusetts corporation. We acquired these sharescorporation engaged in exchange for 12,354,670 shares of our common stock. As a result, that corporation became our wholly owned subsidiary, and its shareholders through an exchange owned approximately 91% of the outstanding shares of our common stock, with the Developed Technology shareholders owning the remaining 9%.drug delivery development business. After the acquisition, we merged with the Massachusetts corporation and are the surviving corporationcorporation. For additional information, please see Note 1 to our Consolidated Financial Statements included in the merger. The merger was treatedthis Annual Report on Form 10-K. In December 2003 we organized Pro-Pharmaceuticals Securities Corp. as a capital transactionwholly-owned Delaware subsidiary the sole purpose of which is to hold our cash and was accounted for ascash equivalents in a reverse merger in which Pro-Pharmaceuticals (Massachusetts) was the accounting acquirer.tax efficient manner.

Our address is 189 Wells Avenue, Newton, Massachusetts 02459. Our telephone number is (617) 559-0033, fax number is (617) 928-3450, e-mail address is foley@pro-pharmaceuticals.com,squeglia@pro-pharmaceuticals.com, and our website address is www.pro-pharmaceuticals.com. Our Annual Report on Form 10-K and Quarterly Reports on Form 10-QSB are fully accessible on our website without charge.

Business of Pro-Pharmaceuticals

Introduction

We are a research and developmentdevelopment-stage pharmaceutical company that intends to identify, develop and seek regulatory approval of technology that will reduce toxicity and improve the efficacy of currently existing chemotherapy drugs by combining the drugs with a number of specificour proprietary carbohydrate compounds. Our fundamental objective is to increase the body’s tolerance to the drugs by enabling targeted delivery of the drugs while

protectingin order to protect healthy tissue. This wouldOur targeting technology could also permit use of largerhigher doses of the chemotherapy drugs sincebecause current dosagesdosage levels are generally limited dueso as to concerns relating to theiravoid overly toxic effects on healthy cells. Our carbohydrate-based drug targeting and delivery system may also have applications for drugs now used to treat other diseases and chronic health conditions.

In technical terms, we seek to “reformulate” existing cancer chemotherapy drugs with non-toxic carbohydrate-based compounds that are recognized and adhere to specific binding sites, known as lectins, on the

surface of cancer cells. Reformulation of chemotherapy drugs already approved by the U.S. Food and Drug Administration (“FDA”) has the following benefits for our business:

Our Business Strategy and Initial Objectives

The initial objectives of our business strategy are as follows:to:

Limitations of Chemotherapy for Cancer Treatment

Cancer is a disease characterized by uncontrolled growth and spread of abnormal cells. The disease may be caused by patient-specific factors such as genetic predisposition, immune deficiency, hormones, diet and smoking, or external factors such as exposure to a toxic environment. It is a leading cause of death in the United States and worldwide.

The most widely used methods to treat cancer are surgery, radiation and chemotherapy. Cancer patients often receive a combination of these treatments, and about half of all patients receive chemotherapy. Both radiation and chemotherapy have significant limitations that often result in treatment failure. In the case of chemotherapy, these limitations include:

Toxicity.    Most chemotherapy agents kill cancer cells by disrupting the cell division or metabolic process. Cells are killed once they begin to undergo division and replication. Although these agents are effective on cancer cells, which generally grow rapidly through cell division, the drugs also kill healthy non-cancerous cells as they undergo ordinary division. This is particularly apparent in fast-growing normal cells, such as blood cells forming bone marrow, digestive tract tissue, hair follicles, and reproductive organ cells. As the chemotherapy harms healthy tissue, the effectiveness of the drug is limited because dosage levels and treatment frequency cannot exceed tolerance levels for non-cancerous cells. Moreover, the chemotherapy regimen often dramatically diminishes the quality of a patient’s life through its physical and emotional side effects.

Inability to Selectively Target Diseased Cells.    Chemotherapies as now administered reach both healthy and diseased tissue. Normal cells are generally as receptive as tumors to the toxic effects of chemotherapy. Without the ability to target the drug exclusively to cancerous tissue, chemotherapy dosages must be kept within a range that healthy tissue can tolerate, thus reducing the optimal effectiveness of chemotherapy on diseased tissue.

Drug Delivery Technologies

General

The ultimate objective of enhanced drug delivery is to control and optimize the localized release of a drug at the target site and rapidly eliminate from the body the portion of the drug that was not delivered to the diseased tissue. Conventional drug delivery systems such as controlled release, sustained release, transdermal systems, and others are based on a physical erosion process for delivering active product into the systemic circulation over time with the objective of improving compliance by patients with a therapy regimen. These systems do not address the biologically important issues such as site targeting, localized release and elimination of undelivered drug from the body.

The major factors that impactmust be addressed in order to reach this objective are the achievementphysical characterisitcs of this ultimate goal are:

a drug, such as its interaction with pharmacological target sites and undesired toxicity, and the biological characteristics of diseased tissue, which affects the ability of a drug to selectively interact with the target site and have the desired pharmacological result. Both of these factors are important in increasing efficacy and reducing toxicity of cancer drugs. Biotechnology affords a new opportunity in drug delivery techniques by taking advantage of biological mechanisms such as drug-cell recognition and interactions and particular physical characteristics of cancerous tissue.

Our Focus: Carbohydrate-Based Drug Enhancement Technology

We are attempting to developdeveloping a carbohydrate-based drug delivery and targeting technology to direct cancer drugs more selectively to tumor tissue so as to reduce the toxic side effects and improve the tumor reduction capacity of chemotherapy drugs now in common use. Carbohydrates are found in the structural elements of cell wallscells and, among other functions, serve as recognition elements in biomolecules, enabling molecule-cell recognition, and hence, molecular targeting. The dense concentration of chemical functional groups within carbohydrates compared to other chemicals suits them for use in cell recognition applications in biological systems.

Our drug enhancement technology is intended to take advantage of the following biological mechanisms to improve drug delivery:

Our technology does not change the chemistry of the drugs themselves, but rather “attaches”reformulates cancer drugs towith our proprietary carbohydrate compounds, which interact with sugar-specific proteins, i.e., lectins, found on the surface of the tumor cell.cells. Because of these cell surface interactions, we believe that theseour compounds willmay increase cell permeability, resulting in increased targeted absorption of drugs by cancer cells. These cell surface interactions may also reduce the cells’ ability to adhere to each other as well as to normal tissue, resulting in diminished ability of cancer cells to metastasize, or spread to other tissue systems.

Initial Chemotherapy Applications

We believe that our carbohydrate-based drug delivery and targeting enhancement technology applies to essentially any oncology drug whose delivery to the target can be improved by utilizing sugar-specific recognition at the cancer cell surface. Our initial program is designed to be “risk-contained” in that it will focus on proven drugs for which there are already a great deal ofvery substantial data on their therapeutic efficacy and toxicity, along with an accumulated knowledge of their limitations. We intend to apply our drug delivery technology initially to fiveseven widely used chemotherapy agents: 5-Fluorouracil, Adriamycin^®, Taxol^®, Cytoxan^®irinotecan, doxorubicin, paclitaxel, cyclophosphamide, oxaliplatin and Cisplatin^®.cisplatin. Each of these drugs is among the most popular drugswidely used in cancer chemotherapy treatment, in the United States, and for each of these drugs there is a strong market need for improving theirits therapeutic efficacy and decreasing theirits toxicity.

5-Fluorouracil (5-FU), a fluorinated pyrimidine (nucleic acid component), interferes with the synthesis of DNA and inhibits the formation of RNA. DNA is the chemical inside the nucleus of a cell that carries the genetic instructions for making living organisms. RNA delivers DNA’s genetic message to the cytoplasm of a cell where proteins are made. Since DNA and RNA are essential for cell division and growth, 5-FU provokes unbalanced growth and death of the cell. The effect of DNA and RNA deprivation is most marked on those cells, such as cancer cells, which grow more rapidly and which absorb 5-FU at a more rapid rate. 5-FU is effective against cancers of the colon, rectum, breast, stomach and pancreas. This drug is toxic, resulting in side effects such as nausea, vomiting, cardiovascular damage, mouth sores, gastrointestinal ulceration and bleeding, skin darkening and fatigue. 5-FU is manufactured by Roche Laboratories under the name of FluorouracilRoche^®, and by SICOR Pharmaceuticals, Inc. as Adrucil^® for intravenous administration. Originally patented in the late 1950s, its patent protection has expired.

Irinotecan, sold under its trade name Camptosar^®, is a semisynthetic, water-soluble derivative of camptothecin, which is a cytotoxic alkaloid extracted from plants. Irinotecan and its active metabolite, SN-38, inhibits the activity of topoisomerase I, an enzyme that produces reversible single-strand breaks in DNA during DNA replication. Although primarily used in the treatment of colorectal cancer, it is prescribed for cancer of the cervix, esophagus, stomach, lung and pancreas. Irinotecan is toxic, resulting in side effects such as severe diarrhea, anemia, leukopenia, anorexia, nausea, fever, fatigue and abdominal pain. Its patent expires in April 2005.

Doxorubicin is a cytotoxic agent that selectively kills malignant cells and causes tumor regression. It binds to the DNA, and presumably inhibits nucleic acid synthesis. It is used to treat, among others, leukemia, cancers of the breast, ovaries, bladder, stomach and thyroid, as well as Hodgkin’s and non-Hodgkin’s lymphoma. Doxorubicin is extremly toxic, resulting in side effects such as nausea, vomiting, loss of hair, mouth sores, colon ulceration and heart damage. It is manufactured by Pharmacia Upjohn for intravenous administration. Originally patented in 1971 and marketed as Adriamycin^®, its patent protection has expired.

Paclitaxel, a relatively new anti-leukemic and anti-tumor agent, suppresses cell division by binding to so-called microtubules that form in a cell’s nucleus to help move the chromosomes around during the division process. Paclitaxel is most effective against ovarian and advanced breast cancers, particularly after failure of standard chemotherapy. Studies indicate that it might be effective against leukemia, lung carcinoma, colon carcinoma, renal carcinoma, melanoma, and central nervous system carcinoma. Paclitaxel is toxic, resulting in problems ranging from irritation, drop in blood pressure and anemia to major breathing problems, hives and/or fluid buildup around the heart and bone marrow suppression. Almost all patients experience hair loss from paclitaxel, and some experience severe hypersensitivity reactions to Taxol^® (paclitaxel). It is manufactured by Bristol-Myers-Squibb Company for intravenous administration. We believe that there are no patents covering the composition of paclitaxel.

Cyclophosphamide has action leading to cross-linking of RNA of tumor cells, and thereby interferes with the growth of susceptible rapidly proliferating malignant cells. It is effective against a range of cancers, such as malignant lymphomas, Hodgkin’s disease, various leukemias, and cancer of the breast and ovaries. This drug is toxic, with side effects including nausea, vomiting, anorexia, diarrhea, skin rash and darkening and, in extreme

cases, heart damage or failure, and secondary malignancies. It is manufactured by Bristol-Myers-Squibb Company under the brand name Cytoxan^® for intravenous and oral administration. We believe that there are no patents covering the composition of cyclophosphamide.

Oxaliplatin, sold under the trade name Eloxatin^®, is classified as an alkylating agent, and belongs to a new class of platinum agents comprised of a platinum atom complexed with oxalate and diaminocyclohexane (DACH) and appears to inhibit DNA synthesis. The bulky DACH may have greater cytotoxicity than cisplatin and carboplatin. Preclinical studies have shown Oxaliplatin to be synergistic with fluorouracil and SN-38, the active metabolite of irinotecan. Although Oxaliplatin is primarily used to treat colorectal cancer, it has been used for cancers of the breast, stomach, head and neck and lung. The drug is toxic, with side effects including anemia, diarrhea, nausea, severe neuropathy, liver abnormalities, fever and vomiting. Its patent is due to expire in April 2013.

Cisplatin appears to act by inhibiting DNA synthesis. It is effective against metastatic testicular and ovarian tumors (typically in combination with other chemotherapeutic agents), and advanced bladder cancer. This drug is toxic, with side effects including renal toxicity, nausea, vomiting, anorexia, diarrhea and anemia. It is manufactured as PLATINOL^® by Bristol-Myers-Squibb Company for intravenous injection. We believe that there are no patents covering the composition of Cisplatin.

PreclinicalPre-clinical Studies

Toxicity Studies

Our initial toxicity studies in smaller animals, conducted in early 2001, were performed to test the potential reduction of toxicity of anticancer drugs in combination with certain of our polysaccharide compounds. The results of one study demonstrated that one of our polysaccharide compounds, DAVANAT^TM®, might significantly decrease the toxicity of 5-FU. A second, similar study was performed to test a potential reduction of toxicity of Adriamycin^®doxorubicin in combination with each of two selected polysaccharide compounds. The results indicated that DAVANAT^TM® might decrease the toxicity of Adriamycin^®.doxorubicin. The fact that two different cancer drugs with chemically unrelated structures showed a marked reduction of their toxicity in combination with DAVANAT^TM® indicates that there might be some fundamental underlying biological reasons related to this polysaccharide, rather than to the drugs, for the reduction in toxicity.

In subsequent pre-clinical experiments conducted in 2001 and 2002, we studied on larger animals the toxicity reduction of DAVANAT^TM®-1, a DAVANAT^TM® combination with 5-FU, which had demonstrated toxicity reduction in the prior studies. These experiments were performed in accordance with FDA guidelines and recommendations on rats (acute and long-term toxicity study) and dogs (acute and long-term toxicity study) measuring the effect of the DAVANAT^TM® /5-FU combination-1 on blood structure and survival of these animals. Preliminary resultsResults indicate that the DAVANAT^TM® /5-FU combination-1 decreased toxicity, resulting in lower animal mortality and decreased loss of blood structure components in comparison to the results in animals which were administered 5-FU alone. These studies were presented to the FDA as part of our IND submission. We conducted additional toxicity studies on rats using escalating dosages of DAVANAT^TM®and submitted these results to the FDA in an amendment to our IND in support of our Phase I clinical trials. The results of these additional toxicity studies were such that the FDA approvedallowed our commencement of Phase I clinical trials.

