UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2007

For the transition period from              to             

Commission File No. 000-32877

PRO-PHARMACEUTICALS, INC.

(617) 559-0033

(Registrant’s Telephone Number, Including Area Code)

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

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES¨    NOx

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES¨    NOx

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and 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-K or any amendment to this Form 10-K.¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer.smaller reporting company. See definitionthe definitions of “large accelerated filer,” “accelerated filerfiler” and large accelerated filer”“smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer¨    Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 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 June 30, 200629, 2007 was $59,427,601.$11,046,971.

The number of shares outstanding of the registrant’s common stock as of March 22, 200728, 2008 was 40,364,793.47,864,792.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the 20072008 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report.

INDEX TO FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 20062007

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K contains, in addition to historical information, forward-looking 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 pre-clinical and clinical trials of our drug deliveryproduct 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.

Dollar amounts are presented in thousands throughout this document.

RESTATEMENT

Subsequent to the issuance of the 2005 consolidated financial statements, we determined that the common stock purchase warrants that were issued as part of our equity finance transactions in October 2003, April 2004 and August 2004, respectively, and which were accounted for in stockholders’ equity at their relative fair value upon issuance, should have been accounted for as derivative liabilities in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The warrants did not meet any of the scope exceptions allowed by SFAS 133. Specifically, the warrants did not meet the criteria in paragraph 11(a) of SFAS 133 that a contract should not be considered a derivative instrument if it is (1) indexed to its own stock and (2) classified in stockholders’ equity. The warrants, when classified as derivative liabilities are required to be initially recorded at fair value and to be marked to fair value at the end of each reporting period, which results in a non-cash charge or credit to other income and expense in our consolidated statement of operations.

The accompanying consolidated financial statements for the years ended December 31, 2005 and 2004 have been restated. See Note 14 to the consolidated financial statements. Additionally, selected consolidated financial data for the year ended December 31, 2003, as presented in Item 6, has been restated.

PART I

Corporate Formation

We were incorporated under Nevada law in January 2001. In May 2001, we acquired all of the outstanding common stock ofare a Massachusetts corporation engaged in a drug delivery development business. After the acquisition, we merged with the Massachusetts corporation and are the surviving corporation. In December 2003 we organized Pro-Pharmaceuticals Securities Corp. as a wholly-owned Delaware subsidiary, the sole purpose of which is to hold our cash and cash equivalents in a tax efficient manner.

Our address is 7 Wells Avenue, Newton, Massachusetts 02459. Our telephone number is (617) 559-0033, our fax number is (617) 928-3450, our e-mail address is 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-Q and any amendments thereto, are fully accessible on our website without charge.

Business of Pro-Pharmaceuticals

Overview

Pro-Pharmaceuticals is a development stage pharmaceuticaldevelopment-stage company engaged in the discovery, development, and commercialization of carbohydrate-basedfirst-in-class, targeted therapeutic compounds for advanced treatment of cancer, liver, microbial cardiovascular and inflammatory diseases. Our initial focus is the development of a new generation of anti-cancer treatments using carbohydrate polymers with the intent of enhancing the safety and efficacy of chemotherapy agents. Our technology utilizes carbohydrates to increase efficacysurvival and reduce toxicity of chemotherapeutic drugs; “rescue” drugs that were shelved for toxicity or “half-life” issues; increaseimprove the solubility of existing drugs, and develop carbohydrate polymers as new chemical entities.

The need to improve drug therapies, particularly anti-cancer agents, is significant and represents a large market opportunity. Chemotherapeutics in use today typically cause serious adverse side effects that dramatically decrease a patient’s quality of life.life for cancer patients. DAVANAT^®, our lead productpipeline candidate, may increase the efficacy and decrease the toxicity of current chemotherapies when usedis a new, proprietary chemical entity that is currently in combination with existing U.S. Food and Drug Administration (FDA)-approved cancer drugs. In combination with 5-Fluorouracil (5-FU) — one of the most widely used chemotherapeutics in the world — DAVANAT^® has successfully completed a Phase I clinical trial for end-stage patients with all solid tumors and a Phase II trial for end-stage patients with metastatic colorectal cancer. We are currently dosing patients in two Phase II trials for first-line treatment of colorectal and biliary cancer.

Our proprietary technologies are target therapies that can also be used to treat other serious diseases such as liver and kidney fibrosis. We have entered into a research collaborationcollaborations with the Mount Sinai School of Medicine to study the anti-fibrotic effects of our novel carbohydrate compounds on liver fibrosis and with Brigham and Women’s Hospital to evaluate the anti-fibrotic effects of one of our otherthese compounds to treat acute and chronic kidney disease. Our first-in-class, novel carbohydrate compounds. Allcompounds significantly reduced collagen expression and reversed fibrosis in animal models. Whereas previously,in vitro data indicated a reversal of our product candidates arefibrosis markers, in this proof-of-concept animal study, the compounds clearly reduced collagen expression and reversed liver fibrosis.

We were incorporated under Nevada law in January 2001 and in May of that year acquired a Massachusetts corporation engaged in the development stage with one, DAVANAT^®,business we now undertake. We have a wholly-owned Delaware subsidiary that we formed in Phase II clinical trials.2003 to hold our cash and cash equivalents in a tax efficient manner

Background on Carbohydrates

In order to function biologically, living organisms require the capability to recognize cellular information and trigger and perform biochemical reactions. Organisms as complex as human beings require systems with extraordinarily large capacity to recognize and translate information on a molecular level because of the tremendous number of different molecular messages that must be quickly and unambiguously deciphered, accepted or rejected. To accomplish this very important task, a class of molecules capable of great variation in shape, orientation and composition is required. Carbohydrates serve this function in the body because they have the large range of structural properties, including linkage variations, branching and anomeric isomers, that enables them to provide the significantrequired cellular recognition capabilities required.capabilities. These complex molecules are also referred to as polysaccharides or complex sugars.

The particular role of carbohydrates, in this regard, is recognition of molecular information that triggers biological reactions. These activities include signal transmission, cell recognition, interaction and binding by other cells, hormones and viruses. Carbohydrates often accomplish this by working with lectins, which are carbohydrate binding proteins that exist on cells, and are not antibodies and have no enzymatic activity.cells. Biological processes that involve lectin binding include a vast array of cell-cell interactions including infections, toxins and many physiological processes such as control and spread of metastasis.

In additionStrengths and Strategies

Focus on novel therapeutic opportunities provided by carbohydrates.    As a result of their structural complexity, carbohydrates have not received as much scientific attention as nucleic acids and proteins, and are not as well understood. Carbohydrate molecules, which are essential to their place in normal cell functioning, carbohydratesthe transmission and recognition of cellular information, have been shown to play an important role in major diseases including cancer, cardiovascular disease, Alzheimer’s disease, inflammatory disease and viral infections.

Due to their structural complexity, which suits them for their cellular information transmission role, carbohydrates have not received as much scientific attention as nucleic acids and proteins and are not as well understood. We believe this offers a largely untapped area for treatment of disease including chemotherapeutics, infection treatment, vaccines and antibiotics. Our company is one of the pioneers focused on development of carbohydrate-based drugs.

Leverage extensive scientific expertise.    Our scientists have substantial expertise, developed over decades, of study, in the area of carbohydrates that may enable us to efficiently develop successful products for disease treatment.

Drug Delivery Technologiescarbohydrates. Our team includes David Platt, our Chief Executive Officer, Anatole Klyosov, our Chief Scientist, and Importance for Cancer Treatment

The ultimate objective of enhanced drug delivery is to controlEliezer Zomer, our Executive Vice President — Manufacturing and optimize localizedProduct Development. Dr. Platt, a chemical engineer, has conducted research in therapeutic application of carbohydrate technology for 20 years and holds many patents. Dr. Klyosov, who headed the drugCarbohydrate Research Laboratory at the target site (locationUSSR Academy of disease)Sciences and rapidly eliminate from the body any amount not delivered to diseased tissue. Conventional drug delivery systems, such as controlled or sustained release, transdermal administrationtaught at Harvard Medical School, holds more than 20 patents. Dr. Zomer, a biochemist and others, are based on a physical erosion process for deliveryholder of an active drug into the body over time with the objective of improving patient compliance with the therapy regimen. These systems do not address the need for site targeting, localized release or elimination of undelivered drug from the body — all factors related to protection of healthy tissue from adverse or toxic effects of drugs.

The need for drug target delivery is widely recognizedmore than 20 patents, has more than 20 years experience in the regulatory arena involving pharmaceutical products, development and diagnostics. We believe that this expertise, supplemented by members of our Scientific and Medical Advisory Boards, provides us with a substantial advantage in this relatively new area of chemotherapy because the object of this treatment — killing tumor cells — is the factor that makes the treatment so toxic for healthy cells. Given the prominence of cancer as a disease, and the limitations of chemotherapy as a form of treatment, we selected chemotherapy drugs as the initial focus for our targeted delivery technology.

The limitations of these drugs create the opportunity for our target delivery technology. First, most chemotherapies kill cancer cells by disrupting cell division or formation, and hence are particularly damaging to growth and replication of the normal cells required by the body. The effect is most noticeable in fast-growing cells such as blood cells, digestive tract tissue, hair follicles, and reproductive organ cells. As a result, patients typically experience immediate and sometimes long-term decline in quality of life due to hair loss, nausea and other digestive problems, as well as anemia, fatigue, cardiovascular damage, and colon ulceration, among others.

Also, without the ability to target diseased tissue, chemotherapy is limited as a treatment by patient tolerance levels. Chemotherapy cannot always be administered in doses high enough to have optimal efficacy for disease reduction if the side effects to healthy tissue are too severe for patient recovery.

Business Strategy of Pro-Pharmaceuticalsdrug development.

Apply our technology to broad range of applications.    Our objective is to discover, develop and commercialize carbohydrate-based therapeutic compounds for advanced treatment of cancer, liver, microbial, cardiovascular and inflammatory diseases. We foresee a market demand for target delivery of chemotherapy drugsresearch indicates that provide increased efficacy for treating cancer patients while reducing the toxic side effects of chemotherapy. Our initial focus is DAVANAT^® is a non-toxic, target delivery technology based on a proprietary carbohydrate compound that we are combining with chemotherapy drugs that have been approved by the FDA and are widely used.

