**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**




**FORM
      10-QSB**




(MARK
                    ONE)**x**
                **QUARTERLY REPORT UNDER
                    SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                    1934****For
                    the quarterly period ended March 31,
                    2007****OR****o**
                **TRANSITION
                    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                    ACT****For
                    the transition period from  ______________ to
                    ______________**
  Commission
              file number: 333-105793
  **CEPTOR
              CORPORATION**
 (Name
            of
            Small Business Issuer in Its Charter)
  **Delaware**
              **11-2897392**(State
                  or other jurisdictionof
                incorporation
                  or organization)
              (IRS
                  EmployerIdentification
                  No.)
  **462 Seventh
          Avenue, Suite 1200**
 **New
          York, New York 10018**
 (Address
          of principal executive offices) 
(Zip
          Code)
 **(212)
          629-0804**
 (Issuer’s
          telephone number)
 Check
            whether the issuer (1) filed all reports required to be filed by Section
            13 or
            15(d) of the Exchange Act during the past 12 months (or for such shorter
            period
            that the registrant was required to file such reports), and (2) has been
            subject
            to such filing requirements for the past 90 days.  
Yes  xNoo
  Indicate
            by check mark whether the registrant is a shell company (as defined in
            Rule
            12b-2 of the Exchange Act).    Yes oNo 
x
 As
              of May
              15, 2007, there were 15,550,069 shares of the issuer's common equity
              outstanding.
  Transitional
                  Small Business Disclosure Format (Check
                  one): Yes o No x
   Table
                      of
                      Contents


**Table
      of Contents**


**Page**Part
                  IFINANCIAL
                  INFORMATIONItem
                  1.
              Financial
                  Statements (Unaudited)
              1Condensed
                  Balance Sheet - March 31, 2007
              1Condensed
                  Statements of Operations for the three-month period
                  ended March 31, 2007 and 2006, and for the period
                from
                  August 11, 1986 (date of inception) to March 31,
                  2007
              2Condensed
                  Statement of Changes in Stockholders' Deficiency for
                  the three-month period ended March 31, 2007
              3Condensed
                  Statements of Cash Flows for the three-month period
                  ended March 31, 2007 and 2006 and for the period
                from
                  August 11, 1986 (date of inception) to March 31,
                  2007
              10Notes
                  to Condensed Financial Statements
              12Item
                  2.
              Managements
                  Discussion and Analysis or Plan of
                  Operation
              28Item
                  3.
              Controls
                  and Procedures
              31Part
                  IIOTHER
                  INFORMATIONItem
                  1.
              Legal
                Proceedings
              32Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              32Item
                  3.
              Defaults
                  Upon Senior Securities
              32Item
                  4.
              Submission
                of Matters to a Vote of Security
                Holders
              32Item
                  5.
              Other
                  Information
              32Item
                  6.
              Exhibits
              33
 
 i
 Table
              of Contents


**PART
      I**


**FINANCIAL
      INFORMATION**


**Item
                1.**
            **Financial
                Statements**







**CepTor
                  Corporation**
                **(A
                  Development Stage Company)**
                **Condensed
                  Balance Sheet**
                **(Unaudited)****March
                  31,****2007****Assets**Current
                  assetsCash
                  and cash equivalents
              
              $
              26,605Prepaid
                  services and other current assets (note 5)
              
              
              2,005Total
                  current assets
              
              
              28,610Deferred
                  financing costs (note 6)
              
              
              681,029Total
                  assets
              
              $
              709,639**Liabilities
                  and Stockholders' Deficit**Current
                  liabilitiesAccounts
                  payable
              
              
              3,960,440Accrued
                  liabilities
              
              
              1,317,462Convertible
                  notes, net of discounts $1,733,928 (note 8)
              
              
              4,580,252Unsecured
                  advances
              
              
              102,000Warrant
                  liability (note 4)
              
              
              2,802,418Conversion
                  option liability (note 4)
              
              
              1,931,672Total
                  current liabilities
              
              
              14,694,244Commitments
                  and Contingencies
              
              
              -Stockholders'
                  deficitPreferred
                  stock, $0.0001 par value, authorized 20,000,000 shares,
                  issuedand
                  outstanding 216.4 shares of Series A Convertible
              
              
              5,410,000Common
                  stock, $0.0001 par value; 100,000,000 shares authorized;15,550,069
                  shares issued and outstanding at March 31, 2007 (Note 9)
              
              
              1,555Additional
                  paid-in capital (Note 9)
              
              
              27,044,888Deficit
                  Accumulated during the Development Stage
              
              
              (46,441,048
              )Total
                  stockholders' deficit
              
              
              (13,984,605
              )Total
                  liabilities and stockholders' deficit
              
              $
              709,639The
                  accompanying notes are an integral
                  part of these unaudited condensed financial
                  statements.





1
 Table
          of Contents




**CepTor
                  Corporation**
                **(A
                  Development Stage Company)**
                **Condensed
                  Statements of Operations**
                **(Unaudited)****Cumulative
                  from****For
                  the Three**
              
              **For
                  the Three**
              
              **Inception****Months
                  Ended**
              
              **Months
                  Ended**
              
              **(August
                  11, 1986)****March
                  31,**
              
              **March
                  31,**
              
              **to
                  March 31,****2007**
              
              **2006**
              
              **2007****Revenue:**Other
                  income
              
              
              -
              
              
              -
              
              
              75,349**Operating
                  expenses:**Impairment
                  of fixed assets
              
              
              35,562
              
              
              -
              
              
              35,562Research
                  and development
              
              
              -
              
              
              571,725
              
              
              14,165,974In-process
                  research and development
              
              
              -
              
              
              -
              
              
              5,034,309General
                  and administrative expenses
              
              
              182,439
              
              
              1,259,514
              
              
              12,545,609Gain
                  on extinguishment of debt
              
              
              -
              
              
              -
              
              
              (698,643
              )Change
                  in fair value of derivative financial instruments
              
              
              (1,475,923
              )
              
              (2,637,732
              )
              
              (10,921,785
              )Interest
                  (income) expense, net
              
              
              1,620,896
              
              
              477,486
              
              
              17,166,341Total
                  operating expenses
              
              
              362,974
              
              
              (329,007
              )
              
              (37,327,367
              )**Net
                  income (loss)**
              
              
              (362,974
              )
              
              329,007
              
              
              (37,252,018
              )Preferred
                  dividends
              
              
              -
              
              
              -
              
              
              (10,100,616
              )**Net
                  income (loss) available to common shareholders**
              
              $
              (362,974
              )
              $
              329,007
              
              $
              (47,352,634
              )**Net
                  loss per share - basic and diluted**
              
              $
              (0.02
              )
              $
              0.03**Weighted
                  average shares outstanding - basic**
              
              
              15,550,069
              
              
              12,704,092The
                  accompanying notes are an integral part of these unaudited
                  condensed financial statements.






2
 Table
          of Contents




**CepTor
                  Corporation**
                **(A
                  Development Stage Company)**
                **Statements
                  of Changes in Stockholders'
                  (Deficiency)**
                **(Unaudited)****Deficit****Accumulated**
              
              **Total****Subscrip-**
              
              **Deferred**
              
              **Additional**
              
              
              
              
              
              **During
                  the**
              
              **Stockholders'****Preferred
                  Stock**
              
              **Common
                  Stock**
              
              **tion**
              
              **Compen-**
              
              **Paid-in**
              
              **Treasury
                  Stock**
              
              **Development**
              
              **(Deficiency)****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Receivable**
              
              **sation**
              
              **Capital**
              
              **Shares**
              
              **Amount**
              
              **Stage**
              
              **Equity****Balance,
                  August 11, 1986 and December 31, 1986**
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              $
              -
              
              $
              -Issuance
                  of common stock for cash ($0.0012)
              
              -
              
              
              -
              
              
              840,818
              
              
              84
              
              
              -
              
              
              -
              
              
              916
              
              
              -
              
              
              -
              
              
              -
              
              
              1,000**Balance,
                  December 31, 1987**
              
              -
              
              
              -
              
              
              840,818
              
              
              84
              
              
              -
              
              
              -
              
              
              916
              
              
              -
              
              
              -
              
              
              -
              
              
              1,000**Balance,
                  December 31, 1988**
              
              -
              
              
              -
              
              
              840,818
              
              
              84
              
              
              -
              
              
              -
              
              
              916
              
              
              -
              
              
              -
              
              
              -
              
              
              1,000**Balance,
                  December 31, 1989**
              
              -
              
              
              -
              
              
              840,818
              
              
              84
              
              
              -
              
              
              -
              
              
              916
              
              
              -
              
              
              -
              
              
              -
              
              
              1,000**Balance,
                  December 31, 1990**
              
              -
              
              
              -
              
              
              840,818
              
              
              84
              
              
              -
              
              
              -
              
              
              916
              
              
              -
              
              
              -
              
              
              -
              
              
              1,000**Balance,
                  December 31, 1991**
              
              -
              
              
              -
              
              
              840,818
              
              
              84
              
              
              -
              
              
              -
              
              
              916
              
              
              -
              
              
              -
              
              
              -
              
              
              1,000Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (8,006
              )
              
              (8,006
              )**Balance,
                  December 31, 1992**
              
              -
              
              
              -
              
              
              840,818
              
              
              84
              
              
              -
              
              
              -
              
              
              916
              
              
              -
              
              
              -
              
              
              (8,006
              )
              
              (7,006
              )Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,169
              )
              
              (1,169
              )Convertible
                  notes
              
              -
              
              
              -
              
              
              176,572
              
              
              18
              
              
              -
              
              
              -
              
              
              3
              
              
              -
              
              
              -
              
              
              -
              
              
              21Issuance
                  of common stock in exchange forservices
                  rendered ($ 0.0142)
              
              -
              
              
              -
              
              
              176,572
              
              
              18
              
              
              -
              
              
              -
              
              
              2,482
              
              
              -
              
              
              -
              
              
              -
              
              
              2,500**Balance,
                  December 31, 1993**
              
              -
              
              
              -
              
              
              1,193,962
              
              
              120
              
              
              -
              
              
              -
              
              
              3,401
              
              
              -
              
              
              -
              
              
              (9,175
              )
              
              (5,654
              )Net
                  income
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              10,222
              
              
              10,222Distribution
                  to stockholders
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,260
              )
              
              (4,260
              )**Balance,
                  December 31, 1994**
              
              -
              
              
              -
              
              
              1,193,962
              
              
              120
              
              
              -
              
              
              -
              
              
              3,401
              
              
              -
              
              
              -
              
              
              (3,213
              )
              
              308
  3
 Table
            of Contents
  Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,342
              )
              
              (1,342
              )**Balance,
                  December 31, 1995**
              
              -
              
              
              -
              
              
              1,193,962
              
              
              120
              
              
              -
              
              
              -
              
              
              3,401
              
              
              -
              
              
              -
              
              
              (4,555
              )
              
              (1,034
              )Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (8,727
              )
              
              (8,727
              )**Balance,
                  December 31, 1996**
              
              -
              
              
              -
              
              
              1,193,962
              
              
              120
              
              
              -
              
              
              -
              
              
              3,401
              
              
              -
              
              
              -
              
              
              (13,282
              )
              
              (9,761
              )Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,975
              )
              
              (3,975
              )Issued
                  pursuant to acquisition ($3.3501)
              
              -
              
              
              -
              
              
              59,700
              
              
              6
              
              
              -
              
              
              -
              
              
              199,994
              
              
              -
              
              
              -
              
              
              -
              
              
              200,000Issuance
                  of common stock for cash ($3.3501)
              
              -
              
              
              -
              
              
              29,850
              
              
              3
              
              
              -
              
              
              -
              
              
              99,997
              
              
              -
              
              
              -
              
              
              -
              
              
              100,000Capital
                  contribution by stockholder
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              50,000
              
              
              -
              
              
              -
              
              
              -
              
              
              50,000Expense
                  pursuant to grant of stock option
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              20,356
              
              
              -
              
              
              -
              
              
              -
              
              
              20,356**Balance,
                  December 31, 1997**
              
              -
              
              
              -
              
              
              1,283,512
              
              
              129
              
              
              -
              
              
              -
              
              
              373,748
              
              
              -
              
              
              -
              
              
              (17,257
              )
              
              356,620Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (21,102
              )
              
              (21,102
              )**Balance,
                  December 31, 1998**
              
              -
              
              
              -
              
              
              1,283,512
              
              
              129
              
              
              -
              
              
              -
              
              
              373,748
              
              
              -
              
              
              -
              
              
              (38,359
              )
              
              335,518Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (25,172
              )
              
              (25,172
              )**Balance,
                  December 31, 1999**
              
              -
              
              
              -
              
              
              1,283,512
              
              
              129
              
              
              -
              
              
              -
              
              
              373,748
              
              
              -
              
              
              -
              
              
              (63,531
              )
              
              310,346Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (36,256
              )
              
              (36,256
              )Issuance
                  of common stock for cash ($3.1409)
              
              
              
              
              
              
              
              15,919
              
              
              2
              
              
              
              
              
              
              
              
              49,998
              
              
              
              
              
              
              
              
              
              
              
              50,000**Balance,
                  December 31, 2000**
              
              -
              
              
              -
              
              
              1,299,431
              
              
              131
              
              
              -
              
              
              -
              
              
              423,746
              
              
              -
              
              
              -
              
              
              (99,787
              )
              
              324,090Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (233,958
              )
              
              (233,958
              )Issued
                  pursuant to funding agreement ($0.0838)
              
              
              
              
              
              
              
              1,083,729
              
              
              108
              
              
              
              
              
              
              
              
              90,659
              
              
              
              
              
              
              
              
              
              
              
              90,767**Balance,
                  December 31, 2001**
              
              -
              
              
              -
              
              
              2,383,160
              
              
              239
              
              
              -
              
              
              -
              
              
              514,405
              
              
              -
              
              
              -
              
              
              (333,745
              )
              
              180,899Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (654,599
              )
              
              (654,599
              )Issued
                  pursuant to funding agreement ($0.0838)
              
              -
              
              
              -
              
              
              1,515,053
              
              
              151
              
              
              -
              
              
              -
              
              
              126,742
              
              
              -
              
              
              -
              
              
              -
              
              
              126,893**Balance,
                  December 31, 2002**
              
              -
              
              
              -
              
              
              3,898,213
              
              
              390
              
              
              -
              
              
              -
              
              
              641,147
              
              
              -
              
              
              -
              
              
              (988,344
              )
              
              (346,807
              )
  4
 Table
            of Contents
  Net
                  income
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              72,498
              
              
              72,498**Balance,
                  December 31, 2003**
              
              -
              
              $
              -
              
              
              3,898,213
              
              $
              390
              
              $
              -
              
              $
              -
              
              $
              641,147
              
              
              -
              
              $
              -
              
              $
              (915,846
              )
              $
              (274,309
              )Acquisition
                  by Xechem International, Inc. andapplication
                  of push-down accounting
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,118,463
              
              
              -
              
              
              -
              
              
              915,846
              
              
              5,034,309Option
                  granted pursuant to spinoff agreement
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,082,500
              
              
              -
              
              
              -
              
              
              -
              
              
              2,082,500Common
                  stock subject to repurchase under put right
              
              -
              
              
              -
              
              
              (401,305
              )
              
              (40
              )
              
              -
              
              
              -
              
              
              (1,637,285
              )
              
              -
              
              
              -
              
              
              -
              
              
              (1,637,325
              )Common
                  stock issued May 2004, in connectionwith
                  bridge loans ($1.22)
              
              -
              
              
              -
              
              
              451,597
              
              
              45
              
              
              -
              
              
              -
              
              
              549,955
              
              
              -
              
              
              -
              
              
              -
              
              
              550,000Common
                  stock issued May 2004, to placementagent
                  for bridge loans ($2.50)
              
              -
              
              
              -
              
              
              36,000
              
              
              4
              
              
              -
              
              
              -
              
              
              89,996
              
              
              -
              
              
              -
              
              
              -
              
              
              90,000Common
                  stock issued September 2004, net ofoffering
                  expenses of $70,760 ($1.68)
              
              -
              
              
              -
              
              
              554,413
              
              
              55
              
              
              -
              
              
              -
              
              
              929,176
              
              
              -
              
              
              -
              
              
              -
              
              
              929,231Common
                  stock issued December 2004 to advisors forpast
                  services ($2.50)
              
              -
              
              
              -
              
              
              675,690
              
              
              68
              
              
              -
              
              
              -
              
              
              1,689,157
              
              
              -
              
              
              -
              
              
              -
              
              
              1,689,225Reclassification
                  in December 2004 of advances fromXechem
                  as contribution to capital
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              350,310
              
              
              -
              
              
              -
              
              
              -
              
              
              350,310Minority
                  shareholders pursuant to recapitalization
              
              -
              
              
              -
              
              
              1,850,000
              
              
              185
              
              
              -
              
              
              -
              
              
              (185
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock issued December 2004 pursuant toexercise
                  of options granted pursuant tospinoff
                  agreement ($0.00001)
              
              -
              
              
              -
              
              
              3,031,943
              
              
              303
              
              
              (303
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Intrinsic
                  value of beneficial conversion feature ofreplacement
                  notes
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,111,240
              
              
              -
              
              
              -
              
              
              -
              
              
              1,111,240Common
                  stock issued December 2004 in conversionof
                  convertible note ($1.25)
              
