**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**




**FORM
      10-QSB**








**x
                QUARTERLY REPORT
                PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                EXCHANGE ACT OF 1934****For
                the quarterly period ended September 30, 2007****o
                TRANSITION REPORT
                PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                EXCHANGE ACT**


**For
      the transition period from**______**to**______****







**Commission
      File Number: 001-33004**







**Opexa
      Therapeutics, Inc.**


(Exact
      name of Issuer as specified in its charter)







**Texas**
              **76-0333165**(State
                  of Incorporation)
              (IRS
                  Employer Identification No.)







**2635
      North Crescent Ridge Drive**


**The
      Woodlands, Texas 77381**


(Address
      of
      Principal Executive Offices)








**(281)
      272-9331**


Issuer’s
      Telephone Number, Including Area Code





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 x No o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).    Yes o   No
x





Number
      of
      shares outstanding of the issuer's classes of common equity, as of November
      1,
      2007: 6,696,784 Shares of Common Stock.





Transitional
      Small Business Disclosure Format (Check
      one):    Yes o   No
x







**OPEXA
      THERAPEUTICS, INC.**


**INDEX
      TO FORM 10-QSB**


**September
      30, 2007**





**Item**
            **Description**
            **Page****Part
                I – FINANCIAL INFORMATION**Item
                1
            Balance
                Sheets as of  September 30, 2007 and
                December 31, 2006 (unaudited)
            1Statements
                of Expenses for the Three and Nine Months
                Ended September 30, 2007 and 2006 and the Period from January 22,
                2003
                (Inception) to September 30, 2007 (unaudited)
            2Statements
                of Cash Flows for the Nine Months Ended
                September 30, 2007 and 2006 and the Period from January 22, 2003
                (Inception)to September 30, 2007  (unaudited)
            3Notes
                to Financial Statements
                (unaudited)
            4Item
                2
            Management's
                Discussion and
                Analysis
            8Item
                3
            Controls
                and Procedures
            15**Part
                II**Item
                1
            Legal
                Proceedings
            16Item
                2
            Recent
                Sales of Unregistered
                Securities
            16Item
                3
            Defaults
                Upon Senior Securities
            16Item
                4
            Submission
                of Matters to a Vote of Security
                Holders
            16Item
                5
            Other
                Information
            16Item
                6
            Exhibits
            16Signatures
            17









**PART
      I**





**FINANCIAL
      INFORMATION**





ITEM
      1. FINANCIAL STATEMENTS.




**OPEXA
                    THERAPEUTICS, INC.****(a
                    development stage company)****BALANCE
                    SHEETS****(unaudited)****September
                    30,**
                
                
                **December
                    31,****2007**
                
                
                **2006****Assets**Current
                    assets:Cash
                    and cash equivalents
                
                $
                5,844,299
                
                
                $
                12,019,914Investment
                    in marketable securities
                
                
                -
                
                
                
                2,952,096Other
                    current assets
                
                
                385,717
                
                
                
                472,881Total
                    current assets
                
                
                6,230,016
                
                
                
                15,444,891Intangible
                    assets, net accumulated amortization of $4,771,303 and $3,533,568,
                    respectively
                
                
                22,345,791
                
                
                
                24,723,203Property
                    & equipment, net accumulated depreciation of $532,585 and $395,284,
                    respectively
                
                
                1,355,753
                
                
                
                1,361,377Total
                    assets
                
                $
                29,931,560
                
                
                $
                41,529,471**Liabilities
                    and Stockholders' Equity**Current
                    liabilities:Accounts
                    payable
                
                $
                1,226,879
                
                
                $
                868,862Stock
                    payable
                
                
                -
                
                
                
                112,440Accrued
                    expenses
                
                
                791,134
                
                
                
                135,069Note
                    payable
                
                
                -
                
                
                
                1,500,000Current
                    maturity of loan payable
                
                
                59,224
                
                
                
                14,080Derivative
                    liability
                
                
                -
                
                
                
                6,656,677Total
                    current liabilities
                
                
                2,077,237
                
                
                
                9,287,128Long
                    term liabilities:Loan
                    payable
                
                
                177,339
                
                
                
                96,242Total
                    liabilities
                
                
                2,254,576
                
                
                
                9,383,370Commitments
                    and contingencies
                
                
                -
                
                
                
                -Stockholders'
                    equity:Convertible
                    preferred stock, no par value, 10,000,000 shares
                
                
                -
                
                
                
                -authorized,
                    none issued and outstandingCommon
                    stock, $0.50 par value, 100,000,000 shares authorized,
                
                
                3,348,351
                
                
                
                3,348,3516,696,784
                    shares issued and outstandingAdditional
                    paid in capital
                
                
                75,863,587
                
                
                
                63,118,180Deficit
                    accumulated during the development stage
                
                
                (51,534,954
                )
                
                
                (34,320,430
                )Total
                    stockholders' equity
                
                
                27,676,984
                
                
                
                32,146,101Total
                    liabilities and stockholders' equity
                
                $
                29,931,560
                
                
                $
                41,529,471
 
 1





**OPEXA
                THERAPEUTICS, INC.****(a
                development stage company)****STATEMENTS
                OF EXPENSES****Three
                and Nine Months ended September 30, 2007 and 2006 and
                the****Period
                from January 22, 2003 (Inception) to September 30,
                2007****(unaudited)****Three
                Months**
            
            
            **Three
                Months**
            
            
            **Nine
                Months**
            
            
            **Nine
                Months**
            
            
            **Inception****Ended**
            
            
            **Ended**
            
            
            **Ended**
            
            
            **Ended**
            
            
            **through****September
                30,**
            
            
            **September
                30,**
            
            
            **September
                30,**
            
            
            **September
                30,**
            
            
            **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**
            
            
            **2007**Research
                and development
            
            $
            3,189,256
            
            
            $
            2,113,878
            
            
            $
            10,148,930
            
            
            $
            4,407,240
            
            
            $
            22,577,839General
                and administrative
            
            
            842,079
            
            
            
            1,430,507
            
            
            
            2,557,609
            
            
            
            5,676,221
            
            
            
            16,764,078Depreciation
                and amortization
            
            
            463,630
            
            
            
            462,098
            
            
            
            1,387,106
            
            
            
            1,354,873
            
            
            
            5,205,929Loss
                on impairment of intangible asset
            
            
            1,139,677
            
            
            
            -
            
            
            
            1,139,677
            
            
            
            -
            
            
            
            1,139,677Loss
                on disposal of assets
            
            
            -
            
            
            
            2,015
            
            
            
            4,034
            
            
            
            2,377
            
            
            
            486,343Operating
                loss
            
            
            (5,634,642
            )
            
            
            (4,008,498
            )
            
            
            (15,237,356
            )
            
            
            (11,440,711
            )
            
            
            (46,173,866
            )Interest
                income
            
            
            102,292
            
            
            
            259,141
            
            
            
            423,086
            
            
            
            477,547
            
            
            
            1,199,307Other
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            46,450
            
            
            
            77,003Gain
                on extinguishment of debt
            
            
            1,612,440
            
            
            
            -
            
            
            
            1,612,440
            
            
            
            -
            
            
            
            1,612,440Gain
                (loss) on derivative liability
            
            
            -
            
            
            
            2,418,078
            
            
            
            -
            
            
            