Efficacy Studies

We undertook independent studies at Southern Research Institute and Charles River Laboratories to test a potential change in the therapeutic efficacy of DAVANAT^TM® in a combination with 5-FU,-1, which had decreased toxicity of the drug5-FU in healthy animals. Results of the studies demonstrated that DAVANAT^TM® might also increase efficacy of 5-FU when administered into cancer-carrying animals. The studies, conducted with two different human colon tumors implanted into the test animals, demonstrated a decrease in tumor size following administration of 5-FU alone, as well as a significant decrease with the administration of the DAVANAT^TM®/5-FU combination.-1.

Two of our efficacy studies were conducted to evaluate the compatibility of DAVANAT^TM®with leucovorin, which is commonly used in cancer treatment with 5-FU. The studies showed that DAVANAT^TM® and leucovorin do not interfere with each other when administered following standard procedure,procedures, and that the DAVANAT^TM®/5-FU combination-1 is superior, compared to 5-FU/leucovorin when both are administered in tumor-bearing animals. Leucovorin is a folinic acid derivative, which may enhance both the therapeutic and toxic effect of 5-FU in cancer therapy. In these studies, the growth of the tumor was decreased significantly by using a DAVANAT^TM®/5-FU combination-1 compared to a 5-FU/leucovorin combination.

We also conducted a study that involved injecting radiolabeled DAVANAT^TM® (with and without 5-FU) into tumor-free and tumor-bearing animals. The study provided experimental data with respect to DAVANAT^TM® distribution in organs and tissues (liver, kidney, lungs, plasma, and tumor) and the capacity of such organs and tissue to clear DAVANAT^TM® after various time periods. The study suggested that DAVANAT^TM® may protect the liver from the toxic effect of 5-FU yet increase the amount, and hence the therapeutic effect, of 5-FU in the tumor. In other words, we have indications that DAVANAT^TM® may decrease toxicity and increase efficacy of 5-FU.

In addition to DAVANAT^TM®-1, in 2003 and 2004 we are alsohave been conducting pre-clinical studies for doxurubicinirinotecan, doxorubicin, oxaliplatin, paclitaxel, cyclophosphamide and paclitaxel,cisplatin both in combination with DAVANAT^TM®and other polysaccharide compounds. Human colon and breast xenography are being used to optimize formulations and results show that DAVANAT^® exhibits a broad spectrum of activity with the tested drugs.

Although the foregoing studies are encouraging, the results achieved in preclinical studies with animals are often not duplicated in human patients. Please see “Risk Factors thatThat May Affect Results — Our product candidates will be based on novel technologies”Product Candidates Will Be Based On Novel Unproven Technologies”.

Phase I Clinical Trials

We submitted an investigational new drug application (IND) to the FDA on May 26, 2002 based on the pre-clinical data obtained from our 5-FU studies. The FDA accepted the IND as ofon June 26, 2002 which authorized us to begin Phase I clinical trials with humans. We filed an amendment to the IND on November 27, 2002 in order to incorporate new toxicology data and to enable us to undertake dose escalation in our Phase I trials. In response to the amendment, the FDA approvedallowed the dose escalation schema which would allow assessment in clinical trials of DAVANAT^™® doses anticipated to be in the range of those for which the pre-clinical studies suggested efficacy.

In Phase I we will evaluateare evaluating the ability of cancer patients to tolerate increasing doses of DAVANAT^TM® while receiving a stable dose of 5-FU for treatment of a variety of solid tumors which have not responded to accepted therapies. The Phase I study has two primary objectives: (1) to determine the maximum dose of DAVANAT^TM® that can be tolerated when administered with a stable dose of 5-FU, and (2) to define the dose-limiting toxicities of DAVANAT^TM® in combination with 5-FU. We expect that up to 40Approximately 20 male and female patients suffering from advanced solid malignancies, who failed the accepted chemotherapeutic, radiation, and/or surgical treatments, will participatehave participated in the study. We expect to enroll an additional 10 patients in the Phase I trial.

We have identified threeFour clinical sites and lead investigators are currently participating in which to undertake our Phase I trials. Twotrials: the Norris Cotton Cancer Center at Dartmouth-Hitchcock Medical Center in Lebanon, New Hampshire; The Comprehensive Cancer Center at the University of Michigan in Ann Arbor, Michigan; the sites areOchsner Cancer Institute in a position to recruit patients. On February 10, 2003 we dosed the first patients at a private oncology treatment centerNew Orleans, Louisiana; and Florida Oncology Associates in Howell, New Jersey, at which Dr. Kenneth E. Nahum serves as our lead investigator.Jacksonville, Florida.

We have also engaged a professional consultant, affiliated with Harvard Medical School and Massachusetts General Hospital, to serve as Medical Director of our Phase I/II clinical trials.

The pharmaceutical company, Sigma Aldrich, with which we contracted to produce DAVANAT^TM®, is a certified GMPGood Manufacturing Procedures (“cGMP”) facility that has manufactured sufficient quantities for the

doses that will beare needed for the Phase I/II human clinical trials. We have engaged PPD Development, to provide analytical support for stability and compatibility studies for Phase I/II. Studies show that DAVANAT^® is very stable in the formulation and is compatible with intravenous infusion systems. We have provided reports to the FDA in support of our clinical trials.

We have engaged PRA International Inc. to serve as our independent Contract Research Organizationcontract research organization (CRO) to managemonitor and implement the clinical trials on our behalf, and Medidata Solutions Inc. to construct an on-linea Web-based electronic data capture (EDC) methodsystem to collect and aggregate the clinical trial data. We expect that this will better enableThis EDC system enables us to better manage the clinical data and increase the speed at which such data isare reported and compiled. We believe this may accelerate our commencement

Phase ll Clinical Trials

On January 8, 2004, we announced the initiation of Phase II clinical trials.trials of DAVANAT^®-1 in refractory colorectal cancer patients. This trial is part of a multi-center, open-label, single dose level study in patients with metastatic colorectal cancer that have failed standard chemotherapeutic regimens. The study will evaluate the efficacy and safety of intravenous DAVANAT^®-1 when administered in monthly cycles as third-line therapy for metastatic colorectal cancer. The objectives for the Phase II study are (i) to document the complete and partial response and the rate of stable disease with DAVANAT^®-1 therapy when administered in monthly cycles to patients with metastatic carcinoma of the colon or rectum whose tumor has failed to respond to, or has progressed despite standard first- and second-line chemotherapy, and (ii) to evaluate the safety of DAVANAT^®-1 in this population. Concurrent with the Phase II clinical study, we continue to enroll patients in our Phase I trial.

Other Carbohydrate-Cancer Drug Formulations

We havecontinue to chemically synthesized four novelsynthesize a library of products that are carbohydrate derivatives of Adriamycin^®,doxorubicin, irinotecan, and have conducted preclinical animal experiments,paclitaxel and are currently studying both efficacy (in vitro and on cancer-carrying animals) and toxicity (on healthy animals) and efficacy (on cancer-carrying animals). Preliminary results of these experiments indicate that all four of the synthesized carbohydrate-Adriamycin^® compounds, and particularly one,One compound, named Galactomycin, are significantly less toxic compared with the original Adriamycin^®,has demonstrated improved therapeutic index. We continue this research in contract research facilities in Russia, England and demonstrate therapeutic efficacy as well. In the case of Galactomycin, the preliminary results indicated a therapeutic efficacy higher than that for the parent Adriamycin^®. These studies were conducted at the Academy of Medical Sciences, Moscow, Russia.Italy. We have started the scale-up manufacturing for Galactomycin and are currently conducting pre-clinical efficacy studies in tumor-bearing animals.

Although the foregoing studies are encouraging, the results achieved in preclinical studies with animals are often not duplicated in human patients. Please see “Risk Factors That May Affect Results — Our product candidates will be based on novel technologies” below.Product Candidates Will Be Based On Novel Unproven Technologies”.

Patents and Proprietary Rights

We have four regular utilitybuilt an intellectual property portfolio to protect our development efforts, including two issued patents and several patent applications pending in the United States, one of which has been allowed. The patent applicationspending. Issued patents cover methods and compositionscomposition for reducing side effects in chemotherapeutic formulations, and improving efficacy and reducing toxicity of a chemotherapeutic agents.drug by co-administering a polysaccharide with a chemotherapeutic agent, and enhancing the delivery of a chemotherapeutic drug by covalently binding a carbohydrate compound with a chemotherapeutic agent. In addition, international patent applications corresponding to twoseveral of our U.S. applications have been filed under the Patent Cooperation Treaty.

We filed with theThe U.S. Patent and Trademark Office (PTO) applications to registerhas registered the following trademarks/service marks:trademarks: PRO-PHARMACEUTICALS, INC., DAVANAT and ADVANCING DRUGS THROUGH GLYCOSCIENCE; GLYCO-UPGRADE;  PRO-PHARMACEUTICALS, INC.; DAVANAT; UCLT; UNIVERSAL CARBOHYDRATE LINKER TECHNOLOGY and CARBOSOME. In February 2002,GLYCOSCIENCE. We filed applications with the PTO issued Notices of Allowance for the marks ADVANCING DRUGS THROUGH GLYCOSCIENCEto register additional trademarks and GLYCO-UPGRADE; in March 2002, the PTO issued a Notice of Allowance for the mark PRO-PHARMACEUTICALS, INC.; in October 2002, the PTO issued a Notice of Allowance for the mark DAVANAT; and in January 2003, the PTO issued Notices of Allowance for the marks UCLT and UNIVERSAL CARBOHYDRATE LINKER TECHNOLOGY. The mark CARBOSOME was published in the PTO’sOfficial Gazette on March 11, 2003. If no objection to the mark CARBOSOME is timely filed, a Notice of Allowance will issue for the mark in due course. We filed for second extensions of time

to provide evidence of use for the marks ADVANCING DRUGS THROUGH GLYCOSCIENCE, GLYCO-UPGRADE, and PRO-PHARMACEUTICALS, INC. and we are awaiting approval of these extension requests. In order to obtain a registration for the DAVANAT, UCLT and UNIVERSAL CARBOHYRDRATE LINKER TECHNOLOGY marks, we must file evidence of use or file for an extension of time to provide evidence of use by April 22, 2003, July 21, 2003 and July 28, 2003, respectively.servicemarks.

Research

We focus on the design and analysis of carbohydrate-based drug delivery and targeting enhancement systems. We do not anticipate building in-house research or development facilities or hiring staff in this connection other than for purposes of designing and managing our out-sourced research. Our pre-clinical testing has been conducted by outside laboratories and accredited facilities.

Our early stage research was conducted by Toxikon Corporation, based in Bedford, Massachusetts, and Charles River Laboratories, Inc., based in Wilmington, Massachusetts. Toxikon is a comprehensive compliance FDA-registered service testing laboratory that is not affiliated with Pro-Pharmaceuticals. Toxikon’s laboratory is ISO-9001 certified and EN-45001 approved, meaning that it complies with quality management standards as established by the International Organization for Standardization and other international organizations. Charles River Laboratories, a contract laboratory not affiliated with Pro-Pharmaceuticals, conducted the research on our behalf in major part through its Redfield Laboratories division in Redfield, Arkansas. Redfield Laboratories is licensed by the U.S. Department of Agriculture to conduct research in laboratory animals, and its conditions are in compliance with the federalFederal Animal Welfare Act. Dr. Mildred Christian, who became a director of Pro-Pharmaceuticals in October 2002, was until November 15, 2002 Executive Director of Research of Redfield Laboratories and of Argus Research, which is also a division of Charles River Laboratories. The contract research undertaken by Charles River Laboratories concluded before Dr. Christian became a director of Pro-Pharmaceuticals.

Our current research on toxicity and efficacy of several chemotherapy drugs both alone and in combination with our technology on cancer-carrying animals is being conducted by Charles River Laboratories and by Southern Research Institute in Birmingham, Alabama. Southern Research Institute is an independent, not-for-profit contract research organization that is not affiliated with our company. In addition to the above laboratories we are conducting additional research in the United States, England, Israel, Italy and Russia.

As we develop products eligible for clinical trials, we intend to contract with an independent clinical research organization to design the trial protocols and arrange for and monitor the clinical trials. We also intend to rely on academic institutions or clinical research organizations to conduct, supervise or monitor some or all aspects of clinical trials involving our products. In addition, certain clinical trials for our products may be conducted by government sponsored agencies and consequently will be dependent on governmental participation and funding. Our dependence on third-party researchers will involve risks including lessened control over the timing and other aspects of any clinical trials, since we will not be conducting them on our own.

Our research and development expenditures totaled $1,950,299, $1,483,027, $893,457 and $893,457$4,427,033 in 2003, 2002, 2001 and 2001for the cumulative period from inception (July 10, 2000) through December 31, 2003, respectively. These totals include amounts spent by Pro-Pharmaceuticals (Massachusetts) prior to our merger in May 2001.

Manufacturing and Marketing

We are a development company and do not have, or intend to obtain, internal facilities for the manufacture of any of our products for clinical or commercial production. In order to have our products manufactured, we will initially need to develop relationships with third-party manufacturing resources, enter into collaborative arrangements with other parties that have established manufacturing capabilities or elect to have other third parties manufacture our products on a contract basis. Later we would propose to have our products manufactured and marketed pursuant to licensing agreements as discussed below.

We have no marketing infrastructure, and have not undertaken to develop a sales and marketing staff to commercialize pharmaceutical products. If we develop products eligible for commercial sale, we will need to rely on third parties such as licensees, collaborators, joint venture partners or independent distributors to market and sell those products. Our dependence on third-party manufacturers and marketers will involve risks relating to our lessened control, and other risks including those discussed in “Risk Factors That May Affect Results — We will depend on third parties to manufacture and market our products,” below.Will Depend On Third Parties To Manufacture And Market Our Products”.

We currently envision having our manufacturing and marketing operations conducted pursuant to license agreements that we would negotiate with pharmaceutical companies with respect to manufacturing and marketing of their “upgraded”upgraded drugs. While we presently contemplate offering the rights to manufacture and market an “upgraded”upgraded drug to the original pharmaceutical company that developed the drug, we will evaluate other manufacturing and marketing arrangements as well.

