REGISTRATION NO. 333-128911

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM SB-2

REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933

(AMENDMENT NO. 5)

INTELLIPHARMACEUTICS LTD.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

DELAWARE 2834 05-0496586
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)

(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
DR. ISA ODIDI, CHIEF EXECUTIVE OFFICER
30 WORCESTER ROAD
TORONTO, ONTARIO, CANADA M9W 5X2
(416) 798-3001

(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
CT CORPORATION SYSTEM
111 EIGHTH AVENUE, 13TH FLOOR
NEW YORK, NY 10011
(212) 590-9331

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As Soon As
Practicable After This Registration Statement Becomes Effective.

If any of the securities being registered in this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
re-investment plans, check the following box. [INDICATE CHECK]

If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.

If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.

If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.

If delivery of the prospectus is to be made pursuant to Rule 434, check the
following box.

CALCULATION OF REGISTRATION FEE

PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
SECURITIES TO BE REGISTERED REGISTERED SECURITY(1) PRICE REGISTERED FEE
-------------------------------- ------------ ------------------ ------------------ --------------

Common Stock, $.001 par value per share (2) 4,118,159 $3.50 $18,569,806 $570.09
Common Stock, $.001 par value per share (3) 438,909 $2.00 $ 877,818 $ 26.95
Total (4) 4,557,068 $19,447,624 $597.04

(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.

(2) Represents Common Stock held by Selling Securityholders.

(3) Represents Common Stock underlying warrants and options held by Selling
Securityholders.

(4) Fees of $5,001.65 were paid in connection with the filing of the original
Registration Statement on October 7, 2005 to register 21,247,446 shares.

The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED NOVEMBER 13, 2007

INTELLIPHARMACEUTICS LTD.

4,557,068 SHARES OF

COMMON STOCK

This prospectus relates to the public offering of an aggregate of 4,557,068
shares of common stock which may be sold from time to time by the selling
stockholders of IntelliPharmaCeutics Ltd. named in this prospectus. Of these
shares, 4,118,159 are currently issued to the selling stockholders and 438,909
shares are issuable upon the exercise of options and warrants. The Company
receives monies only from exercise of the warrants and options and not from the
sale of the offered shares.

The shares of common stock are being registered to permit the selling
stockholders to sell the shares from time to time in the public market. The
stockholders may sell the shares through ordinary brokerage transactions,
directly to market makers of our shares or through any other means described in
the section entitled "Plan of Distribution" beginning on page 15.

We have paid the expenses of preparing this prospectus and the related
registration expenses.

Our common stock is not traded on any exchange or market system. We intend to
apply to list our common stock on either the Nasdaq SmallCap Market, the
American Stock Exchange, or the OTC Bulletin Board.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.

SEE "RISK FACTORS" BEGINNING ON PAGE 5

We may amend or supplement this prospectus from time to time by filing
amendments or supplements as required. You should read the entire prospectus and
any amendments or supplements carefully before you make your investment
decision.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS NOVEMBER 13, 2007

(i)

TABLE OF CONTENTS

PAGE
------

PROSPECTUS SUMMARY....................................................... 1
INTELLIPHARMACEUTICS LTD................................................. 1
THE OFFERING............................................................. 4
SUMMARY FINANCIAL INFORMATION............................................ 4
RISK FACTORS............................................................. 5
USE OF PROCEEDS.......................................................... 12
SELLING STOCKHOLDERS..................................................... 12
PLAN OF DISTRIBUTION..................................................... 15
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................. 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND PLAN OF OPERATION................................... 17
BUSINESS................................................................. 30
MANAGEMENT............................................................... 42
EXECUTIVE COMPENSATION................................................... 44
COMPENSATION OF DIRECTORS................................................ 44
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 45
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........... 45
DESCRIPTION OF SECURITIES................................................ 46
SHARES ELIGIBLE FOR FUTURE SALE.......................................... 47
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES........................... 48
LEGAL MATTERS............................................................ 48
EXPERTS.................................................................. 48
ADDITIONAL INFORMATION................................................... 48
FINANCIAL STATEMENTS..................................................... F-1
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2006 AND 2005.......................................... F-1
UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2007.............................. F-18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

(ii)

PROSPECTUS SUMMARY

The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "RISK
FACTORS" section, the financial statements and the notes to the financial
statements. Since we operate solely through our operating affiliate
IntelliPharmaCeutics Corp., as used throughout this prospectus, the terms the
"Company," "we," "us," and "our" refer to IntelliPharmaCeutics Ltd. or
IntelliPharmaCeutics Corp., as the case may be.

INTELLIPHARMACEUTICS LTD.

IntelliPharmaCeutics Ltd., through IntelliPharmaCeutics Corp., a Nova
Scotia corporation, develops both new and generic controlled-release
pharmaceutical products, and licenses these developed products for
commercialization. At present, no such licensed product has been commercialized.
Our principal executive offices are located at 30 Worcester Road, Toronto,
Ontario, Canada M9W 5X2 and our telephone number is (416) 798-3001.

The diagram, including the notes thereto, filed as Exhibit 99.1 hereto,
which forms part of this registration statement, is a diagram of the
relationships among IntelliPharmaCeutics Ltd. (the registrant),
IntelliPharmaCeutics Corp. (the operating company), and IntelliPharmaCeutics
Inc. (the Canadian holding corporation controlled by Drs. Isa and Amina Odidi)
and the public.

[FLOW CHART - SEE EXHIBIT 99.1]

Notes:

(1) Each Convertible Voting Share of IntelliPharmaCeutics Corp. is ultimately
exchangeable for one common share of IntelliPharmaCeutics Ltd. Each
convertible voting share (and exchangeable share) of IntelliPharmaCeutics
Corp. is economically equivalent to a common share of IntelliPharmaCeutics
Ltd. and vice versa.

(2) For each exchangeable share of IntelliPharmaCeutics Corp. exchanged for a
common share of IntelliPharmaCeutics Ltd., one special voting share of
IntelliPharmaCeutics Ltd. will be cancelled.

(3) (a) In a transaction that took place in 2004, the Odidis, through their
holding company IntelliPharmaCeutics Inc. ("IPC Inc."), acquired
substantial control of IntelliPharmaCeutics Ltd. (then called Ready
Capital Corp.) ("IPC Ltd."). This 2004 transaction is called "IPC
Ltd.'s 2004 Capital Reorganization" or the "IPC Ltd. Reorganization".
The Odidis acquired this control when their operating company
IntelliPharmaCeutics Corp. ("IPC Corp."), which had significant
operations, employees and assets, merged with the wholly-owned
subsidiary of IPC Ltd. at a time that neither IPC Ltd. nor IPC Ltd.'s
subsidiary had any operations, employees or assets.

The result of this transaction was that the prior shareholders of IPC
Ltd. (the registrant) retained a 10.8% voting interest in IPC Ltd.
(1,679,946 common shares), new subscribers acquired an 18.0% voting
interest in IPC Ltd. (i.e. 2,800,000 common shares at $2.00 per
share), certain employees of IPC Corp. and a third party (all
unrelated to the Odidis) exercised pre-existing rights to acquire a
1.6% voting interest in IPC Ltd. (250,000 common shares for nominal
consideration) and the Odidis acquired a 69.6% voting interest in IPC
Ltd. (10,850,000 special voting shares). That 69.6% voting interest of
the Odidis (held by IPC Inc.) is now approximately 64.30% due to the
effect of additional IPC Ltd. common shares that have been issued to
third parties since 2004 (i.e. 464,000 shares at $2.00 per share,
115,713 shares at $3.50 per share and 714,285 shares at $7.00 per
share).

(b) IPC Ltd. is, in effect, an investment holding entity and has no
operations, employees or significant assets apart from the equity
interest that IPC Ltd. owns in IPC Corp. It is not presently
anticipated that IPC Ltd. will carry on other business or own assets
other than IPC Ltd.'s equity interest in IPC Corp.

(i) the Odidis merged their operating company with significant
assets, with IPC Ltd.'s shell-company subsidiary that had no
assets;

Page 1

(ii) the Odidis took a bifurcated interest in IPC Corp.; holding their
equity interest of approximately 69.6% directly in IPC Corp., and
holding a corresponding voting interest in IPC Ltd.;

(iii) in exchange for merging their substantial operating company, the
Odidis essentially acquired a deferred 69.6% equity interest in
IPC Ltd. (now 64.30%). However, at the time of the IPC Ltd.
Reorganization, the only shares in IPC Ltd. that the Odidis chose
to hold were bare voting shares representing this percentage
voting interest (but no economic/equity interest in IPC Ltd.).
For tax and business reasons, the Odidis deferred the issuance to
them of a corresponding equity interest in IPC Ltd. and instead
continued to maintain their equity interest for the 64.30%
amount, directly in IPC Corp. (exchangeable at the Odidis
discretion into an identical interest in IPC Ltd.). As such, in
the 2004 IPC Ltd. Capital Reorganization, the Odidis were granted
the right to acquire an equity interest in IPC Ltd. equal to
their ongoing equity interest in IPC Corp. by exchanging their
equity interest in IPC Corp., at such time as the Odidis choose,
on an equal share-for-share basis; and

(iv) as the Odidis exchange shares of IPC Corp. for common shares of
IPC Ltd., their shares of IPC Corp. are cancelled on a
share-for-share basis; and, in addition, their current special
voting shares in IPC Ltd. are cancelled on a share-for-share
basis. The table below illustrates the direct and indirect voting
and equity interests of the public and the Odidis in IPC Ltd. and
in IPC Corp., respectively.

(d) The Odidis are residents of Canada. IPC Corp. is a Canadian company.
In respect of IPC Ltd.'s 2004 Capital Reorganization and in all
issuances of shares by IPC Ltd. and IPC Corp. since that time, neither
the Odidis or their holding company, IPC Inc., has received any
proceeds. All proceeds from share issuances have gone to IPC Ltd. and,
in turn, to IPC Corp. for use in the operations of IPC Corp. in which
IPC Ltd. and the public shareholders as a group have a 35.70% economic
interest.

Among the business reasons for the Odidis to maintain their economic
interest in IPC Corp., rather than to hold their interest through IPC
Ltd., are avoiding unnecessary negative income tax consequences for
themselves, IPC Corp. and IPC Ltd. that can arise at such time as
such conversion is made. Such tax consequences relate principally to
the potential for (i) triggering Canadian capital gains taxes for the
Odidis that can arise at such time as equity shares of a Canadian
company are exchanged for equity shares of a non-Canadian company, and
(ii) Canadian research tax credits that are available for certain
companies, operating in Canada, that are Canadian controlled, such as
IPC Corp., and which are generally lost at such time as more than 50%
of the voting shares of the Canadian company are owned by a
non-resident company, regardless of whether the non-resident company
is controlled by people resident in Canada.

(i) Generally at such time as Canadian residents exchange their
equity shares in a Canadian company, such as IPC Corp, for equity
shares of a U.S. company, such as IPC Ltd., for Canadian income
tax purposes they will be deemed to have disposed of their
'Canadian shares' at fair market value and can be subject to
Canadian income tax on the amount that this exceeds their
original cost, even though the Canadian share owner has received
no cash proceeds whatsoever. To avoid income taxes arising where
there has been no disposition to a third party and where there
are no monetary proceeds, the Odidis have maintained their equity
investment in IPC Corp. Their special voting shares give the
Odidis no equity interest in IPC Ltd, but permit them, at such
time as they choose, to convert their share equity interest in
IPC Corp. into an equivalent share equity interest in IPC Ltd. on
an equal share-for-share basis. As indicated in paragraph 3(c)
above, at such time as the Odidis exchange their shares in IPC
Corp. for common shares in IPC Ltd., their economic interest in
IPC Corp. is extinguished and their special voting shares in IPC
Ltd. are cancelled on a share-for-share basis.

For the reasons described above, IPC Inc. and the Odidis own an
economic interest solely in IPC Corp. and own no economic
interest in IPC Ltd. until such time as they exchange their
shares of IPC Corp. for common shares of IPC Ltd. In the
meantime, the public owns 100% of economic interest in IPC Ltd.

Page 2

For the reasons described above in paragraphs (e)(i) and (c)(iii)
and (iv), IPC Inc. and the Odidis hold a 64.30% economic interest
in IPC Corp. until such time as they exchange their shares in it
for common shares of IPC Ltd. As indicated in paragraph 1 above,
each common share of IPC Ltd. is the economic equivalent of a
convertible voting (and exchangeable share) of IPC Corp. IPC Inc.
has covenanted in the Exchange and Support Agreement not to alter
such economic equivalence. It is for this reason that the
economic interest in IPC Corp. held by IPC Inc. and the Odidis
that consists of the fixed number of 10,850,000 convertible
shares in IPC Corp. has been steadily diluted from 69.6% in 2004
to 64.30% at present, as all new shares issues by IPC Ltd. have
increased its economic interest in IPC Corp. on an equal
share-for-share pro-rata basis and will continue to do so.

(ii) Since IPC Corp. is a Canadian company that carries on all of its
operations in Canada and is 64.7% majority owned and controlled
by Canadian residents, there is no reason for the Company to risk
losing the substantial benefit of the Canadian research tax
credits that it is entitled to until such time as Canadian equity
and voting interest in IPC Corp. declines below 50%. Avoiding the
loss by the company of the benefit of such tax credits for
operations carried out in Canada in these circumstances is thus
one of the business reasons why the Odidis presently continue to
hold their interest in IPC Corp. exclusively through IPC Corp.
and have not converted or exchanged these shareholders for shares
in the Company.

PRESENT INTERESTS, NON-DILUTED (1) PRESENT INTERESTS, DILUTED (2)
------------------------------------------------- --------------------------------------------------
PUBLIC ODIDIS PUBLIC ODIDIS
---------------------- ------------------------- ------------------------ ------------------------
EQUITY VOTING EQUITY VOTING EQUITY VOTING EQUITY VOTING
INTEREST INTEREST INTEREST INTEREST INTEREST INTEREST INTEREST INTEREST
---------- ---------- ---------- ------------- ---------- ------------ ---------- ------------

IPC
LTD. 100% 35.70% Nil 64.30% 35.70% 35.70% 64.30% 64.30%

(6,023,944 6,023,944 0 10,850,000 6,023,944 6,023,944 10,850,000 10,850,000
common ---------- ---------- ---------- ---------- ----------
shares) 16,873,944 16,873,944 16,873,944 16,873,944 16,873,944
voting voting shares common common common common
shares shares shares shares shares

IPC
CORP. 35.70% 35.70% 64.30% 64.30% 35.70% 35.70% 64.30% 64.30%

(indirect in Ltd., (direct in the Odidis in Ltd. in Ltd.
through which has Corp.) have a which will which will
Ltd.) a 50% separate 50% have a 100% have a 100%
voting voting voting voting
interest interest in interest in interest in
in Corp. Corp. which Corp. as Corp. as
the Odidis Ltd.'s Ltd.'s
will wholly-owned wholly-owned
surrender at subsidiary, subsidiary,
such time as at such time at such time
all their as the as the
shares in Odidis Odidis
Corp. are exchange exchange all
exchanged for all their their shares
common shares shares in in Corp. for
in Ltd. Corp. for common
common shares in
shares in Ltd.
Ltd.

6,023,944 6,023,944 10,850,000 10,850,000 6,023,944 6,023,944 10,850,000 10,850,000
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
16,873,944 16,873,944 16,873,944 16,873,944 16,873,944 16,873,944 16,873,944 16,873,944
shares voting shares shares common common common common
shares shares shares shares shares

Notes to above table:

(1) Before exchange of the Odidis' 10,850,000 convertible voting shares in IPC
Corp., ultimately for an equal number of common shares of IPC Ltd.

Page 3

(2) After:

(a) exchange of the Odidis' 10,850,000 convertible voting shares in IPC
Corp. and the following, which occur automatically on such exchange;

(b) the cancellation of the Odidis' special voting shares in IPC Ltd. on a
share-for-share basis, without any payment of capital;

THE OFFERING

Common stock outstanding 16,873,944 shares, assuming exchange of
before the offering 10,850,000 Exchangeable Shares of IPC Corp.
held by IPC Inc. and cancellation of 10,850,000
shares of Special Voting Stock held by IPC Inc.

Common stock offered by 4,557,068 shares, assuming exercise of all
selling stockholders warrants and unvested options included herein.

Common stock to be outstanding 22,312,853 shares, assuming exercise of all
after the offering warrants and unvested options, and assuming
exchange of 10,850,000 Exchangeable Shares of
IPC Corp. held by IPC Inc. and cancellation of
10,850,000 shares of Special Voting Stock held
by IPC Inc.

Risk Factors See "Risk Factors," beginning on page 5 for a
description of certain factors you should
consider before making an investment in our
common stock.

Use of Proceeds We will not receive any proceeds from the sale
of the common stock issued upon exercise of the
Exchangeable Stock. We will receive proceeds
from the conversion of outstanding warrants and
options. See "Use of Proceeds" for a complete
description.

Forward-Looking Statements This prospectus contains forward-looking
statements that address, among other things,
our expansion and acquisition strategy,
business development, use of proceeds,
projected capital expenditures, liquidity, and
our development of additional revenue sources.
The forward-looking statements are based on our
current expectations and are subject to risks,
uncertainties and assumptions. We base these
forward-looking statements on information
currently available to us, and we assume no
obligation to update them. Our actual results
may differ materially from the results
anticipated in these forward-looking
statements, due to various factors.

SUMMARY FINANCIAL INFORMATION

The information below was taken from the financial statements contained in
this prospectus and does not purport to be complete. Please refer to the audited
financial statements for the year ended December 31, 2006 and the unaudited
financial statements for the six months ended June 30, 2007 forming part of this
prospectus to put the following summary into context:

DECEMBER 31
JUNE 30 ------------------------
2007 2006 2005
----------- ----------- ----------

Revenues ........................................... $ 1,333,380 $ 1,490,310 $ Nil
Net Income (loss) .................................. (30,876) (1,319,571) (2,452,865)
Net Income (loss) per share ........................ (0.01) (0.08) (0.16)
Total Assets ....................................... 3,446,373 3,026,658 4,067,735
Due to Related Parties ............................. 2,075,630 1,503,299 1,757,897

Page 4

DECEMBER 31
JUNE 30 ------------------------
2007 2006 2005
----------- ----------- ----------

Total Liabilities .................................. 2,697,362 2,566,777 2,508,060
Shareholders' Equity ............................... 749,011 459,881 1,559,675
Number of Special Voting Shares and Common Shares .. 16,159,659 16,093,946 16,043,946
Retained Earnings (deficit) ........................ (6,442,626) (6,411,750) (5,092,179)
Cash Dividend declared per Share ................... Nil Nil Nil

RISK FACTORS

CAUTIONARY STATEMENTS

This prospectus contains forward-looking statements that should be read in
the context of accompanying meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from
those discussed in the forward-looking statement(s).

Except for historical information, this prospectus, the registration
statement on Form SB-2, of which this prospectus forms a part, our Annual
Reports on Form 10-KSB, our quarterly reports on Form 10-QSB, our current
reports on Form 8-K, periodic press releases, as well as other public documents
and statements, may contain forward-looking statements.

In addition, representatives of our Company may, from time to time,
participate in speeches and calls with market analysts, conferences with
investors and potential investors in our securities, and other meetings and
conferences. Some of the information presented in such speeches, calls, meetings
and conferences may be forward-looking and should be considered in the context
of the cautionary statements in such presentations and in this prospectus.

It is not reasonably possible to itemize all of the many factors and
specific events that could affect us and/or our industry as a whole. In some
cases, information regarding certain important factors that could cause actual
results to differ materially from those projected, forecasted, estimated,
budgeted or otherwise expressed in forward-looking statements made by or on
behalf of the Company may appear or be otherwise conveyed together with such
statements.

RISKS AND UNCERTAINTIES

An investment in our common stock involves a high degree of risk and should
be considered a highly speculative investment. Before deciding whether to
invest, you should carefully consider all of the information disclosed in this
prospectus and you should read and consider carefully the following risk
factors.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

GIVEN OUR HISTORICAL FINANCIAL LOSSES AND CURRENT FINANCIAL CONDITION, WE MAY
NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL, IF NEEDED OR COULD REDUCE THE VALUE
THE MARKET PLACES ON OUR COMMON STOCK.

Our operating company, IntelliPharmaCeutics Corp., commenced operations in
2002 and has incurred losses through June 30, 2007. For the six months ended
June 30, 2007 and the years ended December 31, 2006, 2005, 2004, 2003 and 2002
we incurred losses of $30,876, $1,319,571, $2,452,865, $1,662,352, $881,159 and
$95,802, respectively. As at December 31, 2006, we had an accumulated deficit of
$6,411,750. These historical financial losses and financial condition could make
it more difficult for us to obtain financing in the future or could reduce the
value the market places on our common stock.

We have no current commitment for any such additional future capital, and
we cannot assure you that additional capital will be available to us on terms
acceptable to us, or at all. Any sale of equity in the future may be highly
dilutive or on terms disadvantageous to our present shareholders. If we are
unable to sell additional equity, we

Page 5

may be forced to reduce our expenses and cash expenditures to a material extent,
which would impair our ability to fund operations and execute our business plan.

BECAUSE WE ARE OBLIGATED TO APPLY 25% OF OUR GROSS REVENUES TO THE REPAYMENT OF
CERTAIN DEBT, WE MAY BE FURTHER HINDERED IN THE EXECUTION OF OUR BUSINESS PLAN.

As at December 31, 2006, we owe Dr. Isa Odidi, our Chairman and Chief
Executive Officer (CEO) and Dr. Amina Odidi, our President, Chief Financial
Officer (CFO) and Chief Operating Officer (COO), $1,479,130 (CAN$1,723,193) in
connection with loans previously made by them to us. This obligation is payable
from 25% of gross revenues, until satisfied. The payment of this obligation will
further restrict our cash flow and could hinder or slow the implementation of
our business plan.

BECAUSE OUR PRODUCTS ARE STILL IN THE DEVELOPMENT STAGE, WE WILL CONTINUE TO
INCUR LOSSES, AND MAY NEVER ACHIEVE PROFITABILITY.

As we engage in the development of products in our pipeline, we will
continue to incur losses. There can be no assurance that we will ever be able to
achieve or sustain profitability or positive cash flow. Our ultimate success
will depend on whether our drug formulations receive the approval of the Food
and Drug Administration ("FDA") or other applicable regulatory agencies and we
are able to successfully market approved products. We cannot be certain that we
will be able to receive FDA approval for any of our drug formulations, or that
we will reach the level of sales and revenues necessary to achieve and sustain
profitability.

WE ARE DEPENDENT UPON DRS. ISA AND AMINA ODIDI AND IF WE LOSE ONE OR BOTH OF
THEM, OR IF WE ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL PERSONNEL, THEN WE
MAY BE UNABLE TO SUCCESSFULLY DEVELOP OUR BUSINESS.

We are dependent upon the scientific expertise of Dr. Isa Odidi, Chairman
and CEO, and Dr. Amina Odidi, President, CFO and COO. Although we now employ,
and will in the future continue to employ, other qualified scientists, only Drs.
Isa and Amina Odidi have the advanced knowledge, know-how and track record of
having successfully developed controlled-release products for other companies.

The success of our business depends, in large part, on our continued
ability to attract and retain highly qualified management, scientific,
manufacturing and sales and marketing personnel, on our ability to successfully
integrate large number of new employees into our corporate culture, and on our
ability to develop and maintain important relationships with leading research
and medical institutions and key distributors. Competition for these types of
personnel and relationships is intense, and the failure to obtain and retain
such personnel could have material adverse consequences.

OUR PATENTS MAY BE INVALID OR INADEQUATE, LEAVING US UNABLE TO PROTECT OUR
PROPRIETARY TECHNOLOGY.

We hold U.S. and foreign patents and have pending applications for
additional patents. We intend to continue to seek patent protection for, or
maintain as trade secrets, all of the commercially promising drug delivery
platforms and technologies that we have discovered, developed or acquired. Our
success depends, in part, on our ability, and our collaborative partners'
ability, to obtain and maintain patent protection for new product candidates,
maintain trade secret protection and operate without infringing the proprietary
rights of third parties. As with most biotechnology and pharmaceutical
companies, our patent position is highly uncertain and involves complex legal
and factual questions. Without patent and other similar protection, other
companies could offer substantially identical products for sale without
incurring the sizeable development costs that we have incurred. Our ability to
recover these expenditures and realize profits upon the sale of products could
be diminished. The process of obtaining patents can be time-consuming and
expensive, with no certainty of success. Even if we spend the necessary time and
money, a patent may not issue or it may insufficiently protect the technology it
was intended to protect. We can never be certain that we were first to develop
the technology or that we were the first to file a patent application for the
particular technology because of the time that elapses between patent filing and
publication, and because publications in the scientific or patent literature lag
behind actual discoveries. If our pending patent applications are not approved
for any reason, or if we are unable to receive patent protection for additional
proprietary technologies that we develop, the degree of future protection for
our proprietary technology will remain uncertain. Furthermore, third parties may
independently develop similar or alternative technologies, duplicate some or all
of our technologies, design around our patented technologies or challenge our
issued patents. Such third parties may have filed patent applications, or hold
issued patents, relating to products or processes competitive with those we are
developing. The patents of our competitors may impair our ability to do business
in a particular area. Our success will depend, in part, on our ability

Page 6

to obtain patents, protect trade secrets and other proprietary information and
operate without infringing on the proprietary rights of others.

OUR DEVELOPMENT OF BIOEQUIVALENT VERSIONS OF EXISTING DRUGS IS A PARTICULARLY
LITIGATION-PRONE SPECIALIZATION, AND WE THEREFORE FACE A CONSTANT AND
SUBSTANTIAL RISK OF LITIGATION THAT COULD MATERIALLY ADVERSELY AFFECT OUR
REVENUES BY PREVENTING US FROM SELLING KEY PRODUCTS OR REALIZING MILESTONES.

With respect to the segment of our business where we develop bioequivalent
versions of existing drugs, there has been substantial litigation in the
pharmaceutical industry concerning the manufacture, use and sale of new products
that are the subject of conflicting patent rights. When we file an Abbreviated
New Drug Application ("ANDA") for a bioequivalent version of a drug, we may, in
some circumstances, be required to certify to the FDA that any patent which has
been listed with the FDA as covering the branded product has expired, the date
any such patent will expire, or that any such patent is invalid or will not be
infringed by the manufacture, sale or use of the new drug for which the
application is submitted. Approval of an ANDA is not effective until each listed
patent expires, unless the applicant certifies that the patents at issue are not
infringed or are invalid and so notifies the patent holder and the holder of the
branded product. A patent holder may challenge a notice of non-infringement or
invalidity by suing for patent infringement within 45 days of receiving notice.
Such a challenge would prevent FDA approval for a period which ends 30 months
after the receipt of notice, or sooner if an appropriate court rules that the
patent is invalid or not infringed. From time to time, in the ordinary course of
business, we face such challenges.

WE RELY ON TRADE SECRECY TO PROTECT SOME KEY PROPRIETARY INFORMATION. IF OUR
CONFIDENTIALITY AGREEMENTS ARE BREACHED, WE MAY NOT HAVE ADEQUATE REMEDIES AND
COMPETITORS MAY GAIN ACCESS TO OUR TECHNOLOGY.

We rely on trade secrets, know-how and other proprietary information as
well as requiring our employees and other vendors and suppliers to sign
confidentiality agreements. However, these confidentiality agreements may be
breached, and we may not have adequate remedies for such breaches. Others may
independently develop substantially equivalent proprietary information without
infringing upon any proprietary technology. Third parties may otherwise gain
access to our proprietary information and adopt it in a competitive manner.

BECAUSE THE PHARMACEUTICAL INDUSTRY IS HIGHLY LITIGIOUS, WE MAY BE REQUIRED TO
INSTITUTE OR DEFEND LAWSUITS, AT SIGNIFICANT COST AND POSSIBLY RESULTING IN
MONETARY DAMAGES, BOTH OF WHICH COULD DISRUPT OUR BUSINESS OPERATIONS.

The cost of commencing or defending litigation, if necessary, could be
significant and could significantly drain our limited financial resources and
disrupt our business operations. While there is no litigation pending or
threatened against the Company, litigation to which we may be subjected could
relate to, among other things, our patent and other intellectual property
rights, licensing arrangements with other persons, product liability and
financing activities. Such litigation could include an injunction against the
manufacture or sale of a product or potential product or a significant jury
verdict or punitive damages award, or a judgment that certain of our patent or
other intellectual property rights are invalid or unenforceable. If such
litigation is commenced, our business, results of operations, financial
condition and cash flows could be materially adversely affected.

