UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington, D.C.
20549





FORM
10-Q


(Mark One)


þ
                                QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the Quarterly Period Ended June 30, 2009or


o
                      TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the Transition Period from 
      to






Commission
File Number: 001-33004


Opexa
Therapeutics, Inc.


(Exact
name of registrant as specified in its charter)
  Texas
                            2635 North Crescent Ridge
      Drive
                            76-0333165(State
      or other jurisdiction of
                            The Woodlands, Texas
      77381
                            (I.R.S.
      EmployerIncorporation
      or organization)
                            (Address
      of principal executive
                            Identification
      No.)offices
      and zip code)
 
 (281)
272-9331
 Registrant’s
telephone number, including area code
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o   No
o
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
 
 Large
accelerated filer o                                                                                        Accelerated
filer   o
 Non-accelerated
filer   o(Do not check if a smaller reporting company) Smaller reporting
company  þ
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes o   No
þ
 
 As of
August 11, 2009, there were 12,245,858 shares of the issuer’s Common Stock
outstanding.









OPEXA
THERAPEUTICS, INC.
 (A
development stage company)
 
 For
the Quarter Ended June 30, 2009
 
 INDEX
 
 PART I – FINANCIAL
      INFORMATION
                                        PageItem 1.
                                        Financial StatementsUnaudited Balance Sheets as of June 30, 2009 and
      December 31, 2008
                                        1Unaudited Statements of Expenses:
                                          For the three and six months ended June 30, 2009 and 2008
      and from Inception (January 22, 2003) through June 30,
      2009
                                        2Unaudited Statements of Cash Flows:
                                          For
      the six months ended June 30, 2009 and 2008 and from Inception(January
      22, 2003) through June 30, 2009
                                        3Notes to Unaudited Financial Statements
                                        5Item 2.
                                        Management’s Discussion and Analysis of Condition and
      Results of Operations
                                        10Item 3.
                                        Quantitative and Qualitative Disclosures About Market
      Risk
                                        14Item 4.
                                        Controls and Procedures
                                        14PART II – OTHER INFORMATIONItem 1.
                                        Legal Proceedings
                                        15Item 1A.
                                        Risk Factors
                                        15Item 2.
                                        Unregistered Sales of Equity Securities and Use
      of Proceeds
                                        15Item 3.
                                        Defaults Upon Senior Securities
                                        16Item 4.
                                        Submission of Matters to a Vote of Security
      Holders
                                        16Item 5.
                                        Other Information
                                        16Item 6.
                                        Exhibits
                                        16Signatures









PART
I - FINANCIAL INFORMATION


Item 1. Financial Statements
 
 OPEXA
THERAPEUTICS, INC.
 (a
development stage company)
 BALANCE SHEETS
 (unaudited)
 June
      30,
                                            
                                            
                                            December
      31,2009
                                            
                                            
                                            2008AssetsCurrent
      assets:Cash
      and cash equivalents
                                            
                                            $
                                            827,004
                                            
                                            
                                            $
                                            1,243,187Other
      current assets
                                            
                                            
                                            226,982
                                            
                                            
                                            
                                            86,705Total
      current assets
                                            
                                            
                                            1,053,986
                                            
                                            
                                            
                                            1,329,892Property
      & equipment, net of accumulated depreciationof
      $925,474 and $847,244 respectively
                                            
                                            
                                            1,055,447
                                            
                                            
                                            
                                            1,166,530Total
      assets
                                            
                                            $
                                            2,109,433
                                            
                                            
                                            $
                                            2,496,422Liabilities
      and Stockholders' EquityCurrent
      liabilities:Accounts
      payable
                                            
                                            $
                                            512,763
                                            
                                            
                                            $
                                            482,838Accounts
      payable - related parties
                                            
                                            
                                            57,976
                                            
                                            
                                            
                                            161,714Accrued
      expenses
                                            
                                            
                                            220,619
                                            
                                            
                                            
                                            199,272Current
      maturity of loan payable
                                            
                                            
                                            64,831
                                            
                                            
                                            
                                            62,423Total
      current liabilities
                                            
                                            
                                            856,189
                                            
                                            
                                            
                                            906,247Long
      term liabilities:Convertible
      promissory notes, net of discount
                                            
                                            
                                            980,661
                                            
                                            
                                            
                                            -Loan
      payable
                                            
                                            
                                            69,820
                                            
                                            
                                            
                                            102,778Total
      liabilities
                                            
                                            
                                            1,906,670
                                            
                                            
                                            
                                            1,009,025Commitments
      and contingencies
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Stockholders'
      equity:Preferred
      stock, no par value, 10,000,000 shares authorized,none
      issued and outstanding
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Common
      stock, $0.50 par value, 100,000,000 shares authorized,12,245,858
      and 12,245,858 shares issued and outstanding
                                            
                                            
                                            6,122,888
                                            
                                            
                                            
                                            6,122,888Additional
      paid in capital
                                            
                                            
                                            84,389,689
                                            
                                            
                                            
                                            84,929,481Deficit
      accumulated during the development stage
                                            
                                            
                                            (90,309,814
                                            )
                                            
                                            
                                            (89,564,972
                                            )Total
      stockholders' equity (deficit)
                                            
                                            
                                            202,763
                                            
                                            
                                            
                                            1,487,397Total
      liabilities and stockholders' equity
                                            
                                            $
                                            2,109,433
                                            
                                            
                                            $
                                            2,496,422




See
accompanying notes to consolidated financial statements
 -1-


OPEXA
THERAPEUTICS, INC.


(a
development stage company)
 STATEMENTS
OF EXPENSES
 Three
and six months ended June 30, 2009 and 2008 and the
 Period
from January 22, 2003 (Inception) to June 30, 2009
 (unaudited)
  InceptionThree
      Months Ended
                            
                            
                            Six
      Months Ended
                            
                            
                            throughJune
      30,
                            
                            
                            June
      30,
                            
                            
                            June
      30,2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008
                            
                            
                            2009Research
      and development
                            
                            $
                            425,701
                            
                            
                            $
                            2,331,592
                            
                            
                            $
                            1,163,482
                            
                            
                            
                            4,705,528
                            
                            
                            $
                            63,309,753General
      and administrative
                            
                            
                            411,675
                            
                            
                            
                            1,298,180
                            
                            
                            
                            807,990
                            
                            
                            
                            2,007,697
                            
                            
                            
                            19,797,720Depreciation
      and amortization
                            
                            
                            53,706
                            
                            
                            
                            58,793
                            
                            
                            