              -
              
              
              -
              
              
              167,610
              
              
              17
              
              
              -
              
              
              -
              
              
              209,495
              
              
              -
              
              
              -
              
              
              -
              
              
              209,512Common
                  stock issued December 2004 in connectionwith
                  litigation settlement ($2.50)
              
              -
              
              
              -
              
              
              125,000
              
              
              12
              
              
              -
              
              
              -
              
              
              312,488
              
              
              -
              
              
              -
              
              
              -
              
              
              312,500Warrants
                  issued in connection withlitigation
                  settlement
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              109,500
              
              
              -
              
              
              -
              
              
              -
              
              
              109,500Common
                  stock issued December 2004 pursuant toplacement
                  agent agreement ($2.50)
              
              -
              
              
              -
              
              
              150,000
              
              
              15
              
              
              -
              
              
              -
              
              
              (15
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Warrants
                  issued to nonemployees for services
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              396,000
              
              
              -
              
              
              -
              
              
              -
              
              
              396,000Preferred
                  stock and warrants issued pursuant to units sold
  5
 Table
            of Contents
  December
                  2004 in a private placement ($25,000)
              
              145.07
              
              
              3,626,750
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (822,510
              )
              
              -
              
              
              -
              
              
              -
              
              
              2,804,240Acquisition
                  December 2004 of treasury stockunder
                  put right ($2.50)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              145,070
              
              
              (362,675
              )
              
              -
              
              
              (362,675
              )Deemed
                  dividend of beneficial conversion featureof
                  units sold in private placement
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              936,116
              
              
              -
              
              
              -
              
              
              (936,116
              )
              
              -Amortization
                  of deferred compensation
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              604,350
              
              
              -
              
              
              -
              
              
              -
              
              
              604,350Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (14,547,889
              )
              
              (14,547,889
              )**Balance,
                  December 31, 2004**
              
              145.07
              
              $
              3,626,750
              
              
              10,539,161
              
              $
              1,054
              
              $
              (303
              )
              $
              -
              
              $
              11,669,898
              
              
              145,070
              
              $
              (362,675
              )
              $
              (15,484,005
              )
              $
              (549,281
              )
 Preferred
                  stock and warrants issued pursuant tounits
                  sold on January 5, 2005 in aprivate
                  placement ($25,000)
              
              48.35
              
              
              1,208,750
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (159,359
              )
              
              -
              
              
              -
              
              
              -
              
              
              1,049,391Deemed
                  dividend of beneficial conversion featureof
                  units sold January 5, 2005 in private placement
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,208,750
              
              
              -
              
              
              -
              
              
              (1,208,750
              )
              
              -Acquisition
                  January 5, 2005 of treasurystock
                  under put right ($2.50)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              48,350
              
              
              (120,875
              )
              
              -
              
              
              (120,875
              )Preferred
                  stock and warrants issued pursuant tounits
                  sold on January 18, 2005 in aprivate
                  placement ($25,000)
              
              76.25
              
              
              1,906,250
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (252,624
              )
              
              -
              
              
              -
              
              
              -
              
              
              1,653,626Deemed
                  dividend of beneficial conversion featureof
                  units sold January 18, 2005 in private placement
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,906,250
              
              
              -
              
              
              -
              
              
              (1,906,250
              )
              
              -Acquisition
                  January 18, 2005 of treasurystock
                  under put right ($2.50)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              76,250
              
              
              (190,625
              )
              
              -
              
              
              (190,625
              )Common
                  stock issued January 2005 in connectionwith
                  payment of legal fees ($3.04)
              
              -
              
              
              -
              
              
              23,000
              
              
              2
              
              
              -
              
              
              -
              
              
              69,998
              
              
              -
              
              
              -
              
              
              -
              
              
              70,000Common
                  stock issued January 2005 pursuant toamendment
                  of placement agent agreement ($2.50)
              
              -
              
              
              -
              
              
              150,000
              
              
              15
              
              
              -
              
              
              -
              
              
              (15
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock issued February 2005 to advisorsfor
                  past services ($6.25)
              
              -
              
              
              -
              
              
              7,500
              
              
              1
              
              
              -
              
              
              -
              
              
              46,874
              
              
              -
              
              
              -
              
              
              -
              
              
              46,875Preferred
                  stock and warrants issued pursuant tounits
                  sold on February 3, 2005 in aprivate
                  placement ($25,000)
              
              224.48
              
              
              5,612,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (851,447
              )
              
              -
              
              
              -
              
              
              -
              
              
              4,760,553Deemed
                  dividend of beneficial conversion featureof
                  units sold February 3, 2005 in private placement
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              5,612,000
              
              
              -
              
              
              -
              
              
              (5,612,000
              )
              
              -
  6
 Table
            of Contents
  Acquisition
                  February 3, 2005 of treasurystock
                  under put right ($2.50)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              224,480
              
              
              (561,200
              )
              
              -
              
              
              (561,200
              )Preferred
                  stock and warrants issued pursuant tounits
                  sold on February 11, 2005 in aprivate
                  placement ($25,000)
              
              17.50
              
              
              437,500
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (256,681
              )
              
              -
              
              
              -
              
              
              -
              
              
              180,819Deemed
                  dividend of beneficial conversion featureof
                  units sold February 11, 2005 in private placement
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              437,500
              
              
              -
              
              
              -
              
              
              (437,500
              )
              
              -Acquisition
                  February 11, 2005 of treasurystock
                  under put right ($2.50)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              17,500
              
              
              (43,750
              )
              
              -
              
              
              (43,750
              )Common
                  stock issued February 2005 pursuant tocashless
                  exercise of option ($3.05)
              
              -
              
              
              -
              
              
              100,191
              
              
              10
              
              
              -
              
              
              -
              
              
              (10
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock issued March 2005 upon conversionof
                  preferred shares ($2.50)
              
              (44.00
              )
              
              (1,100,000
              )
              
              440,000
              
              
              44
              
              
              -
              
              
              -
              
              
              1,099,956
              
              
              -
              
              
              -
              
              
              -
              
              
              -Payment
                  for common stock issued December 2004pursuant
                  to exercise of options granted pursuant tospinoff
                  agreement ($0.00001)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              303
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              303
 Common
                  stock issued March 2005 pursuant toexercise
                  of warrants ($1.25)
              
              -
              
              
              -
              
              
              5,000
              
              
              1
              
              
              -
              
              
              -
              
              
              6,249
              
              
              -
              
              
              -
              
              
              -
              
              
              6,250Common
                  stock issued April 2005 upon conversionof
                  preferred shares ($2.50)
              
              (15.00
              )
              
              (375,000
              )
              
              150,000
              
              
              15
              
              
              -
              
              
              -
              
              
              374,985
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock issued May 2005 pursuant tofinancing
                  letter agreement ($3.00)
              
              -
              
              
              -
              
              
              25,000
              
              
              2
              
              
              -
              
              
              -
              
              
              74,998
              
              
              -
              
              
              -
              
              
              -
              
              
              75,000Common
                  stock issued May 2005 upon conversionof
                  preferred shares ($2.50)
              
              (41.00
              )
              
              (1,025,000
              )
              
              410,000
              
              
              41
              
              
              -
              
              
              -
              
              
              1,024,959
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock issued June 2005 upon conversionof
                  preferred shares ($2.50)
              
              (29.00
              )
              
              (725,000
              )
              
              290,000
              
              
              29
              
              
              -
              
              
              -
              
              
              724,971
              
              
              -
              
              
              -
              
              
              -
              
              
              -Capital
                  contribution for repurchase of common stockpursuant
                  to Stock Purchase Agreement
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              424,818
              
              
              -
              
              
              -
              
              
              -
              
              
              424,818Common
                  stock repurchased June 2005 pursuantto
                  Stock Repurchase Agreement ($0.80)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,886,563
              
              
              (2,734,068
              )
              
              -
              
              
              (2,734,068
              )Common
                  stock issued July 2005 pursuant to RegulatoryMilestone
                  Plan ($2.70)
              
              -
              
              
              -
              
              
              100,000
              
              
              10
              
              
              -
              
              
              -
              
              
              269,990
              
              
              -
              
              
              -
              
              
              -
              
              
              270,000
  7
 Table
            of Contents
  Common
                  stock issued July 2005 upon conversionof
                  preferred shares ($2.50)
              
              (20.00
              )
              
              (500,000
              )
              
              200,000
              
              
              20
              
              
              -
              
              
              -
              
              
              499,980
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock issued August 2005 upon conversionof
                  preferred shares ($2.50)
              
              (83.50
              )
              
              (2,087,500
              )
              
              835,000
              
              
              84
              
              
              -
              
              
              -
              
              
              2,087,416
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock issued September 2005 upon conversionof
                  preferred shares ($2.50)
              
              (25.00
              )
              
              (625,000
              )
              
              250,000
              
              
              25
              
              
              -
              
              
              -
              
              
              624,975
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock issued September 2005 pursuant toStock
                  Purchase Agreement
              
              -
              
              
              -
              
              
              25,000
              
              
              2
              
              
              -
              
              
              -
              
              
              (2
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Expenses
                  incurred pursuant to entering into StockPurchase
                  Agreement
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (89,340
              )
              
              -
              
              
              -
              
              
              -
              
              
              (89,340
              )Net
                  proceeds from October 2005 sale of common stockissued
                  December 2004 pursuant to exercise ofoptions
                  granted pursuant to spinoffagreement
                  ($0.63)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              163,014
              
              
              -
              
              
              -
              
              
              -
              
              
              163,014Common
                  stock issued October 2005 pursuant toStock
                  Purchase Agreement
              
              -
              
              
              -
              
              
              377,359
              
              
              38
              
              
              -
              
              
              -
              
              
              (38
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock issued November 2005 upon conversionof
                  preferred shares ($2.50)
              
              (2.00
              )
              
              (50,000
              )
              
              20,000
              
              
              2
              
              
              -
              
              
              -
              
              
              49,998
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock issued December 2005 pursuant toSecurities
                  Purchase Agreement
              
              -
              
              
              -
              
              
              268,817
              
              
              27
              
              
              -
              
              
              -
              
              
              37,343
              
              
              -
              
              
              -
              
              
              -
              
              
              37,370Warrant
                  liability established
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,350,697
              )
              
              -
              
              
              -
              
              
              -
              
              
              (3,350,697
              )Common
                  stock issued December 2005 upon conversionof
                  replacement notes ($0.375)
              
              -
              
              
              -
              
              
              485,000
              
              
              48
              
              
              -
              
              
              -
              
              
              181,827
              
              
              -
              
              
              -
              
              
              -
              
              
              181,875Common
                  stock issued December 2005 upon conversionof
                  preferred shares ($2.50)
              
              (4.00
              )
              
              (100,000
              )
              
              40,000
              
              
              4
              
              
              -
              
              
              -
              
              
              99,996
              
              
              -
              
              
              -
              
              
              -
              
              
              -Discount
                  of secured convertible debenture uponfair
                  value allocation of proceeds
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              250,000
              
              
              -
              
              
              -
              
              
              -
              
              
              250,000Retirement
                  of treasury shares
              
              -
              
              
              -
              
              
              (3,398,213
              )
              
              (340
              )
              
              -
              
              
              -
              
              
              (4,012,853
              )
              
              (3,398,213
              )
              
              4,013,193
              
              
              -
              
              
              -Reverse
                  common stock subject to repurchase undervariable
                  shares put right at December 31, 2004
              
              -
              
              
              -
              
              
              401,305
              
              
              40
              
              
              -
              
              
              -
              
              
              1,637,285
              
              
              -
              
              
              -
              
              
              -
              
              
              1,637,325Amortization
                  of deferred compensation
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,035,701
              
              
              -
              
              
              -
              
              
              -
              
              
              1,035,701Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (13,267,590
              )
              
              (13,267,590
              )**Balance,
                  December 31, 2005**
              
              248.15
              
              $
              6,203,750
              
              
              11,744,120
              
              $
              1,174
              
              $
              -
              
              $
              -
              
              $
              22,646,665
              
              
              -
              
              $
              -
              
              $
              (37,916,095
              )
              $
              (9,064,506
              )
  8
 Table
            of Contents
  Common
                  stock issued January 2006 upon conversionof
                  preferred shares ($2.50)
              
              (10.00
              )
              
              (250,000
              )
              
              100,000
              
              
              10
              
              
              -
              
              
              -
              
              
              249,990
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock issued January 2006 upon conversionof
                  replacement notes ($0.375)
              
              -
              
              
              -
              
              
              855,267
              
              
              85
              
              
              -
              
              
              -
              
              
              320,640
              
              
              -
              
              
              -
              
              
              -
              
              
              320,725Common
                  stock issued February 2006 upon conversionof
                  preferred shares ($2.50)
              
              (7.00
              )
              
              (175,000
              )
              
              70,000
              
              
              7
              
              
              -
              
              
              -
              
              
              174,993
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock issued February 2006 upon conversionof
                  2005 Convertible Debentures ($0.5795)
              
              -
              
              
              -
              
              
              86,281
              
              
              9
              
              
              -
              
              
              -
              
              
              49,991
              
              
              -
              
              
              -
              
              
              -
              
              
              50,000Common
                  stock issued March 2006 upon conversionof
                  preferred shares ($2.50)
              
              (6.75
              )
              
              (168,750
              )
              
              67,500
              
              
              7
              
              
              -
              
              
              -
              
              
              168,743
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock issued March 2006 upon conversionof
                  options ($0.359)
              
              -
              
              
              -
              
              
              557,102
              
              
              56
              
              
              -
              
              
              -
              
              
              199,944
              
              
              -
              
              
              -
              
              
              -
              
              
              200,000Expenses
                  incurred pursuant to entering into StockPurchase
                  Agreement
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (38,181
              )
              
              -
              
              
              -
              
              
              -
              
              
              (38,181
              )Common
                  stock issued March 2006 upon conversionof
                  2005 Convertible Debentures ($0.3373)
              
              -
              
              
              -
              
              
              148,236
              
              
              15
              
              
              -
              
              
              -
              
              
              49,985
              
              
              -
              
              
              -
              
              
              -
              
              
              50,000Common
                  stock issued April 2006 upon conversionof
                  2005 Convertible Debentures ($0.1985)
              
              -
              
              
              -
              
              
              755,735
              
              
              76
              
              
              -
              
              
              -
              
              
              149,924
              
              
              -
              
              
              -
              
              
              -
              
              
              150,000Common
                  stock issued May 2006 upon conversionof
                  preferred shares ($2.50)
              
              (3.00
              )
              
              (75,000
              )
              
              30,000
              
              
              3
              
              
              -
              
              
              -
              
              
              74,997
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock issued May 2006 upon conversionof
                  2005 Convertible Debentures ($0.1616)
              
              -
              
              
              -
              
              
              309,598
              
              
              31
              
              
              -
              
              
              -
              
              
              49,969
              
              
              -
              
              
              -
              
              
              -
              
              
              50,000Common
                  stock issued May 2006 pursuantto
                  anti-dilution provisions
              
              -
              
              
              -
              
              
              776,230
              
              
              77
              
              
              -
              
              
              -
              
              
              155,169
              
              
              -
              
              
              -
              
              
              -
              
              
              155,246Incremental
                  fair value of additional common stockissuable
                  upon conversion of preferred shares
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,936,377
              
              
              -
              
              
              -
              
              
              -
              
              
              1,936,377Amortization
                  of deferred compensation
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              730,617
              
              
              -
              
              
              -
              
              
              -
              
              
              730,617Net
                  income (loss)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (8,161,979
              )
              
              (8,161,979
              )**Balance,
                  December 31, 2006**
              
              221.40
              
              $
              5,535,000
              
              
              15,500,069
              
              $
              1,550
              
              $
              -
              
              $
              -
              
              $
              26,919,823
              
              
              -
              
              $
              -
              
              $
              (46,078,074
              )
              $
              (13,621,701
              )Common
                  shares issued January 2007 uponconversion
                  of preferred shares ($2.50)
              
              (5.00
              )
              
              (125,000
              )
              
              50,000
              
              
              5
              
              
              -
              
              
              -
              
              
              124,995
              
              
              -
              
              
              -
              
              
              -
              
              
              -Amortization
                  of deferred compensation
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              70
              
              
              -
              
              
              -
              
              
              -
              
              
              70Net
                  income (loss)
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (362,974
              )
              
              (362,974
              )**Balance
                  March 31, 2007**
              
              216.40
              
              
              5,410,000
              
              
              15,550,069
              
              
              1,555
              
              
              -
              
              
              -
              
              
              27,044,888
              
              
              -
              
              
              -
              
              
              (46,441,048
              )
              
              (13,984,605
              )The
                  accompanying notes are an integral part of these unaudited
                  condensed financial statements.