CERTAIN RAW MATERIALS THAT WE USE MAY BE PROPRIETARY PRODUCTS OF THIRD PARTIES,
AND A MATERIAL SHORTAGE, CONTAMINATION OR RECALL OF SUCH PRODUCTS COULD
ADVERSELY AFFECT OUR PRODUCT DEVELOPMENT OR SALES.

Certain raw materials, which may be necessary for the development and
subsequent commercial manufacturing of future products, may be proprietary
products of other companies. If our attempts to manage the risk associated with
such proprietary raw materials by the imposition of favourable contractual
provisions in supply contracts, by prudent management of inventories having
regard to sales forecasts, and by the continued search for alternative
authorized suppliers of such materials or their equivalents, fails, or if there
is a material shortage, contamination, and/or recall of such materials, the
resulting scarcity could adversely affect our ability to develop or manufacture
our products.

BECAUSE THE SUCCESSFUL DEVELOPMENT OF OUR PRODUCTS IS HIGHLY UNCERTAIN AND
REQUIRES SIGNIFICANT EXPENDITURES, THERE CAN BE NO ASSURANCE THAT ANY OF OUR
PRODUCTS WILL EVER BE SUCCESSFULLY COMMERCIALIZED.

Page 7

Successful development of our products is highly uncertain and is dependent
on numerous factors, many of which are beyond our control. Products that appear
promising in research or early phases of development may fail to reach later
stages of development or the market for several reasons including:

(a) For ANDA candidates, bioequivalence studies results may not meet
regulatory requirements for the demonstration of bioequivalence.

(b) For NDA candidates, a product may not demonstrate acceptable clinical
trial results, even though it demonstrated positive pre-clinical trial
results.

(d) A product may have harmful side effects on humans.

(e) Products may fail to receive the necessary regulatory approvals from
the FDA or other regulatory bodies, or there may be delays in
receiving such approvals. Among other things, such delays may be
caused by slow enrolment in clinical studies, extended lengths of time
to achieve study endpoints, additional time requirements for data
analysis, discussions with the FDA, FDA requests for additional
pre-clinical or clinical data, or unexpected safety, efficacy or
manufacturing issues.

(f) Difficulties may be encountered in formulating products, scaling up
manufacturing processes or in getting approval for manufacturing.

(g) Manufacturing costs, pricing or reimbursement issues, other
competitive therapeutics, or other commercial factors may make the
product uneconomical.

(h) The proprietary rights of others, and their competing products and
technologies, may prevent the product from being developed or
commercialized.

Success in pre-clinical and early clinical trials does not ensure that
large-scale clinical trials will be successful. As well, for ANDA candidates,
success in preliminary studies does not ensure the pivotal (submission)
bioequivalence studies will be successful. Results are frequently susceptible to
varying interpretations that may delay, limit or prevent regulatory approvals.
The length of time necessary to complete bioequivalence studies or clinical
trials and to submit an application for marketing approval for a final decision
by a regulatory authority varies significantly and may be difficult to predict.

Factors affecting our R&D expenses include, but are not limited to, the
number of, and the outcomes of, bioequivalence studies currently being conducted
by us and/or our collaborators. For example, our R&D expenses may increase based
on the number of bioavailability/bioequivalence studies or clinical trials being
conducted by us and/or our collaborators during a certain period.

As a result, there can be no assurance that any of our products currently
in development will ever be successfully commercialized.

BECAUSE WE ARE SIGNIFICANTLY SMALLER AND LESS EXPERIENCED THAN MANY OF OUR
COMPETITORS, WE MAY LACK THE FINANCIAL RESOURCES AND EXPERIENCE NECESSARY TO
SUCCESSFULLY BRING OUR PRODUCTS TO MARKET.

Many of our competitors, including smaller pharmaceutical companies such as
Scolr Pharma, Inc., Mistral Pharma Inc., Cipher Pharmaceuticals, Inc, and
Labopharm Inc., and including major pharmaceutical companies such as Teva
Pharmaceutical Industries Ltd., Impax Laboratories, Inc., Apotex, Inc., Sandoz,
Inc., and Biovail Corporation, as well as biotechnology firms, universities and
other research institutions, have substantially greater financial and technical
resources and production and marketing capabilities than we have. They also may
have greater experience in conducting bioequivalence studies, pre-clinical
testing and clinical trials of pharmaceutical products and obtaining FDA and
other regulatory approvals. Therefore, our competitors may succeed in developing
technologies and products that are more effective than the drug delivery
technology we are developing or that will cause our technology or products to
become obsolete or non-competitive, and in obtaining FDA approval for products
faster than we could. Even if we commence commercial sales of our products, we
will also be competing against their greater manufacturing efficiency and
marketing capabilities, areas in which we have limited or no experience.

Page 8

In the past, we have relied on, and expect to continue to rely on,
collaborative arrangements with third parties who provide manufacturing and/or
marketing support for some or all of our product candidates. Even if we find a
potential partner, we may not be able to negotiate an arrangement on favourable
terms or achieve adequate results. In addition, such arrangements can be
terminated under certain conditions and do not assure a product's success. We
also face, and will continue to face, intense competition from other companies
for collaboration arrangements with other pharmaceutical and biotechnology
companies.

Although we believe that our ownership of patents for some of our drug
delivery products will limit direct competition with these products, we must
also compete with established existing products and other promising technologies
and other products and delivery alternatives that may be more effective than our
products and proposed products. In addition, we may not be able to compete
effectively with other commercially available products or drug delivery
technologies.

BECAUSE WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION, INTRODUCTION OF OUR
PRODUCTS TO MARKET MAY BE CANCELLED OR DELAYED.

Governmental authorities in the United States and Canada regulate the
research and development, testing and safety of pharmaceutical products. See
"Business - Government Regulation". The regulations applicable to our existing
and future products may change. Regulations require extensive clinical trials
and other testing and government review and final approval before we can market
these products. The cost of complying with government regulation can be
substantial and may exceed our available resources causing delay or cancellation
of our product introductions.

Any failure or delay in obtaining regulatory approvals could make us unable
to market any products we develop and therefore affect our business, results of
operations, financial condition and cash flows. Even if approved in the United
States or Canada, regulatory authorities in other countries must approve a
product prior to the commencement of marketing the product in those countries.
The time required to obtain any such approval may be longer than in the United
States or Canada, which could cause the introduction of our products in other
countries to be cancelled or materially delayed.

OUR BUSINESS MAY INCUR SUBSTANTIAL EXPENSE TO COMPLY WITH ENVIRONMENTAL LAWS AND
REGULATIONS.

We may incur substantial costs to comply with environmental laws and
regulations. In addition, we may discover currently unknown environmental
problems or conditions. We are subject to extensive federal, state, provincial
and local environmental laws and regulations which govern the discharge,
emission, storage, handling and disposal of a variety of substances that may be
used in, or result from, our operations. Environmental laws or regulations (or
their interpretation) may become more stringent in the future.

BECAUSE OUR OPERATING COMPANY, INTELLIPHARMACEUTICS CORP., IS BASED IN CANADA,
AND BECAUSE WE INCUR EXPENSES IN CANADIAN CURRENCY, FLUCTUATIONS IN EXCHANGE
RATES COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS.

A large majority of our expenses are payable in Canadian dollars. There may
be instances where we have net foreign currency exposure. Any fluctuations in
exchange rates will impact our reported financial results. We may not be able to
hedge our currency risks.

WE MAY INCUR MATERIAL PRODUCT LIABILITY COSTS.

The testing and marketing of medical products entails an inherent risk of
product liability. Liability exposures for pharmaceutical products can be
extremely large and pose a material risk. In some instances, we may be or may
become contractually obligated to indemnify third parties for such liability.
Our business may be materially and adversely affected by a successful product
liability claim or claims in excess of any insurance coverage that we may have.

INSURANCE COVERAGE IS INCREASINGLY DIFFICULT TO OBTAIN AND MAINTAIN.

While we currently have, and in some cases are contractually obligated to
maintain, insurance for our business, property and our products as they are
administered in bioavailability/bioequivalence studies, first- and third-party
insurance is increasingly costly and narrow in scope. Therefore, we may be
unable to meet such contractual

Page 9

obligations or we may be required to assume more risk in the future. If we are
subject to third-party claims or suffer a loss or damage in excess of our
insurance coverage, we may be required to bear that risk in excess of our
insurance limits. Furthermore, any first- or third-party claims made on our
insurance policy may impact our ability to obtain or maintain insurance coverage
at reasonable costs or at all in the future.

THE COMPANY'S EFFECTIVE TAX RATE MAY VARY SIGNIFICANTLY.

Various internal and external factors may have favourable or unfavourable
effects on our future effective tax rate. These factors include but are not
limited to changes in tax laws, regulations and/or rates, changing
interpretations of existing tax laws or regulations, future levels of R&D
spending, the availability of tax credit programs for the reimbursement of all
or a significant proportion of R&D spending, and changes in overall levels of
pre-tax earnings. Our corporate structure was designed in part to ensure that we
qualify for certain substantial tax credits in Canada. In particular, at
present, we take advantage of favourable tax treatment in Canada for certain
research work pertaining to our drug delivery technologies and drug products in
research stages. If those Canadian tax laws as pertain to such research were
substantially negatively altered or eliminated, or if our applications for tax
credits are refused, it would have a material adverse effect upon our financial
results.

RISKS RELATED TO THE SECURITIES

THERE IS NO MARKET FOR OUR COMMON STOCK AND NO ASSURANCE THAT ONE WILL DEVELOP.

We intend to apply for a listing of our common stock on a stock exchange or
other organized trading market such as the Nasdaq SmallCap Market, the American
Stock Exchange ("AMEX"), the OTC Bulletin Board, the Toronto Stock Exchange, the
TSX Venture Exchange, CNQ (Toronto, Canada) or the London Stock Exchange's
Alternative Investment Market, but have not yet done so. There can be no
assurance that the application for our common stock will be approved, or that if
it is approved and listed, that a market will ever develop.

OUR STOCK PRICE WILL LIKELY BE HIGHLY VOLATILE.

Fluctuations in our operating results could affect the trading price of our
common stock. In addition, the market prices for securities of biotechnology
companies in general tend to be highly volatile and may continue to be highly
volatile in the future.

OUR CORPORATE AND CAPITAL STRUCTURE IS COMPLICATED; THEREFORE THE MARKET FOR OUR
COMMON STOCK MAY BE NEGATIVELY AFFECTED.

For corporate and tax reasons that result in significant benefit for us, we
have a complicated corporate and capital structure. (See "Description of
Securities," p. 46). This could affect the market liquidity for our common
stock, could limit your ability to sell your securities in the secondary market,
and could inhibit our ability to raise future capital.

BECAUSE INTELLIPHARMACEUTICS INC. ("IPC INC."), A CANADIAN HOLDING CORPORATION
CONTROLLED BY DRS. ISA AND AMINA ODIDI, CONTROLS US, YOU HAVE NO EFFECTIVE VOICE
IN OUR MANAGEMENT.

IPC Inc., a Canadian holding company owned by Drs. Isa and Amina Odidi,
owns approximately 64.30% of our outstanding voting stock through its ownership
of Special Voting Shares. Since the majority of outstanding voting shares are
owned by Drs. Odidi, purchasers of the shares offered by the Selling
Stockholders herein have no effective voice in our management.

DR. ISA ODIDI AND DR. AMINA ODIDI, THROUGH IPC INC., OWN A MAJORITY OF OUR
VOTING SHARES AND CAN DETERMINE THE OUTCOME OF OUR CORPORATE ACTIONS REQUIRING
BOARD OR SHAREHOLDER APPROVAL, AND MAY HAVE POTENTIAL CONFLICTS OF INTEREST
BECAUSE OF THEIR OWNERSHIP OF IPC INC.

Dr. Isa Odidi and Dr. Amina Odidi control IPC Inc., a Canadian holding
company that owns approximately 64.30% of our outstanding voting stock.
Consequently, IPC Inc. can determine the outcome of our corporate actions
requiring board or shareholder approval, such as:

- appointing officers and electing members of our Board of Directors;

Page 10

- adopting amendments to our charter documents; and

- approving a merger or consolidation, liquidation or sale of all or
substantially all of our assets.

In addition, conflicts of interest could arise between us and IPC Inc., and
any conflict of interest may be resolved in a manner that does not favor us. We
do not have any formal process in place to resolve any such actual or apparent
conflicts of interest.

IPC Inc. has stated that it intends to retain control of us. Any decision
regarding the ownership of us that IPC Inc. may make at some future time will be
in its absolute discretion. In order to retain control, IPC Inc. may decide not
to enter into a transaction in which our shareholders would receive
consideration for their shares that is much higher than the cost of their
investment in our common shares or the then current market price of our common
shares.

THERE ARE A LARGE NUMBER OF SHARES UNDERLYING IPC CORP.'S EXCHANGEABLE STOCK,
OPTIONS AND WARRANTS THAT MAY BE AVAILABLE FOR FUTURE SALE. THE SALE OF THESE
SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.

IPC Inc. owns 10,850,000 shares of exchangeable stock that can be converted
at will to an equivalent number of our common shares (see "Description of
Securities"). Subject to restrictions, under applicable securities laws, IPC
Inc. may be able to sell material quantities of these shares to private
investors or into the public market. We have, and intend to continue to, offer
common stock for sale in transactions exempt from the registration requirements
of the Securities Act in quantities similar to past recent transactions (see
"Recent Sales of Unregistered Securities") to raise additional working capital.
Shares sold in such transactions may be registered in the future for resale to
the public. The market price for our common stock could drop significantly if
these shares are sold or if the market perceives that the holders intend to sell
them.

BECAUSE OUR COMMON STOCK IS SUBJECT TO PENNY STOCK REGULATION, OUR COMMON STOCK
MAY NOT HAVE LIQUIDITY.

Our common stock is subject to regulations of the SEC relating to the
market for penny stocks. These regulations generally require that a disclosure
schedule explaining the penny stock market and the risks associated therewith be
delivered to purchasers of penny stocks and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors. The regulations applicable to
penny stocks may severely affect the market liquidity for our common stock and
could limit your ability to sell your securities in the secondary market.

INTELLIPHARMACEUTICS CORP., OUR OPERATING COMPANY, IS INCORPORATED IN NOVA
SCOTIA, CANADA, AND A SIGNIFICANT PORTION OF OUR ASSETS ARE LOCATED OUTSIDE THE
UNITED STATES. AS A RESULT, IT MAY NOT BE POSSIBLE FOR SHAREHOLDERS TO ENFORCE
CIVIL LIABILITY PROVISIONS OF THE U.S. FEDERAL OR STATE LAWS.

Our operating company is a corporation organized under the laws of Nova
Scotia. Most of our directors and officers and some of the experts named in this
prospectus reside principally in Canada. Because these persons are located
outside the U.S., it may not be possible for you to effect service of process
within the U.S. upon those persons. Furthermore, it may not be possible for you
to enforce against us or them, in the U.S., judgments obtained in U.S. courts,
because all or a substantial portion of our assets and the assets of those
persons are located outside the U.S. There are defenses that can be raised to
the enforceability, in original actions in Canadian courts, of liabilities based
upon the U.S. federal securities laws and to the enforceability in Canadian
courts of judgments of U.S. courts obtained in actions based upon the civil
liability provisions of U.S. federal securities laws, such that the enforcement
in Canada of such liabilities and judgments is not certain. Therefore, it may
not be possible to enforce those actions against us, our directors and officers
or the experts named in this prospectus.

INTELLIPHARMACEUTICS INC. MAY CONVERT ITS 64.30% EQUITY INTEREST WHICH IT
CURRENTLY HOLDS DIRECTLY IN INTELLIPHARMACEUTICS CORP. TO THE SAME EQUITY
INTEREST IN INTELLI-PHARMACEUTICS LTD.

Through the conversion and exchange of the 10,850,000 shares held by IPC
Inc. in IPC Corp, IPC Inc. has the right to convert its current 64.30% equity
interest in IPC Corp. to the same equity interest in IPC Ltd., but held through
shares in the Company instead. The terms for any such exchange are that IPC Inc.
will have its shares and

Page 11

voting rights in IPC Corp. extinguished on a share-for-share basis as it
converts these shares into common shares of the Company, which are all
economically equivalent shares, IPC Inc.'s special voting shares in the Company
will also be cancelled on a share-per-share basis for every IPC Corp. share
exchanged. The result is that IPC Inc.'s voting interest in the Company will be
identical after such a share exchange and its equity interest in IPC Corp. will
also be identical after such exchange, except solely that the interest exchanged
will thereafter be held indirectly through the Company rather than directly in
IPC Corp. IPC Inc. will continue to have the right to 50% voting rights in IPC
Corp, although it is the Odidis' intention that if and when their economic
interest in IPC Corp. has declined below 50%, they will propose and support the
amendment of voting rights in IPC Corp. to be identical to the economic
interest, such that IPC Ltd. will control IPC Corp. from such time. If the
Odidis did not implement and support an amendment to the voting rights of IPC
Corp. at such time, there is a material risk that the Odidis would maintain a
voting interest of 50% in IPC Corp. beyond the time that the economic interest
in IPC Corp. had declined below 50%.

RISK OF DILUTION FROM EXERCISE OF THE 5,000,000 PERFORMANCE BASED OPTIONS ISSUED
TO THE COMPANY'S CHIEF SCIENTIST.

The chief scientists for the Company and IPC Corp., Drs. Isa and Amina
Odidi, hold 500,000 of vested options and 4,500,000 of unvested options to
purchase shares of common stock of the Company These options were issued in
2004, are exercisable at $2.00 per share and vest only as follows: (a) 500,00
upon acceptance by the FDA of a drug filing by IPC Corp., and (b) 500,000 upon
approval by the FDA of a drug filing by IPC Corp. As the Company's chief
scientists invent drugs for the benefit of its shareholders, the vesting of
these options will provide them with the right to increase their shareholdings
in the Company at the option price of $2.00 that was granted in 2004 at the time
of the issuance of the options. If all 5,000,000 options were earned and
exercised from the acceptance and approval of drugs by the FDA and the payment
of the share price by the Odidis to the Company, they could acquire shares in
the Company that increase their voting rights from approximately 64.30% to 72.5%
and their economic interest in IPC Corp. to the same extent.

USE OF PROCEEDS

We will not receive proceeds from the resale of shares of common stock in
this offering. In the future, we may receive up to a maximum of $835,500 from
the exercise of the warrants, and up to $10,000,000 upon the exercise of stock
options. Such proceeds, if any, will be used for working capital.

SELLING STOCKHOLDERS

The following table sets forth the common stock ownership of the selling
stockholders as of October 26 2007, including the number of shares of common
stock issuable upon the exercise of warrants held by the selling stockholders,
and shares of common stock underlying unvested options. Other than as set forth
in the following table, the selling stockholders have not held any position or
office or had any other material relationship with us or any of our predecessors
or affiliates within the past three years.

To our knowledge, the only selling stockholders that are a broker-dealer or
an affiliate of a broker-dealer are Bear Stearns Securities Corp. and Aegis
Capital Corp. To our knowledge, Bear Stearns Securities Corp. and Aegis Capital
Corp. (a) acquired their shares of common stock in the ordinary course of
business, and (b) at the time of the acquisition of their shares of common
stock, had no agreements or understandings, directly or indirectly, with any
person to distribute the shares.

SECURITIES
SECURITIES OWNED OWNED
PRIOR TO OFFERING SECURITIES OFFERED (1) AFTER
-------------------- ----------------------- OFFERING (2)
COMMON OPTIONS/ COMMON % OWNERSHIP COMMON
STOCK WARRANTS STOCK OFFERED (3) STOCK
--------- -------- --------- ----------- ------------

Aegis Capital Corp. (4) -- 23,550 23,550 0.36% 0
Stephen Akerfeldt 2,000 -- 2,000 0.03% 0
John Allport (5) 200,000 200,000 3.09% 0
American Business Systems Inc. (6) 22,675 -- 22,675 0.35% 0
Elliot Bauer 9,333 -- 9,333 0.14% 0

Page 12

Arnold Beckett (7) -- 10,000 10,000 0.15% 0
Gerald A. Brauser 496,665 -- 496,665 7.68% 0
Bridge Ventures, Inc. (8) 309,988 -- 309,988 4.80% 0
Urs Brunner 35,000 -- 35,000 0.54% 0
Nancy Caldarola 9,333 -- 9,333 0.14% 0
Frank Carr 14,000 -- 14,000 0.22% 0
Cede & Company (9) 1,263,903 -- 1,263,903 19.56% 0
Dutchess Foundation (10) 228,866 -- 228,866 3.54% 0
EFG Bank 15,000 -- 15,000 0.23% 0
Robert J. Eide -- 23,550 23,550 0.36% 0
David Filer (11) -- 119,988 119,988 1.86% 0
Annelies Freedman 6,500 -- 6,500 0.10% 0
Bonnie Freedman 1,000 1,000 0.02% 0
Michael Freedman 33,333 75,000 108,333 1.68% 0
Susan Freedman 23,333 -- 23,333 0.36% 0
Sharon Fuerst 23,333 -- 23,333 0.36% 0
Vincent Fuerst 1,000 1,000 0.02% 0
Anthony C. Giamanco 100 -- 100 0.00% 0
Ava Giamanco 100 -- 100 0.00% 0
Carey Giamanco 100 -- 100 0.00% 0
Christian Giamanco 100 -- 100 0.00% 0
Gabriella Giamanco 100 -- 100 0.00% 0
Jack Giamanco 100 -- 100 0.00% 0
Joseph Giamanco Jr 100 -- 100 0.00% 0
Joseph N. Giamanco 100 -- 100 0.00% 0
Max Giamanco 100 -- 100 0.00% 0
Mia Giamanco 100 -- 100 0.00% 0
Pamela Giamanco 100 -- 100 0.00% 0
Sofie Giamanco 100 -- 100 0.00% 0
Victor Giamanco 200 -- 200 0.00% 0
Eric Goldstein 23,333 -- 23,333 0.36% 0
Toby Goldstein 500 500 0.01% 0
Norman Gottlieb -- 31,400 31,400 0.49% 0
Frank Grillo 14,316 -- 14,316 0.22% 0
Donald Heimler 3,000 -- 3,000 0.05% 0
Dawn Hewton 1,500 -- 1,500 0.02% 0
Carole Howard 63,333 -- 63,333 0.98% 0
Samira Jaffer 7,500 -- 7,500 0.12% 0
Robin Joyce 1,000 1,000 0.02% 0
Kenneth Keirstead (12) 10,000 10,000 0.15% 0
Herma King 1,500 -- 1,500 0.02% 0
Ronald King 7,500 -- 7,500 0.12% 0
Kingmill Capital Partners Inc. (13) 10,421 10,421 0.16% 0
James Kluber 1,000 -- 1,000 0.02% 0

Page 13

Henry Kramer 18,666 -- 18,666 0.29% 0
Bahadur Madhani (14) 10,000 10,000 0.15% 0
Rose Mc Allister 14,085 -- 14,085 0.22% 0
R. Bruce McFarlane 50,000 -- 50,000 0.77% 0
Metropolitan Commercial (15) 22,675 -- 22,675 0.35% 0
John A. Moore 59,165 -- 59,165 0.92% 0
John J. Moroney 25,000 25,000 0.39% 0
Alan Norwood 5,000 -- 5,000 0.08% 0
Maxim Nuddelmann 8,572 -- 8,572 0.13% 0
OZF Investment LLC (16) 150,000 -- 150,000 2.32% 0
Baji Palkhiwala 166,665 50,000 216,665 3.35% 0
Reva Enterprises (17) 3,436 -- 3,436 0.05% 0
Joseph C. Roselle 14,000 -- 14,000 0.22% 0
Jill Savarese 500 500 0.01% 0
J. Douglas Schmidt 9,333 -- 9,333 0.14% 0
Securities Settlement Corp. (18) 20,999 -- 20,999 0.32% 0
Thomas Siklos 1,000 -- 1,000 0.02% 0
Smacs Holding Corp. (19) 93,330 -- 93,330 1.44% 0
Alexandr Soloviov 1,428 -- 1,428 0.02% 0
The Gerald A Brauser Irrevocable
Trust (20) 250,000 -- 250,000 3.87% 0
Cara Thompson 1,000 -- 1,000 0.02% 0
Matwej Troitschanski 2,857 -- 2,857 0.04% 0
Galina Troychanskaya 1,428 -- 1,428 0.02% 0
Mikhail Troychanskiy 1,428 -- 1,428 0.02% 0
Dianne Will (10) 48,666 -- 48,666 0.75% 0
Sharon Will 277,782 277,782 4.30% 0
Willstar Consultants, Inc. (10) -- 25,000 25,000 0.39% 0
Patrick Yat (5) 50,000 50,000 0.77% 0
Z&K Consulting, LLC (21) -- 50,000 50,000 0.77% 0
--------- ------- --------- ------ ---
Sub-Total 4,118,159 438,909 4,557,068 70.51% 0
--------- ------- --------- ------ ---
Other Holders Not Included Herein
for Resale 1,905,785 1,905,785 29.49%
--------- --------- ------
Total Issued Common Shares and
Options and Warrants, Excluding
Those Below of the Odidis (Note
(3)) 6,023,944 6,462,853 100.00%
========= ========= ======

(1) Assumes that the 438,909 warrants/options will be exercised and the 438,909
common stock underlying the warrants/options will be issued.

(2) Assumes that all securities registered will be sold.

(3) Applicable percentage ownership is based on 6,023,944 shares of common
stock outstanding as of October 26, 2007, together with 438,909 options and
warrants exercisable or convertible into shares of common stock within 60
days of the Effective Date held by all parties other than the Odidis. Does
not include 10,850,000 common shares issuable on ultimate conversion of
10,850,000 shares of Special Voting Stock owned by IntelliPharmaCeutics
Inc. or the 5,000,000 common shares that may be issued pursuant to
performance-based

Page 14

options held by the Odidis of which 4,500,000 remain unvested as at October
31, 2007 (see pages 1 - 3). Dr. Isa Odidi, our Chairman and CEO and Dr.
Amina Odidi, our President, CFO and COO, control IntelliPharmaCeutics Inc.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock that
are currently exercisable or exercisable within 60 days of the Effective
Date are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of such
person, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.

(4) Disposition of securities controlled by Robert Eide.

(5) John Allport and Patrick Yat are senior management of the Company.

(6) Disposition of securities controlled by Frank Grillo.

(7) Director of Company.

(8) Disposition of securities controlled by Harris Freedman.

(9) Represents shares of common stock held on behalf of the following:

Brnstn LLC 12,500
Charles Schwab 37,500
Citigroup 25,00
E*Trade 20,000
Frst Clear 30,000
Goldman LP 406,178
MSC/Retail 96,494
NFS LLC 352,663
Oppenheime 106,000
Pershing 50,000
RBC Dain 50,000
Ridge Clea 25,000
TD Ameritrade 18,564
UBS Finacnial 35,000
---------
Total 1,263,899

(10) Dutchess Foundation and Willstar Consultants, Inc. are entities controlled
by Sharon Will and Diane Will, respectively. Sharon Will and Diane Will are
former President and Secretary, respectively, of the Company.

(11) Service provider to the Company.

(12) Director of the Company.

(13) Disposition of securities controlled by David Mitchell and associates.

(14) Director of the Company.

(15) Disposition of securities controlled by Frank Grillo.

(16) Disposition of securities controlled by Dr. Tis Prager.

(17) Disposition of securities controlled by Harold Paul.

(18) Represents shares of common stock being held on behalf of persons being
determined by inquiry to the depository.

(19) Disposition of securities controlled by Annelies Freedman.

(20) Disposition of securities controlled by Gerald Brauser.

(21) Disposition of securities controlled by Henri Kramer.

PLAN OF DISTRIBUTION

We are registering 4,557,068 shares of common stock on behalf of the
selling stockholders. We are paying all costs, expenses and fees in connection
with the registration of shares offered by this prospectus. Brokerage
commissions, if any, attributable to the sale of shares will be borne by the
selling stockholders.

The selling stockholders and any pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. However, until our shares of common stock are quoted on the
Nasdaq SmallCap Market, AMEX, the OTC Bulletin Board or other stock exchange, if
ever, the Selling Shareholders may from time to time sell their shares pursuant
to this prospectus only at a fixed price. The selling stockholders may use any
one or more of the following methods when selling shares:

Page 15

(a) ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;

(b) block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;

(d) an exchange distribution in accordance with the rules of the
applicable exchange;

(e) privately negotiated transactions; or

(f) any other method permitted pursuant to applicable law.

Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. Each selling stockholder does not expect these commissions and
discounts relating to sales of shares to exceed what are customary in the types
of transactions involved. In connection with the sale of our common stock or
interests therein, the selling stockholders may enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn engage in
short sales of the common stock in the course of hedging the positions they
assume. The selling stockholders may also sell shares of our common stock short
and deliver these securities to close out their short positions, or loan or
pledge the common stock to broker-dealers that in turn may sell these
securities. The selling stockholders may also enter into options or other
transactions with broker-dealers or other financial institutions or create one
or more derivative securities which require the delivery to such broker-dealer
or other financial institution of shares offered by this prospectus, which
shares such broker-dealer or other financial institution may resell pursuant to
this prospectus (as supplemented or amended to reflect such transaction).

The selling stockholders and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the meaning of
the Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each selling stockholder has informed us
that it does not have any agreement or understanding, directly or indirectly,
with any person to distribute the common stock.

Because the selling stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act. In addition, any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus. The
selling stockholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of the shares. If we are notified by any selling stockholder
that any material arrangement has been entered into with a broker-dealer for the
sale of shares, we must file an amendment to the registration statement which
provides the name(s) of the broker-dealer(s), describes the relationship between
the Company and such broker-dealer and identifies the broker-dealer(s) as
underwriter(s). There is no underwriter or coordinating broker acting in
connection with the proposed sale of the shares by the selling stockholders.

We are required to pay certain fees and expenses incurred incident to the
registration of the shares. We estimate that the total expenses of the offering
payable by us will be about $190,000. We have agreed to indemnify the selling
stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.

Under the securities laws of the United States, our directors, executive
(and certain other) officers, and any persons holding ten percent or more of our
common stock will, following the effectiveness of this registration statement,
report on their ownership of the common stock and any changes in that ownership
to the Commission. Furthermore, such selling stockholders may in some cases be
liable under the securities laws of the United States for any profits realized
on purchases and sales, or sales and purchases, of the common shares taking
place within a 6-month period. No selling stockholder may trade in the shares
while in possession of material non-public information.

We agreed to keep this prospectus effective until the earlier of (i) the
date on which the shares may be resold by the selling stockholders without
registration and without regard to any volume limitations by reason of Rule
144(e) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to

Page 16

the prospectus or Rule 144 under the Securities Act or any other rule of similar
effect. The shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states, the shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the shares may not simultaneously engage in
market making activities with respect to our common stock for a period of two
business days prior to the commencement of the distribution. In addition, the
selling stockholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales of shares of our common stock by the
selling stockholders or any other person. WE WILL MAKE COPIES OF THIS PROSPECTUS
AVAILABLE TO THE SELLING STOCKHOLDERS AND WILL INFORM THEM OF THE NEED TO
DELIVER A COPY OF THIS PROSPECTUS TO EACH PURCHASER AT OR PRIOR TO THE TIME OF
THE SALE.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR SECURITIES

There is currently no market for our common stock. We intend to apply for a
listing of our common stock on either the Nasdaq SmallCap Market, AMEX, or, in
the alternative, the OTC Bulletin Board, but have not yet done so. There can be
no assurance that the application for our common stock will be approved, or that
if it is approved and listed, that a market will ever develop.

As of October 26, 2007, there were approximately 148 stockholders of record
of the Company's common stock. There are 6,023,944 shares of common stock
outstanding as of October 26, 2007, together with 288,921 warrants and 649,988
options exercisable or convertible into shares of common stock within 60 days of
the Effective Date, and 10,850,000 common shares issuable on ultimate
conversion, at any time, of 10,850,000 shares of Special Voting Stock owned by
IntelliPharmaCeutics Inc. (see "Description of Securities" Page 46). Dr. Isa
Odidi, our Chairman and CEO and Dr. Amina Odidi, our President, CFO and COO
control IntelliPharmaCeutics Inc. Drs. Isa and Amina Odidi also own unvested
stock options underlying 4,500,000 shares of common stock, which only vest as
follows: (a) 500,000 upon acceptance of a drug filing by IntelliPharmaCeutics
Corp., and (b) 500,000 upon approval of a drug filing by IntelliPharmaCeutics
Corp. None of the Registrant, IntelliPharmaCeutics Inc., or Drs. Isa or Amina
Odidi currently proposes to register any additional shares for public offering
that would have a material effect on the price of the shares offered hereunder.
However, we have, and intend to continue to, offer common stock for sale in
transactions exempt from the registration requirements of the Securities Act in
quantities similar to past recent transactions (see "Recent Sales of
Unregistered Securities") to raise additional working capital. Shares sold in
such transactions may be registered in the future for resale to the public.
Also, IntelliPharmaCeutics Inc. may convert its Special Voting Shares or
Convertible Voting Shares into common stock and may place significant quantities
of common stock to limited numbers of private purchasers, and may sell limited
quantities of shares pursuant to Rule 144 of the Securities Act. Such sales by
us or by IntelliPharmaCeutics Inc. could have a material effect on the price of
the shares offered hereunder.

DIVIDEND POLICY

To date, we have not declared or paid any cash dividends on our common
stock. Any future determination to pay dividends on our common stock will depend
upon our results of operations, financial condition and capital requirements,
and such other factors deemed relevant by our Board of Directors.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AND PLAN OF OPERATION

The information in this filing contains certain forward-looking statements
regarding, among other things, the anticipated financial and operating results
of the Company and the prospects of the industry in which it operates. These
statements should be read in the context of accompanying meaningful cautionary
statements identifying important factors that could cause actual results to
differ from the projected results. All statements other than statements of
historical facts made in this prospectus are forward looking. The Company
undertakes no obligation to publicly release any modifications or revisions to
these forward-looking statements to reflect events or circumstances occurring
after the date hereof, or to reflect the occurrence of unanticipated events. The
Company cautions investors that actual financial and operating results and
industry conditions may differ materially from those projected in
forward-looking statements made by, or on behalf of, the Company. Such
forward-looking statements involve known

Page 17

and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements expressed or implied by such
forward-looking statements.

The following discussion and analysis should be read in conjunction with
the annual consolidated financial statements and the unaudited interim
consolidated financial statements of IntelliPharmaCeutics Ltd., included
herewith, and the information under "Risk Factors". This discussion should not
be construed to imply that the results discussed herein will necessarily
continue into the future, or that any conclusion reached herein will necessarily
be indicative of actual operating results in the Company.

Unless the context otherwise requires, the terms "we", "our", "us" and the
"Company", refer to IntelliPharmaCeutics Ltd. and/or IntelliPharmaCeutics Corp.
as the context requires. Unless stated otherwise, all references to "$" are to
the lawful currency of the United States and all references to "C$" are to the
lawful currency of Canada.

OVERVIEW

IntelliPharmaCeutics Ltd. ("IPC Ltd") formerly Ready Capital Corp.
("Ready"), was incorporated in New York on February 23, 1988 as a "blank check"
corporation. On February 23, 2004, Ready agreed to merge its wholly-owned Nova
Scotia subsidiary into IntelliPharmaCeutics Corp., a Canadian pharmaceutical
company ("IPC Corp"). On September 10, 2004, IPC Ltd. (the corporate successor
of Ready) completed the merger of its Nova Scotia subsidiary with IPC Corp. and
at the same time, reincorporated itself in Delaware.

We apply our proprietary drug delivery technology in two ways:

(a) developing improved controlled-release versions of existing
immediate-release branded drugs (requiring new drug applications
(NDA)), and

(b) developing and commercializing controlled-release generics (requiring
abbreviated new drug applications (ANDA)).

Controlled-release means releasing a drug into the bloodstream or target
site in the body over an extended period of time or at predetermined times.
Generic drugs are bioequivalent to existing controlled-release branded products.

In the opinion of Company management:

(a) our delivery technologies offer competitive development times for the
following specific reasons; because of the proven robustness and
versatility of those technologies in their application that has been
demonstrated to work with a broad range of small drug molecules, and
because of the experience of our chief scientists in applying them to
such molecules, application to new drug molecules proceeds quickly and
efficiently.

(b) our delivery technologies offer competitive development costs for the
following specific reasons; because the technologies use only readily
available, low-cost ingredients already acceptable to regulatory
authorities such as the FDA, and because development times are short
as stated above at (a), our development costs are low.

(c) large pharmaceutical companies may license our improved products for
life-cycle management and franchise extension of their branded
products as they come off patent. With impending loss of branded
products revenues, a new product such as ours, which offers the
advantage of once-a-day dosing, should be very attractive to large
pharmaceutical companies facing revenue loss in a patented branded
product franchise. A recent industry example is the license of a
once-a-day Wellbutrin XL formulation from Biovail Corporation to GSK
Inc.

(d) manufacturers and distributors of generic drugs may license our
technologies and products. Because our development times are short and
cost-effective described in (a) and (b) above, our generic once-a-day
products represent a cost-effective opportunity for generic
distributors to add valuable generic products to their portfolios.

Page 18

PLAN OF OPERATION

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Sources of cash have been financing activities and revenues from
development contracts. The Company had cash reserves of $375,054 as at December
31, 2006; and $3,274,572 as at October 31, 2007.

Net cash used by operating activities was $887,197 for the fiscal year
ended December 31, 2006, as compared to net cash used in operation of $2,156,926
for the year earlier period. The cash used was primarily a decrease in accounts
payable of $301,597 and an additional source of cash was unearned revenue of
$614,912 which represents the cash received up front.

Net cash used by operating activities was $1,078,194 for the period ended
June 30, 2007, as compared to net cash used in operating of $981,052 for the
year earlier period. The cash used was primarily an increase in investment tax
credits of $506,008 and a decrease in unearned revenue of $443,949.

During the fiscal period ended December 31, 2006, the company reimbursed
$254,598 that was previously advanced by related parties. During the period
ending June 30, 2007, the Company received $572,331 that was advanced by related
parties and $220,550 received from the issuance of capital stock.

Net cash used in investing activities was $747,518 for the fiscal period
December 31, 2006, representing purchases of property and equipment, compared to
$1,020,945 for the year earlier period. Net cash used in investing activities
was $44,799 for the period June 30, 2007, representing purchases of property and
equipment, compared to $658,714 for the period ended June 30, 2006.

During the period ended December 31,2006, the net decrease in the cash and
cash equivalent was $1,702,955 leaving cash and cash equivalents as at December
31, 2006, of $375,054. During the period ended June 30, 2007, the net decrease
in the cash and cash equivalent was $343,401.

Current expenditures to carry out the Company's business plan on a normal
course basis are estimated to be approximately $220,000 per month ($2.6 million
annually) comprised primarily of research and development costs of $103,538,
wages and benefits of $33,397, administrative costs of $30,912 occupancy costs
of $20,026 and marketing costs of $21,842.

Research and development costs for the next 12 months are expected to
increase over 2006 due to increase in staff and activity. However, some of the
increased research and development activity is expected to be from funded
projects where some expenses are reimbursed to the Company. Similarly,
management does not anticipate any overall increase in wages and benefits and
administrative costs for the next 12 months. Occupancy costs are anticipated to
increase by approximately 10% to $20,026 monthly ($240,312 annually) for the
next 12 months due to the costs of utilities and janitorial services as the
Company continues to utilize its manufacturing facility. Marketing costs for the
next 12 months are expected to be reduced by 25% from 2006 levels as three
consulting contracts terminated in October 2007 and have not been renewed as the
functions are being handled in-house.

Sources of funds expected in the next 12 months include approximately
$1,150,000 in potential milestone payments from the Company's various
development agreements and approximately $1,268,660 in investment tax credits as
at June 30, 2007 both as more particularly described below under "Financial
Condition, Liquidity and Capital Resources."

RESEARCH AND DEVELOPMENT

An estimation of funds expected to be reasonably likely in the next 12
months include $1,150,000 in potential milestone payments relating to a variety
of drug development activities on some of the drug products we currently have
under development. The activities required to be completed to earn those
milestones are as set out below. While management believes the achievement of
these milestones and the related revenues is reasonably likely over the next 12
months, drug development activities always involve significant uncertainties and
there can be no assurance that any particular one of these milestones will occur
or that all of them will occur to generate the revenues described over the next
12 months.

Page 19

AGREEMENT ACTIVITY MILESTONE
--------- -------- ---------

One of several products under development Successful Bioequivalence Studies for an ANDA $ 500,000

One of several products under development Stability Studies Successful $ 100,000
Bioequivalence Studies Successful $ 150,000
Submission Data complete for filing $ 75,000
Approval to Market $ 75,000
Validation batches successful $ 150,000

One of several products under development Initiation of Clinical Studies $ 100,000
----------
Total $1,150,000
==========

We are currently focusing our efforts on the following areas:

(a) Obtaining regulatory approval for 11 generic, controlled release
pharmaceutical products, 9 in the USA through the FDA mandated
procedures (ANDAs), and 2 in Canada through the similar Health Canada
procedures (ANDSs), and obtaining regulatory approval for 1 new
controlled release pharmaceutical product (NDA) which is a
reformulation of an existing successful immediate release product. Of
these 12 projects, 8 are being pursued in conjunction with a
development partner, and 4 (3 US ANDAs and 1 Canadian ANDS) are being
pursued by the Company for its sole benefit. In May 2007, the Company
filed an ANDA with the FDA for a drug developed in collaboration with
a partner and intended for the US market. In August 2007, that
application was accepted by the FDA as being complete and in condition
for further review. The review process takes one year or longer, and
there can be no assurance that the FDA will approve the product for
commercial launch in the USA.

(b) commercial exploitation of these products either by license and the
collection of royalties, or through the manufacture of tablets and
capsules using our developed formulations; and

(c) development of new products and increasing the number of licensing
agreements with other pharmaceutical companies beyond those six
already in place, including to collaborate in contract research and
development, joint ventures and other drug development and
commercialization projects.

We have also provided the table below to summarize the development status
of the 12 products currently under development. We are unable to provide the
time frame and the anticipated costs for the remaining principal steps, as these
are speculative, uncertain and highly variable, including competitive factors
and factors in the marketplace beyond our control, such as drug filings in these
generic products by other companies that give them priority or exclusivity in
sales before we have completed development.

As to the time frame, the timing of research and development activity is
dependent upon many factors, including the degree of interest of any development
partner in the project from time to time, the degree of difficulty of problems
encountered, the success or otherwise of successive development stages and the
need to repeat studies, the availability and scheduling of personnel and testing
and manufacturing sites and facilities, market forces concerning the branded
drug for which a generic substitute is being developed, and the relative
availability and allocation of funds to specific projects.

As to the anticipated costs, these also depend on many factors, including
the success or otherwise of successive stages and the need to repeat expensive
human studies, the cost of high-cost pharmaceutically active ingredients at the
time of ordering, which is dependent upon market forces which include demand,
scarcity, number of sources, patent protection and the like, and the priority
given to the project from time to time by the development partner, with greater
costs generally associated with greater urgency.

We have attached Flow Diagrams supplied by the FDA, which show the
application and approval process for ANDAs (Exhibit 99.2) and NDAs (Exhibit
99.3) with the FDA (which is generally applicable to the procedures of all
relevant national regulators), Each ANDA or NDA must proceed through each step.

Below is a list showing the major research and development steps which the
Company must execute or oversee for each ANDA or NDA candidate prior to filing
with a regulator such as the FDA:

Page 20

1) Pre-Formulation

2) Formulation

3) Manufacture of Pilot Bio-batches

4) Conduct Pilot Bioequivalence Studies

5) Scale-up to Manufacturing Scale

6) Manufacture of Batches for Pivotal Bioequivalence Studies

7) Conduct Pivotal Bioequivalence Studies

8) Conduct Stability Studies

9) Prepare and File Dossier with the FDA

Finally, the table below shows the present status of each of the Company's
present ANDA or NDA candidate products. Each such candidate must ultimately
complete each stage of the list above and undergo each stage of the applicable
FDA Flowchart Exhibit 99.2 or 99.3 prior to obtaining approval to go to market.
As is customary in a competitive generic drug market where knowledge of
development by a competitor can commence or accelerate steps by other drug
developers to complete their own development for that product and be "first to
file" with various exclusivity and priority rights that can sterilize the value
of a product under development, the drugs in the Company's current pipeline are
indicated by a product number rather than by a name, that the public disclosure
of a name of a product under development would provide that information to
competitors and put the Company's drug development at exceptional and unusual
risk.

PRODUCT (COUNTRY) TYPE STATUS
- ------------------ ---- -------------------------------------------

Product I (USA) ANDA Scale-up to Manufacturing Scale
Product II (USA) ANDA Scale-up to Manufacturing Scale
Product III (USA) ANDA Pivotal Bioequivalence Studies
Product IV (USA) ANDA Filing with FDA
Product V (USA) ANDA Scale-up to Manufacturing Scale
Product VI (Canada) ANDS Bioequivalence Studies
Product VII (Canada) ANDS Production for Pilot Bioequivalence Studies
Product VIII (USA) NDA Pilot Bioavailability Studies
Product IX (USA) ANDA Formulation
Product X (USA) ANDA Formulation
Product XI (USA) ANDA Pre-formulation
Product XII (USA) ANDA Pre-formulation

We intend to collaborate in the development of products with partners when
such approach may enhance the outcome of the project. We also plan to seek
additional collaboration to develop more products. We believe that our business
strategy enables us to reduce our risk by (a) having a diverse product portfolio
that includes both branded and generic products in various therapeutic
categories, and (b) building collaborations and establishing licensing
agreements with companies with greater resources thereby allowing us to share
costs of development and to improve cash-flow.

We continue to advance development work on these partnered projects, while
also working on our in-house projects.

The Company will finance the development of its current products from the
Company's cash reserves, presently approximately $3.3 M and government
investment tax credits receivable which are presently approximately $1.3 M,
incidental revenues from milestone payments when these arise and further equity
offerings. The Company's current cash reserves and government tax credit
receivables provide it with approximately 20 months of operating expenses on a
normal-course basis based on historic and currently expected expenditure levels.
Such levels could change.

PURCHASE OR SALE OF PLANT AND EQUIPMENT

On October 1, 2004, we entered into a 5-year lease agreement for a 25,000
square foot facility. The lease term expires on October 1, 2009, with an option
for an additional 5-year term at market rates. We use our facilities as a
laboratory, office space, and current Good Manufacturing Practices ("cGMP")
scale-up and small to medium-scale manufacturing. We completed work on this site
in the second quarter of 2006. No expected sales of plant or significant
equipment are anticipated in the next twelve months; however, some additional
equipment may be purchased or leased.

Page 21

EMPLOYEES

As of October 31, 2007, we had 33 full-time employees. No significant
changes are anticipated in the next twelve months.

SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Revenue arrangements that include multiple deliverables are divided into
separate units of accounting if the deliverables meet certain criteria,
including whether the fair value of the delivered items can be determined and
whether there is evidence of fair value of the undelivered items. In addition,
the consideration is allocated among the separate units of accounting based on
their fair values, and the applicable revenue recognition criteria are
considered separately for each of the separate units of accounting.

Non-refundable upfront licensing fees, including product opt-ins, and
certain guaranteed, time-based payments that require the Company's continuing
involvement in the form of development, manufacturing or other commercialization
efforts by the Company are recognized as revenue over the development period if
development risk is significant, or over the manufacturing period or estimated
product useful life if development risk has been substantially eliminated.

Milestone payments are recognized as revenue when milestones, as defined in
the contract, are achieved and the Company has no further obligations to meet.

Revenues derived from reimbursements of costs associated with the
development of product candidates are recorded in compliance with EITF Issue
99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent" ("EITF
99-19"). According to the criteria established by EITF 99-19, in transactions
where the Company acts as a principal, with discretion to choose suppliers, bear
credit risk and perform part of the services required in the transaction, the
Company believes it has met the criteria to record revenue for the gross amount
of the reimbursements.

The Company recognizes revenue from royalties based on licensees' sales of
the Company's products or technologies. Royalties are recognized as earned in
accordance with the contract terms when royalties from licensees can be
reasonably estimated and collectability is reasonably assured. For the majority
of the Company's royalty revenues, estimates are made using historical and
forecasted sales trends and used as a basis to record amounts in advance of
amounts collected. To date, the Company has not yet recognized any royalty
revenues.

Unearned Revenue

Unearned revenue represents the funds received on contractual obligations
from clients, for which the revenues have not yet been recognized as earned.

Research and Development Costs

Research and development costs are expensed as incurred in accordance with
SFAS No. 2. However, materials and equipment are capitalized and depreciated
over their useful lives if they have alternative future uses. Eligible
investment tax credits are netted against the related expenses or capital
property.

CRITICAL ACCOUNTING ESTIMATES

The preparation of consolidated financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenue and
expenses for the periods reported. Actual results could differ from those
estimates. The following is a summary of critical accounting estimates and
assumptions that the Company believes could materially impact its reported
financial position, results of operations or cash flow.

Page 22

Revenue Recognition

Revenues are primarily comprised of license fees made up of initial
payments and milestone payments from collaborative licensing arrangements.
Milestone payments are recognized as revenue when milestones, as defined in the
contract, are achieved and the Company has no further obligations to meet.
Initial payments for which the Company has ongoing involvement are deferred and
amortized into income over the estimated period of the Company's ongoing
involvement, which varies by each arrangement.

Investment Tax Credits

The Company accrues for investment tax credits for qualified scientific
research and development costs when there is reasonable assurance as to their
recoverability. In determining the accrual, the Company estimates how much of
the expenses will be deemed qualified by the Government of Canada. Actual
investment tax credits received are based on the determination by the Government
of Canada and may vary from the amounts recorded.

RECENT ACCOUNTING PRONOUNCEMENTS

Under Financial Accounting Standards Board ("FASB") Interpretation No. 46R
(FIN 46R), a revision to Interpretation 46, "Consolidation of Variable Interest
Entities," there is a requirement to assess new business development
collaborations as well as to reassess, upon certain events, the accounting
treatment of business development collaborations based on the nature and extent
of any interest we may have in such entities. Some of such events, as well as
the extent of our ability to exercise influence in the entities with which we
may have such collaborations, may be outside of our control. In the future, if
and when we have collaborations, our compliance with FIN 46R may result in our
consolidation of companies or related entities with which we may have a
collaborative arrangement and the lack of control may have a material impact on
our financial condition and/or results of operations in future periods.
Currently, the Company is not a party to any agreements to which FIN 46R would
be applicable.

In December 2004, the FASB issued Statement No. 123 (revised 2004),
"Share-Based Payment," effective beginning after June 15, 2005. FAS 123R
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
will require companies to recognize compensation expense, using a fair-value
based method, for costs related to share-based payments including stock options
and stock issued under employee stock purchase plans. We will be required to
implement FAS 123R no later than the quarter that begins July 1, 2005. Our
adoption will be applied on a modified prospective basis and measured and
recognized on July 1, 2005. We expect that the adoption of FAS 123R will have a
material adverse impact on our consolidated results of operations and financial
position at such time, if any, when we issue increasing numbers of stock options
to officers, directors, consultants, employees etc.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections ("SFAS 154"). SFAS 154 provides guidance on accounting for and
reporting of accounting changes and error corrections. It requires changes in
accounting principle to be applied retroactively to prior periods as if the
principle had always been used. Previously, voluntary changes in accounting
principles were required to be recognized cumulatively in net income in the
period of change. SFAS 154 is effective for accounting changes and error
corrections made in fiscal years beginning after December 15, 2005 with early
adoption encouraged. If we make any accounting changes or error corrections, the
adoption of SFAS 154 may have a material impact on our financial position or
results of operations.

In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109"
("FIN 48"), which clarifies the accounting for uncertainty in tax positions.
This Interpretation requires that we recognize in our consolidated financial
statements the impact of a tax position, if that position is more likely than
not of being sustained upon examination, based on the technical merits of the
position. FIN 48 also requires expanded disclosures including identification of
tax positions for which it is reasonably possible that total amounts of
unrecognized tax benefits will significantly change in the next twelve months, a
description of tax years that remain subject to examinations by major tax
jurisdiction, a tabular reconciliation of the total amount of unrecognized tax
benefits at the beginning and end of each annual reporting period, the total
amount of unrecognized tax benefits that, if recognized, would affect the
effective tax rate and the total amount of interest and penalties recognized in
the statement of operations and financial position. The provisions of FIN 48 are
effective as of the beginning of the 2007 calendar year, with the cumulative
effect of the change in accounting principle recorded as an adjustment to
opening retained earnings. We are currently evaluating the impact that the
adoption of FIN 48 will have on our future results of operations and financial
position.

Page 23

In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 157," Fair Value Measures." SFAS No. 157 defines fair
value, establishes a framework for measuring fair value and enhances disclosures
about fair value measures required under other accounting pronouncements, but
does not change existing guidance as to whether or not an instrument is carried
at fair value. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007. We are currently evaluating the impact that the adoption of
SFAS No. 157 will have on our future consolidated financial statements.

In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements" ("SAB 108"), which provides interpretive guidance on the
consideration of the effects of prior year misstatements in quantifying current
year misstatements for the purpose of a materiality assessment. SAB 108 is
effective for fiscal years ending after November 15, 2006, allowing a one-time
transitional cumulative effect adjustment to beginning retained earnings as of
January 2006 for errors that were not previously deemed material, but are
material under the guidance in SAB 108. We adopted SAB 108 in the fourth quarter
of 2006 with no material impact to our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. SFAS No. 159 is
effective for us on January 1, 2008. We are evaluating the impact that the
adoption of SFAS No. 159 will have on our future results of operations and
financial position.

RESULTS OF OPERATIONS

Fiscal Period Ended December 31, 2006 Compared to the Fiscal Period Ended
December 31, 2005

Revenues: The Company recorded revenues of $1,490,310 for the period ended
December 31, 2006 versus none for the prior year period. As mentioned above, the
Company succeeded in obtaining a number of research and development contracts
and revenue recognition began in the first quarter of 2006. The recognition of
the balance of these revenue streams is uncertain as it depends on the Company
reaching various milestones that have been set out within each contract. As of
December 31, 2006, the Company had received $614,912 in upfront fees that it has
not yet recognized as revenues.

Revenue in 2006 was comprised of technology access fees of $433,866 and
milestone based payments of $266,430 from four development agreements the
Company has entered into as follows:

(a) For one agreement, the Company developed four strengths of a product
from characterisation of materials, test methods development and
production of laboratory batches from which successful pilot
bioavailability/bioequivalence studies were carried out. The process
was scaled and batches were manufactured for submitting an ANDA to the
FDA. The Company participated in the design and preparation of pivotal
bioavailability/bioequivalence studies carried out on the product in
preparation for filing the ANDA.

(b) In another development agreement, development has been completed from
characterization of materials, test methods development and
validation, through product design up to production of laboratory
batches for pilot bioavailability/bioequivalence studies.

(c) For another agreement, preformulation studies were carried out,
testing methods developed, laboratory batches were produced and the
process scaled-up to a pivotal batch size.

(d) In the fourth agreement, development has advanced from
characterization, preformulation, test methods development, production
of laboratory batches and conduct of pilot bioavailability/
bioequivalence studies.

Research and Development: Our expenditures for research and development
increased to $1,034,914 for the period ended December 31, 2006 compared to
$941,420 for the year earlier period, an increase of $93,494 or 9.9%. This
amount is in-line with the continued investment in our product portfolio as we
execute our business plan. This amount is also net of Investment Tax Credits
which the Company is reimbursed by the various levels of government in Canada.
Compared to the corresponding period in 2005, we have increased our research and

Page 24

development staff and increased our research and development activity. We
continued to advance our projects and expensed these costs as they are incurred.

Wages and Benefits: Our expenditure for wages and benefits increased to
$400,769 for the period ended December 31, 2006 compared to $230,690 for the
year earlier period, an increase of $170,079 or 73.7%. During 2006, the Company
increased its staff considerably as it requires more administrative support to
ensure proper execution of the Company's research initiatives.

Administrative Cost: Our administrative expenditure was $370,955 for the
fiscal period ending December 31, 2006 compared to $443,260 for the year earlier
period, a decrease of $72,305 or 16.3%. The decrease is primarily due to a
reduction in our reporting costs as the Company is reducing its dependency on
outside support as it builds up its internal reporting capabilities and
financial reporting systems.

Occupancy Costs: Our occupancy costs increased 14.5% or $27,628 to $218,465
for the fiscal period ending December 31, 2006 compared to $190,837 for the year
earlier period. The increase is due to the increases in cost of utilities and
janitorial services attributed to the larger occupied space with the completion
of our cGMP (current good manufacturing practices) facility within our premises.
It is anticipated that ongoing occupancy costs will continue at approximately
this current level or higher.

Marketing Costs: Our marketing costs decreased by $79,163 or 18.5% to
$349,465 for the fiscal period ending December 31, 2006 compared to $428,628 for
the year earlier period. The reduction in marketing costs was due to the fact
that two consulting contracts terminated and management did not have the need to
have them renewed as the services were brought in-house. The Company has other
contracts that will be coming due in the following quarters and management will
decide as to the need to renew them at that time or bring the services in-house
as well.