                            111,084
                            
                            
                            
                            117,070
                            
                            
                            
                            863,619Loss
      on disposal of assets
                            
                            
                            -
                            
                            
                            
                            116
                            
                            
                            
                            -
                            
                            
                            
                            116
                            
                            
                            
                            498,332Operating
      loss
                            
                            
                            (891,082
                            )
                            
                            
                            (3,688,681
                            )
                            
                            
                            (2,082,556
                            )
                            
                            
                            (6,830,411
                            )
                            
                            
                            (84,469,424
                            )Interest
      income
                            
                            
                            385
                            
                            
                            
                            31,495
                            
                            
                            
                            1,494
                            
                            
                            
                            69,204
                            
                            
                            
                            1,355,555Other
      income and expense, net
                            
                            
                            -
                            
                            
                            
                            26,584
                            
                            
                            
                            -
                            
                            
                            
                            34,901
                            
                            
                            
                            106,904Gain
      on extinguishment of debt
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,612,440Gain
      (loss) on derivative instruments
                            
                            
                            74,206
                            
                            
                            
                            -
                            
                            
                            
                            (366,774
                            )
                            
                            
                            -
                            
                            
                            
                            (587,612
                            )Interest
      expense
                            
                            
                            (47,007
                            )
                            
                            
                            (4,694
                            )
                            
                            
                            (52,628
                            )
                            
                            
                            (11,020
                            )
                            
                            
                            (8,327,677
                            )Net
      loss
                            
                            $
                            (863,498
                            )
                            
                            $
                            (3,635,296
                            )
                            
                            $
                            (2,500,464
                            )
                            
                            $
                            (6,737,326
                            )
                            
                            $
                            (90,309,814
                            )Basic
      and diluted loss per share
                            
                            $
                            (0.07
                            )
                            
                            $
                            (0.36
                            )
                            
                            $
                            (0.20
                            )
                            
                            $
                            (0.73
                            )
                            
                            
                            N/AWeighted
      average shares outstanding
                            
                            
                            12,245,858
                            
                            
                            
                            10,235,223
                            
                            
                            
                            12,245,858
                            
                            
                            
                            9,273,485
                            
                            
                            
                            N/A




See
accompanying notes to consolidated financial statements
  -2-


OPEXA
THERAPEUTICS, INC.


(a
development stage company)


STATEMENTS
OF CASH FLOWS


Six
months ended June 30, 2009 and 2008 and the


Period
from January 22, 2003 (Inception) to June 30, 2009


(unaudited)




Six
      Months Ended
                                    
                                    
                                    InceptionJune
      30,
                                    
                                    
                                    through2009
                                    
                                    
                                    2008
                                    
                                    
                                    June
      30, 2009Cash
      flows from operating activitiesNet
      loss
                                    
                                    $
                                    (2,500,464
                                    )
                                    
                                    $
                                    (6,737,326
                                    )
                                    
                                    $
                                    (90,309,814
                                    )Adjustments
      to reconcile net loss to net cashused
      in operating activitiesStock
      payable for acquired research and development
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    112,440Stock
      issued for acquired research and development
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    26,286,589Stock
      issued for services
                                    
                                    
                                    -
                                    
                                    
                                    
                                    68,561
                                    
                                    
                                    
                                    1,910,365Stock
      issued for debt in excess of principal
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    109,070Amortization
      of discount on notes payable dueto
      warrants and beneficial conversion feature
                                    
                                    
                                    28,608
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    6,341,813Gain
      on extinguishment of debt
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (1,612,440
                                    )Depreciation
                                    
                                    
                                    111,084
                                    
                                    
                                    
                                    117,070
                                    
                                    
                                    
                                    863,619Amortization
      of debt financing costs
                                    
                                    
                                    14,294
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    380,204Option
      expense
                                    
                                    
                                    461,656
                                    
                                    
                                    
                                    1,388,812
                                    
                                    
                                    
                                    12,411,693Loss
      on derivative instruments
                                    
                                    
                                    366,774
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    587,609Loss
      on disposition of fixed assets
                                    
                                    
                                    -
                                    
                                    
                                    
                                    116
                                    
                                    
                                    
                                    498,332Changes
      in:Prepaid
      and other expenses
                                    
                                    
                                    3,897
                                    
                                    
                                    
                                    (8,267
                                    )
                                    
                                    
                                    (499,482
                                    )Accounts
      payable
                                    
                                    
                                    (73,815
                                    )
                                    
                                    
                                    (150,996
                                    )
                                    
                                    
                                    121,098Accrued
      expenses
                                    
                                    
                                    21,347
                                    
                                    
                                    
                                    (142,546
                                    )
                                    
                                    
                                    93,964Net
      cash used in operating activities
                                    
                                    
                                    (1,566,619
                                    )
                                    
                                    
                                    (5,464,576
                                    )
                                    
                                    
                                    (42,704,940
                                    )Cash
      flows from investing activitiesPurchase
      of property & equipment
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (31,270
                                    )
                                    
                                    
                                    (1,339,511
                                    )Net
      cash used in investing activities
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (31,270
                                    )
                                    
                                    
                                    (1,339,511
                                    )Cash
      flows from financing activitiesCommon
      stock and warrants  sold for cash, net of offering
      costs
                                    
                                    
                                    -
                                    
                                    
                                    
                                    6,372,397
                                    
                                    
                                    
                                    35,765,166Common
      stock repurchased and canceled
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (325
                                    )Proceeds
      from debt
                                    
                                    
                                    1,180,986
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    9,283,185Repayments
      on notes payable
                                    
                                    
                                    (30,550
                                    )
                                    
                                    
                                    (28,252
                                    )
                                    
                                    
                                    (176,571
                                    )Net
      cash provided by financing activities
                                    
                                    
                                    1,150,436
                                    
                                    
                                    
                                    6,344,145
                                    
                                    
                                    
                                    44,871,455Net
      change in cash and cash equivalents
                                    
                                    
                                    (416,183
                                    )
                                    
                                    
                                    848,299
                                    
                                    
                                    
                                    827,004Cash
      and cash equivalents at beginning of period
                                    
                                    
                                    1,243,187
                                    
                                    
                                    
                                    2,645,482
                                    
                                    
                                    
                                    -Cash
      and cash equivalents at end of period
                                    
                                    $
                                    827,004
                                    
                                    
                                    $
                                    3,493,781
                                    
                                    
                                    $
                                    827,004






-3-




Cash
      paid for:Income
      tax
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Interest
                    