Competition

A number of biotechnology and pharmaceutical companies are developing new drug delivery systemstechnologies for the treatment of cancer and other diseases. Drug delivery targeting technologies based on monoclonal

antibodies being developed by companies such as Seattle Genetics, Inc., Immonogen, Inc. and Berna Biotech AG and Dendreon Corporation could be competitive with our carbohydrate-based system. A few companies are developing carbohydrate technologies to improve or develop new drugs. Neose Technologies, Inc. is seeking to improve the same diseases being targeted by us.therapeutic profile of widely-used protein-based drugs and Optimer Pharmaceuticals, Inc. is developing carbohydrate technology for drug discovery and improvement. We believe we are the only company conducting research onusing carbohydrate-based technologies to reformulate widely-used chemotherapies thereby to enable targeted drug delivery. Our potential competition includes other companies developing drug delivery systems using other technologies, including systems based on other biochemical polymers. The principal competitors in the polymer area are Cell Therapeutics, Access Pharmaceuticals, Daiichi, Enzon and Pharmacia which are developing alternate drugs in combination with polymers.

We also face competition with technologies other than polymer-based delivery technologies. We believe that the principal current competitors to polymer-based targeting technology fall into two categories: monoclonal antibodies and liposomes. Several well-known companies are working on targeted monoclonal antibody therapy and on liposomal formulations, which are the major competing intravenous drug delivery formulations which deliver similar drug substances.of these toxic drugs.

Please see “Risk Factors That May Affect Results --— We face intense competition in the biotechnology and pharmaceutical industries,” below,Face Intense Competition In The Biotechnology And Pharmaceutical Industries” for additional discussion related to our current and potential competition.

Government Regulation

The research, development, testing, manufacture, labeling, promotion, advertising, distribution, and marketing, among other things, of our products are extensively regulated by governmental authorities in the United States and other countries. In the United States, the Food and Drug Administration (FDA)FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act and its implementing regulations. Failure to comply with the applicable U.S. requirements may subject us to administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, and/or criminal prosecution. Please see “Risk Factors That May Affect Results — We will need regulatory approvals to commercialize our products,” below,Will Need Regulatory Approvals To Commercialize Our Products” for additional discussion of risks related to regulatory compliance.

Drug Approval Process

No drug may be marketed in the U.S. until the drug has received FDA approval. The steps required before a drug may be marketed in the U.S. include:

2.

submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin,

PreclinicalPre-clinical tests include laboratory evaluation of product chemistry, toxicity, and formulation, as well as animal studies. The results of the preclinicalpre-clinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions about issues such as the conduct of the trials as outlined in the IND. In such a case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. There is no certainty that submission of an IND will result in the FDA allowing clinical trials to begin.

Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND.

Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Each trial must be reviewed and approved by an independent Institutional Review Board (IRB) before it can begin. Study subjects must sign an informed consent form before participating in a clinical trial. Phase I usually involves the initial introduction of the investigational drug into people to evaluate its safety, dosage tolerance, pharmacodynamics, and, if possible, to gain an early indication of its effectiveness. Phase II usually involves trials in a limited patient population to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possible adverse effects and safety risks; and (iii) evaluate preliminarily the efficacy of the drug for specific indications. Phase III trials usually further evaluate clinical efficacy and test further for safety by using the drug in its final form in an expanded patient population. There is no assurance that these trials will be completed within a specified period of time, if at all.

Assuming successful completion of the required clinical testing, the results of the preclinicalpre-clinical studies and of the clinical studies, together with other detailed information, including information on the manufacture and composition of the drug, are submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. Before approving an NDA, the FDA usually will inspect the facility or the facilities at which the drug is manufactured, and will not approve the product unless cGMP compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing facilities as acceptable, the FDA will issue an approval letter. If the FDA evaluates the NDA submission or manufacturing facilities as not acceptable, the FDA will outline the deficiencies in the submission and often will request additional testing or information. Even if an applicant submits the requested additional information, the FDA ultimately may decide that the NDA does not satisfy the regulatory criteria for approval. The testing and approval process requires substantial time, effort, and financial resources, and there is no assurance that any approval will be granted on a timely basis, if at all. After approval, certain changes to the approved product, such as adding new indications, manufacturing changes, or additional labeling claims are subject to further FDA review and approval.

FDA “Fast Track” Program; Priority Review

The FDA’s “fast track” program is intended to facilitate the development and expedite the review of drugs intended for the treatment of serious or life-threatening diseases and that demonstrate the potential to address unmet medical needs for such conditions. Under this program, the FDA can, for example, review portions of an

NDA for a fast track product before the entire application is complete, thus potentially beginning the review process at an earlier time. We intend tomay seek to have some of our products designated as fast track products, with the goal of reducing review time. There can be no guarantee that the FDA will grant any of our requests for fast track designation, that any fast track designation would affect the time of review, or that the FDA will approve the NDA submitted for any of our product candidates, whether or not fast track designation is granted. Additionally, FDA approval of a fast track product can include restrictions on the product’s use or distribution (such as permitting use only for specified medical procedures or limiting distribution to physicians or facilities with special training or experience), and can be conditioned on the performance of additional clinical studies after approval.

FDA procedures also provide priority review of NDAs submitted for drugs that, compared to currently marketed products, offer a significant improvement in the treatment, diagnosis, or prevention of a disease. NDAs that are granted priority review are intended to be acted upon more quickly than NDAs given standard review. The FDA’s current goal is to act on 90% of priority NDAs within six months of receipt. We anticipate seeking priority review with regard to some of our product candidates. There can be no guarantee that the FDA will grant priority review status in any instance, that priority review status will affect the time of review, or that the FDA will approve the NDA submitted for any of our product candidates, whether or not priority review status is granted.

Post-Approval Requirements

If FDA approval of one or more of our products is obtained, we will be required to comply with a number of post-approval requirements. For example, holders of an approved NDA are required to report certain adverse

reactions to the FDA and to comply with certain requirements concerning advertising and promotional labeling for their products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. In addition, discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved NDA, including withdrawal of the product from the market. Also, new government requirements may be established that could delay or prevent regulatory approval of our products under development.

FDA “Orphan Drug” Designation

The FDA may grant orphan drug designation to drugs intended to treat a “rarerare disease or condition,” which generally is a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are publicly disclosed by the FDA. Orphan drug designation does not convey an advantage in, or shorten the duration of, the regulatory review and approval process. If a product which has an orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, meaning that the FDA may not approve any other applications to market the same drug for the same indication, except in certain very limited circumstances, for a period of seven years. As well, orphan drugs usually receive ten years of marketing exclusivity in the E.U.European Union.

Non-United States Regulation

Before our products can be marketed outside of the United States, they are subject to regulatory approval similar to that required in the United States, although the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country. No action can be taken to market any product in a country until an appropriate application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be approved. The pricing review period often begins after market approval is granted. No assurance can be given that even if a product is approved by a regulatory authority, satisfactory prices will be approved for such product.

Environmental Regulation

Pharmaceutical research and development involves the controlled use of hazardous materials including but not limited to certain hazardous chemicals and radioactive materials. In connection with research, development and manufacturing activities, biotechnology and biopharmaceuticalpharmaceutical companies are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. Since we do not anticipate building in-house research, development or manufacturing facilities, but plan to have these activities conducted by contractors and other third parties, we do not anticipate that we will be directly affected by environmental regulations. However, our contractors and others conducting research, development or manufacturing activities for us may be required to incur significant costs to comply with environmental and health and safety regulations in the future, and this could in turn affect our costs of doing business and might ultimately interfere with timely completion of research or manufacturing programs if those third parties are unable to comply with environmental regulatory requirements.

Employees

As of March 20, 2003,2004, we have sixfive full-time employees allcomprised of whom are full time.our President and Chief Executive Officer, Chief Operating Officer, Vice President, Manufacturing and Product Development, Vice President of Investor Relations, and an operations administrator. Our Chief Financial Officer, Chief Scientist, and Medical Director (clinical trials) each provides service part-time as an independent contractor or consultant.

Scientific and Clinical Advisory BoardsBoard

We continue to recruit members for aOur Scientific Advisory Board that will includeincludes recognized scientists with expertise in the fields of carbohydrate chemistry and biochemistry, immunology, cell and molecular biology, and synthetic and medical chemistry. The Scientific Advisory Board will meetmeets periodically with our management on a regular basis and in smaller groups or individually from time to time on an informal basis. The members will assist us in identifying scientific and product development opportunities and reviewing with management the progress of our specific projects and recruiting and evaluating our scientific staff. We may also have a Clinical Advisory Board that will assist us from time to time on clinical matters.projects.

The initial members of our Scientific Advisory Board are: Dr. are the following:

David Platt, Ph.D., is our PresidentChairman and Chief Executive Officer, a founding stockholder and a director; Dr. Anatole A. Klyosov; Dr. Dale H. Conaway, a director; Dr. Edgar Ben-Josef, a director; Dr. Mildred Christian, a director; Dr. Henry Esber;co-inventor of our patented technology. From 1992 to 2000, he was Chairman and Dr. Irwin I. Goldstein. Additional information about the business and educational backgroundsChief Executive Officer of Dr. Klyosov, Dr. Esber and Dr. Goldstein is set forth below. InformationSafeScience, Inc. (now known as to Dr. Platt’s business and educational background is included in “Executive Officers of Pro-Pharmaceuticals” in Part I of this Form 10-KSB. Information about the business and educational backgrounds of Dr. Conaway, Dr. Ben-Josef and Dr. Christian is included under the heading “Proposal No. 1 — Election of Directors” in our Proxy Statement to be filed with the SEC in connection with our 2003 Annual Meeting of Stockholders.

Dr. Klyosov is Manager, Research and Development, for Thermo FibergenGlycoGenesys, Inc. (AMEX: TFG); Nasdaq SmallCap: GLGS), a biotechnology company that developsinvolved in research and manufacturesdevelopment of products including biotechnological materialsfor treating cancer and fiber-based composites.immune system diseases. From 1991 to 1992, Dr. Platt was a research scientist with the Department of Internal Medicine at the University of Michigan, Ann Arbor, and from 1988 to 1990 was a research fellow at Wayne State University and the Michigan Cancer Foundation in Detroit (re-named Barbara Ann Karmanos Cancer Institute). Previously, he was a research fellow in the Weizmann Institute of Science, Rehovot, Israel. Dr. Platt received a Ph.D. in Chemical Engineering from Hebrew University in Jerusalem and earned an M.S. and a B.S. degree from Hebrew University. He also earned a Bachelor of Engineering degree from Technion in Haifa, Israel. Dr. Platt has servedpublished peer review articles and holds many patents, primarily in this capacitythe field of carbohydrate chemistry.

Anatole A. Klyosov, Ph.D.,D.Sc., is a founding stockholder and, by virtue of being a co-inventor of our patented technology and a consultant to us through his company, MIR International Inc., has the title Chief Scientist. He is Vice President, Research & Development for Kadant Composites, Inc., a subsidiary of Kadant, Inc. (NYSE: KAI), where he has directed since 1996.1996 a laboratory performing work in biochemistry, microbiology, polymer engineering and other fields in the development of composite polymer-based products. From 1990 to June 1998 Dr. Klyosov served aswas Visiting Professor of Biochemistry, at Harvard Medical School, Center for Biochemical and Biophysical Sciences, Harvard Medical School and Medicine, wherefrom 1981 to 1990 he studied an enzyme involved in angiogenesiswas Professor and Head of cancer cells, glucocorticoid receptors, and biochemistrythe Carbohydrates Research Laboratory at the A.N. Bach Institute of alcohol abuse.Biochemistry, USSR Academy of Sciences. Dr. Klyosov receivedwas elected as a member of the World Academy of Art and Sciences and is the recipient of several distinguished awards including the USSR National Prize in Science and Technology. He has published more than 230 peer review articles in scientific journals, authored books on enzymes, carbohydrates, and biotechnology, and holds more than 20 patents. He also been a consultant to various organizations including the World Bank and the United Nations Industrial Development Organization and serves on the editorial boards of scientific journals in the field of biochemistry and biotechnology. Dr. Klyosov earned his Ph.D. degree in Physical Chemistry from Moscow State University in 1972, and a D.Sc. degreedegrees in Physical Chemistry, and Biochemistryan M.S. degree in Enzyme Kinetics, from Moscow State University.

Dale H. Conaway, D.V.M., is the Deputy Regional Director (Southern Region) and Chief Veterinary Medical Officer for the Office of Research Oversight, an office within the Veterans Health Administration under the U.S. Department of Veterans Affairs. From 1998 to 2001, he served as Manager of the Equine Drug Testing and Animal Disease Surveillance Laboratories for the Michigan Department of Agriculture. From 1994 to 1998 he was Regulatory Affairs Manager for the Michigan Department of Public Health Vaccine Production Division. Dr. Conaway received a D.V.M. degree from Tuskegee Institute and an M.S. degree in pathology from the College of Veterinary Medicine at Michigan State University. He is also a member of our board of directors.

Eliezer Zomer, Ph.D., is our Vice President, Manufacturing and Product Development. Dr. Zomer was the founder of ALICOM Biological Control where he served from 2000 to 2002, was Vice President of Product Development at SafeScience Inc. (now known as GlycoGenesys, Inc.; Nasdaq SmallCap: GLGS) from 1998 to 2000, and was Vice-President of Research and Development at Charm Sciences, Inc. from 1987 to 1998. He served as Associate Researcher at Harvard Medical School from 1986 to 1994. Dr. Zomer received an M.Sc. degree in industrial microbiology from the University of Tel Aviv and a Ph.D. in 1977.biochemistry from the University of Massachusetts and undertook post-doctoral study at the National Institutes of Health.

Edgar Ben-Josef, M.D., is Associate Professor, Department of Radiation Oncology, at the University of Michigan Medical School and previously had been Associate Professor (2000 to 2003) and Assistant Professor (1995 to 2000) in radiation oncology at the Wayne State University School of Medicine. Since 1995, he has served as an attending physician at the Gershenson Radiation Oncology Center, Karmanos Cancer Institute, in Detroit, Michigan. Dr. Klyosov owns 50%Ben-Josef received B.Med.Sc. and M.D. degrees from The Hebrew University-Hadassah School of MIRMedicine in Jerusalem, Israel. He is also a member of our board of directors.