Loss before Amortization, Interest and Foreign Exchange: For the fiscal
period ended December 31, 2006, the Company's operating loss before
amortization, interest and foreign exchange was $884,258 versus a loss of
$2,234,835 in the year earlier period. The reason for this change is due to the
fact that the Company recorded revenues during this fiscal period versus none
during fiscal 2005.

Amortization: Our amortization expense increased by 107.9% or $184,087 to
$354,646 for the fiscal period ending December 31, 2006 compared to $170,559 for
the earlier period. This is attributable to the additional investment in
property and equipment and leasehold improvements consistent with equipping and
out-fitting of our research and development facility as well as our
manufacturing facilities.

Foreign Exchange: Our loss on foreign exchange was $12,203 for the fiscal
period ending December 31, 2006 compared to a loss of $21,979 for the year
earlier period. Although, we have all of our activities in North America and do
not generally anticipate currency fluctuation having a significant impact on our
cash flow, recently there has been some significant fluctuation between the
Canadian and U.S. Dollar. At present, we do not engage in any currency hedging
transactions.

Interest Income and Interest Expense: The interest income is a function of
our cash balance which is maintained in interest-bearing short-term financial
instruments. Any change in interest income will depend on our cash balance and
hence on sources of funds going forward. The interest expense is related to
funds advanced from related parties with an interest rate of 6% per annum and
which are to be repaid out of up to 25% of gross revenues. Based on this
repayment method, an additional interest expense of $108,500 was accrued as of
December 31, 2006, but was deferred for payment in a subsequent period.

Net Loss: For the fiscal year ended December 31, 2006 the Company recorded
a loss of $1,319,571 versus a loss of $2,452,865 for the year earlier period, a
decrease of $1,133,294 or 46.2%. The decrease is due to the fact that the
Company recorded revenues during the current fiscal period versus none the
previous year. The current period's net loss brings our accumulated deficit to
$6,411,750 from $5,092,179 at the beginning of the fiscal year.

The Six-Month Period Ended June 30, 2007 Compared to the Six-Month Period Ended
June 30, 2006

Revenues: The Company recorded revenues of $1,333,380 for the six months
ended June 30, 2007 versus $809,323 for the same period in 2006 when the Company
began recognizing revenue from research and development contracts. Revenue in
the first two quarters of 2007 was comprised of up front fees of $470,097,

Page 25

milestone payments earned of $254,669 and $608,614 of cost reimbursements and
service fees. As of June 30, 2007, the Company had received $170,963 in up front
fees that has not yet recognized as revenues.

Research and Development: Our expenditures for research and development
increased to $628,774 for the six months ended June 30, 2007 compared to
$407,580 for the same period in 2006, an increase of $221,194 or 54.3%. This
amount is in-line with the continued investment in our product portfolio as we
execute our business plan. This amount is also net of Investment Tax Credits
which the Company is reimbursed by the various levels of government in Canada.
Compared to the corresponding period in 2006, our research and development staff
and research and development activity increased. We continued to advance our
projects and expensed these costs as they are incurred.

Wages and Benefits: Our expenditure for wages and benefits decreased to
$138,846 for the six months ended June 30, 2007 compared to $210,743 for the
same period in 2006, a decrease of $71,897 or 34.1%. This is attributable to a
decrease in staffing levels in the period ending June 30, 2007 compared to the
prior period.

Administrative Cost: Our administrative expenditure was $119,806 for the
six months ended June 30, 2007 compared to $ 87,000 for the same period in 2006,
an increase of $32,806 or 37.7%. The increase is primarily due to an increase in
our reporting and legal costs.

Occupancy Costs: Our occupancy costs increased to $112,918 from $103,847
for the same period in 2006. The increase is due to the increases in cost of
utilities and janitorial services attributed to the larger occupied space with
the completion of our cGMP (current good manufacturing practices) facility
within our premises. It is anticipated that ongoing occupancy costs will
continue at approximately this current level or higher.

Marketing Costs: Our marketing costs were $112,196, a decrease of $82,088
or 42.3% from the same period in 2006. The reduction in marketing costs was due
to the fact that a couple of consulting contracts terminated and management did
not have the need to have them renewed as the services were brought in-house.

Income/(Loss) before Amortization, Interest and Foreign Exchange: The
Company's operating income before amortization, interest and foreign exchange
was $220,842 for the six months ended June 30, 2007 versus a loss of $194,131
for the same six months in 2006. The income reflects the higher revenues
recognized in the first six months of 2007 versus 2006.

Amortization: Our amortization expense was $195,502 for the first six
months of 2007 representing an increase of $59,753 or 44.0% as compared to the
same period in 2006 primarily due to the additional investment in property and
equipment and leasehold improvements consistent with equipping and out-fitting
of our research and development facility as well as our manufacturing
facilities.

Foreign Exchange: Our gain on foreign exchange was $10,256 for the six
months ended June 30, 2007 compared to a loss of $24,491 for the same period in
2006. Although, we have all of our activities in North America and do not
generally anticipate currency fluctuation having a significant impact on our
cash flow, recently there has been some significant fluctuation between the
Canadian and U.S. Dollar. At present, we do not engage in any currency hedging
transactions.

Interest Income and Interest Expense: The interest income is a function of
our cash balance which is maintained in interest-bearing short-term financial
instruments. Any change in interest income will depend on our cash balance and
hence on sources of funds going forward. The interest expense is related to
funds advanced from related parties with an interest rate of 6% per annum and
which are to be repaid out of scientific research tax credits received or up to
25% of gross revenues. Based on this repayment method, an additional amount of
$287,626 should have been paid as of June 30, 2007.

Net Loss: For the six months ended June 30, 2007 the Company recorded a net
loss of $30,876 versus a net loss of $377,234 for the same period in 2006, a
decrease of $346,358. The decrease is due to the fact that the Company
recognized most of the unearned revenues from upfront fees received for the
period ended June 30, 2007 as compared to the same period in the prior year. The
current period's net loss brings our accumulated deficit to $6,442,626 from
$6,411,750 as at December 31, 2006.

Page 26

EVENT SUBSEQUENT TO JUNE 30,2007

On August 1, 2007, the Company completed a private placement issue of
common shares to Par Pharmaceutical, Inc. This involved a purchase by Par of
714,285 common shares of IntelliPharmaCeutics Ltd. at a price of $7.00 per
share. A copy of the stock purchase agreement is attached as Exhibit 10(v).

SEE "PLAN OF OPERATION" - FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Research and Development Investment Tax Credits: As a research and
development company, we are eligible to receive investment tax credits ("ITC")
from various levels of government under the Scientific Research & Experimental
Development incentive programs. Depending on the financial condition of the
Company, up to 35% of research and development expenses in any fiscal year can
be claimed. Eligible research and development expenses include salaries for
employees involved in research and development, cost of materials, equipment as
well third party contract services. This amount is not a reduction in income
taxes but a form of government grant based on the level of research and
development that the Company carries out.

Because a significant portion of our total expenditures is research and
development related, depending on the amount we spend on research and
development during a fiscal period, the ITC can be a major source of funds for
the financing of operations and building capital resources. The Company has
received $652,757 in ITCs due from R&D activities carried out in fiscal 2005.
Based on management's best estimate, we have about $1,268,660 ITCs receivable
from research and development activities performed as at June 30, 2007.
Realization of these credits is subject to government approval; however,
management is reasonably assured that the Company will receive a substantial
amount of the present ITCs during the third quarter of fiscal 2007. The Company
has no bank lines of credit, but as of October 31, 2007, does have cash reserves
of $3,274,572 available to fund operations for approximately 15 months on a
normal-course basis, independent of the payment of the $1,268,000 of ITCs by the
government authorities in the ordinary course with prior practices, and which
provide it with approximately 5 months of additional operating Funds.

The names of the Government grantors of ITCs to the Company are Canada
Revenue Agency, the Ontario Ministry of Finance and the Quebec Ministry of
Finance.

The maximum amount of qualified expenditures that can earn credits at the
enhanced 35% federal + 10% Ontario rate on a refundable basis is $2,000,000.
This is reduced by $10 for every $1 of profit over the business limit ($400,000
in 2007). The limit is also affected by the amount of taxable capital in the
corporation. Expenditures that do not qualify for enhancement still earn credits
from federal at the lower 20% level on a non-refundable basis; i.e., no cash,
such credits can be used for loss carry forward etc. At this level the
provincial credit is completely gone.

To receive the ITCs, the Company submits its claim with its Corporation
Income Tax Return within six months of its fiscal year-end. However, a company
can file SR&ED claims as late as 18 months from the end of its fiscal year. The
SR&ED program has the following standards for processing claims: refundable
claims - 120 days from receipt of a complete claim; non-refundable claims -
365 days from receipt of a complete claim; claimant-requested adjustments to
refundable claims - 240 days from receipt of a complete claim

As of June 30, 2007, our ITC receivables total $1,268,660. The Company has
every expectation of receiving its current ITC receivables in full based on the
Company's consistent record over 5 years of accurately projecting and receiving
ITC receivables from the government authorities described above and these
authorities paying these claims in the ordinary course.

ITC receivables for accounting purposes are calculated by adding the
eligible research and development expenses for operation such as raw materials,
third party contracts and salaries for employees involved in R&D and taking the
percentage of this total that is prescribed by each government grantor. Plus,
any eligible equipment expense will be reduced by 4% and a percentage of the
reduced amount is calculated for ITC purposes.

The ITCs receivable have been recorded in the financial statements of the
Company as expense or asset reductions for the periods ending December 31, 2006,
and June 30, 2007, to which they relate and these adjustments that are reflected
in the financial statements for such periods are as follows:

Page 27

Federal Ontario Quebec Total Total ITC
---------- ---------- --------- ---------- ------------

Balance @ Jan 1, 2006 100,354.38 100,354.38
Expense Reduction 450,463.51 135,875.65 13,366.19 599,705.35
Asset Reduction 48,237.31 14,356.34 62,593.65
Balance @ Dec 31, 2006 762,653.39
Expense Reduction 367,647.54 129,609.45 497,256.99
Asset Reduction 6,742.83 2,006.79 8,749.62
From Jan 1 - Jun 30 2007 506,006.61
Balance @ June 30, 2007 1,268,660.00

Development Agreements: In line with our business plan, to date the Company
has successfully obtained seven product development contracts covering the
development of 10 products. One agreement is a co-development arrangement where
the parties share costs of development equally and the Company gets a profit
share and for another, the partner is responsible for all but initial
development work in our laboratories. Five of the agreements are for projects
where development work is fully paid for by the partner, all of these agreements
attracted signing or technology access fees, and have provisions for payments
when certain development milestones are achieved. Examples of development
milestones are completion of initial formulation work, initiation of or
successful certain bioequivalence studies, technology transfer etc.

In addition the agreements have provisions for royalty payments or profit
sharing on commercialization, therefore the Company may receive future
royalties. In the near term, the Company may claim a portion of any
milestone-based revenue realized that is spent on R&D as investment tax credit.
Any ITC realized will be another source of revenue for financing operations.

Contractual Obligations: In the table below, we set forth our enforceable
and legally binding obligations and future commitments and obligations related
to all contracts that we are likely to continue. Some of the figures we include
in this table are based on management's estimate and assumptions about these
obligations, including their duration, the possibility of renewal, anticipated
actions by third parties, and other factors.

Payments Due by Period
----------------------------------------------
Contractual Obligations Total <1 Year 1-3 Years 4-5 Years
- ----------------------- ---------- -------- ---------- ---------

Capital Lease Obligations $ -- $ -- $ -- $ --
Operating Obligations 241,035 46,910 194,125 --
Purchase Obligations 35,477 9,310 24,507, 1,660
Other Long Term Obligations 3,117,968 774,800 1,596,672 746,496
Total Contractual Obligations 3,394,480 831,020 1,815,304 748,156

Currently, we do not anticipate generating sufficient cash flows from
operations to fully fund operations as we are pursuing the development of our
portfolio of NDA and ANDA products. However, present cash reserves and ITCs
receivable provide the Company with approximately 20 months of operating
capital, regardless of whether any additional payments are received for
milestone payments or royalties or otherwise. Our future liquidity and cash
requirements will depend on a wide range of factors, including the success of
our development programs, securing licensing contracts as well as procurement of
co-development or other collaborations. Therefore, as we execute our business
plan, it may be necessary to raise capital or seek additional financing. While
there can be no assurance that such raising of capital or financing would be
available in the amounts and on terms acceptable to us, management currently
believes that such financing would likely be available on acceptable terms.
However, there can be no assurance of this.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

We have carried out an evaluation, under the supervision and the
participation of our management, including our principal executive officer and
principal financial officer, of the effectiveness of our design and operation

Page 28

of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Securities
Exchange Act")), as of December 31, 2006. Based upon that evaluation, our
principal executive officer and principal financial officer concluded that, as
of the end of that period, our disclosure controls and procedures are effective
in providing reasonable assurance that:

(a) the information required to be disclosed by us in the reports that we
file or submit under the Securities Exchange Act is recorded,
processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and

(b) such information is accumulated and communicated to our management,
including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosure.

In designing and evaluating our disclosure controls and procedures, our
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and our management necessarily was required to apply
its judgment in evaluating the cost benefit relationship of possible controls
and procedures.

CONTINGENCIES AND LITIGATION

There has been, and we except there will continue to be significant
litigation in the industry regarding commercial practices, regulatory issues,
pricing, and patents and other intellectual property rights. Certain adverse
unfavorable rulings or decisions in the future could create variability or have
a material adverse effect on our future results of operations and financial
position.

As of October 31, 2007, no pending litigation or threatened claim is
outstanding that affects the operations of the Company. The only claim
outstanding, as previously announced by the Company by a press release dated
October 22, 2007, involves complaints by certain parties who have claimed to
hold patents relating to a branded drug called FOCALIN XR(R) and who filed
complaints alleging patent infringement against the Company and certain other
parties. These complaints relate to an application by the Company that seeks the
FDA's approval to commercialize generic versions of each of 4 strengths of
FOCALIN XR(R). These generic drug products have been developed by the Company
under a collaboration arrangement with Par Pharmaceutical, Inc. ("Par" or "Par
Pharmaceutical") under which Par is responsible for litigation and its costs.
Par is the agent for the Company in respect of its filing with the FDA for
approval to commercialize the generic versions of FOCALIN XR(R). Lawsuits such
as these are an ordinary and expected part of the process of obtaining approval
to commercialize a generic drug product in the United States. The Company
remains confident that the Company's generic versions of FOCALIN XR(R) do not
infringe those patents. Together with its development partner, Par
Pharmaceutical, the Company intends to vigorously defend against the complaints
described above.

RELATED PARTY TRANSACTIONS

As at June 30, 2007, we had an outstanding promissory note payable to Dr.
Isa Odidi and Dr. Amina Odidi, principal stockholders, directors and executive
officers, in the amount of $1,666,698. The promissory note bears a 6% annual
interest rate on the outstanding loan balance and the loan is secured by, and
repayable in any month at the rate of 25% of gross revenues.

As at June 30, 2007 we had an outstanding cash advances from related
parties of $385,939. The Short term loan bears a 6% annual interest rate on the
outstanding loan balance.

OFF-BALANCE SHEET ARRANGEMENTS

The Company, as part of its ongoing business, does not participate in
transactions that generate relationship with unconsolidated entities or
financial partnerships, such as entities often referred to as structured finance
or special purpose entities ("SPE"), which would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually
narrow or limited purposes. As of December 31, 2006, the Company was not
involved in any material unconsolidated SPE transactions.

Page 29

BUSINESS

BACKGROUND

We incorporated in New York on February 23, 1988 as a "blank check"
corporation. On February 23, 2004, we entered into a Share Exchange Agreement
with IntelliPharmaCeutics Corp., ("IPC Corp.") a Canadian pharmaceutical company
and agreed to merge our wholly-owned Nova Scotia subsidiary, known as 3092055
Nova Scotia Limited, into IPC Corp.

IPC Corp. incorporated in Ontario Canada on November 15, 2002 and prior to
the merger was wholly owned by IntelliPharmaCeutics Inc., a Canadian holding
company ("IPC Inc."), controlled by Dr. Isa Odidi, our Chairman and CEO and Dr.
Amina Odidi, our President, CFO and COO.

From 1999 through 2002, IPC Inc., a predecessor company, engaged in the
research, development, licensing, and marketing of both new and generic
controlled-release pharmaceutical products. In 2002, IPC Corp. purchased IPC
Inc.'s assets, including its technology rights.

On September 10, 2004, we completed the merger with IPC Corp. and
reincorporated in Delaware (the "Merger").

As a result of the Merger, in exchange for 100% of the common shares of IPC
Corp. (our operating company), IPC Inc. (the holding company controlled by Drs.
Isa and Amina Odidi) acquired 10,850,000 shares of Special Voting Stock of the
Registrant and 10,850,000 Convertible Voting Shares of IPC Corp. The Convertible
Voting Shares of IPC Corp. are indirectly exchangeable on a 1 for 1 basis with
our Common Shares (through their conversion into IPC Corp. exchangeable shares
which are then exchanged for common shares of the Company, all on a one-for-one
basis), and thus provide IPC Inc. with an equity interest in IPC Corp. that is
economically equivalent to IPC Inc.'s voting interest in us, approximately
64.30%. However, for corporate and tax reasons that result in a significant
benefit to us, there are outstanding an equal number of common shares of IPC
Corp. (which are owned 100% by us) and Convertible Voting Shares of IPC Corp.
(which are owned 100% by IPC Inc., the Odidis' holding company), each of which
is entitled to one vote. Accordingly, the voting interest in IPC Corp. is held
50% by us and 50% by IPC Inc.

The Odidis are residents of Canada. IPC Corp. is a Canadian company. In
respect of IPC Ltd.'s 2004 Capital Reorganization and in all issuances of shares
by IPC Ltd. and IPC Corp. since that time, neither the Odidis nor their holding
company, IPC Inc., has received any proceeds. All proceeds from share issuances
have gone to IPC Ltd. and, in turn, to IPC Corp. for use in the operations of
IPC Corp. in which IPC Ltd. and the public shareholders as a group have a 35.70%
economic interest. Among the business reasons for the Odidis to maintain their
economic interest in IPC Corp., rather than to hold their interest through IPC
Ltd., are avoiding unnecessary negative income tax consequences for themselves,
IPC Corp. and IPC Ltd. that can arise at such time as such conversion is made.
Such tax consequences relate principally to the potential for (i) triggering
Canadian capital gains taxes for the Odidis that can arise at such time as
equity shares of a Canadian company are exchanged for equity shares of a
non-Canadian company, and (ii) Canadian research tax credits that are available
for certain companies, operating in Canada, that are Canadian controlled, such
as IPC Corp., and which are generally lost at such time as more than 50% of the
voting shares of the Canadian company are owned by a non-resident company,
regardless of whether the non-resident company is controlled by people resident
in Canada.

The Odidis, through IPC Inc., own approximately 64.30% of our outstanding
voting stock and as a result other shareholders have no effective voice in
management. The Odidis, through IPC Inc., can determine the outcome of our
corporate actions requiring board or shareholder approval and conflicts of
interest could arise between us and IPC Inc. See "Risk Factors - Risks Related
to the Securities". See also the diagram under "IntelliPharmaCeutics Ltd." and
filed as Exhibit 99.1 hereto.

In addition to conversion and exchange at the Odidis' discretion, as
described above, in the event of a dissolution, liquidation or winding up of our
operating company, IPC Corp., all of the Convertible Voting Shares of IPC Corp.
held by IPC Inc. would automatically be cancelled in exchange for an equivalent
number of common shares of IPC Ltd. and the Special Voting Shares of IPC Ltd.
held by IPC Inc. would be cancelled.

BUSINESS OVERVIEW

IPC Corp. is engaged in research and development of controlled-release
pharmaceutical products.

Page 30

Controlled-release means releasing a drug into the bloodstream or a target
site in the body, over an extended period of time or at predetermined times.
Controlled drug delivery can be both safer and more effective than conventional
immediate-release tablets and capsules in administering drugs.

We apply our proprietary controlled-release technologies to existing drugs.
The release technologies, and the chemical compounds utilized in them, were
designed and chosen to be compatible with, and to orally deliver, a wide range
of small-molecule active pharmaceutical ingredients. At present, those
technologies have been applied in the laboratory and/or in
bioavailability/bioequivalence studies in humans to orally administered small
molecule drugs including those used in the treatment of cardiovascular, central
nervous system, gastro-intestinal, pain, diabetes and other significant
indications.

We apply our proprietary technology in two ways: (1) developing improved
controlled-release (once-a-day) versions of existing immediate-release branded
drugs (requiring new drug applications ("NDA")), and (2) developing and
commercializing generic drugs that are bioequivalent to existing
controlled-release branded products (requiring abbreviated new drug applications
("ANDA")). An ANDA must show that, when taken orally in bioequivalence studies
conditions, levels of the active ingredient as measured in the bloodstream are
the same for the generic product as for the branded product, within tolerances
set by the FDA.

We operate in the niche market created by the expiration of drug product
patents and drug product exclusivity periods. It has been estimated(1) that from
March 2006 to 2010, $100 billion in U.S. sales will be lost from the sales of
branded drugs by large companies as a result of the expiry of patents on major
branded products.

These potential and actual lost sales represent two opportunities for our
Company to license its technologies and products.

For branded immediate-release (multiple-times-per-day) products, our
Company can formulate improved replacement products, typically by developing a
new, patentable, controlled-release (once-a-day) product. Such products can be
licensed to and sold by the pharmaceutical company that made the original
immediate-release product, thereby protecting the pharmaceutical company against
revenue loss in the brand by providing a clinically attractive patented product
that competes favourably with the generic immediate-release competition that
arises on expiry of the original patent(s).

For existing controlled-release (once-a-day) products covered by patents
about to expire or already expired, our Company can formulate generic products
which are bioequivalent to the branded products. Our scientists have done so for
over a half-dozen drug products previously, on a private contract basis with
third-party companies that cannot be disclosed because of confidentiality
obligations of our scientists under their prior development agreements. Such
products can be licensed to and sold by distributors of generic products.

Our scientists have developed drug delivery technology systems that
facilitate controlled-release delivery of a wide range of pharmaceuticals. We
have branded these technology systems collectively as the Drug Delivery
Engine((TM)). These systems include several core technologies, which enable us
to flexibly respond to varying drug attributes and patient requirements,
producing a desired controlled-release effect. In the opinion of Company
management, these systems offer superior performance to traditional systems,
while retaining simplicity and cost effectiveness associated with their
manufacture for all the specific reasons described below:

- ----------
(1) MarketResearch.com, March 1, 2006, Abstract of "The Top 10 Generics
Companies: Strategic Insight, Growth Opportunities and Competitive Dynamics
in the US and Europe",
http://www.marketresearch.com/product/display.asp?productid=1259413&xs=r

Page 31

(a) our delivery technologies offer competitive development times. The
specific reasons for this are that they are proven to be versatile, in
that they demonstrated themselves suited to the delivery of a wide
range of small molecule drugs. They are robust, in that the predicted
delivery results have been repeatedly substantiated by actual
bioavailability/bioequivalence studies. They were developed by our
chief scientists, who have substantial experience in applying them
successfully to the delivery of small drug molecules under existing
development contracts and in support of the Company's own pipeline.
for these reasons, we believe that our development times are short and
competitive.

(b) our delivery technologies offer competitive development costs, because
the technologies use only readily available, low-cost ingredients
already acceptable to regulatory authorities such as the FDA, and
because development times are short as stated above in paragraph (a),
we believe that our development costs are low.

(c) large pharmaceutical companies may license our improved products for
life-cycle management and franchise extension of their branded
products as they came off patent. With impending loss of branded
product revenues, a new product such as ours, which offers the
advantage of once-a-day dosing, should be very attractive to a large
pharmaceutical company facing revenue loss in a patented
branded-product franchise. A recent industry example is the license of
a once-a-day Wellbutrin XL formulation from Biovail Corporation to GSK
Inc.

(d) Manufacturers and distributors of generic drugs may license our
technologies and products. Because our development times are short and
cost-effective as at (a) and (b) above, our generic once-a-day
products represent a cost-effective opportunity for generic
distributors to add valuable generic products to their portfolios.

We are currently focusing our efforts on the following areas:

(b) commercial exploitation of these products either by license and the
collection of royalties, or through the manufacture of tablets and
capsules using our developed formulations; and

(c) development of new products and increasing the number of licensing
agreements with other pharmaceutical companies beyond those five
already in place, including to collaborate in contract research and
development, joint ventures and other drug development and
commercialization projects.

We intend to collaborate in the development of products with partners, when
such occasion may enhance the outcome of the project. We also plan to seek
additional collaborations to develop more products. We believe that our business
strategy enables us to reduce our risk by (a) having a diverse product portfolio
that includes both branded and generic products in various therapeutic
categories, and (b) building collaborations and establishing licensing
agreements with companies with greater resources thereby allowing us to share
costs of development and to improve cash-flow.

The company has 7 drug development agreements in place, 6 for the development of
ANDA/ANDS products and 1 for an NDA product. Typical material terms are subject
to negotiation and may include:

(i) identification and specification of a target drug product and a
development timetable;

(ii) a license to the client for the technology actually used in the
delivery formulation;

Page 32

(iii) a payment at the time of execution;

(iv) milestone payments for the successful accomplishment of key
objectives, such as initiation of or successful
bioavailability/bioequivalence or clinical studies, successful
scale-up/manufacture to submission batch size, regulatory filing
or approval;

(v) bonuses for being first or early to make a regulatory filing or
obtain regulatory approval;

(vi) royalties or share of profits from commercial sales; and

(vii) technology reversion clauses which operate to return all rights
in the delivery technologies to the Company when projects or
commercial sales which are terminated.

INDUSTRY OVERVIEW

The pharmaceutical industry has experienced significant growth over the
past several years. This has been impacted by factors such as: increasing
enrolment in Health Maintenance Organizations (HMOs) and growth in managed care,
an aging and more health-aware population, several major new drugs bringing
significant therapeutic benefits, and increasing use of novel marketing
approaches such as direct-to-consumer advertising.

A review of the portfolios of the top 40 pharmaceutical companies in a 2004
Reuters Business Insight report, Growth Strategies in Generics, stated,
"Products with total sales of $137 billion in 2002 will have lost primary U.S.
patent protection by 2008. This represents over 50% of the $235 billion in total
product sales generated by these 40 companies in 2002."

The worldwide generics market will grow with a compound annual growth rate
(CAGR) of 13.3% from 2001 to 2007, and was worth $27 billion in 2001, estimates
Reuters. The U.S. generics market alone is expected to grow to $28 billion by
2007.

The U.S. pharmaceutical market for all forms of controlled-release drugs is
expected to grow. The controlled-release segment of the market generated
approximately $16.3 billion of revenues in 2002, and is expected to exceed $90
billion by 2009(2). The impetus for growth in this segment comes from the
proliferation of branded drugs at or near patent expiration and new product
launches.

There are significant technical barriers to entry into the development of
controlled-release drugs, with only a limited number of companies possessing the
required expertise and technologies. Instead, they have waited until patent
protection on their immediate-release product was near expiry, and then have
turned to specialty pharmaceutical companies to in-license a controlled-release
version of such product. This process and its meaning and effect are described
in the next two paragraphs.

For the owner of the branded immediate release product, it is important to
introduce a new once-a-day controlled release product before the patent
protection in the immediate release product expires. In that way, by marketing
initiatives, it can migrate the immediate release sales to the new once-a-day
product. In that way, according to well known industry sales figures available
in commercial databases, the branded company can often protect 80% or more of
its brand franchise from the competitive attrition of lower priced generics of
the immediate release product.

A recent example includes Wellbutrin XL, in-licensed by GSK Inc. from
Biovail Corporation. In that case, the original new chemical entity patent
protection for multiple-times-per-day Wellbutrin expired at about the end of
2003, and the product would have faced substantial generic competition at that
time. By introducing a once-a-day Wellbutrin XL in about June 2004 together with
formulation patent protection, in-licensed from Biovail Corporation in exchange
for royalty payments on net sales, GSK was able to retain a substantial portion
of its market share that would otherwise have been lost to generics. That
additional patent protection gave GSK, and effectively its licensor Biovail,

- ----------
(2) Fuji-Keizai USA, Report (Executive Summary) October 2005, US Market 2006,
Advanced Drug Delivery Systems, Probing the Route to Growth,
http://www.fuji-keizai.com/e/report/dds_e.html.

Page 33

an additional five years of exclusivity with the FDA, lasting until June, 2009.
A recent successful challenge to the formulation patent by Anchen
Pharmaceuticals, alleging that its proposed generic product does not infringe
that patent, means that there may in fact be generic competition as early as the
end of 2006, but in the meantime the arrangement has been a great benefit to
both Biovail and GSK.

