****    **UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-QSB**





**(Mark
      One)**





**x**
            
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
                ACT
                OF 1934**





**For
                the quarterly period ended June 30,
                2006**





**or**





**o**
            
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
                ACT
                OF 1934**





**For
                the transition period from  ________     to
                ______________**





**Commission
      File Number: 000-32947**





**Lev
      Pharmaceuticals, Inc.**


(Exact
      name of small business issuer as specified in its charter)





**Delaware**
            **88-0211496**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer Identification No.)**122
                East 42nd Street, Suite 2606**
              **New
                York, New York**
            **10168**(Address
                of principal executive offices)
            (Zip
                Code)




**Issuer’s
      telephone number: (212) 682-3096**





**N/A**





(Former
      Name, Former Address and Former Fiscal Year, if Changes


Since
      Last Report





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to the 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). o Yes x No





As
      of
      August 9, 2006, the issuer had 81,702,544 shares of common stock outstanding.





Transitional
      Small Business Disclosure Format (check one): oYesxNo


1




**Lev
      Pharmaceuticals, Inc.**




**Index
      to Form 10-QSB**





PagePart
                  I.
              Financial
                  InformationItem
                  1.
              Condensed
                  Consolidated Financial Statements
              2Condensed
                  Consolidated Balance Sheets as of June 30 2006 (Unaudited) and
                  December
                  31, 2005
              2Condensed
                  Consolidated Statements of Operations (Unaudited) for the Three
                  and Six
                  MonthsEnded
                June 30, 2006 and June 30, 2005 and for the Period from July 21, 2003
                  (Inception) to June 30, 2006
              3Condensed
                  Consolidated Statements of Cash Flows (Unaudited) for the Six MonthsEnded
                June
                  30, 2006 and June 30, 2005 and for the Period from July 21, 2003
                  (Inception) to June 30, 2006
              4Notes
                  to Unaudited Condensed Consolidated Financial Statements
              5Item
                  2.
              Management’s
                  Discussion and Analysis or Plan of Operation
              12Item
                  3.
              Controls
                  and Procedures
              19Part
                  II.
              Other
                  Information
              19Item
                  1.
              Legal
                  Proceedings
              19Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              19Item
                  3.
              Defaults
                  Upon Senior Securities
              19Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              19Item
                  5.
              Other
                  Information
              20Item
                  6.
              Exhibits
              20Signatures
              21




2




**LEV
              PHARMACEUTICALS , INC. AND SUBSIDIARY**
              **(a
                development stage enterprise)**
              
              **Condensed
                Consolidated Balance Sheets**
            
            June
                30, 2006 (Unaudited)
            
            December
                31,
              2005ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            2,928,917
            
            $
            3,482,616Investments
                - held to maturity
            
            
            ---
            
            
            2,487,390Prepaid
                expenses
            
            
            221,145
            
            
            276,829Other
                assets
            
            
            12,486
            
            
            60,081Total
                current assets
            
            
            3,162,548
            
            
            6,306,916Fixed
                assets, net of accumulated depreciation
            
            
            69,134
            
            
            69,922Other
                assets
            
            
            16,041
            
            
            16,817$
            3,247,723
            
            $
            6,393,655LIABILITIESCurrent
                liabilities:Accounts
                payable
            
            $
            448,293
            
            $
            657,230Accrued
                expenses
            
            
            426,306
            
            
            352,036Deferred
                lease liability
            
            
            760
            
            
            2,519Total
                current liabilities
            
            
            875,359
            
            
            1,011,785Loan
                payable, net of debt discount
            
            
            799,007
            
            
            316,077Total
                liabilities
            
            
            1,674,366
            
            
            1,327,862Commitments
                and contingenciesSTOCKHOLDERS'
                EQUITYPreferred
                stock - $0.01 par value, 20,000,000 authorized,
              no
                shares issued and outstandingCommon
                stock - $0.01 par value, 200,000,000 shares authorized,
              81,702,544
                and 81,527,544 shares issued and outstanding at June 30, 2006
              and
                December 31, 2005, respectively
            
            
            817,025
            
            
            815,275Additional
                paid-in capital
            
            
            15,913,602
            
            
            15,671,368Deficit
                accumulated during the development stage
            
            
            (15,157,270
            )
            