            (860,130
            )
            
            
            -Interest
                expense
            
            
            (4,731
            )
            
            
            (278
            )
            
            
            (10,875
            )
            
            
            (891
            )
            
            
            (8,249,838
            )Net
                loss
            
            $
            (3,924,641
            )
            
            $
            (1,331,557
            )
            
            $
            (13,212,705
            )
            
            $
            (11,777,735
            )
            
            $
            (51,534,954
            )Basic
                and diluted loss per share
            
            $
            (0.59
            )
            
            $
            (0.20
            )
            
            $
            (1.97
            )
            
            $
            (2.38
            )
            
            N/AWeighted
                average shares outstanding
            
            
            6,696,784
            
            
            
            6,696,784
            
            
            
            6,696,784
            
            
            
            4,950,862
            
            
            N/A




2




**OPEXA
                  THERAPEUTICS, INC.****(a
                  development stage company)****STATEMENTS
                  OF CASH FLOWS****Nine
                  Months Ended September 30, 2007 and 2006 and the****Period
                  from January 22, 2003 (Inception) to September 30,
                  2007****(unaudited)****Nine
                  Months**
              
              
              **Nine
                  Months**
              
              
              **Inception****Ended**
              
              
              **Ended**
              
              
              **through****September
                  30,**
              
              
              **September
                  30,**
              
              
              **September
                  30,****2007**
              
              
              **2006**
              
              
              **2007**Cash
                  flows from operating activitiesNet
                  loss
              
              $
              (13,212,705
              )
              
              $
              (11,777,735
              )
              
              $
              (51,534,954
              )Adjustments
                  to reconcile net loss to net cashused
                  in operating activitiesStock
                  issued for services
              
              
              -
              
              
              
              180,000
              
              
              
              1,861,400Stock
                  issued for debt in excess of principal
              
              
              -
              
              
              
              -
              
              
              
              109,070Amortization
                  of discount on notes payable dueto
                  warrants and beneficial conversion feature
              
              
              -
              
              
              
              -
              
              
              
              6,313,205Realized
                  gain on marketable securities
              
              
              25,912
              
              
              
              -
              
              
              
              -Amortization
                  of intangible assets
              
              
              1,237,735
              
              
              
              1,232,403
              
              
              
              4,771,303(Gain)
                  on derivative liability
              
              
              -
              
              
              
              860,130
              
              
              
              -(Gain)
                  on extinguishment of debt
              
              
              (1,612,440
              )
              
              
              -
              
              
              
              (1,612,440
              )Loss
                  on Impairment of intangible asset
              
              
              1,139,677
              
              
              
              -
              
              
              
              1,139,677Depreciation
              
              
              149,372
              
              
              
              122,469
              
              
              
              434,628Debt
                  financing costs
              
              
              -
              
              
              
              -
              
              
              
              365,910Option
                  and warrant expense
              
              
              2,086,911
              
              
              
              3,649,583
              
              
              
              11,390,455Loss
                  on disposition of fixed assets
              
              
              4,034
              
              
              
              2,377
              
              
              
              486,343Changes
                  in:Accounts
                  payable
              
              
              358,017
              
              
              
              381,110
              
              
              
              802,579Marketable
                  securities
              
              
              2,926,184
              
              
              
              -
              
              
              
              -Prepaid
                  expenses
              
              
              87,164
              
              
              
              (387,217
              )
              
              
              (380,847
              )Accrued
                  expenses
              
              
              656,065
              
              
              
              (37,419
              )
              
              
              605,806Other
                  assets
              
              
              -
              
              
              
              -
              
              
              
              (388,210
              )Net
                  cash provided by (used in) operating activities
              
              
              (6,154,074
              )
              
              
              (5,774,299
              )
              
              
              (25,636,075
              )Cash
                  flows from investing activitiesPurchase
                  of licenses
              
              
              -
              
              
              
              (125,000
              )
              
              
              (357,742
              )Purchase
                  of property & equipment
              
              
              (147,782
              )
              
              
              (487,567
              )
              
              
              (1,198,836
              )Disposition
                  of property & equipment
              
              
              -
              
              
              
              -
              
              
              
              -Net
                  cash used in investing activities
              
              
              (147,782
              )
              
              
              (612,567
              )
              
              
              (1,556,578
              )Cash
                  flows from financing activitiesCommon
                  stock sold for cash, net of offering costs
              
              
              -
              
              
              
              21,153,520
              
              
              
              26,509,412Proceeds
                  from debt
              
              
              137,286
              
              
              
              -
              
              
              
              6,602,199Repayments
                  on notes payable
              
              
              (11,045
              )
              
              
              -
              
              
              
              (74,659
              )Net
                  cash provided by financing activities
              
              
              126,241
              
              
              
              21,153,520
              
              
              
              33,036,952Net
                  change in cash and cash equivalents
              
              
              (6,175,615
              )
              
              
              14,766,654
              
              
              
              5,844,299Cash
                  and cash equivalents at beginning of period
              
              
              12,019,914
              
              
              
              2,560,666
              
              
              
              -Cash
                  and cash equivalents at end of period
              
              $
              5,844,299
              
              
              $
              17,327,320
              
              
              $
              5,844,299Cash
                  paid for:Income
                  tax
              
              $
              -
              
              
              $
              -
              
              
              $
              -Interest
              
              
              -
              
              
              
              -
              
              
              
              429NON-CASH
                  TRANSACTIONSIssuance
                  of common stock for purchase of Opexa
              
              $
              -
              
              
              $
              -
              
              
              $
              23,750,000Issuance
                  of common stock to Sportan shareholders
              
              
              -
              
              
              
              -
              
              
              
              147,733Issuance
                  of common stock for University of Chicago license
              
              
              -
              
              
              
              -
              
              
              
              2,295,459Issuance
                  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
              
              
              -
              
              
              
              -
              
              
              
              3,309,790-
                  beneficial conversion feature
              
              
              -
              
              
              
              -
              
              
              
              1,715,973-
                  stock attached to notes
              
              
              -
              
              
              
              -
              
              
              
              1,287,440Reclassification
                  of derivative liabilities
              
              
              6,656,677
              
              
              
              -
              
              
              
              6,656,677Stock
                  payable
              
              
              -
              
              
              
              112,440
              
              
              
              -


3




**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-KSB. 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-KSB, have
      been
      omitted.





**NOTE
      2 - GOING CONCERN**





Opexa
      incurred a net loss of approximately $13.2 million for the nine months ended
      September 30, 2007 and has an accumulated deficit of approximately $51.5
      million  Cash balance of $5.8 million as of September 30, 2007 is not
      sufficient to fund our operations for the next twelve months with a current
      burn
      rate of approximately $1,000,000 per month. These conditions raise substantial
      doubt as to Opexa’s ability to continue as a going concern. Management will seek
      to raise additional capital through sales of convertible debt and/or equity.
      The
      financial statements do not include any adjustments that might be necessary
      if
      Opexa is unable to continue as a going concern.





**NOTE
      3 – CASH AND CASH EQUIVALENTS**





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.




The
      primary objectives for our fixed income investment portfolio are liquidity
      and
      safety of principal. Investments are made with the objective of achieving the
      highest rate of return consistent with these two objectives. Opexa’s investment
      policy limits investments to certain types of instruments issued by institutions
      primarily with investment grade credit ratings and places restrictions on
      maturities and concentration by type and issuer.