With respect toalso has broad application. Following development of DAVANAT^® in particular, our business objective is to develop it initially in combination with 5-FU and other chemotherapy drugschemotherapies and biologics, and subsequently forwe plan to combine it with other diseases, so that as a target delivery product it has broad application. Our clinical trial datadrugs to date in late stage patients showsextend its use to treat other serious diseases. Pre-clinical studies indicate that DAVANAT^® keeps 5-FUand other proprietary carbohydrates we have in development may have application for advanced treatment of liver, microbial and inflammatory diseases. This could substantially increase the blood stream substantially longer than 5-FU without DAVANAT^® with no increase in key toxicity indicators. We are currently conducting clinical trials with first line colorectal and biliary cancer patients to demonstrate increased efficacymarketability of DAVANAT^® and to further support that this occurs with no increase in key toxicity indicators We plan to collaborate with pharmaceutical companies interested in improving compounds in these areas.our products.

Product Development

We are initially developing a pipeline of drug target delivery productscompounds that may be combined with FDA-approved and widely-used chemotherapies and biologics so as to increase their efficacy while reducingimprove the toxic side effects.clinical benefit to patients. Based on our pre-clinical research, we believe DAVANAT^®, when combined with approvedchemotherapies and broadly marketed chemotherapies including irinotecan, doxorubicin, oxaliplatin, cisplatin, and bevacizumab (AVASTIN^®)biologics, can significantly increase theirthe clinical benefit.benefit to cancer patients by extending survival and increasing quality of life.

We are developing other carbohydrate-based therapeutic compounds for treatment of other serious disease.disease, such as liver and kidney fibrosis. These product candidates are all in the pre-clinical stage of development.

DAVANAT^®

DAVANAT^®, our lead product candidate in development, is a proprietary carbohydrate (polysaccharide) polymer comprised of mannose and galactose carbohydrates, in a CARBOSOME^™ formation. DAVANAT^®that is a complex polysaccharide derived from plant sources that has a precisely defined chemical structure. It is the galactomannan isolated from seeds of Cyamopsis Tetragonoloba, and subjected to a controlled partial chemical and physical degradation.

We believe the mechanism of action for DAVANAT^® is based upon interaction with lectins, which are cell surface proteins that bind only to a particular kind of carbohydrate. DAVANAT^® is formulated to attach to specific lectins (Galectins), which are abundant on the surface of tumor cells, while selectively avoiding healthy tissue. The galactose residue side chain attached to the carbohydrate polymer backbone targets lectin receptors that are specific and over-expressed on cancer cells. The receptor effectively interacts with the carbohydrate and chemotherapy drugand/or biologic combination and assists in the accumulation of the chemotherapy in the cancer cell, bypassing the normal defense mechanism.cell. This form of targeted delivery may allow for administration of higher doses of chemotherapy thereby increasing efficacy while reducing toxicity.

Pre-clinical Studies of DAVANAT^®

Our pre-clinical studies demonstrate that DAVANAT^® when used in combination with 5-FU significantly reduceschemotherapies and biologics may improve the toxicity of this widely-used chemotherapy.clinical benefit to cancer patients. Pre-clinical studies also demonstrated delayed tumor growth and tumor shrinkage against a control group of animals when DAVANAT^® was used in combination with common combination therapies such as 5-FU/Leucovorin, 5-FU/Avastin^®, and 5-FU/Irinotecan.standard therapies. These studies demonstrated not only that DAVANAT^® enables increased efficacy of these chemotherapeutics, but also that it couldcan be used effectively with several different chemotherapy drugs.chemotherapies and biologics.

Clinical Trial Development of DAVANAT^®

Our clinical trial data to date in late stage cancer patients shows that DAVANAT^® extends median survival and improves quality of life. We are currently conducting clinical trials with first line colorectal and biliary cancer patients to demonstrate increased efficacy of DAVANAT^® and to further support that this occurs with no increase in key toxicity indicators.

Based on objective tumor assessment, the disease was stabilized in 14 of 26 of evaluable patients with measurable disease. Furthermore, 7 of 10 patients were stabilized at the highest dose level of DAVANAT^® administered in the sixth and final cohort. Efficacy results are analyzed based on Response Evaluation Criteria in Solid Tumors (RECIST) following completion of the second cycle of treatment. RECIST defines stable disease as “[n]either sufficient shrinkage to qualify for Partial Response (more than 30% shrinkage) nor sufficient increase to qualify for Progressive Disease (greater than 20% increase) taking as reference the smallest sum longest diameter since the treatment started.”

The Phase I data also indicateindicates that DAVANAT^®/5-FU was well tolerated by patients. The maximum tolerated dose was not reached indicating DAVANAT’sDAVANAT^® safetyis safe and has the potential for further dose escalation. Adverse side effects were mostlyprimarily disease related. Additionally, the results showed that 5-FU, in combination with DAVANAT^®, remained significantly longer in the bloodstream of cancer patients, potentially increasing 5-FU’s efficacy with no increase in toxicity.

the safety of the DAVANAT®/5-FU in combination. Dosing of patients began in May 2005. We stopped recruiting for the study in May 2006 because we achieved our objective and saw no benefit to continue the study. We have replaced this study with two first line phase II trials to demonstrate the efficacy of DAVANAT®/5-FU in early stage patients. We closed the study in October 2006 and are currently summarizing the results.objective. The unaudited data for the study indicateindicates that based on objective tumor assessment one patient experienced a partial tumor response and the disease was stabilized in 6 of 20 patients. Again the study demonstrated the safety and tolerabilityNew data of 20 patients from this trial showed that DAVANAT®/5-FU extended median survival by more than six months. We tracked these patients and showedgathered data after they left the trial. The patients entered the trial with disease that 5-FU, in combinationprogressed despite previously being treated with standard chemotherapies and biologics. Two patients survived more than two years. Data from the trial for all 20 end-stage patients also indicates that DAVANAT®, remains significantly longer in the bloodstream of cancer patients, potentially increasing 5-FU’s efficacy with no increase in toxicity. extended median progression free survival to 8.4 weeks.

Please see “Risks Related to Pro-Pharmaceuticals our Company”— Our Drug Candidates Are in Clinical Trials and Results Are Uncertain” for additional discussion of risks related to clinical trials.

Patents and Proprietary Rights

PatentsOur success and othercompetitiveness depend on our ability to develop and maintain the proprietary aspects of our technology and operate without infringing on the proprietary rights of others. We rely on a combination of patent, trademark, trade secret and copyright law and contract restrictions to protect the proprietary aspects of our technologies. We seek to limit disclosure of our intellectual property rights are essentialby requiring employees, consultants, and any third parties with access to our business. Our success depends in part upon our continuing abilityproprietary information to fileexecute confidentiality agreements and maintain U. S. and foreign patentsby restricting access to that adequately protect the intellectual property important to the developmentinformation.

As of our business.

We have been awardedDecember 31, 2007, we held 5 U.S. patents and have an additional 13 patent applications pending infrom the United States. In addition we have been awarded 14 foreign patentsU. S. Patent and have 27 foreign patent applications pending in various international jurisdictions. Further, we have 1 PCT (Paris Convention Treaty) patent application.Trademark Office. Many of our patents and patent applications cover methods and composition for reducing toxicity and enhancing the delivery of a chemotherapeutic drugdrugs by co-administering a polysaccharide with a chemotherapeutic agent. We have corresponding patent applications pending in Europe, Canada, Israel, Brazil, Japan, China and Australia. Additionally, we have patent applications in a number of other areas related to utilizing carbohydratesour carbohydrate-based compounds to treat major disease.disease other than cancer.

We have also developed trade secrets and know-how. We require our employees, consultants and collaborators to enter into confidentiality agreements to protect our intellectual property. Please see “Risks Related to Pro-Pharmaceuticals our Company”— We Are a Counterclaim Defendant in a Lawsuit Instituted by CEO David Platt” and “Risks Related to the Drug Development Industry — Our Competitive Position Depends on Protection of Our Intellectual Property” for additional discussion of risks related to protection of our intellectual property based on inventions.

We have registered the following trademarks: PRO-PHARMACEUTICALS, INC., DAVANAT, and ADVANCING DRUGS THROUGH GLYCOSCIENCE. We filed applications to register additional trademarks and servicemarks.

Research

Our initial focus is on the design and analysis of carbohydrate-based compounds for targeted drug delivery.to improve the clinical benefit of chemotherapeutic agents and biologics. We contract with independent laboratories and accredited facilities to conduct our research, which is designed, evaluated and managed by our scientists. 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.

As we develop products eligible for clinical trials, we contract with independent parties to design the trial protocols, arrange for and monitor the clinical trials, collect data and analyze data. In addition, certain clinical trials for our products may be conducted by government-sponsored agencies and will be dependent on governmental participation and funding. Our dependence on independent parties and clinical sites involves risks including reduced control over the timing and other aspects of our clinical trials.

Our research and development expenditures totaled approximately $13.5$15.6 million for the cumulative period from inception (July 10, 2000) through December 31, 2006.2007. During the year ended December 31, 2007, 2006 and 2005 our expenditures for research and development were, respectively, approximately $2.05 million, $3.02 million and $3.04 million.

Reports

Our website is www.pro-pharmaceuticals.com. We make available on this site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports, filed or furnished pursuant to the Securities Exchange Act of 1934 as soon as reasonably practicable after the report are filed electronically with the SEC. The reports may be accessed through our investor relations page.

Manufacturing and Marketing

We are a development company at this time and do not intend to establish internal facilities for the manufacture of our products for clinical or commercial production. In order toTo have our products manufactured, we have developed and will continue to develop relationships with third-parties that have established manufacturing capabilities for the manufacture of our products on a contract basis.capabilities.

Because our products are in the development stage, we have not created a sales and marketing staff to commercialize pharmaceutical products. If we develop products eligible for commercial sale, we will need to develop a sales and marketing capability or 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 reduced control, and other risks including those discussed in “Risk Factors Related to Pro-Pharmaceuticals Results our Company”— We Will Depend on Third Parties Toto Manufacture and Market Our Products.”