            (11,420,850
            )Total
                stockholders' equity
            
            
            1,573,357
            
            
            5,065,793$
            3,247,723
            
            $
            6,393,655


The
        accompanying notes are an integral part of the unaudited condensed consolidated
        financial statements




3




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)




**Condensed
      Consolidated Statements of Operations (Unaudited)**








Three
                Months
              Ended
              June
                30,
            
            Six
                Months
              Ended
              June
                30,
            
            Period
                From
              July
                21,2003
              (Inception)
                to
              June
                30,2006
            
            2005
            
            2006
            
            2005
            
            2006Costs
                and expenses:Research
                and development
            
            $
            840,306
            
            $
            579,624
            
            $
            1,936,493
            
            $
            1,025,789
            
            $
            5,439,260Payment
                to certain Fun City Popcorn, Inc.
              shareholders
                representing merger costs
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            283,732General
                and administrative
            
            
            1,109,699
            
            
            553,558
            
            
            1,863,549
            
            
            1,102,315
            
            
            9,349,186Loss
                before other income
            
            
            (1,950,005
            )
            
            (1,133,182
            )
            
            (3,800,042
            )
            
            (2,128,104
            )
            
            (15,072,178
            )Other
                income:Interest
                income
            
            
            37,043
            
            
            44,390
            
            
            78,998
            
            
            65,476
            
            
            311,805Interest
                expense
            
            
            (9,933
            )
            
            ----
            
            
            (15,376
            )
            
            ----
            
            
            (26,842
            )Net
                loss
            
            $
            (1,922,895
            )
            $
            (1,088,792
            )
            $
            (3,736,420
            )
            $
            (2,062,628
            )
            $
            (14,787,215
            )Net
                loss per share- basic and diluted
            
            $
            (0.02
            )
            $
            (0.01
            )
            $
            (0.05
            )
            $
            (0.03
            )Weighted
                average shares- basic and diluted
            
            
            81,638,377
            
            
            79,308,260
            
            
            81,582,961
            
            
            77,814,091




The
      accompanying notes are an integral part of the
      unaudited condensed consolidated financial statements




4




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


(a
      development stage enterprise)





**Condensed
      Consolidated Statements of Cash Flows (Unaudited)**





Period
                FromSix
                Months
            
            Six
                Months
            
            July
                21, 2003Ended
            
            Ended
            
            (Inception)
                toJune
                30,
            
            June
                30,
            
            June
                30,2006
            
            2005
            
            2006Cash
                flows from operating activities:Net
                loss
            
            $
            (3,736,420
            )
            $
            (2,062,628
            )
            $
            (14,787,215
            )Adjustments
                to reconcile net loss to net cash usedin
                operating activities:Compensation
                to consultants from issuance ofwarrants
                and common stock
            
            
            137,153
            
            
            27,819
            
            
            2,153,508Repricing
                of options and warrants
            
            
            
            
            
            
            
            
            1,455,269Option
                and warrants modification from merger
            
            
            
            
            
            
            
            
            75,201Depreciation
                expense
            
            
            8,605
            
            
            3,818
            
            
            19,365Stock-based
                compensation expense to employees
            
            
            106,831
            
            
            
            
            
            106,831Accretion
                of investment income
            
            
            (12,610
            )
            
            
            
            
            (12,610
            )Supplier
                purchase funding
            
            
            482,930
            
            
            35,293
            
            
            799,007Changes
                in:Prepaid
                expenses and other assets
            
            
            104,055
            
            
            84,993
            
            
            (249,168
            )Accounts
                payable
            
            
            (208,937
            )
            
            91,687
            
            
            448,293Accrued
                expenses
            
            
            74,270
            
            
            94,471
            
            
            426,306Deferred
                lease liability
            
            
            (1,759
            )
            
            (748
            )
            
            760Income
                taxes payable
            
            
            
            
            
            (82,916
            )
            
            (64,463
            )Net
                cash used in operating activities
            
            
            (3,045,882
            )
            
            (1,808,211
            )
            
            (9,628,916
            )Cash
                flows from investing activities:Purchase
                of fixed assets
            
            
            (7,817
            )
            
            (55,744
            )
            
            (88,499
            )Proceeds
                from the sale of investments
            
            
            2,500,000
            
            
            