IntelliPharmaCeutics identifies such opportunities by reference to the FDA
Orange Book of approved pharmaceutical products. That Book includes particulars
of patents and their expiration dates. IntelliPharmaCeutics also makes use of
commercial databases, which disclose historical sales of branded immediate
release products.

The Company thereby identifies suitable drug candidates, and their
proprietors, and then attempts to schedule presentations for its technologies to
such companies. While the company has a number of such NDA candidate drugs in
its portfolio, and has made and continues to make such presentations, no
development agreements of this sort have resulted to date.

INDUSTRY TECHNOLOGY

Oral controlled-release technology permits the development of specialized
oral drug delivery systems that improve the absorption and utilization by the
human body of a variety of pharmaceutical compounds. Several drug delivery
systems are commonly used in the manufacturing of controlled-release oral drug
products. However, three technologies stand out as truly tried and tested. These
are the osmotic push-pull, or OROS(TM), system (used by ALZA), the core or
press-coated system (used by Bayer), and the sandwiched deposit platform, or
Geomatrix(TM), system (used by SkyePharma). These technologies are based on
physically compartmentalized structures, and, we believe, continue to be the
yardstick by which other controlled-release drug delivery technology platforms
are measured.

OROS(TM) OSMOTIC PUSH-PULL SYSTEM

The OROS(TM) osmotic system is a reservoir system which is comprised of
two reservoirs, one containing drug active and suspending agent, and the other
containing a gel layer which swells when exposed to water-based solutions such
as stomach fluids. The two reservoirs are enclosed in a single tablet encased in
an osmotic membrane, which permits water to enter but not to exit (osmosis).
Once inside the gastrointestinal tract, meaning the human digestion system,
including the stomach and intestines ("GIT"), fluids penetrate the outer
membrane, the gel swells and gradually expels the active drug through an orifice
in the drug reservoir. The rate of drug release is the same in the presence or
absence of food, a desirable property. Because of its ideal release profile and
lack of food effect, we believe it remains a sought-after device for the
controlled delivery of drugs, notwithstanding the increased cost associated with
its complex manufacture.

CORE OR PRESS-COATED SYSTEM

The core or press-coated system is a two part structural system, comprised
of a rapid-dissolve drug-bearing core, embedded in drug-loaded hydrophilic
(water attractive) matrix applied to the tablet by press coating. Once inside
the GIT, the press-coated matrix swells and gradually releases the drug by a
combination of diffusion and erosion. Eventually, the drug-bearing tablet core
is exposed and rapidly dissolves in the GIT to provide a burst effect, and
further extension in drug release. Drug release is affected by the presence of
food.

SANDWICHED DEPOSIT SYSTEM

The sandwiched deposit system is comprised of a layered tablet in which a
drug layer is sandwiched between two layers or deposit platforms made of
polymeric materials. Once inside the GIT, the polymeric platforms and drug layer
erode, but at different rates. Drug release is affected by food.

Although all these systems have demonstrated ideal drug release
characteristics, we believe their manufacturing processes are cumbersome,
complex, expensive, and difficult to reproduce. There is also concern that,
being reservoir systems, they may not deliver their entire dose, or may deliver
the entire dose all at once due to the crushing action of peristalsis.

OUR TECHNOLOGY

Our scientists have developed proprietary controlled-release drug delivery
technologies, branded Drug Delivery Engine(TM). Our controlled-release
technologies consist of drug delivery platforms that facilitate timed

Page 34

release delivery of a wide range of pharmaceuticals. Drug Delivery Engine(TM)
technologies developed by our scientists have been used in drugs manufactured
and sold by major pharmaceutical companies.

One family of Drug Delivery Engine(TM) technologies, the Hypermatrix(TM)
technologies, are based upon the drug active being imbedded in, and an integral
part of, a homogeneous (uniform), core and/or coatings consisting of one or more
polymers which affect the release rates of drugs, other excipients (compounds
other than the drug active), such as for instance lubricants which control
handling properties of the matrix during fabrication, and the drug active
itself. The Hypermatrix(TM) technologies are the core of our current marketing
efforts and the technologies underlying our existing development agreements.

We currently have six drug development agreements in place. Under each
agreement, we are engaged by the other party to develop a bioequivalent generic
of a specific controlled-release product or a controlled-release version of an
existing immediate release product, using our proprietary technology and
know-how. The development of each product is divided into a number of phases,
with milestone payments payable to us on the completion of each phase, and a
royalty payable to us based on annual net sales of the product during a fixed
period. All of our intellectual property continues to be exclusively owned by
us. However, we do grant a sole licence to the other party to the drug
development agreements within a defined territory for specific drugs we develop
for them but only insofar as our intellectual property relates to the specific
product developed for them, for which we receive various payments, and not for
use in any other products. If the other party fails to make a commercial sale of
the product within a certain time period after final market approval of the
product is received, usually this sole license becomes non-exclusive and we are
entitled to then directly market and sell the product ourselves. The drug
development agreements contain customary representations and warranties,
covenants, indemnification and confidentiality provisions for agreements of this
type. If the other party terminates the agreement, we are entitled to proceed
with the development of the specific product at our own expense.

Another such family of technologies is that branded Hyperfoam(TM). The
Hyperfoam(TM) technologies are based upon the drug active being imbedded in
but separate from a syntactic foam substrate, the properties of which are used
to modulate the release of the drug active. Syntactic foam is a lightweight
engineered foam consisting of hollow polymer spheres, suitable for carrying drug
actives, embedded in a resin matrix. The Hyperfoam(TM) technologies are still
in development and are not the subject of any contractual arrangements.

Our present, expanding, pipeline of Hypermatrix(TM) technology platforms
includes IntelliMatrix(TM), IntelliOsmotics(TM), IntelliPellets(TM),
IntelliGIT(TM), IntelliShuttle(TM), and NanoMatrix(TM), and some of their key
attributes are described below. Our present pipeline of developing HyperFoam(TM)
technology platforms includes SynFoam(TM) and NanoFoam(TM). NanoMatrix(TM),
SynFoam(TM) and NanoFoam(TM) are under development and their optimal
characteristics and uses have not been determined.

These provide a broad range of release profiles, taking into account the
physical and chemical characteristics of a drug product, the therapeutic use of
the particular drug, and the optimal site for release of the active
pharmaceutical ingredient in the GIT. At present those technologies have been
applied in the laboratory and/or in bioavailability/bioequivalence studies in
man to such orally administered small molecule drugs as are used in the
treatment of cardiovascular, central nervous system, gastro-intestinal, pain,
diabetes and other significant indicators.

THE HYPERMATRIX(TM) FAMILY OF DRUG DELIVERY ENGINE(TM) TECHNOLOGIES

INTELLIGIT(TM)

The IntelliGIT(TM) technology consists of an active drug immobilized in a
homogeneous (uniform) matrix structure. A precise choice of mix ratios,
polymers, and other ingredients imparts characteristics which protect the drug
composition from mechanical degradation due to digestion, and/or from chemical
degradation in the acidic stomach environment, and ensures that this technology
allows control of release as well as releasing the medication at certain parts
of the stomach or intestines without significant food effects or unintentional
premature release of the entire drug dose. This technology is most useful for
drug molecules with characteristics such as very low or very high potency,
opiate analgesics (pain medications derived from the chemical compounds found in
opium), or susceptibility to acid degradation. It is also useful for products
where a zero-order (constant rate over time, independent of the amount of drug
available for dissolution) release profile is desirable.

Page 35

INTELLIMATRIX(TM)

The IntelliMatrix(TM) technology is a proprietary blend of several
polymers. Depending on the constituents of the blend and the manner in which
these interact, the drug is released at predetermined rates, while imparting
protective characteristics to both the drug and the GIT. This results in
protection from the delivered active drug, for the stomach, if required. This is
most useful for drugs which require precisely controlled first order release
profiles, where the amount released with time is dependent on one component like
the amount of drug available for dissolution.

INTELLIOSMOTICS(TM)

The IntelliOsmotics(TM) technology is based upon the inclusion of
multiple populations of polymers with distinct chemical bonding characteristics.
These set up a complex matrix of hydrophilic (water attracting) and hydrophobic
(water repelling) domains. When the tablet or bead is in an aqueous environment,
like gastric contents, a "mixture" of water-soluble polymer and drug core is
surrounded by gel layer(s) of water-insoluble polymer. Osmotic pressure drives
the drug out when solvent passes through the gel layer while the polymer
molecules remain. This permits control of the rate of release of the drug active
by the variation of polymer ratios. This technology is most useful for drug
molecules which require precisely controlled pseudo-first-order release
profiles, where the rate of release is proportional to the amount available for
dissolution as well as being proportional to one other component; however the
effect of the amount of drug is overriding, so that the rate appears first
order. This type of release control can be useful when attempting to match
difficult profiles for generic formulation.

INTELLIPELLETS(TM)

The IntelliPellets(TM) technology consists of one or more type
(population) of granule, bead, pellet, or tablet in a holding chamber or
reservoir, such as a hard gelatin capsule. Each type (population) may be
uniquely different from the other in the manner or rate it releases the drug.
Our IntelliPellets(TM) technology is designed to control, prolong, delay or
modify the release of drugs. It is particularly useful for the delivery of
multiple drugs, for delayed, timed, pulsed or for chronotherapeutic drug
delivery, designed to mimic our internal clocks for therapeutic optimization
(the drug is delivered in the right amount for the patient at the right time).
This technology is most useful for the delivery of multiple-drug cocktails, or
in situations where the timing of a single dose or the sequencing of multiple
doses of the same drug is important.

INTELLISHUTTLE(TM)

The IntelliShuttle(TM) technology provides for drug release past the
stomach, such as for drugs required for action beyond the stomach, for drugs
which could be destroyed by the stomach environment, or for drugs which could
harm the stomach itself. This technology "shuttles" the drug past the stomach to
be released at predetermined times or sites where appropriate for optimum
therapeutic effect. This technology is most useful for acid labile drug
molecules (drugs that are destroyed in acid environment), such as the proton
pump inhibitors, of which well-known omeprazole (Prilosec) and lansoprazole
(Prevacid) are examples, or for drug molecules which may harm the stomach, of
which the well-known aspirin is an example.

Each of the above-noted proprietary technologies was fully developed and
ready for application to client drug delivery requirements from the date of
inception of the company. Each of them has been utilized and applied to client
drug delivery requirements under the company's existing development contracts;
in several instances more than one technology has been applied to a single drug
development. The company continues to market all of its existing technologies
and to conduct the necessary research to develop new ones. To date, none of the
development contracts has proceeded to the point of commercialization, and
therefore the company has not yet seen its proprietary technologies utilized in
products sold to consumers.

OUR PROPRIETARY RIGHTS AND PATENTS

Proprietary rights are an important aspect of our business. These include
know-how, trade secrets and patents. Know-how and trade secrets are protected by
internal company policies and operating procedures, and where necessary, by
contractual provisions with development partners and suppliers. We also seek
patent protection for inventive advances which form the bases of our drug
delivery technologies. With respect to particular products, we may seek patent
protection on the commercial composition, its methods of production and its
uses, to prevent the unauthorized marketing and sale of competitive products.

Page 36

Patents which relate to and protect various aspects of our HyperMatrix and
HyperFoam families of drug delivery technologies included the following United
States patents which have been issued to our operating company,
IntelliPharmaceutics Corp.: (i) U.S. Patent No. 6,296,876, issued October 2,
2001 and projected to expire October 6, 2017; (ii) U.S. Patent No. 6,479,075,
issued November 12, 2002 and projected to expire October 1, 2018, which concern
pharmaceutical formulations for acid labile drug actives and compositions which
protect the drug active and composition from destruction in acidic environments
in the GIT; and (iii) U.S. Patent No. 6,607,751, issued August 19, 2003 and
projected to expire October 9, 2018, which describes a controlled release drug
delivery technology incorporating a microbial polysaccharide gum. Patents which
relate to and protect various aspects of our HyperFoam family of drug delivery
technologies include U.S. Patent No. 6,800,668, issued October 15, 2004 and
projected to expire January 19, 2021, and the corresponding issued Canadian
Patent No. 2,435,276, which relate to novel syntactic deformable foam
compositions used as a carrier or substrate for drug actives, and methods for
making these compositions.

In addition to these issued patents, as at October 31, 2007, there were ten
pending U.S. Patent applications, and nine corresponding foreign applications
pending, including PCT stage and national stage applications, relating to
various aspects of our HyperMatrix and HyperFoam drug delivery technologies,
including methods and compositions for coating of tablets and beads,
compositions incorporating disintegrants to assist in controlled release,
compositions incorporating multiple drug actives, and compositions directed to
classes of drug actives designed as therapies for specific indications.

RESEARCH AND DEVELOPMENT

During each of the last three fiscal years, we have focused on research and
development activities. We spent approximately $1,034,914 in the fiscal year
ended December 31, 2006, $941,420 in the fiscal year ended December 31, 2005,
$485,638 in the fiscal year ended December 31, 2004 on research and development
activities.

MANUFACTURING, RAW MATERIALS AND SUPPLIERS

We currently do not have any commercial manufacturing facilities. The
manufacture of our product candidates for bioequivalence studies or clinical
trials and commercial purposes is subject to current good manufacturing
practices ("cGMP") and other agency regulations.

At this time, we do not rely on any principal suppliers. In respect of our
existing development contracts, the materials we require are non-proprietary and
readily available from multiple sources.

It is anticipated that certain raw materials, which may be necessary for
the development and subsequent commercial manufacturing of future products may
be proprietary products of other companies. We will attempt to manage the risk
associated with such proprietary raw materials by the imposition of favourable
contractual provisions in supply contracts, by prudent management of inventories
having regard to sales forecasts, and by the continued search for alternative
authorized suppliers of such materials or their equivalents. A material
shortage, contamination, and/or recall could adversely affect the manufacturing
of such future products.

CUSTOMERS AND DEVELOPMENT PARTNERS

We are currently working to develop and/or obtain FDA approval for several
existing products, as well as working towards the development of further
products both alone and in collaboration with third parties. At this time, we do
not rely on any principal customers. We anticipate a flow of additional drug
development collaborations of similar kind to the drug development
collaborations already in place. The loss of any one such drug development
collaboration, for reasons relating to the contractual discretion of the
customer, or to the success, failure or withdrawal of the drug product under
development, should not have material adverse consequences for the Company.

GOVERNMENT REGULATION

We focus on the development of both branded drug products (which require
new drug applications ("NDA")) and generic drug products (which require
abbreviated new drug applications ("ANDA")). The principal steps involved in the
FDA application and approval process are outlined in Exhibits 99.2 and 99.3,
respectively. The research and development, manufacture and marketing of
controlled-release pharmaceuticals are subject to regulation by U.S., Canadian
and other governmental authorities and agencies. Such national agencies and
other federal, state, provincial and local entities regulate the testing,
manufacturing, safety and promotion of our products. The regulations

Page 37

applicable to our products may change as the currently limited number of
approved controlled-release products increases and regulators acquire additional
experience in this area.

UNITED STATES REGULATION

NEW DRUG APPLICATION

We will be required by the FDA to comply with NDA procedures for our
branded products prior to commencement of marketing by us, or our licensees. New
drug compounds and new formulations for existing drug compounds which cannot be
filed as ANDAs are subject to NDA procedures. These procedures include (a)
pre-clinical laboratory and animal toxicology tests; (b) scaling and testing of
production batches; (c) submission of an Investigational New Drug Application
("IND"), and subsequent approval is required before any human clinical trials
can commence; (d) adequate and well controlled replicate human clinical trials
to establish the safety and efficacy of the drug for its intended indication;
(e) the submission of an NDA to the FDA; and (f) FDA approval of an NDA prior to
any commercial sale or shipment of the product, including pre-approval and
post-approval inspections of its manufacturing and testing facilities. If all of
this data in the product application is owned by the applicant, the FDA will
issue its approval without regard to patent rights that might be infringed or
exclusivity periods that would affect the FDA's ability to grant an approval if
the application relied upon data which the applicant did not own. We intend to
generate all data necessary to support FDA approval of the applications we file.

Pre-clinical laboratory and animal toxicology tests may have to be
performed to assess the safety and potential efficacy of the product. The
results of these pre-clinical tests, together with information regarding the
methods of manufacture of the products and quality control testing, are then
submitted to the FDA as part of an IND requesting authorization to initiate
human clinical trials. Once the IND notice period has expired, clinical trials
may be initiated, unless an FDA hold on clinical trials has been issued.

Clinical trials involve the administration of a pharmaceutical product to
individuals under the supervision of qualified medical investigators that are
experienced in conducting studies under "Good Clinical Practice" guidelines.
Clinical studies are conducted in accordance with protocols that detail the
objectives of a study, the parameters to be used to monitor safety and the
efficacy criteria to be evaluated. Each protocol is submitted to the FDA and to
an Institutional Review Board prior to the commencement of each clinical trial.
Clinical studies are typically conducted in three sequential phases, which may
overlap. In Phase I, the initial introduction of the product into human
subjects, the compound is tested for absorption, safety, dosage, tolerance,
metabolic interaction, distribution, and excretion. Phase II involves studies in
a limited patient population with the disease to be treated to (1) determine the
efficacy of the product for specific targeted indications, (2) determine optimal
dosage and (3) identify possible adverse effects and safety risks. In the event
Phase II evaluations demonstrate that a pharmaceutical product is effective and
has an acceptable safety profile, Phase III clinical trials are undertaken to
further evaluate clinical efficacy of the product and to further test its safety
within an expanded patient population at geographically dispersed clinical study
sites. Periodic reports on the clinical investigations are required.

We, or the FDA, may suspend clinical trials at any time if either party
believes the clinical subjects are being exposed to unacceptable health risks.
The results of the product development, analytical laboratory studies and
clinical studies are submitted to the FDA as part of an NDA for approval of the
marketing and commercialization of a pharmaceutical product.

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ABBREVIATED NEW DRUG APPLICATION

In certain cases, where the objective is to develop a generic version of an
approved product already on the market in controlled-release dosages, an ANDA
may be filed in lieu of filing an NDA. Under the ANDA procedure, the FDA waives
the requirement to submit complete reports of pre-clinical and clinical studies
of safety and efficacy and instead requires the submission of bioequivalency
data, that is, demonstration that the generic drug produces the same effect in
the body as its brand-name counterpart and has the same pharmacokinetic profile,
or change in blood concentration over time. The ANDA procedure would be
available to us for a generic version of a drug product approved by the FDA. In
certain cases, an ANDA applicant may submit a suitability petition to the FDA
requesting permission to submit an ANDA for a drug product that differs from a
previously approved reference drug product (the "Listed Drug ") when the change
is one authorized by statute. Permitted variations from the Listed Drug include
changes in: (1) route of administration, (2) dosage form, (3) strength and (4)
one of the active ingredients of the Listed Drug when the Listed Drug is a
combination product. The FDA must approve the petition before the ANDA may be
submitted. An applicant is not permitted to petition for any other kinds of
changes from listed drugs. The information in a suitability petition must
demonstrate that the change from the Listed Drug requested for the proposed drug
product may be adequately evaluated for approval without data from
investigations to show the proposed drug product's safety or effectiveness. The
advantages of an ANDA over an NDA include reduced research and development costs
associated with bringing a product to market, and generally a shorter review and
approval time at the FDA.

PATENT CERTIFICATION AND EXCLUSIVITY ISSUES

ANDAs are required to include certifications with respect to any third
party patents that claim the Listed Drug or that claim a use for the Listed Drug
for which the applicant is seeking approval. If applicable third party patents
are in effect and this information has been submitted to the FDA, the FDA must
delay approval of the ANDA until the patents expire. If the applicant believes
it will not infringe the patents, it can make a patent certification to the
holder of patents on the drug for which a generic drug approval is being sought,
which may result in patent infringement litigation which could delay the FDA
approval of the ANDA for up to 30 months. If the drug product covered by an ANDA
were to be found by a court to infringe another company's patents, approval of
the ANDA could be delayed until the patents expire. Under the Food Drug and
Cosmetic Act ("FDC"), the first filer of an ANDA with a "non-infringement"
certification is entitled to receive 180 days of market exclusivity. Subsequent
filers of generic products would be entitled to market their approved product
six months after the earlier of the first commercial marketing of the first
filer's generic product or a successful defense of a patent infringement suit.

Patent expiration refers to expiry of U.S. patents (inclusive of any
extensions) on drug compounds, formulations and uses. Patents outside the United
States may differ from those in the United States. Under U.S. law, the
expiration of a patent on a drug compound does not create a right to make, use
or sell that compound. There may be additional patents relating to a person's
proposed manufacture, use or sale of a product that could potentially prohibit
such person's proposed commercialization of a drug compound.

The FDC contains non-patent market exclusivity provisions that offer
additional protection to pioneer drug products and are independent of any patent
coverage that might also apply. Exclusivity refers to the fact that the
effective date of approval of a potential competitor's ANDA to copy the pioneer
drug may be delayed or, in certain cases, an ANDA may not be submitted until the
exclusivity period expires. Five years of exclusivity are granted to the first
approval of a "new chemical entity." Three years of exclusivity may apply to
products which are not new chemical entities, but for which new clinical
investigations are essential to the approval. For example, a new indication for
use, or a new dosage strength of a previously approved product, may be entitled
to exclusivity, but only with respect to that indication or dosage strength.
Exclusivity only offers protection against a competitor entering the market via
the ANDA route, and does not operate against a competitor that generates all of
its own data and submits a full NDA.

If applicable regulatory criteria are not satisfied, the FDA may deny
approval of an NDA or an ANDA or may require additional testing. Product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems occur after the product reaches the market. The FDA
may require further testing and surveillance programs to monitor the
pharmaceutical product that has been commercialized. Noncompliance with
applicable requirements can result in additional penalties, including product
seizures, injunction actions and criminal prosecutions.

CANADIAN REGULATION

The requirements for selling pharmaceutical drugs in Canada are
substantially similar to those of the United States described above.

Page 39

INVESTIGATIONAL NEW DRUG APPLICATION

Before conducting clinical trials of a new drug in Canada, we must submit a
Clinical Trial Application ("CTA") to the Therapeutic Products Directorate
("TPD"). This application includes information about the proposed trial, the
methods of manufacture of the drug and controls, pre-clinical laboratory and
animal toxicology tests on the safety and potential efficacy of the drug, and
information on any previously executed clinical trials with the new drug. If,
within 30 days of receiving the application, the TPD does not notify us that our
application is unsatisfactory, we may proceed with clinical trials of the drug.
The phases of clinical trials are the same as those described above under
"United States Regulation -- New Drug Application."

NEW DRUG SUBMISSION

Before selling a new drug in Canada, we must submit a New Drug Submission
("NDS") or Supplemental New Drug Submission ("sNDS") to the TPD and receive a
Notice of Compliance ("NOC") from the TPD to sell the drug. The submission
includes information describing the new drug, including its proper name, the
proposed name under which the new drug will be sold, a quantitative list of
ingredients in the new drug, the methods of manufacturing, processing, and
packaging the new drug, the controls applicable to these operations, the tests
conducted to establish the safety of the new drug, the tests to be applied to
control the potency, purity, stability and safety of the new drug, the results
of bio-pharmaceutics and clinical trials as appropriate, the intended
indications for which the new drug may be prescribed and the effectiveness of
the new drug when used as intended. The TPD reviews the NDS or sNDS. If the
submission meets the requirements of Canada's Food and Drugs Act and
Regulations, the TPD will issue an NOC for the new drug.

Where the TPD has already approved a drug for sale in controlled-release
dosages, we may seek approval from the TPD to sell an equivalent generic drug
through an Abbreviated New Drug Submission (ANDS). In certain cases, the TPD
does not require the manufacturer of a proposed drug that is claimed to be
equivalent to a drug that has already been approved for sale and marketed, to
conduct clinical trials; instead, the manufacturer must satisfy the TPD that the
drug is bioequivalent to the drug that has already been approved and marketed.

The TPD may deny approval or may require additional testing of a proposed
new drug if applicable regulatory criteria are not met. Product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. Contravention of Canada's
Food and Drugs Act and Regulations can result in fines and other sanctions,
including product seizures and criminal prosecutions.

Proposals have recently been made that, if implemented, would significantly
change Canada's drug approval system. In general, the recommendations emphasize
the need for efficiency in Canadian drug review. Proposals include establishment
of a separate agency for drug regulation and modeling the approval system on
those found in European Union countries. There is no assurance, however, that
such changes will be implemented or, if implemented, will expedite the approval
of new drugs.

The Canadian government has regulations which can prohibit the issuance of
an NOC for a patented medicine to a generic competitor, provided that the
patentee or an exclusive licensee has filed a list of its Canadian patents
covering that medicine with the Minister of Health and Welfare. After submitting
the list, the patentee or an exclusive licensee can commence a proceeding to
obtain an order of prohibition directed to the Minister prohibiting him or her
from issuing an NOC. The minister may be prohibited from issuing an NOC
permitting the importation or sale of a patented medicine to a generic
competitor until patents on the medicine expire or the waiver of infringement
and/or validity of the patent(s) in question is resolved by litigation in the
manner set out in such regulations. There may be additional patents relating to
a company's proposed manufacture, use or sale of a product that could
potentially prohibit such company's proposed commercialization of a drug
compound.

Certain provincial regulatory authorities in Canada have the ability to
determine whether the consumers of a drug sold within such province will be
reimbursed by a provincial government health plan for that drug by listing drugs
on formularies. The listing or non-listing of a drug on provincial formularies
may affect the prices of drugs sold within provinces and the volume of drugs
sold within provinces.

ADDITIONAL REGULATORY CONSIDERATIONS

Sales of our products by our licensees outside the United States and Canada
are subject to regulatory requirements governing the testing, registration and
marketing of pharmaceuticals, which vary widely from country to country.

Page 40

Under the U.S. Generic Drug Enforcement Act, ANDA applicants (including
officers, directors and employees) who are convicted of a crime involving
dishonest or fraudulent activity (even outside the FDA regulatory context) are
subject to debarment. Debarment is disqualification from submitting or
participating in the submission of future ANDAs for a period of years or
permanently. The Generic Drug Enforcement Act also authorizes the FDA to refuse
to accept ANDAs from any company which employs or uses the services of a
debarred individual. We do not believe that we receive any services from any
debarred person.

In addition to the regulatory approval process, pharmaceutical companies
are subject to regulations under provincial, state and federal law, including
requirements regarding occupational safety, laboratory practices, environmental
protection and hazardous substance control, and may be subject to other present
and future local, provincial, state, federal and foreign regulations, including
possible future regulations of the pharmaceutical industry. We believe that we
are in compliance in all material respects with such regulations as are
currently in effect.

ENVIRONMENTAL LAWS

We are subject to comprehensive federal, state, and provincial
environmental laws and regulations that govern, among other things, air
polluting emissions, waste water discharges, solid and hazardous waste disposal,
and the remediation of contamination associated with current or past generation
handling and disposal activities, including the past practices of corporations
as to which we are the successor. We do not expect that compliance with such
environmental laws will have a material effect on our capital expenditures,
earnings or competitive position in the foreseeable future. There can be no
assurance, however, that future changes in environmental laws or regulations,
administrative actions or enforcement actions, or remediation obligations
arising under environmental laws will not drain our capital expenditures, and
affect our earnings or competitive position.

COMPETITION

We compete in two related but distinct areas: we perform contract research
and development work regarding controlled-release drug technology for other
pharmaceutical companies, and we seek to develop and market (either on our own
or by license to other companies) proprietary controlled-release pharmaceutical
products. In both areas, our competition consists of those companies which
develop controlled-release drugs and alternative drug delivery systems.

In recent years, an increasing number of pharmaceutical companies have
become interested in the development and commercialization of products
incorporating advanced or novel drug delivery systems. These include both
companies with one or a few drug development candidates, such as Scolr Pharma,
Inc., Mistral Pharma Inc. and Labopharm Inc., and some major pharmaceutical
companies with a broader range of products developed or in development such as
Teva Pharmaceutical Industries Ltd., Impax Laboratories, Inc., Apotex, Inc.,
Sandoz, Inc., and Biovail Corporation. This list is certainly not exhaustive. We
expect that competition in the field of drug delivery will significantly
increase in the future since smaller specialized research and development
companies are beginning to concentrate on this aspect of the business. Some of
the major pharmaceutical companies have invested and are continuing to invest
significant resources in the development of their own drug delivery systems and
technologies and some have invested funds in such specialized drug delivery
companies. Other companies may develop new drug formulations and products or may
improve existing drug formulations and products more efficiently than we can. In
addition, almost all of our competitors have vastly greater resources than we
do. While our product development capabilities and patent protection may help us
maintain a market position in the field of drug delivery, there can be no
assurance that others will not be able to develop these capabilities, or
alternative technologies outside the scope of our patents, if any, or that even
if patent protection is obtained, these patents will not be successfully
challenged in the future.