Competition

A limited number ofMany biotechnology and pharmaceutical companies are developing new drug delivery technologies for the treatment of cancer and other diseases. Drug delivery targeting technologies includingTechnologies such as monoclonal antibodies being developed by companies such as Seattle Genetics, Inc., Immunogen, Inc. and Dendreon Corporation could be competitive with our carbohydrate-based platforms. Several companies including Momenta Pharmaceuticals, Inc., and GlycoFi, Inc., are developing carbohydrate technologies and sequencing of complex sugars to improve or develop new or existing drugs. Neose Technologies, Inc. is seekingOther companies are trying to improve the therapeutic profile of widely used protein-based drugs and Optimer Pharmaceuticals, Inc. is developing carbohydrate technologies for drug discovery and improvement.drugs. While these companies may broaden the market for our products they may also provide competitive alternatives to our products.

Please see “Risk Factors Related to the Drug Development Industry — We 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 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 “Risks Related to the Drug development Industry”— We Will Need Regulatory Approvals To Commercialize Our Products” for additional discussion of risks related to regulatory compliance.

Drug Approval Process

Drugs may not be marketed in the U.S. until the FDA has approved them. The steps required before a drug may be marketed in the U.S. include (similar rules apply in other countries):

Pre-clinical tests include laboratory evaluation of product chemistry, toxicity, and formulation, as well as animal studies. The results of the pre-clinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND application, which must become effective before human clinical trials may begin. An IND will automatically becomebecomes 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 pre-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 NDAa New Drug Application (NDA) requesting approval to market the product for one or more indications. Before approving an NDA, the FDA usually will inspect 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 the 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.

Please see “Risks Related to the Drug Development Industry — We Will Need Regulatory Approvals to Commercialize Our Products” for additional discussion of regulatory risks related to our drug development program.

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 may 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 for priority review of NDAsan NDA 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 acted upon more quickly than NDAs given standard review. The FDA’s 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 cGMPCurrent Good Manufacturing Process (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 rare 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 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. Biotechnology and pharmaceutical companies must comply with laws and regulations governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. We do not anticipate building in-house research, development or manufacturing facilities, and, accordingly, do not expect to have to comply directly with environmental regulation. However, our contractors and others conducting research, development or manufacturing activities for us may be required to incur significant compliance costs, and this could in turn could increase our expense or delay our completion of research or manufacturing programs.

Employees

As of MarchDecember 31, 2007, we had eightseven full-time employees, comprisedthree of whom are involved primarily in management of our Presidentpre-clinical research and Chief Executive Officer; Chief Financial Officer; Chief Operating Officer; Chief Scientist; Executive Vice President, Manufacturingdevelopment and Product Development; Vice President of Investor Relations; Director of Clinical Trials; and an Operations Administrator. Our Medical Director and Monitor for our clinical trials provide services part-time as independent consultants.

Our executive officersand four of whom are as follows:

Officers

David Platt, Ph.D. is the President, Chief Executive Officer, and Chairman of the Board of Directors. Dr. Platt is a co-founder of our Company and co-developer of our core technology. From March 1995 through May 2000, Dr. Platt was founder, CEO, and chairman of the Board of Directors of SafeScience Inc. subsequently known as GlycoGenesys, Inc. From 1992 to 1995, Dr. Platt was the CEO and chairman of the Board of Directors of International Gene Group, Inc. a company that he founded, took public in 1995, and is the predecessor company to SafeScience. Dr. Platt received a Ph.D. in chemistry in 1988 from The Hebrew University in Jerusalem. In 1989, Dr. Platt was a research fellow at the Weizmann Institute of Science, Rehovot, Israel, and from 1989 to 1991, was a research fellow at the Michigan Cancer Foundation (re-named Barbara Ann Karmanos Cancer Institute). From 1991 to 1992, Dr. Platt was a research scientist with the Department of Internal Medicine at the University of Michigan. Dr. Platt has published peer-reviewed articles and holds many patents,involved primarily in the field of carbohydrate chemistry.

Maureen E. Foley has served as the Chief Operating Officer of Pro-Pharmaceuticals since October 2001. Prior to that, she was Manager of Operations from January 2001 until October 2001. Ms. Foley has been involved in the start-up of several high tech companies, where she was responsible for the establishmentfinancial management and administration of business operations including human resources, benefits, accounting, finance, marketing, product development and project management. Her experience with start-up companies includes: From June 2000 to December 2000, she provided business operationsour company. We also have two part-time contract employees, one of whom provides financial management services for eHealthDirect, Inc., a developer of medical records processing software. From October 1999 to May 2000, Ms. Foley managed 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. Ms. Foley is a graduate of The Wyndham School, Boston, Massachusetts, with a major in Mechanical Engineering.

Carl L. Lueders, M.B.A., C.P.A., joined the management team in February 2005 as Chief Financial Officer. Mr. Lueders has a broad range of experience in finance, operations, short- and long-term planning, forecasting, performance measurement, SEC reporting, and controls. He was most recently Chief Financial Officer for R.F. Morse & Son, a privately held agri-based company. Previously, he was Interim Chief Executive Officer at Brine, a privately held manufacturer and distributor of sports equipment. Mr. Lueders spent 22 years with publicly held Polaroid in finance and planning roles, including Vice President and Controller, Treasurer and Acting Chief Financial Officer. Earlier in his career, Mr. Lueders was a Senior Auditor with Arthur Andersen. He is a C.P.A. and received his B.A. in Economics from the University of Massachusetts at Amherst and his M.B.A. from Babson College

Eliezer Zomer, Ph.D., is Executive Vice President of Manufacturing and Product Development. Prior to joining the company, Dr. Zomer had been the founder of Alicon Biological Control, where he served from November 2000 to July 2002. From December 1998 to July 2000, Dr. Zomer served as Vice President of product development at SafeScience, Inc. 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 a post-doctoral study at the National Institute of Health.

Our directors are as follows:

Directors

David Platt ( see officers)

Dale H. Conaway, D.V.M., has served as a member of the Board of Directors since May 2001. Since 2001, Dr. Conaway has been 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, Dr. Conaway 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.

Mildred S. Christian, Ph.D., has served as a member of the Board of Directors since October 2002. Dr. Christian is president and CEO of Argus International, Inc., a provider of consulting services in regulatory affairs, and Chairman and CEO of Argus Health Products, LLC, which develops and internationally distributes preventive and maintenance healthcare products for healthcare professionals and the over-the-counter market. Until 2002, Dr. Christian was Executive Director, Science and Compliance, of Charles River Laboratories and Primedica Corporation. 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 more than 1,800 pre-clinical studies, from protocol to final report. Dr. Christian is a member of several professional organizations, including serviceother serves 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. Dr. Christian is an honorary member of the Society of Quality Assurance and founding editor of the Journal of Toxicological Sciences. She has edited or contributed to several major textbooks and is the author of more than 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.

Henry J. Esber, Ph.D., has served as a director since April 2006. From 2005 to present, Dr. Esber has been a Principal in Esber D&D consulting. From 2003 to 2005, Dr. Esber was a Senior Consultant, Business Development at Charles River Labs, Discovery and Development Services. From 2005 to 2006, Dr. Esber was a consultant and from 2006, he was Senior Vice President and Chief Business Officer for Bio-Quant. Dr. Esber is the co-founder of BioSignature Diagnostics, Inc. and Advanced Drug Delivery, Inc. He also serves on the Scientific Advisory Boards of several biotechnology companies and is the author of more than 130 technical publications. Dr. Esber has more than 25 years of experience in the areas of oncology/tumor immunology and immunotherapy as well as strong knowledge in the field of toxicology and regulatory affairs. Dr. Esber received a B.S. degree in biology/pre-med from the College of William and Mary, an M.S. degree in public health and parasitology from the University of North Carolina, and a Ph.D. in immunology/microbiology from West Virginia University Medical Center.

James T. Gourzis, M.D., Ph.D. Dr. Gourzis has served as a director since December 2006. Dr. Gourzis has extensive experience in formulating scientific and regulatory strategy and heading clinical development teams for pharmaceutical and biotechnology products, small molecules and biologics. Therapeutic area experience includes: oncology, cardiovascular, virology, immunology, central nervous system, allergy, anti-inflammatory, infectious disease, pain management and gastrointestinal disease. Dr. Gourzis is Principal, MEDRAND Associates from 2002 to present, providing consulting services with respect to scientific, strategic and regulatory considerations associated with the development of drugs and biologics. Previously, Dr. Gourzis held senior executive positions with bio-pharmaceutical companies: Senior Medical Director, PAREXEL International Corporation; Vice President Medical Affairs, Gensia Sicor (Teva) Pharmaceuticals; Chief Operating Officer, HiIl Top Pharmatest; Administrative Director, Group Health Associates; Executive Director Medical Research,

Merrell-National Laboratories; and Senior Director Clinical Research, Schering Corporation. Dr. Gourzis received an A.B. degree in biology from Harvard University, an A.M. degree in pharmacology from Boston University and a Ph.D. in pharmacology/medicine from the University of Manitoba.

Steven Prelack has served as a director since April 2003. Since 2001, he has served as Senior Vice President, Chief Financial Officer and Treasurer of VelQuest Corporation, a provider of automated compliance management solutions for the pharmaceutical industry. In this capacity, Mr. Prelack oversees business development, financial, administrative and other functions, and is responsible for VelQuest’s transition from a development-stage company to an operating company. From 1996 to 2000, he was Senior Vice President, Chief Financial Officer and Treasurer of LifeMetrix, Inc., a leading provider of cancer disease management services, as well as disease management technology, data and clinical trial product lines and related technology-based services. As co-founder of LifeMetrix, Mr. Prelack was responsible for all stages of its development, including initial seed capital funding, execution of its strategic business plan, and sale of the company. Mr. Prelack is a director of Codeco Corporation, a designer and manufacturer of custom resisters and switches, and of Sight Code, Inc., which specializes in OPM, a systems design and architecture platform. Mr. Prelack, a Certified Public Accountant, received a B.B.A. degree from the University of Massachusetts at Amherst in 1979.

Jerald K. Rome has served as a director since March 2004. He has been a private investor from 1996 to the present. Previously, Mr. Rome founded Amberline Pharmaceutical Care Corp., a marketer of non-prescription pharmaceuticals, in 1993 and served as its President from 1993 to 1996. From 1980 to 1990, he served as Chairman, President and Chief Executive Officer of Moore Medical Corp., a national distributor of branded pharmaceuticals and manufacturer and distributor of generic pharmaceuticals, and was previously Executive Vice President of the H.L. Moore Drug Exchange, a division of Parkway Distributors and predecessor of Moore Medical Corp. Mr. Rome received a B.S. degree in pharmaceutical sciences from the University of Connecticut.our medical director.