                    
                    9,726
                    
                    
                    
                    11,021
                    
                    
                    
                    56,851NON-CASH
      TRANSACTIONSIssuance
      of common stock to Sportan shareholders
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    147,733Issuance
      of common stock for accrued interest
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    525,513Conversion
      of notes payable to common stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    6,407,980Conversion
      of accrued liabilities to common stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    197,176Conversion
      of accounts payable to note payable
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    93,364Discount
      on convertible notes relating to:Warrants
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,309,789Beneficial
      conversion feature
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,715,973Stock
      attached to notes
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,287,440Fair
      value of derivative instrument
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,680,220Derivative
      reclassified to equity
                    
                    
                    587,609
                    
                    
                    
                    -
                    
                    
                    
                    587,609








See
accompanying notes to consolidated financial statements


-4-




OPEXA
THERAPEUTICS, INC.
 (a
development stage company)
 NOTES TO FINANCIAL STATEMENTS
 (unaudited)
 
 
 Note
1.  Basis of Presentation
 
 The
accompanying unaudited interim financial statements of Opexa Therapeutics, Inc.,
a development stage company, have been prepared in accordance with accounting
principles generally accepted in the United States of America and the rules of
the Securities and Exchange Commission and should be read in conjunction with
the audited financial statements and notes thereto contained in Opexa’s latest
Annual Report filed with the SEC on Form 10-K. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations for the interim
periods presented have been reflected herein. The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the full year.  Notes to the financial statements that would
substantially duplicate the disclosure contained in the audited financial
statements for the most recent fiscal year as reported in Form 10-K, have been
omitted.
  Accounting
for Derivative Instruments
  Statement
of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” as amended, requires all
derivatives to be recorded on the balance sheet at fair value. Opexa’s
derivatives are separately valued and accounted for on our balance sheet. Fair
values for securities traded in the open market and derivatives are based on
quoted market prices. Where market prices are not readily available, fair values
are determined using market based pricing models incorporating readily
observable market data and requiring judgment and estimates.
  The
pricing model Opexa used for determining fair values of its derivatives is the
Black-Scholes option-pricing model. Valuations derived from this model are
subject to ongoing internal and external verification and review. The model uses
market-sourced inputs such as interest rates, exchange rates and option
volatilities. Selection of these inputs involves management’s judgment and may
impact net income.
  Fair
Value Measurements
 
 In
September 2006, the FASB issued SFAS 157 which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. The provisions of SFAS 157 were effective January 1, 2008.
The FASB has also issued Staff Position (FSP) SFAS 157-2 (FSP No. 157-2),
which delays the effective date of SFAS 157 for nonfinancial assets and
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually), until fiscal
years beginning after November 15, 2008.
 
 As defined
in SFAS 157, fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). The Company utilizes market
data or assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk and the risks inherent in the inputs
to the valuation technique. These inputs can be readily observable, market
corroborated, or generally unobservable. The Company classifies fair value
balances based on the observability of those inputs. SFAS 157 establishes a fair
value hierarchy that prioritizes the inputs used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1 measurement) and the lowest
priority to unobservable inputs (level 3 measurement).
 
 The three
levels of the fair value hierarchy defined by SFAS 157 are as
follows:
 
 Level 1 –
Quoted prices are available in active markets for identical assets or
liabilities as of the reporting date. Active markets are those in which
transactions for the asset or liability occur in sufficient frequency and volume
to provide pricing information on an ongoing basis. Level 1 primarily consists
of financial instruments such as exchange-traded derivatives, marketable
securities and listed equities.


-5-




Level 2 –
Pricing inputs are other than quoted prices in active markets included in level
1, which are either directly or indirectly observable as of the reported date.
Level 2 includes those financial instruments that are valued using models or
other valuation methodologies. These models are primarily industry-standard
models that consider various assumptions, including quoted forward prices for
commodities, time value, volatility factors, and current market and contractual
prices for the underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable in the
marketplace throughout the full term of the instrument, can be derived from
observable data or are supported by observable levels at which transactions are
executed in the marketplace. Instruments in this category generally include
non-exchange-traded derivatives such as commodity swaps, interest rate swaps,
options and collars.
 
 Level 3 –
Pricing inputs include significant inputs that are generally less observable
from objective sources. These inputs may be used with internally developed
methodologies that result in management’s best estimate of fair
value.
 
 There are
no financial instruments existing at June 30, 2009 that are subject to fair
value measurement.
 
 Note
2.  Marketable Securities
 
 Opexa
considers all highly liquid investments with an original maturity of three
months or less, when purchased, to be cash equivalents. Investments with
maturities in excess of three months but less than one year are classified as
short-term investments and are stated at fair market value.
 
 At June
30, 2009, Opexa invested approximately $800,000 in a money market account with
an average market yield of 0.15%. Interest income of $1,494 was recognized for
the six months ended June 30, 2009 in the statements of expenses.  As
of June 30, 2009, the Company held no auction rate securities.
 
 Note
3.  Commitments and Contingencies
 
 Office
Lease
  In October
2005, Opexa entered into a ten-year lease for its office and research
facilities. The facility including the property is leased for a term of ten
years with two options for an additional five years each at the then prevailing
market rate. Future minimum lease payments under the non-cancellable operating
lease are $71,184 for 2009, $147,540 for 2010, $147,540 for 2011 and $584,343
for years 2012 to 2015.
  License
Agreement
  In July
2007, Opexa entered into a second amended and restated license agreement with
the University of Chicago that requires Opexa to make milestone payments of up
to $1,350,000 if certain late stage clinical trial and FDA approval milestones
are achieved. Opexa has determined that these payments are not probable at this
time and thus no liability has been recorded as of June 30,
2009.  Effective August 6, 2009 the University of Chicago license
agreement was assigned to Novartis as part of a collaboration as further
described in Note 9 below.
 
 Note
4.  Loan Payable
 
 Loan
payable consists of an equipment line of $250,000 with Wells Fargo Bank of which
$134,650 was outstanding as of June 30, 2009. This loan has an interest rate of
7.61% per annum, matures in May 2011 and is secured by Opexa’s furniture and
equipment purchased with the loan proceeds.  Payments are due and
payable monthly on the same day of each month until maturity.
 