            
            
            2,500,000Purchase
                of investments
            
            
            
            
            
            (1,500,000
            )
            
            (2,487,390
            )Net
                cash provided by (used in) investing activities
            
            
            2,492,183
            
            
            (1,555,614
            )
            
            75,889Cash
                flows from financing activities:Proceeds
                from stock subscription receivable
            
            
            
            
            
            
            
            
            130Proceeds
                from notes payable to stockholders
            
            
            
            
            
            
            
            
            18,000Repayment
                of notes payable to stockholders
            
            
            
            
            
            
            
            
            (18,000
            )Net
                proceeds from sale of common stock and warrants
            
            
            
            
            
            4,365,097
            
            
            12,633
                572Net
                cash provided by financing activities
            
            
            
            
            
            4,365,227
            
            
            12,633,572Net
                (decrease) increase in cash and cash equivalents
            
            
            (553,699
            )
            
            1,001,142
            
            
            2,928,917Cash
                and cash equivalents - beginning of period
            
            
            3,482,616
            
            
            5,544,507Cash
                and cash equivalents - end of period
            
            $
            2,928,917
            
            $
            6,545,649
            
            $
            2,928,917





Supplemental
      non-cash flow from investing and financing activities:


During
                the six months ended June 30, 2006, our supplier (Sanquin) loaned
                the
                Company $617,942 for purchases of CI-INH, see note E. In connection
                with
                the loan, the Company recorded debt discount of $150,380.
              During
                the six months ended June 30, 2006, the Company issued warrants to
                a
                consultant to purchase 50,000 shares of our stock at $1.10 per share
                that
                vest immediately and expire on January 19, 2009. The fair value of
                these
                warrants was $14,524 using the Black Scholes option pricing
                model.During
                the six months ended June 30, 2006, the Company issued 175,000 shares
                of
                common stock to an investor relations firms in connection with a
                one year
                consulting agreement. The fair value of these shares was $78,750,
                see Note
                G.For
                the six months ended June 30, 2006, the Company agreed to issue to
                a
                consultant for services to be rendered warrants to purchase an aggregate
                of 225,000 shares of common stock at an exercise price of $0.62 per
                share
                that expire in seven years. Warrants to purchase 100,000 of these
                shares
                vested on the date of issuance and the remainder will vest only if
                the
                consultant satisfies certain performance criteria. The value of the
                100,000 vested warrants was $43,879 using the Black Scholes pricing
                option
                model, see Note G.




The
      accompanying notes are an integral part of the unaudited condensed consolidated
      financial statements




5




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


**(a
      development stage enterprise)**





**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      A - ORGANIZATION AND BUSINESS**





Fun
      City
      Popcorn, Inc., (the "Company" or "FCP"), a non-operating public company, was
      incorporated on September 18, 1985 in the state of Nevada.





On
      November 5, 2004, FCP entered into an agreement and plan of merger (the
      "Agreement") with Lev Development Corp., formerly known as Lev Pharmaceuticals,
      Inc. ("Lev"), which was incorporated on July 21, 2003 in the State of Delaware.
      Lev is a development stage company that is engaged in developing and
      commercializing therapeutic products for the treatment of inflammatory diseases.
      On December 29, 2004, the merger closed and pursuant to the Agreement, FCP
      acquired 100% of the outstanding capital stock of Lev through its subsidiary
      Lev
      Acquisition Corp. ("LAC"). In connection with the merger, FCP changed its name
      to Lev Pharmaceuticals, Inc. and increased its authorized common stock to
      200,000,000 shares and its preferred stock to 20,000,000 shares. Under terms
      of
      the Agreement, the stockholders of Lev exchanged all of their issued and
      outstanding shares of common stock for 5,029,795 shares of FCP common stock,
      and
      4,789,433 Series A voting convertible preferred shares (the "Exchange"). Each
      Series A voting convertible preferred share is automatically convertible into
      13.940668 shares of FCP common stock (an aggregate 66,767,994 common shares).
      The 71,797,789 shares of common stock represent approximately 94.10% of the
      ownership interests in FCP. The
      outstanding shares of FCP were deemed issued for 4,505,530 shares of
      Lev. In
      addition, all of the outstanding Lev options and warrants immediately prior
      to
      the merger were exchanged for 2,854,900 FCP options and 301,668 FCP warrants.
      The Exchange which, resulted in the stockholders of Lev having control of FCP,
      represents a recapitalization of FCP, or a "reverse merger" rather than a
      business combination. In connection therewith, FCP's historic capital accounts
      were retroactively adjusted to reflect the equivalent number of shares issued
      by
      FCP in the Exchange while Lev's historical accumulated deficit was carried
      forward. The statement of operations reflects the activities of Lev from the
      commencement of its operations on July 21, 2003. In connection with the
      Agreement, Lev paid $350,000 for the acquisition of FCP including $283,731
      to
      certain stockholders and assuming the outstanding tax liability of $66,269.
      In
      connection with the Exchange, the exercise price of the outstanding warrants
      and
      options remained the same. We recorded a charge of approximately $75,000 for
      the
      change in value of our outstanding options and warrants as of December 29,
      2004
      as a result of the increase in the number of common shares into which these
      equity instruments are exercisable based on the exchange ratio used in the
      merger, since the aggregate intrinsic value of the warrants and options after
      the Exchange is greater than before. The Black-Scholes option-pricing model
      was
      used to calculate the value of certain options and warrants and the related
      charge based upon the following weighted average assumptions to determine fair
      value; risk-free interest rate of 3.58%; expected life of 5 years; dividend
      yield of 0% and expected volatility of 70%.