At
      September 30, 2007, Opexa invested approximately $4.0 million in A-1/P-1
      commercial paper with an average market yield of 5.24% and average time to
      maturity of less than one month. At September 30, 2007, approximately $1.9
      million was invested in a money market account with an average yield of 5.29%.
      Interest income of $423,086 was recognized for the nine months ended September
      30, 2007 in the statement of expenses.





**NOTE
      4 – COMMITMENTS AND CONTINGENCIES**





In
      September 2006, Opexa entered into an Individual Project Agreement (IPA) with
      PharmaNet, LLC, a contract research organization focused on managing central
      nervous system trials.  Pursuant to such IPA, PharmaNet, LLC will
      provide Opexa with services in connection with its Phase IIb clinical
      trial. Under the terms of the IPA, Opexa is required to advance funds in
      the amount of (i) $400,000 for professional fees, (ii) $60,000 for out of pocket
      expenses and (iii) $175,000 for investigator grants.  The professional
      fee advance is applied 1/12th per month
      to
      invoices and replenished once 75% depleted.  The out of pocket advance
      will be held and applied to the final invoice.  The investigator grant
      advance is used as a draw down advance and replenished once 75%
      depleted.  This process will continue until the end of the
      study.  At the conclusion of the program, advance balances remaining
      will be applied to outstanding invoices.  These advances are treated
      as prepaid items and included in the other current assets section of the balance
      sheet. As of September 30, 2007, the advance balance to PharmaNet, LLC was
      $293,336.





In
      July
      2007, Opexa entered into a seconded 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 September
      30, 2007.





4




**NOTE
      5 – LOAN PAYABLE**





Loan
      payable consists of an equipment line of $250,000 with Wells Fargo of which
      $236,563 was outstanding as of September 30, 2007. 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
      6 – OPTIONS AND WARRANTS**





During
      the
      first quarter of 2007, Opexa issued options to purchase 9,900 shares of common
      stock of Opexa to its new employees. These options are for a term of ten years,
      have an exercise price of $4.04 and vest over three years. Fair value of $32,914
      was calculated using the Black-Scholes model. Variables used in the
      Black-Scholes option-pricing model during the three months ended March 31,
      2007,
      include (1) 4.52% discount rate, (2) option life is the expected term of 6
      years, (3) expected volatility of 103.91%, and (4) zero expected dividends.
      Option expense of $4,141 was recorded during the nine months ended September
      30,
      2007.





During
      the
      second quarter of 2007, Opexa issued options to purchase 209,000 shares of
      common stock of Opexa to its management and employees. These options are for
      a
      term of ten years, have an exercise price of $5.47 and vest over three years.
      Fair value of $907,968 was calculated using the Black-Scholes option-pricing
      model. Variables used in the Black-Scholes option-pricing model for options
      issued during the three months ended June 30, 2007, include (1) 5.07% discount
      rate, (2) option life is the expected term of 6 years, (3) expected volatility
      of 95.88%, and (4) zero expected dividends. Option expense of $86,473 was
      recorded during the nine months ended September 30, 2007.





During
      the
      second quarter of 2007, Opexa issued options to purchase 48,000 shares of common
      stock of Opexa to consultants and directors. These options are for a term of
      ten
      years, have an exercise price of $5.47 and have vesting dates that vary from
      either full or partial vesting at date of grant to full vesting at the one
      year
      anniversary of the date of grant. Fair value of $202,937 was calculated using
      the Black-Scholes option-pricing model. Variables used in the Black-Scholes
      option-pricing model for options issued during the three months ended June
      30,
      2007, include (1) 5.07% discount rate, (2) option life is the expected term
      ranging from 5 to 5.5 years, (3) expected volatility of 95.88%, and (4) zero
      expected dividends. Option expense of $122,828 was recorded during the nine
      months ended September 30, 2007.





During
      the
      third quarter of 2007, Opexa issued options to purchase 5,500 shares of common
      stock of Opexa to its new employees. These options are for a term of ten years,
      have an exercise price of $3.96 and vest over three years. Fair value of $17,129
      was calculated using the Black-Scholes model. Variables used in the
      Black-Scholes option-pricing model during the three months ended September
      30,
      2007, include (1) 4.22% discount rate, (2) option life is the expected term
      of 6
      years, (3) expected volatility of 95.36%, and (4) zero expected dividends.
      Option expense of $279 was recorded during the three months ended September
      30,
      2007.





During
      the
      third quarter of 2007, Opexa issued an option to purchase 1,500 shares of common
      stock of Opexa to a consultant  These options are for a term of ten
      years, have an exercise price of $3.96 and vest at date of grant. Fair value
      of
      $4,412 was calculated using the Black-Scholes option-pricing model. Variables
      used in the Black-Scholes option-pricing model for options issued during the
      three months ended September 30, 2007, include (1) 4.22% discount rate, (2)
      option life is the expected term of 5 years, (3) expected volatility of 95.36%,
      and (4) zero expected dividends. Option expense of $4,412 was recorded during
      the three months ended September 30, 2007.





During
      the
      third quarter of 2007, Opexa issued options to purchase 20,000 shares of common
      stock of Opexa to a new director. These options are for a term of ten years,
      have an exercise price of $3.95 and vest 50% at date of grant and 25% vest
      on
      the first and second year anniversary of date of grant. Fair value of $61,326
      was calculated using the Black-Scholes option-pricing model. Variables used
      in
      the Black-Scholes option-pricing model for options issued during the three
      months ended September 30, 2007, include (1) 4.20% discount rate, (2) option
      life is the expected term of 5.75 years, (3) expected volatility of 95.36%,
      and
      (4) zero expected dividends. Option expense of $31,210 was recorded during
      the
      three months ended September 30, 2007.





**NOTE
      7 – DERIVATIVE INSTRUMENTS**




In
      June
      2006, Opexa evaluated the application of SFAS 133 and EITF 00-19 for all of
      its financial instruments and it was determined that certain of the warrants
      to
      purchase common stock issued by Opexa associated with the bridge note exchange
      and private placement offerings in June 2005 and July 2005 were derivatives
      that
      Opexa was required to account for as free-standing derivative instruments under
      GAAP.  These three series of warrants were considered at the time to be
      derivatives because the liquidated damage provision in the registration rights
      agreement covering each warrant resulted in the conclusion that it was more
      economic to issue registered shares than to issue unregistered shares and pay
      the penalty.  Because issuing registered shares is outside of Opexa’s
      control, Opexa concluded the warrants should be accounted for as derivative
      liabilities under SFAS 133 and EITF 00-19. As a result, Opexa reported the
      value
      of these derivatives as current liabilities on its balance sheet and reported
      changes in the value of these derivatives as non-operating gains or losses
      on
      its statements of operations in the consolidated financial statements beginning
      with the year ended December 31, 2005 and re-measured and reported on a
      quarterly basis thereafter based on the Black Scholes Pricing
      Model.