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 all or part of your investment.

Risks Related to Pro-Pharmaceuticals (dollar amounts in thousands)Our Company

We Areare at an Early Stageearly stage of Development with Limited Operating History.development and have not generated any revenue.    We are a development-stage company with a limited 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 Losseshave incurred net losses to Datedate and Depend on Outside Capital.must raise additional capital in 2008.    We have incurred net losses in each year of operation. Our accumulated deficit as of December 31, 20062007 was $25,727.approximately $35.2 million We will need to continue to conduct significant research, development, testing and regulatory compliance activities that, together with projected general and administrative expenses, we expect will result in substantial operating losses for the next several years. Accordingly, we do not expect to 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.

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 need to significantly curtail operations. 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 $5,773approximately $1.3 million of available cash and cash equivalents and certificate of deposit as of December 31, 2006,2007 and net proceeds of approximately $3.4 million from our registered direct offering completed on February 25, 2008, we believe that we have sufficient capital to fund our operations through at least June 2007.into October of 2008. We must raise cash before June 2007October 2008 or we may not be able to continue operations.

Our Product Candidates Are Baseddrug candidates are based on Novel Unproven Technologies.novel unproven technologies.    Our product candidates are based on novel unproven technologies using proprietary carbohydrate compounds in combination with FDA approved of drugs currently used in the treatment of cancer and other diseases. Carbohydrates are difficult to synthesize, and we may not be able to synthesize carbohydrates that would be usable as target delivery vehicles for the anti-cancer drugs we are working with or other therapeutics we plan to work with.develop.

Our Drug Candidates Aredrug candidates are in Clinical Trialsclinical trials and Results Are Uncertain.results are uncertain.    We have one product candidate in human clinical trials. Pre-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 testing 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 onmay engage 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.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 Lacklack of Operating Experience May Cause Us Difficultyoperating experience may cause us difficulty in Managing Our Growth.managing our growth.    We have limited 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 Dependwill depend on Third Partiesthird parties to Manufacturemanufacture and Market Our Products.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 limited 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 Dependdepend on Key Individualskey individuals to Develop Our Productsdevelop our products and Pursue Collaborations.pursue collaborations.    We are highly dependent on David Platt, Ph.D., President and Chief Executive Officer; Anatole Klyosov, Ph.D., our chief scientist;Chief Scientist; and Eliezer Zomer, Ph.D., Executive Vice President, Manufacturing and Product Development.Development, each of whom has scientific technical or other business expertise and experience that is critical to our success. 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 Areare a Counterclaim Defendantcounterclaim defendant in a Lawsuit Institutedlawsuit instituted by CEO David Platt.    Our CEOIn January 2004, David Platt, our Chief Executive Officer, filed a lawsuit in Massachusetts in January 2004 against GlycoGenesys, Inc. for claims including breach of contract. In its answer GlycoGenesys subsequently named 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. In March 2004, we answered the counterclaim and denied any liability. We and Dr. Platt intentintend to contest these counterclaims vigorously. In October 2006, pursuant to a U.S. Bankruptcy Court approval of a liquidation of GlycoGenesys Marlborough Research and Development, Inc. (now known as Prospect Therapeutics, Inc)Inc.) purchased selected assets of GlycoGenesys including this litigation.litigation in a bankruptcy liquidation. 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 Approvalswill need regulatory approvals to Commercialize Our Products.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 Dependscompetitive position depends on Protectionprotection of Our Intellectual Property.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 cannot 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 are a counterclaim defendant in a lawsuit instituted by Dr. Platt.our chief executive officer. See “Risks Related to Pro-Pharmaceuticals”our Company” above.

Products We Develop Could Be Subjectwe develop could be subject to Infringement Claims Assertedinfringement claims asserted by Others.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 Competitionface intense competition in The Biotechnologythe biotechnology and Pharmaceutical Industries.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 staffs 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 Initiativescare cost containment initiatives and the Growthgrowth of Managed Care May Limit Our Returns.managed care may limit our returns.    Our ability to commercialize our products successfully will be affected by the ongoing efforts of governmental and third-party payorspayers 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.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 a result of taking products we have under development. If we are successful in havingcommercialize our products, approvedtheir use by the FDA, the sale of such products wouldpatients could expose us to additional potential product liability and other claims resulting from their use.alleged injury. 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 notmay be ableunable 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 Pricesprices for Biopharmaceuticalpharmaceutical and Biotechnology Companies Are Volatile.biotechnology companies are volatile.    The market price for securities of biopharmaceuticalpharmaceutical and biotechnology companies historically has been highly volatile, and the market from time-to-timetime 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, among other things, the interest in our stock by purchasers on the open market and our ability to raise capital.

We are not in compliance with the continuing listing requirements of the American Stock Exchange.In June 2007, we received a notice from the American Stock Exchange that it is reviewing our eligibility for continued listing of our common stock. In particular, the exchange noted that we are not in compliance with its minimum stockholders’ equity requirement in two of the last three years. In response to our plan to achieve and sustain compliance with the listing requirements, the exchange granted us an extension until October 13, 2008 to regain compliance with the standards. Failure to make progress consistent with the plan or to regain compliance with the continued listing standards by such date could result in our stock being de-listed from the exchange. If we are delisted, our ability to raise capital through future equity financings.may be diminished.

Large Sales Could ReduceWe could issue additional common stock, which might dilute the Trading Pricebook value of our Common Stock.common stock.    We are authorized to issue 100,000,000 shares of common stock, of which 40,364,792 shares were issued and outstanding on December 31, 2007. We issued and sold an additional 1,742,500 shares of preferred stock in a private placement that we completed on February 4, 2008 that may be converted at any time on a one-for-one basis into an aggregate of 1,742,500 shares of our common stock and an additional 7,500,000 shares of common stock in a registered direct offering that we closed on February 25, 2008. Our board of directors has authority, without action or vote of our stockholders in most cases, to issue all or a part of our authorized but unissued shares. Such stock issuances could be made at a price that reflects a discount from the then-current trading price of our common stock. In addition, in order to raise capital, we may need to issue securities that are convertible into or exchangeable for a significant amount of our common stock. These issuances would dilute your percentage ownership interest, which would have the effect of reducing your influence on matters on which our stockholders vote, and might dilute the book value of our common stock. You may incur additional dilution if holders of stock options, whether currently outstanding or subsequently granted, exercise their options, or if warrant holders exercise their warrants to purchase shares of our common stock.

As a “thinly-traded” stock, large sales can place downward pressure on our stock price.    Listed on the American Stock Exchange since September 2003, ourOur common stock, despite certain increases of trading volume from time to time, experiences periods when it could be considered “thinly traded.” On March 21, 2007, weFinance transactions resulting in a large amount of newly issued approximately 5.2 million shares that become readily tradable, or other events that cause current stockholders to discharge approximately $3.9 million of $4.4 million outstanding obligations under our 7% Convertible Debentures. We issued thesell shares, at a discount to the then trading price of our stock. Although resale of these shares will be subject to the volume limitations of Rule 144 under the Securities Act (as they are “restricted securities”), the former Debenture holders and warrant holders may attempt to resell them as rapidly as Rule 144 permits. Such sales could place downward pressure on the trading price of our stock.

We May Need In addition, the lack of a robust resale market may require a stockholder who desires to Undertake Finance Transactions with Persons Who May Not Intendsell a large number of shares to Become Long-Term Investors.    Our recent equity finance transactions were structured as a so-called PIPE (private investmentsell the shares in public equity). In general, these transactions attract purchasers who desireincrements over time to buy securities at a discount tomitigate any adverse impact of the trading price that may be profitably and rapidly resold into the public markets after the privately placed securities are registered. Rapid resales of stock and other factors related to these transactions often exert a downward pressuresales on the tradingmarket price of aour stock. We may find, given our present stage of development, that we must undertake this type of finance transaction in the future.

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 31% of the outstanding shares of our common stock, and Dr. Platt and Mr. Czirr together own approximately 25%. 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 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.

Changes 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 accepted practices within our industry and could add significant new costs to being a public company. New laws, regulations and accounting standards, as well as changes to currently accepted accounting practices, 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 operations.

None.

We entered into a five-year lease that commenced on August 11, 2006 for approximately 9,400 square feet for our executive offices located at 7 Wells Avenue, Newton, Massachusetts. The lease provides for annual base rental payments of $235 in the first year increasing in each subsequent lease year to $244, $253, $263 and $273 respectively. In addition to base rental payments, we are responsible for our pro-rata share of increases in the operating expenses for the building after calendar year 2006 and taxes for the building after fiscal year 2007. We have the righta five year lease that commenced in August 2006 with an option to extend the term of the lease for an additional five year period at the prevailing market rate at the timeyears. We believe this space is suitable for our present operations and adequate for foreseeable expansion of exercise. In connection with this new office space lease, a commercial bank has issued a letter of credit collateralized by cash we have on deposit with the bank of approximately $59.our business.

In January 2004, Dr.David Platt, Ph.D., our Chairman and Chief Executive Officer, filed a lawsuit in Massachusetts Superior Court against GlycoGenesys, Inc. for various claims including breach of contract. In its filing in

February 2004, GlycoGenesys asserted counterclaims against us and Dr. Platt alleging tortious interference, and misappropriation of proprietary rights. The counterclaims seekrights, defamation and unfair competition, and seeks monetary damages and injunctive relief related to our intellectual property. In March 2004, weWe and Dr. Platt answered the counterclaims andhave denied any liability. In June 2004,liability for the Court allowed, without opposition, a motion of GlycoGenesys for leave to file a supplemental counterclaim against us for defamation and unfair competition. On February 2, 2006, GlycoGenesys filed a voluntary petition for protection under Chapter 11 of the U.S. Bankruptcy Code, which stayed the counterclaim litigation proceedings. On June 1, 2006, the bankruptcy court approved a motion by GlycoGenesys to convert the proceeding to Chapter 7 liquidation. On October 23, 2006, the judge issued an order allowing the liquidation sale of certain GlycoGenesys assets tocounterclaims. Prospect Therapeutics, Inc. (formerly known as Marlborough Research and Development, Inc.) purchased certain assets including this lawsuit from the counterclaim lawsuit. Marlborough ResearchGlycoGenesys bankruptcy estate and Development, Inc. has changed its name to Prospect Therapeutics, Inc. and has informed us that it intends to pursuecontinues prosecuting the counterclaim lawsuitcounterclaims against us and Dr. Platt. We filed a motion for summary judgment on November 8, 2007. Limited discovery may still be taken. We believe these claimsthe counterclaims are without merit and intend to contest them vigorously. We believe that any impact on the financial statements is neither probable or reasonably estimable and therefore no amounts have been recorded as

Our Board of December 31, 2006

Pursuant to Board approval, we agreed to indemnifyDirectors authorized indemnification of Dr. Platt for the expenses of his defense of the counterclaims. In 2006, weNo expenses have been incurred $11 of expensesduring the twelve month period ended December 31, 2007 in connection with this defense. Through December 31, 2006,2007, we have incurred cumulative expenses of approximately $438$438,000 in connection with this defense.