As
      a
      development stage enterprise, the Company's primary efforts are devoted to
      conducting research and development for inflammatory diseases and raising
      capital. The Company has limited capital resources and has experienced net
      losses and negative cash flows from operations since inception and expects
      these
      conditions to continue for the foreseeable future. As of June 30, 2006, the
      Company had approximately $2.9 million in cash and cash equivalents. Management
      believes that cash and cash equivalents on hand as of June 30, 2006 are not
      sufficient to fund operations through June 30, 2007 and we project that the
      funds should last partly through the first quarter of 2007. The Company will
      be
      required to raise additional funds to meet its short and long-term planned
      goals. There can be no assurance that such funds, if available at all, can
      be
      obtained on terms reasonable to the Company.





In
      addition to the normal risks associated with a new business venture, there
      can
      be no assurance that the Company's research and development will be successfully
      completed or that any product will be approved or commercially viable. The
      Company is subject to risks common to companies in the biotechnology industry
      including, but not limited to, development by the Company or its competitors
      of
      new technological innovations, dependence on key personnel, protection of
      proprietary technology, and compliance with FDA and other governmental
      regulations and approval requirements.




6




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


**(a
      development stage enterprise)**





**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





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





**[1]
      Basis of Presentation:**





The
      consolidated financial statements include the accounts of Lev Pharmaceuticals,
      Inc. and its wholly-owned subsidiary Lev Development Corp. (formerly Lev
      Pharmaceuticals, Inc.) All significant intercompany transactions and balances
      have been eliminated in consolidation. The Company is devoting its efforts
      to
      research and development and there has not been any revenues generated from
      sales, license fees or royalties. The Company's financial statements are
      presented as statements of a development stage enterprise. The accompanying
      unaudited condensed consolidated financial statements have been prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America for interim financial information. Accordingly, they do not include
      all
      of the information and footnotes required by accounting principles generally
      accepted in the United States of America for full year financial statements.
      In
      the opinion of management, all adjustments considered necessary for a fair
      presentation have been included and are of a normal, recurring nature. Operating
      results for the three and six months ended June 30, 2006 are not necessarily
      indicative of the results that may be expected for the year ended December
      31,
      2006. These consolidated financial statements should be read in conjunction
      with
      the consolidated financial statements and the notes thereto that are included
      in
      the Company's Annual Report on Form 10-KSB for the fiscal period ended December
      31, 2005.





**[2]
      Use of estimates:**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosures of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those estimates.
      Equity instruments are valued using assumptions, which may vary significantly
      between periods.