 Note
5. Convertible Promissory Notes
 
 On April
14, 2009 and May 14, 2009 the Company closed a private offering consisting of
secured convertible notes for gross proceeds of approximately $1.3 million. The
notes mature in two years from the date of issue and accrue interest
at a 10% rate, compounded annually. The interest is payable at maturity in
either cash or common stock at the Company’s option.  The notes are secured
by substantially all of the Company’s assets and are convertible
into common stock, at the option of the holders, at a price of $0.50 per share.
Additionally, subject to the satisfaction of certain conditions, the
notes are mandatorily convertible into common stock, at
the Company’s option, during their term also at $0.50 per
share.  The required conditions are: (1) the Company enters into an
agreement that will fund a Phase IIb or Phase III clinical trial for the further
development of the Company’s product known as Tovaxin®,
(2) the Company’s common stock trades at a price greater than or equal
to $1.00 per share for twenty consecutive trading days, and (3) the
Company has an effective registration statement on file with the Securities and
Exchange Commission for the re-sale of the shares of common stock
issuable upon conversion of the notes .
  -6-




In
connection with issuing the convertible promissory notes, warrants to purchase a
total of 1,302,000 shares of common stock were issued to investors. See Note7
for detail on the warrants. The convertible promissory notes were evaluated for
a beneficial conversion feature under EITF 98-5 and EITF 00-27 and the Company
recorded a debt discount of $349,947. Pursuant to ETIF 00-27 Issue 6, the
discount on the convertible promissory notes is amortized over the period
between the grant date and the maturity of the note under the effective interest
method.  The amortized discount for the quarter ending June 30, 2009
was $28,608.
 
 The
Company analyzed the convertible promissory notes and the warrants for
derivative accounting consideration under SFAS 133 and EITF 00−19. The Company
determined the embedded conversion option in the convertible promissory notes
and the warrants met the criteria for classification in stockholders equity
under SFAS 133 and EITF 00−19. Therefore, derivative accounting was not
applicable for these convertible notes payable or their associated
warrants.
 
 The total
of the fees associated with the financing (broker commissions and legal fees)
was $158,468.  These fees will be amortized over the life of the notes
using the effective interest method.  The amortized offering costs for
the quarter ending June 30, 2009 was $14,294.
 
 Note
6.  Options
 
 Share-based
Compensation:
  The June
2004 Compensatory Stock Option Plan authorizes the issuance of various forms of
stock-based awards, including incentive and non-statutory stock options, stock
purchase rights, stock appreciation rights, and restricted and unrestricted
stock awards.  A total of 2,300,000 options are authorized to be
issued under the Plan through June 2014.  At June 30, 2009, 1,749,234
options were issued.
 
 The
Company accounts for share-based compensation, including options and nonvested
shares, according to the provisions of SFAS No. 123R, "Share Based
Payment". During the six month period ended June 30, 2009, the Company
recognized share-based compensation expense of approximately $462,000. Activity
in options during the six month period ended June 30, 2009 and related balances
outstanding as of that date are reflected below.  The weighted average
fair value per share of options granted for the six month period ended June 30,
2009 was approximately $0.31.
  A summary
of share-based compensation activity for the six month period ended June 30,
2009 is presented below:


Number
      of Options
                                  
                                  
                                  Wtd.
      Avg. Exercise Price
                                  
                                  
                                  Wtd.
      Avg. Remaining Contract Term (# years)
                                  
                                  
                                  Intrinsic
      ValueOutstanding
      at January 1, 2009
                                  
                                  
                                  1,553,347
                                  
                                  
                                  $
                                  6.47Granted
                                  
                                  
                                  473,339
                                  
                                  
                                  
                                  0.31Exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Forfeited
      and canceled
                                  
                                  
                                  (277,452
                                  )
                                  
                                  
                                  7.35Oustanding
      at June 30, 2009
                                  
                                  
                                  1,749,234
                                  
                                  
                                  $
                                  4.42
                                  
                                  
                                  
                                  7.2
                                  
                                  
                                  
                                  -Exercisable
      at June 30, 2009
                                  
                                  
                                  1,363,052
                                  
                                  
                                  $
                                  5.37
                                  
                                  
                                  
                                  6.7
                                  
                                  
                                  
                                  -
 The
aggregate intrinsic value of the exercisable options at June 30, 2009 was
-0-.
 -7-




Stock
Option Activity:
 
 Stock
option awards issued by the Company have a ten year life and have various
vesting dates that range from partial vesting upon date of grant to full vesting
on a specified date.  The Company estimates the fair value of stock
options using the Black-Scholes option-pricing model and records the
compensation expense ratably over the service period.
 
 The fair
values of stock options granted during the six months ended June 30, 2009 and
2008 were estimated using the following assumptions:
  Six
      Months Ended June 30, 2009
                                
                                Six
      Months Ended June 30, 2008Expected
      volatility
                                192%
      - 194%
                                
                                115%Expected
      term
                                5-
      5.5 years
                                
                                5.5
      - 6 yearsRisk
      free rate
                                1.47%
      - 1.97%
                                
                                3.15%
      - 3.73%Expected
      dividends
                                -
      0 -
                                
                                -
      0
-




Note
7. Warrants
 
 In
connection with the closing of our April and May 2009 private offering of
convertible notes, the investors were issued four-year warrants to purchase up
to an aggregate of 1,302,000 shares of our common stock, at an exercise
price of $0.75 per share.   The estimated fair value of the
investor warrants was $478,577 and was calculated using the Black-Scholes
valuation model. The following assumptions were used: (i) no expected
dividends, (ii) risk free interest rate of 0.86% - 0.87%,
(iii) expected volatility range of 195%, - 197% and (iv) expected life of 4
years.
 
 As
additional compensation, the Company issued warrants to the broker to purchase
112,140 shares of common stock also at a price of $0.75 per
share.  The estimated fair value of the broker warrants was $37,453
and was calculated using the Black-Scholes valuation model and the assumptions
stated above. This amount was included in the $158,468 noted in Note 5
above.
 