EMPLOYEES

As of June 1, 2007, we had 33 full-time employees. Our employees are
engaged in administration and research and development. None of our employees is
represented by a labor union and we have never experienced a work stoppage. We
believe relations with our employees are good.

DESCRIPTION OF PROPERTY

On October 1, 2004, we entered into a 5-year lease agreement for a 25,000
square foot facility at 30 Worcester Road, Toronto, Ontario, Canada M9W 5X2, at
approximately $100,000 Canadian per year. The lease term expires on October 1,
2009, with an option for an additional 5-year term at market rates. We use our
facilities as a

Page 41

laboratory, office space, and current Good Manufacturing Practices ("cGMP")
scale-up and small to medium-scale manufacturing.

We commenced renovation and construction of our administrative facilities
and cGLP research laboratories in November 2004 and construction of a cGMP
manufacturing plant for solid oral dosage forms in the first quarter of 2005 at
our 30 Worcester Road facility in Toronto. We completed work on this site in the
second quarter of 2006. The cost of the build-out and equipping of our
administrative, laboratory and manufacturing facility was approximately
$1,685,000, with approximately $810,000 for plant and $950,000 for equipment.
The facility now consists of approximately 4,900 sq. ft. for administrative
space, 4,300 sq. ft. for R&D, 9,200 sq. ft. for manufacturing, and 3,000 sq. ft.
for warehousing.

LEGAL PROCEEDINGS

CONSULTING AGREEMENTS

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS, AND KEY EMPLOYEES

The following are the names and certain information regarding our current
Directors and Executive Officers:

NAME AGE POSITION
- ---- --- --------

Isa Odidi 51 Chairman and Chief Executive Officer
Amina Odidi 49 President, Chief Operating Officer, Chief Financial
Officer, and Director
John N. Allport 61 Vice President, Legal Affairs and Licensing, and
Director
Patrick N. Yat 51 Vice President, Pharmaceutical Analysis and Chemistry
Arnold Beckett 87 Director
Kenneth Keirstead 66 Director
Bahadur Madhani 61 Director

Pursuant to our bylaws, each director holds office until the next annual
meeting of shareholders of the Company or until their successors are elected or
appointed. Officers are appointed annually by the Board of Directors (subject to
the terms of any employment agreement) to hold office until a successor has been
appointed. Drs. Isa and Amina Odidi are husband and wife.

BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS

Dr. Isa Odidi has been the Chairman of the Board, Chief Executive Officer,
Co-Chief Scientific Officer, and Chair of Scientific Advisory of IPC Corp. and
IPC Inc. since their inception (2002 for IPC Corp. and 1998 for IPC Inc.). Dr.
Odidi's work has been cited in textbooks and he has published over a hundred
scientific and medical papers, articles and textbooks. Dr. Odidi has held senior
positions in academia and in the pharmaceutical and health care industries. He
currently holds a Chair as Professor of Pharmaceutical Technology at the Toronto
Institute of Pharmaceutical Technology in Canada, and is an Adjunct Professor at
the Institute for Molecular Medicine, California. Dr. Odidi received his B.S.
degree in Pharmacy, from Ahmadu Bello University, Nigeria, and his M.S.,
Pharmaceutical

Page 42

Technology, and Ph.D Pharmaceutics degrees from the University of London,
England. He is also a graduate of the Western Executive Management Program at
the Ivey School of Business, University of Western Ontario.

DR. AMINA ODIDI, wife of Dr. Isa Odidi, has been President, Chief Operating
Officer, Chief Financial Officer, Co-Chief Scientific Officer, and a director of
IPC since 2002. From 1998 to 2002, Dr. Odidi was CEO and President of IPC Inc.
She has had extensive experience developing and applying proprietary
technologies to the development of controlled-release drug products for
third-party pharmaceutical companies. Dr. Odidi has invented or co-invented
various proprietary controlled delivery devices for the delivery of
pharmaceutical, nutriceutical, biological, agricultural and chemical agents. Dr.
Odidi received her B.S. degree in Pharmacy, from Ahmadu Bello University,
Nigeria, and her M.S., Biopharmaceutics and Ph.D Pharmaceutics degrees from the
University of London, England.

JOHN N. ALLPORT has been Vice President since 2005. He was Director of
Technology Licensing from 2001 to 2004. Mr. Allport has in excess of twenty
years' experience in the field of intellectual property law as an attorney with
the international IP firm Messrs. Sim, Hughes, Ashton & McKay of Toronto,
working for and against many Fortune 100 companies. He has also been engaged to
assist in the creation and exploitation of the extensive IP licensing interests
of such international licensing giants as Walt Disney Corporation, the Canadian
Olympic Association and the World Wildlife Fund.

DR. PATRICK N. YAT has been Vice President since 2005. He was Director of
Pharmaceutical Analysis and Chemistry for IPC and its Parent from 2001 to 2004.
Dr. Yat's responsibilities include the development and validation of analytical
methods for drug compounds and drug delivery systems under development, and the
supervision and execution of all pre-formulation activities.

ARNOLD BECKETT has been a director since October 2004. Dr. Beckett is a
preeminent scientist and academic in the pharmaceutical industry. He has acted
as a consultant during the past eight years for Smith, Kline and French (U.S.
and U.K.), Smith and Nephew (U.K.), Searle (U.S.), Alza (U.S.), Robins (U.S.)
and others. Dr. Beckett has published over 450 research papers, and has served
as research supervisor for more than 90 prospective Ph.D. candidates at the
University of London. He received his Ph.D., D.Sc., B.Sc., and F.R.Pharm.S. from
the University of London, and has received honorary degrees from universities in
Belgium, Sweden and Scotland. He was also involved in the founding of the
American Association of Pharmaceutical Scientists (AAPS), among other numerous
field memberships.

KENNETH KEIRSTEAD has been a director since January, 2006. He is educated
in clinical biochemistry and business administration. He has worked in the
health care delivery and pharmaceutical industries for over 45 years. He was
President and CEO, Sanofi Winthrop Canada Inc.; General Manager, Squibb Medical
Systems International; President, Chemfet International and President, Quinton
Instruments among other positions. Mr. Keirstead has published studies and
reports on health care and related services topics. Since 1998 Mr. Keirstead's
principal occupation has been as Executive Manager of the Lyceum Group, a
Canadian consulting services company primiarly active in the heatlh care field,
of which Mr Keirstad is the founder.

BAHADUR MADHANI, an accountant, has been a director since March 31, 2006.
He is a member of the advisory board of Quebecor Ontario and former chairman of
United Way of Toronto. He was awarded membership in the Order of Canada in 2001.
Since 1983, Mr. Madhani's principal occupation has been as President and CEO of
Equiprop Management Limited, a Canadian property management company of which Mr.
Madhani is the principal shareholder. At present, he is also the Chairman of the
YMCA of Toronto.

SCIENTIFIC ADVISORY BOARD

Our Scientific Advisors advise the Company on developments relating to
controlled-release drug delivery technology. They have extensive experience in
all related areas of pharmaceutical chemistry and controlled-release formulation
development. The individuals listed below, together with Drs. Isa and Amina
Odidi, are members of the Scientific Advisory team.

DR. GARTH L. NICHOLSON is an internationally known scientist with a
distinguished career in medical research, and was nominated for the Nobel Prize
for his classical Fluid Mosaic Membrane Model. He is currently President, Chief
Scientific Officer and Research Professor at the Institute for Molecular
Medicine, California, a position he has held since before 2001. He is also a
Professor at the Department of Internal Medicine, University of Texas Medical
School since before 2001. He has published over 470 medical and scientific
papers, edited 13 scientific books, served on the editorial board of 12 medical
and scientific journals, and received several awards for his research. Dr.
Nicholson has been retired for over five years.

Page 43

DR. JOHN M. NEWTON is an internationally renowned pharmaceutical scientist
with a distinguished career in pharmaceutical research. Dr. Newton was formerly
Professor and Head of Pharmaceutics, Department of Pharmaceutics, School of
Pharmacy, University of London and Professor, Department of Pharmacy, Kings
College, University of London. Dr. Newton has been retired for over five years.

DR. KANJI TAKADA is a highly regarded pharmaceutical scientist and inventor
with specialization in pharmacokinetics and biopharmaceutics. Dr. Takada is
currently Professor and Head, Department of Pharmaceutics and Pharmacokinetics,
Kyoto Pharmaceutical University, Kyoto, Japan, a position he has held since
before 2001.

EMPLOYMENT AGREEMENTS

Effective September 9, 2004, Drs. Isa and Amina Odidi entered into
three-year employment agreements providing for annual compensation of $200,000
each per year with 20% annual increases.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the total
compensation that we have paid or that has accrued on behalf of our chief
executive officer and the next two most highly-paid officers of the Company. No
other executive officer received annual compensation exceeding $100,000 during
the fiscal years ending December 31, 2006, 2005 and 2004.

SUMMARY COMPENSATION TABLE (1)

RESTRICTED SECURITIES NON-EQUITY NON-QUALIFIED
STOCK UNDERLYING INCENTIVE DEFERRED ALL OTHER
NAME AND PRINCIPAL BONUS AWARD(S) OPTIONS/ COMPENSATION COMPENSATION COMPENSATION TOTAL
POSITION YEAR SALARY (2) ($) ($) SARS (#) ($) EARNINGS ($) ($)
- ---------------------- ---- ---------- ----- ---------- ---------- ------------ ------------- ------------ --------

Isa Odidi, Chief 2006 $279,690 -0- -0- -0- -0- -0- $8,581 $299,271
Executive Officer (4) 2005 $213,140 -0- -0- -0- -0- -0- -0- $213,140
2004 $118,837 -0- -0- -0- 5,000,000(3) -0- -0- $118,837

Amina Odidi, President 2006 $279,690 -0- -0- -0- -0- -0- $8,581 $288,271
and Chief Operating 2005 $213,140 -0- -0- -0- -0- -0- -0- $213,140
Officer (4) 2004 $118,837 -0- -0- -0- 5,000,000(3) -0- -0- $118,837

John Allport, 2006 $105,000 -0- -0- -0- -0- -0- -0- $105,000
VP Legal Affairs & 2005 $ 95,000 -0- 100,000 -0- -0- -0- -0- $ 95,000
Licensing 2004 $ 31,667 -0- -0- -0- -0- -0- -0- $ 31,667

(1) The compensation described in this table does not include medical and
dental insurance benefits received by the named executive officers, if
applicable, which are available generally to all employees of the Company
and certain perquisites and other personal benefits received by the named
executive officers, the value of which does not exceed the lesser of
$50,000 and 10% of any such officer's total salary and bonus disclosed in
the table.

(2) Salaries are paid in Canadian dollars. All amounts are expressed in U.S.
dollars converted at the exchange rate of US$0.8581 to Cdn$1.00 (2005 -
US$0.8254; 2004 - US$0.7683) for the year ended December 31, 2006.

(3) Drs. Isa and Amina Odidi were issued an aggregate of 5,000,000 stock
options in September 2004 to purchase an aggregate of 5,000,000 shares of
our common stock at $2.00 per share. The options vest as follows: (a)
500,000 upon acceptance of a drug filing by the FDA, up to five drugs, and
(b) 500,000 upon approval of a drug filing by the FDA, up to five drugs.

(4) As at December 31, 2006, we owed the Odidi's approximately $1,479,130
pursuant to an outstanding promissory note. This loan bears interest at the
rate of 6% per annum, and is repayable from 25% of our revenues. As at June
30, 2007, the amount outstanding under the promissory note is $1,503,299.

COMPENSATION OF DIRECTORS

Directors who are officers or employees of the Company are not compensated
for their work as directors.

Page 44

Directors who are not officers or employees of the Company receive a
monthly fee and have been granted one-time issuances of stock options as
follows:

Arnold Beckett - Monthly fee $2,000; 10,000 options at an exercise price of
$2.00 per share, fully vested and exercisable any time from date of grant up to
August 31, 2015.

Kenneth Keirstead - Monthly fee of about $1,785 (equivalent of CAD$2,000);
10,000 stock options at an exercise price of $3.50 per share, fully vested and
exercisable any time from date of grant up to March 31, 2008.

Bahadur Madhani - Monthly fee of about $1,785 (equivalent of CAD$2,000);
10,000 stock options at a price of $3.50, fully vested and exercisable any time
from date of grant up to March 31, 2008.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

As at December 31, 2006, we had an outstanding promissory note payable to
Dr. Isa Odidi and Dr. Amina Odidi, principal stockholders, directors and
executive officers, in the amount of $1,479,130 down from $1,733,678 as at
December 31, 2005. As of June 30, 2007, there is $1,503,299 outstanding on the
promissory note. The promissory note bears a 6% annual interest rate on the
outstanding loan balance and the loan is secured by, and repayable in any month
at the rate of, 25% of gross revenues.

We believe that material affiliated transactions and loans, and business
relationships entered into by us or our affiliates with certain of our officers,
directors and principal stockholders or their affiliates were on terms no less
favourable than we could have obtained from independent third parties. Any
future transactions between us and our officers, directors or affiliates will be
subject to approval by a majority of disinterested directors or stockholders in
accordance with Delaware law.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information, as of June 1, 2007 with
respect to the beneficial ownership of the outstanding common stock by (i) any
holder of more than five (5%) percent; (ii) each of our executive officers,
senior management and directors; and (iii) our directors, executive officers and
senior management as a group. Except as otherwise indicated, each of the
stockholders listed below has sole voting and investment power over the shares
beneficially owned.

PERCENTAGE PERCENTAGE
NAME (1) SHARES (2) BEFORE OFFERING (3) AFTER OFFERING (3)
- -------- ---------- ------------------- ------------------

Isa Odidi 10,850,000(4) 65.38% 65.38%
Amina Odidi (4) --
John N. Allport 500,000(5) 3.01% 0
Patrick N. Yat 50,000 * 0
Arnold Beckett 10,000(6) * 0
Kenneth Keirstead 10,000(6) * 0
Bahadur Madhani 10,000(6) * 0
All officers, directors and senior
management as a group(7) 11,430,000 68.88% 0

- ----------
* Less than 1%

(1) Except as otherwise indicated, the address of each beneficial owner is c/o
IntelliPharmaCeutics Ltd., 30 Worcester Road, Etobicoke, Ontario, Canada
M9W 5X2.

(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to the shares shown. Except where indicated
by footnote and subject to community property laws where applicable, the
persons named in the table have sole voting and investment power with
respect to all shares of voting securities shown as beneficially owned by
them.

(3) Based on 16,594,568 shares of common stock issued and outstanding. Assumes
the conversion of IPC Corp.'s Exchangeable Stock into our common stock, and
the exercise of outstanding options and warrants (other than the 5,000,000
options held by the Odidi's which vest upon the achievement of certain FDA
milestones), and the subsequent sale of all common stock acquired by
exercise of the options and warrants.

Page 45

(4) Represents 10,850,000 shares of Special Voting Stock in us held by
IntelliPharmaCeutics Inc., which is controlled by Drs. Isa and Amina Odidi,
and the Isa Odidi Family Trust, of which Drs. Isa and Amina Odidi are
Trustees. Excludes options held by Drs. Isa and Amina Odidi to purchase
5,000,000 shares of common stock, which will vest upon the achievement of
certain FDA milestones.

(5) Includes 300,000 shares of common stock owned by John Allport's wife,
Patricia Marie Nugent.

(6) Represents options to acquire shares of common stock.

DESCRIPTION OF SECURITIES

Our authorized capital stock consists of 60,000,000 shares of capital
stock, par value $.001, of which 40,000,000 shares are common stock and
20,000,000 shares are preferred stock that may be issued in one or more series
at the discretion of the Board of Directors. 10,850,000 shares of our preferred
stock have been designated as Special Voting Stock, and the remaining 9,150,000
shares of preferred stock have not been designated. As of the date hereof,
6,023,944 shares of common stock and 10,850,000 shares of Special Voting Stock
were issued and outstanding.

COMMON STOCK

The holders of the common stock, along with holders of Special Voting Stock
as a single class, are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders. We do not have cumulative
voting rights in the election of directors, and accordingly, holders of a
majority of the shares voting are able to elect all of the directors. Subject to
preferences that may be granted to any then outstanding preferred stock, holders
of common stock are entitled to receive dividends ratably, as may be declared by
the Board of Directors out of funds legally available, as well as any
distributions to the stockholders. In the event of our liquidation, dissolution
or winding up, holders of common stock are entitled to share ratably in all of
our assets remaining after payment of liabilities and the liquidation preference
of any then outstanding preferred stock. Holders of common stock have no
preemptive or other subscription or conversion rights. There are no redemption
or sinking fund provisions applicable to the common stock.

PREFERRED STOCK

Shares of preferred stock may be issued from time to time in one or more
series as may from time to time be determined by our Board of Directors. Our
Board of Directors has authority, without action by the stockholders, to
determine the voting rights, preferences as to dividends and liquidation,
conversion rights and any other rights of such series. Any preferred shares, if
and when issued in the discretion of the Board of Directors, may carry voting,
conversion or other rights superior to those of the shares of common stock and
may adversely affect the voting power and rights of the common stockholders.
There are no shares of preferred stock currently outstanding, except as set
forth below.

SPECIAL VOTING STOCK

As of the date of this prospectus, we have designated and issued 10,850,000
shares of Special Voting Stock, par value $.001 per share, held by IPC Inc. The
holder of Special Voting Stock, along with the holders of common stock as a
single class, are entitled to one vote for each share held of record on all
matters submitted to a vote of shareholders. In the event of our liquidation,
dissolution, or winding-up, holders of Special Voting Stock have no preemptive
or other subscription or conversion rights. There are no redemption or sinking
fund provisions applicable to the Special Voting Stock. Upon issuance of shares
of common stock to the holder of our IPC Corp.'s Exchangeable Stock, Special
Voting Stock shares shall automatically be redeemed and cancelled, without any
repayment of capital on the Special Voting Stock, on the basis of one share of
Special Voting Stock for each share of common stock issued. Shares of Special
Voting Stock are convertible at the sole option of the holder into shares of our
common stock by exercising the exchange rights associated with the Exchangeable
Stock, as described immediately below.

IPC CORP. EXCHANGEABLE STOCK

We have reserved 10,850,000 shares of our common stock for issuance upon
exchange of IPC Corp.'s Exchangeable Stock, $.001 par value. Upon exchange of
the Exchangeable Stock, shares of our Special Voting Stock shall automatically
be redeemed and cancelled, without any repayment of capital on the Special
Voting Stock, on the basis of one share of Special Voting Stock for each share
of Exchangeable Stock exchanged. Each share of Exchangeable Stock, among other
things, (a) entitles the holder to voting rights in IPC Corp., (b) entitles the
holder to

Page 46

receive Canadian dollar equivalent dividends equal to dividends paid on our
common stock, (c) is exchangeable at the option of the holder, at his or her
election from time to time upon 30 days' written notice, for one share of our
common stock, plus an additional amount for declared and unpaid dividends; and
(d) entitles the holder, on our liquidation, or the liquidation of IPC Corp., to
receive in exchange for each share of Exchangeable Stock, one share of our
common stock, plus an amount for declared and unpaid dividends. Apart from the
right to be treated by IPC Corp. as being economically equivalent to our common
stock, the Exchangeable Stock does not have the right to receive any additional
amount from IPC Corp. by way of dividends, or upon liquidation, dissolution,
winding up or otherwise.

No shares shall be authorized or issued in IPC Corp., except solely the
shares of common stock that will all be owned by us, and the Exchangeable Stock
described above. Except solely for economic equivalence with our common stock,
the Exchangeable Stock has no right to share further in IPC Corp.'s assets, and
no further shares will be authorized or issued in IPC Corp. that will have any
preference or priority over the common stock to share in IPC Corp.'s assets.
Apart from the right to be treated by IPC Corp. as being economically equivalent
to our common stock, the Exchangeable Stock does not have the right to receive
any additional amount from IPC Corp. by way of dividends, or upon liquidation,
dissolution, winding up or otherwise.

OUTSTANDING WARRANTS AND OPTIONS

As of the date of this prospectus, there were outstanding warrants to
purchase 288,921 shares of common stock, 278,500 of which are exercisable at
$3.00 per share, 5,000 of which are exercisable at $4.00 per share and 5,421 of
which are exercisable at $3.50 per share.

On September 10, 2004, we granted stock options to purchase 5,000,000
shares of our common stock to Drs. Isa and Amina Odidi. These options vest
pursuant to attaining certain milestones. The options are exercisable at a price
of $2.00 per share.

Dr. Arnold Beckett, a Director, has been granted 10,000 options at an
exercise price of $2.00 per share. These options are fully vested and
exercisable any time up to August 31, 2015.

Dr. David Filer, a service provider, has been granted 119,988 options at an
exercise price of $3.00 per share. 29,997 of these options were granted in
August 2005, are fully vested and expire on August 31, 2008. Dr. Filer provided
services for the Company relating to the pharmaceutical industry and particular
aspects of drug development opportunities from 2005 to 2007. The balance have
been issued monthly from September 2005 at 3,333 per month, vest in full at the
next fiscal quarter end after they are issued and expire 3 years after the date
of grant.

Kenneth Keirstead and Bahadur Madhani, Directors, have each been granted
10,000 options at an exercise price of $3.50 per share. These options are fully
vested and exercisable any time up to March 31, 2008.

TRANSFER AGENT AND REGISTRAR

Jersey Transfer & Registrar Company, Verona, New Jersey, serves as transfer
agent and registrar for our common stock.

SHARES ELIGIBLE FOR FUTURE SALE

SHARES OUTSTANDING AND FREELY TRADABLE AFTER OFFERING

We have 22,312,853 shares of common stock outstanding or subject to
issuance pursuant to the terms of the outstanding warrants, options or
Exchangeable Shares. The 4,557,068 shares in this offering will be freely
tradable without restriction or limitation under the Securities Act.

EFFECT OF SUBSTANTIAL SALES ON MARKET PRICE OF COMMON STOCK

We are unable to estimate the number of shares that may be sold in the
future by our existing stockholders or the effect, if any, that such sales will
have on the market price of the common stock prevailing from time to time. Sales
of substantial amounts of common stock, or the prospect of such sales, could
adversely affect the market price of the common stock. None of the Registrant,
IntelliPharmaCeutics Inc., or Drs. Isa or Amina Odidi currently proposes to
register any additional shares for public offering that would have a material
effect on the price of the shares offered

Page 47

hereunder. However, subject to restrictions under applicable securities laws, we
may be able to sell material quantities of our common stock, and IPC Inc. may be
able to sell material quantities of common stock that it obtains on conversion
of its Special Voting Stock or Exchangeable Stock, to private investors or into
the public market. We have, and intend to continue to, offer common stock for
sale in transactions exempt from the registration requirements of the Securities
Act in quantities similar to past recent transactions (see "Recent Sales of
Unregistered Securities") to raise additional working capital. Shares sold in
such transactions may be registered in the future for resale to the public.

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

The laws of the State of Delaware provide for the indemnification of our
officers, directors and other eligible persons. We may enter into
indemnification agreements with each of our current directors and executive
officers which will provide for indemnification of, and advancement of expenses
to, such persons for expenses and liability incurred by them by reason of the
fact that they are or were a director, officer, or stockholder of
IntelliPharmaCeutics Ltd., including indemnification under circumstances in
which indemnification and advancement of expenses are discretionary under
Delaware law.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for
IntelliPharmaCeutics Ltd. by Michael H. Freedman, PLLC.

EXPERTS

Our financial statements as of and for the year ended December 31, 2006
included in this prospectus have been audited by Mintz & Partners LLP,
independent public accountants, as stated in their report appearing herein and
are so included herein in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing. The financial statements were
prepared under U.S. GAAP and audited in accordance with Public Company
Accounting Oversight Board (United States) standards. Mintz & Partners LLP's
authority as experts is in respect of these respective standards for the
indicated period.

ADDITIONAL INFORMATION

Following the effective date of the registration statement, of which this
prospectus forms a part, IntelliPharmaCeutics Ltd. will be subject to the
informational requirements of the Securities Exchange Act of 1934, and in
accordance therewith will file reports, proxy or information statements and
other information with the Securities and Exchange Commission. Any such reports,
proxy statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 100 F Street, N.E.,
Washington, D.C. 20549. Copies of such material may be obtained from the Public
Reference Section of the Commission at 100 F Street, N.E., Washington, D.C.
20549, at prescribed rates. In addition, the Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission's web site is http://www.sec.gov.

IntelliPharmaCeutics Ltd. has filed with the Commission, a registration
statement on Form SB-2 under the Securities Act of 1933 with respect to the
common stock being offered hereby. As permitted by the rules and regulations of
the Commission, this prospectus does not contain all the information set forth
in the registration statement and the exhibits and schedules thereto. For
further information with respect to the Company and the common stock offered
hereby, reference is made to the registration statement, and such exhibits and
schedules. A copy of the registration statement, and the exhibits and schedules
thereto, may be inspected without charge at the public reference facilities
maintained by the Commission at the addresses set forth above, and copies of all
or any part of the registration statement may be obtained from such offices upon
payment of the fees prescribed by the Commission. In addition, the registration
statement may be accessed at the Commission's web site. Statements contained in
this prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by such reference.

Page 48

Back Page

Until 90 days from the Effective Date hereof, namely ____________________,
all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealer's obligation to deliver a prospectus when acting as
underwriters, and with respect to their unsold allotments or subscriptions.

Page 49

INTELLIPHARMACEUTICS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 2006 AND 2005

F-1

INTELLIPHARMACEUTICS LTD.

DECEMBER 31, 2006 AND 2005

CONTENTS

PAGE

Consolidated Financial Statements:

Independent Registered Chartered Accountants' Report F-3

Consolidated Balance Sheets F-4

Consolidated Statements of Shareholders' Equity F-5

Consolidated Statements of Operations and Deficit F-6

Consolidated Statements of Cash Flows F-7

Notes to the Consolidated Financial Statements F-8 - F-17

[GRAPHICS LOGO]

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S REPORT

To the Shareholders of

IntelliPharmaCeutics Ltd.

We have audited the accompanying consolidated balance sheets of
IntelliPharmaCeutics Ltd. as at December 31, 2006 and 2005 and the related
consolidated statements of shareholders' equity, operations and deficit and cash
flows for the years then ended. These consolidated 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 an audit to obtain reasonable assurance whether the financial
statements are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of IntelliPharmaCeutics Ltd. as at
December 31, 2006 and 2005 and the results of its operations and its cash flows
for the years then ended in accordance with accounting principles generally
accepted in the United States of America.

The accompanying financial statements have been prepared assuming that
IntelliPharmaCeutics Ltd. will continue as a going concern. As more fully
described in Note 1, the company has incurred losses over the past years, which
have significantly reduced cash reserves and depleted shareholders' equity.
These conditions raise substantial doubt about the company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.