OnIn January 28, 2005, we filed a request with the U.S. Patent and Trademark Office (USPTO) for an inter partes re-examination of U.S. Patent No. 6,680,306 owned by GlycoGenesys, Inc. because we believe that the invention claimed in this patent is anticipated by other inventions (technically, “prior art”), including our U.S. Patent No. 6,645,946 for DAVANAT^®. In an October 18, 2005 action, the USPTOThe Patent Office agreed with our argument that all claims stated in the ‘306 patent are anticipated by prior art. On December 19, 2005, GlycoGenesys filed a response to the USPTO, and on January 18, 2006 we responded to the GlycoGenesys submission. The matter is now before the USPTOPatent Office for a final decision. We believe that the USPTO actions to dateof the Patent Office support our belief that the invention claimed in our DAVANAT^® patent is prior art relative to the GlycoGenesys patent.

On January 30, 2008, Custom Equity Research, Incorporated (d/b/a Summer Street Research Partners) filed a lawsuit against us in the Superior Court of the Commonwealth of Massachusetts, alleging claims for breach of contract, declaratory judgment and unjust enrichment arising out of an engagement letter under which Summer Street agreed to provide institutional investment placement services to us. Summer Street claims it is entitled to a placement fee for each placement made during the term of the agreement and for each issuance of securities made or agreed to be made by us from October 17, 2007 through November 16, 2008. On February 20, 2008, we filed a Motion to Dismiss. We believe the lawsuit is without merit and intend to contest it vigorously.

No matter was submitted to a vote of our stockholders during the fourth quarter of the fiscal year covered by this report.

PART II

Price Range of Common Stock

Our common stock trades under the symbol “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 below were as follows:

Holders of Common Stock

As of February 7, 2007,25, 2008, there were approximately 235230 holders of record of our common stock. Because shares of our common stock are held by depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of record holders. Based on information available to us, we believe there are approximately 3,1004,300 beneficial owners of our shares of our common stock in addition to the record holders.

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. The terms and conditions of the Convertible Debenture agreement restricts our ability to pay dividends. Our intention is not to declare cash dividends and retain all cash for our operations.

Performance GraphRecent Sales of Unregistered Securities

The graph below shows the cumulative total stockholder return onOn February 4, 2008, we completed a private placement begun in October 2007 in which we sold an aggregate of 1,742,500 units of securities, each unit comprised of one share of our common stock from September 10, 2002 (the date our common stock began trading on the Over-the-Counter Bulletin Board) through December 31, 2006. This graph assumes an investmentSeries A 12% Convertible Preferred Stock (“Series A Preferred”), a warrant exercisable at $1.50 to purchase one share of $100 on September 10, 2002 in our common stock, and compares its performance with the AMEX Biotechnology Index (BTK) and the Nasdaq Biotechnology Index (NBI). Our common stock has been traded on the American Stock Exchange since September 2003. The other indices may reflect the investment of dividends; however, we have not declared or paid any dividendsa warrant exercisable at $2.00 to date.

The price comparisons shown in the graph below is based upon historical data. The stock price performance shown in the graph below is not indicative of, nor is it intended to forecast future stock price performancepurchase one share of our common stock.

Each unit was offered and sold for $1.00. As of December 31, 2007, we had received gross proceeds of $1,667,500, and during 2008, we received an additional $75,000, resulting in total advance gross proceeds of $1,742,500. Net proceeds after transaction costs were approximately $1.7 million. The performance graph above shall not be deemed “filed” for purposessecurities were offered and sold to accredited investors pursuant to Rule 506 promulgated under Section 4(2) of Section 18 of the Securities Exchange Act of 1934, as amended (The “Exchange Act”), or otherwise subject to the liability of that section. This graph will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, 1933.

Each share of the Series A Preferred has voting rights and is convertible at any time at the election of the holder into one share of our common stock subject to adjustment for stock splits, recapitalizations and the like. We may require conversion if the closing price of our common stock exceeds $3.00 for 15 consecutive trading days. Each share of the Series A Preferred accrues interest at 12% per annum payable at our option in cash

or shares of common stock valued per share at the Exchange Act, whether made beforehigher of $1.00 or 100% of the value weighted average price of our shares of common stock for the 20 consecutive trading days prior to the applicable dividend payment date.

The warrants are exercisable for cash consideration for four years beginning the 181^st day after the date hereof, regardless of any general incorporation languageissue. The exercise price is subject to adjustment for stock splits, recapitalizations and the like and in such filing.

The following table sets forth financial data for the years ended December 31, 2007, 2006, 2005, 2004, 2003 2002 and for the cumulative period since inception (July 10, 2000) through December 31, 2006.2007. This selected financial data should be read in conjunction with the consolidated financial statements and related notes included in Item 15 of this Annual Report on Form 10-K.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (in thousands, except share and per share data)

RESTATEMENTRECENT EVENTS

Subsequent to the issuance of the 2005 consolidated financial statements, we determined that the common stock purchase warrants that were issued as part of our equity finance transactions in October 2003, April 2004 and August 2004, respectively, and which were accounted for in stockholders’ equity at their relative fair value upon issuance, should have been accounted for as derivative liabilities in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The warrants did not meet any of the scope exceptions allowed by SFAS 133. Specifically, the warrants did not meet the criteria in paragraph 11(a) of SFAS 133 that a contract should not be considered a derivative instrument if it is (1) indexed to its own stock and (2) classified in stockholders’ equity. The warrants, when classified as derivative liabilities, are required to be initially recorded at fair value and to be marked to fair value at the end of each reporting period, which resultsOn February 25, 2008, in a non-cash charge or credit to other income and expense in the consolidated statement of operations.

The accompanying consolidated financial statements for the years ended December 31, 2005 and 2004 have been restated. See Note 14 to the consolidated financial statements.

The accompanying management’s discussion and analysis of financial condition and results of operations reflects the restatement described above.

RECENT EVENT

On March 21, 2007,registered direct offering we issued approximately 5.2 millionand sold an aggregate of 7,500,000 shares of our common stock at a conversion price of $0.75$0.50 per share to dischargefor gross proceeds of $3.75 million. Net proceeds were approximately $3.9$3.4 million after transaction expenses of the remaining $4.4 million then outstanding obligations under our 7% Convertible Debentures that weapproximately $0.3 million. We also sold in February 2006. The exercise pricethe offering an aggregate of the10,500,000 warrants, 7,500,000 of which are exercisable for five years to purchase our common stock warrants issued in February 2006at $0.70 per share and 3,000,000 of which are exercisable for four months to the same investors was reduced to $1.00 (and the number ofpurchase shares issuable on exercise proportionately increased) to take into account the dilutive effect of this transaction. If all the warrants were exercised by cash payment, we would issue approximately 5 million new shares. We also agreed that

Overview

We are a development-stage company engaged in researchthe discovery, development, and developmentcommercialization of carbohydrate basedfirst-in-class, therapeutic compounds. We believe our carbohydrate-based compounds offer numerous opportunities to providefor advanced disease treatments.treatment of cancer, liver, microbial and inflammatory diseases. Our initial focus is on the development of a new generation of anti-cancer treatments using carbohydrate polymers to target delivery of chemotherapy drugs for the treatment of cancer. We believe our initial carbohydrate compound —deliver chemotherapeutics to reduce toxicity and increase efficacy. DAVANAT^® — may reduce, the toxic sideCompany’s lead pipeline candidate, is currently in Phase II trials for first-line treatment of colorectal and biliary cancer.

Our technology also is being used to rescue drugs that were shelved for toxicity or half-life issues, increase the solubility of existing drugs and as new chemical entities to treat diseases such as liver and kidney fibrosis. We have entered into a research collaboration with the Mount Sinai School of Medicine to study the anti-fibrotic effects of chemotherapeutic drugsour novel carbohydrate compounds on liver fibrosis, and increase their efficacy by targeting delivery directlywith Brigham and Women’s Hospital to cancerous cells, thereby creatingevaluate the anti-fibrotic effects of these compounds to treat acute and chronic kidney disease. Our first-in-class, novel carbohydrate compounds significantly reduced collagen expression and reversed fibrosis in animal models. Whereas previously,in vitro data indicated a preferable treatment to existing oncology regimens. For additional information, please see “Item 1. Business — Businessreversal of Pro-Pharmaceuticals.”fibrosis markers, in this proof-of-concept animal study, the compounds clearly reduced collagen expression and reversed liver fibrosis.

All of our drug candidates are currently in preclinical and clinical development. We currently have only one drug candidate — DAVANAT^® — in clinical development. In general, in order to commercialize our current and

future drug candidates, we are required to successfully complete preclinical studies and clinical trials and obtain regulatory approvals. Current requirements for regulatory approval include:

Upon approval by the appropriate regulatory authorities, we may commence commercial marketing and distribution of the product. This process typically takes several years to complete and requires the expenditure of substantial resources. 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 may file an NDA for a drug candidate in 2007.2008. We anticipate our source of funding for the next several years to come from either financing transactions or collaborations with other pharmaceutical companies.

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 $25,727approximately $35.2 million for the cumulative period from inception (July 10, 2000) through December 31, 2006.2007. 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 $35,930 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 as of December 31, 2006. From our inception (July 10, 2000) through December 31, 2006,2007, we usedhave raised approximately $37.6 million principally through the private placements of convertible notes, preferred stock subscriptions, common stock and warrants, and in registered direct offerings of common stock and warrants. From inception through

December 31, 2007, we have expended cash of $28,240approximately $33.7 million for our operations. At December 31, 2006,2007, we had $5,773approximately $1.3 million of cash and cash equivalents and certificateequivalents. When combined with approximately $3.4 million of deposit availablenet proceeds from an equity finance transaction completed subsequent to fund future operations, whichour year-end, we believe there is sufficient cash to fund our operations through at least June 2007.into October 2008.