5




In
      December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2, Accounting
      for Registration Payment Arrangements (EITF 00-19-2). EITF 00-19-2 addresses
      an
      issuer’s accounting for registration payment arrangements. It 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 or
      other
      agreement, should be separately recognized and measured in accordance with
      FASB
      Statement No. 5, Accounting for Contingencies. The guidance in EITF 00-19-2
      amends FASB Statements No. 133, Accounting for Derivative Instruments and
      Hedging Activities, and No. 150, Accounting for Certain Financial
      Instruments with Characteristics of both Liabilities and Equity, and FASB
      Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements
      for Guarantees, including Indirect Guarantees of Indebtedness of Others, to
      include scope exceptions for registration payment arrangements. EITF 00-19-2
      also requires additional disclosure regarding the nature of any registration
      payment arrangements, alternative settlement methods, the maximum potential
      amount of consideration and the current carrying amount of the liability, if
      any. This EITF is effective immediately for registration payment arrangements
      and the financial instruments subject to those arrangements that are entered
      into or modified subsequent to the date of issue of this EITF. For registration
      payment arrangements and financial instruments subject to those arrangements
      that were entered into prior to the issuance of this EITF, this is effective
      for
      financial statements issued for fiscal years beginning after December 15, 2006,
      and interim periods within those fiscal years.





Opexa
      evaluated the application of EITF 00-19-2 for all its financial instruments
      and
      determined that certain warrants to purchase common stock issued by Opexa
      associated with the bridge note exchange and private placement offerings in
      June
      2005 and July 2005 no longer qualified to be classified as derivative
      liabilities.  In addition, Opexa accounts for registration rights
      agreement penalties as contingent liabilities, applying the accounting guidance
      of Financial Accounting Standard No. 5, “Accounting for Contingencies” (“FAS
      5”). This accounting is consistent with views established by the FASB Staff
      Positions FSP EITF 00-19-2 “Accounting for Registration Payment Arrangements”,
      which was issued December 21, 2006. Accordingly, Opexa recognizes the damages
      when it becomes probable that they will be incurred and amounts are reasonably
      estimable.





4,600,000
      shares of common stock and 2,513,720 warrants to purchase common stock are
      subject to a registration payment arrangement that provides if a resale
      registration statement is not effective for any period after April 13, 2007,
      the
      warrant holders may exercise their warrants on a cashless basis during the
      period the resale registration statement is not effective.  If Opexa
      fails to register, achieve effectiveness of registration or maintain
      effectiveness of registration of shares underlying the warrants and shares,
      they
      are required to make certain liquidated damage payments of 1.5% of the aggregate
      amount of proceeds of the offering per month for every month in default with
      a
      maximum of 24%. Opexa does not believe these payments are probable and thus
      no
      contingent liability has been recorded.





1,272,356
      shares of common stock and 1,714,410 shares of common stock issuable upon the
      exercise of common stock purchase warrants issued in June 2005 and July
      2005 are subject to a registration payment arrangement that provides
      if a resale registration statement is not effective for any period after the
      first anniversary of the warrant, the warrant holders may exercise their
      warrants on a cashless basis during the period the resale registration statement
      is not effective.  If Opexa fails to register, achieve effectiveness
      of registration or maintain effectiveness of registration of shares underlying
      the warrants and shares, they are required to make certain liquidated damage
      payments of 1.0% of the aggregate amount of proceeds of the offering per month
      for the first calendar month of registration default and 2% for every month
      in
      default after the first month. Opexa does not believe these payments are
      probable and thus no contingent liability has been recorded.





The
      impact
      of implementing EITF 00-19-2 for the nine months ended September 30, 2007
      resulted in a cumulative effect of a change in accounting principle with a
      decrease in the derivative liability of $6,656,677 and a decrease to beginning
      retained earnings of $4,001,819 reversing gains posted to date and a
      reclassification of the original value of the warrants from liability to equity
      of $10,658,496.





6





**NOTE
      8 – LICENSES AND IMPAIRMENT OF INTANGIBLE ASSETS**





***University
      of Chicago License Agreement***





In
      2004,
      Opexa entered into an agreement with the University of Chicago (“University”)
      for the worldwide license to technology developed at Argonne National
      Laboratory, a U.S. Department of Energy Laboratory operated by the
      University.  The license was later amended granting Opexa an
      exclusive, non-transferable worldwide license to the University’s stem cell
      technology.  In consideration for the license and amendment, Opexa
      paid the University a total of $232,742 and issued the University 53,462 shares
      of common stock valued at $2,295,461.  Opexa also agreed to pay the
      University $1.5 million and to issue the University 21,623 shares of
      Opexa common stock.  In April 2007, the $1.5 million cash payment
      obligation was extended until July 31, 2007 and the obligation to issue shares
      of Opexa’s common stock was extended until July 31, 2007, with $112,440 accrued
      as of June 30, 2007.





On
      July
      31, 2007, Opexa entered into a second amended and restated license agreement
      with the University of Chicago that eliminated the obligations under the prior
      agreement for the payment of $1.5 million due July 31, 2007 and the obligation
      to issue 21,623 shares of Opexa common stock.  These obligations were
      recorded as an intangible asset, with the liabilities recorded as a notes
      payable - current portion of $1.5 million and a stock payable of
      $112,440.  As a result of the amendment and restatement of the license
      agreement with the University of Chicago $1,612,440 was reported as a gain
      on
      extinguishment of liability.  Opexa applied the accounting guidance of
      Financial Accounting Standard No. 140, “Accounting for Transfers and Servicing
      of Financial Assets and Extinguishments of Liabilities” (“FAS 140”) and EITF
      96-19 “Debtor's Accounting for a Modification or Exchange of Debt
      Instruments”.  In addition, as a result of the new agreement, per
      Financial Accounting Standard No. 144, “Accounting for the Impairment or
      Disposal of Long Lived Assets”, Opexa conducted an analysis of the potential
      impairment of the University of Chicago patent and license asset (“UC Asset”)
      and as a result, there was an impairment of the fair value of the UC Asset
      and a
      loss on impairment of $1,139,677 was recorded for the three months ended
      September 30, 2007.




7




**ITEM
      2.  MANAGEMENT'S DISCUSSION AND
      ANALYSIS**





*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 September
      30, 2007.  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-KSB for the year ended December 31,
      2006.





**Business
      Overview**





We
      are a
      biopharmaceutical company developing autologous cellular therapies to treat
      several major illnesses, including multiple sclerosis (MS), rheumatoid arthritis
      (RA), diabetes, and cardiovascular disease. These therapies are based on our
      proprietary T-cell and adult stem cell technologies.




Our
      lead
      product, Tovaxin®, is a T-cell based therapeutic vaccine for MS licensed from
      the Baylor College of Medicine, which offers a unique and personalized approach
      to treating the disease by inducing an immune response against the autoimmune
      myelin peptide-reactive T-cells (MRTCs), which are believed to be responsible
      for the initiation of the disease process.




Tovaxin
      is
      currently in a Phase IIb clinical trial. Initial Phase I/II open-label human
      trials show that T-cell vaccination (TCV) appears to safely induce immune
      responses that deplete and regulate MRTCs. In two open-label Phase I/II clinical
      trials, the annualized relapse rates of patients were reduced by an average
      of
      approximately 90% compared to their prior history of relapses.  Some
      patients also appear to experience an improvement of their Kurtzke Expanded
      Disability Status Scale (EDSS), a scoring method used to measure the disability
      of MS patients.  Improvements in EDSS are not frequently observed in
      patients following treatment with other currently licensed therapies. Although
      the data from our Phase I/II trials appears to be promising, the Phase IIb
      trial
      is being conducted to confirm these results. With additional and continuing
      positive clinical evidence, we believe that Tovaxin could be ready for
      commercialization as early as 2012.