Mildred S. Christian, Ph.D., is President and Chief Executive Officer of Argus International, Inc., which providesa provider of consulting services regardingin regulatory affairs, and Chairman and Chief Executive Officer of Argus Health Products, LLC, which develops and internationally distributes preventive and maintenance health care products for health care professionals and the over-the-counter market. Until 2002, she was Executive Director of Research of Argus and Redfield Laboratories, both divisions of Charles River Laboratories. Before founding Argus Research Laboratories in 1979 and Argus International in 1980, Dr. Christian spent 14 years in drug development at McNeil Laboratories, a division of Johnson & Johnson Corporation. She has participated at all levels in the performance, evaluation and submission in over 1,800 pre-clinical studies, from protocol to final report. Dr. Christian is a member of 20 professional organizations, including current service as Councilor of the European Teratology Society and Secretary/Treasurer of the Academy of Toxicological Sciences, and was past president of the Teratology Society, the American College of Toxicology, and the Academy of Toxicological Sciences. She is an honorary member of the Society of Quality Assurance and founding editor of theJournal of Toxicological Sciences. She has edited or contributed to several major textbooks and is the author of over 120 papers and abstracts published in U.S. and international journals. Dr. Christian earned her Ph.D. from Thomas Jefferson University in developmental anatomy and pharmacology. She is also a member of our research and development.board of directors.

Dr.Henry J. Esber, isPh.D., has been Executive Director of Business Development for Primedica Corporation, a contract research organization. Dr. Esber has served in this capacity for more than five years. Dr. Esber is a co-founderorganization, since 1998. From 1995 to 1997, he was Director of Marketing at Genzyme Transgenics Corporation, and a directorpreviously was Vice President of BioQuantMarketing at BioDevelopment Laboratories (1993-1995) and TSI Corporation (formerly BioSignature Diagnostics, Inc.)(1992-1993), a developerboth of immunochemistry

kits for diagnosis and assessment of immunological diseases.which were acquired by Genzyme Transgenics. He is also a co-founder of Advanced Drug Delivery, Inc., a biotechnology company that focuses on development of drug delivery systems using co-polymers or other modifications for use in the area of cancer and other diseases. Dr. Esber serves on the Scientific Advisory Boards of several U.S. and non-U.S. biotechnology companies including Celltek Biotechnologies, Inc., BioQuant Corporation and Delmont Laboratories.is the author of over 100 technical publications. Dr. Esber received a B.S. degree in Biologybiology from the College of William and Mary, in 1961, ana M.S. degree in Medical Parasitology–Public Health and Parasitology from the University of North Carolina, in 1963, and a Ph.D. degree in Immunology/Immunology–Microbiology from West Virginia University Medical Center in 1967.Center.

Dr.Irwin Goldstein, Ph.D., is Emeritus Professor and Interim Chair of the Department of Biological Chemistry at the University of Michigan Medical School, and was Professor from 1972 to 1999. He is the recipient of many professional awards and is the author of over 200 publications. HeDr. Goldstein received a B.A. degree in Chemistry from Syracuse University, and a Ph.D. in Biochemistry from the University of Minnesota, St. Paul—Minneapolis.Minnesota.

Risk Factors That May Affect ResultsZbigniew J. Witczak, Ph.D.

This annual report on Form 10-KSB contains forward-looking statements that involve risks, is Associate Professor at the Nesbitt School of Pharmacy, Wilkes University (Wilkes-Barre, Pennsylvania). From 1991 to 1999 he was Associate Professor in the Department of Pharmaceutical Studies, School of Pharmacy, at the University of Connecticut. Dr. Witczak has extensive industrial and uncertainties. Our actual results could differ materially from those anticipatedacademic experience in these forward-looking statements as a resultcarbohydrates. In 2002, he chaired the Division of certain factors, including the risks faced by us described below and elsewhere in this annual report on Form 10-KSB.

We are at an early stage of development without operating history.

We are a development-stage venture without operating history, and we have not generated any revenues to date. We have no therapeutic products available for sale, and none are expected to be commercially available for several years, if at all. We may never generate revenue or become profitable, even if we are able to commercialize any products.

We have incurred net losses to date and depend on outside capital.

Our accumulated deficit as of December 31, 2002 was approximately $7,833,000, which includes approximately $2,427,000 of various non-cash charges related to certain equity transactions. We will need to conduct significant research, development, testing and regulatory compliance activities that, together with projected general and administrative expenses, we expect will result in substantial and possibly increasing operating losses for at least the next several years. Accordingly, we will not be generating our own capital and will remain dependent on outside sources of financing during that time.

As of December 31, 2002, we had approximately $1,921,000 in cash and cash equivalents. We have budgeted expenditures for the twelve-month period ending December 31, 2003 of approximately $3,700,000. We attempted to fund these expenditures through proceeds of a private placement that we began in September 2002 and terminated as of January 14, 2003. We raised $4,311,000 prior to termination, of which approximately $3,223,000 was raised in 2002.

We will require substantial funds to continue our research and development programs, conduct preclinical studies and clinical trials. We may need to raise additional capital repeatedly in order to continue funding our operations. We may raise such capital through public or private equity financings, partnerships, debt financings, bank borrowings, or other sources. Additional funding may not be available on favorable terms or at all. If adequate funds are not otherwise available, we may curtail operations significantly. To obtain additional funding, we may need to enter into arrangements that require us to relinquish rights to certain technologies, products and/or potential markets. To the extent that additional capital is raised through the sale of equity, or securities convertible into equity, our equity holders may experience dilution of their proportionate ownershipCarbohydrate Chemistry of the company.

Our product candidates will be based on novel technologies.

Our product candidates will be based upon novel technologies that we plan to use to apply to drugs currently usedAmerican Chemical Society (ACS) and is the current chair of its awards committee. He has published more than 80 research papers and holds patents in the treatmentfield of cancercarbohydrate, medicinal and other diseases. These technologies have not been proven. Carbohydrates are difficult to synthesize,biological chemistry, and we may not be able to synthesize carbohydrates that would be usable as delivery vehicles for the anti-cancer drugs we plan to work with. Preclinical results in animal studies are not necessarily predictive of outcomes in human clinical trials. Our product candidates may not be proven safe or effective. If this technology does not work, our product candidates may not develop into commercial products.

We will need regulatory approvals to commercialize our products.

We do not have any product approved for sale in the U.S. or any foreign market. We must obtain approval from the FDA in order to sell our products in the U.S. and from foreign regulatory authorities in order to sell our drug products in other countries. We have not yet submitted any application for approval to the FDA. Once an application is submitted, the FDA could reject the application or require us to conduct additional clinical or other studies as part of the regulatory review process. Delays in obtaining or failure to obtain FDA approvals would prevent or delay the commercialization of our products, which would prevent, defer or decrease our receipt of revenues.

The regulatory review and approval process is lengthy, expensive and uncertain. Extensive preclinical and clinical data and supporting information must be submitted to the FDA for each indication for each product candidate in order to secure FDA approval.

In addition to initial regulatory approval, our product candidates will be subject to extensive and rigorous ongoing domestic and foreign government regulation, as we discuss in more detail in “Government Regulation,” above. Any approvals, once obtained, may be withdrawn if compliance with regulatory requirements is not maintained or safety problems are identified. Failure to comply with these requirements may subject us to stringent penalties.

Our product candidates may not be successfully commercialized.

Even if our product candidates are successful in clinical trials, they may not be successfully commercialized. All of our compounds currently are in research or development, and none has been submitted for marketing approval. Prior to commercialization, each product candidate will require significant additional research, development and preclinical testing and extensive clinical investigation before submission of any regulatory application for marketing approval. Potential products may be found ineffective or cause harmful side effects during preclinical testing or clinical trials, fail to receive necessary regulatory approvals, be difficult to manufacture on a large scale, be uneconomical to produce, fail to achieve market acceptance, or be precluded from commercialization by proprietary rights of third parties.

We have only recently begun clinical trials and results are uncertain.

We have one product candidate in clinical trials. Clinical trials are expensive, time-consuming and may not be successful. They involve the testing of potential therapeutic agents, or effective treatments, in humans in three phases (phases I, II, and III) to determine the safety and efficacy of the product candidates necessary for an approved drug. Many products in human clinical trials fail to demonstrate the desired safety and efficacy characteristics. Even if our products progress successfully through initial human testing, they may fail in later stages of development. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after reporting promising results in earlier trials. In addition, data obtained from clinical trials are susceptible to varying interpretations. Government regulators and our collaborators may not agree with our interpretation of our future clinical trial results.

We will be dependent on others to conduct our clinical trials. We intend to rely on academic institutions or clinical research organizations to conduct, supervise or monitor some or all aspects of clinical trials involving our products. In addition, certain clinical trials for our products may be conducted by government-sponsored agencies and consequently will be dependent on governmental participation and funding. We will have less control over the timing and other aspects of these clinical trials than if we conducted them entirely on our own. We cannot assure you that these trials will commence or be completed as we expect or that they will be conducted successfully. Failure to commence or complete, or delays in, any of our planned clinical trials could delay or prevent the commercialization of our products and harm our business. The actual timing of clinical trials can vary dramatically due to factors such as delays, scheduling conflicts with participating clinicians and clinical institutions and the rate of patient accruals. We cannot assure you that clinical trials involving our product candidates will commence or be completed as forecasted.

Our competitive position depends on protection of our intellectual property.

Development and protection of our intellectual property are critical to our business. If we do not adequately protect our intellectual property, competitors may be able to practice our technologies. Our success depends in part on our ability to:

Since patent applications in the United States are maintained in secrecy for at least portions of their pendency periods (published on U.S. patent issuance or, if earlier, 18 months from earliest filing date for most applications) and since other publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we are the first to make the inventions to be covered by the patent applications we intend to file. The patent position of biopharmaceutical firms generally is highly uncertain and involves complex legal and factual questions. The U.S. Patent and Trademark Office has not established a consistent policy regarding the breadth of claims that it will allow in biotechnology patents. If it allows broad claims, the number and cost of patent interference proceedings in the U.S. and the risk of infringement litigation may increase. If it allows narrow claims, the risk of infringement may decrease, but the value of our rights under our patents, licenses and patent applications may also decrease.

We cannot assure you that all of our patent applications in which we have rights will issue as patents or that the claims of any issued patents will afford meaningful protection for our technologies or products. In addition, patents issued to us or our licensors may be challenged and subsequently narrowed, invalidated or circumvented. Litigation, interference proceedings or other governmental proceedings that we may become involved in with respect to our proprietary technologies or the proprietary technology of others could result in substantial cost to us. Patent litigation is widespread in the biotechnology industry, and any patent litigation could harm our business. Costly litigation might be necessary to protect our patent position or to determine the scope and validity of third-party proprietary rights, and we may not have the required resources to pursue such litigation or to protect our patent rights. An adverse outcome in litigation with respect to the validity of any of our patents could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require us to cease using a product or technology.

Although we require our scientific and technical employees and consultants to enter into broad assignment of inventions agreements, we have not required Dr. Platt to do so. He has, however, assigned all his patents and patent applications of inventions related to our company’s business. We also rely upon trade secrets, proprietary know-how and continuing technological innovation to remain competitive. Third parties may independently develop such know-how or otherwise obtain access to our technology. While our employees, consultants and corporate partners with access to proprietary information generally will be required to enter into confidentiality agreements, these agreements may not be honored.

Patents issued to third parties may cover our products as ultimately developed. We may need to acquire licenses to these patents or challenge the validity of these patents. We may not be able to license any patent rights on acceptable terms or successfully challenge such patents. The need to do so will dependserves on the scope and validityeditorial board of these patents and ultimately on the final design or formulation of the products and services that we develop. We may not be able to meet our obligations under those licenses that we do enter into. If we enter into a license agreement for intellectual property underlying any of our products, and that license were to be terminated, we may lose our right to market and sell any products based on the licensed technology.

Our products could infringe on the intellectual property rights of others.

Although we attempt to monitor the patent filings of our competitors in an effort to guide the design and development of our products to avoid infringement, third parties may challenge the patents that have been issued or licensed to us. We may have to pay substantial damages, possibly including treble damages, for past infringement if it is ultimately determined that our products infringe a third party’s patents. Further, we may be prohibited from selling our products before we obtain a license, which, if available at all, may require us to pay substantial royalties. Even if infringement claims against us are without merit, defending a lawsuit takes significant time, may be expensive and may divert management attention from other business concerns.

Our lack of operating experience may cause us difficulty in managing our growth.

We have limited or no experience in manufacturing or procuring products in commercial quantities, conducting other later-stage phases of the regulatory approval process, selling pharmaceutical products, or negotiating, establishing and maintaining strategic relationships. Any growth of our company will require us to improve and expand our management and our operational and financial systems and controls. If we are unable to do so, our business and financial condition would be materially harmed. If rapid growth occurs, it may strain our operational, managerial and financial resources.

Our business is subject to technological obsolescence.

Biotechnology and related pharmaceutical technology have undergone and are subject to rapid and significant change. We expect that the technologies associated with biotechnology research and development will continue to develop rapidly. Any compounds, products or processes that we develop may become obsolete before we recover any expenses incurred in connection with developing these products.

We face intense competition in the biotechnology and pharmaceutical industries.

The biotechnology and pharmaceutical industries are intensely competitive. We have numerous competitors in the United States and elsewhere. Our competitors include major, multinational pharmaceutical and chemical companies, specialized biotechnology firms and universities and other research institutions. Many of these competitors have greater financial and other resources, larger research and development staffs and more effective marketing and manufacturing organizations, than we do. In addition, academic and government institutions have become increasingly aware of the commercial value of their research findings. These institutions are now more likely to enter into exclusive licensing agreements with commercial enterprises, including our competitors, to market commercial products. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and established biotechnology companies. Many of these competitors have significant products that have been approved or are in development and operate large, well-funded research and development programs.

Our competitors may succeed in developing or licensing technologies and products that are more effective or less costly than any we are developing. Our competitors may succeed in obtaining FDA or other regulatory approvals for product candidates before we do. In particular, we face direct competition from many companies focusing on delivery technologies. Products resulting from our research and development efforts, if approved for sale, may not compete successfully with our competitors’ existing products or products under development.

We will depend on third parties to manufacture and market our products.