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.Report. 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.

Accrued Expenses.    As part of the process of preparing our consolidated 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 in conjunction with pre-clinical and clinical trials, professional service fees, such as those arising from the services of attorneys and accountants and accrued payroll expenses. 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.

Convertible Debt Instrument.    Our convertible debt instrument issued in February 2006 (the “Debentures”) constitutes a hybrid instrument that has the characteristics of a debt host contract containing several embedded derivative features that would require bifurcation and separate accounting as a derivative instrument pursuant to the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). As permitted by SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140”, we irrevocably elected to initially and subsequently measure the Debentures in their entirety at fair value with changes in fair value recorded as either a gain or loss in the consolidated statement of operations under the caption “Change in fair value of convertible debt instrument.” Fair value of the Debentures is determined using a binomial financial valuation model that requires assumptions that are subject to significant management judgment such as volatility of our common share price, interest rates and our intention to redeem the Debentures in cash or common shares. Volatility and interest rate expectations are based on the remaining 1 yeartime to maturity of the Debentures.

Warrants.    We have issued common stock warrants in connection with the execution of certain equity and debt financings and consulting agreements. Certain warrants are accounted for as derivative liabilities at fair value in accordance with SFAS 133. Such warrants do not meet the criteria in paragraph 11(a) of SFAS 133 that a contract should not be considered a derivative instrument if it is (1) indexed to its own stock and (2) classified

in stockholders’ equity. Changes in fair value of derivative liabilities are recorded in the consolidated statement of operations under the caption “Change in fair value of warrant liabilities.” Warrants that are not considered derivative liabilities as defined in SFAS 133 are accounted for at fair value at the date of issuance in additional paid-in capital. The fair value of warrants without probability conditions is determined using the Black-Scholes option-pricing model using assumptions regarding volatility of our common share price, expectedremaining life of the warrant, and risk-free interest rates at each period end.

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. At this time our primary deferred tax asset relates to our net operating loss carryforwards. 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.

Stock-Based Compensation.    Through December 31, 2005, we accounted for stock-based compensation to employees and non-employee directors under the intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB No. 25) and the related interpretations. Under APB No. 25, no compensation expense is recognized for stock options granted to employees at fair market value and with fixed terms. On January 1, 2006, we adopted SFAS 123(R), “Accounting for Share“Share Based Payment,” (SFAS 123(R)) using the modified prospective method, which results in the provisions of SFAS 123(R) being applied to the consolidated financial statements on a going-forward basis. Prior periods have not been restated. SFAS 123(R) requires companies to recognize stock-based compensation awards granted to its employees as compensation expense on a fair value method. Under the fair value recognition provisions of SFAS 123(R), stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the service period, which generally represents the vesting period. The grant date fair value of stock options is calculated using the Black-Scholes option-pricing model. The expense recognized over the service period is required to include an estimate of the awards that will be forfeited. Previously, we recorded the impact of forfeitures as they occurred. We do not anticipate any awards will be forfeited in our calculation of compensation expense due to the limited number of employees that receive stock option grants and our historical employee turnover.

We consider equity compensation to be an important component in attracting and retaining key employees. During 2007, 2006 2005 and 2004,2005, we awarded approximately 1,048,500, 399,000 272,000 and 277,750272,000 stock options, respectively, to employees, consultants and non-employee members of our Board of Directors for normal services and we recorded $416approximately $616,000 of related stock option expense in 2006.2007. 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 in 2005 and 2004.2005. If we had used the fair value method provided for under SFAS No. 123, “Accounting for Stock-Based Compensation,” our net loss in 2005 and 2004 respectively of $6,855 and $3,770approximately $6.86 million would have increased by $287 and $749 to $7,142 and $4,519 respectively.approximately $287,000.

Results of Operations

Fiscal Year Ended December 31, 20062007 Compared to Fiscal Year Ended December 31, 2005 (in thousands)2006

Research and Development Expenses.    Research and development expenses were $3,019approximately $2.05 million during the year ended December 31, 20062007 as compared to $3,040approximately $3.02 million incurred during the year ended December 31, 2005.2006. We generally categorize research and development expenses as either direct external expense, comprised of amounts paid to third party vendors for services, or all other expenses, comprised of employee payroll and general overhead allocable to research and development. We subdivide external

expenses between clinical programs and preclinical activities. We consider a clinical program to have begun upon acceptance by the FDA, or similar agency outside of the United States, to commence a clinical trial in humans, at which time we begin tracking expenditures by the product candidate. We have one product candidate — DAVANAT^® — in clinical trials at this time. Clinical program expenses comprise payments to vendors related to preparation for, and conduct of, all phases of the clinical trial, including costs for drug manufacture, patient dosing and monitoring, data collection and management, oversight of the trials and reports of results. Pre-clinical expenses comprise all research and development amounts incurred before human trials begin, including payments to vendors for services related to product experiments and discovery, toxicology, pharmacology, metabolism and efficacy studies, as well as manufacturing process development for a drug candidate.

Our research and development expenses for the twelve months ended December 31, 2007 as compared to the twelve months ended December 31, 2006 were as follows:

Clinical trial expenses decreased by approximately $695,000. The decrease was due to a reduction of approximately $426,000 in expenses related to the Phase II DAVANAT^® Colorectal Cancer trial and the Phase I DAVANAT^® Colorectal Cancer trial that, for the most part, were completed in 2006. In addition, a reduction of approximately $362,000 in 2007 as compared to 2006 is due to lower expenses related to our Phase III European colorectal cancer trial. We initiated the trial in 2006 but did not begin dosing patients due to financial constraints. These reductions were offset by an increase of approximately $93,000 associated with our two current Phase II trials for first-line treatment of colorectal and biliary cancer trial with DAVANAT^®. Pre-clinical expenses in 2007 decreased by approximately $232,000 compared to 2006 due to lower research activity. Other research and development costs decreased by approximately $39,000. This is the result of lower payroll expense of approximately $154,000 due principally to salary reductions to conserve cash, offset by higher non-cash stock compensation expense and higher space lease expense.

We expect our research and development expenses in 2008 will remain at approximately the same level as 2007 and will shift from the two current Phase II clinical trials to an NDA for DAVANAT^® and development of our new fibrosis compounds.

Both the time required and costs we may incur in order to commercialize a drug candidate that would result in material net cash inflow are subject to numerous variables, and hence we are unable at this stage of our development to forecast useful estimates. Variables that make estimates difficult include the number of clinical trials we may undertake, the number of patients needed to participate in the clinical trial, patient recruitment uncertainties, trial results as to the safety and efficacy of our product, and uncertainties as to the regulatory agency response to our trial data prior to receipt of marketing approval. Moreover, the FDA or other regulatory agencies may suspend clinical trials if we or an agency believes patients in the trial are subject to unacceptable risks, or find deficiencies in the conduct of the clinical trial. Delays or rejections may also occur if governmental regulation or policy changes during our clinical trials or in the course of review of our clinical data. Please see “Risks Related to Pro-Pharmaceuticals” and “Risks Related to the Drug Development Industry” for additional risks and other factors that make estimates difficult at this time. Due to these uncertainties, accurate and meaningful estimates of the ultimate cost to bring a product to market, the timing of costs and completion of our program and the period during which material net cash inflows will commence are unavailable at this time.

General and Administrative Expenses.    General and administrative expenses were approximately $4.4 million in 2007, an increase of approximately $373,000 compared to approximately $4.03 million in 2006. General and administrative expenses consist primarily of salaries, including stock based compensation, legal and accounting fees, insurance, investor relations, business development and other office related costs. Of the approximately $373,000 increase in expense in 2007, approximately $405,000 consisted of an increase in legal expenses. Of this amount, approximately $250,000 was due to expenses related to the counterclaims asserted against us by Prospect Therapeutics, Inc. described in “Item 3. Legal Proceedings.” An increase of approximately $250,000 in additional legal expense was due to our equity finance efforts. The increase in legal expense was offset by reductions in general legal and patent legal expense of approximately $95,000. Additionally, non-cash stock based compensation increased by approximately $135,000, which was offset by a reduction in payroll expense of approximately $191,000 as certain employees voluntarily reduced salaries to conserve cash. All other spending increased by approximately $24,000, due principally to higher space lease expense.

We expect general and administrative expenses to decrease in 2008 as compared to 2007 due to lower legal and accounting expenses.

Other Income and Expense.    Other income and expense was expense of approximately $2.98 million in 2007 as compared to income of approximately $3.86 million in 2006. Of the $6.84 million increase, approximately $9.52 million is related to fair value accounting for warrant liabilities. This was offset by approximately a $1.36 million decrease in expense related to our convertible debt instrument’s fair value accounting. Interest expense was approximately $350,000 in 2007, as compared to approximately $1.85 million in 2006. Interest expense decreased by approximately $1.5 million due to lower convertible debenture amounts outstanding. Approximately $350,000 of interest expense includes approximately $257,000 of debt discount amortization and approximately $93,000 of interest expense. Interest income was approximately $102,000 in 2007 or a decrease of approximately $179,000 as compared to approximately $281,000 in 2006. Interest income consists primarily of interest income on interest-bearing cash equivalents and the certificate of deposit. The decrease in interest income is due primarily to lower average cash balances.

Fiscal Year Ended December 31, 2006 Compared to Fiscal Year Ended December 31, 2005

Research and Development Expenses.    Research and development expenses were approximately $3.02 million during the year ended December 31, 2006 as compared to approximately $3.04 million incurred during the year ended December 31, 2005.

Our research and development expenses for the twelve months ended December 31,2006 as compared to the twelve months ended December 31, 2005 were as follows:

Clinical trial expense decreased by $53approximately $53,000 as the Phase I late stage cancer patient trial was completed and the Phase II late stage colorectal cancer patient trial completed dosing resulting in reduced spending that was offset by the initiation of the line I biliary duct cancer, the line I colorectal cancer and line II colorectal cancer trials. Pre-clinical spending decreased due principally to reduced DAVANAT^® manufacturing costs. All other research and development costs increased due to the addition of our Chief Scientist, additional

personnel to support our clinical trials and expensing stock based compensation largely related to the fair value method as required by SFAS 123(R). In summary, research and development expense in 2006 shifted from pre-clinical activities to clinical programs. The increase in clinical trial expense was due to the start-up and costs associated with the Phase II trial. We completed dosing patients in a Phase I clinical trial of DAVANAT^® in March of 2005 and began dosing patients in a Phase II clinical trial of DAVANAT^® in May of 2005, while the pre-clinical tests and experiments associated with DAVANAT^® diminished in 2006 as compared to 2005.