**[3]
      Stock-based compensation:**




Effective
      January 1, 2006, the Company adopted Statement of Financial Accounting Standard
      No. 123R, “Share Based Payment” (“SFAS No. 123(R)”), which requires all
      stock-based payments, including grants of stock options, to be recognized in
      the
      income statement as compensation expense, based on their fair values on the
      grant date. Under the provisions of SFAS No.123(R), the estimated fair value
      of
      options granted under the Company’s Employee 2004 Omnibus Incentive Compensation
      Plan (“Plan”) are recognized as compensation expense over the option-vesting
      period. The Company has adopted SFAS No. 123(R), the
      modified-prospective-transition method, in which compensation expense is
      recognized beginning with the effective date of the adoption for all stock-based
      payments (i) granted after the effective date of adoption and
      (ii) granted prior to the effective date of adoption and that remain
      unvested on the date of adoption.




Prior
      to
      December 31, 2005, the Company applied APB Opinion No. 25, *Accounting for Stock Issued to Employees,* in
      accounting for its stock option plans. Under the provisions of APB 25, no
      compensation expense was recognized when stock options were granted with
      exercise prices equal to or greater than market value on the date of
      grant.




The
      following table illustrates the effect on net loss and loss per share if the
      fair value method had been applied to the prior period in comparison to the
      current period, where it was applied:




**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30, 2006**
            
            **June
                30, 2005**
            
            **June
                30, 2006**
            
            **June
                30, 2005**Net
                loss applicable to common shareholders, as reported
            
            $
            (1,922,895
            )
            $
            (1,088,792
            )
            $
            (3,736,420
            )
            $
            (2,062,628
            )Add:
                Total stock-based employee compensation
              expense
                determined under fair value method (1)
            
            
            ---
            
            
            (166,277
            )
            
            ---
            
            
            (282,782
            )Pro
                forma net loss
            
            $
            (1,922,895
            )
            $
            (1,255,069
            )
            $
            (3,736,420
            )
            $
            (2,345,410
            )Basic
                and diluted loss per shareAs
                reported
            
            $
            (0.02
            )
            $
            (0.01
            )
            $
            (0.05
            )
            $
            (0.03
            )Pro
                forma
            
            $
            (0.02
            )
            $
            (0.02
            )
            $
            (0.05
            )
            $
            (0.03
            )




(1) 
      June
      30,
      2006 net loss for the three months and six months ended includes $70,481and
      $106,831 of stock-based employee compensation expense.




7


**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


**(a
      development stage enterprise)**





**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**





**[3]
      Stock-based compensation (continued):**





For
      the
      three and six months ended June 30, 2006, the Company included $70,481 and
      $106,831, respectively, of stock-based compensation in its Consolidated
      Statement of Operations. Had the Company continued to account for share-based
      compensation under APB Opinion No. 25, basic and diluted loss per common share
      for the three and six months ended June 30, 2006 would have been the same.
      No
      stock option expense was included in the Company’s Consolidated Statement of
      Operations for the three and six months ended June 30, 2005.




The
      following table illustrates the breakdown of total stock compensation expense
      by
      function:





**Stock
      option expense by function:**




**Three Months Ended**
            
            **Six Months Ended****June
                30, 2006**
            
            **June
                30, 2005**
            
            **June
                30, 2006**
            
            **June
                30, 2005**Research
                and development expense
            
            $
            807,395
            
            $
            579,624
            
            $
            1,903,582
            
            $
            1,025,789Stock
                option expense
            
            
            32,911
            
            
            ---
            
            
            32,911
            
            
            ---Total
            
            $
            840,306
            
            $
            579,624
            
            $
            1,936,493
            
            $
            1,025,789General
                and administrative expense
            
            $
            1,072,129
            
            $
            553,558
            
            $
            1,789,629
            
            $
            1,102,315Stock
                option expense
            
            
            37,570
            
            
            ---
            
            
            73,920
            
            
            ---Total
            
            $
            1,109,699
            
            $
            553,558
            
            $
            1,863,549
            
            $
            1,102,315




Under
      the
      modified prospective method of transition under SFAS No. 123(R), the Company
      is
      not required to restate its prior period financial statements to reflect
      expensing of stock-based compensation under SFAS No. 123(R). Therefore, the
      results for the period ended June 30, 2006 are not directly comparable to the
      same period in the prior year.