9
 Table
          of Contents




**CepTor
                  Corporation**
                **(A
                  Development Stage Company)**
                **Statements
                  of Cash Flows**
                **(Unaudited)****For
                  the Three**
              
              **For
                  the Three**
              
              **Cumulative****Months
                  Ended**
              
              **Months
                  Ended**
              
              **from
                  Inception****March
                  31,**
              
              **March
                  31,**
              
              **(August
                  11, 1986) to****2007**
              
              **2006**
              
              **March
                  31, 2007****Cash
                  flows from operating activities:**Net
                  income (loss)
              
              $
              (362,974
              )
              $
              329,007
              
              $
              (37,252,018
              )**Adjustments
                  to reconcile net loss to net****cash
                  used in operating activities:**Depreciation
                  and amortization
              
              
              -
              
              
              4,767
              
              
              50,559Write-off
                  in-process research and development
              
              
              -
              
              
              -
              
              
              5,034,309Charge
                  for stock option issued pursuant to spin-off agreement
              
              
              -
              
              
              -
              
              
              2,082,500Stock
                  based compensation to employees and directors
              
              
              -
              
              
              37,686
              
              
              267,802Stock-based
                  compensation to nonemployees
              
              
              -
              
              
              579,591
              
              
              4,802,822Stock-based
                  component of payment of legal fees
              
              
              -
              
              
              -
              
              
              70,000Stock-based
                  component of litigation settlement
              
              
              -
              
              
              -
              
              
              422,000Amortization
                  of deferred compensation
              
              
              70
              
              
              -
              
              
              70Gain
                  on extinguishment of debt
              
              
              -
              
              
              -
              
              
              (698,643
              )Impairment
                  of fixed assets
              
              
              36,362
              
              
              -
              
              
              36,362Change
                  in fair vale of derivative securities
              
              
              (1,475,923
              )
              
              (2,637,732
              )
              
              (10,921,785
              )Non-cash
                  interest expense
              
              
              1,510,922
              
              
              419,876
              
              
              16,639,330Changes
                  in operating assets and liabilities:Prepaid
                  services and other assets
              
              
              10,892
              
              
              24,532
              
              
              (2,005
              )Other
                  assets
              
              
              -
              
              
              -
              
              
              -Accounts
                  payable and accrued expenses
              
              
              192,941
              
              
              668,936
              
              
              4,708,668**Net
                  cash used in operating activities**
              
              
              (87,710
              )
              
              (573,337
              )
              
              (14,760,029
              )**Cash
                  flows from investing activities:**Acquisition
                  of property and equipment
              
              
              -
              
              
              -
              
              
              (86,921
              )**Net
                  cash used in investing activities**
              
              
              -
              
              
              -
              
              
              (86,921
              )**Cash
                  flows from financing activities:**Proceeds
                  from issuances of common stock
              
              
              -
              
              
              200,000
              
              
              1,499,819Net
                  proceeds from issuances of preferred stock
              
              
              -
              
              
              -
              
              
              10,448,629Acquisition
                  of treasury stock under put right
              
              
              -
              
              
              -
              
              
              (1,279,125
              )Acquisition
                  of treasury stock under purchase agreement
              
              
              -
              
              
              -
              
              
              (2,309,250
              )Distribution
                  to shareholders
              
              
              -
              
              
              -
              
              
              (4,260
              )Capital
                  contributed by Xechem International, Inc.
              
              
              -
              
              
              -
              
              
              350,310Proceeds
                  from issuance of debt and unsecured advances in 2007
              
              
              102,000
              
              
              -
              
              
              7,642,444Debt
                  issuance costs
              
              
              -
              
              
              (38,181
              )
              
              (1,125,012
              )Principal
                  payments on bridge loans
              
              
              -
              
              
              -
              
              
              (350,000
              )**Net
                  cash provided by financing activities**
              
              
              102,000
              
              
              161,819
              
              
              14,873,555Net
                  increase (decrease) in cash and cash equivalents
              
              
              14,290
              
              
              (411,518
              )
              
              26,605Cash
                  and cash equivalents at beginning of period
              
              
              12,315
              
              
              434,277
              
              
              -Cash
                  and cash equivalents at end of period
              
              $
              26,605
              
              $
              22,759
              
              $
              26,605The
                  accompanying notes are an integral part of these unaudited condensed financial
                  statements.
  10
 Table
            of Contents
  **Supplemental
                  disclosures of cash flow information:**Cash
                  paid during the period for:Interest
              
              $
              -
              
              $
              -
              
              $
              35,421Taxes
              
              $
              -
              
              $
              -
              
              $
              -Deemed
                  dividend of the beneficial conversionfeature
                  of units sold in private placement
              
              $
              -
              
              $
              -
              
              $
              10,100,616Issuance
                  of 2,685,000 shares of common stock uponconversion
                  of preferred shares
              
              $
              125,000
              
              $
              593,750
              
              $
              7,181,250Issuance
                  of 267,500 shares of common stock uponconversion
                  of preferred shares
              
              $
              -
              
              $
              -
              
              $
              668,750Issuance
                  of 485,000 shares of common stock upon-conversion
                  of convertible note
              
              $
              -
              
              $
              -
              
              $
              181,875Issuance
                  of 855,267 shares of common stock uponconversion
                  of convertible note
              
              $
              -
              
              $
              -
              
              $
              302,725Issuance
                  of 1,299,850 shares of common stock uponconversion
                  of convertible shares
              
              $
              -
              
              $
              320,725
              
              $
              300,000Issuance
                  of 100,000 shares of common stock pursuant tostock
                  plan
              
              $
              -
              
              $
              -
              
              $
              270,000Issuance
                  of 7,500 shares of common stock ascompensation
                  for past services
              
              $
              -
              
              $
              -
              
              $
              46,875Issuance
                  of 25,000 shares of common stock ascompensation
                  for financial planning
              
              $
              -
              
              $
              -
              
              $
              75,000Issuance
                  of 23,000 shares of common stock inpayment
                  of accrued legal fees
              
              $
              -
              
              $
              -
              
              $
              70,000Capital
                  contribution for repurchase of common stockpursuant
                  to Stock Purchase Agreement
              
              $
              -
              
              $
              -
              
              $
              424,818Issued
                  36,000 shares of common stock as debt issuancecosts
              
              $
              -
              
              $
              -
              
              $
              90,000Issued
                  451,597 shares of common stock to bridge loaninvestors
                  and placement agents
              
              $
              -
              
              $
              -
              
              $
              550,000Issuance
                  of 167,610 shares of common stock uponconversion
                  of convertible notes
              
              $
              -
              
              $
              100,000
              
              $
              309,512Issuance
                  of convertible notes in exchange for bridgeloans
                  and long-term debt plus accrued interest
              
              $
              -
              
              $
              -
              
              $
              1,111,240Obligation
                  to repurchase 401,305 shares of common stockpursuant
                  to put right
              
              $
              -
              
              $
              -
              
              $
              1,637,325The
                  accompanying notes are an integral part of these unaudited condensed financial
                  statements.






11
 Table
          of Contents




**CepTor
        Corporation**
 **(A
        Development Stage Company)**
 **Notes
        to Condensed Financial Statements**
 **March
        31, 2007**
 **(Unaudited)**


**NOTE
      1 - BASIS OF INTERIM FINANCIAL STATEMENT PRESENTATION**





The
      accompanying unaudited Condensed Financial Statements of CepTor Corporation
      have
      been prepared in accordance with accounting principles generally accepted in
      the
      United States for interim financial information and the instructions to Form
      10-QSB. Accordingly, they do not include all the information and footnotes
      required by accounting principles generally accepted in the United States for
      complete financial statements. In the opinion of management all adjustments
      (which include only normal recurring adjustments) necessary to present fairly
      the financial position, results of operations and cash flows for all periods
      presented have been made. The results of operations for the three-month period
      ended March 31, 2007 are not necessarily indicative of the operating results
      that may be expected for the entire year ending December 31, 2007.





**NOTE
      2 - THE COMPANY**





***Organization***





The
      financial statements presented are those of CepTor Corporation (the "Company"),
      incorporated in August 1986 in the State of Delaware.





***Nature
      of Business and Development Stage Operations***




The
      Company is a biopharmaceutical company which had been engaged in the research
      and development of therapeutic products for neuromuscular, neurodegenerative
      and
      other diseases with a focus on orphan diseases (defined as those which affect
      less than 200,000 people).  Since its inception, the Company had devoted
      its efforts and resources to the development of its receptor mediated
      drug-targeting platform for neuromuscular and neurodegenerative diseases, and
      to
      raising the funds necessary to continue this research. Its two lead compounds
      are MyodurTM, for neuromuscular disease, and NeurodurTM, for neurodegenerative
      diseases. In January 2006, CepTor submitted an Investigational New Drug
      Application (IND) to the Food and Drug Administration (FDA) for MyodurTM with the
      hope and expectation of beginning clinical trials for this compound following
      approval of the IND. Since that time, the IND has remained on “clinical hold”
pending resolution of certain issues raised by the FDA. Most recently, in
      October 2006, the Company was advised that, despite its efforts to resolve
      the
      concerns and issues previously raised by the FDA, the IND would remain on hold
      pending further testing and research as directed by the FDA.


As
          a
          result of the clinical hold status of our lead compound, our existing investors
          have advised us that they were unwilling to continue to fund either the
          research
          and development costs required to fully prosecute the IND filing, or the
          general
          operating costs necessary to keep the business afloat as those research
          and
          development activities continued. With no other financial resources available
          to
          us, we had no choice but to cease all efforts related to the research and
          development of our compounds, terminate all of our employees, and close
          down our
          corporate offices in Maryland. At present, we are maintaining our operations
          as
          a “virtual” office operated out of New York City and have one part-time
          employee, Howard Becker, our newly appointed CEO.
 
 The
          Company has been focusing on a two-part strategy, in cooperation with the
          existing secured creditors, whereby (i) our existing technologies will
          be
          divested from the corporation pursuant to a transaction that will allow
          CepTor
          to retain significant upside should the technologies ultimately fulfill
          their
          promise as marketable and commercially viable products, and (ii) a new
          technology will be acquired by the Company around which we could restructure
          our
          affairs. Any such transaction would have to have the full support of the
          existing secured creditors, as they have a priority position with respect
          to all
          of CepTor’s current assets.
  The
          Company is a development stage company which has a limited history of operations
          and has not generated any material revenues since its inception. The Company
          has
          received a limited amount of funding through grants and collaborative research
          efforts in connection with developing its products. The Company does not
          have
          any products that are approved for commercial distribution at the present
          time.
          As a development stage company, the Company is subject to all of the risks
          and
          uncertainties that are associated with developing a new
          business.





12
 Table
          of Contents


**CepTor
        Corporation**
 **(A
        Development Stage Company)**
 **Notes
        to Condensed Financial Statements**
 **March
        31, 2007**
 **(Unaudited)**




**NOTE
      3 - LIQUIDITY AND FINANCIAL CONDITION AND GOING CONCERN**




The
            Company has had difficulty securing the necessary capital to execute
            its
            business plan and has not been able to remain current with respect to
            the
            payment terms of its operating obligations including its trade payables
            and
            accrued liabilities, which aggregated approximately $5,277,902 at March
            31,
            2007. As described in Note 8, the Company is in default of substantially
            all
            ofits convertible note obligations, which amount to approximately $6
            million in
            aggregate principal amount. These defaults occurred principally as a
            result of
            (i) the Company's failure to make the required payments of principal
            and
            interest under certain of these obligations (which triggered cross default
            provisions under the remaining note obligations), (ii) its failure to
            file a
            registration statement pursuant to the 2006 6% Convertible Notes within
            a
            specified period, and (iii) its failure to file a post-effective amendment
            to
            its registration statement on Form SB-2 covering shares issuable under
            the 2005
            Convertible Debentures within a specified period. The Company is also
            required
            to have sufficient authorized but unissued shares available to net share
            settle
            its 2005 convertible notes and all of its derivative financial instruments.
            The
            Company has pledged all of its assets to the holders of the 2006 6% Convertible
            Notes to secure its repayment obligations under those notes.
  The
            Company has exhausted substantially all of its capital resources, terminated
            substantially all of its employees except for its part-time chief executive
            officer and is currently unable, and does not believe it is likely that
            it will
            be able in the future, to pursue further development of its product candidates.
            The Company pursued this course of action as a result of having been
            informed by
            the FDA that its IND remains on hold pending the resolution of two remaining
            issues. Additional internal research is required to fully resolve the
            FDA issues
            and complete the Company's own internal research program, which the Company
            estimates would take an additional twelve to eighteen months to complete.
            The
            Company lacks the funding that is necessary to resolve these issues and
            is
            currently unable to secure financing commitments for this purpose. Due
            to these
            remaining issues and the lack of adequate funding, the Company has halted
            development of its programs.
 
 The
            Company has been focusing on a two-part strategy, in cooperation with
            the
            existing secured creditors, whereby (i) its existing technologies will
            be
            divested from the corporation pursuant to a transaction that will allow
            CepTor
            to retain significant upside should the technologies ultimately fulfill
            their
            promise as marketable and commercially viable products, and (ii) a new
            technology will be acquired by the Company around which to restructure
            its
            affairs. However, suitable acquisition opportunities (if identified)
            are likely
            to require additional capital that is not currently available to the
            Company.
            Accordingly, there can be no assurance that the Company will ever become
            operational. The Company has also initiated discussions with its trade
            creditors
            concerning a voluntary restructuring of those obligations, but there
            can be no
            assurance that such restructuring will be agreed to or consummated. If
            the
            Company is not able to identify and consummate a transaction for the
            acquisition
            of a new technology platform, or if it is unable to settle its remaining
            outstanding trade balances, it may be forced to terminate all operations
            and
            wind down its affairs, and/or commence bankruptcy proceedings. These
            matters
            raise substantial doubt about the Company's ability to continue as a
            going
            concern. The financial statements do not include any adjustments that
            may result
            from the outcome of this uncertainty.
  Primarily
            as the result of recording non-cash interest expense of $1,510,922 offset
            by a
            non-cash gain associated with the decrease in the liability associated
            with the
            fair values of its derivative financial instruments of $1,475,923, the
            Company
            recorded a net loss for the three-month period ended March 31, 2007 of
            $362,974.
            Non-cash interest expense consisted of the amortization of the discount
            on notes
            payable of $861,959; amortization of deferred financing cost of $506,185,
            and
            accrual of liquidated damages of $142,778. The Company used net cash
            flows in
            its operating activities of $87,710 during the three-month period ended
            March
            31, 2007. The Company's working capital deficiency amounted to $14,665,634,
            and
            its development stage accumulated deficit amounted to $46,441,048 at
            March 31,
            2007. The Company will require substantial additional funding if it is
            ever to
            support the development of its proposed products and fund the operations
            contemplated under its business plan.
  At
            March
            31, 2007, the Company had $6,314,180 in principal amount of notes outstanding.
            The December 2004 Convertible Note in the principal amount of $448,736,
            was due
            July 3, 2006. There has not been an agreement on amended terms and no
            assurance
            that the Company will reach agreement with the note holder on amended
            terms. The
            terms of the 2004 Convertible Note do not provide for penalties or other
            payments upon default, and accordingly, the Company has not accrued a
            penalty as
            of March 31, 2007. Of the remaining convertible debt, (i) $250,000 in
            principal
            plus accrued interest was due on December 9, 2006, (ii) $3,569,444 in
            principal
            representing 2006 6% Convertible Notes mature during the period June
            2007
            through October 2007, and (iii) the Cornell Convertible Debentures of
            $1,700,000
            mature in December 2008. In addition to its convertible notes, the Company
            has
            received $448,000 in unsecured cash advances, of which $102,000 was received
            during the three months ended March 31, 2007. These unsecured cash advances
            are
            repayable on demand, and bear interest at the rate of between 6% and
            8% per
            year. Currently, the Company is in default of substantially all of its
            obligations to its convertible noteholders and such noteholders currently
            have
            the right to demand immediate payment of these loans. At present, the
            Company
            does not have, and has no immediate prospect of obtaining, the available
            cash to
            repay these obligations. The note holders holding $1,700,000 in principal
            indebtedness have a security interest in all the assets of the
            Company.


Due
          to
          the pending defaults of its note obligations, its lack of resources to
          settle
          its obligations when due and the possibility that all of the Company’s
          indebtedness will be accelerated if a bankruptcy petition were filed by
          or
          against the Company, the Company has recorded all of its liabilities as
          current.
 
 13
 Table
              of Contents
 **CepTor
          Corporation**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Financial Statements**
 **March
          31, 2007**
 **(Unaudited)**


**NOTE
      4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





***Basis
      of Presentation***




The
        Company is a development stage enterprise. Accordingly, the Company has included
        its cumulative statements of operations and cash flows for the period of
        August
        11, 1986 (date of inception) to March 31, 2007 in accordance with Statement
        of
        Financial Accounting Standards ("SFAS") No. 7 "Accounting and Reporting by
        Development Stage Enterprises."
  The
        Company's net loss available to common shareholders as reported in its statement
        of operations for the period of August 11, 1986 (date of inception) to March
        31,
        2007 is $47,352,634.
  ***Accounting
        for Stock-Based Compensation***





Prior
      to
      January 1, 2006, the Company accounted for employee stock transactions in
      accordance with Accounting Principles Board ("APB") Opinion No. 25 "Accounting
      for Stock Issued to Employees."  The Company applied the pro forma
      disclosure requirements of SFAS No. 123 "Accounting for Stock-Based
      Compensation."




Effective
        January 1, 2006, the Company adopted SFAS No. 123R "Share Based Payment."
        This
        statement is a revision of SFAS Statement No. 123, and supersedes APB Opinion
        No. 25, and its related implementation guidance. SFAS 123R addresses all
        forms
        of share based payment ("SBP") awards including shares issued under employee
        stock purchase plans, stock options, restricted stock and stock appreciation
        rights. Under SFAS 123R, SBP awards result in a cost that will be measured
        at
        fair value on the awards' grant date, based on the estimated number of awards
        that are expected to vest and that will result in a charge to operations.
        The
        Company adopted the modified prospective method with respect to accounting
        for
        its transition to SFAS 123(R) and had unrecognized compensation cost of $259,759
        as deferred compensation at January 1, 2007. Accordingly, the Company recognized
        expense on the statement of operations of $70 for the fair value of these
        stock
        options which vested during the three- month periods ended March 31, 2007.
        The
        fair value of these awards was estimated at the date of grant using the
        Black-Scholes option pricing model with the following weighted average
        assumptions: risk fee interest rate: 3.3% to 3.6%; expected dividend yield:
        0%;
        expected option life: 10 years; and volatility: 108% to 123%.