We
      also
      hold an exclusive worldwide license for the intellectual property rights and
      research results of an autologous T-cell vaccine for RA from the Shanghai
      Institutes for Biological Sciences (SIBS), Chinese Academy of Sciences of the
      People's Republic of China.




Our
      RA
      T-cell vaccination (TCV) technology is conceptually similar to Tovaxin. RA
      is an
      autoimmune T-cell-mediated disease in which pathogenic T-cells trigger an
      inflammatory autoimmune response of the synovial joints of the wrists,
      shoulders, knees, ankles and feet which causes pain, stiffness, and swelling
      around the joints and erosion into cartilage and bone.  The RA TCV
      technology allows the isolation of these pathogenic T-cells from synovial fluid
      drawn from a patient.  These T-cells may be grown to therapeutic
      levels and attenuated by gamma irradiation in our laboratory.  The
      attenuated T-cells may be injected subcutaneously into patients thereby inducing
      an immune response directed at the pathogenic T-cells in the patient’s
      body.  This immune response is expected to regulate the level of
      pathogenic T-cells and thus reduce joint swelling in RA patients. Human trials
      that have been conducted in China show minimal side-effects and promising
      efficacy measured as a reduction of joint swelling following the T-cell
      vaccination.




We
      also
      have an exclusive license from the University of Chicago, through its prime
      contractor relationship with Argonne National Laboratory, to a stem cell
      technology in which adult multipotent stem cells are derived from monocytes
      (white blood cells) obtained from the patient’s own blood. We are initially
      pursuing indications in diabetes mellitus with our stem cell therapy and are
      conducting preclinical animal studies.





8




Our
      stem
      cell technology isolates novel multipotent stem cells derived from peripheral
      blood monocytes. *In vitro* experiments with monocyte-derived stem cells
      (MDSC) have shown their capacity to differentiate into a wide variety of cell
      types including
      pancreatic
β cells.  We have demonstrated that these pancreatic islets clusters
      derived from MDSCs are composedof three pancreatic cells types (a, b and
d).
      These islet
      clusters are responsive to glucose and mimic the normal pulsatile pattern
      observed in human islets.****The importance of these stem
      cells is the ability to easily isolate them from an individual’s circulating
      monocytes, expand them and administer them back into the same patient. This
      autologous approach provides a method to overcome any rejection issues and
      the
      need for immunosuppressant drugs which are often associated with current islet
      cell transplantations. This technology may lead to the formation of an unlimited
      source of pancreatic islet cells suitable for an autologous cell therapy for
      the
      treatment of diabetes mellitus.




**Critical
      Accounting Policies**




***General***




The
      Financial Statements and Notes to Financial Statements contain information
      that
      is pertinent to this Management’s Discussion and Analysis.  The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of any contingent assets and liabilities.  Management
      believes these accounting policies involve judgment due to the sensitivity
      of
      the methods, assumptions and estimates necessary in determining the related
      asset and liability amounts.  Management believes it has exercised
      proper judgment in determining these estimates based on the facts and
      circumstances available to it at the time the estimates were
      made.  The significant accounting policies are described in the
      Company's financial statements.




***Long-lived
      assets***





Long-lived
      assets (i.e., intangible assets) are reviewed for impairment whenever events
      or
      changes in circumstances indicate that the net book value of the asset may
      not
      be recoverable.  An impairment loss is recognized if the sum of the
      expected future cash flows (undiscounted and before interest) from the use
      of
      the asset is less than the net book value of the asset.  Generally,
      the amount of the impairment loss is measured as the difference between the
      net
      book value of the asset and the estimated fair value of the related
      asset.  There was an impairment of the fair value of the intangible
      asset associated with the University of Chicago monocyte-derived stem cell
      technology license and a loss on impairment of $1,139,677 was recorded for
      the
      three months ended September 30, 2007





***Intellectual
      Property***




As
      of
      September 30, 2007, we had $27,117,094 of intellectual property, $23,991,128
      of
      which resulted from the acquisition of Opexa, $3,000,966 which pertained to
      the
      consideration paid to date to the University of Chicago for the worldwide
      license to technology developed at Argonne National Laboratory, and $125,000
      paid to the Shanghai Institute for Biological Science, China Academy of Science
      of the People’s Republic of China whereby we acquired an exclusive worldwide
      license for the intellectual property rights and research results of an
      autologous T cell vaccine for rheumatoid arthritis. Of the $23,991,128 of
      acquired intangible assets, the full amount is assigned to an inseparable group
      of patents and licenses that cannot function independently by themselves. The
      weighted average useful life of the intangible group as of September 30, 2007
      is
      approximately 16.4 years.  The weighted average useful life of the
      University of Chicago license is approximately 16.1 years. Accumulated
      amortization for the intellectual property as of September 30, 2007 is
      $4,771,303.




**Results
      of Operations and Financial Condition**




*Three
      Months Ended*September*30, 2007 Compared with the Three Months Ended
      September 30, 2006*





**Net
      Sales.**We recorded no sales for the three months ended
*September*30, 2007 and 2006.




**General
      and Administrative Expenses.**Our general and administrative expense was
      $842,079 for the three months ended September 30, 2007, as compared to
      $1,430,507 for the three months ended September 30, 2006.  The
      decrease in expenses is primarily due to a decrease in stock compensation
      expenses, professional service fees and overhead expenses.  We
      anticipate increases in general and administrative expenses as we continue
      to
      develop and prepare for commercialization of our technology.




**Research
      and Development Expenses.**Research and development expense was
      $3,189,256 for the three months ended September 30, 2007, compared to $2,113,878
      for the three months ended September 30, 2006. The increase in expenses was
      primarily due to the costs of the Phase IIb clinical trial for Tovaxin and
      stock
      compensation expense recorded in 2007.  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.  We expect our research and development
      expense to increase as we continue to invest in the development of our
      technology.




9




**Interest
      Expense.**  Interest expense was $4,731 for the three months
      ended September 30, 2007, compared to $278 for the three months ended September
      30, 2006. The increase in interest expense was primarily due to a loan payable
      consisting of an equipment line of up to $250,000 with Wells Fargo of which
      $236,563 was outstanding as of September 30, 2007.




**Interest
      Income.**  Interest income was $102,292 for the three months
      ended September 30, 2007 compared to $259,141 for the three months ended
      September 30, 2006.  The decrease was due to the reduction in cash
      balances that were available for investment in cash equivalent
      investments.




**Net
      loss.** We had a net loss for the three months ended September 30, 2007,
      of $3,924,641, or $0.59 per share (basic and diluted), compared with a net
      loss
      of $1,331,557, or $0.20 per share (basic and diluted), for the three months
      ended September 30, 2006. The increase in net loss is primarily due to the
      costs
      of the Phase IIb clinical trial for Tovaxin and the loss on impairment of
      intangible assets offset by a reduction in stock-based compensation expense
      and
      gain on extinguishment of debt.