Prior
      to
      the adoption of SFAS No. 123(R), the Company presented cash flows resulting
      from
      the tax benefits of deductions resulting from the exercise of stock options
      as
      operating cash flows in the Statement of Cash Flows. SFAS No. 123(R) requires
      cash flows resulting from the tax benefits resulting from tax deductions in
      excess of the compensation cost recognized for those options (excess tax
      benefits) to be classified as financing cash flows. The Company did not realize
      any tax benefits from stock options during the three and six months ended June
      30, 2006.




For
      purposes of the disclosure in the foregoing table and for purposes of
      determining estimated fair value under SFAS No.123(R), the Company has computed
      the estimated fair values of all share-based compensation using the
      Black-Scholes option -pricing model and has applied the assumptions set forth
      in
      the following table. The Company calculated expected volatility based upon
      comparable companies in the industry. The following table illustrates the
      assumptions used in the Company’s Black-Scholes option pricing model to
      determine the stock option expense for the three and six months ended June
      30,
      2006.




**Risk
                Free Interest Rate**
            
            **Dividend**
              **Yield**
            
            **Volatility
                Factor**
            
            **Estimated
                Life (Years)**
            
            **Weighted
                Average**
              **Remaining
                Contractual Life (Months)**For
                the three and six
              months
                ended June 30, 2006
            
            3.58%
                - 4.99%
            
            0%
            
            70.0%
            
            5
            
            106




The Black-Scholes option-pricing model requires the input of highly subjective
      assumptions. Because the Company’s employee stock options have characteristics
      significantly different from those of traded options, and because changes in
      the
      subjective input assumptions can materially affect the fair value estimate,
      in
      management’s opinion, the existing models may not provide a reliable single
      measure of the fair value of its employee stock options. In addition, management
      will continue to assess the assumptions and methodologies used to calculate
      estimated fair value of share-based compensation. Circumstances may change
      and
      additional data may become available over time, which can result in changes
      to
      these assumptions and methodologies, which could materially impact the Company’s
      fair value determination.




8




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


**(a
      development stage enterprise)**




**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**




**[3]
      Stock-based compensation (continued):**





A
      summary
      of option activity under the Plan as of June 30, 2006 and changes during the
      six
      month period then ended is presented below.




**Summary
      Details for** **Plan:**




**Number
                of**
              **Options**
            
            **Weighted
                Average**
              **Exercise
                Price**
            
            **Weighted
                Average**
              **Remaining
                Contractual**
              **Life
                (Years)**
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                December 31, 2005
            
            
            3,629,900
            
            $
            0.42Granted
            
            
            625,000
            
            
            0.50Exercised
            
            
            —
            
            
            0.00Forfeited
            
            
            —
            
            
            0.00Outstanding,
                June 30, 2006
            
            
            4,254,900
            
            $
            0.43
            
            
            8.85
            
            $
            1,058,166Exercisable
                shares as of June 30, 2006
            
            
            3,229,900




There
      were no options canceled or exercised during the
      six month period ended June 30, 2006, therefore, there was no intrinsic value
      of
      options exercised or canceled. Additionally, the weighted average, grant date
      fair value of options granted during the six months was approximately $188,700
      or $0.31 per share using the Black Scholes option pricing model. The Company
      did
      not value performance options to purchase 100,000 shares of common stock due
      to
      an uncertainty of completion of the condition as of June 30, 2006. If services
      were completed by June 30, 2006, the Company would have recorded approximately
      $43,000 to the Consolidated Statement of Operations, using the Black Scholes
      option pricing model.




A
      summary
      of the status of the Company’s unvested options as of June 30, 2006, and changes
      during the three and six month period then ended is presented
      below.




**Unvested
      options issued under the Plan:**





**Number of**
              **Options**
            
            **Weighted
                Average**
              **Exercise Price**
            
            **Weighted
                Average**
              **Remaining
                Contractual**
              **Life
                (Years)**
            
            **Aggregate**
              **Intrinsic**
              **Value**Unvested
                balance, December 31, 2005
            
            
            550,000
            
            $
            0.87Granted
            
            
            625,000
            
            
            0.50Vested
            
            
            (150,000
            )
            
            0.73Forfeited
            
            
            —
            
            
            0.00Unvested
                balance, June 30, 2006
            
            
            1,025,000
            
            $
            0.6
            
            
            9.02
            
            $
            72,066





As
      of
      June 30, 2006, there was $315,232 of total unrecognized compensation expense
      related to unvested share-based compensation arrangements granted under the
      Plan. This expense is expected to be recognized over a weighted-average period
      of 20 months.