In
          the
          current quarter the Company reclassified certain components of its stockholders'
          equity section to reflect the elimination of deferred compensation arising
          from unvested share-based compensation pursuant to the requirements of
          Staff Accounting Bulletin No. 107, regarding Statement of Financial Accounting
          Standards No. 123(R), "Share-Based Payment." This deferred compensation
          was
          previously recorded as an increase to additional paid-in capital with a
          corresponding reduction to stockholders' equity for such deferred compensation.
          This reclassification has no effect on net income or total stockholders'
          equity as previously reported. The Company will record an increase to
          additional paid-in capital as the share-based payments vest.


14
 Table
            of Contents
 **CepTor
          Corporation**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Financial Statements**
 **March
          31, 2007**
 **(Unaudited)**


***Net
      Loss per Share***





Net
      loss
      per share is presented under SFAS No. 128 "Earnings Per Share." Under SFAS
      128,
      basic net loss per share is computed by dividing net loss per share available
      to
      common stockholders by the weighted average shares of common stock outstanding
      for the period and excludes any potential dilution. Diluted earnings per share
      reflect the potential dilution that would occur upon the exercise or conversion
      of all dilutive securities into common stock. The computation of loss per share
      for the three-month periods ended March 31, 2007 and 2006 excludes potentially
      dilutive securities because their inclusion would be anti-dilutive.





Shares
      of
      common stock issuable upon the conversion or exercise of potentially dilutive
      securities are as follows:





**March
                  31,****2007**
              
              **2006**Series
                  A Preferred Stock
              
              
              11,355,113
              
              
              -Warrants
              
              
              33,912,855
              
              
              5,406,812Options
              
              
              1,878,834
              
              
              -Convertible
                  Notes
              
              
              44,872,578
              
              
              875,999Total
              
              
              92,019,380
              
              
              6,282,811





**Accounting
      for Warrants and Freestanding Derivative Financial
      Instruments**





The
      Company accounts for the issuance of common stock purchase warrants and other
      freestanding derivative financial instruments in accordance with the provisions
      of EITF 00-19. Based on the provisions of EITF 00-19, the Company classifies
      as
      equity any contracts that (i) require physical settlement or net-share
      settlement or (ii) gives the Company a choice of net-cash settlement or
      settlement in its own shares (physical settlement or net-share settlement).
      The
      Company classifies as assets or liabilities any contracts that (i) require
      net-cash settlement (including a requirement to net-cash settle the contract
      if
      an event occurs and if that event is outside the control of the Company) or
      (ii)
      give the counterparty a choice of net-cash settlement or settlement in shares
      (physical settlement or net-share settlement).


The
        terms
        of the Company’s Cornell Convertible Debentures (see Note 8) provide for a
        conversion price in certain situations based on a floating conversion price
        which results in an indeterminable number of shares of common stock potentially
        issued upon conversion. Under accounting guidance provided by EITF 00-19,
        as of
        March 31, 2007, the Company had net liabilities of $2,802,418 representing
        the
        fair value of warrants and options to purchase approximately 35.8 million
        shares
        of common stock which had been issued as components of other financing
        instruments or granted to non-employees for services rendered. The Company
        recorded additional liabilities for the fair value of warrants granted during
        the year ended December 31, 2006 in the aggregate of approximately $5.7 million.
        The fair value of these awards was estimated at the date of grant using the
        Black-Scholes option pricing model with the following assumptions: risk fee
        interest rate: 4.7% to 5.1%; expected dividend yield: 0%; expected life: 3
        years to 5 years; and volatility: 106% to 353%.




The
      accounting guidance shows that the warrants are a derivative liability and
      are marked to market for each reporting period. During the three months ended
      March 31, 2007, the Company recognized a credit of $801,210 for the decrease
      in
      fair value of the derivative financial instruments. The fair value of these
      awards was estimated at March 31, 2007 using the Black-Scholes option pricing
      model with the following assumptions: risk fee interest rate: 4.7% to 5.0%;
      expected dividend yield: 0%; expected option life: 1.0 years to 4.8 years;
      and
      volatility: 353%.




15
 Table
          of Contents


**CepTor
        Corporation**
 **(A
        Development Stage Company)**
 **Notes
        to Condensed Financial Statements**
 **March
        31, 2007**
 **(Unaudited)**


**Accounting
      for Conversion Options Embedded in Convertible Notes and Convertible Preferred
      Stock**





The
      Company accounts for conversion options embedded in convertible notes and
      convertible preferred stock in accordance with SFAS No. 133 ‘‘Accounting for
      Derivative Instruments and Hedging Activities’’ and EITF 00-19 ‘‘Accounting for
      Derivative Financial Instruments Indexed to, and Potentially Settled in, a
      Company’s Own Stock.’’ SFAS 133 generally requires companies to bifurcate
      conversion options embedded in convertible notes and preferred shares from
      their
      host instruments and to account for them as free standing derivative financial
      instruments in accordance with EITF 00-19. SFAS 133 provides for an exception
      to
      this rule when convertible notes and mandatorily redeemable preferred shares,
      as
      host instruments, are deemed to be conventional as that term is described in
      the
      implementation guidance provided in paragraph 61 (k) of Appendix A to SFAS
      133
      and further clarified in EITF 05-2 ‘‘The Meaning of ‘Conventional Convertible
      Debt Instrument’ in Issue No. 00-19.’’ SFAS 133 provides for an additional
      exception to this rule when the economic characteristics and risks of the
      embedded derivative instrument are clearly and closely related to the economic
      characteristics and risks of the host instrument.





The
      Company accounts for convertible notes (deemed conventional) in accordance
      with
      the provisions of EITF 98-5 ‘‘Accounting for Convertible Securities with
      Beneficial Conversion Features,’’ and EITF 00-27 ‘‘Application of EITF 98-5 to
      Certain Convertible Instruments.’’ Accordingly, the Company records, as a
      discount to convertible notes, the intrinsic value of such conversion options
      based upon the differences between the fair value of the underlying common
      stock
      at the commitment date of the note transaction and the effective conversion
      price embedded in the note. Debt discounts under these arrangements are
      amortized over the term of the related debt to their earliest date of
      redemption.




The
      Company has issued $5,519,444 in principal of various convertible notes
      (see Note 8) with embedded conversion options accounted for as free standing
      derivative financial instruments in accordance with SFAS 133 and EITF 00-19
      and
      on the dates of issuance recorded liabilities for conversion options of
      $6,018,813. The fair value of these embedded conversion options were estimated
      at the date of issuance using the Black-Scholes option pricing model with the
      following assumptions: risk fee interest rate: 3.3% to 5.2%; expected dividend
      yield: 0%; expected option life: one year to 3 years; and volatility: 130%
      to
      353%. The accounting guidance instructs that the conversion options are a
      derivative liability and are marked to market for each reporting period. During
      the three months ended March 31, 2007, the Company recognized a credit of
      $674,713 for the decrease in fair value of the derivative financial instruments.
      The fair value of these embedded conversion options were estimated at March
      31,
      2007 using the Black-Scholes option pricing model with the following
      assumptions: risk fee interest rate: 4.8% to 5.0%; expected dividend yield:
      0%;
      expected option life: one year to 2 years; and volatility: 227.




The
      Company also determined that the conversion option embedded in its Series A
      Preferred stock is not a free-standing derivative in accordance with the
      implementation guidance provided in paragraph 61 (l) of Appendix A to SFAS
      133.





16
 Table
          of Contents


**CepTor
        Corporation**
 **(A
        Development Stage Company)**
 **Notes
        to Condensed Financial Statements**
 **March
        31, 2007**
 **(Unaudited)**


***Recently
      Issued Accounting Pronouncements***




In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”). This statement defines fair value, establishes a framework
        for measuring fair value and expands disclosures about fair value measurements.
        This statement does not require any new fair value measurements. The effective
        date of this statement is for fiscal years beginning after November 15,
        2007. The Company is currently evaluating the impact, if any, of the adoption
        of
        SFAS 157.
  In
        July 2006, the FASB issued Financial Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement
        No. 109” (“FIN 48”), which is a change in accounting for income taxes. FIN
        48 specifies how tax benefits for uncertain tax positions are to be recognized,
        measured, and derecognized in financial statements; requires certain disclosures
        of uncertain tax matters; specifies how reserves for uncertain tax positions
        should be classified on the balance sheet; and provides transition and interim
        period guidance, among other provisions. FIN 48 is effective for fiscal years
        beginning after December 15, 2006. We do not anticipate that this FASB will
        have any material impact on our financial condition or results of
        operations.
 
 In
        September 2006, the SEC issued SAB No. 108, “Considering the Effects
        of Prior Year Misstatements When Quantifying Misstatements in Current Year
        Financial Statements” (“SAB 108”), which provides interpretive guidance on how
        the effects of the carryover or reversal of prior year misstatements should
        be
        considered in quantifying a current year misstatement. The guidance is
        applicable for fiscal years ending after November 15, 2006. We do not
        anticipate that this SAB will have any material impact on our financial
        condition or results of operations.
 
 In
        November 2006, the EITF reached a final consensus in EITF Issue 06-6 “Debtor’s
        Accounting for a Modification (or Exchange) of Convertible Debt Instruments”
(“EITF 06-6”).  EITF 06-6 addresses the modification of a convertible debt
        instrument that changes the fair value of an embedded conversion option and
        the
        subsequent recognition of interest expense for the associated debt instrument
        when the modification does not result in a debt extinguishment pursuant to
        EITF
        96-19, “Debtor’s Accounting for a Modification or Exchange of Debt
        Instruments.”  The consensus should be applied to modifications or
        exchanges of debt instruments occurring in interim or annual periods beginning
        after November 29, 2006.  The Company does not expect the adoption of EITF
        06-6 to have a material impact on its consolidated financial position, results
        of operations or cash flows.
 
 In
        November 2006, the FASB ratified EITF Issue No. 06-7, “Issuer’s Accounting for a
        Previously Bifurcated Conversion Option in a Convertible Debt Instrument
        When
        the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement
        No. 133, Accounting for Derivative Instruments and Hedging Activities” (“EITF
        06-7”). At the time of issuance, an embedded conversion option in a convertible
        debt instrument may be required to be bifurcated from the debt instrument
        and
        accounted for separately by the issuer as a derivative under FAS 133, based
        on
        the application of EITF 00-19. Subsequent to the issuance of the convertible
        debt, facts may change and cause the embedded conversion option to no longer
        meet the conditions for separate accounting as a derivative instrument, such
        as
        when the bifurcated instrument meets the conditions of Issue 00-19 to be
        classified in stockholders’ equity. Under EITF 06-7, when an embedded conversion
        option previously accounted for as a derivative under FAS 133 no longer meets
        the bifurcation criteria under that standard, an issuer shall disclose a
        description of the principal changes causing the embedded conversion option
        to
        no longer require bifurcation under FAS 133 and the amount of the liability
        for
        the conversion option reclassified to stockholders’ equity. EITF 06-7 should be
        applied to all previously bifurcated conversion options in convertible debt
        instruments that no longer meet the bifurcation criteria in FAS 133 in interim
        or annual periods beginning after December 15, 2006, regardless of whether
        the
        debt instrument was entered into prior or subsequent to the effective date
        of
        EITF 06-7. Earlier application of EITF 06-7 is permitted in periods for which
        financial statements have not yet been issued.
 
 In
        December 2006, the FASB issued FSP EITF 00-19-2 “Accounting for Registration
        Payment Arrangements” (“FSP EITF 00-19-2”). FSP EITF 00-19-2 addresses an
        issuer’s accounting for registration payment arrangements. This pronouncement
        specifies that the contingent obligation to make future payments or otherwise
        transfer consideration under a registration payment arrangement, whether
        issued
        as a separate agreement or included as a provision of a financial instrument,
        should be separately recognized and accounted for as a contingency in accordance
        with SFAS 5 “Accounting for Contingencies.”  FSP EITF 00-19-2 amending
        previous standards relating to rights agreements became effective on December
        21, 2006 with respect to arrangements entered into or modified beginning
        on such
        date and for the first fiscal year beginning after December 15, 2006 with
        respect to those arrangements entered into prior to December 21, 2006.  The
        Company is in the process of evaluating the impact of the adoption of this
        statement on the Company’s results of operations and financial
        condition.
  17
 Table
              of Contents
  **CepTor
            Corporation**
 **(A
            Development Stage Company)**
 **Notes
            to Condensed Financial Statements**
 **March
            31, 2007**
 **(Unaudited)**
 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 159”). This statement permits all entities to
        choose, at specified election dates, to measure eligible items at fair value
        (the “fair value option”). A business entity must report unrealized gains
        and losses on items for which the fair value option has been elected in earnings
        at each subsequent reporting date. Upfront costs and fees related to items
        for which the fair value option is elected must be recognized in earnings
        as
        incurred and not deferred. This statement is effective as of the beginning
        of an
        entity’s first fiscal year that begins after November 15, 2007. The Company
        is currently evaluating the impact, if any, of the adoption of SFAS 159.


**NOTE
      5 - PREPAID EXPENSES**





Prepaid
      expense consists primarily of unamortized premiums paid to carriers for
      insurance policies and retainers paid for professional services to be
      rendered.





**NOTE
      6 - DEFERRED FINANCING COSTS**




The
      Company capitalizes the costs and expenses incurred in entering into its debt
      obligations which are then amortized over the term of the debt. During the
      three
      months ended March 31, 2007, the Company amortized $506,185 of deferred
      financing costs to non-cash interest expense, and at March 31, 2007 the balance
      in deferred financing costs is $681,029.




**NOTE
      7 - ACCRUED EXPENSES**




Accrued
      expenses at March 31, 2007 are as follows:




Financial
                  investor relations fees
              
              $
              188,208Interest
                  on convertible notes
              
              
              486,684Liquidated
                  damages
              
              
              642,500Total
              
              $
              1,317,392





Pursuant
      to the Company's sale of Series A Preferred Stock in a private placement, the
      Company had agreed to spend up to 3% of the gross proceeds from its private
      placement on financial investor relations activities, all of which was accrued
      as ‘‘Financial Investor Relations Fees’’ and charged to additional paid-in
      capital upon each closing of the private placement.





Pursuant
      to the registration rights agreement in connection with the 2006 6% Convertible
      Notes offering, the Company was obligated to pay liquidating damages of 2%
      of
      the principal amount for each 30-day period the registration statement was
      filed
      past August 21, 2006. As of March 31, 2007, the Company accrued 18% of the
      outstanding principal, or $642,500.





**NOTE
      8 - UNSECURED ADVANCES AND CONVERTIBLE NOTES**


During
        the three months ended March 31, 2007, the Company received unsecured advances
        in the amount of $102,000. These advances bear interest at the rate of 8%
        per
        annum.


***Note
      Obligations in Default***


The
        Company is in default of substantially all of its convertible note obligations,
        which amount to approximately $6,000,000 in aggregate principal. These defaults
        occurred as a result of (i) the Company's failure to make the required payments
        of principal and interest under certain of these obligations (which triggered
        cross default provisions under the remaining loans), (ii) not filing a
        registration statement covering shares issuable under the 2006 6% Convertible
        Notes within the specified period, and (iii) not filing a post-effective
        amendment to its registration statement on Form SB-2 covering shares issuable
        under the Cornell Convertible Debentures within the specified period. The
        Company is also required to have sufficient authorized but unissued shares
        available to net share settle its Cornell Convertible Debentures and all
        of its
        derivative financial instruments. As of March 31, 2007, the Company, on a
        fully
        diluted basis, had 107,519,449 shares issued and potentially issuable in
        connection with all of its outstanding common stock convertible instruments,
        stock options and derivative financial instruments.
  18
 Table
              of Contents
  **CepTor
            Corporation**
 **(A
            Development Stage Company)**
 **Notes
            to Condensed Financial Statements**
 **March
            31, 2007**
 **(Unaudited)**
 At
        the
        time of the filing of the Company’s quarterly Report under Form 10-QSB for the
        second quarter of 2006, the Company had defaulted in its payment obligation
        to
        certain noteholders, which triggered cross-defaults under various other loan
        agreements. When the filing occurred, CepTor did not list the various
        cross-defaults, make disclosures related thereto, or bring current its
        obligations to its noteholders on the Company’s balance sheet. All such
        defaults, disclosures and accounting adjustments were properly made by the
        Company in connection with the filing of its Form 10-QSB for the third quarter
        of 2006, but CepTor has since concluded that these debt obligations should
        have
        been classified as current liabilities and disclosures should have been made
        in
        the Form 10-QSB filed for the quarter ended June 30, 2006..  
Therefore, the Company intends to file an amended Form 10-QSB for the quarter
        ended June 30, 2006.
  ***Convertible
        Promissory Notes***





Pursuant
      to an offer dated October 22, 2004 as amended November 15, 2004, made to the
      holders of certain convertible notes, the Company issued $901,728 of convertible
      notes due December 8, 2005 in exchange for convertible notes in the principal
      amount of $825,000 plus accrued interest of $76,728 (the ‘‘December 2004
      Convertible Notes’’).