We expect our research and development expenses will increase moderately in 2007 due to the new line I Phase II clinical trials and a modest increase in overhead expenses.

Both the time required and costs we may incur in order to commercialize a drug candidate that would result in material net cash inflow are subject to numerous variables, and hence we are unable at this stage of our development to forecast useful estimates. Variables that make estimates difficult include the number of clinical trials we may undertake, the number of patients needed to participate in the clinical trial, patient recruitment uncertainties, trial results as to the safety and efficacy of our product, and uncertainties as to the regulatory agency response to our trial data prior to receipt of marketing approval. Moreover, the FDA or other regulatory agencies may suspend clinical trials if we or an agency believes patients in the trial are subject to unacceptable risks, or find deficiencies in the conduct of the clinical trial. Delays or rejections may also occur if governmental regulation or policy changes during our clinical trials or in the course of review of our clinical data. Please see “Risks Related to Pro-Pharmaceuticals” and “Risks Related to the Drug Development Industry” for additional risks and other factors that make estimates difficult at this time. Due to these uncertainties, accurate and meaningful estimates of the ultimate cost to bring a product to market, the timing of costs and completion of our program and the period during which material net cash inflows will commence are unavailable at this time.

General and Administrative Expenses.    General and administrative expenses were $4,029approximately $4.3 million in 2006 or an increase of 12%, as compared to $3,615approximately $3.62 million in 2005. General and administrative expenses consist primarily of salaries, including stock based compensation, legal and accounting fees, insurance, investor relations, business development and other office related costs. Of the $414approximately $414,000 increase in expense in 2006, approximately $385$385,000 consisted of an increase in accounting and other costs associated primarily with the convertible debentures. Approximately $273$273,000 of the increase was due to expensing stock based compensation related to the fair value method as required by SFAS 123(R). These increases were offset by a reduction in legal expense of approximately $261.$261,000. Legal expenses decreased due to lower expenses associated with the intellectual property litigation with GlycoGenesys. Payroll expense increaseddecreased due to the addition of our Chief Scientist and other personnel which was more than offset by lower incentive compensation payments.payments

We expect general and administrative expenses in 2007 to be approximately the same as 2006.

Other Income and Expense.    Other income and expense was income of $3,855approximately $3.86 in 2006 as compared to expense of $200approximately $200,000 in 2005. Of the $4,055$4.06 million increase, $8,129$8.13 million is related to fair value accounting for warrant liabilities. This was offset by $4,244$4.24 million of charges related to our convertible debt instrument of which $2,394approximately $2.39 million is related to fair value accounting and $1,850approximately $1.85 million is interest expense. The $1,850expense approximately $1.85 million of interest includes $1,358approximately $1.36 million of debt discount amortization and $492Approximately $492,000 of interest expense. Additionally, interest income in 2006 was approximately $281$281,000 or an increase of $170approximately $170,000 as compared to $111approximately $111,000 in 2005. Interest income consists primarily of interest income on interest-bearing cash equivalents and the certificate of deposit. The increase in interest income is due primarily to higher average interest rates and to a lesser degree due to higher average cash balances. Average interest rates were approximately 3.2% per annum in 2006 versus approximately 1.4% per annum in 2005.

Fiscal Year Ended December 31, 2005 Compared to Fiscal Year Ended December 31, 2004 (in thousands)

Research and Development Expenses.    Research and development expenses were $3,040 during the year ended December 31, 2005 as compared to $3,042 incurred during the year ended December 31, 2004.

Our research and development expenses for the twelve months ended December 31, 2005 as compared to the twelve months ended December 31, 2004 were as follows:

In summary, research and development expense in 2005 shifted from pre-clinical activities to clinical programs. The increase in clinical trial expense was due to the start-up and costs associated with the Phase II trial. We completed dosing patients in a Phase I clinical trial of DAVANAT^® in March of 2005 and began dosing patients in a Phase II clinical trial of DAVANAT^® in May of 2005 while the pre-clinical tests and experiments associated with DAVANAT^® diminished in 2005 as compared to 2004.

General and Administrative Expenses.    General and administrative expenses were $3,615 in 2005 or a decrease of 15%, as compared to $4,262 in 2004. General and administrative expenses consist primarily of salaries, including stock based compensation, legal and accounting fees, insurance, investor relations, business development and other office related costs. The $647 reduction in expense in 2005, consisted of a reduction in legal expense of approximately $700. This was offset by an increase in payroll of approximately $135 and a decrease in all other spending of approximately $82. Of the $700 decrease in legal expenses approximately $560 was due to the patent arbitration between Dr. Platt, our CEO and GlycoGenesys which was conducted and completed in 2004. The arbitration concerned the rights to control prosecution of patent applications that Dr. Platt licensed to GlycoGenesys. In November 2004, the arbitrator awarded the patent prosecution rights to Dr. Platt. The remainder of the decrease in legal expenses as compared to 2004 was related to expenses incurred in 2004 to defend a lawsuit asserted by a former employee. This matter was concluded in 2004. These expense decreases were offset in part by an increase of approximately $190 associated with legal expenses to defend the counterclaim lawsuit filed by GlycoGenesys against us and Dr. Platt as described in “Item 3 — Legal Proceedings” above.

Interest and Other Income.    Other income and expense in 2005 was an expense of $200 as compared to income of $3,534 in 2004. Of the $3,734 decrease, $3,721 was related to fair value accounting associated with

warrant liabilities. Additionally interest income decreased by $13. Interest income consists primarily of interest income on interest-bearing cash equivalents. The decrease in interest income is due to lower average cash balances partially offset by higher average interest rates. Average interest rates were approximately 1.4% per annum in 2005 versus approximately 1.3% per annum in 2004.

Liquidity and Capital Resources (in thousands)

As described in the section entitled “Overview” above 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 ofpreferred stock subscriptions, common stock and warrants, and a public offering of sharesregistered direct offerings of common stock. At December 31, 2006,stock and warrants. From inception through our 2007 fiscal year, we had raised a total of $35,930approximately $37.6 million from these offerings and at December 31, 2007 had $5,773approximately $1.32 million of cash available. Between October and certificate of deposit available. On February 14, 2006 December 2007,

we raised $10.0 million resulting inreceived net proceeds after transaction costs of approximately $9.3$1.6 million by issuing 7%in subscriptions for a private placement of Series A 12% Convertible DebenturesPreferred Stock and common stock warrants through a private placement. The 7% Convertible Debentures and related interestwarrants. We may be repaidpay the dividend on the preferred stock in shares of our common stock subject to certain provisions. The detailsterms of this transaction are more fully described in Note 6 to our audited consolidated financial statements.Item 5 — “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”— “Recent Sales of Unregistered Securities.”

Net cash used in operations decreased by approximately $1.27 million to approximately $5.48 million in 2007 as compared to approximately $6.76 million in 2006. Approximately $684,000 of the decrease was $6,757 in 2006 and $6,127 in 2005.due to lower cash operating costs. Approximately $590,000 was due to lower working capital requirements. These decreases were offset by lower net cash interest income of approximately $118,000. The increased use of cash in operations in 2006 as compared to 2005 was primarily due to increased working capital needs. We expect our cash needs in 20072008 to remain at approximately the same level as 2006.2007.

Net cash used inprovided by investing activities was approximately $5,236$4.94 million in 20062007 as compared to cash used of approximately $111$5.24 million in 2005.2006. The increase of approximately $10.18 million was principally due to a $5.0 million certificate of deposit which was initiated in 2006 as compared to 2005 wasand matured in 2007. The remaining $180,000 is principally due to increased capitallower expenditures associated primarily with the move of our corporate offices to new leased spaceon property and a $5,000 investment in a certificate of deposit.equipment, patent costs and restricted cash requirements.

Net cash provided by financing activities was $8,300approximately $1.08 million in 2006,2007 and $0$8.3 million in 2005.2006. The 2007 cash provided consisted of $1.64 million of advances related to our preferred stock and common warrant private placement subscriptions, see Item 5 —“Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” under“Recent Sales of Unregistered Securities” offset by cash payments of approximately $555,000 in accordance with the terms of the convertible debenture. Net cash provided by financing activities in 2006 resulted from the sale of the 7% Convertible Debentures and common stock warrants. In 2006, we elected to make two principal payments, amounting to $1,000 of principalapproximately $1.0 million in cash.

On March 21, 2007February 25, 2008, we dischargedraised approximately $3.9$3.4 million of our $4.4 million of obligations then outstanding under the Convertible Debentures.net proceeds in a registered direct offering. See “Recent Event”Events” above in this Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We believe that our cash on hand and certificate of deposit of $5,773approximately $1.3 million at December 31, 20062007 when combined with the $3.4 million raised through our February 25, 2008 registered direct offering will be sufficient to enable us to meet our financing and operating obligations through at least June 2007.into October 2008. We will require more cash to fund our operations 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 obtainable on terms favorable to us.

Payments Due Under Contractual Obligations (in thousands)

The following table summarizes the payments due under our contractual obligations at December 31, 2006,2007, and the effect such obligations are expected to have on liquidity and cash flow in future periods:

Long-term debt consists of scheduled principal and interest payments on our 7% Convertible Debentures. Remaining principal of $4,925 is payable in monthly installments through January 1, 2008 ( November 30, 2007 if repaid in shares). Interest accrues at the rate of 7% and is payable monthly. Remaining interest due is $171 and is all due in less than one year. Principal and interest may be paid, at our option, in cash or shares of our common stock. Because investors may convert principal into common stock, at any time, at their option, the timing of principal and interest payments may accelerate relative to this schedule.