Toronto, Ontario /S/MINTZ & PARTNERS LLP

April 27, 2007 CHARTERED ACCOUNTANTS
Licensed Public Accountants

[GRAPHICS LOGO]

F-3

INTELLIPHARMACEUTICS LTD.
CONSOLIDATED BALANCE SHEETS

AS AT DECEMBER 31 2006 2005
- ---------------------------------------------------------------------------------------------------------------------------

A S S E T S

CURRENT

Cash and cash equivalents $ 375,054 $ 2,078,009
Accounts receivable net of allowance of $18,019 (2005 - nil) 224,174 ---
Investment tax credits 762,652 653,852
Prepaid expenses and sundry assets 17,666 89,573
----------------- -----------------
1,379,546 2,821,434

Property and equipment, net of accumulated amortization
of $729,782 (2005 - $375,136) (Note 3) 1,647,112 1,246,301
----------------- -----------------

$ 3,026,658 $ 4,067,735
================= =================

L I A B I L I T I E S

CURRENT

Accounts payable and accrued liabilities $ 448,566 $ 750,163
Unearned revenue 614,912 ---
Due to related parties (Note 4) 1,503,299 1,757,897
----------------- -----------------

2,566,777 2,508,060
----------------- -----------------

COMMITMENTS AND CONTINGENCIES (Note 8 & 9)

S H A R E H O L D E R S' E Q U I T Y

CAPITAL STOCK (Note 5)

Special Voting Shares - 20,000,000 authorized number of $0.001 par value
shares: Issued and Outstanding: 10,850,000 10,850 10,850
Common Stock - 40,000,000 authorized number of $0.001 par value:
Issued and Outstanding: 5,243,946 (2005 - 5,193,946) 5,244 5,194

ADDITIONAL PAID IN CAPITAL 6,961,156 6,772,977

ACCUMULATED COMPREHENSIVE INCOME (105,619) (137,167)

DEFICIT (6,411,750) (5,092,179)
------------------ ------------------

459,881 1,559,675
----------------- -----------------

$ 3,026,658 $ 4,067,735
================= =================

/See accompanying notes

F-4

INTELLIPHARMACEUTICS LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDING DECEMBER 31, 2006 AND 2005

Amount
of
Quantity Special Quantity Additional Share Accumulated Retained Total
of Special Voting of Common Paid-In Subscriptions Comprehensive Earnings/ Shareholders'
Voting Shares Common Shares Capital Received Income (loss) Deficit Equity
Shares ($) Shares ($) ($) ($) ($) ($) ($)

Balance, January 1, 2005 10,850,000 10,850 4,729,946 4,730 5,845,441 (13,000) (139,328) (2,639,314) 3,069,379
Receipt of cash for shares
previously subscribed for 13,000 13,000

Proceeds from private
placement 464,000 464 927,536 928,000

Foreign exchange
translation gain (loss) 2,161 2,161

Net loss for the year (2,452,865) (2,452,865)
------------------------------------------------------------------------------------------------------

Balance, December 31, 2005 10,850,000 10,850 5,193,946 5,194 6,772,977 -- (137,167)(5,092,179) 1,559,675
------------------------------------------------------------------------------------------------------

Proceed from private
placement 50,000 50 174,950 175,000

Issuance costs (12,250) (12,250)

Stock-based compensation 25,479 25,479

Foreign exchange
translation gain (loss) 31,548 31,548

Net loss for the year (1,319,571) (1,319,571)
------------------------------------------------------------------------------------------------------
Balance, December 31, 2006 10,850,000 10,850 5,243,946 5,244 6,961,156 -- (105,619)(6,411,750) 459,881
======================================================================================================

/See accompanying notes
F-5

INTELLIPHARMACEUTICS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

FOR THE FISCAL YEARS ENDING DECEMBER 31, 2006 2005
- --------------------------------------------------------------------------------------------

REVENUES $ 1,490,310 $ --
------------ ------------

EXPENSES
Research and development 1,034,914 941,420
Wages and benefits 400,769 230,690
General and administrative costs 370,955 443,260
Occupancy costs 218,465 190,837
Marketing 349,465 428,628
------------ ------------

2,374,568 2,234,835
------------ ------------

LOSS BEFORE ITEMS NOTED BELOW (884,258) (2,234,835)

AMORTIZATION 354,646 170,559
FOREIGN EXCHANGE LOSS 12,203 21,979
INTEREST INCOME (29,441) (70,317)
INTEREST EXPENSE 97,905 95,809
------------ ------------

NET LOSS (1,319,571) (2,452,865)

DEFICIT - Beginning of Year (5,092,179) (2,639,314)
------------ ------------

DEFICIT - End of Year $ (6,411,750) $ (5,092,179)
============ ============

LOSS PER COMMON SHARE
Loss per Common Share $ (0.08) $ (0.16)
============ ============

Weighted average Common Shares
and Special Voting Shares outstanding 16,059,193 15,711,226
============ ============

/See accompanying notes

F-6

INTELLIPHARMACEUTICS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE FISCAL YEARS ENDING DECEMBER 31, 2006 2005
- -----------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the year $(1,317,571) $(2,452,865)
Items not affecting cash
Amortization 354,646 170,559
Stock-based compensation 25,479 --
----------- -----------

(939,446) (2,282,306)
Net change in non-cash operating items
Accounts receivable (224,172) --
Investment tax credits (108,800) (362,083)
Prepaid expenses and sundry assets 71,907 (39,922)
Accounts payable and accrued liabilities (301,597) 527,385
Unearned revenue 614,912 --
----------- -----------

CASH FLOWS USED IN OPERATING ACTIVITIES (887,197) (2,156,926)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Advanced (to) from related parties (254,598) 53,622
Capital stock issuance costs (12,250) --
Issuance of capital stock 175,000 928,000
----------- -----------

CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES (91,848) 981,622
----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (747,518) (1,020,945)
----------- -----------

CASH FLOWS USED IN INVESTING ACTIVITIES (747,518) (1,020,945)
----------- -----------

EFFECT OF EXCHANGE RATE 23,608 23,369
----------- -----------

NET DECREASE IN CASH AND CASH EQUIVALENTS (1,702,955) (2,172,880)

CASH AND CASH EQUIVALENTS
- Beginning of Year 2,078,009 4,250,889
----------- -----------

CASH AND CASH EQUIVALENTS
- End of Year $ 375,054 $ 2,078,009
=========== ===========

SUPPLEMENTAL INFORMATION
Interest received $ 29,411 $ 70,317
Interest paid $ (97,905) $ --
Income taxes paid $ -- $ --

/See accompanying notes

F-7

INTELLIPHARMACEUTICS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

1. ORGANIZATION AND BASIS OF PRESENTATION

Description of the Business and Basis of Consolidation

IntelliPharmaCeutics Ltd. ("IPC Ltd." or the "Company") was incorporated
under the laws of the State of New York on February 23, 1988 as Ready
Capital Corp. IPC Ltd did not commence principal operations until 2004
when it reincorporated itself in the State of Delaware, changed its name
to IntelliPharmaCeutics Ltd. and acquired an interest in
IntelliPharmaCeutics Corp., a Nova Scotia company ("IPC Corp."). This was
a reverse acquisition transaction that resulted in the former shareholder
of IPC Corp. controlling both the Company and IPC Corp., and IPC Corp.
being treated as the accounting acquirer and parent company under
generally accepted accounting principles, with no other outside party
holding an equity interest in such company and such acquirer and the
acquired company consolidated on this basis. IPC Corp. is engaged in the
research, development, licensing and marketing of both new and generic
controlled release pharmaceutical products. These consolidated financial
statements include the accounts of IPC Corp. as well as those of IPC Ltd.
All significant inter-company accounts and transactions have been
eliminated on consolidation. The accompanying consolidated financial
statements have been prepared in accordance with United States generally
accepted accounting principles.

Going Concern

The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
liabilities in the normal course of business. Accordingly, they do not
include any adjustments relating to the realization of the carrying value
of assets or the amounts and classification of liabilities that might be
necessary should the company be unable to continue as a going concern. The
Company is accumulating losses, working capital is negative and cash flow
from operations is negative. The Company's business is the development of
new and generic controlled release drugs which currently require to be
funded via the issuance of common stock from the treasury of the Company
or the assumption of additional liability until such activity can be fully
funded from internally generated cash flows. The Company generates cash
flows internally via its current and future development contracts which
provide upfront fees, milestone payments, reimbursement of certain
expenditures and the eventual royalty income, upon commercialization of
its products, for which no assurances can be given. The continuance of the
Company as a going concern is dependent on its future profitability and on
the on-going support of its shareholders whose loan can only be repaid
from revenues as described in Note 4, affiliates and creditors in addition
to the Company's ability to raise additional funds.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits with banks, money market
accounts, and other short-term investments with original maturities of 90
days or less. Balances of cash and cash equivalents in financial
institutions may at times exceed the government-insured limits. Bank
borrowings are considered to be financing activities.

Investment Tax Credits

The investment tax credits receivable are recoverable from the Government
of Canada under the Scientific Research & Experimental Development
incentive program. The amounts claimed under the program represent
management's best estimate based on research and development costs
incurred during the period. Realization is subject to government approval.
Any adjustment to the amounts claimed will be recognized in the year in
which the adjustment occurs. Investment tax credits (ITCs) claimed
relating to current expenditures are credited to the related expense. ITCs
claimed relating to capital expenditures are credited to the property and
equipment.

F-8

INTELLIPHARMACEUTICS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Property and Equipment

Property and equipment are recorded at cost including interest capitalized
on assets under construction. Repairs and maintenance expenditures are
charged to income; major betterments and replacements are capitalized.
Depreciation and amortization rates are as follows:

Computer equipment 30% of the declining balance
Computer software 50% of the declining balance
Furniture and fixtures 20% of the declining balance
Laboratory equipment 20% of the declining balance
Leasehold improvements Straight line over the term of the lease

Revenue Recognition

Revenue arrangements that include multiple deliverables are accounted for
in accordance with Emerging Issues Task Force EITF 00-21 "Revenue
Arrangements with Multiple Deliverables", are divided into separate units
of accounting if the deliverables meet certain criteria, including whether
the fair value of the delivered items can be determined and whether there
is evidence of fair value of the undelivered items. In addition, the
consideration is allocated among the separate units of accounting based on
their fair values, and the applicable revenue recognition criteria are
considered separately for each of the separate units of accounting.

The Company recognizes revenue in accordance with guidelines contained in
Staff Accounting Bulletin SAB 104.

Non-refundable upfront licensing fees, including product opt-ins, and
certain guaranteed, time-based payments that require the Company
continuing involvement in the form of development, manufacturing or other
commercialization efforts by the Company are recognized as revenue over
the development period if development risk is significant, or over the
manufacturing period or estimated product useful life if development risk
has been substantially eliminated.

Milestone payments are recognized as revenue on a percentage-of-completion
basis determined when milestones, as defined in the contract, are achieved
and the Company has no further obligations to meet. Milestones progress is
measured based on stages completed relative to the overall contract.

Revenues derived from reimbursements of costs associated with the
development of product candidates are recorded in compliance with EITF
Issue 99-19, "Reporting Revenue Gross as a Principal Versus Net as an
Agent" ("EITF 99-19"). According to the criteria established by EITF
99-19, in transactions where the Company act as a principal, with
discretion to choose suppliers, bear credit risk and perform part of the
services required in the transaction, the Company believe it has met the
criteria to record revenue for the gross amount of the reimbursements.

The Company recognizes revenue from royalties based on licensees' sales of
the Company's products or technologies. Royalties are recognized as earned
in accordance with the contract terms when royalties from licensees can be
reasonably estimated and collectibility is reasonably assured. For the
majority of the Company's royalty revenues, estimates are made using
historical and forecasted sales trends and used as a basis to record
amounts in advance of amounts collected. To date, the Company has not yet
recognized any royalty revenues.

F-9

INTELLIPHARMACEUTICS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Unearned Revenue

Unearned revenue represents the funds received on contractual obligations
from clients, for which the revenues have not yet been recognized as
earned.

Research and Development Costs

Research and development costs are expensed as incurred in accordance with
SFAS No. 2. However, materials and equipment are capitalized and
depreciated over their useful lives if they have alternative future uses.
Eligible investment tax credits are netted against the related expenses or
capital property.

Income taxes

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes. Under SFAS No. 109, deferred tax assets and liabilities are
determined based on temporary differences between the financial statement
and tax bases of assets and liabilities and net operating loss and credit
carry forwards, using enacted tax rates in effect for the year in which
the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized. A provision for income tax expense is recognized
for income taxes payable for the current period, plus the net changes in
deferred tax amounts.

Use of Estimates

The preparation of consolidated financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements, and the reported amounts of
revenue and expenses for the periods reported. Actual results could differ
from those estimates.

Costs of Raising Capital

Incremental costs incurred in respect of raising capital are charged
against equity proceeds raised.

Translation of Foreign Currencies

In accordance with SFAS No. 52, "Foreign Currency Translation", the
financial statements of certain affiliates of the Company are measured
using local currency (Canadian dollar) as the functional currency. Assets
and liabilities have been translated at period-end exchange rates and
related revenue and expenses have been translated at average exchange
rates. Gains and losses resulting from the translation of affiliates'
financial statements are included as a separate component of shareholders'
equity.

Fair Value of Financial Instruments

The Company estimates the fair value of its financial instruments based on
current interest rates, quoted market values or the current price of
financial instruments with similar terms. Unless otherwise disclosed
herein, the carrying value of financial instruments, especially those with
current maturities such as cash and cash equivalents, accounts receivable,
short-term deposits, investment tax credits, accounts payable and accrued
liabilities and due to related parties are considered to approximate their
fair values.

Shares Issued for Commercial Transaction

Shares issued for commercial transaction are valued based on the value of
the transaction. If that is not readily determinable, the fair value of
shares at the time of the transaction is used as the basis for
determination of the amount to be attributable to the related shares
issued.

F-10

INTELLIPHARMACEUTICS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Stock-Based Compensation Plan

In December 2004, the FASB issued Revised Statement of Financial
Accounting Standards No. 123, Share-Based Payment (FAS 123R), which
replaced FAS 123 and superseded APB Opinion No. 25, Accounting for Stock
Issued to Employees. FAS 123R requires companies to measure the cost of
services received in exchange for an award of equity instruments based on
the grant-date fair value of the award, and to recognize that cost over
the requisite service period.

The Company adopted FAS 123R effective January 1, 2006, using a modified
version of the prospective application. Under the modified prospective
application, compensation cost is recognized on or after the effective
date for all new and unvested awards, based on their grant-date fair value
as calculated under FAS 123 for recognition.

Allowance for Doubtful Accounts

An allowance for doubtful accounts, if any, is estimated on a case by case
basis after review of the outstanding receivable amounts and the
probability of collection within reasonable period of time.

Earnings (Loss) per Share

Net earnings (loss) per share is reported in accordance with SFAS No. 128,
"Earnings Per Share". SFAS No. 128 requires dual presentation of basic
earnings per share ("EPS") and diluted EPS on the face of all statements
of earnings, for all entities with complex capital structures. Diluted EPS
reflects the potential dilution that could occur from common shares
issuable through the exercise or conversion of stock options, restricted
stock awards, warrants and convertible securities. In certain
circumstances, the conversion of these options, warrants and convertible
securities are excluded from diluted EPS if the effect of such inclusion
would be anti-dilutive. Fully diluted loss per share is not provided, when
the effect is anti-dilutive.

Comprehensive Income

The Company follows Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income". This statement establishes standards for
reporting and display of comprehensive income and its components.
Comprehensive income is net income plus certain items that are recorded
directly to shareholders' equity bypassing net income. Other than foreign
exchange gains and losses, the Company has no other comprehensive income
(loss).

Segment Information

The Company follows SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 requires that the
Company disclose its operations in the business segment as viewed by
management.

Recent Accounting Pronouncements

F-11

INTELLIPHARMACEUTICS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

years that remain subject to examinations by major tax jurisdiction, a
tabular reconciliation of the total amount of unrecognized tax benefits at
the beginning and end of each annual reporting period, the total amount of
unrecognized tax benefits that, if recognized, would affect the effective
tax rate and the total amount of interest and penalties recognized in the
statement of operations and financial position. The provisions of FIN 48
are effective as of the beginning of the 2007 calendar year, with the
cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. We are currently evaluating the
impact that the adoption of FIN 48 will have on our future results of
operations and financial position.

In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 157," Fair Value Measures." SFAS No. 157 defines
fair value, establishes a framework for measuring fair value and enhances
disclosures about fair value measures required under other accounting
pronouncements, but does not change existing guidance as to whether or not
an instrument is carried at fair value. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007. We are currently
evaluating the impact that the adoption of SFAS No. 157 will have on our
future consolidated financial statements.

In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements" ("SAB 108"), which provides interpretive guidance on the
consideration of the effects of prior year misstatements in quantifying
current year misstatements for the purpose of a materiality assessment.
SAB 108 is effective for fiscal years ending after November 15, 2006,
allowing a one-time transitional cumulative effect adjustment to beginning
retained earnings as of January 2006 for errors that were not previously
deemed material, but are material under the guidance in SAB 108. We
adopted SAB 108 in the fourth quarter of 2006 with no material impact to
our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of
FASB Statement No. 115." SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value.
Unrealized gains and losses on items for which the fair value option has
been elected will be recognized in earnings at each subsequent reporting
date. SFAS No. 159 is effective for us on January 1, 2008. We are
evaluating the impact that the adoption of SFAS No. 159 will have on our
future results of operations and financial position.

3. PROPERTY AND EQUIPMENT

December 31, 2006 December 31, 2005
Accumulated Net Book Accumulated Net Book
Costs Amortization Value Costs Amortization Value
-------------- ------------- ------------- ---------- ------------- -----------

Computer equipment $ 103,017 $ 60,130 $ 42,887 $ 86,438 $ 46,530 $ 39,908
Computer software 9,925 4,588 5,337 3,085 3,085 --
Furniture and fixtures 74,867 32,825 42,042 65,974 21,388 44,586
Laboratory equipment 1,393,951 347,699 1,046,252 754,031 215,068 538,963
Leasehold improvements 795,134 288,540 510,594 711,909 89,065 622,844
-------------- ------------- ------------- ---------- ------------- -----------
$ 2,376,894 $ 729,782 $ 1,647,112 $1,621,437 $ 375,136 $ 1,246,301
============== ============= ============= ========== ============= ===========

Amortization during the year ending December 31, 2006 was $354,646
(2005 - $170,559)

F-12

INTELLIPHARMACEUTICS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

4. DUE TO RELATED PARTIES

Amounts due to the related parties are payable to entities controlled by
shareholders, officers or directors of the Company, as are transactions
with these related parties.

2006 2005
---------- ----------

Promissory note payable to related parties, unsecured, 6% annual
interest rate on the outstanding loan balance and the loan is
secured by and repayable in any month at the rate
of 25% of gross revenues. (December 31, 2006 -
CA$1,723,193 December 31, 2005 - CA$2,016,267) $1,479,130 1,733,678

IntelliPharmaCeutics Inc., an entity controlled by shareholders,
officers and directors, unsecured, non-interest bearing with no
fixed repayment terms. (December 31, 2006 and December 31,
2005 - CA$28,167) 24,169 24,219
---------- ----------

$1,503,299 $1,757,897
========== ==========

Interest calculated on the promissory note payable to shareholders for the
period ended December 31, 2006 is $94,243 (2005 - $95,809). In the event
of default on the promissory note, any amount unpaid from the date of
demand shall bear interest at the rate of 1%, compounded monthly.

Under the terms of the promissory note payable to related parties, a
payment of $108,500 is outstanding and is accruing interest.

5. CAPITAL STOCK

The Company is authorized to issue up to 40,000,000 common shares with a
par value of $0.001. Each common share entitles the holder to one vote. In
addition, the Company is authorized to issue up to 20,000,000 preferred
shares ("Special Voting Shares") with a par value of $0.001. The Special
Voting Shares are not entitled to dividends or distributions from the
Company and have voting rights only. They are redeemable without repayment
of capital on a share-for-share basis, automatically, upon an exchange
being made of equity shares in IPC Corp. for common shares of the Company
on a share-for-share basis.

F-13

INTELLIPHARMACEUTICS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

6. OPTIONS AND WARRANTS

The Company currently issues stock options at the direction of the Board
of Directors. To date, non-qualified stock options have been granted to
directors, officers and employees under terms and conditions determined by
the Board of Directors at the time the options are issued. Presented below
is a summary of the stock options plan activity:

Wt. Avg. Wt. Avg.
Exercise Options Exercise
Number Price Exercisable Price
-------------- ------------- -------------- -------------

Balance, January 1, 2005 5,000,000 $ 2.00 Nil $ 2.00
Granted 53,329 3.00 53,329 3.00
-------------- ------------- -------------- -------------

Balance, January 1, 2006 5,053,329 2.00 53,329 2.81
Granted 59,996 3.17 59,996 3.17
-------------- ------------- -------------- -------------

Balance, December 31, 2006 5,113,325 $ 2.02 133,325 $ 3.00
============== ============= ============== =============

Options outstanding and exercisable at December 31, 2006 are as follows:

Outstanding Exercisable
Wt. Avg. Wt. Avg. Wt. Avg.
Expiry Remaining Remaining Exercise
Price Number Date Life Exercise Price Number Price
- ------ --------- ------------- ------------- ----------------- ------------- -----------

$2.00 5,000,000 N/A Nil $ 2.00 Nil 2.00
2.00 10,000 2015-08-31 8.7 2.00 10,000 2.00
3.00 29,997 2008-08-31 1.7 3.00 29,997 3.00
3.00 3,333 2008-09-30 1.7 3.00 3,333 3.00
3.00 3,333 2008-10-31 1.8 3.00 3,333 3.00
3.00 3,333 2008-11-30 1.9 3.00 3,333 3.00
3.00 3,333 2008-12-31 2.0 3.00 3,333 3.00
3.50 10,000 2008-01-02 1.2 3.50 10,000 3.50
3.00 3,333 2009-01-31 2.1 3.00 3,333 3.00
3.00 3,333 2009-02-28 2.2 3.00 3,333 3.00
3.00 3,333 2009-03-31 2.2 3.00 3,333 3.00
3.50 10,000 2008-04-01 1.2 3.50 10,000 3.50
3.00 3,333 2009-04-30 2.3 3.00 3,333 3.00
3.00 3,333 2009-05-31 2.4 3.00 3,333 3.00
3.00 3,333 2009-06-30 2.5 3.00 3,333 3.00
3.00 3,333 2009-07-30 2.6 3.00 3,333 3.00
3.00 3,333 2009-08-31 2.7 3.00 3,333 3.00
3.00 3,333 2009-09-30 2.7 3.00 3,333 3.00
3.00 3,333 2009-10-31 2.8 3.00 3,333 3.00
3.00 3,333 2009-11-30 2.9 3.00 3,333 3.00
3.00 3,333 2009-12-31 3.0 3.00 3,333 3.00

F-14

INTELLIPHARMACEUTICS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

6. OPTIONS AND WARRANTS - continued

Prior to adoption of SFAS 123R, it requires that entities account for
awards for stock-based compensation to employees in accordance with APB
No. 25 to present pro forma disclosures of net income and earnings per
share as if compensation cost was measured at the date of grant based on
fair value of the award. The fair value for these options was estimated at
the date of grant using a Black-Scholes option-pricing model with the
following weighted-average assumptions:

2006 2005
---------- -------------

Expected life of the option 2-3 years 3 - 10 years
Risk free interest rate 5.0% 5.0%
Expected volatility 50.0% 50.0%
Expected dividend yield 0.0% 0.0%

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.

Of the options granted, 5,000,000 shall vest upon certain milestones
having been met. As none of these milestones have been met, these options
remain un-exercisable. On a Pro-forma basis, when the milestones are met,
a compensation expense of approximately $4,428,000 will be recognized.

The Company has 228,500 warrants issued and outstanding as at December 31,
2006 (2005 - 278,500). The expiry date of the warrants which can be
exercised, have the following expiry dates:

Number of Warrants Expiry Date

228,500 September 10, 2007

No fair value was attributed to the warrants as at the time of issuance as
there was no market value of the common shares for which to base the fair
market value of the warrants.

In addition to the above, Company has contractual agreed to issue the
following options, but have not yet been granted:

Options Expiry Date Exercise price

4,000 December 31, 2008 $4.00
10,000 To be Determined 3.00

F-15

INTELLIPHARMACEUTICS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

7. PROVISION FOR INCOME TAX

The Company files US Federal income tax returns for its US operations.
Separate income tax returns are filed, as locally required.

The total provision for income taxes differs from that amount which would
be computed by applying the United States federal income tax rate to
income (loss) before provision for income taxes. The reasons for these
differences are as follows:

Year Ended December 31, 2006 2005
Amount % Amount %
------------- --------- ------------- ---------

Statutory income tax rate (recovery) $ (461,850) (35.0) $ (858,503) (35.0)
Benefit of tax loss and other temporary
differences not recognized 461,850 35.0 858,503 35.0
----------- --------- ----------- -------

$ Nil 0.0 $ Nil 0.0
=========== ======= =========== =======

The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities and net
operating loss carry-forwards. Significant temporary differences and
carry-forwards are as follows:

Year Ended December 31, 2006 2005
Component Tax Effect Component Tax Effect
-------------- ------------- ------------- -----------

Tax loss benefit $ 5,527,000 $ 1,934,000 $ 5,943,000 $ 2,080,050
Less valuation allowance (5,527,000) (1,934,000) (5,943,000) (2,080,050)
-------------- ------------- ------------- -----------

Net deferred tax assets $ Nil $ Nil $ Nil $ Nil
============== ============= ============= ===========

At December 31, 2006, the Company had cumulative net operating losses
carried forward of approximately $292,000 and $5,052,000 in the United
States and Canada respectively. These amounts will expire in various years
through 2026. The related deferred tax assets have been completely offset
by a valuation allowance. The Company has no significant deferred tax
liabilities.

8. COMMITMENTS

In connection with the Company's operating and capital leases the Company
is responsible for minimum principal payments. The Company's minimum
future payments as at December 31, 2006 are approximately as follows:

2007 880,369
2008 825,413
2009 962,218
20010 746,496
Thereafter --
-------------

$ 3,414,496
=============

F-16

INTELLIPHARMACEUTICS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

9. CONTINGENCIES

From time to time, the Company may be exposed to claims and legal actions
in the normal course of business, some of which may be initiated by the
Company. As at December 31, 2006, no pending litigation or threatened
claim is outstanding.

10. FINANCIAL INSTRUMENTS

a) Fair Value

Fair value estimates of financial instruments are made at a specific point
in time, based on relevant information about financial markets and
specific financial instruments. As these estimates are subjective in
nature, involving uncertainties and matters of significant judgement, they
cannot be determined with precision. Changes in assumptions can
significantly affect estimated fair values.

The carrying value of cash and cash equivalents, accounts receivable,
investment tax credits, accounts payable and accrued liabilities and
amounts due to related parties approximates their fair value because of
the short-term nature of these instruments.

b) Interest rate and credit risk

Interest rate risk is the risk that the value of a financial instrument
might be adversely affected by a change in the interest rates. In seeking
to minimize the risks from interest rate fluctuations, the Company manages
exposure through its normal operating and financing activities.

Trade accounts receivable potentially subjects us to credit risk. We
provide an allowance for doubtful accounts equal to the estimated losses
expected to be incurred in the collection of accounts receivable.

11. SEGMENTED INFORMATION

The Company's operations comprise of a single reporting segment engaged in
the research, development, licensing and marketing of both new and generic
controlled release pharmaceutical products. As the operations comprise a
single reporting segment, amounts disclosed in the financial statements
for sales, earnings before income tax, amortization and total assets also
represent segmented amounts. In addition, all of the Company's assets are
in North America.

12. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to current
year's financial statement presentation.

F-17

================================================================================

INTELLIPHARMACEUTICS LTD.

INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2007

================================================================================

F-18

INTELLIPHARMACEUTICS LTD.