The
      December 2004 Convertible Notes were convertible into shares of the Company's
      common stock at $1.25 per share in amounts equal to the outstanding principal
      cancelled, plus accrued interest at 10% through the date of conversion. In
      April
      2005, the Company renegotiated certain terms of the December 2004 Convertible
      Notes to extend the maturity date until July 3, 2006 and in exchange the Company
      (1) increased the contractual interest rate effective December 8, 2005 to 12%,
      (2) reduced the conversion rate from $1.25 to $0.75 per share and (3) eliminated
      the Company's right to call the December 2004 Convertible Notes (the ‘‘Amended
      December 2004 Convertible Notes’’).





On
      December 9, 2005, the Company amended a portion of the Amended December 2004
      Convertible Notes that was payable to Harbor Trust dated December 9, 2004,
      in
      the principal amount of $452,991 by reducing the conversion price to $0.375
      from
      $0.75 per share (the ‘‘Amended December 2005 Harbor Note’’). The effect of this
      modification was insignificant since approximately 50% of the note was converted
      in December 2005 and the remainder was converted in January 2006. The Amended
      December 2005
      Harbor Note bears interest at the rate of 10% per year through December 8,
      2005
      and 12% per year thereafter. The Amended December 2005 Harbor Note was fully
      converted on January 27, 2006.




The
      remaining Amended December 2004 Convertible Note in the principal amount of
      $448,736 was due July 3, 2006. There has not been an agreement on amended terms
      and there is no assurance the Company will reach agreement with the note holder.
      The terms of the December 2004 Convertible Note do not provide for penalties
      or
      other payments upon default, and accordingly, the Company has not accrued any
      as
      of December 31, 2006. The conversion price was adjusted to $0.15 from $0.75
      pursuant to the 2006 6% Convertible Note offering which commenced June 1, 2006
      (see below).





As
      of
      March 31, 2007, the principal amount of $448,736 remains outstanding under
      the
      December 2004 Convertible Note.





***2005
      Harbor Note***





On
      December 9, 2005, the Company issued a convertible promissory note (the ‘‘2005
      Harbor Note’’) in the principal amount of $250,000 which bears interest at the
      rate of 6% per annum. All unpaid principal and interest under the 2005 Harbor
      Note was due and payable on December 9, 2006. The 2005 Harbor Note is
      convertible, in whole or in part, at any time, into common stock at an adjusted
      conversion price of $0.15 per share (adjusted pursuant to the 2006 6%
      Convertible Note offering commenced on June 1, 2006, see below), subject to
      certain limitations on conversion as set forth in the 2005 Harbor Note,
      including where the resulting number of shares converted on a cumulative basis,
      would exceed 19.99% of the total number of shares of common stock outstanding
      and, subject to a conversion price adjustment in the event the Company offers
      or
      sells an option not pursuant to an approved stock plan to acquire common stock
      at a price per share less than the conversion price. The conversion option
      featured in this note is being accounted for as a free standing derivative
      financial instrument in accordance with SFAS 133 and EITF 00-19.





The
      fair
      value of the conversion option was to $110,937 at March 31, 2007.




19
 Table
            of Contents
  **CepTor
          Corporation**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Financial Statements**
 **March
          31, 2007**
 **(Unaudited)**


There
      has
      not been an agreement on amended terms and no assurance the Company will reach
      agreement with the note holder. The terms of the 2005 Harbor Note do not provide
      for penalties or other payments upon default, and accordingly, the Company
      has
      not accrued any as of March 31, 2007.





As
      of
      March 31, 2007, the principal amount of $250,000 remains outstanding under
      the
      2005 Harbor Note. The amount of discount of this note, based on the original
      allocation of proceeds to the carrying amount of the note and the free standing
      conversion option, has been fully amortized to non-cash interest expense at
      March 31, 2007.





***CORNELL
      CONVERTIBLE DEBENTURES***





On
      December 9, 2005, the Company entered into a securities purchase agreement
      (the
‘‘Securities Purchase Agreement’’) with Cornell Capital Partners, LP (‘‘Cornell
      Capital’’) pursuant to which Cornell Capital has purchased, in a private
      placement, secured convertible debentures in the aggregate principal amount
      of
      $2,000,000 (the ‘‘Cornell Convertible Debentures’’), which bear interest at the
      rate of 8% per annum. Pursuant to the Securities Purchase Agreement, the Company
      issued a Cornell Convertible Debenture in the principal amount of $1,000,000
      on
      each of December 9, 2005 and December 28, 2005. Each Cornell Convertible
      Debenture has a three-year maturity from the date of issuance and was subject
      to
      earlier conversion or redemption pursuant to its terms.





Cornell
      Capital has the right to convert a portion or all of the outstanding principal
      and interest under the Cornell Convertible Debentures into shares of common
      stock at a conversion price per share equal to the lesser of $0.9765 (105%
      of
      the closing bid price of the common stock on December 8, 2005) (the ‘‘Fixed
      Price’’) or (ii) 95% of the lowest closing bid price of the common stock for the
      twenty trading days immediately preceding the conversion date (the ‘‘Floating
      Price’’ and together with the Fixed Price, the ‘‘Conversion Price’’), subject to
      adjustment as provided in the Cornell Convertible Debentures; provided, that
      any
      such conversion based on the Floating Price will generally be limited to
      $150,000 of principal outstanding under the Cornell Convertible Debentures
      in
      any thirty day period; and further provided, that Cornell Capital may not
      convert the Cornell Convertible Debentures into shares of common stock if such
      conversion would result in Cornell Capital, together with its affiliates,
      beneficially owning in excess of 4.9% of the then issued and outstanding shares
      of common stock. The Conversion Price and number of shares of common stock
      issuable upon conversion of the Cornell Convertible Debentures is subject to
      certain exceptions and adjustment for stock splits and combinations and other
      dilutive events.





Subject
      to the terms and condition of the Cornell Convertible Debentures, the Company
      had the right at any time upon three business days notice to redeem the Cornell
      Convertible Debentures, in whole or in part. If the closing bid price of the
      common stock, is less than the Fixed Price at the time of the redemption, the
      Company is obligated to pay, in addition to the principal and accrued interest
      being redeemed, a redemption premium of 8% of the principal amount being
      redeemed (the ‘‘Redemption Amount’’). If the closing bid price is greater than
      the Fixed Price, the Company may redeem up to 50% of the principal amount at
      the
      Redemption Amount and the remaining 50% at the greater of the (x) Redemption
      Amount or (y) the market value of the common stock. In addition, Cornell Capital
      will receive a three-year warrant to purchase 25,000 shares of common stock
      for
      every $100,000 redeemed by the Company, on a pro rata basis, at an exercise
      price per share of $0.9765 (the ‘‘Redemption Warrant’’).





If
      an
      Event of Default (as such term is defined in the Cornell Convertible Debentures)
      occurs, any principal and accrued interest outstanding will become immediately
      due and payable, in cash or common stock, at Cornell Capital’s election. 
Pursuant to the Securities Purchase Agreement, on December 9, 2005, the Company
      issued to Cornell Capital a warrant to purchase 1,000,000 shares of common
      stock
      at an exercise price per share of $1.023 (110% of the closing bid price of
      the
      common stock on December 8, 2005) and (ii) 268,817 shares of common stock,
      and
      (iii) on each of December 9, 2005 and December 28, 2005, the Company made a
      cash
      payment to an affiliate of Cornell Capital of $80,000 for expenses incurred
      in
      connection with the transaction.




20
 Table
            of Contents
  **CepTor
          Corporation**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Financial Statements**
 **March
          31, 2007**
 **(Unaudited)**


On
      June
      29, 2006, the Company entered into an assignment agreement (‘‘Assignment
      Agreement’’) by and between Cornell Capital, The Longview Fund, LP
      (‘‘Longview’’), Alpha Capital Aktiengesellschaft (‘‘Alpha’’), Ellis
      International Ltd. (‘‘Ellis’’) and Momona Capital Corp. (‘‘Momona’’) (each an
‘‘Assignee’’) which provides for, among other things, the assignment of the
      unpaid and unconverted amounts outstanding under each of the Cornell Convertible
      Debentures to the Assignees in the amounts listed in the Assignment Agreement.
      The aggregate unpaid and unconverted principal amount of $1,700,000 under the
      Cornell Convertible Debentures was assigned. The aggregate purchase price paid
      by the Assignees was $1,914,180, of which $1,836,000 is being paid for principal
      (which includes the Redemption Amount) and $78,180 represents accrued interest.
      The Company now owes the principal amounts of $700,000 and $400,000 to Longview
      and $300,000, $200,000 and $100,000 to Alpha, Ellis and Momona, respectively,
      in
      proportion to their assignment from Cornell Capital. All of the terms and
      conditions remain unchanged in the Cornell Convertible Debentures except that
      the Assignment Agreement provides that the Company may not redeem the Cornell
      Convertible Debentures, in whole or in part.





Pursuant
      to the Assignment Agreement, the Company was obligated to file an amended
      registration statement to reflect the change in selling shareholders by July
      10,
      2006. As of March 31, 2007, the Company has not met this obligation causing
      it
      to be in default under the terms of the agreement. There has not been an
      agreement on amended terms and no assurance the Company will reach agreement
      with the note holders. The terms of the Cornell Convertible Debentures do not
      provide for penalties or other payments upon default, and accordingly, the
      Company has not accrued any as of March 31, 2007.




Pursuant
      to the Securities Purchase Agreement, the Company granted a security interest
      in
      all of its assets to Cornell Capital to secure its obligations under the Cornell
      Convertible Debentures, which security interest will be transferred to the
      Assignees pursuant to the Assignment Agreement.




As of March 31, 2007, $1,700,000 of principal
      of
      the Cornell Convertible Debentures remains outstanding. The conversion option
      featured in these Debentures is being accounted for as a free standing
      derivative financial instrument in accordance with SFAS 133 and EITF 00-19.
      The
      fair value of the conversion option amounted to $875,494 at March 31, 2007.
      The
      amount of the unamortized discount of these Debentures, based on the original
      allocation of proceeds to the carrying amount of the note and the free standing
      conversion option, amounts to $819,217, at March 31, 2007.




21
 Table
            of Contents




**CepTor
      Corporation**


**(A
      Development Stage Company)**


**Notes
      to Condensed Financial Statements**


**March
      31, 2007**


**(Unaudited)**




**2006
      6% CONVERTIBLE NOTES**





On
      May
      26, 2006, the Company entered into a placement agency agreement and term sheet
      for a private offering of one-year 6% convertible notes in an aggregate
      principal amount of up to $6,000,000 (the ‘‘2006 6% Convertible
      Notes’’).





The
      Company offered the 2006 6% Convertible Notes on a ‘‘best efforts’’ basis only
      to ‘‘accredited investors’’ (as defined in Rule 501 (a) of Regulation D under
      Section 4(2) of the Securities Act of 1933, as amended) by offer letter dated
      May 25, 2006 (the ‘‘Offer Letter’’), which sets forth the terms and conditions
      of the offering.





The
      2006
      6% Convertible Notes are payable one year after the date of funding, or earlier
      upon acceleration following the occurrence of an ‘‘Event of Default’’, as
      defined in the 2006 6% Convertible Notes. Interest on the 2006 6% Convertible
      Notes will accrue from the date of issue at 6% per annum, or 12 % per annum
      upon
      the occurrence of an Event of Default.





The
      principal of, and accrued interest on, the 2006 6% Convertible Notes is
      convertible into shares of common stock, at the option of the holders of the
      2006 6% Convertible Notes, at an initial conversion price per share of $0.15,
      subject to adjustment for certain issuances or events that will result in
      dilution (the ‘‘Fixed Conversion Price’’). Since the 2006 6% Convertible Notes
      had not been fully converted or repurchased for 200% of their principal amount
      by September 30, 2006, on October 1, 2006, the conversion price became the
      lesser of (i) the Fixed Conversion Price and (ii) 90% of the lowest closing
      price (or, if no closing price is available, the average of closing bid and
      asked prices) of the Company’s common stock for the 20 trading days immediately
      preceding the date on which a notice of conversion is delivered (the ‘‘Floating
      Conversion Price’’).





Purchasers
      of 2006 6% Convertible Notes who have not previously purchased shares of the
      Company’s Series A Convertible Preferred Stock, par value $0.0001 per share (the
‘‘Preferred Stock’’) are to receive, without additional consideration, five-year
      warrants to purchase a number of additional shares of common stock equal to
      100%
      of the number of shares that the purchaser may initially acquire upon conversion
      of the 2006 6% Convertible Notes, at an initial exercise price of $0.30 per
      share, subject to adjustment for certain issuances and events that will result
      in dilution.





Purchasers
      of 2006 6% Convertible Notes who purchased shares of Preferred Stock, will
      be
      issued a number of additional shares of common stock upon conversion of the
      Preferred Stock, based upon the principal amount of 2006 6% Convertible Notes
      purchased relative to the total purchase price of the shares of Preferred Stock
      purchased, which will effectively reduce the per share conversion price of
      the
      Preferred Stock so that it is the same as the conversion price per share of
      the
      2006 6% Convertible Notes, or to the extent purchasers have converted shares
      of
      Preferred Stock, but not sold the common stock received upon conversion, the
      Company will issue a number of additional shares of common stock that will
      provide equivalent value, in each case without additional consideration. The
      Company will issue warrants to purchase a number of additional shares of common
      stock at $0.15 that will provide equivalent value, to those purchasers of 2006
      6% Convertible Notes who have sold or otherwise disposed of shares of common
      stock received upon conversion of Preferred Stock. The Company also will reduce
      to $0.30 the per share exercise price of warrants purchasers of the 2006 6%
      Convertible Notes received with their purchase of Preferred Stock, to the extent
      of the principal amount of 2006 6% Convertible Notes purchased relative to
      the
      total purchase price for the shares of Preferred Stock, subject to the Company’s
      right, after the registration statement referred to below has become effective,
      to force the exercise of those warrants on 20 days’ notice by offering to
      purchase those warrants for a nominal price if the closing price per share
      of
      the common stock exceeds $0.45 for ten consecutive trading days.





22
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            of Contents




**CepTor
      Corporation**


**(A
      Development Stage Company)**


**Notes
      to Condensed Financial Statements**


**March
      31, 2007**


**(Unaudited)**




The
      Company was obligated to file a registration statement by August 21, 2006 to
      register for resale the shares of common stock that purchasers of 2006 6%
      Convertible Notes may acquire upon conversion of the 2006 6% Convertible Notes
      or exercise of the warrants, as well as any additional shares of common stock
      which may be issued as part of the offering. Since the Company failed to file
      a
      registration statement for the resale of these shares by August 21, 2006, the
      Company is obligated to pay purchasers of the 2006 6% Convertible Notes
      liquidated damages in an amount equal to 2% of the principal amount of the
      2006
      6% Convertible Notes for each month, or portion of a month, for which the
      Company fails to timely file the registration statement or until the
      registration statement becomes effective, but in no event may the liquidated
      damages exceed 18% of the principal amount of the 2006 6% Convertible Notes.
      At
      March 31, 2007, the Company has accrued $642,500 as estimated liquidated
      damages, which represents the damages which would be due with a potential delay
      of ten months in the filing of its registration statement.





As
      a
      condition to their purchase of the 2006 6% Convertible Notes, purchasers agreed
      not to sell, transfer or otherwise dispose of any securities of the Company
      prior to the 150th day after June 1, 2006, except that the restrictive period
      applicable to shares of common stock that were acquired, or may be acquired,
      upon conversion of shares of Preferred Stock held by the purchaser, expired
      on
      August 20, 2006 to the extent of the total purchase price paid by the purchaser
      for 2006 6% Convertible Notes bears in relation to the total purchase price
      paid
      for the Preferred Stock.





The
      Company is obligated to pay a cash fee equal to 10% of the gross proceeds from
      the sale of the 2006 6% Convertible Notes for purchasers obtained through the
      assistance of the placement agent, a portion of which may be reallocated to
      other registered broker-dealers participating in the offering, and reimburse
      the
      placement agent for $15,000 of its legal expenses. The Company is obligated
      to issue to the placement agent, or its designee(s), at each closing, a
      five-year warrant to purchase such number of shares of common stock at an
      exercise price of $0.15 per share equal to 10% of such number of shares of
      common stock into which the 2006 6% Convertible Notes sold through the placement
      agent at such closing are convertible. In addition, the Company has agreed
      to
      reduce to $0.30 the per share exercise price of warrants to purchase shares
      of
      common stock issued to the placement agent previously, as placement agent for
      our Preferred Stock.





The
      Harbor Trust has agreed to a pledge of its 2005 Harbor Note dated December
      9,
      2005 issued in the name of The Harbor Trust in the principal amount of $250,000
      to secure a non-recourse obligation to increase the return to purchasers of
      Preferred Stock to the extent required to protect investors from a loss on
      their
      investment to the extent of such collateral, measured on the earlier of May
      20,
      2007 or the date on which all the 2006 6% Convertible Notes offered have been
      sold or otherwise disposed of, including by conversion. In consideration for
      the
      agreements made by The Harbor Trust, at each closing the Company is obligated
      to (i) pay The Harbor Trust a yield enhancement incentive fee equal to 10%
      of the aggregate gross proceeds of the 2006 6% Convertible Notes receiving
      the
      benefit of such protection (the ‘‘Yield Protected Notes’’), plus (ii) issue to
      The Harbor Trust, for nominal consideration, five-year warrants to purchase,
      for
      the principal amount thereof, (A) 2006 6% Convertible Notes having a principal
      amount equal to 10% of the principal amount of the Yield Protected Notes sold
      in
      the Offering, and (B) five-year warrants to purchase a number of shares of
      common stock equal to 10% of the shares of common stock that purchasers of
      the
      Yield Protected Notes sold in the offering may acquire upon exercise of the
      warrants they received with the purchase of the Yield Protected Notes, at an
      exercise price of $0.30 per share. In no event will the total yield enhancement
      incentive fee, plus the placement agent fee, paid by the Company exceed 10%
      of
      the gross proceeds of the offering.