On March 21, 2007 we discharged approximately $3.9 million of the $4.4 million then outstanding under our Convertible Debentures. See “Recent Events,” above under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

On May 1, 2006 we entered into an operatinga 5 year lease for office space. The lease commenced on August 11, 2006 and extends for five years and terminates on September 30, 2011. The lease provides for annual base rental payments of $235approximately $235,000 in the first year increasing in each subsequent lease year to $244, $253, $263approximately $244,000, $253,000,

$263,000 and $273$273,000 respectively. In addition to base rental payments included in the contractual obligations table above, we are responsible for our pro-rata share of increases in the operating expenses for the building after calendar year 2006 and taxes for the building after fiscal year 2007. We have the option to extend the term of the lease for an additional five year period at the prevailing market rate at the time of exercise. In connection with this new office space lease, a commercial bank has issued a letter of credit collateralized by cash we have on deposit with the bank of approximately $59.$59,000. Additionally, we have a non-cancellable lease for a car which expires in January 2011 and an executive housing lease which expires in October of 2007.2008.

We have engaged outside vendors for certain services associated with our clinical trials. These services are generally available from several providers and, accordingly, our arrangements are typically cancellable on 30 days notice.

Off-Balance Sheet Arrangements

We have not created, and are not a 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.

Impact of New Accounting Standards

Market risk representsIn September 2006, the risk of lossFASB issued SFAS No. 157,“Fair Value Measurements” (“SFAS No. 157”). SFAS 157 clarifies the principle that may impact our financial position, operating resultsfair value should be based on the assumptions market participants would use when pricing an asset or cash flows dueliability and establishes a fair value hierarchy that prioritizes the information used to changesdevelop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. In February 2008, the FASB decided that an entity need not apply this standard to non-financial assets and liabilities that are recognized or disclosed at fair value in the U.S. interest rates. The primary objective of our investment activities is to preserve cashfinancial statements on a non-recurring basis until it isthe subsequent year. We will be required to fund operations. To minimize risk, we maintainadopt SFAS No. 157 in the first quarter of fiscal year 2008. Management is currently evaluating the requirements of SFAS No. 157 and has not yet determined the impact, if any, on our portfolioconsolidated financial statements.

In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 provides entities with an option to report selected financial assets and liabilities at fair value, with the objective to reduce both the complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. We will be required to adopt SFAS No. 159 in the first quarter of cashfiscal year 2008. Management is currently evaluating the requirements of SFAS No. 159 and cash equivalentshas not yet determined the impact, if any, of its adoption on our consolidated financial statements.

In June 2007, the FASB issued Emerging Issues Task Force (“EITF” 07-3), “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in operating bank accountsFuture Research and money market funds. Since our investments are short-termDevelopment Activities” (“EITF 07-3”). EITF 07-3 provides that non-refundable advance payments for goods or services that will be used or renders for future research and development activities should be deferred and capitalized. We have historically expensed such payments and will begin capitalizing such payments in duration, we believe that we are not subject to any material market risk exposure.the first quarter of 2008. As of December 31, 2006 we had $4,925 of principal outstanding on the convertible debentures with an interest rate fixed at 7%. We account for the convertible debentures at fair value, and changes in our share price and market interest rates will affect our earnings but will not affect our cash flows.2007, there are no such payments currently recorded as expense.

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

None.

Item 9A.9A(T).

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this Annual Report, on Form 10-K, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). As a resultas of the material weakness discussed below, ourDecember 31, 2007. Our management has concluded, based on their evaluation, that as of the end of the period covered by this report, our disclosure controls and procedures were not effective. Notwithstanding the material weaknesses discussed below, our Chief Executive Officer and Chief Financial Officer have concluded that the financial statements included in this Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles.

Our Chief Executive Officer and Chief Financial Officer, in conjunction with management, have determined thateffective as of December 31, 20062007 to ensure that we have a material weakness relatinginformation required to the controls over accounting for warrants. Specifically, our procedures did not operate effectively to detect certain errors in classification of warrant liabilitiesbe disclosed by us in the 2003, 2004reports we file or submit under the Exchange Act is recorded, processed, summarized and 2005 consolidated financial statements. As discussed in Note 14 toreported within the consolidated financial statements, we are restating previously issued financial statements for these errors.

Remediation Status

To remedy the material weakness described above, we engaged additional resources to review any similar transactions. These changes either have been, or aretime periods specified in the processSecurities and Exchange Commission’s rules and forms.

This Annual Report does not include an attestation report of being, implemented.our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.

To remediate the material weakness disclosed(b) Changes in Internal Control Over Financial Reporting

There was no change in our Quarterly Report on Form 10-Q for the period ended September 30, 2006, ininternal control over financial reporting that occurred during the fourth quarter of 2006 additional controls and procedures were implementedthat has materially affected, or is reasonably likely to ensure that the convertible debentures are accurately presented in thematerially affect, our internal control over financial statements. These procedures include tracing journal entry support to source data and retesting fair value calculations used for recording adjustments to the convertible debenture balances. These procedures are performed by a person not involved with the original journal entry preparation.reporting.

None.

PART III

The information required by this Item will be contained in our definitive Proxy Statement to be filed with the SEC in connection with our 20072008 Annual Meeting of Stockholders to be held on May 24, 200721, 2008 (the “2007“2008 Proxy Statement”) under the captions “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.

We have adopted a Code of Ethics that applies to all our directors, officers and employees. The Code of Ethics is publicly available on our website atwww.pro-pharmaceuticals.com. Amendments to the Code of Ethics and any grant of a waiver from a provision of the Code of Ethics requiring disclosure under applicable SEC and American Stock Exchange rules will be disclosed on our website.

The information required by this Item will be incorporated by reference from the information under the caption “Executive Compensation”“Compensation of Named Executive Officers” contained in our 20072008 Proxy Statement.

The information required by this item will be incorporated by reference from the information under the caption “Ownership“Security Ownership of Pro-Pharmaceuticals, Inc. Common Stock”Certain Beneficial Owners and Management” contained in our 20072008 Proxy Statement.

The information required by this item will be incorporated by reference from the information under the caption “Certain Relationships and Related Transactions” contained in our 20072008 Proxy Statement.

The information required by this item will be 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 20072008 Proxy Statement.

PART IV

Exhibit Number			Description of Document		Note Reference
10.16			Form of Common Stock Purchase Warrant issuable pursuant to the Securities Purchase Agreement identified as Exhibit 10.14 and to the placement agent		8
10.17			Securities Purchase Agreement, dated August 12, 2004, by and among Pro-Pharmaceuticals, Inc. and the Purchasers named therein		9
10.18			Registration Rights Agreement, dated August 12, 2004, by and among Pro-Pharmaceuticals, Inc. and the Purchasers named therein		9
10.19			Form of Common Stock Purchase Warrant issuable pursuant to the Securities Purchase Agreement identified as Exhibit 10.17 and to the placement agent		9
10.20			Form of Incentive Stock Option Agreement (under the 2001 Stock Incentive Plan)		11
10.21			Form of Non-Qualified Stock Option Agreement (under the 2001 Stock Incentive Plan)		11
10.22			Form of Non-Qualified Stock Option Agreement (under the 2003 Non-Employee Director Stock Incentive Plan)		11
10.23			Option Agreement, dated November 11, 2004, between David Platt and Pro-Pharmaceuticals, Inc.		11
10.24			Employment Agreement, dated February 9, 2005, between Carl L. Lueders and Pro-Pharmaceuticals, Inc.		12
10.25			7% Convertible Debenture dated February 14, 2006, due February 14, 2008.		13
10.26			Securities Purchase Agreement, dated February 14, 2006, by and among Pro-Pharmaceuticals, Inc. and the Purchasers named therein		13
10.27			Registration Rights Agreement, dated February 14, 2006, by and among Pro-Pharmaceuticals, Inc. and the Purchasers named therein		13
10.28			Common Stock Purchase Warrant Agreement, dated February 14, 2006.		13
21.1			Subsidiaries of the Registrant		7
23.1	*		Consent of Deloitte & Touche LLP, an independent registered public accounting firm
31.1	*		Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2	*		Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1	**		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	**		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

4	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-QSB for the period ended June 30, 2003, as filed with the Commission on August 14, 2003.

5	Incorporated by reference to the Registrant’s Current Report on Form 8-K/A as filed with the Commission on October 10, 2003 for the period October 2, 2003.

66.	Incorporated by reference to the Registrant’s Registration Statement on Form S-8, as filed with the Commission on October 22, 2003.

77.	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, as filed with the Commission on March 30, 2004.

8	Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the Commission on April 9, 2004.

9	Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the Commission on August 16, 2004.

10	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2004 as filed with the Commission on August 16, 2004.

118.	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2004 as filed with the Commission on November 19, 2004.

12	Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the Commission on February 11, 2005.

139.	Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the Commission on February 15, 2006.

10.	Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the Commission on May 5, 2006.

11.	Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the Commission on March 21, 2007.

12.	Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the Commission on September 27, 2007

13.	Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the Commission on October 4, 2007.

14.	Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the Commission on October December 20, 2007.

15.	Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the Commission on October December 26, 2007.

16.	Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the Commission on October February 15, 2008.

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 April 2, 2007.March 28, 2008.

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.

Pro-Pharmaceuticals, Inc.

(A Development Stage Company)

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Pro-Pharmaceuticals, Inc.

Newton, Massachusetts

We have audited the accompanying consolidated balance sheets of Pro-Pharmaceuticals, Inc. and subsidiary (a development stage company) (the “Company”) as of December 31, 20062007 and 2005,2006, and the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended December 31, 2006,2007, and for the period from inception (July 10, 2000) to December 31, 2006.2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20062007 and 2005,2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2006,2007, and for the period from inception (July 10, 2000) to December 31, 20062007 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” on January 1, 2006 based on the modified prospective application transition method.method and the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 48 “Accounting For Uncertainty in Income Taxes” on January 1, 2007.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s recurring losses from operations and stockholders’ deficit raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 14, the accompanying 2005 and 2004 consolidated financial statements have been restated.

/s/ Deloitte & Touche LLP

Boston, Massachusetts

April 2, 2007March 28, 2008

PRO-PHARMACEUTICALS, INC.

(A Development-Stage Company)

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 20062007 AND 20052006 (dollars in thousands except share and per share data )data)

See notes to consolidated financial statements.

PRO-PHARMACEUTICALS, INC.

(A Development-Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2007, 2006 2005 AND 2004,2005, AND CUMULATIVE PERIOD

FROM INCEPTION (JULY 10, 2000) TO DECEMBER 31, 20062007 (dollars in thousands except per share data )data)