9


**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


**(a
      development stage enterprise)**





**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**





The
      following chart shows the effect of stock option expense on the Consolidated
      Statement of Operations:




**Three
                    Months Ended**
                
                **Six
                    Months Ended****June
                    30, 2006**
                
                
                **June
                    30, 2005**
                
                
                **June
                    30, 2006**
                
                
                **June
                    30, 2006**Loss
                    before other income before stockoption
                    expense
                
                $
                (1,879,524
                )
                $
                (1,133,182
                )
                $
                (3,693,211
                )
                $
                (2,128,104
                )Stock
                    option expense
                
                
                (70,481
                )
                
                ---
                
                
                (106,831
                )
                
                --Loss
                    before other income
                
                $
                (1,950,005
                )
                $
                (1,133,182
                )
                $
                (3,800,042
                )
                $
                (2,128,104
                )Net
                    loss before stock option expense
                
                
                (1,879,524
                )
                
                (1,088,792
                )
                
                (3,629,589
                )
                
                (2,062,541
                )Stock
                    option expense
                
                
                (70,481
                )
                
                ---
                
                
                (106,831
                )
                
                ---Net
                    loss
                
                $
                (1,922,895
                )
                $
                (1,088,792
                )
                $
                (3,736,420
                )
                $
                (2,062,541
                )Basic
                    and diluted loss per share beforestock
                    option expense
                
                $
                (0.02
                )
                $
                (0.01
                )
                $
                (0.05
                )
                $
                (0.03
                )Stock
                    option expense per share
                
                
                (0.00
                )
                
                ---
                
                
                (0.00
                )
                
                ---Basic
                    and diluted loss per share
                
                $
                (0.02
                )
                $
                (0.01
                )
                $
                (0.05
                )
                
                $(0.03
                )





**[4]
      Net loss per share:**





Basic
      net
      loss per common share is computed by dividing the net loss by the weighted
      average number of shares of common stock outstanding during the period. There
      are potentially dilutive common shares of 7,769,672 for the three and six months
      ended June 30, 2006 and potentially dilutive common shares of 7,134,999 for
      the
      three and six months ended June 30, 2005. Stock options and warrants were
      excluded from the diluted loss per share calculation because their effect would
      have been anti-dilutive.




**[5]
      Investments:**





Securities
      that the Company has the positive intent and ability to hold to maturity are
      classified as held-to-maturity and are carried at amortized cost on the balance
      sheet s.
      Investments with original maturities of 91 days to one year are considered
      short- term investments and are carried at cost.




**[6]
      Fixed assets:**




Fixed
      assets are stated at cost less accumulated depreciation. Depreciation is
      calculated using the straight-line method over the asset's estimated useful
      life, which is five years.





**[7]
      New Accounting Pronouncement:**





In
      June
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - An Interpretation of FASB Statement No. 109,” (FIN 48). FIN 48
      prescribes a recognition threshold and measurement criterion for the financial
      statement recognition and measurement of tax positions taken or expected to
      be
      taken in a tax return, among other items. In addition, FIN 48 provides guidance
      on derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition with respect to uncertainty in income taxes.
      FIN 48 is effective for fiscal years beginning after December 15, 2006. We
      do
      not anticipate that the adoption of this Statement will have a material effect
      on our financial position or results of operation.




10





**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


**(a
      development stage enterprise)**





**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      C - FIXED ASSETS**




Fixed
      assets, at cost, consist of the following:




June
                  30,2006
                (Unaudited)
              
              December
                  31,2005Lab
                  equipment
              
              $
              11,645
              
              $
              11,645Office
                  equipment
              
              
              76,854
              
              
              69,037Total
              
              
              88,499
              
              
              80,682Accumulated
                  depreciation
              
              
              (19,365
              )
              
              (10,760
              )$
              69,134
              
              $
              69,922





The
      Company recorded depreciation expense of $4,426 and $2,832 for the three months
      ended June 30, 2006 and June 30, 2005, and $8,605 and $3,818 for the six months
      ended June 30, 2006 and June 30, 2005, respectively.