From
      June
      1, 2006 through October 19, 2006 (date of last closing under the offering),
      the
      Company sold an aggregate principal amount of $3,569,444 of 2006 6% Convertible
      Notes. The Company issued five-year warrants to purchase an aggregate of
      14,018,513 shares of common stock, at an initial exercise price of $0.30 per
      share to purchasers of $2,102,777 of 2006 6% Convertible Notes who had not
      previously purchased its Preferred Stock. The Company is obligated
      to issue to those purchasers of $1,466,667 of 2006 6% Convertible Notes who
      had previously purchased Preferred Stock, upon the conversion of their Preferred
      Stock, 9,191,113 additional shares of common stock and adjust the exercise
      price
      to $0.30 on warrants to purchase an aggregate of 293,333 shares of common stock
      received upon the purchase of the Preferred Stock. Pursuant to the terms of
      the
      6% Notes Offering, the Company issued (i) warrants to purchase $356,944 of
      2006
      6% Convertible Notes at an exercise price of $356,944 and attached warrants
      to
      purchase 2,379,629 shares of common stock, and (ii) a warrant to purchase
      1,401,851 shares of common stock at an exercise price of $0.30, as yield
      enhancement fees.





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            of Contents




**CepTor
      Corporation**


**(A
      Development Stage Company)**


**Notes
      to Condensed Financial Statements**


**March
      31, 2007**


**(Unaudited)**




Of
      the
      $2,102,777 in principal purchased by those investors who had not previously
      purchased the Company’s Preferred Stock, the Company recognized a debt discount
      of $1,545,208 at date of issuance based on an allocation of the proceeds based
      on relative fair values of the 2006 6% Convertible Notes, the warrants and
      the
      conversion option, as determined by the Black-Scholes option pricing model.
      Since the Company is required to account for its derivative financial
      instruments as liabilities (see Note 3), the Company recorded the full fair
      values of the warrants and the conversion options at date of issuance of the
      2006 6% Convertible Notes of $3,161,789 and $3,019,573, respectively, as
      liabilities and charged non-cash interest expense. The fair value of the
      warrants and conversion option was estimated at the date of issuance using
      the
      Black-Scholes option pricing model with the following assumptions: risk fee
      interest rate: 4.7% to 5.1%; expected dividend yield: 0%; expected option life:
      3 years to 5 years; and volatility: 173% to 223%. The Company marks to market
      these derivative financial instruments at each reporting date. At March 31,
      2007, the Company valued the warrants and conversion options at $2,802,418
      and
      1,931,672, respectively.





Of
      the
      $1,466,667 in principal purchased by those investors who had previously
      purchased the Company’s Preferred Stock, the Company recognized a debt discount
      of $1,466,667 at date of issuance based on the (i) fair values of the conversion
      option, (ii) the incremental increase in fair value of the additional shares
      of
      common stock to be issued upon conversion of the Preferred Stock and (iii)
      the
      change in fair value of the underlying warrants associated with the Preferred
      Stock due to the change in exercise price, as determined by the Black-Scholes
      option pricing model. Since the Company is required to account for its
      derivative financial instruments as liabilities (see Note 3), the Company
      recorded the incremental fair value of the Preferred Stock warrants and the
      full
      fair value of the conversion options at date of issuance of the 2006 6%
      Convertible Notes of $18,148 and $2,026,398, respectively, as liabilities and
      charged the excess to non-cash interest expense. The fair value of these
      derivatives was estimated at the date of grant using the Black-Scholes option
      pricing model with the following assumptions: risk fee interest rate: 4.7%
      to
      5.1%; expected dividend yield: 0%; expected option life: 3 years to 5 years;
      and
      volatility: 173% to 223%. The Company marks to market these derivative financial
      instruments at each reporting date. In addition, the Company charged non-cash
      interest expense and credited equity for the incremental increase in fair value
      of the additional shares of common stock issuable upon conversion of the
      Preferred Stock. At March 31, 2007, the Company's authorized common stock was
      not sufficient to accommodate the exercise of warrants or conversion privileges
      of outstanding convertible debts if exercised.




**ADJUSTMENTS
      TO OUTSTANDING CONVERTIBLE SECURITIES AND OTHER RIGHTS TO PURCHASE COMMON STOCK
      RESULTING FROM 2006 6% CONVERTIBLE NOTES OFFERING**





Pursuant
      to the terms of the 2006 6% Convertible Note offering, the conversion prices
      on
      certain convertible securities were adjusted to the conversion price of the
      2006
      6% Convertible Notes.





The
      Amended December 2004 Convertible Note and the 2005 Harbor Note in the principal
      amount of $448,736 and $250,000, respectively and with adjusted conversion
      prices of $0.75 per share and $0.375 per share, respectively, had their
      conversion prices adjusted to $0.15 per share. As a result of this adjustment,
      the Company anticipates that it will issue an additional 2,937,220 and 1,063,616
      shares, respectively, calculated as of March 31, 2007.




The
      Company evaluated the revision in the remaining Amended December 2004
      Convertible Note to determine whether the reduction in the conversion price
      resulted in the issuance of a substantially different debt instrument. The
      Company determined that after giving effect to the substantial increase in
      the
      fair value of the beneficial conversion feature that resulted from reducing
      the
      conversion price, it had issued a substantially different debt instrument which
      resulted in a constructive extinguishment of the original debt instrument.
      Accordingly, the Company recorded a gain on the extinguishment of debt in the
      amounts of $387,362 for the Amended December 2005 Convertible Note that was
      included in the statement of operations for the year ended December 31,
      2006.





24
 Table
            of Contents




**CepTor
      Corporation**


**(A
      Development Stage Company)**


**Notes
      to Condensed Financial Statements**


**March
      31, 2007**


**(Unaudited)**




Since
      the
      incremental fair value of the Company's common stock which would be issued
      upon
      conversion, as determined by the Black-Scholes option pricing model, was in
      the
      aggregate greater than the principal balance of individual notes, the Company
      recorded an original issuance discount equal to the fair value of this
      beneficial conversion feature, limited to the principal balance of the notes.
      This debt discount is being amortized as non-cash interest expense over the
      remaining term of the Amended December 2004 Convertible Note. During the year
      ended December 31, 2006, the Company amortized an aggregate of $448,736 of
      the
      debt discount which is included in interest expense in the accompanying
      statement of operations. Assumptions relating to the estimated fair value of
      the
      beneficial conversion features are as follows: risk-free interest rate of 5.1%;
      expected dividend yield zero percent; expected life of 1.5 years; and current
      volatility of 165.4%.





The
      Cornell Convertible Debentures in the principal of $1,700,000 plus accrued
      interest, with a Fixed Conversion Price (as that term is defined in the Cornell
      Convertible Debentures) of $0.9765, adjusted to a Fixed Conversion Price of
      $0.15. In addition, the exercise price of the warrants issued to Cornell
      Capital, for the purchase of 1,000,000 shares of common stock at $1.023 per
      share has been reduced to $0.15 per share. As the terms of Cornell Convertible
      Debentures provide for a lower of Fixed Conversion Price or Floating Conversion
      Price (as both terms are defined in the Cornell Convertible Debentures) at
      conversion, the number of shares of common stock issuable upon conversion is
      indeterminate.





Certain
      options granted pursuant to our 2004 Incentive Stock Plan and certain shares
      of
      common stock issued upon exercise of those options, contain anti-dilution
      provisions which provide for a reduction of the exercise price if the Company
      sells common stock or issues convertible securities at a per share price less
      than their exercise price of $0.359 (fair market value on the date of grant).
      As
      a result of the anti-dilution provision, the Company issued an additional
      776,231 shares of common stock and increased the remaining unexercised option
      by
      an additional 776,230 shares of common stock issuable upon exercise to the
      option holders.





**NOTE
      9 - EQUITY TRANSACTIONS**




During
      the three-month period ended March 31, 2007, the Company issued the following
      equity securities.




***Common
      Stock Issued Upon Conversion of Series A Preferred
      Stock***




During
      the three-month period ended March 31, 2007, the Company issued 50,000 shares
      of
      common stock upon conversion of 5 shares of its Preferred Stock.




***Insufficient
      Authorized but Unissued Shares of Common Stock***




On
      May 9,
      2006, the Board of Directors authorized an amendment to the Company's Amended
      and Restated Certificate of Incorporation to increase the number of authorized
      shares of capital stock from 120,000,000 shares to 270,000,000 shares, of which
      250,000,000 shares would be designated as common stock and 20,000,000 shares
      would be designated as Preferred Stock. The proposed amendment has yet to be
      considered or approved by the stockholders. Accordingly, the Company has not
      satisfied its obligations in the agreements relating to those securities, and
      is
      in default of its obligations under those agreements (see note 8). As a result,
      the holders of those securities may accelerate payment of the Company's
      obligations, obtain liquidated damages under certain of those agreements and
      pursue other legal remedies against the Company that would have a material
      adverse affect on the Company's ability to remain in existence.




25
 Table
            of Contents


**CepTor
        Corporation**
 **(A
        Development Stage Company)**
 **Notes
        to Condensed Financial Statements**
 **March
        31, 2007**
 **(Unaudited)**


**NOTE
      10- STOCK BASED COMPENSATION**





The
      Company, since its inception, has granted non-qualified stock options to various
      employees and non-employees at the discretion of the Board of Directors under
      its 2004 Incentive Stock Plan and its 2006 Incentive Stock Plan (the "Plans").
      Both Plans have substantially the same terms. Substantially all options granted
      to date have exercise prices equal to the fair value of the underlying common
      stock at the date of grant and terms ranging from three to ten years. Vesting
      periods range from fully vested at the date of grant to four years.




The
        fair
        value of all awards is estimated at the date of grant using the Black-Scholes
        option pricing model. Assumptions relating to the estimated fair value of
        stock
        options that the Company granted prior to January 1, 2006 that were previously
        accounted for and recorded under the intrinsic value method prescribed under
        APB
        25 are described in Note 3. Pursuant to SFAS 123R, the Company recognized
        expense on the statement of operations of $70 for the fair value of those
        stock
        options granted prior to January 1, 2006 and which vested during the three-
        month periods ended March 31, 2007.





During
      March 2006, the Company granted stock options to acquire an aggregate of
      1,514,206 shares of common stock to three consultants. The option agreements
      for
      two of the consultants contained anti-dilution protection of the exercise price
      and the number of shares issuable upon conversion in the event the Company
      issued common stock at a price less then the exercise price contained in their
      option. Each option was exercisable at a price of $0.359 per share for a period
      of up to five years from issuance. All of these options were fully vested and
      non forfeitable on their date of issuance.
      The Company charged the estimated fair value of $579,591 to compensation expense
      during the nine-month period ended September 30, 2006 with respect to these
      options. Assumptions relating to the estimated fair value of these stock options
      (as determined by the Black-Scholes option pricing model), which the Company
      accounted for in accordance with SFAS 123I and EITF 96-18, are as follows:
      risk-free interest rate of 4.7%; expected dividend yield zero percent; expected
      option life of 5 years; and current volatility of 129.6%.





Pursuant
      to the 2006 6% Convertible Note offering commencing in May 2006, the options
      for
      the two consultants who had the anti-dilution protection were adjusted for
      the
      dilutive effect of the offering. The two consultants were issued an aggregate
      of
      776,230 additional shares of common stock of which the fair value of $155,246
      was charged to non-cash interest expense as a component of the 2006 6%
      Convertible Note Offering. In addition, they were granted an additional option,
      pursuant to the 2006 Incentive Stock Plan, to acquire an aggregate of 776,230
      shares of common stock at an exercise price of $0.15 per share, of which the
      fair value (as determined by the Black-Scholes option pricing model) of $158,144
      was charged to non-cash interest expense as a component of the 2006 6%
      Convertible Note offering. Assumptions related to the estimated fair value
      of
      the stock options at the date of adjustment, which the Company accounted for
      in
      accordance with SFAS 123R and EITF-96-18 were: risk fee interest rate: 5.1%;
      expected dividend yield: 0%; expected option life: 5 years; and volatility:
      173%. The exercise price on their remaining unexercised options was adjusted
      to
      $0.15 per share.





During
      June 2006, the Company granted stock options to acquire an aggregate of 16,000
      shares of common stock to three directors of the Company. Each option was
      exercisable at a price of $0.21 per share for a period of up to ten years from
      issuance. All of these options vest over three years and were non forfeitable
      on
      their date of issuance. The fair value of these options (as determined by the
      Black-Scholes option pricing model) was $3,360 and the Company amortized $188
      to
      compensation expense during the nine-month period ended September 30, 2006
      with
      respect to these options. Assumptions relating to the estimated fair value
      of
      these stock options, which the Company accounted for in accordance with SFAS
      123(R) and EITF 96-18 are as follows: risk-free interest rate of 5.1%; expected
      dividend yield zero percent; expected option life of 10 years; and current
      volatility of 220.3%.


During
          the three months ended March 31, 2007, options previously granted to certain
          former members of the Company’s Board of Directors were forfeited. A total of
          16,000 options previously granted to now terminated Board members was forfeited
          during the 1 st quarter
          2007.




26
 Table
            of Contents


**CepTor
        Corporation**
 **(A
        Development Stage Company)**
 **Notes
        to Condensed Financial Statements**
 **March
        31, 2007**
 **(Unaudited)**


The
      risk-free rate is based on the U.S. Treasury yield curve in effect at the time
      of grant. The Company has not paid dividends to date and does note expect to
      pay
      dividends in the foreseeable future due to its substantial accumulated deficit
      and limited capital resources. Accordingly, expected dividends yields are zero.
      Historical cancellations and forfeitures of stock options are insignificant.
      The
      Company will adjust its assumptions relating to its expectations of future
      vesting and terms of options at such times that additional data indicates that
      changes in these assumptions are necessary. Expected volatility is
      principally based on the historical volatility of the Company's
      stock.





A
      summary
      of option activity for the three-month period ended March 31, 2007 is
      as follows:





**Weighted-****Weighted-**
              
              **Average****Average**
              
              **Remaining**
              
              **Aggregate****Exercise**
              
              **Contractual**
              
              **Intrinsic****Options**
              
              **Shares**
              
              **Price**
              
              **Term**
              
              **Value**Outstanding
                  at January 1, 2007
              
              
              1,878,834
              
              $
              1.06
              
              
              3.67Granted
              
              
              -
              
              $
              -
              
              
              -Exercised
              
              
              -
              
              $
              -
              
              
              -Forfeited
                  or expired
              
              
              16,000
              
              $
              4.84
              
              
              8.12Outstanding
                  at March 31, 2007
              
              
              1,862,834
              
              $
              1.11
              
              
              3.77
              
              $
              -Exercisable
                  at March 31, 2007
              
              
              1,838,834
              
              $
              0.50
              
              
              4.0
              
              $
              -


As
          of
          March 31, 2007, the Company has $2,240 of unrecognized compensation cost
          related
          to non-vested share-based compensation arrangements, which represents the
          fair
          value of stock options that the Company accounted for under APB 25 through
          December 31, 2005. These costs are expected to be recognized over a
          weighted-average period of 2.5 years.


27
 Table
          of Contents




**Item
                  2.**
              **Management'sDiscussion
                    and Analysis or Plan of
                    Operation.**


***Overview***





Since
      its
      inception, CepTor Corporation (hereinafter “CepTor” or the “Company”) has
      devoted its efforts and resources to the development of its receptor mediated
      drug-targeting platform for neuromuscular and neurodegenerative diseases, and
      to
      raising the funds necessary to continue this research. Its two lead compounds
      are MyodurTM, for neuromuscular disease, and NeurodurTM, for neurodegenerative
      diseases. In January 2006, CepTor submitted an Investigational New Drug
      Application (IND) to the Food and Drug Administration (FDA) for MyodurTM with the
      hope and expectation of beginning clinical trials for this compound following
      approval of the IND. Since that time, the IND has remained on “clinical hold”
pending resolution of certain issues raised by the FDA. Most recently, in
      October 2006, the Company was advised that, despite its efforts to resolve
      the
      concerns and issues previously raised by the FDA, the IND would remain on hold
      pending further testing and research as directed by the FDA.





We
      believe, but cannot be certain, that the issues raised by the FDA in connection
      with our IND for MyodurTM can be successfully resolved and that an IND will
      ultimately win FDA approval, and we continue to remain optimistic about the
      promise and potential of our neuromuscular and neurodegenerative compounds.
      However, our existing investors have advised us that they were unwilling to
      continue to fund either the research and development costs required to fully
      prosecute the IND filing, or the general operating costs necessary to keep
      the
      business afloat as those research and development activities continued. With
      no
      other financial resources available to us, we had no choice but to cease all
      efforts related to the research and development of our compounds, terminate
      all
      of our employees, and close down our corporate offices in Maryland. At present,
      we are maintaining our operations as a “virtual” office operated out of New York
      City and have one part-time employee, Howard Becker, our newly appointed
      CEO.