We do not have, and do not intend to develop, internal facilities for the manufacture of any of our products for clinical or commercial production. Our Vice President of Manufacturing and Product Development designs and develops specifications for, and monitors the “out-sourced” manufacture of, compounds to be used in our pre-clinical studies, clinical trials and anticipated products. Accordingly, we will continue to need to develop relationships with third-party manufacturing resources, enter into collaborative arrangements with licensees or other parties which have established manufacturing capabilities or elect to have other third parties manufacture our products on a contract basis. We expect to be dependent on such collaborators or third parties to supply us in a timely way with products manufactured in compliance with standards imposed by the FDA and foreign regulators. The manufacturing facilities of contract manufacturers may not comply with applicable manufacturing regulations of the FDA nor meet our requirements for quality, quantity or timeliness.

In addition, we have no direct experience in marketing, sales or distribution, and we do not intend to develop a sales and marketing infrastructure to commercialize pharmaceutical products. If we develop products eligible for commercial sale, we will need to rely on third parties such as licensees, collaborators, joint venture partners or independent distributors to market and sell those products. We may not be able to obtain access to a marketing and sales force with sufficient technical expertise and distribution capability. Also, we will not be able to control the resources and effort that a third party will devote to marketing our products. If we are unable to develop and maintain relationships for the necessary marketing and sales capabilities, we may fail to gain market acceptance for our products, and our revenues could be impaired.

We depend on key personnel to develop our products and pursue collaborations.

We are highly dependent on Dr. David Platt, President and Chief Executive Officer; Dr. Anatole Klyosov; and Dr. Eliezer Zomer, Vice President of Manufacturing and Product Development. Dr. Klyosov is a member of our Scientific Advisory Board and he owns 50% of MIR International, Inc., which provides consulting services regarding our research and development. The loss of any of these persons, or failure to attract or retain other key personnel, could prevent us from pursuing collaborations or developing our products and core technologies.

Recruiting and retaining qualified scientific personnel to perform research and development work are critical to our success. There is intense competition for qualified scientists and managerial personnel from numerous pharmaceutical and biotechnology companies, as well as from academic and government organizations, research institutions and other entities. In addition, we may face particular difficulties because there is a limited number of scientists specializingjournals in carbohydrate chemistry and related fields. In 1997, Dr. Witczak co-editedCarbohydrates in Drug Design, which has since become a principal focus of our company. We expect to rely on consultants and advisors, including our scientific and clinical advisors, to assist us in formulating our research and development strategy. Any of those consultants or advisors could be employed by other employers, or be self-employed, and might have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. Such other employment, consulting or advisory relationships could place our trade secrets at risk, even if we require non-disclosure agreements.

Our insurance coverage may not be adequate in all circumstances.

In the future, we may,leading reference in the ordinary coursefield. In 2000, Dr. Witczak was awarded the Melville L. Wolform Award of business, be subjectthe ACS for his outstanding research contribution to substantial claims by,carbohydrate chemistry. Dr Witczak received a M.S. degree in organic chemistry from the University of Lodz and liability to, persons alleging injurya Ph.D. in organic chemistry from the Faculty of Pharmacy, Medical University, Lodz, Poland. He worked as a result of taking products we have under development. If we are successfulpostdoctoral fellow with Professor Roy L. Whistler, a renowned authority in having products approved by the FDA, the sale of such products would expose us to additional potential product liability and other claims resulting from their use. This liability may result from claims made directly by consumers or by pharmaceutical companies or others selling such products. Although we currently have insurance coverage for both product liability and professional liability, it is possible that we will not be able to maintain such insurance on acceptable terms. Any inability to maintain insurance coverage on acceptable terms could prevent or limit the commercialization of any products we develop. A successful product liability claim in excess of our insurancecarbohydrate chemistry at Purdue University.

coverage could exceed our net worth. While we desire to reduce our risk by obtaining indemnity undertakings with respect to such claims from licensees and distributors of our products, we may not be able to obtain such undertakings and, even if we do, they may not be sufficient to limit our exposure to claims.

Health care cost containment initiatives may limit our returns.

Our ability to commercialize our products successfully will be affected by the ongoing efforts of governmental and third-party payors to contain or reduce the cost of health care. Governmental and other third-party payors increasingly are attempting to contain health care costs by challenging prices charged for health care products and services, and denying or limiting coverage and reimbursement amounts for new therapeutic products, and for FDA-approved products considered experimental or investigational, or which are used for disease indications without FDA marketing approval.

In addition, the trend toward managed health care in the United States, the growth of organizations such as health maintenance organizations, and legislative proposals to reform health care and government insurance programs could significantly influence the purchase of health care services and products, resulting in lower prices and reducing demand for our products.

Even if we succeed in bringing any products to the market, they may not be considered cost-effective and third-party reimbursement might not be available or sufficient. If adequate third-party coverage is not available, we may not be able to maintain price levels sufficient to realize an appropriate return on our investment in research and product development. In addition, legislation and regulations affecting the pricing of pharmaceuticals may change in ways adverse to us before or after any of our proposed products are approved for marketing.

Our ability to conduct animal testing could be limited in the future.

Our research and development activities have involved, and will continue to involve, animal testing.Such activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop animal testing activities by pressing for legislation and regulation in these areas. To the extent the activities of these groups are successful, our business could be materially harmed.

Stock prices for biopharmaceutical and biotechnology companies are volatile.

The market price for securities of biopharmaceutical and biotechnology companies historically has been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies. Fluctuations in the trading price or liquidity of our common stock may adversely affect our ability to raise capital through future equity financings.

Factors that may have a significant impact on the market price and marketability of our common stock include: announcements of technological innovations or new commercial therapeutic products; announcements of results of preclinical testing and clinical trials; developments or disputes concerning patent rights; adverse changes in governmental regulation and the status of our regulatory approvals or applications; and changes in health care policies and practices.

Our stockholders’ ability to trade our shares could be adversely affected, because our stock is not listed on any exchange or quoted on Nasdaq, and is a “penny stock.”

Currently, our shares are traded on the Over-the-Counter Bulletin Board (OTCBB) sponsored by the National Association of Securities Dealers. Trading in our shares is not consistent on a daily basis and our stockholders may be unable to sell their shares when they want or at a favorable price. We have not listed our

capital stock on any exchange and cannot assure that in the near term we would be able to meet the listing standards for any exchange or for the Nasdaq National Market or the Nasdaq SmallCap Market.

In addition, our stock is subject to SEC regulations that impose limitations upon the manner in which certain low priced equity securities, referred to as “penny stocks,” are publicly traded. Under these regulations, a penny stock is defined as any equity security that has a market price of less than $5.00 per share, subject to certain exceptions, for which we do not now qualify. Regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. They also require certain broker-dealers who recommend penny stocks to persons other than established customers and certain accredited investors to make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to a transaction prior to sale. These requirements make it more difficult to effect transactions in penny stocks as compared to other securities.

Since our stock currently trades below $5.00 per share, our shares would be considered a “penny stock” and our stockholders’ ability to trade our shares could accordingly be adversely affected.

Four principal stockholders own enough shares to control the company.

Four of our principal stockholders, David Platt, James Czirr, Offer Binder and Anatole Klyosov, own or control approximately 65% of our outstanding shares of our common stock, and Dr. Platt and Mr. Czirr together own approximately 52%. Some or all of these stockholders, acting in concert, will be able to continue to elect the Board of Directors and take other corporate actions requiring stockholder approval, such as recapitalization or other fundamental corporate action, as well as dictate the direction and policies of our company. Such concentration of ownership also could have the effect of delaying, deterring or preventing a change in control of the company that might otherwise be beneficial to stockholders.

Item 2.    Description of PropertyProperties

We entered into a 5-year sublease commencing June 1, 2001 for approximately 2,830 square feet for our executive offices located at 189 Wells Avenue, Suite 200, Newton, Massachusetts 02459. The base rent for the year ended December 31, 2003 iswas approximately $106,000 ($8,833 per month), and is subject to increase in subsequent years. The sublease is a so-called “triple net” lease, meaning that we must pay our proportionate share of items such as property taxes, insurance and operating costs.

We completed a build-out of our office space in 2002, at a cost of approximately $104,000 before related Our 2004 budget includes capital expenditures such as office furnishings.to add offices and upgrade certain equipment. We believe that upon completion our currently leased facilities as modified by the buildout, arewill be suitable and adequate to meet our requirements for the near term.foreseeable future.

Item 3.    Legal Proceedings

Pro-Pharmaceuticals isOn May 14, 2003 a former employee, who was our Vice President of Investor Relations and Corporate Strategy, commenced a lawsuit in Massachusetts Superior Court against us and filed a related complainant letter with the Occupational Safety and Health Administration of the U.S. Department of Labor. The Plaintiff asserted claims for wrongful discharge in violation of public policy and of employee protection provided for under the Sarbanes-Oxley Act of 2002, and seeks monetary damages and reinstatement of her position. On August 25, 2003, the Department of Labor reported that its investigator found the Plaintiff’s allegations are without merit and dismissed the complaint. The Plaintiff objected to the findings and requested a hearing by an Administrative Law Judge at the Department. Other than continuation of pre-trial discovery, there have been no material developments. On October 31, 2003, we received an informal inquiry from the Securities and Exchange Commission requesting information related to the foregoing. We timely responded in November and December 2003 and have not received a party to any litigation or legal proceedings.further communication from the SEC on this matter.

On February 13, 2004, we received an order from the Commonwealth of Massachusetts to provide information concerning our offerings of securities. We timely responded and believe our offerings comply with Massachusetts law. We believe the Massachusetts investigation may be related to the matters disclosed in the preceding paragraph.

Each of the foregoing matters is subject to various uncertainties, and it is possible one or more may be resolved unfavorably. Management believes that any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on our financial position, results of operations or cash flows.

On January 29, 2004, Dr. Platt, was subject toour Chairman and Chief Executive Officer, filed a non-competition covenant with a prior employer now known aslawsuit in Massachusetts Superior Court against GlycoGenesys, Inc. (Nasdaq SmallCap: GLGS). Althoughfor various claims including breach of contract. In its answer GlycoGenesys innames us as a February 2001 letter alleged thatcounterclaim defendant alleging tortious interference and misappropriation of proprietary rights, and seeks monetary damages and injunctive relief related to our intellectual property. On March 19, 2004, we answered the counterclaim and denied any liability. We and Dr. Platt wasintend to contest these counterclaims vigorously and believe we will ultimately prevail. However, if we do not in compliance with the covenant, GlycoGenesys did not take further action. The non-competition covenant expired by its termsprevail, there could be a material adverse impact on June 30, 2002.our financial position, results of operations or cash flows.

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

No matters werematter was submitted to a vote of our security holders, through solicitation of proxies or otherwise,stockholders during the lastfourth quarter of the fiscal year ended December 31, 2002.

Executive Officers of Pro-Pharmaceuticals

Information about the executive officers of Pro-Pharmaceuticals as of March 20, 2003, is set forth below:

Dr. Platt has served as our President, Chief Executive Officer, Treasurer, Secretary and a director since May 15, 2001. Previously, he had been President, Chief Executive Officer, Treasurer, Clerk and a director of Pro-Pharmaceuticals (Massachusetts), the Company’s predecessor, since its founding in July 2000. He was Chairman of the Board, Chief Executive Officer and Secretary of SafeScience Inc. (now known as GlycoGenesys, Inc.) (Nasdaq SmallCap: GLGS) (formerly IGG International, Inc.), a biotechnology company involved in research and development of products for treating cancer and immune system diseases, from December 1992 through May 2000. Dr. Platt had been Chairman of the Board, Chief Executive Officer and Secretary of Agricultural Glycosystems, Inc., a wholly owned subsidiary of SafeScience, from its inception in June 1995 through May 2000. Agricultural Glycosystems manufactures and markets complex carbohydrate compounds for use in agriculture. Dr. Platt received a Ph.D. in Chemistry from Hebrew University in Jerusalem, Israel, in 1988, and also earned an M.S. degree in 1983 and a B.S. degree in 1978 from Hebrew University. He earned a Bachelor of Engineering degree in 1980 from Technicon in Haifa, Israel.

Ms. Foley has served as our Chief Operating Officer since October 2001 and prior to that time served as our Manager of Operations since January 2001. She has been involved in the start-up of several high tech companies, where she has been responsible for the establishment and administration of business operations including human resources and benefits, accounting and finance, marketing, product development, and project management. Her experience at start-up companies includes the following: From June 2000 to December 2000, she provided business operations services as described for eHealthDirect, Inc., a developer of medical records processing software. From October 1999 to May 2000 she provided business operations services for ArsDigita, Inc., a developer of business software and programs. From June 1996 to August 1999, Ms. Foley served with Thermo Fibergen Inc., a subsidiary of Thermo Electron Corporation, a paper waste processing developer. She is a director and Chairman of Tax/Eze, Inc. a tax preparation and financial services company, and a director of Stewart/Precision, Inc., a metal fabricator, and Ergonics, Inc., a project management firm. Ms. Foley is a graduate of The Wyndham School, Boston, Massachusetts, with a major in Mechanical Engineering.

Mr. Czirr has served as Executive Vice President of Business Development and a director since May 15, 2001. He had been a director of Pro-Pharmaceuticals (Massachusetts), our predecessor, since its founding in July 2000. He has been an independent corporate and public relations consultant for over ten years, working with various companies concerning business strategies, including issues such as organization of production, finance and capital programs, marketing strategies and incentive programs. He is a director of the following company that is subject to the reporting requirements of the Securities Exchange Act of 1934: NACO Industries Inc.,covered by this report.

which manufactures polyvinyl chloride fittings for use in agriculture, municipal and industrial applications. Mr. Czirr received a B.B.A. degree from the University of Michigan in 1976, and has completed post-graduate courses at the University of Toledo School of Business Administration, and at the College for Financial Planning.