 Note
8. Derivative Instruments
 
 In June
2008, the FASB ratified EITF Issue 07-5, “Determining Whether an Instrument (or
Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). Paragraph
11(a) of Statement of Financial Accounting Standard No 133, “Accounting for
Derivatives and Hedging Activities” (“SFAS 133”) specifies that a contract that
would otherwise meet the definition of a derivative, but is both
(a) indexed to its own stock and (b) classified in stockholders’
equity in the statement of financial position would not be considered a
derivative financial instrument. EITF 07-5 provides a new two-step model to be
applied in determining whether a financial instrument or an embedded feature is
indexed to an issuer’s own stock, including evaluating the instrument’s
contingent exercise and settlement provisions, and thus able to qualify for the
SFAS 133 paragraph 11(a) scope exception. It also clarifies the impact of
foreign currency denominated strike prices and market-based employee
stock option valuation instruments on the evaluation. EITF 07-5 will be
effective for the first annual reporting period beginning after
December 15, 2008, and early adoption is prohibited. Initially, Opexa
evaluated all of its financial instruments and determined that the Series F
warrants associated with the August 2008 financing qualified for treatment under
EITF 07-5 and adjusted its financial statements to reflect the adoption of the
EITF 07-5 as of January 1, 2009. The fair value of these warrants were
reclassified as of January 1, 2009 in the amount of $220,835 from
additional paid in capital to derivative liability and the cumulative effect of
the change in accounting principle in the amount of $1,755,622 was recognized as
an adjustment to the opening balance of retained earnings. The impact of EITF
07-5 for the year to date period ending June 1, 2009 resulted in an increase in
the derivative liability of $366,774 with a corresponding loss on derivative
instruments. On June 1, 2009, it was determined that the floor for resetting the
exercise price was met and that any further adjustments to the exercise price of
the Series F warrants would require a vote by the shareholders of the
Company.  Therefore, the Series F warrants were considered indexed to
the Company’s stock and qualified for the scope exception under SFAS 133
paragraph 11 allowing for a transfer from liability classification to equity
classification.  Consequently, the remaining derivative liability of
$587,609 at June 1, 2009 was reclassified to additional paid in
capital.
   -8-




The fair
values of the warrants on June 1, 2009, March 31, 2009 and January 1, 2009 were
estimated using the following assumptions:
  June
      1, 2009
                      
                      
                      March
      31, 2009
                      
                      
                      January
      1, 2009Expected
      volatility
                      
                      
                      194%
                      %
                      
                      
                      236%
                      %
                      
                      
                      220%
                      %Expected
      term
                      
                      1.8
      years
                      
                      
                      1.9
      years
                      
                      
                      2.1
      yearsRisk
      free rate
                      
                      
                      0.97%
                      %
                      
                      
                      0.81%
                      %
                      
                      
                      0.88%
                      %Expected
      dividends
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Fair
      value
                      
                      $
                      587,609
                      
                      
                      $
                      661,815
                      
                      
                      $
                      220,835
  Note
9.  Subsequent Events
 
 Subsequent
events through August 12, 2009 were as follows:
 
 Effective
August 6, 2009, the Company entered into an exclusive agreement with Novartis
for the further development of the Company’s novel stem cell technology. This
technology, which has generated preliminary data showing the potential to
generate monocyte derived islet cells from peripheral blood mononuclear cells,
was in early preclinical development at the Company.
 Under the
terms of the agreement, Novartis acquired the stem cell technology from the
Company and Novartis will have full responsibility for funding and carrying out
all research, development and commercialization activities. The Company will
receive an upfront cash payment of $3 million, plus an additional $1 million as
a technology transfer fee to be paid over the course of a six month
period.  The Company is eligible to receive royalty payments from the
sale of any products resulting from the use of the technology and the Company
retains an option on certain manufacturing rights.
  
 -9-




Item 2.  Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
 
 The
following discussion of our financial condition and results of operations should
be read in conjunction with the accompanying financial statements and the
related footnotes thereto.
  Forward-Looking
Statements
 
 Some of
the statements contained in this report discuss future expectations, contain
projections of results of operations or financial condition, or state other
"forward-looking" information. The words "believe," "intend," "plan," "expect,"
"anticipate," "estimate," "project," "goal" and similar expressions identify
such statement was made. These statements are subject to known and unknown
risks, uncertainties, and other factors that could cause the actual results to
differ materially from those contemplated by the statements. The forward-looking
information is based on various factors and is derived using numerous
assumptions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to the risks discussed in this and our other SEC
filings. We do not promise to update forward-looking information to reflect
actual results or changes in assumptions or other factors that could affect
those statements. Future events and actual results could differ materially from
those expressed in, contemplated by, or underlying such forward-looking
statements.
 
 The
following discussion and analysis of our financial condition is as of June 30,
2009.  Our results of operations and cash flows should be read in
conjunction with our unaudited financial statements and notes thereto included
elsewhere in this report and the audited financial statements and the notes
thereto included in our Form 10-K for the year ended December 31,
2008.
  Business
Overview
  Unless
otherwise indicated, we use “Opexa,” “the Company,” “we,” “our” and “us” in this
annual report to refer to the businesses of Opexa Therapeutics,
Inc.
  We are a
biopharmaceutical company developing autologous cellular therapies with the
potential to treat major illnesses, including multiple sclerosis (MS). The
information discussed related to our product candidates is preliminary and
investigative. Our product candidates are not approved by the Food and Drug
Administration (FDA).
  Our lead
product, Tovaxin®, is an
individualized T-cell therapeutic vaccine licensed from Baylor College of
Medicine, which is in clinical development for the treatment for
MS.
  T-Cell
Therapy
  We have an
exclusive worldwide license from Baylor College of Medicine (or Baylor) to an
individualized T-cell therapeutic vaccine, Tovaxin®, which
is in clinical development for the treatment of Multiple Sclerosis
(MS).
  Multiple
sclerosis is the result of a person’s own T-cells attacking the myelin sheath
that coats the nerve cells of the central nervous system (CNS). Tovaxin consists
of attenuated patient-specific myelin reactive T-cells (MRTCs) against peptides
from one or more of the primary proteins on the surface of the myelin sheath
(myelin basic protein (MBP), proteolipid protein (PLP) and myelin
oligodendrocyte glycoprotein (MOG)). Patient-specific MRTCs are expanded in
culture with specific peptides identified by our proprietary test of the
patient’s peripheral blood. The cells are then attenuated by gamma irradiation,
and returned to the patient as a subcutaneous injection. Although further
testing is necessary, results from our initial human trials appear to indicate
that these attenuated T-cells cause an immune response directed at the
autoreactive T-cells in the patient’s body, resulting in a reduction in the
level of harmful T-cells. In 2008, we completed an FDA cleared Phase IIb
clinical trial of Tovaxin which enrolled 150-patients. The trial was entitled, A
Multicenter, Randomized, Double-Blind, Placebo-Controlled Study of Subcutaneous
Tovaxin in Subjects with Clinically Isolated Syndrome or Relapsing Remitting
Multiple Sclerosis (Tovaxin for Early Relapsing-remitting MS,
“TERMS”).
  The TERMS
study was a Phase IIb multi-center, randomized, double blind, placebo-controlled
trial in 150 patients with Relapsing-Remitting Multiple Sclerosis or high risk
Clinically Isolated Syndrome (CIS). The study involved 2:1 randomization with
100 patients receiving Tovaxin and 50 receiving placebo. According to the study
protocol, patients received a total of five subcutaneous injections at weeks 0,
4, 8, 12 and 24. Top-line data from the TERMS trial is as follows:
  •
              Annualized
      relapse rate (ARR) for Tovaxin-treated patients was 0.214 as compared to
      0.339 for placebo-treated patients, which represented a 37 percent
      decrease in ARR for Tovaxin as compared to placebo in the general
      population;