The
      MyodurTM and NeurodurTM technologies have historically represented substantially
      all of the focus of the Company, and those technologies have been pledged to
      certain secured creditors under a credit facility entered into by the Company
      in
      late 2005. Based on the currently realizable value of our early stage
      technologies, we do not believe that the liquidation of those assets would
      generate more than the amount of the debt which is secured by these
      technologies. However, rather than merely sell off the assets and terminate
      all
      operations, file a bankruptcy petition or consent to the foreclosure of the
      assets by the secured creditors, we have instead been focusing on a two-part
      strategy, in cooperation with the existing secured creditors, whereby (i) our
      existing technologies will be divested from the corporation pursuant to a
      transaction that will allow CepTor to retain significant upside should the
      technologies ultimately fulfill their promise as marketable and commercially
      viable products, and (ii) a new technology will be acquired by the Company
      around which we could restructure our affairs. Any such transaction would have
      to have the full support of the existing secured creditors, as they have a
      priority position with respect to all of CepTor’s current assets.





With
      respect to seeking to identify the best transaction related to the existing
      CepTor technologies, our goal has been to find a transaction which will allow
      the research and development efforts to continue despite the absence of
      immediately available funds, and will give CepTor meaningful financial upside
      should the technologies progress and ultimately achieve commercialization.
      After
      considering a number of potential transactions, including straight licensing
      arrangements that would have resulted in CepTor licensing the technologies
      to a
      large corporation in exchange for a limited future royalty, management has
      concluded that the best available opportunity, and the one most likely to result
      in the advancement of the technologies on terms fair to CepTor, would be a
      transaction with the original founding scientists, Dr. Alfred Stracher and
      Dr.
      Leo Kesner (the “Founding Scientists”).





On
      March
      29, 2007, we executed a term sheet (which is subject to Board and secured
      creditor approval, which is expected to occur shortly) with the Founding
      Scientists, pursuant to which our MyodurTM and NeurodurTM technologies will be
      assigned to a new corporation controlled by them (“Newco”), and these scientists
      will dedicate their efforts to the continued research and development activities
      for these products, with the initial goal of getting the FDA process back on
      track. CepTor will retain a substantial minority interest in Newco, as well
      as a
      substantial gross royalty on any product sales should their efforts prove
      successful. CepTor will have no direct role in the management of Newco and
      no
      obligation to fund its activities. We expect the transaction with the Founding
      Scientists will be filed and consummated prior to the end of the second quarter
      2007.





Upon
      consummation of the transaction with the Founding Scientists, CepTor will have
      no remaining material valuable assets. To return to economic viability, CepTor
      has been focusing its attentions and efforts toward identifying a
      transaction which, if consummated, will result in a new technology being
      acquired by CepTor which has better prospects for attracting investment and
      more
      quickly achieving commercial viability. We are continuing our discussions and
      negotiations with a private biotech company concerning a transaction which,
      if
      consummated, would result in CepTor acquiring, continuing to develop and seeking
      to commercialize a new technology platform. Details regarding that potential
      transaction will be reported if and when the final terms of a transaction are
      mutually agreed to. Should our efforts regarding the transaction currently
      being
      negotiated fail to be successfully concluded, we will continue to seek an
      alternative transaction that will result in our acquiring a new technology
      around which to restructure our affairs.


28
 Table
          of Contents




Regardless
      of what transaction may ultimately materialize, it is clear that in order to
      consummate the acquisition of any new technology, we will first have to
      consensually restructure our approximately $4 million in trade debt. In that
      regard, in December 2006, CepTor offered a ten (10%) percent cash payment to
      its
      existing trade creditors in exchange for a release of their claims. The funding
      of any such settlement would be provided by current investors. The offer was
      predicated on the acceptance of the holders of not less than 90% of the total
      trade debt. Although a large majority of the Company’s creditors accepted the
      proposal, the Company failed to reach the minimum threshold level of
      acceptances, and the offer has not been consummated. As CepTor works to finalize
      an arrangement for the acquisition of a new technology, we expect to circulate
      a
      revised offer to our creditors that we hope will be accepted. Without such
      acceptance, we do not believe that we will be able to successfully close any
      transaction for a new technology, which would likely leave us with no choice
      but
      to further wind down our affairs.





Given
      our
      present financial circumstances, we believe that our two-part strategy of
      divesting CepTor of its existing technologies, thereby enabling those
      technologies to continue their development with appropriate upside for CepTor,
      and seeking to finalize a transaction to acquire a commercially viable new
      technology around which to reorganize CepTor’s affairs, offers the best and
      perhaps only chance of realizing value for all of our shareholders, creditors
      and other stakeholders. However, there is no assurance that these efforts will
      prove to be successful, or that CepTor will not be forced to cease
      operations.




***Capital
      Resources and Cash Requirements***




The
      Company has had difficulty securing the necessary capital to execute its
      business plan and has not been able to remain current with respect to the
      payment terms of its operating obligations including its trade payables which
      aggregated approximately $4 million at March 31, 2007. As described in note
      8 to
      the financial statements, included in the Form 10-QSB, as Part One, Item 1,
      the
      Company is in default of substantially all of its convertible note obligations,
      which amount to approximately $6 million in aggregate principal. These defaults
      occurred principally as a result of (i) the Company's failure to make the
      required payments of principal and interest under certain of these obligations
      (which triggered cross default provisions under the remaining note obligations),
      (ii)its failure to file a registration statement pursuant to the 2006 6%
      Convertible Notes within a specified period, and (iii) its failure to file
      a
      post-effective amendment to its registration statement on Form SB-2 covering
      shares issuable under the Cornell Convertible Debentures within a specified
      period. The Company is also required to have sufficient authorized but unissued
      shares available to net share settle its Cornell Convertible Debentures and
      all
      of its derivative financial instruments.


The
        Company has exhausted all of its capital resources, terminated all of its
        employees and is currently unable , and does not believe it is likely in
        the
        future be able, to pursue further development of its product candidates.
        The
        Company pursued this course of action as a result of having been informed
        by the
        Food and Drug Administration (FDA) that its Investigational New Drug Application
        (IND) remains on hold pending the resolution of several remaining issues.
        Additional internal research is required to fully resolve the FDA issues
        and
        complete the Company’s own internal research program. The Company lacks the
        funding that is necessary to resolve these issues and is currently unable
        to
        secure financing commitments for this purpose. With no other financial resources
        available to it, the Company had no choice but to cease all efforts related
        to
        the research and development of its compounds, terminate all of its employees,
        and close down its corporate offices in Maryland. At present, CepTor is
        maintaining its operations as a “virtual” office operated out of New York City
        and has one part-time employee, Howard Becker, the Company’s newly appointed
        CEO.
 
 During
        the three months ended March 31, 2007, we funded our operations through
        unsecured advances of $102,000.
  Primarily
          as the result of recording interest expense of $1,620,896 (including non-cash
          interest expense of $1,510,922), offset by the non-cash gain associated
          with the
          decrease in the fair values of its derivative financial instruments of
          $1,475,923, we recorded a net loss for the three-month period ended March
          31,
          2007 of $362,974. Non-cash interest expense consisted primarily of the
          excess
          fair values of its derivative securities included in its financing transactions
          and amortization of deferred financing costs of those financing transactions.
          We
          used net cash flows in its operating activities of $87,710 during the
          three-month period ended March 31, 2007. Our working capital deficiency
          amounted
          to $14,665,634 and our development stage accumulated deficit amounted to
          $
          46,441,048 at March 31, 2007. The Company will require substantial additional
          funding to develop any newly acquired technology and fund ongoing costs
          of its
          operations.
  At
        March
        31, 2007, the Company had $6,416,180 in principal amount of notes outstanding,
        of which approximately $6 million were convertible notes and the balance
        represent unsecured demand notes. The December 2004 Convertible Note in the
        principal amount of $448,736, was due July 3, 2006. There has not been an
        agreement on amended terms and no assurance that the Company will reach
        agreement with the note holder on amended terms. The terms of the December
        2004
        Convertible Note do not provide for penalties or other payments upon default,
        and accordingly, the Company has not accrued a penalty as of March 31, 2007.
        Of
        the remaining debt, (i) $250,000 in principal plus accrued interest was due
        on
        December 9, 2006, (ii) $3,569,444 in principal representing 2006 6% Convertible
        Notes mature during the period June 2007 through October 2007, (iii) the
        Cornell
        Convertible Debentures of $1,700,000 mature in December 2008, and (iv) $448,000
        represent unsecured advances that accrue at an annual interest rate of between
        6% and 8%. Currently, the Company is in default of substantially all of its
        obligations to its convertible noteholders and such noteholders currently
        have
        the right to demand immediate payment of these loans. At present, the Company
        does not have, and has no immediate prospect of obtaining, the available
        cash to
        repay these obligations. The note holders holding $1,700,000 in principal
        have a
        security interest in all the assets of the Company.
  29
 Table
            of Contents


***Default
      of Various Obligations***





The
      Company has been unsuccessful in its efforts to raise the necessary capital
      to
      fully execute its business plan and has not been able to remain current with
      respect to the payment terms of any of its operating obligations including
      its
      trade payables which aggregated approximately $4 million at March 31, 2007.
      In
      addition, as described in Note 8, the Company is in default of substantially
      all
      of its convertible note obligations, which amount to approximately $6,000,000
      in
      aggregate principal amount. These defaults occurred principally as a result
      of
      (i) the Company's failure to make the required payments of principal and
      interest under certain of these obligations (which triggered cross default
      provisions under the remaining note obligations), (ii)its failure to file a
      registration statement pursuant to the 2006 6% Convertible Notes within a
      specified period, and (iii) its failure to file a post-effective amendment
      to
      its registration statement on Form SB-2 covering shares issuable under the
      Cornell Convertible Debentures within a specified period. The Company is also
      required to, but currently does not, have sufficient authorized but unissued
      shares available to settle its Convertible Debentures and all of its
      derivative and other financial instruments.





Due
      to
      the defaults and arrears with its noteholders and trade creditors, and the
      lack
      of resources to settle its obligations, creditors may seek to aggressively
      pursue remedies available to them, which could force the Company to commence
      bankruptcy proceedings or wind down its affairs. Such creditors may also seek
      to
      file an involuntary bankruptcy petition against the Company. Based on the status
      of its obligations, the Company has recorded all of its liabilities as currently
      due.





If
      we are
      able to secure suitable financing we may continue the development of our
      technologies, explore the development of other technologies or we may acquire
      or
      merge into other businesses. If we decide to pursue any of these options, we
      will require substantial additional financing which we may or may not be able
      to
      obtain.





***Research,
      Development and Manufacturing***





Historically,
      our efforts and resources were directed to raising capital and moving our lead
      product into phase I clinical trials for Duchenne muscular dystrophy. Based
      on
      the decision by management to terminate all efforts with respect to the
      Company’s existing products and to transfer those technologies to a private
      company controlled by the Founding Scientists, the Company did not engage in
      any
      research, development or manufacturing activity during the three months ended
      March 31, 2007. Any ongoing research, development and manufacturing activity
      will depend on whether the Company is successful in identifying a new technology
      around which to restructure its affairs and, if so, the nature of the acquired
      product or technology platform.





***Off
      Balance Sheet Arrangements***





Currently,
      we do not have any off balance sheet arrangements which would require disclosure
      in our financial statements.





***Employees***





As
      of
      March 31, 2007, we had one part-time employee.




***Properties***





We
      lease
      our executive offices in New York, NY consisting of a single small office of
      approximately 180 square feet for approximately $2,100 per month. This lease
      is
      a month-to-month lease and we believe should provide sufficient space for our
      administrative functions at this time.




30
 Table
          of Contents





**Item
                3.**
            **Controls
                andProcedures.**





***Evaluation
      of Our Disclosure Controls and Internal Controls***





As
      of the
      end of the period covered by this Report, we carried out an evaluation of the
      effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in Securities Exchange Act of 1934 Rule 13-d-15(e) and
      15d-15(e)). Based upon that evaluation and management's assessment of the
      potential effects of the material weakness described below, our Chief Executive
      Officer concluded that as of the end of the period covered by this Report,
      our
      disclosure controls and procedures were effective to enable us to record,
      process, summarize and report information required to be included in our
      periodic SEC filings within the required time period.





***Disclosure
      Controls and Internal Controls***





Disclosure
      controls are procedures that are designed with the objective of ensuring that
      information required to be disclosed in our reports filed under the Securities
      Exchange Act of 1934, as amended, such as this Report, is recorded, processed,
      summarized, and reported within the time periods specified in the SEC's rules
      and forms. Disclosure controls are also designed with the objective of ensuring
      that such information is accumulated to allow timely decisions regarding
      required disclosure. Internal controls are procedures which are designed with
      the objective of providing reasonable assurance that our transactions are
      properly authorized, recorded, and reported and our assets are safeguarded
      against unauthorized or improper use, and to permit the preparation of our
      financial statements in conformity with generally accepted accounting
      principles.




Our
      company is not an "accelerated filer" (as defined in the Exchange Act) and
      is
      not currently required to deliver management's report on control over our
      financial reporting until our fiscal year ended December 31, 2008. Nevertheless,
      we consider the effectiveness of our internal controls over financial reporting
      as part of the quarterly evaluations of our procedures. In connection therewith,
      we reported, for the years ended December 31, 2005 and 2006, that we identified
      certain matters that we believed constituted material weaknesses (as such term
      is defined under the Public Company Accounting Oversight Board Auditing Standard
      No. 2) in our internal controls over financial reporting. The first such
      material weakness related to our ability to ensure that the accounting for
      our
      equity-based transactions is accurate and complete and the second related to
      our
      limited segregation of duties.




With
      respect to the first material weakness, we previously adopted a policy of having
      our Chief Financial Officer review all of our agreements to ensure that we
      identify the applicable accounting treatments to evaluate any areas that may
      involve the application of highly specialized accounting principles including,
      but not necessarily limited to, complex equity transactions. At the present
      time, given our current status as a “virtual” company, we are not considering
      any complex equity transactions that implicate our ability to ensure proper
      accounting of equity transactions. If the Company succeeds in restructuring
      its
      affairs and involves itself in potentially complicated equity or other
      transactions that implicate accounting treatment of such transactions, we intend
      to put in place appropriate policies to ensure any such transactions are
      properly accounted for in a timely manner.





With
      respect to the second material weakness, which relates to our segregation of
      duties, we have re-evaluated our procedures and believe that due to the fact
      hat
      we now have only one employee, that our risks of either material misstatement
      or
      misappropriation of assets is minimal. In addition, until the suspension of
      our
      research programs and the winddown of our Baltimore office as of March 31,
      2007,
      substantially all of our general and administrative expenses and scientific
      research expenditures were reviewed and approved by employees who are
      knowledgeable of those matters. To date our procedures have also enabled us
      to
      comply with our financial reporting obligations within the time frames required
      by the SEC. Although we believe our risks with respect to this matter are
      minimal, we acknowledge that it would be beneficial for the Company to segregate
      certain procedures to a greater number of employees, once such additional
      employees are hired pending execution of our new business plan. We believe
      that
      our limited segregation of duties still constitutes a material deficiency in
      our
      system. However, we currently have very limited financial resources and do
      not
      believe that at this time, it would be prudent for us to further constrain
      our
      liquidity by allocating resources to hiring additional employees as a corrective
      measure. We believe that the costs we would incur to increase our staff (solely
      for this purpose) exceed the potential reduction in risk, especially given
      our
      current circumstances. Our CEO is monitoring this situation to determine if
      these circumstances change. If the situation changes and sufficient capital
      is
      secured, it is our intention to increase staffing within our general accounting
      and financial functions.





As
      a
      result of our currently having only one employee who is responsible for all
      financial reporting, there has been a change in our internal controls over
      financial reporting that reflect that fact.





31
 Table
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**PART
      II**


**OTHER
      INFORMATION**




**Item
                  1.**
              **Legal
                  Proceedings**
  None.


**Item
                2.**
            **Unregistered
                Salesof Equity Securities and Use of
                Proceeds**




None.





**Item
                3.**
            **Defaults
                UponSenior
                Securities**




As
      of the
      date hereof, the Company is in default in its payment obligations under (i)
      the
      December 2004 Convertible Note which was due on July 3, 2006 in the principal
      amount plus accrued interest of $564,006, (ii) the 2005 Convertible Debentures
      and the 2006 6% Convertible Notes (which each contain cross default provisions),
      as a result of the December 2004 Convertible Note default, in the principal
      amounts plus accrued interest of $1,883,656 and $3,722,228, respectively. In
      addition, the Company is in default under the 2005 Convertible Debentures for
      failure to file a post-effective amendment to its registration statement on
      Form
      SB-2 by July 10, 2006 as required by the 2005 Convertible Debentures. The
      Company is also in default under the 2006 6% Convertible Notes for failure
      to
      file a registration statement within the 20-day grace period after the August
      21, 2006 filing deadline.





On
      November 20, 2006, the 2004 Convertible Note holder agreed to extend the
      maturity date of the Note to December 31, 2006. On November 21, 2006, the 6%
      Convertible Note holders have waived
      the default under their agreement and agreed to extend the registration
      statement filing requirement to December 31, 2006. The Company is currently
      attempting to have the registration statement filing requirement extended in
      the
      2005 Convertible Debentures.