Dr. Eliezer Zomer has served as Vice President of Manufacturing and Product Development since May 1, 2002, and provided part-time consulting services to Pro-Pharmaceuticals since mid 2001. Before joining the company, Dr. Zomer had been the founder of Alicon Biological Control, an Israeli company, where he served from November 2000 to July 2002;Vice President of Product Development at SafeScience, Inc. (now known as GlycoGenesys, Inc.) (Nasdaq SmallCap: GLGS) from December 1998 to July 2000; and Vice-President of Research and Development at Charm Sciences, Inc. from June 1987 to November 1998. Dr. Zomer received a B.Sc. degree in industrial microbiology from the University of Tel Aviv in 1972, a Ph.D. in biochemistry from the University of Massachusetts in 1978, and undertook post-doctoral study at the National Institutes of Health.

The employment of our Vice President of Corporate Strategy and Investor Relations, whom we hired in October 2002, terminated as of March 7, 2003.

None of the persons specified above share any familial relationship. Other than the persons specified above, there are currently no significant employees that we expect to make a significant contribution to our business.

To the best of our knowledge, there are no material proceedings to which any of our directors (all of whom are current nominees) or executive officers is a party adverse to, or has a material interest adverse to, Pro-Pharmaceuticals. To the best of our knowledge, there have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions that are material to the evaluation of the ability or integrity of any director, executive officer, promoter or control person of Pro-Pharmaceuticals during the past five years.

PART II

Item 5.    Market for Common Equity and Related Stockholder Matters

Market for OurPrice Range of Common Stock

OurSince September 10, 2003, our common stock trades under the symbol PROH“PRW” on the American Stock Exchange. The high and low closing prices for our common stock as reported on the American Stock Exchange, for the periods indicated, were:

Prior to September 10, 2003, our common stock traded under the symbol “PROH” on the Over-the-Counter Bulletin Board Electronic Quotation System maintained by the National Association of Securities Dealers, Inc. Our stock commenced trading on September 9, 2002. Approximately thirteen professional market makers hold themselves out as willing to make a market in our common stock. Following is information aboutThe following table sets forth the range of high and low bid prices for our common stock for each fiscal quarter since our stock commenced trading.trading on September 9, 2002. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

Holders of Common Stock

As of March 26, 2003,23, 2004 there were 331approximately 398 holders of record of our common stock.

Use of Proceeds

On December 31, 2003 we filed a registration statement on Form S-3, which became effective on January 26, 2004, to register for re-sale 9,639,742 shares of common stock although we believe that there are additional beneficial ownersheld by certain stockholders who purchased the shares in certain of our common stock who own their shares in “street name.”prior private placements. The selling stockholders will receive all proceeds from the sales of such stock. We will not receive any proceeds from such sales.

Dividends

There have been no cash dividends declared on our common stock since our company was formed. Dividends are declared at the sole discretion of our Board of Directors. Our intention is not to declare cash dividends and retain all cash for our operations.

Equity Compensation Plan Information

The information in the table below is as of December 31, 2002. See also the Consolidated Financial Statements—Note 7.

Recent Sales of Unregistered Securities

In September 2002, we began a private placement of up to 10 million shares of common stock at $1.00 per share, exempt from registration pursuant to Rule 506 of Regulation D under the Securities Act of 1933. As of December 31, 2002, we had sold 3,223,360 shares for gross proceeds of $3,223,360. This offering was closed on January 14, 2003. Subsequent to December 31, 2002 and prior to closing the offering, we sold an additional 1,088,000 shares for additional gross proceeds of $1,088,000.

We agreed to compensate a registered investment adviser with respect to shares purchased by its clients based on the recommendation of the adviser. This adviser was entitled to receive 173,500 shares of common stock as of December 31, 2002, and an additional 2,500 subsequent to year-end, for a total of 176,000 shares as of the closing of the private placement. We also agreed to compensate a finder registered under applicable law, and such finder’s agents, for identifying qualified investors. One of the finder’s agents was entitled to receive 750 shares of common stock as of December 31, 2002, and the finder and another of its agents were entitled to receive in aggregate an additional 9,750 shares and $2,750 in cash as of the closing.

We also agreed to compensate one of our officers for identifying qualified investors. As of December 31, 2002, the officer was entitled to receive 2,100 shares of common stock, and an additional 7,000 subsequent to year-end, for a total of 9,100 shares as of the closing. The shares due to the officer were accounted for as compensation, which was charged to general and administrative expenses in the statement of operations.

Item 6.    Plan of OperationSelected Consolidated Financial Data

The following table sets forth financial data for the years ended December 31, 2003, 2002, 2001, and for the period from inception (July 10, 2000) to December 31, 2000 and cumulative period since inception (July 10, 2000) through December 31, 2003. This Plan of Operationselected financial data should be read in conjunction with the Consolidated Financial Statements and other partsrelated notes included in Item 15 of this Annual Report on Form 10-KSB contain forward-looking statements that involve risks10-K.

Notes:

Item 7.    Management’s Discussion and uncertainties. All forward-looking statements included in this document are based on information available to us on the date hereof,Analysis of Financial Condition and we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a resultResults of a number of factors, including those set forth in “Risk Factors That May Affect Results” and elsewhere in this Form 10-KSB.Operations

Overview

We are a development-stage company engaged in research and development of drug technologies to enable targeted delivery of chemotherapy drugs. We intend initially to “reformulate” existing widely used chemotherapies with our proprietary carbohydrate compounds. We believe our technology may increase the body’s tolerance to these toxic drugs by targeting the delivery directly to cancerous cells and increase the efficacy, thereby creating a preferable treatment to existing first line oncology regimens. Our goal is to develop and commercialize a new generation of reformulated drugs enabling targeted delivery. For additional information, please see “Item 1. Business — Business of Pro-Pharmaceuticals”.

All of our drug candidates are currently in preclinical and clinical development. To commercialize our drug candidates, we will be required to successfully complete preclinical studies and clinical trials to obtain regulatory approvals. We do not expect to file a New Drug Application (“NDA”) for a drug candidate before 2006 even if development of our drug candidates continues successfully. Any delay in obtaining or failure to obtain required approvals will materially adversely affect our ability to generate revenues from commercial sales relating to our drug candidates. We expect our sources of funding for the next several years to come from finance transactions.

We are devoting substantially all of our efforts toward product research and development, and raising capital. We have no source of revenue and have incurred significant losses to date. We have incurred net losses of $12,706,353 for the cumulative period from inception (July 10, 2000) through December 31, 2003. Our losses have resulted principally from costs associated with research and development expenses, including clinical trial costs, and general and administrative activities. As a result of planned expenditures for future research, discovery, development and commercialization activities, we expect to incur additional operating losses for the foreseeable future.

We have raised $17,131,735 in capital principally through the issuance of convertible notes, the sale of common stock through a public offering and the sale of common stock and warrants through private placements. From inception (July 10, 2000) through December 31, 2003, we used cash of $9,023,156 for our operations. At December 31, 2003, we had $7,607,818 of cash and cash equivalents available to fund future operations, which our management believes is sufficient to fund our operations through at least April 30, 2005.

Because we lack revenue and must continue our research and development, we must continually identify new sources of capital and complete financing transactions in order to continue our business. We must continually monitor the monthly “burn rate” of our capital resources.

Critical Accounting Policies and Estimates

Our significant accounting policies are more fully described in Note 2 to our Consolidated Financial Statements included in this Annual Report on Form 10-K, and in Part IV, Item 15 “Exhibits, Financial Statement Schedules and Reports on Form 8-K”. Certain of our accounting policies, however, are critical to the portrayal of our financial position and results of operations and require the application of significant judgment by our management, which subjects them to an inherent degree of uncertainty. In applying our accounting policies, our management uses its best judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information available from other outside sources, and on various other factors that we believe to be appropriate under the circumstances. We believe that the critical accounting policies discussed below involve more complex management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related asset, liability, revenue and expense amounts.

Stock-Based Compensation.    We account for stock-based compensation to employees and non-employee directors in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock

Issued to Employees”, and related interpretations. Under APB No. 25, no compensation expense is recorded for stock options and restricted stock awards granted at fair market value with fixed terms. We account for stock or other equity-based compensation to non-employees utilizing the fair value method in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”, and the Emerging Issues Task Force Abstract No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services”, and the related interpretations. Under the fair value method, compensation is recorded at the fair value of the consideration received or the fair value of the equity instrument until the final measurement date, which is the earlier of performance completion or vesting. Fluctuations in the quoted market price of the Company’s stock covered by the unvested equity instrument are reflected as adjustments to deferred compensation and compensation expense over the related service period.

We determine the fair value of the equity instrument by using the Black-Scholes option-pricing model, which requires us to make certain assumptions. Some of the assumptions, such as the risk-free interest rate, come from published sources. Other assumptions, such as the expected life of the equity instrument or the expected volatility of the Company’s stock, are subjective and may differ from period to period. Accordingly, changes in the value of the Company’s stock or changes in the assumptions used to calculate the fair value of the equity instruments, such as the expected life of the options, could have a significant effect on our results of operations in any period.

We consider equity compensation to be an important component in attracting and retaining key employees. During 2003 we awarded approximately 1,647,250 stock options to employees and non-employee members of our Board of Directors. Because the exercise price of the options granted equal the fair market value of a share of our common stock on the date of grant and the options have fixed terms, we recorded no stock compensation expense on these awards. If we had used the fair value method provided for under SFAS No. 123 our reported net loss of $4,873,121 would have increased by $2,824,135 to $7,697,256 in 2003.

Accrued Expenses.    As part of the process of preparing our financial statements, we are required to estimate accrued expenses. This process involves identifying services that third parties have performed on our behalf and estimating the level of service performed and the associated cost incurred on these services as of each balance sheet date in our financial statements. Examples of estimated accrued expenses include contract service fees, such as amounts paid to clinical research organizations (CRO) and investigators in conjunction with pre-clinical and clinical trials, and professional service fees, such as attorneys and accountants. In connection with these service fees, our estimates are most affected by our understanding of the status and timing of services provided relative to the actual services incurred by the service providers. In the event that we do not identify certain costs that have been incurred or we under- or over-estimate the level of services or costs of such services, our reported expenses for a reporting period could be understated or overstated. The date on which certain services commence, the level of services performed on or before a given date, and the cost of services are often subject to our judgment. We make these judgments based upon the facts and circumstances known to us in accordance with accounting principles generally accepted in the United States.

Income Taxes.    We determine if our deferred tax assets and liabilities are realizable on an ongoing basis by assessing our valuation allowance and by adjusting the amount of such allowance, as necessary. In the determination of the valuation allowance, we have considered future taxable income and the feasibility of tax planning initiatives. Should we determine that it is more likely than not that we will realize certain of our deferred tax assets for which we previously provided a valuation allowance, an adjustment would be required to reduce the existing valuation allowance. In addition, we operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time for resolution. Although we believe that adequate consideration has been made for such issues, there is the possibility that the ultimate resolution of such issues could have an adverse effect on the results of our operations.

Results of Operations

Fiscal Year Ended December 31, 2003 Compared to Fiscal Year Ended December 31, 2002

Research and Development Expenses.    Research and development expenses were $1,950,299 in 2003, or 32% higher than the $1,483,027 incurred in 2002. Research and development expenses primarily represent costs of outside laboratories, clinical research organizations, data management services, medical consultants, drug manufacturing for clinical trials and salaries and other personnel-related expenses, including stock compensation. The increase reflects the costs to initiate and conduct the Phase I clinical trial of DAVANAT^®-1, which began in February 2003. We expect the Phase I trial to be completed in 2004. In 2004, we began a concurrent Phase II clinical trial of DAVANAT^®-1. We are continuing to develop our pipeline of additional drug candidates. Accordingly, we expect that our research and development costs will continue to increase in 2004 and thereafter and could comprise a higher percentage of our annual expenditures.

General and Administrative Expenses.    General and administrative expenses were $2,987,867 in 2003, or 66% higher than the $1,804,192 incurred in 2002. General and administrative expenses primarily represent salaries and other personnel-related expenses, including stock compensation, legal and accounting fees, consultants, corporate governance, insurance, rent, depreciation and other office costs. The increase in costs in 2003 was primarily due to the significant expansion of our business development activities and to costs associated with further strengthening our finance functions, including the addition of a financial expert on the Audit Committee of our Board of Directors and a Chief Financial Officer. Approximately $378,385 of the increase in costs was due to stock-based compensation charges, primarily relating to options granted to consultants serving in business development capacities and our former Chief Financial Officer who resigned in October 2003. We have since secured the services of a new Chief Financial Officer on a consulting basis.

Interest and Other Income.    Interest and other income was $68,925 in 2003 compared to $24,258 in 2002 and primarily consists of interest income on short-term investments. The increase in interest income is due to higher average cash balances as we raised approximately $9,959,442 in new financing in 2003 compared to $3,636,941 in 2002. Average interest rates in 2003 were approximately 10 basis points below the average interest rates in 2002.

Interest Expense.    Interest expense was $3,880 in 2003 compared to $415,416 in 2002. The decrease in interest expense in 2003 is due to the lower debt balances as the convertible notes payable were converted into common stock or repaid in 2002 and 2001. Approximately $406,612 of the interest expense in 2002 represented the fair value of warrants issued to placement agents in connection with the 2001 debt offering and the fair value of shares of common stock issued to the holders of $195,000 of convertible notes as consideration for our extension of the maturity date beyond December 31, 2001.

Fiscal Year Ended December 31, 2002 Compared to Fiscal Year Ended December 31, 2001

Research and Development Expenses.    Research and development expenses were $1,483,027 in 2002, or 66% higher than the $893,457 incurred in 2001. The increase reflects the costs associated with hiring a Vice President – Product Development and Manufacturing, filing our Investigational New Drug (IND) application for DAVANAT^® with the Food and Drug Administration, obtaining IND status for DAVANAT^® in July 2002 and scaling-up manufacturing of the drug compound for purposes of the Phase I clinical trials. The costs in 2001 represent expenses incurred to conduct the required animal studies prior to filing the IND application.

General and Administrative Expenses.    General and administrative expenses were $1,804,192 in 2002, or 40% higher than the $1,288,634 incurred in 2001. The increase was due primarily to the full year impact of a new office lease and related facility costs, several new employees, and the added costs associated with being a public company, including the purchase of directors’ and officers’ liability insurance.

Interest and Other Income.    Interest and other income was $24,258 in 2002 as compared to $24,917 in 2001. Higher average cash balances in 2002 were offset by significantly lower yields as average interest rates were approximately 30 basis points below the average interest rates in 2001.