JUNE 30, 2007

CONTENTS

PAGE
---------

Interim Consolidated Condensed Financial Statements:

Consolidated Condensed Balance Sheets F-20

Interim Consolidated Condensed Statements of Shareholders' Equity F-21

Interim Consolidated Condensed Statements of Operations and Deficit F-22

Interim Consolidated Condensed Statements of Cash Flows F-23

Notes to Interim Consolidated Condensed Financial Statements F-24-F-33

F-19

INTELLIPHARMACEUTICS LTD
CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

AS AT JUNE 30, 2007 DECEMBER 31, 2006
- ----- ------------- -----------------
(UNAUDITED) (AUDITED)

ASSETS

CURRENT
Cash and cash equivalents $ 31,653 $ 375,054
Accounts receivable net of allowance of $0 (2006 - $18,019) 428,531 224,174
Investment tax credits 1,268,660 762,652
Prepaid expenses and sundry assets 113,800 17,666
----------- -----------
1,842,644 1,379,546
PROPERTY AND EQUIPMENT, net of accumulated
amortization of $925,139 (2006 -- $729,782) (Note 3) 1,603,729 1,647,112
----------- -----------
$ 3,446,373 $ 3,026,658
=========== ===========

LIABILITIES

CURRENT
Accounts payable and accrued liabilities $ 450,769 $ 448,566
Unearned revenue 170,963 614,912
Due to related parties (Note 4) 2,075,630 1,503,299
----------- -----------
2,697,362 2,566,777
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)

SHAREHOLDERS' EQUITY

CAPITAL STOCK (Note 5)
Special Voting Shares - 20,000,000 authorized number of $0.001 par value
shares: Issued and Outstanding: 10,850,000 10,850 10,850
Common Stock - 40,000,000 authorized number of $0.001 par value:
Issued and Outstanding: 5,309,659 (2006-5,243,946) 5,310 5,244
ADDITIONAL PAID IN CAPITAL 7,199,457 6,961,156
ACCUMULATED COMPREHENSIVE INCOME (23,980) (105,619)
DEFICIT (6,442,626) (6,411,750)
----------- -----------
749,011 459,881
----------- -----------
$ 3,446,373 $ 3,026,658
=========== ===========

/See accompanying notes

F-20

INTELLIPHARMACEUTICS LTD.
INTERIM CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDING JUNE 30, 2007 AND FISCAL YEAR ENDING DECEMBER 31, 2006
(UNAUDITED)

Amount
of Accumulated
Quantity Special Quantity Additional Comprehensive Retained Total
of Special Voting of Common Paid-In Income Earnings Shareholders'
Voting Shares Common Shares Capital (loss) /Deficit Equity
Shares ($) Shares ($) ($) ($) ($) ($)
---------- ------- --------- ------ ---------- ------------- ---------- -------------

Balance, January 1, 2006 10,850,000 10,850 5,193,946 5,194 6,772,977 (137,167) (5,092,179) 1,559,675
Proceeds from private placement 50,000 50 174,950
Issuance costs (12,250) (12,250)
Stock-based compensation 25,479 25,479
Foreign exchange translation
gain (loss) 31,548 31,548
Net loss for the period (1,319,571) (1,319,571)
---------- ------ --------- ----- --------- -------- ---------- ----------
Balance, December 31, 2006 10,850,000 10,850 5,243,946 5,244 6,961,156 (105,619) (6,411,750) 459,881
---------- ------ --------- ----- --------- -------- ---------- ----------
Granting of stock options 8,371 8,371
Proceeds from private placement 63,013 63 220,483 220,546
Shares issued as compensation 2,700 3 9,447 9,447
Foreign exchange translation
gain (loss) 81,639 81,639
Net loss for the period (30,876) (30,876)
---------- ------ --------- ----- --------- -------- ---------- ----------
Balance, June 30, 2007 10,850,000 10,850 5,309,659 5,310 7,199,457 (23,980) (6,442,626) 749,011
========== ====== ========= ===== ========= ======== ========== ==========

/See accompanying notes

F-21

INTELLIPHARMACEUTICS LTD.
INTERIM CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND DEFICIT
(UNAUDITED)

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------- -------------------------
2007 2006 2007 2006
----------- ----------- ----------- -----------

REVENUES $ 849,161 $ 297,630 $ 1,333,380 $ 809,323
----------- ----------- ----------- -----------
EXPENSES
Research and development 293,394 253,511 628,774 407,580
Wages and benefits 79,711 109,873 138,846 210,743
General and administrative costs 28,947 60,367 119,806 87,000
Occupancy costs 52,004 53,790 112,918 103,847
Marketing 71,548 111,702 112,196 194,284
----------- ----------- ----------- -----------
525,602 589,243 1,112,539 1,003,454
----------- ----------- ----------- -----------
INCOME/(LOSS) BEFORE NOTED BELOW 323,559 (291,613) 220,842 (194,131)
AMORTIZATION 100,679 73,561 195,502 135,749
FOREIGN EXCHANGE (GAIN) LOSS (6,172) 19,562 (10,256) 24,491
INTEREST INCOME (1,026) (6,722) (4,374) (20,947)
INTEREST EXPENSE 29,416 22,460 70,846 43,810
----------- ----------- ----------- -----------
NET INCOME/(LOSS) 200,662 (400,474) (30,876) (377,234)
DEFICIT - Beginning of Period (6,643,288) (5,068,939) (6,411,750) (5,092,179)
----------- ----------- ----------- -----------
DEFICIT - End of Period $(6,442,626) $(5,469,413) $(6,442,626) $(5,469,413)
=========== =========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE
Basic $ 0.00 $ (0.02) $ (0.01) $ (0.02)
=========== =========== =========== ===========
Diluted $ 0.00
===========
Weighted average Common Shares and Special
Voting Shares outstanding 16,146,726 16,043,946 16,120,336 16,043,946
=========== =========== =========== ===========
Weighted average Common Shares and Special
Voting Shares outstanding - diluted 21,494,146
===========

/See accompanying notes

F-22

INTELLIPHARMACEUTICS LTD.
INTERIM CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -------------------------
2007 2006 2007 2006
--------- ----------- ----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES
Income/(Loss) for the period $ 200,662 $ (400,474) $ (30,876) $ (377,234)
Items not affecting cash
Amortization 100,679 73,561 195,502 135,749
Stock-based compensation 9,447 8,443 17,818 16,436
--------- ----------- ----------- -----------
310,788 (318,470) 182,444 (225,049)
Net change in non-cash operating items
Accounts receivable (109,316) (132,151) (204,357) (132,151)
Investment tax credits (290,825) (192,387) (506,008) (364,773)
Prepaid expenses and sundry assets (99,370) 39,482 (108,527) 17,601
Accounts payable and accrued liabilities (12,413) 25,506 2,203 (276,680)
Unearned revenue (225,806) -- (443,949) --
--------- ----------- ----------- -----------
CASH FLOWS USED IN OPERATING ACTIVITIES (426,942) (578,020) (1,078,194) (981,052)
--------- ----------- ----------- -----------
CASH FLOWS USED IN FINANCING ACTIVITIES
Issuance of Common shares 37,834 -- 220,550 --
Advances from/(to) related parties 291,084 96,731 572,331 (57,632)
--------- ----------- ----------- -----------
CASH FLOW (USED IN) PROVIDED BY FINANCING
ACTIVITIES 328,918 96,731 792,881 (57,632)

CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property and equipment (26,964) (409,822) (44,799) (658,714)
--------- ----------- ----------- -----------
EFFECT OF FOREIGN EXCHANGE RATE ON CASH (40,701) 91,302 (13,288) 84,061
--------- ----------- ----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (165,690) (799,809) (343,401) (1,613,337)
CASH AND CASH EQUIVALENTS - Beginning of
Period 197,343 1,264,481 375,054 2,078,009
--------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS - End of Period $ 31,653 $ 464,672 $ 31,653 $ 464,672
========= =========== =========== ===========
SUPPLEMENTAL INFORMATION
Interest received $ 1,615 $ 16,356 $ 4,374 $ 27,057
Interest paid -- -- -- --
Income taxes paid -- -- -- --

/See accompanying notes

F-23

INTELLIPHARMACEUTICS LTD.

NOTES TO THE INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

Description of the Business and Basis of Consolidation

These consolidated financial statements include the accounts of IPC Corp.
as well as those of IPC Ltd. All significant inter-company accounts and
transactions have been eliminated on consolidation. The accompanying
consolidated financial statements have been prepared in accordance with
United States generally accepted accounting principles.

Going Concern

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and liabilities in the
normal course of business. Accordingly, they do not include any adjustments
relating to the realization of the carrying value of assets or the amounts
and classification of liabilities that might be necessary should the
company be unable to continue as a going concern. The Company is
accumulating losses, and its cash flow from operations is negative. The
Company's business is the development of new and generic controlled release
drugs which currently require to be funded via the issuance of common stock
from the treasury of the Company or the assumption of additional liability
until such activity can be fully funded from internally generated cash
flows. The Company currently generates cash flows via its current and
future development contracts which provide upfront fees, milestone
payments, reimbursement of certain expenditures and the eventual royalty
income, upon commercialization of its products, for which no assurances can
be given. The continuance of the Company as a going concern is dependent on
its future profitability and on the on-going support of its shareholders
whose loan can only be repaid from revenues as described in Note 4,
affiliates and creditors in addition to the Company's ability to raise
additional funds.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These interim consolidated condensed financial statements, which have not
been audited, should be read in conjunction with the audited financial
statements for the year ended December 31, 2006. The methods and policies
set forth in the year-ended audited consolidated condensed financial
statements are followed in these interim consolidated condensed financial
statements.

All adjustments considered necessary for fair presentation have been
included in these interim consolidated condensed financial statements,
however, operating results for the period presented are not indicative of
the results that may be expected for the current full fiscal year.

Cash and Cash Equivalents

F-24

INTELLIPHARMACEUTICS LTD.

NOTES TO THE INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Investment Tax Credits

The investment tax credits receivable are recoverable from the Government
of Canada under the Scientific Research & Experimental Development
incentive program. The amounts claimed under the program represent
management's best estimate based on research and development costs incurred
during the period. Realization is subject to government approval. Any
adjustment to the amounts claimed will be recognized in the year in which
the adjustment occurs. Investment tax credits (ITCs) claimed relating to
current expenditures are credited to the related expense. ITCs claimed
relating to capital expenditures are credited to the property and
equipment.

Property and Equipment

Revenue Recognition

The Company recognizes revenue in accordance with guidelines contained in
Staff Accounting Bulletin SAB 104.

Non-refundable upfront licensing fees, including product opt-ins, and
certain guaranteed, time-based payments that require the Company continuing
involvement in the form of development, manufacturing or other
commercialization efforts by the Company are recognized as revenue over the
development period if development risk is significant, or over the
manufacturing period or estimated product useful life if development risk
has been substantially eliminated.

Revenues derived from reimbursements of costs associated with the
development of product candidates are recorded in compliance with EITF
Issue 99-19, "Reporting Revenue Gross as a Principal Versus Net as an
Agent" ("EITF 99-19"). According to the criteria established by EITF 99-19,
in transactions where the Company act as a principal, with discretion to
choose suppliers, bear credit risk and perform part of the services
required in the transaction, the Company believe it has met the criteria to
record revenue for the gross amount of the reimbursements.

F-25

INTELLIPHARMACEUTICS LTD.

NOTES TO THE INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

The Company recognizes revenue from royalties based on licensees' sales of
the Company's products or technologies. Royalties are recognized as earned
in accordance with the contract terms when royalties from licensees can be
reasonably estimated and collectibility is reasonably assured. For the
majority of the Company's royalty revenues, estimates are made using
historical and forecasted sales trends and used as a basis to record
amounts in advance of amounts collected. To date, the Company has not yet
recognized any royalty revenues.

Unearned Revenue

Unearned revenue represents the funds received on contractual obligations
from clients, for which the revenues have not yet been recognized as
earned.

Research and Development Costs

Research and development costs are expensed as incurred in accordance with
SFAS No. 2. However, materials and equipment are capitalized and
depreciated over their useful lives if they have alternative future uses.
Eligible investment tax credits are netted against the related expenses or
capital property.

Income taxes

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes. Under SFAS No. 109, deferred tax assets and liabilities are
determined based on temporary differences between the financial statement
and tax bases of assets and liabilities and net operating loss and credit
carry forwards, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized. A provision for income tax expense is recognized for income taxes
payable for the current period, plus the net changes in deferred tax
amounts.

Use of Estimates

The preparation of consolidated financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements, and the reported amounts of
revenue and expenses for the periods reported. Actual results could differ
from those estimates.

Costs of Raising Capital

Incremental costs incurred in respect of raising capital are charged
against equity proceeds raised.

Translation of Foreign Currencies

In accordance with SFAS No.52, "Foreign Currency Translation", the
financial statements of certain affiliates of the Company are measured
using local currency (Canadian dollar) as the functional currency. Assets
and liabilities have been translated at period-end exchange rates and
related revenue and expenses have been translated at average exchange
rates. Gains and losses resulting from the translation of affiliates'
financial statements are included as a separate component of shareholders'
equity.

F-26

INTELLIPHARMACEUTICS LTD.

NOTES TO THE INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Fair Value of Financial Instruments

Shares Issued for Commercial Transaction

Stock-Based Compensation Plan

In December 2004, the FASB issued Revised Statement of Financial Accounting
Standards No. 123, Share-Based Payment (FAS 123R), which replaced FAS 123
and superseded APB Opinion No. 25, Accounting for Stock Issued to
Employees. FAS 123R requires companies to measure the cost of services
received in exchange for an award of equity instruments based on the
grant-date fair value of the award, and to recognize that cost over the
requisite service period.

The Company adopted FAS 123R effective January 1, 2006, using a modified
version of the prospective application. Under the modified prospective
application, compensation cost is recognized on or after the effective date
for all new and unvested awards, based on their grant-date fair value as
calculated under FAS 123 for recognition.

Allowance for Doubtful Accounts

An allowance for doubtful accounts, if any, is estimated on a case by case
basis after review of the outstanding receivable amounts and the
probability of collection within reasonable period of time.

Earnings (Loss) per Share

Net earnings (loss) per share is reported in accordance with SFAS No. 128,
"Earnings Per Share". SFAS No. 128 requires dual presentation of basic
earnings per share ("EPS") and diluted EPS on the face of all statements of
earnings, for all entities with complex capital structures. Diluted EPS
reflects the potential dilution that could occur from common shares
issuable through the exercise or conversion of stock options, restricted
stock awards, warrants and convertible securities. In certain
circumstances, the conversion of these options, warrants and convertible
securities are excluded from diluted EPS if the effect of such inclusion
would be anti-dilutive. Fully diluted loss per share is not provided, when
the effect is anti-dilutive.

Comprehensive Income

F-27

INTELLIPHARMACEUTICS LTD.

NOTES TO THE INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Segment Information

The Company follows SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 requires that the Company
disclose its operations in the business segment as viewed by management.

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions. This Interpretation requires
that we recognize in our consolidated financial statements, the impact of a
tax position, if that position is more likely than not of being sustained
upon examination, based on the technical merits of the position. FIN 48
also requires expanded disclosures including identification of tax
positions for which it is reasonably possible that total amounts of
unrecognized tax benefits will significantly change in the next twelve
months, a description of tax years that remain subject to examinations by
major tax jurisdiction, a tabular reconciliation of the total amount of
unrecognized tax benefits at the beginning and end of each annual reporting
period, the total amount of unrecognized tax benefits that, if recognized,
would affect the effective tax rate and the total amount of interest and
penalties recognized in the statement of operations and financial position.
The provisions of FIN 48 are effective as of the beginning of the 2007
calendar year, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained earnings. We are
currently evaluating the impact that the adoption of FIN 48 will have on
our future results of operations and financial position.

In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 157," Fair Value Measures." SFAS No. 157 defines
fair value, establishes a framework for measuring fair value and enhances
disclosures about fair value measures required under other accounting
pronouncements, but does not change existing guidance as to whether or not
an instrument is carried at fair value. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007. We are currently evaluating
the impact that the adoption of SFAS No. 157 will have on our future
consolidated financial statements.

In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements" ("SAB 108"), which provides interpretive guidance on the
consideration of the effects of prior year misstatements in quantifying
current year misstatements for the purpose of a materiality assessment. SAB
108 is effective for fiscal years ending after November 15, 2006, allowing
a one-time transitional cumulative effect adjustment to beginning retained
earnings as of January 2006 for errors that were not previously deemed
material, but are material under the guidance in SAB 108. We adopted SAB
108 in the fourth quarter of 2006 with no material impact to our
consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Unrealized
gains and losses on items for which the fair value option has been elected
will be recognized in earnings at each subsequent reporting date. SFAS No.
159 is effective for us on January 1, 2008. We are evaluating the impact
that the adoption of SFAS No. 159 will have on our future results of
operations and financial position.

F-28

INTELLIPHARMACEUTICS LTD.

NOTES TO THE INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

3. PROPERTY AND EQUIPMENT

June 30, 2007 December 31, 2006
Accumulated Net Book Accumulated Net Book
Costs Amortization Value Costs Amortization Value
---------- ------------- ---------- ---------- ----------------- ----------

Computer equipment $ 113,333 $ 72,888 $ 40,445 $ 103,017 $ 60,130 $ 42,887
Computer software 13,909 6,829 7,080 9,925 4,588 5,337
Furniture and fixtures 81,894 40,505 41,389 74,867 32,825 42,042
Laboratory equipment 1,443,553 380, 959 1,062,594 1,393,951 347,699 1,046,252
Leasehold improvements 876,324 424,103 452,221 795,134 288,540 510,594
---------- ---------- ---------- ---------- -------- ----------
$2,529,013 $ 925,284 $1,603,729 $2,376,894 $729,782 $1,647,112
========== ========== ========== ========== ======== ==========

Amortization for the period ending June 30, 2007 was $195,502 (2006 -
$135,749)

4. DUE TO RELATED PARTIES

Amounts due to the related parties are payable to entities controlled by
shareholders, officers or directors of the Company, as are transactions
with these related parties.

2007 2006
---------- ----------

Promissory note payable to related parties, unsecured, 6% annual
interest rate on the outstanding loan balance and the loan is
secured by and repayable in any month at the rate
of 25% of gross revenues. (June 30, 2007 -
CA$1,775,727 December 31, 2006 - CA$1,723,193) $1,666,698 1,479,130

IntelliPharmaCeutics Inc., an entity controlled by shareholders,
officers and directors, unsecured, non-interest bearing with no
fixed repayment terms. (June 30, 2007 and December 31,
2006 - CA$28,167) 22,993 24,169

Short term loan payable to related parties, unsecured, 6% annual
Interest rate on the outstanding loan balance and repayable
on demand 385,939 --
---------- ----------
$2,075,630 $1,503,299
========== ==========

Interest calculated on the promissory note payable to shareholders for the
period ended June 30, 2007 is $49,310 (2006 - $44,386). In the event of
default on the promissory note, any amount unpaid from the date of demand
shall bear interest at the rate of 1%, compounded monthly.

Under the terms of the promissory note payable to related parties, a
payment of $287,626 (2006 - $67,129) is currently due and is accruing
interest.

F-29

INTELLIPHARMACEUTICS LTD.

NOTES TO THE INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

5. CAPITAL STOCK

6. OPTIONS AND WARRANTS

The Company currently issues stock options at the direction of the Board of
Directors. To date, non-qualified stock options have been granted to
directors, officers and employees under terms and conditions determined by
the Board of Directors at the time the options are issued. Presented below
is a summary of the stock options plan activity:

Wt. Avg. Wt. Avg.
Exercise Options Exercise
Number Price Exercisable Price
--------- -------- ----------- --------

Balance, January 1, 2006 5,053,329 $ 2.00 53,329 $ 2.81
Granted 59,996 3.17 59,996 3.17
--------- -------- ------- ------
Balance, December 31, 2006 5,113,325 2.02 113,325 3.00
Granted 5,595 3.00 5,595 3.00
--------- -------- ------- ------
Balance, June 30, 2007 5,118,920 $ 2.02 118,920 $ 3.00
========= ======== ======= ======

Options outstanding and exercisable at June 30, 2007 are as follows:

Outstanding Exercisable
---------------------- -----------------
Wt. Avg. Wt. Avg. Wt. Avg.
Expiry Remaining Remaining Exercise
Price Number Date Life Exercise Price Number Price
- ----- --------- ---------- --------- -------------- ------ --------

$2.00 5,000,000 N/A Nil $2.00 Nil 2.00
2.00 10,000 2015-08-31 8.2 2.00 10,000 2.00
3.00 29,997 2008-08-31 1.2 3.00 29,997 3.00
3.00 3,333 2008-09-30 1.3 3.00 3,333 3.00
3.00 3,333 2008-10-31 1.3 3.00 3,333 3.00
3.00 3,333 2008-11-30 1.4 3.00 3,333 3.00
3.00 3,333 2008-12-31 1.5 3.00 3,333 3.00
3.50 10,000 2008-01-02 0.8 3.50 10,000 3.50

F-30

INTELLIPHARMACEUTICS LTD.

NOTES TO THE INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

7. OPTIONS AND WARRANTS - continued

3.00 3,333 2009-01-31 1.6 3.00 3,333 3.00
3.00 3,333 2009-02-28 1.7 3.00 3,333 3.00
3.00 3,333 2009-03-31 1.8 3.00 3,333 3.00
3.50 10,000 2008-04-01 0.8 3.50 10,000 3.50
3.00 3,333 2009-04-30 1.9 3.00 3,333 3.00
3.00 3,333 2009-05-31 2.0 3.00 3,333 3.00
3.00 3,333 2009-06-30 2.1 3.00 3,333 3.00
3.00 3,333 2009-07-30 2.2 3.00 3,333 3.00
3.00 3,333 2009-08-31 2.3 3.00 3,333 3.00
3.00 3,333 2009-09-30 2.3 3.00 3,333 3.00
3.00 3,333 2009-10-31 2.3 3.00 3,333 3.00
3.00 3,333 2009-11-30 2.4 3.00 3,333 3.00
3.00 3,333 2009-12-31 2.5 3.00 3,333 3.00
3.00 3,333 2010-01-31 2.5 3.00 2,210 3.00
3.00 2,262 2010-02-19 2.6 3.00 1,016 3.00

Prior to adoption of SFAS 123R, it requires that entities account for
awards for stock-based compensation to employees in accordance with APB No.
25 to present pro forma disclosures of net income and earnings per share as
if compensation cost was measured at the date of grant based on fair value
of the award. The fair value for these options was estimated at the date of
grant using a Black-Scholes option-pricing model with the following
weighted-average assumptions:

2007 2006
--------- ------------

Expected life of the option 2-3 years 3 - 10 years
Risk free interest rate 5.0% 5.0%
Expected volatility 50.0% 50.0%
Expected dividend yield 0.0% 0.0%

Of the options granted, 5,000,000 shall vest upon certain milestones having
been met. As none of these milestones have been met, these options remain
un-exercisable. On a Pro-forma basis, when the milestones are met, a
compensation expense of approximately $4,428,000 will be recognized.

F-31

INTELLIPHARMACEUTICS LTD.

NOTES TO THE INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

7. OPTIONS AND WARRANTS - continued

The Company has 228,500 warrants issued and outstanding as at June 30, 2007
(2006 - 228,500). The expiry date of the warrants which can be exercised,
have the following expiry dates:

Number of Warrants Expiry Date
- ------------------ ------------------

228,500 September 10, 2007

No fair value was attributed to the warrants as at the time of issuance as
there was no market value of the common shares for which to base the fair
market value of the warrants.

In addition to the above, Company has contractual agreed to issue the
following options, but have not yet been granted:

Options Expiry Date Exercise price
- ------- ----------------- --------------

4,000 December 31, 2008 $4.00
10,000 To be Determined 3.00

8. COMMITMENTS

In connection with the Company's operating and capital leases the
Company is responsible for minimum principal payments. The Company's
minimum future payments as at June 30, 2007 are approximately as follows:

2007 831,020
2008 839,117
2009 976,187
2010 748,156
Thereafter --
----------
$3,394,480
==========

9. FINANCIAL INSTRUMENTS

a) Fair Value

Fair value estimates of financial instruments are made at a specific point
in time, based on relevant information about financial markets and specific
financial instruments. As these estimates are subjective in nature,
involving uncertainties and matters of significant judgement, they cannot
be determined with precision. Changes in assumptions can significantly
affect estimated fair values.

F-32

INTELLIPHARMACEUTICS LTD.

NOTES TO THE INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

b) Interest rate and credit risk

10. SEGMENTED INFORMATION

The Company's operations comprise of a single reporting segment engaged in
the research, development, licensing and marketing of both new and generic
controlled release pharmaceutical products. As the operations comprise a
single reporting segment, amounts disclosed in the financial statements for
sales, earnings before income tax, amortization and total assets also
represent segmented amounts. In addition, all of the Company's assets are
in North America.

11. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to current
period's financial statement presentation.

12. SUBSEQUENT EVENTS

On August 1st 2007, Par Pharmaceutical Inc. a pharmaceutical company,
purchased 714,285 common shares of the Company for the gross proceeds of
$4,999,995 representing approximately 4.2% of the issued and outstanding
assuming the exchange of the special voting shares for common shares.

F-33

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Delaware General Corporation Law ("DGCL") permits a Delaware
corporation to indemnify a present or former director or officer of the
corporation (and certain other persons serving at the request of the corporation
in related capacities) for liabilities, including legal expenses, arising by
reason of service in such capacity if such person shall have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and in any criminal proceeding if such person had
no reasonable cause to believe his conduct was unlawful. However, in the case of
actions brought by or in the right of the corporation, no indemnification may be
made with respect to any matter as to which such director or officer shall have
been adjudged liable, except in certain limited circumstances. In addition, we
may enter into Indemnification Agreements with our directors and executive
officers in which we have agreed to indemnify such persons to the fullest extent
now or hereafter permitted by the DGCL, including in circumstances in which
indemnification and advancement of expenses are discretionary under the DGCL.
The indemnification provided by the DGCL is not exclusive of any other rights to
which a director or officer may be entitled. The general effect of the foregoing
provisions may be to reduce the circumstances in which an officer or director
may be required to bear the economic burden of the foregoing liabilities and
expense. We intend to obtain a liability insurance policy for its directors and
officers as permitted by the DGCL, which may extend to, among other things,
liability arising under the Securities Act of 1933, as amended.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:

NATURE OF EXPENSE AMOUNT
----------------- --------

SEC Registration fee $ 5,000*
Transfer Agent Fees $ 0*
Accounting fees and expenses $ 20,000*
Legal fees and expenses $125,000*
Printing fees and expenses $ 40,000*
Total $190,000*

* Estimated

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

In October 2003, we issued 180,000 shares of common stock at a price of
$0.20 per share to seven individuals and entities pursuant to Section 4(2) of
the Securities Act of 1933, as amended.

In March and April 2004, we issued 35,000 shares of common stock at a price
of $0.20 per share to two entities pursuant to Section 4(2) of the Securities
Act of 1933, as amended.

In March 2004, we issued 20,000 shares of common stock, with a valuation of
$0.20 per share to a former officer for services rendered pursuant to Section
4(2) of the Securities Act of 1933, as amended.

In September 2004, we issued 250,000 share of common stock, with a
valuation of $2.00 per share to employees/officers/entities for past services
(see Note 6 to the Financial statements).

In September 2004, we issued 10,850,000 Special Voting Shares at $0.001 per
share to IPC Inc. in relation to the merger of IPC Corp. with our wholly owned
Nova Scotia subsidiary.

II-1

In September and December 2004, and September 2005, we issued 3,189,000
shares of common stock at $2.00 per share to accredited investors pursuant to
Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as
amended.

On October 26, 2005, we issued 75,000 shares of common stock at $2.00 per
share to Alan D. Wolfson pursuant to Regulation S of the Securities Act of 1933,
as amended.

On September 29, 2006, we issued 50,000 shares of common stock at $3.50
per share to R. Bruce McFarlane pursuant to Rule 506 of Regulation D and
Section 4(2) of the Securities Act of 1933, as amended.

On May 7, 2007, we issued 61,713 shares of common stock at $3.50 per share
to 13 investors pursuant to Rule 506 of Regulation D and Section 4(2) and
Regulation S of the Securities Act of 1933, as amended.

On June 30, 2007, we issued 4,000 shares of common stock among 40 employees
at $3.50 per share pursuant to Rule 506 of Regulation D and Section 4(2) and
Regulation S of the Securities Act of 1933, as amended.

On August 1, 2007, we issued 714,285 shares of common stock to Par
Pharmaceuticals, Inc. at $7.00 per share pursuant to Rule 506 of Regulation D
and Section 4(2) and Regulation S of the Securities Act of 1933, as amended.

ITEM 27, INDEX OF EXHIBITS

EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------

Corporate
3(i)+ Articles of Incorporation
3(ii)+ By-Laws

Shareholders Rights
4(i)+ Registration Rights Agreement
4(ii)+ Share Exchange Agreement
4(iii)+ Exchange and Support Agreement
4(iv)+ Voting and Support Agreement
4(v)+ Convertible Voting Share Provisions
4(vi)+ Exchangeable Share Provisions

5+ Opinion re: Legality

Material Contracts
10(i)+ Stock Option Plan
10(ii)+ Employment; Dr. Isa Odidi, Chairman/CEO
10(iii)+ Employment; Dr. Amina Odidi, President/CFO/Director
10(iv)+ Lease of Premises
10(v) Stock Purchase Agreement for issue of 714,285 shares to Par
Pharmaceutical, Inc.

Consents of Experts and Counsel
23(i) Auditors' Consent
23(ii)+ Attorney's Consent (included as part of Exhibit 5)
24+ Power of Attorney (included in signature page)

+ Previously filed.

Flow Charts/Diagrams

99.1 Share Structure

99.2 The FDA Application and Approval Process for ANDA Drug Filings, as
published by the FDA

99.3 The FDA Application and Approval Process for NDA Drug Filings, as
published by the FDA

ITEM 28. UNDERTAKINGS

The undersigned Registrant hereby undertakes:

(1) To file a post-effective amendment to this Registration Statement during
any period in which offers or sales are being made:

(a) to include any Prospectus required by Section 10(a)(3) of the
Securities Act;

(b) to reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually, or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and

(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and this
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(3) That, insofar as indemnification for liabilities arising from the
Securities Act may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

(4) That, for purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
Rule 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2/A and authorized this
registration statement to be signed on its behalf by the undersigned in the city
of Toronto, province of Ontario, Canada, on November 13, 2007.

INTELLIPHARMACEUTICS LTD.

/s/ Dr. Isa Odidi
----------------------------------------
By: Dr. Isa Odidi, Chief Executive
Officer

/s/ Dr. Amina Odidi
----------------------------------------
By: Dr. Amina Odidi, Chief Financial
Officer and Director (Dr. Amina
Odidi is the registrant's principal
accounting officer)

*
----------------------------------------
By: John N. Allport, Director

/s/ Dr. Isa Odidi
----------------------------------------
By: Dr. Isa Odidi as Attorney-in-fact

* Attorney-in-fact pursuant to Power of Attorney previously provided as part
of the Registration Statement.