**Item
                  4.**
              **Submissionof
                  Matters to a Vote of Security
                  Holders**
  None.





**Item
                5.**
            **Other
                Information**


***Transfer
      of Technologies to New Entity to be Controlled by Founding
      Scientists***





On
      March
      29, 2007, we executed a term sheet, subject to Board and secured creditor
      approval, which is expected to occur shortly with Drs. Stracher and Kesner,
      the
      original founding scientists of the CepTor technologies, pursuant to which
      our
      MyodurTM and NeurodurTM technologies will be assigned to a new private entity
      (“Newco”) that will initially be owned 55% by Drs. Stracher and Kesner and 45%
      by CepTor. Drs. Stracher and Kesner will resume the research and development
      activities for these products, with the goal of getting the FDA process back
      on
      track, and initially intend to seek public and private grants to fund their
      efforts. CepTor will cooperate in efforts to attract outside funding, but will
      have no direct role in the management of Newco, nor will it be under any
      obligation to fund Newco’s operations. Other principal terms of the transaction
      include retention by CepTor of a gross royalty of 8% on all revenues generated
      by the new entity and a release by the founding scientists of substantial claims
      against the company related to their consulting agreements with the company.
      Pursuant to the transaction with Drs. Stracher and Kesner, CepTor’s 45% interest
      may be further reduced as a result of dilution caused by new investment in
      the
      subsidiary, or by transfers of a portion of its interest to creditors or other
      interested parties. The Company’s existing secured creditors, who collectively
      have a security interest in all of the Company’s assets, will retain a security
      interest in the shares of stock held by CepTor in Newco. Should the new
      corporation succeed in its efforts to advance the technologies, CepTor will
      benefit through its significant equity stake and, should the projects prove
      commercially viable, through its gross royalty on eventual product
      sales.




***Change
      in Accountants***





On
      February 1, 2007, the Board of Directors of the Company approved, subject
      to execution of a definitive engagement letter, the retention of Bernstein
&
Pinchuk, LLP, certified public accountants (the “Accountant”) to serve as its
      independent registered public accounting firm. The Accountant replaces Marcum
      & Kliegman LLP (“M&K”), which was dismissed by the Company, upon the
      approval of its Board of Directors, as its independent registered public
      accounting firm as of February 1, 2007.





32
 Table
          of Contents




**FORWARD-LOOKING
      STATEMENTS**





This
      Quarterly Report on Form 10-QSB contains forward-looking statements (as defined
      in Section 27A of the Securities Act and Section 21E of the Securities Exchange
      Act of 1934 (the ``Exchange Act''). To the extent that any statements made
      in
      this Report contain information that is not historical, these statements are
      essentially forward-looking. Forward-looking statements can be identified by
      the
      use of words such as "expects," "plans" "will," "may," "anticipates," believes,"
      "should," "intends," "estimates," and other words of similar meaning. These
      statements are subject to risks and uncertainties that cannot be predicted
      or
      quantified and consequently, actual results may differ materially from those
      expressed or implied by such forward-looking statements. Such risks and
      uncertainties include, without limitation, our ability to consummate our pending
      transaction with Drs. Stracher and Kesner related to the transfer of our
      existing technologies to Newco, Newco’s ability to progress with the development
      and commercialization of the products, our ability to finalize and close on
      a
      transaction for a new technology, and our ability to raise capital to finance
      the development of any newly acquired technologies, the effectiveness,
      profitability and the marketability of those technologies, our ability to
      protect our proprietary information, general economic and business conditions,
      the impact of technological developments and competition, including our
      expectations and estimates concerning future financial performance and financing
      plans, adverse results of any legal proceedings, the impact of current, pending
      or future legislation and regulation on the healthcare industry, our ability
      to
      satisfy government and commercial customers using our technology, our ability
      to
      develop manufacturing capabilities or the inability to enter into acceptable
      relationships with one or more contract manufacturers for our products and
      key
      components and the ability of such contract manufacturers to manufacture
      products or components of an acceptable quality on a cost-effective basis,
      the
      volatility of our operating results and financial condition, our ability to
      attract or retain qualified senior management personnel, including sales and
      marketing and scientific personnel and other risks detailed from time to time
      in
      our filings with the SEC. We do not undertake any obligation to publicly update
      any forward-looking statements. As a result, you should not place undue reliance
      on these forward-looking statements.





We
      also
      use market data and industry forecasts and projections throughout this Report,
      which we have obtained from market research, publicly available information
      and
      industry publications. These sources generally state that the information they
      provide has been obtained from sources believed to be reliable, but that the
      accuracy and completeness of the information are not guaranteed. The forecasts
      and projections are based on industry surveys and the preparers' experience
      in
      the industry, and the projected amounts may not be achieved. Similarly, although
      we believe that the surveys and market research others have performed are
      reliable, we have not independently verified this information. Forecasts and
      other forward-looking information obtained from these sources are subject to
      the
      same qualifications and the additional uncertainties accompanying any estimates
      of future market size, revenue and market acceptance





**Item
                6.**
            **Exhibits**








**Exhibit
                Number**
            
            
            **Description**2
            .1
            
            
            
            Certificate
                of Ownership and Merger of CepTor Corporation into CepTor Research
                and
                Development Company (incorporated by reference herein to Exhibit
                2.1 to
                the Company's Current Report on Form 8-K dated January 31, 2005 (the
                ``January 2005 8-K''))3
            .1
            
            
            
            Amended
                and Restated Certificate of Incorporation, dated January 27, 2005
                (incorporated herein by reference to Exhibit 3.1 to the January 2005
                8-K)3
            .2
            
            
            
            Certificate
                of Correction to Amended and Restated Certificate of Incorporation
                (incorporated herein by reference to Exhibit 3.1 to the Company's
                Current
                Report on Form 8-K, dated February 10, 2005)3
            .3
            
            
            
            Amended
                and Restated By-laws (incorporated herein by reference to Exhibit
                3.2 to
                the January 2005 8-K)4
            .1
            
            
            
            Form
                of Common Stock Certificate (incorporated herein by reference to
                Exhibit
                4.1 to the Company's Annual Report on Form 10-KSB for the fiscal
                year
                ended December 31, 2004 (the ``2004 10-KSB''))4
            .2
            
            
            
            CepTor
                Agreement, dated March 31, 2004 (the ``CepTor Agreement''), by and
                among
                William Pursley, Xechem and the Company (incorporated herein by reference
                to Exhibit 4.1 to the Company's Current Report on Form 8-K, dated
                December
                9, 2004 (the ``2004 Form 8-K''))4
            .3
            
            
            
            First
                Amendment to CepTor Agreement effective April 23, 2004, by and among
                William Pursley, the Company and Xechem (incorporated herein by reference
                to Exhibit 4.2 to the 2004 8-K)4
            .4
            
            
            
            Second
                Amendment to CepTor Agreement, dated December 9, 2004, by and among
                William Pursley, the Company and Xechem (incorporated by reference
                to
                Exhibit 4.3 to the 2004 8-K)4
            .5
            
            
            
            Form
                of Unit Warrant (incorporated by reference to Exhibit 4.4 to the
                Company's
                Registration Statement on Form SB-2 as filed with the SEC on February
                11,
                2005 (the ``Form SB-2''))4
            .6
            
            
            
            Form
                of Amended and Restated Convertible Promissory Note (incorporated
                herein
                by reference to Exhibit 4.7 to the 2004 10-KSB)4
            .7
            
            
            
            Form
                of Subscription Agreement (incorporated herein by reference to Exhibit
                4.6
                to the Form SB-2)4
            .8
            
            
            
            Securities
                Purchase Agreement, dated June 17, 2005 by and between the Company,
                Xechem
                and William Pursley (incorporated herein by reference to Exhibit
                99.01 to
                the Company's Current Report on Form 8-K filed on June 20,
                2005)4
            .9
            
            
            
            Common
                Stock Purchase Agreement, dated October 7, 2005, between the Company
                and
                Fusion Capital Fund II, LLC (``Fusion'') (incorporated herein by
                reference
                to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed
                October
                11, 2005 (the ``October 2005 8-K''))4
            .10
            
            
            
            Registration
                Rights Agreement, dated October 7, 2005, between the Company and
                Fusion
                (incorporated herein by reference to Exhibit 4.2 to the October 2005
                8-K)4
            .11
            
            
            
            Common
                Stock Warrant with Fusion, dated October 7, 2005 (incorporated by
                reference herein to Exhibit 4.1 to the October 2005
                8-K)




33
 Table
          of Contents




**Exhibit
                Number**
            
            
            **Description**4
            .12
            
            
            
            Agreement
                between the Company and Brown Advisory Securities, LLC, dated May
                20, 2005
                (incorporated herein by reference to Exhibit 4.1 to the Company's
                Registration Statement on Form SB-2 as filed with the SEC on October
                17,
                2005 (the ``October 2005 SB-2''))4
            .13
            
            
            
            Secured
                Convertible Debenture, dated December 9, 2005, issued by the Company
                to
                Cornell Capital (incorporated herein by reference to Exhibit 4.1
                to our
                Current Report on Form 8-K, filed December 15, 2005 (``December 2005
                8-K''))4
            .14
            
            
            
            Warrant
                issued to Cornell Capital, dated December 9, 2005 (incorporated herein
                by
                reference to Exhibit 4.2 to the December 2005 8-K)4
            .15
            
            
            
            Form
                of Redemption Warrant to Cornell Capital (incorporated herein by
                reference
                to Exhibit 4.3 to the December 2005 8-K)4
            .16
            
            
            
            $250,000
                Convertible Promissory Note, dated December 9, 2005, to Harbor Trust
                (incorporated herein by reference to Exhibit 4.4 to the December
                2005
                8-K)4
            .17
            
            
            
            $452,991.10
                Amended Promissory Note, dated December 9, 2005, to Harbor Trust
                (incorporated herein by reference to Exhibit 4.5 to the December
                2005
                8-K)4
            .18
            
            
            
            Secured
                Convertible Debenture, dated December 28, 2005, issued by the Company
                to
                Cornell Capital (incorporated herein by reference to Exhibit 4.10
                to the
                Company's Registration Statement on Form SB-2, dated December 29,
                2005
                (``December 2005 SB-2''))4
            .19
            
            
            
            Non-Qualified
                Option Certificate and Addendum thereto, dated March 3, 2006, to
                Little
                Gem Life Sciences Fund, LLC (incorporated herein by reference to
                Exhibit
                4.18 to the Company's Annual Report on Form 10-KSB for the year ended
                December 31, 2005 (``2005 10-KSB''))4
            .20
            
            
            
            Non-Qualified
                Option Certificate and Addendum thereto, dated March 3, 2006, to
                Peter
                Chung (incorporated herein by reference to Exhibit 4.19 to the 2005
                10-KSB)4
            .21
            
            
            
            Placement
                Agency Agreement (incorporated herein by reference to Exhibit 1.1
                to the
                Company's Current Report on Form 8-K filed with the SEC on June 2,
                2006)4
            .22
            
            
            
            Form
                of Subscription Agreement (incorporated herein by reference to Exhibit
                4.1
                to the Company's Current Report on Form 8-K filed with the SEC on
                June 2,
                2006)4
            .23
            
            
            
            Form
                of 6% Convertible Note (incorporated herein by reference to Exhibit
                4.2 to
                the Company's Current Report on Form 8-K filed with the SEC on June
                2,
                2006)4
            .24
            
            
            
            Form
                of Common Stock Purchase Warrant (incorporated herein by reference
                to
                Exhibit 4.3 to the Company's Current Report on Form 8-K filed with
                the SEC
                on June 2, 2006)4
            .25
            
            
            
            Assignment
                Agreement, dated June 29, 2006 (incorporated herein by reference
                to
                Exhibit 4.3 to the Company's Current Report on Form 8-K filed with
                the SEC
                on July 6, 2006)4
            .26
            
            
            
            Secured
                Convertible Debenture with Longview Fund, LP, dated June 29, 2006
                (incorporated herein by reference to Exhibit 4.3 to the Company's
                Current
                Report on Form 8-K filed with the SEC on July 6, 2006)4
            .27
            
            
            
            Secured
                Convertible Debenture with Longview Fund, LP, dated June 29, 2006
                (incorporated herein by reference to Exhibit 4.3 to the Company's
                Current
                Report on Form 8-K filed with the SEC on July 6, 2006)




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**Exhibit
                Number**
            
            
            **Description**4
            .28
            
            
            
            Secured
                Convertible Debenture with Alpha Capital, Aktiengesellschaft, dated
                June
                29, 2006 (incorporated herein by reference to Exhibit 4.3 to the
                Company's
                Current Report on Form 8-K filed with the SEC on July 6,
                2006)4
            .29
            
            
            
            Secured
                Convertible Debenture with Ellis International Ltd., dated June 29,
                2006
                (incorporated herein by reference to Exhibit 4.3 to the Company's
                Current
                Report on Form 8-K filed with the SEC on July 6, 2006)4
            .30
            
            
            
            Secured
                Convertible Debenture with Momona Capital, dated June 29, 2006
                (incorporated herein by reference to Exhibit 4.3 to the Company's
                Current
                Report on Form 8-K filed with the SEC on July 6, 2006)4
            .31
            
            
            
            Warrant,
                dated June 29, 2006 (incorporated herein by reference to Exhibit
                4.3 to
                the Company's Current Report on Form 8-K filed with the SEC on July
                6,
                2006)4
            .32
            
            
            
            Securities
                Purchase Agreement, dated August 14, 2006, by and between the Company
                and
                the signatories thereto (incorporated herein by reference to Exhibit
                4.32
                to the Company's Quarterly Report on Form 10-QSB for the quarterly
                period
                ended June 30, 2006 (``June 30, 2006 10-QSB''))10
            .1
            
            
            
            Employment
                Agreement, dated March 31, 2004, by and between William H. Pursley
                and the
                Company (incorporated herein by reference to Exhibit 10.1 to the
                Form
                SB-2)10
            .2
            
            
            
            Founders'
                Plan (incorporated herein by reference to Exhibit 10.5 to the Form
                SB-2)10
            .3
            
            
            
            2004
                Incentive Stock Plan (incorporated herein by reference to Exhibit
                10.6 to
                the Form SB-2)10
            .4
            
            
            
            Deferred
                Stock Plan for Non-Employee Directors under the 2004 Incentive Stock
                Plan
                (incorporated herein by reference to Exhibit 10.7 to the 2004
                10-KSB)10
            .5
            
            
            
            2006
                Incentive Stock Plan (incorporated herein by reference to Exhibit
                10.7 to
                the 2005 10-KSB)10
            .6
            
            
            
            Sublease
                Agreement, dated March 4, 2004, by and between the Company and Millennium
                Inorganic Chemicals, Inc. (incorporated herein by reference to Exhibit
                10.7 to the Form SB-2)10
            .7
            
            
            
            Exclusive
                License Agreement, dated September 15, 2004, between the Company
                and JCR
                Pharmaceuticals Company, Ltd. (incorporated herein by reference to
                Exhibit
                10.8 to the Form SB-2)10
            .8
            
            
            
            Indemnification
                Agreement, dated October 6, 2005, by and between William H. Pursley
                and
                the Company (incorporated herein by reference to Exhibit 10.9 to
                the
                October 2005 SB-2)10
            .9
            
            
            
            Securities
                Purchase Agreement, dated December 9, 2005, between the Company and
                Cornell Capital (incorporated herein by reference to Exhibit 10.1
                to the
                December 2005 8-K)10
            .10
            
            
            
            Side
                Letter, dated December 9, 2005, between the Company and Cornell Capital
                (incorporated herein by reference to Exhibit 10.2 to the December
                2005
                8-K)10
            .11
            
            
            
            Investor
                Registration Rights Agreement, dated December 9, 2005, between the
                Company
                and Cornell Capital (incorporated herein by reference to Exhibit
                10.3 to
                the December 2005 8-K)10
            .12
            
            
            
            Security
                Agreement, dated December 9, 2005, between the Company and Cornell
                Capital
                (incorporated herein by reference to Exhibit 10.4 to the December
                2005
                8-K)






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**Exhibit
                Number**
            
            
            **Description**10
            .13
            
            
            
            Rights
                Agreement, dated March 7, 2006, between the Company and American
                Stock
                Transfer & Trust Company (incorporated herein by reference to Exhibit
                1 to the Company's Registration Statement on Form 8-A, dated March
                8,
                2006)10
            .14
            
            
            
            Manufacture
                and Supply Agreement entered into as of April 18, 2005 by and among
                Peninsula Laboratories Inc., Bachem AG, Bachem Americas and the Company
                (incorporated by reference herein to Exhibit 10.14 to the Company's
                Quarterly Report on Form 10-QSB for the quarter ended March 31,
                2005)10
            .15
            
            
            
            Term
                Sheet, dated May 3, 2006, by and between the Company and Margie Chassman
                (incorporated herein by reference to Exhibit 10.1 to the Company's
                Current
                Report on Form 8-K, filed May 9, 2006)31
            .1*
            
            
            
            Section
                302 Certification of Principal Executive Officer and Principal Financial
                Officer32
            .1*
            
            
            
            Section
                906 Certification of Principal Executive Officer and Principal Financial
                Officer*
            Filed
                herewith.







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**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**CEPTOR
                CORPORATION**Date: May
              16, 2007
            By:
            /s/ Howard
              BeckerHoward BeckerChief
                Executive Officer and Director
              (Principal
                Executive Officer and
              Principal
                Financial Officer)











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