Interest Expense.    Interest expense was $415,416 in 2002 compared to $1,813,099 in 2001. As described above, interest expense in 2002 included approximately $406,612 representing the fair value of warrants issued to placement agents in connection with the 2001 debt offering and the fair value of common stock issued to certain note holders to extend the maturity date beyond December 31, 2001. Interest expense in 2001 included $1,241,357 for amortization of the debt discount on the convertible notes payable and $503,019 representing the fair value of warrants issued in August 2001 to induce the holders to convert their notes to common stock prior to maturity. The balance of the reduction in interest expense in 2002 was primarily due to lower average debt balances as the holders of $1,125,602 of such notes converted to common stock in August 2001.

Liquidity and Capital Resources

As described above in the Overview and elsewhere in this Annual Report on Form 10-K, we are in the development stage and have not generated any revenues to date. Since our inception on July 10, 2000, we have financed our operations primarily through private placements of convertible debt, shares of common stock and warrants, and a public offering of shares of common stock. To date, we have raised a total of $17,131,735 from these offerings and have $7,607,818 of cash available at December 31, 2003.

Net cash used in operations increased to $4,152,157 in 2003, from $2,982,602 and $1,799,309 in 2002 and 2001, respectively. The increased use of cash in operations is primarily related to clinical research and data management costs incurred in connection with our Phase I clinical trial of DAVANAT^®-1, expansion of our business development activities and added costs associated with being a public company. In 2001, we initiated preclinical studies of DAVANAT^®-1. In 2002, we completed the animal studies and filed an IND application, which was approved in June 2002. In February 2003, we began our Phase I clinical trials and expect to complete those trials in 2004. In January 2004, we initiated a concurrent Phase II clinical trial of DAVANAT^®-1. Accordingly, we expect our research and development costs to continue to increase in 2004.

Net cash used in investing activities was $105,700 in 2003, $138,278 in 2002 and $171,116 in 2001. The investing activities primarily consist of fixed assets purchases and patent costs. Fixed asset purchases were higher in 2001 and 2002 as we added staff and relocated to new offices. Expenditures in 2004 are expected to approximate $75,000 as we build out the remaining work areas in the office. Patent costs increased in 2003 due to the continued development of our drug pipeline.

Net cash provided by financing activities was $9,944,442 in 2003, $3,550,941 in 2002 and $3,256,852 in 2001. Net cash provided by financing activities in 2003 resulted from the sale of common stock and warrants in three private placements with net proceeds of $9,944,442. In 2002, the net cash provided by financing activities resulted from one private placement and one public offering of common stock with net proceeds totaling $3,636,941. The net cash provided from financing activities in 2001 included $2,220,750 in net proceeds from the sale of common stock and warrants, and $1,036,102 from the sale of convertible notes. Except for $86,000 of notes repaid in 2002, all convertible notes were converted into common stock and warrants in 2001 and 2002.

We believe that our cash on hand of $7,607,818 at December 31, 2003 will be sufficient to enable us to meet our financing and operating obligations through at least April 30, 2005. We will require more cash to fund our operations over the long-term and believe that we will be able to obtain additional financing. However, there can be no assurance that we will be successful in obtaining such new financing or, if available, that such financing will be on terms favorable to us.

Payments Due Under Contractual Obligations

The following table summarizes the payments due under our contractual obligations at December 31, 2003, and the effect such obligations are expected to have on liquidity and cash flow in future periods:

In connection with the operating lease for our office space in Newton, Massachusetts included in the table above, a commercial bank has issued a letter of credit collateralized by cash we had on deposit with that bank. As of December 31, 2003, we held $21,933 of restricted cash. The letter of credit expires on May 31, 2004, and we expect to renew the letter of credit for an additional 12 months prior to its expiration.

In addition to the contractual obligations described above, we have entered into contracts with a clinical research organization and a data management company in connection with our Phase I clinical trial of DAVANAT^®-1. Our expenditure commitments under the two contracts represent 5% and 15% of the contracted budgetary amounts respectively. Although the two contracts are cancelable upon 30 days’ notice, we intend to continue the services through completion of the Phase I clinical trials in 2004. Our remaining obligation under the two contracts at December 31, 2003 is approximately $250,000.

Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated into our financial statements. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of capital resources.

FACTORS THAT MAY AFFECT FUTURE RESULTS

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information before deciding to invest in our common stock. The risks described below are not the only ones facing our company. Additional risks not presently known to us or that we currently consider immaterial may also adversely affect our business. We have attempted to identify below the major factors that could cause differences between actual and planned or expected results, but we cannot assure you that we have identified all of those factors.

If any of the following risks actually happen, our business, financial condition and operating results could be materially adversely affected. In this case, the trading price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to Pro-Pharmaceuticals

We Are At An Early Stage Of Development With Limited Operating History.    We are a development-stage company with a limited operating history, and we have not generated any revenues to date. We have raised funds primarily through private placementsno therapeutic products available for sale, and none are expected to be commercially available for several years, if at all. We may never generate revenue or become profitable, even if we are able to commercialize any products.

We Have Incurred Net Losses To Date And Depend On Outside Capital.    Our accumulated deficit as of convertible debtDecember 31, 2003 was $12,706,353, which includes approximately $2,427,000 various non-cash charges related to certain equity transactions. We will need to continue to conduct significant research, development, testing and shares of common stock, and a public offering of shares of common stock. Most recently, we raised a total of approximately $4,311,000 in a private placement of common stock begun in September 2002 and completed in January 2003. See “Item 5. Recent Sales of Unregistered Securities.” We intend to dedicate the proceeds ofregulatory compliance activities that, private placement to research and development, including expenses of Phase I/II clinical trials of our drug candidate for which the FDA approved our investigational new drug application, andtogether with projected general and administrative expenses.expenses, we expect will result in substantial operating losses for the next several years. Accordingly, we will not be generating sales or other revenue and will remain dependent on outside sources of financing during that time. If we are unable to raise funds from outside sources for our continuing operations, we may be adversely affected.

AsWe may raise such capital through public or private equity financings, partnerships, debt financings, bank borrowings, or other sources. Additional funding may not be available on favorable terms or at all. If adequate funds are not otherwise available, we may curtail operations significantly. To obtain additional funding, we may need to enter into arrangements that require us to relinquish rights to certain technologies, products and/or potential markets. To the extent that additional capital is raised through the sale of equity, or securities convertible into equity, our equity holders may experience dilution of their proportionate ownership of the company.

Based on $7,607,818 of available cash and cash equivalents as of December 31, 2002,2003, we had $1,921,233 in cash and workingbelieve that we have sufficient capital of $1,327,173. Our budgeted expenditures for the year ending December 31, 2003, total $3,700,000, including research and development expenditures of $2,200,000 and general and administrative expenditures of $1,500,000.to fund our operations through at least April 30, 2005.

We planOur Product Candidates Will Be Based On Novel Unproven Technologies.    Our product candidates will be based upon novel unproven technologies using proprietary carbohydrate compounds in “reformulations” of drugs currently used in the treatment of cancer and other diseases. Carbohydrates are difficult to raise additional capital through private placements or of public offerings of equity securities in order to cover our budget. If we are limited to the capital we have raised to date,synthesize, and we may be unable to proceed with our current plan of operations and meet our obligations for the next twelve months. Given our current attempts to raise additional capital, we believe we willnot be able to proceed with our current plan of operations and meet our obligationssynthesize carbohydrates that would be usable as delivery vehicles for the next twelve months. Ifanti-cancer drugs we do not raise the additional funds, we would slow or halt our research and development expenditures until adequate funding becomes available. Our business structure is somewhat flexible because we outsource most of our research and development.plan to work with.

Our financial statements have been presented on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We are in the development stage, have

incurred a net loss since inception of $7,833,232 and expect to incur additional losses in the near future. These factors raise substantial doubt about our ability to continue as a going concern. Successful completion of our development program and, ultimately, the attainment of profitable operations is dependent upon future events, including maintaining adequate financing to fulfill our development activities and achieving a level of sales adequate to support our cost structure. We are actively seeking additional financing to fund future operations, but cannot assure we will be successful.

Have Only Recently Begun Clinical Trials And Results Are Uncertain.We have one product candidate in Phase Ihuman clinical trials. DuringPre-clinical results in animal studies are not necessarily predictive of outcomes in human clinical trials. Clinical trials are expensive, time-consuming and may not be successful. They involve the next twelvetesting of potential therapeutic agents, or effective treatments, in humans, typically in three phases, to determine the safety and efficacy of the product candidates necessary for an approved drug. Many products in human clinical trials fail to demonstrate the desired safety and efficacy characteristics. Even if our products

progress successfully through initial human testing, they may fail in later stages of development. We will be dependent on others to conduct our clinical trials, including clinical research organizations and, possibly, government-sponsored agencies. These trials may not start or be completed as we forecast, or may be unsuccessful.

Our Product Candidates May Not Be Successfully Commercialized.    Even if our product candidates are successful in clinical trials, they may not be successfully commercialized. Potential products may fail to receive necessary regulatory approvals, be difficult to manufacture on a large scale, be uneconomical to produce, fail to achieve market acceptance, or be precluded from commercialization by proprietary rights of third parties.

Our Lack Of Operating Experience May Cause Us Difficulty In Managing Our Growth.    We have no direct experience in manufacturing or procuring products in commercial quantities, conducting other later-stage phases of the regulatory approval process, selling pharmaceutical products, or negotiating, establishing and maintaining strategic relationships. Any growth of our company will require us to expand our management and our operational and financial systems and controls. If we are unable to do so, our business and financial condition would be materially harmed. If rapid growth occurs, it may strain our operational, managerial and financial resources.

We Will Depend On Third Parties To Manufacture And Market Our Products.    We do not have, and do not now intend to develop, facilities for the manufacture of any of our products for clinical or commercial production. Accordingly, we will need to develop relationships with manufacturers and enter into collaborative arrangements with licensees or have others manufacture our products on a contract basis. We expect to depend on such collaborators to supply us with products manufactured in compliance with standards imposed by the FDA and foreign regulators.

In addition, we have no direct experience in marketing, sales or distribution, and we do not intend to develop a sales and marketing infrastructure to commercialize our pharmaceutical products. If we develop commercial products, we will need to rely on licensees, collaborators, joint venture partners or independent distributors to market and sell those products.

We Depend On Key Individuals To Develop Our Products And Pursue Collaborations.    We are highly dependent on Dr. David Platt, President and Chief Executive Officer; Dr. Anatole Klyosov, a member of our Scientific Advisory Board and a consultant; and Dr. Eliezer Zomer, Vice President, Manufacturing and Product Development. The loss of any of these persons, or failure to attract or retain other key personnel, could prevent us from pursuing collaborations or developing our products and core technologies.

We Have Been Named a Counterclaim Defendant in a Lawsuit Instituted by Dr. Platt.    Dr. Platt filed a lawsuit in Massachusetts in January 2004 against GlycoGenesys, Inc. for claims including breach of contract. In its answer GlycoGenesys names us as a counterclaim defendant alleging tortious interference and misappropriation of proprietary rights, and seeks monetary damages and injunctive relief related to our intellectual property. On March 19, 2004, we answered the counterclaim and denied any liability. We and Dr. Platt intend to contest these counterclaims vigorously. If we do not prevail there could be a material adverse impact on our financial position, results of operations or cash flows.

Risks Related to the Drug Development Industry

We Will Need Regulatory Approvals To Commercialize Our Products.    We currently do not have products approved for sale in the U.S. or any foreign market. We are required to obtain approval from the FDA in order to sell our products in the U.S. and from foreign regulatory authorities in order to sell our products in other countries. The FDA’s review and approval process is lengthy, expensive and uncertain. Extensive pre-clinical and clinical data and supporting information must be submitted to the FDA for each indication for each product candidate in order to secure FDA approval. The FDA could reject an application or require us to conduct additional clinical or other studies as part of the regulatory review process. Delays in obtaining or failure to obtain FDA approvals would prevent or delay the commercialization of our products, which would prevent, defer or decrease our receipt of revenues. If we receive initial regulatory approval, our product candidates will be subject to extensive and rigorous ongoing domestic and foreign government regulation.

Our Competitive Position Depends On Protection Of Our Intellectual Property.    Development and protection of our intellectual property are critical to our business. If we do not adequately protect our intellectual property, competitors may be able to practice our technologies. Our success depends in part on our ability to obtain patent protection for our products or processes in the United States and other countries, protect trade secrets, and prevent others from infringing on our proprietary rights.

Since patent applications in the United States are maintained in secrecy for at least portions of their pendency periods (published on U.S. patent issuance or, if earlier, 18 months from earliest filing date for most applications) and since other publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we anticipatecannot be certain that we are the first to make the inventions to be covered by our patent applications. The patent position of biopharmaceutical firms generally is highly uncertain and involves complex legal and factual questions. The U.S. Patent and Trademark Office has not established a consistent policy regarding the breadth of claims that it will allow in biotechnology patents.

We cannot assure you that all of our patent applications will issue as patents or that the claims of any issued patents will afford meaningful protection for our technologies or products. In addition, patents issued to us or our licensors may be challenged and subsequently narrowed, invalidated or circumvented. Patent litigation is widespread in the biotechnology industry and could harm our business. Litigation might be necessary to protect our patent position or to determine the scope and validity of third-party proprietary rights, and we may not have the required resources to pursue such litigation or to protect our patent rights.

Although we require our scientific and technical employees and consultants to enter into broad assignment of inventions agreements, and all of our employees, consultants and corporate partners with access to proprietary information to enter into confidentiality agreements, these agreements may not be honored.

We have recently been named as a counterclaim defendant in a lawsuit instituted by Dr. Platt. See “Risks Related to Pro-Pharmaceuticals” above.

Our Products Could Infringe The Intellectual Property Rights Of Others.    We cannot assure that products based on our patents or intellectual property that we license from others will not be challenged by a third party claiming infringement of its proprietary rights. If we were not able to successfully defend our patents or licensed rights, we may have to pay substantial damages, possibly including treble damages, for past infringement.