-10-




•
              For
      patients who had more active disease as indicated by an ARR > 1 in the
      year prior to the study, Tovaxin demonstrated a 55 percent reduction in
      ARR as compared to placebo; and an 87% reduction in relapse rate was
      observed in Tovaxin patients in this population compared to placebo during
      the 24 week period following the administration of the full course of
      treatment (p=0.039);
  •
              Patients
      who had an ARR>1 at entry demonstrated a statistically significant
      improvement in disability score as measured by the Expanded Disability
      Status Scale (EDSS) (p =0.045) for patients treated with Tovaxin as
      compared to those receiving placebo. The EDSS score is a measure of
      disability ranging from 0-10. In addition 28.1% of the Tovaxin patients
      showed an improvement in EDSS of at least one point as compared to 5.6% in
      the placebo group;
 
 •
              Patients
      who had an ARR>1 at entry and were treated with Tovaxin experienced an
      88% reduction in brain atrophy and a 59% reduction in absolute T-2 lesion
      volume as compared to placebo;
  •
              Tovaxin
      was safe and well tolerated with no serious adverse events related to
      Tovaxin treatment. The most common adverse event was injection site
      irritation.
  Our
proprietary T-cell technology has enabled us to develop intellectual property
and a knowledge/sample database that may enable discovery of the most relevant
peptides to be used to treat MS patients. We may conduct research to identify
the most promising peptide targets that could lead to customized off the shelf
approaches based on a patient’s shifting epitope profile.
  Stem
Cell Therapy
 
 Effective
August 6, 2009, the Company entered into an exclusive agreement with Novartis
for the further development of Opexa’s novel stem cell technology. This
technology, which has generated preliminary data showing the potential to
generate monocyte derived islet cells from peripheral blood mononuclear cells,
was in early preclinical development at Opexa. Under the terms of the agreement,
Novartis acquired the stem cell technology from the Company and Novartis will
have full responsibility for funding and carrying out all research, development
and commercialization activities. The Company will receive an upfront cash
payment of $3 million, plus an additional $1 million as a technology transfer
fee to be paid over the course of a six month period.  The Company is
also eligible to receive royalty payments from the sale of any products
resulting from the use of the technology and the Company retains an option on
certain manufacturing rights.
  Critical
Accounting Policies
  General
  Our
discussion and analysis of our financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the U.S. The
preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities
and expenses. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions. The Company’s significant accounting policies are disclosed in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2008.  The Company has not materially changed its significant
accounting policies.
  Accounting
for Derivative Instruments
  In June
2008, the FASB ratified EITF Issue 07-5, “Determining Whether an Instrument (or
Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). Paragraph
11(a) of Statement of Financial Accounting Standard No 133, “Accounting for
Derivatives and Hedging Activities” (“SFAS 133”) specifies that a contract that
would otherwise meet the definition of a derivative, but is both
(a) indexed to its own stock and (b) classified in stockholders’
equity in the statement of financial position would not be considered a
derivative financial instrument. EITF 07-5 provides a new two-step model to be
applied in determining whether a financial instrument or an embedded feature is
indexed to an issuer’s own stock, including evaluating the instrument’s
contingent exercise and settlement provisions, and thus able to qualify for the
SFAS 133 paragraph 11(a) scope exception. It also clarifies the impact of
foreign-currency-denominated strike prices and market-based employee stock
option valuation instruments on the evaluation. EITF 07-5 will be effective for
the first annual reporting period beginning after December 15, 2008, and
early adoption is prohibited. Initially, Opexa evaluated all of its financial
instruments and determined that the Series F warrants associated with the August
2008 financing qualified for treatment under EITF 07-5 and adjusted its
financial statements to reflect the adoption of the EITF 07-5 as of
January 1, 2009. The fair value of these warrants were reclassified as of
January 1, 2009 in the amount of $220,835 from additional paid in capital
to derivative liability and the cumulative effect of the change in accounting
principle in the amount of $1,755,622 was recognized as an adjustment to the
opening balance of retained earnings. The impact of EITF 07-5 for the year to
date period ending June 1, 2009 resulted in an increase in the derivative
liability of $366,774 with a corresponding loss on derivative instruments. On
June 1, 2009, it was determined that the floor for resetting the exercise price
was met and that any further adjustments to the exercise price of the Series F
warrants would require a vote by the shareholders of the
company.  Therefore, the Series F warrants were considered indexed to
the company’s stock and qualified for the scope exception under SFAS 133
paragraph 11 allowing for a transfer from liability classification to equity
classification.  Consequently, the remaining derivative liability of
$587,609 at June 1, 2009 was reclassified to additional paid in
capital.
  -11-




Measuring
Fair Value
  In
September 2006, the FASB issued SFAS 157 which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. The provisions of SFAS 157 were effective January 1, 2008.
The FASB has also issued Staff Position (FSP) SFAS 157-2 (FSP No. 157-2),
which delays the effective date of SFAS 157 for nonfinancial assets and
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually), until fiscal
years beginning after November 15, 2008.
 
 As defined
in SFAS 157, fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). The Company utilizes market
data or assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk and the risks inherent in the inputs
to the valuation technique. These inputs can be readily observable, market
corroborated, or generally unobservable. The Company classifies fair value
balances based on the observability of those inputs. SFAS 157 establishes a fair
value hierarchy that prioritizes the inputs used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1 measurement) and the lowest
priority to unobservable inputs (level 3 measurement).
 
 The three
levels of the fair value hierarchy defined by SFAS 157 are as
follows:
 
 Level 1 –
Quoted prices are available in active markets for identical assets or
liabilities as of the reporting date. Active markets are those in which
transactions for the asset or liability occur in sufficient frequency and volume
to provide pricing information on an ongoing basis. Level 1 primarily consists
of financial instruments such as exchange-traded derivatives, marketable
securities and listed equities.
 