*Nine
      Months Ended September 30, 2007 Compared with the Nine Months Ended September
      30, 2006*





**Net
      Sales.**We recorded no sales for the nine months ended
      September 30, 2007 and 2006.




**General
      and Administrative Expenses.**General and administrative expense was
      $2,557,609 for the nine months ended September 30, 2007, as compared to
      $5,676,221 for the nine months ended September 30, 2006.  The decrease
      in expenses is primarily due to a decrease in stock compensation expenses,
      professional service fees and overhead expenses.  We anticipate
      increases in general and administrative expenses as we continue to develop
      and
      prepare for commercialization of our technology.




**Research
      and Development Expenses.**Research and development expense was
      $10,148,930 for the nine months ended September 30, 2007, compared to $4,407,240
      for the nine months ended September 30, 2006.   The increase in
      expenses was primarily due to the costs of the Phase IIb clinical trial for
      Tovaxin, research and development in support of pre-clinical diabetes stem
      cell
      therapies and stock compensation expense recorded in 2007.  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.  We expect our research
      and development expense to increase as we continue to invest in the development
      of our technology.




**Interest
      Expense.**  Interest expense was $10,875 for the nine months
      ended September 30, 2007, compared to $891 for the nine months ended September
      30, 2006. The increase in interest expense was primarily due to a loan payable
      consisting of an equipment line of up to $250,000 with Wells Fargo of which
      $236,563 was outstanding as of September 30, 2007.




**Interest
      Income.**  Interest income was $423,086 for the nine months
      ended September 30, 2007 compared to $477,547 for the nine months ended
      September 30, 2006.  The decrease was due to the reduction in cash
      balances that were available for investment in cash equivalent
      investments.




**Net
      loss.** We had a net loss for the nine months ended September 30, 2007,
      of $13,212,705, or $1.97 per share (basic and diluted), compared with a net
      loss
      of $11,777,735, or $2.38 per share (basic and diluted), for the nine months
      ended September 30, 2006. The increase in net loss is primarily due to the
      costs
      associated with the Phase IIb clinical trial for Tovaxin and the loss on
      impairment of intangible assets offset by a reduction in stock-based
      compensation expense, gain on extinguishment of liability and loss on derivative
      instruments.




**Liquidity
      and Capital Resources**




**Changes
      in cash flow.**Cash used in operations for the nine month
      period ended September 30, 2007 was $6,154,074, as compared to $5,774,299 used
      in operations for the nine months ended September 30, 2006. The increase in
      cash
      used in operations is primarily due to an increase in operating expenses offset
      in part by the maturity of approximately $2.9 million in marketable securities
      and its reclassification to cash and cash equivalents and by an increase in
      accrued expenses resulting from the Phase IIb clinical trial.  Cash
      used in investing activities for the nine month period ended September 30,
      2007
      was $147,782, as compared to $612,567 for the nine months ended September 30,
      2006.  The decrease was primarily due to a decrease in equipment
      purchases and the license payment made to Shanghai Institute related to the
      license obtained during the nine months ended September 30, 2006 for its
      rheumatoid arthritis T-cell technology. Cash provided from financing activities
      for the nine month period ended September 30, 2007 was $126,241, as compared
      to
      $21,153,520 for the nine months ended September 30, 2006. The decrease was
      due
      to the proceeds from the April 2006 equity financing.





10




**Liquidity**.  Historically,
      the Company has financed its operations primarily from the sale of its debt
      and
      equity securities.  As of September 30, 2007, the Company had cash, cash
      equivalents and marketable securities of approximately $5.8
      million.




Our
      current burn rate is approximately $1 million per month excluding capital
      expenditures.  We will need to raise additional capital to fund our working
      capital needs beyond the first quarter of 2008.  We must rely upon
      third-party debt or equity funding and we can provide no assurance that we
      will
      be successful in any funding effort. The failure to raise such funds will
      necessitate the curtailment or ceasing of operations and impact the completion
      of the clinical trials.




**Off-Balance
      Sheet Arrangements**





As
      of September 30, 2007, we had no
      off-balance sheet arrangements.





**Recent
      Accounting Pronouncements**





For
      the
      period ended September 30, 2007, there were no other changes to our critical
      accounting policies as identified in our annual report of Form 10-KSB for the
      year ended December 31, 2006.





**Risk
      Factors**





The
      following factors affect our
      business and the industry in which we operate. The risks and uncertainties
      described below are not the only ones we face. Additional risks and
      uncertainties not presently known or which we currently consider immaterial
      may
      also have an adverse effect on our business. If any of the matters discussed
      in
      the following risk factors were to occur, our business, financial condition,
      results of operations, cash flows, or prospects could be materially adversely
      affected.




***Our
      business is at an early stage of development.***




Our
      business is at an early stage of development. We do not have any products in
      late-stage clinical trials or on the market. We are still in the early stages
      of
      identifying and conducting research on potential products. Only one of our
      products has progressed to the stage of being studied in human clinical trials
      in the U.S.  Our potential products will require significant research
      and development and preclinical and clinical testing prior to regulatory
      approval in the United States and other countries. We may not be able to develop
      any products, to obtain regulatory approvals, to enter clinical trials for
      any
      of our product candidates, or to commercialize any products. Our product
      candidates may prove to have undesirable and unintended side effects or other
      characteristics adversely affecting their safety, efficacy or cost-effectiveness
      that could prevent or limit their use. Any product using any of our technology
      may fail to provide the intended therapeutic benefits, or achieve therapeutic
      benefits equal to or better than the standard of treatment at the time of
      testing or production.




***We
      have a history of operating losses and do not expect to be profitable in the
      near future.***




We
      have
      not generated any profits since our entry into the biotechnology business,
      have
      no source of revenues, and have incurred significant operating losses. We expect
      to incur additional operating losses for the foreseeable future and, as we
      increase our research and development activities, we expect our operating losses
      to increase significantly. We do not have any sources of revenues and may not
      have any in the foreseeable future.




***We
      will need additional capital to conduct our operations and develop our products
      and our ability to obtain the necessary funding is
      uncertain.***




We
      need to
      obtain significant additional capital resources from sources including equity
      and/or debt financings, license arrangements, grants and/or collaborative
      research arrangements in order to develop products and continue our
      business.  As of September 30, 2007, we had cash, cash equivalents and
      marketable securities of approximately $5.8 million. Our current burn rate
      is
      approximately $1 million per month excluding capital expenditures. We will
      need to raise additional capital to fund our working capital needs beyond first
      quarter 2008.  We must rely upon third-party debt or equity funding
      and we can provide no assurance that we will be successful in any funding
      effort. The failure to raise such funds will necessitate the curtailment or
      ceasing of operations and impact the completion of the clinical
      trials.




11




The
      timing and degree of any future capital requirements will depend on many
      factors, including:


·
              the
                    accuracy of the assumptions underlying our estimates for capital
                    needs in
                    2008 and beyond;




·
            scientific
                progress in our research and development
                programs;




·
            the
                magnitude and scope of our research and development
                programs;




·
            our
                ability to establish, enforce and maintain strategic arrangements
                for
                research, development, clinical testing, manufacturing and
                marketing;




·
            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.




We
      do not
      have any committed sources of capital, although we have issued and outstanding
      warrants that, if exercised, would result in an equity capital raise
      transaction.  Additional financing through strategic collaborations,
      public or private equity financings, capital lease transactions or other
      financing sources may not be available on acceptable terms, or at all.
      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 be required to delay, reduce the scope of or eliminate
      one
      or more of our programs, any of which could have a material adverse effect
      on
      our financial condition or business prospects.