We Face Intense Competition In The Biotechnology And Pharmaceutical Industries.    The biotechnology and pharmaceutical industries are intensely competitive. We face direct competition from U.S. and foreign companies focusing on drug delivery technologies which are rapidly evolving. Our competitors include major, multinational pharmaceutical and chemical companies, specialized biotechnology firms and universities and other research institutions. Many of these competitors have greater financial and other resources, larger research and development activitiesstaffs and more effective marketing and manufacturing organizations, than we do. In addition, academic and government institutions are increasingly likely to enter into exclusive licensing agreements with commercial enterprises, including our competitors, to market commercial products based on technology developed at such institutions. Our competitors may succeed in developing or licensing technologies and products that are more effective or less costly than ours, or succeed in obtaining FDA or other regulatory approvals for product candidates before we do.

Health Care Cost Containment Initiatives and The Growth Of Managed Care May Limit Our Returns.    Our ability to commercialize our products successfully will include continuationbe affected by the ongoing efforts of this Phase I first-in-man clinical trialgovernmental and third-party payors to contain the cost of health care. These entities are challenging prices of health care products and services, denying or limiting coverage and reimbursement amounts for new therapeutic products, and for FDA-approved products considered experimental or investigational, or which are used for disease indications without FDA marketing approval.

Even if we succeed in bringing any products to the market, they may not be considered cost-effective and third-party reimbursement might not be available or sufficient. If adequate third-party coverage is not available, we may not be able to maintain price levels sufficient to realize an appropriate return on our investment in research and product development. In addition, legislation and regulations affecting the pricing of pharmaceuticals may change in ways adverse to us before or after any of our proposed products are approved for marketing.

Our Insurance Coverage May Not Be Adequate In All Circumstances.    In the future, we may, in the ordinary course of business, be subject to claims by, and liability to, persons alleging injury as discussed abovea result of taking products we have under “ — Researchdevelopment. If we are successful in having products approved by the FDA, the sale of such products would expose us to additional potential product liability and Development — Phase I Clinical Trials,other claims resulting from their use. This liability may result from claims made directly by consumers or by pharmaceutical companies or others selling such products. Although we currently have insurance coverage for both product liability and professional liability, it is possible that we will not be able to maintain such insurance on acceptable terms. Any inability to maintain insurance coverage on acceptable terms could prevent or limit the commercialization of any products we develop.

Risks Related to Our Stock

Stock Prices for Biopharmaceutical and Biotechnology Companies Are Volatile.    The market price for securities of biopharmaceutical and biotechnology companies historically has been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies. Fluctuations in the trading price or liquidity of our common stock may adversely affect our ability to raise capital through future equity financings.

Large Sales Could Reduce The Trading Price Of Our Common Stock.    We listed our common stock on the American Stock Exchange in September 2003, prior to which our stock traded on the OTC Bulletin Board. Accordingly, there is a limited history of trading of our stock on a national exchange and, based on varying trading volume to date, our stock could be considered “thinly traded.” In the last six months of 2003 we undertook the registration on behalf of certain of our stockholders a total of 11,358,835 shares of our common stock and 832,635 shares of stock issuable upon exercise of immediately-exercisable warrants. In general, shares of registered common stock may be re-sold into the public markets without volume or other restrictions. Large sales of our registered shares could place substantial downward pressure on the trading price of our common stock, particularly if the amount sold significantly exceeds the then-current trading volume of our stock.

Four Principal Stockholders Own Enough Shares To Control The Company.    Four of our principal stockholders, David Platt, James Czirr, Offer Binder and Anatole Klyosov own or control approximately 47% of the outstanding shares of our common stock, and Dr. Platt and Mr. Czirr together own approximately 37%. Some or all of these stockholders, acting in concert, may be able to substantially influence the election of the Board of Directors and other corporate actions requiring stockholder approval, such as recapitalization or other fundamental corporate action, as well as continuing preclinical animal experimentsthe direction and policies of our company. Such concentration of ownership also could have the effect of delaying, deterring or preventing a change in control of the company that might otherwise be beneficial to study toxicity and efficacy of 5-FU and other cancer chemotherapies both in combination with our polysaccharide compounds and, in the case of Adriamycin, as chemically modified with sugar residues via “linkers” of a certain chemical structure that are our proprietary technology.stockholders.

We do not anticipate building in-house researchChanges In Laws, Regulations And Financial Accounting Standards May Affect Our Reported Results Of Operations.    The Sarbanes-Oxley Act of 2002 and related regulations may result in changes in accounting standards or development facilities, or hiring staffaccepted practices within our industry and could add significant new costs to conduct those activities. Consequently, we do not expectbeing a public company. New laws, regulations and accounting standards, as well as potential changes to make any purchases or salescurrently accepted accounting practices, including the expensing of plant or significant equipment during the next twelve months. We currently have six employees, all full-time. We have hired a Chief Financial Officer whose employment commences asstock options, could adversely affect our reported financial results and negatively affect our stock price. Additional unanticipated expenses incurred to comply with new requirements could also negatively impact our results of April 1, 2003. We do not expect a substantial increase to our employee headcount.operations.

Item 7.7A.    Financial StatementsQuantitative and Qualitative Disclosures About Market Risk

IndexMarket risk represents the risk of loss that may impact our financial position, operating results or cash flows due to Financial Statementschanges in the U.S. interest rates. The primary objective of our investment activities is to preserve cash until it is required to fund operations. To minimize risk, we maintain our portfolio of cash and cash equivalents in operating bank accounts and money market funds. Since our investments are short-term in duration, we believe that we are not subject to any material market risk exposure. We do not have any interest-bearing debt, foreign currency or other derivative financial instruments.

Item 8.    Financial Statements and Supplementary Data

The financial statements required by this item are attached to this Annual Report on Form 10-K beginning on Page F-1.

Item 9.    Changes inIn and Disagreements withWith Accountants on Accounting and Financial Disclosure

The information below has been previously included in our Current Report on Form 8-K filedNone.

Item 9A.    Controls and Procedures

In accordance with Securities Exchange Act of 1934 (the “Exchange Act”), Rules 13a - 15(e) and 15d - 15(e), we carried out an evaluation, under the supervision and with the SEC on February 25, 2002,participation of the Chief Executive Officer and Chief Financial Officer, as amendedwell as other key members of our management, of the effectiveness of our disclosure controls and filed withprocedures as of the SEC as Form 8-K/A on March 8, 2002.

On February 15, 2002,end of the period covered by this report. Under the direction of our Chief Executive Officer and Chief Financial Officer, we dismissed Scillia Dowling & Natarelli LLC asevaluated our independent auditors. On February 22, 2002, we engaged Deloitte & Touche LLP asdisclosure controls and procedures and internal control over financial reporting, and concluded that (i) our independent auditors to audit our financial statements for the fiscal year ended December 31, 2001. The decision to dismiss Scillia Dowling & Natarelli LLCdisclosure controls and to retain Deloitte & Touche LLP was approved by our Board of Directors and Audit Committee.

The report of Scillia Dowling & Natarelli LLC on our financial statementsprocedures were effective as of December 31, 2000,2003 and for(ii) no change in internal control over financial reporting occurred during the period from July 10, 2000 (Inception) toquarter ended December 31, 2000, and the review reports of Scillia Dowling & Natarelli LLC on our2003 that has materially affected, or is reasonably likely to materially affect, such internal control over financial statements as of June 30, 2001 and September 30, 2001 and for the three-month and year-to-date periods, did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. We have only filed financial statements since our July 10, 2000 date of inception. On March 31, 2001, we engaged Scillia Dowling & Natarelli LLC as our independent auditors to audit our financial statements for the period commencing July 10, 2000 (Inception) to December 31, 2000. From July 10, 2000 (Inception) through February 15, 2002, there were no disagreements between Scillia Dowling & Natarelli LLC and us on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Scillia Dowling & Natarelli LLC, would have caused it to make reference to the subject matter of the disagreement in connection with its reports on our financial statements. Prior to March 31, 2001, another independent auditor had opined on our financial statements. A discussion of this auditor’s resignation can be seen under “Item 2. Plan of Operation — Business Combination and Ownership” in our Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 2001, as filed with the SEC on November 14, 2001. No disagreements were reported therein.

From March 31, 2001, we did not consult with Deloitte & Touche LLP on items which involved (i) the application of accounting principles to a specified transaction, either completed or proposed, (ii) the type of audit opinion that might be rendered on our financial statements, or (iii) the subject matter of a disagreement or “reportable event.”

Before we filed the Form 8-K in its original and amended versions in which the above matters were disclosed, we furnished Scillia Dowling & Natarelli LLC with a copy of the above disclosure as included in each of the original and amended forms, respectively, and requested it in each case to furnish a letter addressed to the SEC stating whether Scillia Dowling & Natarelli LLC agrees with the above statements. Copies of the letters are attached as Exhibit 16.1 and Exhibit 16.2 to the Form 8-K/A as filed with the SEC on March 8, 2002. A copy of the letter with respect to the original Form 8-K disclosure was also attached as Exhibit 16 to the Form 8-K as filed with the SEC on February 25, 2002.reporting.

PARTPart III

Item 9.10.    Directors and Executive Officers Promoters and Control Persons; Compliance with Section 16(a) of the Exchange ActRegistrant

Information about our directorsThe information required by this Item will be contained in our definitive Proxy Statement to be filed with the SECSecurities and Exchange Commission in connection with our 20032004 Annual Meeting of Stockholders to be held on May 28, 200325, 2004 (the “Proxy“2004 Proxy Statement”) under the caption “Proposal No. 1 — Electioncaptions “Election of Directors”, “Board of Directors Meetings and Committees of the Board”, “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.

Information concerningWe have adopted a code of ethics that applies to all our executivedirectors, officers and employees. This code is furnished in Part Ipublicly available on our website atwww.pro-pharmaceuticals.com. Amendments to the code of this Annual Reportethics and any grant of a waiver from a provision of the code requiring disclosure under applicable SEC and American Stock Exchange rules will be disclosed on Form 10-KSB under a separate unnumbered caption (“Executive Officers of Pro-Pharmaceuticals”).

The remaining information required by this item is incorporated by reference from the information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” contained in our Proxy Statement.

Peter Hauser, a director, resigned for personal reasons from our Board of Directors effective March 20, 2003.website.

Item 10.11.    Executive Compensation

The information required regarding executive compensationby this Item is incorporated by reference from the information under the captionscaption “Executive Compensation” and “Compensation of Directors and Advisors” contained in theour 2004 Proxy Statement.

Item 11.12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference from the information contained under the caption “Ownership of Pro-Pharmaceuticals, Inc. Common Stock” contained in theour 2004 Proxy Statement.

Item 12.13.    Certain Relationships and Related Transactions

The information required by this item is incorporated by reference from the information under the caption “Certain Relationships and Related Transactions” contained in theour 2004 Proxy Statement.

Item 13.14.    Principal Accountant Fees and Services

The information required by this item is incorporated by reference from the information under the captions “Audit Fees”, “Audit-Related Fees”, “Tax Fees”, “All Other Fees” and “Pre-Approval Policies and Procedures” contained in our 2004 Proxy Statement.

Part IV

Item 15.    Exhibits, Financial DataStatement Schedules, and Reports on Form 8-K

(a)Exhibits

The Exhibits filed as part of this Form 10-KSB are listed on the Exhibit Index immediately preceding such Exhibits, which Exhibit Index is incorporated herein by reference.

(b)Reports on Form 8-K

We did not file any reports on Form 8-K during the three months ended December 31, 2002.

Item 14.    Controls and Procedures

(a)Evaluation of disclosure controls and procedures.    Based on his evaluation as of a date within 90 days prior to the filing date of this Annual Report on Form 10-KSB, our principal executive officer and principal financial officer has concluded that our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b)Changes in internal controls. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 26, 2003.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

CERTIFICATION

I, David Platt, certify that:

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, on March 30, 2004.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Index to Consolidated Financial Statements

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders of Pro-Pharmaceuticals, Inc. (a development stage company)

, Newton, MassachusettsMA

We have audited the accompanying consolidated balance sheets of Pro-Pharmaceuticals, Inc. (a development stage company) (the “Company”) as of December 31, 20022003 and 2001,2002, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years thenin the period ended December 31, 2003, and for the period from inception (July 10, 2000) to December 31, 2002.2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The Company’s financial statements as of December 31, 2000, and for the period from inception (July 10, 2000) through December 31, 2000, were audited by other auditors, whose report, dated April 10, 2002, expressed an unqualified opinion on those statements. The financial statements for the period from inception (July 10, 2000) through December 31, 2000 reflect a cumulative net loss of $184,582. The other auditors’ report has been furnished to us, and our opinion, insofar as it relates to the amounts included for such prior periods, is based solely on the report of such other auditors.

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

In our opinion, based on our audit and the report of other auditors, the 2002 and 2001such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2002, and 2001, and the consolidated results of its operations and its cash flows for each of the three years thenin the period ended December 31, 2003, and for the period from inception (July 10, 2000) to December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company is a development stage enterprise engaged in developing technology that will reduce the toxicity and improve the efficacy of chemotherapy drugs. As discussed in Note 1 to the financial statements, the Company’s net loss since inception and expectations of additional losses in the future raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/    Deloitte & Touche LLP

Boston, Massachusetts

March 24, 2003

INDEPENDENT AUDITORS’ REPORT

To the Stockholders

Pro-Pharmaceuticals, Inc.

(A development stage company)

Newton, Massachusetts

We have audited the accompanying statements of operations, stockholders’ equity and cash flows of Pro-Pharmaceuticals, Inc. (the “Company”) for the period from inception (July 10, 2000) through December 31, 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of the Company for the period from inception (July 10, 2000) through December 31, 2000, in conformity with accounting principles generally accepted in the United States of America.

/s/ Scillia DowlingDeloitte & Natarelli LLCTouche LLP

Hartford, ConnecticutBoston, Massachusetts

April 10, 2002

March 30, 2004

PRO-PHARMACEUTICALS, INC.

(A Development StageDevelopment-Stage Company)

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 20022003 AND 20012002

See notes to consolidated financial statements.

PRO-PHARMACEUTICALS, INC.

(A Development StageDevelopment-Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001, AND CUMULATIVE PERIOD

FROM INCEPTION (JULY 10, 2000)

TO DECEMBER 31, 2000, AND CUMULATIVE PERIOD FROM INCEPTION TO DECEMBER 31, 20022003