 Level 2 –
Pricing inputs are other than quoted prices in active markets included in level
1, which are either directly or indirectly observable as of the reported date.
Level 2 includes those financial instruments that are valued using models or
other valuation methodologies. These models are primarily industry-standard
models that consider various assumptions, including quoted forward prices for
commodities, time value, volatility factors, and current market and contractual
prices for the underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable in the
marketplace throughout the full term of the instrument, can be derived from
observable data or are supported by observable levels at which transactions are
executed in the marketplace. Instruments in this category generally include
non-exchange-traded derivatives such as commodity swaps, interest rate swaps,
options and collars.
 
 Level 3 –
Pricing inputs include significant inputs that are generally less observable
from objective sources. These inputs may be used with internally developed
methodologies that result in management’s best estimate of fair
value.
 
 As
required by SFAS 157, financial assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to the fair
value measurement. The Company’s assessment of the significance of a particular
input to the fair value measurement requires judgment, and may affect the
valuation of fair value assets and liabilities and their placement within the
fair value hierarchy levels.
 
 There are
no financial instruments existing at June 30, 2009 that are subject to fair
value measurement.
  -12-




Results
of Operations and Financial Condition
  Three
Months Ended June 30, 2009 Compared with the Three Months Ended June 30,
2008
 
 Net Sales.We
recorded no sales for the three months ended June 30, 2009 and
2008.
  Research and Development Expenses.Research and development expense was approximately $0.4 million for the
three months ended June 30, 2009, compared to approximately $2.3 million for the
three months ended June 30, 2008. The decrease in expenses was primarily due to
the completion of the Phase IIb clinical trial in August 2008, closing the
extension trial, a reduction in staff, and a decrease in stock compensation
expense. We have made and expect to continue to make substantial investments in
research and development in order to develop and market our technology. We
expense research and development costs as incurred. Acquired research and
development that has no alternative future use is expensed when acquired.
Property, plant and equipment for research and development that has an
alternative future use is capitalized and the related depreciation is
expensed.
  General and Administrative Expenses.General and administrative expense was approximately $0.4 million for the
three months ended June 30, 2009, as compared to approximately $1.3 million, for
the three months ended June 30, 2008.  The decrease in expenses is due
to a decrease in stock compensation expense, overhead expenses, professional
service fees, board compensation fees and a reduction in staff.
  Interest
Expense.  Interest expense was $47,007 for the three months
ended June 30, 2009, compared to $4,694 for the three months ended June 30,
2008. The increase in interest expense was primarily related to the amortized
interest on the convertible notes and the amortization of the financing fees
over the life of the note with the balance related to the loan payable
consisting of an equipment line of up to $250,000 with Wells Fargo of which
$134,650 was outstanding as of June 30, 2009.   The interest
expense for the three months ended June 30, 2008 related solely to the loan
payable on the equipment line.
  Gain (loss) on derivative instruments
liabilities, net.We recognized a gain on
derivative instruments of $74,206 for the three months ended June 30, 2009. This
gain is a result of the net unrealized (non-cash) change in the fair value of
our derivative instrument liabilities related to warrants associated with the
August 2008 financing which had been accounted for under EITF 07-5 and which
accounting treatment was discontinued on June 1, 2009.
  Interest
Income.  Interest income was $385 for the three months ended
June 30, 2009 compared to $31,495 for the three months ended June 30,
2008.  The decrease was due to the reduction in cash balances that
were available for investment in cash equivalent instruments and a reduction in
interest rates.
  Net loss. We had a net loss
for the three months ended June 30, 2009, of approximately $0.9 million, or
$0.07 per share (basic and diluted), compared with a net loss of approximately
$3.6 million or $0.36 per share (basic and diluted), for the three months ended
June 30, 2008. The decrease in net loss is primarily due to the reduction of
costs associated with the Phase IIb clinical trial of Tovaxin that was completed
in 2008, a reduction in staff and a decrease in stock compensation
expense.
  Six
Months Ended June 30, 2009 Compared with the Six Months Ended June 30,
2008
  Net Sales.We
recorded no sales for the six months ended June 30, 2009 and 2008.
  Research and Development Expenses.Research and development expense was approximately $1.2 million for the
six months ended June 30, 2009 compared to approximately $4.7 million for the
six months ended June 30, 2008. The decrease in expenses was primarily due to
the completion of the Phase IIb clinical trial in August 2008, closing the
extension trial, a reduction in staff, and a decrease in stock compensation
expense. We have made and expect to continue to make substantial investments in
research and development in order to develop and market our technology. We
expense research and development costs as incurred. Acquired research and
development that has no alternative future use is expensed when acquired.
Property, plant and equipment for research and development that has an
alternative future use is capitalized and the related depreciation is
expensed.
  General and Administrative Expenses.General and administrative expense was approximately $0.8 million for the
six months ended June 30, 2009, as compared to approximately $2.0 million, for
the six months ended June 30, 2008.  The decrease in expenses is due
to a decrease in stock compensation expense, overhead expenses, professional
service fees, board compensation fees and a reduction in staff.
  -13-




Interest
Expense.  Interest expense was $52,628 for the six months ended
June 30, 2009, compared to $11,020 for the six months ended June 30, 2008. The
increase in interest expense was primarily related to the amortized interest on
the convertible notes and the amortization of the financing fees over the life
of the note with the balance related to the loan payable consisting of an
equipment line of up to $250,000 with Wells Fargo of which $134,650 was
outstanding as of June 30, 2009.   The interest expense for the
six months ended June 30, 2008 related solely to the loan payable on the
equipment line.
  Interest
expense for 2008 and 2007 was related to a loan payable consisting of an
equipment line of up to $250,000 with Wells Fargo of which $134,650 was
outstanding as of June 30, 2009.
  Gain (loss) on derivative instruments
liabilities, net.We recognized a loss on
derivative instruments of $ 366,774 for the six months ended June 30, 2009. This
loss is a result of the net unrealized (non-cash) change in the fair value of
our derivative instrument liabilities related to warrants associated with the
August 2008 financing which had been accounted for under EITF 07-5 and which
accounting treatment was discontinued on June 1, 2009.
  Interest
Income.  Interest income was $1,494, for the six months ended
June 30, 2009 compared to $69,204 for the six months ended June 30,
2008.  The decrease was due to the reduction in cash balances that
were available for investment in cash equivalent instruments and a reduction in
interest rates.
  Net loss. We had a net loss
for the six months ended June 30, 2009, of approximately $2.5 million, or $0.20
per share (basic and diluted), compared with a net loss of approximately $6.7
million or $0.73 per share (basic and diluted), for the six months ended June
30, 2008. The decrease in net loss is primarily due to the reduction of costs
associated with the Phase IIb clinical trial of Tovaxin that was completed in
2008, a reduction in staff and a decrease in stock compensation
expense.
  Liquidity
and Capital Resources
  Historically,
we have financed our operations primarily from the sale of debt and equity
securities. As of June 30, 2009 we had cash and cash equivalents of
approximately $827,000.  The Company’s current burn rate is
approximately $250,000 per month. Subsequent to June 30, 2009, the Company
completed an asset sale of the Company’s stem cell technology for initial
proceeds of $3 million and expects to receive additional near term proceeds of
$1 million, which it is believed will support the Company’s operations, at
current levels, through December 2010.  The Company does not maintain
any external lines of credit, or have commitments for equity funds, and should
it need any additional capital in the future, management will be reliant upon
“best efforts” debt or equity financings.
  Off-Balance
Sheet Arrangements
  None.
  Recent
Accounting Pronouncements
 