***Approximately
      70% of our total assets are comprised of intangible assets that are subject
      to
      review on a periodic basis to determine whether an impairment on these assets
      is
      required.  An impairment would not only greatly diminish our assets,
      but would require us to record a significant non-cash expense
      charge.***





We
      are
      required under generally accepted accounting principles to review our intangible
      assets for impairment when events or changes in circumstances indicate the
      carrying value may not be recoverable. At September 30, 2007, our net intangible
      assets, consisting of the University of Chicago license, acquired intangible
      assets from the Opexa acquisition that is an inseparable group of patents and
      licenses that can’t function independently and the RA license acquired from the
      Shanghai Institutes for Biological Sciences, Chinese Academy of Sciences of
      the
      People's Republic of China were approximately $22.3 million. If management
      determines that impairment exists, we will be required to record a significant
      charge to expense in our financial statements during the period in which any
      impairment of our intangibles is determined.  An impairment analysis
      was conducted as of September 30, 2007 for the University of Chicago license
      intangible asset and a loss on impairment of $1,139,677 was recorded for the
      three months ended September 30, 2007.





***Clinical
      trials are subject to extensive regulatory requirements, very expensive,
      time-consuming and difficult to design and implement.  Our products
      may fail to achieve necessary safety and efficacy endpoints during clinical
      trials.***




Human
      clinical trials are very expensive and difficult to design and implement, in
      part because they are subject to rigorous regulatory requirements. The clinical
      trial process is also time consuming. We estimate that clinical trials of our
      product candidates will take at least several years to complete. Furthermore,
      failure can occur at any stage of the trials, and we could encounter problems
      that cause us to abandon or repeat clinical trials. The commencement and
      completion of clinical trials may be delayed by several factors,
      including:




·
            unforeseen
                safety issues;




·
            determination
                of dosing issues;




·
            lack
                of effectiveness during clinical
                trials;




·
            slower
                than expected rates of patient
                recruitment;




·
            inability
                to monitor patients adequately during or after treatment;
                and




·
            inability
                or unwillingness of medical investigators to follow our clinical
                protocols.




In
      addition, we or the FDA may suspend our clinical trials at any time if it
      appears that we are exposing participants to unacceptable health risks or if
      the
      FDA finds deficiencies in our IND submissions or the conduct of these
      trials.




12




***We
      are dependent upon our management team and a small number of
      employees.***




Our
      business strategy is dependent upon the skills and knowledge of our management
      team.  We believe that the special knowledge of these individuals
      gives us a competitive advantage.  If any critical employee leaves, we
      may be unable on a timely basis to hire suitable replacements to effectively
      operate our business.  We also operate with a very small number of
      employees and thus have little or no backup capability for their
      activities.  The loss of the services of any member of our management
      team or the loss of a number of other employees could have a material adverse
      effect on our business.




***We
      are dependent on contract research organizations and other contractors for
      clinical testing and for certain research and development activities, thus
      the
      timing and adequacy of our clinical trials and such research activities are,
      to
      a certain extent, beyond our control.***




The
      nature
      of clinical trials and our business strategy requires us to rely on contract
      research organizations, independent clinical investigators and other third
      party
      service providers to assist us with clinical testing and certain research and
      development activities. As a result, our success is dependent upon the success
      of these outside parties in performing their responsibilities. Although we
      believe our contractors are economically motivated to perform on their
      contractual obligations, we cannot directly control the adequacy and timeliness
      of the resources and expertise applied to these activities by our contractors.
      If our contractors do not perform their activities in an adequate or timely
      manner, the development and commercialization of our drug candidates could
      be
      delayed.




***Our
      current research and manufacturing facility is not large enough to manufacture
      future stem cell and T-cell therapies.***




We
      conduct
      our research and development in a 10,200 square foot facility in The Woodlands,
      Texas, which includes an approximately 800 square foot suite of three rooms
      for
      the manufacture of stem cell and T-cell therapies through Phase III
      trials.  Our current facility is not large enough to conduct
      commercial-scale manufacturing operations.  We will need to expand
      further our manufacturing staff and facility, obtain a new facility or contract
      with corporate collaborators or other third parties to assist with future drug
      production.




In
      the
      event that we decide to establish a commercial-scale manufacturing facility,
      we
      will require substantial additional funds and will be required to hire and
      train
      significant numbers of employees and comply with applicable regulations, which
      are extensive. We do not have funds available for building a manufacturing
      facility, and we may not be able to build a manufacturing facility that both
      meets regulatory requirements and is sufficient for our commercial-scale
      manufacturing.




We
      may
      arrange with third parties for the manufacture of our future products. However,
      our third-party sourcing strategy may not result in a cost-effective means
      for
      manufacturing our future products.  If we employ third-party
      manufacturers, we will not control many aspects of the manufacturing process,
      including compliance by these third parties with the FDA’s current Good
      Manufacturing Practices and other regulatory requirements. We further may not
      be
      able to obtain adequate supplies from third-party manufacturers in a timely
      fashion for development or commercialization purposes, and commercial quantities
      of products may not be available from contract manufacturers at acceptable
      costs.




***Patents
      obtained by other persons may result in infringement claims against us that
      are
      costly to defend and which may limit our ability to use the disputed
      technologies and prevent us from pursuing research and development or
      commercialization of potential products.***




A
      number
      of pharmaceutical, biotechnology and other companies, universities and research
      institutions have filed patent applications or have been issued patents relating
      to cell therapy, stem cells, T-cells, and other technologies potentially
      relevant to or required by our expected products. We cannot predict which,
      if
      any, of such applications will issue as patents or the claims that might be
      allowed. We are aware that a number of companies have filed applications
      relating to stem cells. We are also aware of a number of patent applications
      and
      patents claiming use of stem cells and other modified cells to treat disease,
      disorder or injury.




If
      third
      party patents or patent applications contain claims infringed by either our
      licensed technology or other technology required to make and use our potential
      products and such claims are ultimately determined to be valid, there can be
      no
      assurance that we would be able to obtain licenses to these patents at a
      reasonable cost, if at all, or be able to develop or obtain alternative
      technology. If we are unable to obtain such licenses at a reasonable cost,
      we
      may not be able to develop some products commercially. There can be no assurance
      that we will not be obliged to defend ourselves in court against allegations
      of
      infringement of third party patents. Patent litigation is very expensive and
      could consume substantial resources and create significant uncertainties. An
      adverse outcome in such a suit could subject us to significant liabilities
      to
      third parties, require disputed rights to be licensed from third parties, or
      require us to cease using such technology.




13




***If
      we are unable to obtain future patents and other proprietary rights our
      operations will be significantly harmed.***




Our
      ability to compete effectively is dependent in part upon obtaining patent
      protection relating to our technologies. The patent positions of pharmaceutical
      and biotechnology companies, including ours, are uncertain and involve complex
      and evolving legal and factual questions. The coverage sought in a patent
      application can be denied or significantly reduced before or after the patent
      is
      issued. Consequently, we do not know whether the patent applications for our
      technology will result in the issuance of patents, or if any future patents
      will
      provide significant protection or commercial advantage or will be circumvented
      by others. Since patent applications are secret until the applications are
      published (usually eighteen months after the earliest effective filing date),
      and since publication of discoveries in the scientific or patent literature
      often lags behind actual discoveries, we cannot be certain that the inventors
      of
      our licensed patents were the first to make the inventions covered by the patent
      applications or that the licensed patent applications were the first to be
      filed
      for such inventions. There can be no assurance that patents will issue from
      the
      patent applications or, if issued, that such patents will be of commercial
      benefit to us, afford us adequate protection from competing products, or not
      be
      challenged or declared invalid.




***Our
      competition includes fully integrated biopharmaceutical and pharmaceutical
      companies that have significant advantages over us.***




The
      markets for therapeutic stem cell products, multiple sclerosis products, and
      rheumatoid arthritis products are highly competitive. We expect that our most
      significant competitors are fully integrated pharmaceutical companies and more
      established biotechnology companies. These companies are developing stem
      cell-based products and they have significantly greater capital resources and
      expertise in research and development, manufacturing, testing, obtaining
      regulatory approvals, and marketing than we currently do. Many of these
      potential competitors are further along in the process of product development
      and also operate large, company-funded research and development programs. As
      a
      result, our competitors may develop more competitive or affordable products,
      or
      achieve earlier patent protection or product commercialization than we are
      able
      to achieve. Competitive products may render any products or product candidates
      that we develop obsolete.




***If
      we fail to meet our obligations under our license agreements, we may lose our
      rights to key technologies on which our business
      depends.***




Our
      business depends on three licenses from third parties. These third party license
      agreements impose obligations on us, such as payment obligations and obligations
      to diligently pursue development of commercial products under the licensed
      patents. If a licensor believes that we have failed to meet our obligations
      under a license agreement, the licensor could seek to limit or terminate our
      license rights, which could lead to costly and time-consuming litigation and,
      potentially, a loss of the licensed rights. During the period of any such
      litigation, our ability to carry out the development and commercialization
      of
      potential products could be significantly and negatively affected. If our
      license rights were restricted or ultimately lost, our ability to continue
      our
      business based on the affected technology platform could be severely adversely
      affected.




***Restrictive
      and extensive government regulation could slow or hinder our production of
      a
      cellular product.***




The
      research and development of stem cell therapies is subject to and restricted
      by
      extensive regulation by governmental authorities in the United States and other
      countries. The process of obtaining U.S. Food and Drug Administration, or FDA,
      and other necessary regulatory approvals is lengthy, expensive and uncertain.
      We
      may fail to obtain the necessary approvals to continue our research and
      development, which would hinder our ability to manufacture or market any future
      product.




***To
      be successful, our product candidates must be accepted by the health care
      community, which can be very slow to adopt or unreceptive to new technologies
      and products.***




Our
      product candidates, if approved for marketing, may not achieve market acceptance
      since hospitals, physicians, patients or the medical community in general may
      decide to not accept and utilize these products. The product candidates that
      we
      are attempting to develop represent substantial departures from established
      treatment methods and will compete with a number of more conventional drugs
      and
      therapies manufactured and marketed by major pharmaceutical companies. The
      degree of market acceptance of any of our developed products will depend on
      a
      number of factors, including:




·
            our
                establishment and demonstration to the medical community of the clinical
                efficacy and safety of our product
                candidates;




·
              our
                    ability to create products that are superior to alternatives
                    currently on
                    the market;




·
            our
                ability to establish in the medical community the potential advantage
                of
                our treatments over alternative treatment methods;
                and


·
              reimbursement
                    policies of government and third-party
                    payers.




14




If
      the
      health care community does not accept our products for any of the foregoing
      reasons, or for any other reason, our business would be materially
      harmed.




***There
      is currently a limited market for
      our common stock, andany
      trading market that exists in our common stock may be highly illiquid and may
      not reflect the underlying value of the Company’s net assets or business
      prospects.***




Although
      our common stock is traded on the Nasdaq Global Market, there is currently
      a
      limited market for our common stock and there can be no assurance that an
      improved market will ever develop.  Investors are cautioned not to
      rely on the possibility that an active trading market may develop.




***As
      our share price is volatile, we may be or become the target of securities
      litigation, which is costly and time-consuming to
      defend.***




In
      the
      past, following periods of market volatility in the price of a company’s
      securities or the reporting of unfavorable news, security holders have often
      instituted class action litigation. If the market value of our common stock
      experiences adverse fluctuations and we become involved in this type of
      litigation, regardless of the outcome, we could incur substantial legal costs
      and our management’s attention could be diverted from the operation of our
      business, causing our business to suffer.




***Our
      "blank check" preferred stock could be issued to prevent a business combination
      not desired by management or our current majority
      shareholders.***




Our
      articles of incorporation authorize the issuance of "blank check" preferred
      stock with such designations, rights and preferences as may be determined by
      our
      board of directors without shareholder approval. Our preferred stock could
      be
      utilized as a method of discouraging, delaying, or preventing a change in our
      control and as a method of preventing shareholders from receiving a premium
      for
      their shares in connection with a change of control.




***Future
      sales of our common stock in the public market could lower our stock
      price.***




We
      may
      sell additional shares of common stock in subsequent public or private
      offerings. We may also issue additional shares of common stock to finance future
      acquisitions. We cannot predict the size of future issuances of our common
      stock
      or the effect, if any, that future issuances and sales of shares of our common
      stock will have on the market price of our common stock. Sales of substantial
      amounts of our common stock (including shares issued in connection with an
      acquisition), or the perception that such sales could occur, may adversely
      affect prevailing market prices for our common stock.




***We
      presently do not intend to pay cash
      dividends on our common stock.***




We
      currently anticipate that no cash dividends will be paid on the common stock
      in
      the foreseeable future. While our dividend policy will be based on the operating
      results and capital needs of the business, it is anticipated that all earnings,
      if any, will be retained to finance the future expansion of the our
      business.







**ITEM
      3. CONTROLS AND PROCEDURES**





**(a)**
            **Evaluation
                of 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 officers (whom we
      refer to in this periodic report as our Certifying Officers), as appropriate
      to
      allow timely decisions regarding required disclosure. Our management evaluated,
      with the participation of our Certifying Officers, the effectiveness of our
      disclosure controls and procedures as of September 30, 2007, pursuant to
      Rule 13a-15(b) under the Securities Exchange Act. Based upon that
      evaluation, our Certifying Officers concluded that, as of September 30, 2007,
      our disclosure controls and procedures were effective.





15




**(b)**
            **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 year that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.







**PART
      II**




**OTHER
      INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS.**





None.








**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS.**





None.








**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
              Chief
                  Executive Officer Certification Pursuant to Section 13a-14 of the
                  Securities Exchange Act (1)Exhibit
                  31.2
              Chief
                  Financial Officer Certification Pursuant to Section 13a-14 of the
                  Securities Exchange Act (1)Exhibit
                  32.1
              Certification
                  Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                  906 of
                  the Sarbanes- Oxley Act of 2002 (1)Exhibit
                  32.2
              Certification
                  Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                  906 of
                  the Sarbanes- Oxley Act of 2002
                  (1)




(1)  Filed
      herewith.





16




**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.**By:
            /s/ DAVID
              B. MCWILLIAMSDavid
              B. McWilliamsPresident
              and Chief Executive Officer


Date:
                November 2, 2007
            By:
            /s/ LYNNE
              HOHLFELDLynne
              HohlfeldChief
              Financial Officer and Principal Accounting Officer






17