 For the
period ended June 30, 2009, there were no other changes to our critical
accounting policies as identified in our annual report on Form 10-K for the year
ended December 31, 2008.
 
 Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
 
 Not
Applicable.
 
 Item 4. Controls and Procedures.
  Disclosure
Controls and Procedures.
  We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
to the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized, and reported within the
time periods specified by the Securities and Exchange Commission’s rules and
forms, and that information is accumulated and communicated to our management,
including our principal executive and principal financial officer (whom we refer
to in this periodic report as our Certifying Officer), as appropriate to allow
timely decisions regarding required disclosure. Our management evaluated, with
the participation of our Certifying Officer, the effectiveness of our disclosure
controls and procedures as of June 30, 2009, pursuant to Rule 13a-15(b)
under the Securities Exchange Act. Based upon that evaluation, our Certifying
Officer concluded that, as of June 30, 2009, our disclosure controls and
procedures were effective.
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Changes
in Internal Control Over Financial Reporting.
  There were
no changes in our internal control over financial reporting that occurred during
our most recently completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.  We will continue to evaluate the effectiveness of internal
controls and procedures on an on-going basis.
  PART II
  OTHER
INFORMATION
 
 Item 1.  Legal Proceedings.
 
 None.
 
 Item 1A.  Risk Factors.
 
 This Item
1A should be read in conjunction with “Item 1A. Risk Factors” in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2008.
  Our
ability to raise additional funding is uncertain.
  We
anticipate that we will need to raise additional working capital in
2010.  As we have no external sources of debt or equity capital
committed for funding, we must rely upon best efforts third-party debt or equity
funding and we can provide no assurance that we will be successful in any
funding effort. The timing and degree of any future capital requirements will
depend on many factors, including:
  •
              our
      ability to establish, enforce and maintain strategic arrangements for
      research, development, clinical testing, manufacturing and
      marketing;
  •
              the
      accuracy of the assumptions underlying our estimates for capital needs in
      2010 and beyond;
  •
              scientific
      progress in our research and development
  programs;
  •
              the
      magnitude and scope of our research and development
    programs;
  •
              our
      progress with preclinical development and clinical
  trials;
  •
              the
      time and costs involved in obtaining regulatory
  approvals;
  •
              the
      costs involved in preparing, filing, prosecuting, maintaining, defending
      and enforcing patent claims; and
  •
              the
      number and type of product candidates that we
  pursue.
  Additional
equity financings could result in significant dilution to our stockholders.
Further, if additional funds are obtained through arrangements with
collaborative partners, these arrangements may require us to relinquish rights
to some of our technologies, product candidates or products that we would
otherwise seek to develop and commercialize ourselves. If sufficient capital is
not available we may not be able to continue operations as proposed requiring us
to modify our business plan, curtail various aspects of our operations or cease
operations.
  Item 2.  Unregistered Sales of Equity
Securities and Use of Proceeds.
  On April
14, 2009 and May 14, 2009 the Company closed a private offering consisting of
secured convertible notes and warrants to purchase up to an aggregate of
1,302,000 shares of Opexa’s common stock for gross proceeds of
approximately $1.3 million. The notes mature in two years from the date of
issue and accrue interest at a 10% rate, compounded annually.
  -15-




The
interest is payable at maturity in either cash or common stock at the Company’s
option.  The notes are secured by substantially
all of the Company’s assets and are convertible into common
stock, at the option of the holders, at a price of $0.50 per share.
Additionally, subject to the satisfaction of certain conditions, the
notes are mandatorily convertible into common stock, at
the Company’s option, during their term also at $0.50 per
share.  The required conditions are: (1) the Company enters into an
agreement that will fund a Phase IIb or Phase III clinical trial for the further
development of the Company’s product known as Tovaxin®,
(2) the Company’s common stock trades at a price greater than or equal
to $1.00 per share for twenty consecutive trading days, and (3) the
Company has an effective registration statement on file with the Securities and
Exchange Commission for the re-sale of the shares of common stock
issuable upon conversion of the notes . The warrants have a four
year term and are exercisable for 50% of the number of shares that the note
is convertible into at an exercise price of
$ 0.75 per share.
  The
issuance of these securities were consummated pursuant to Section 4(2) of the
Securities Act and the rules and regulations promulgated thereunder on the basis
that such transactions did not involve a public offering and the offerees were
sophisticated, accredited investors with access to the type of information that
registration would provide. The recipient of these securities represented its
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and other instruments issued in such
transactions.   In connection with the offering, the Company paid
Cambria Capital, LLC (Cambria) $56,900 in sales commissions and to reimburse for
costs associated with the placement of the Units. Additionally, Cambria was
issued four-year broker warrants to acquire 112,140 shares of common stock
exercisable at $0.75 per share.
 
 Item 3.  Defaults Upon Senior
Securities.
 
 None.
 
 Item 4.  Submission of Matters to a Vote of
Security Holders.
 
 None.
 
 Item 5.  Other Information.
 
 None.
 
 Item 6.  Exhibits.
 
 Exhibit
      31.1*
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002.Exhibit
      32.1*
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002.
 
  *
              Filed
      herewith
 
   SIGNATURES
 
 In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
  OPEXA
      THERAPEUTICS, INC.Date:
      August 12, 2009
                By:
                /s/  Neil
      K. WarmaNeil
      K. WarmaPresident
      and Chief Executive Officer(Principal Executive
      Officer)

                    Acting
      Chief Financial Officer
                    (Principal
      Financial and Accounting Officer)




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