**NOTE
      D - ACCRUED EXPENSES**





Accrued
      expenses consisted of the following **:**




June
                30,
              2006
              (Unaudited)
            
            December
                31,
              2005Research
                and development - sponsored research
            
            $
            171,500
            
            $
            125,000Research
                and development - other
            
            
            155,400
            
            
            70,526Research
                and development - clinical research organization
            
            
            --
            
            
            28,936Research
                and development - payroll
            
            
            6,788
            
            
            16,655Professional
                fees - general and administrative
            
            
            45,000
            
            
            64,311Payroll-
                general and administrative
            
            
            17,668
            
            
            20,466Other
                - general and administrative
            
            
            29,950
            
            
            26,142$
            426,306
            
            $
            352,036








**NOTE
      E - LOAN PAYABLE**





The
      Company purchases its C1-INH product from the Sanquin Blood Supply Foundation
      (“Sanquin”). Under our agreement with Sanquin, Sanquin provides a loan to the
      Company for the value of C1-INH purchased. The loan is subject to a purchase
      money security interest. **** Upon
      regulatory approval, Sanquin will forgive each loan and release all security
      interests. If regulatory approval is not obtained, then each loan is payable
      on
      the earlier of January 16, 2014 or the termination of the agreement. The
      principal loan balance outstanding as of June 30, 2006 was $799,007, net of
      discount of $403,052. This discount relates to interest imputed on the original
      loan balance as it is non-interest bearing and was recorded as a reduction
      to
      product costs that were included as research and development expense. The loans
      are payable in Euros and any currency differences are recorded in our
      Consolidated Statement of Operations. The Company has recorded interest expense
      using the effective interest rate method. Interest rates range from 4.31% to
      7.51%. For the three months ended June 30, 2006 and June 30, 2005, interest
      expense was $9,933 and $0, respectively. For the six months ended June 30,
      2006
      and June 30, 2005, interest expense was $15,376 and $0, respectively. The amount
      included in research and development expense for product cost for the three
      months ended June 30, 2006 and June 30, 2005 was $80,812 and $35,293,
      respectively. The amount included in research and development expense for
      product cost for the six months ended June 30, 2006 and June 30, 2005 was
      $617,942 and $35,293, respectively.




11




**LEV
      PHARMACEUTICALS, INC. AND SUBSIDIARY**


**(a
      development stage enterprise)**




**NOTE
      F - EMPLOYMENT AGREEMENTS**





The
      Company entered into employment agreements with its Chief Financial Officer
      and
      Vice President - Regulatory Affairs and Product Development, on June 7, 2006
      for two and three years, respectively. The Company’s CFO will receive
      an annual base salary of $175,000 for the initial year and increasing to
      $183,500 for the second year. In addition, he was granted options to purchase
      125,000 shares of our common stock at an exercise price of $0.50 per share,
      the
      fair market value at the date of grant, which o ptions
      vest equally over two years. The option agreement contains a change of control
      provision. The Company’s Vice President - Regulatory Affairs and Product
      Development will receive an annual base salary of $200,000 during the term
      of
      the agreement and will be entitled to an annual bonus of $20,000 on each
      anniversary date. In addition, our Vice President- Regulatory Affairs and
      Product Development was granted options to purchase 500,000 shares of the
      Company’s common stock at an exercise price of $0.50 per share, the fair market
      value at the date of grant, which options vest as follows: 100,000 shares vest
      on the commencement date of the employment agreement, options to purchase an
      additional 300,000 shares shall vest equally over three years and a further
      amount of options to purchase 100,000 shares shall vest upon the occurrence
      of
      the milestone event specified in the employment agreement. The option agreements
      contain a change of control provision. The employment agreements provide for
      a
      severance payment if the employee is terminated without cause.





**NOTE
      G - CONSULTING AGREEMENTS**





On
      January 19, 2006, the Company entered into an agreement with an investor
      relations firm to provide services and issued warrants to purchase 50,000 common
      stock at $1.10 per share that will expire in three years. The fair value of
      warrants was $14,524 based on the Black Scholes option pricing model. The
      weighted average assumptions used to determine fair market value of the warrants
      are as follows: interest rate of 4.34%, expected warrant life of 3 years,
      dividend yield of 0% and expected volatility of 70%.





On
      May 4,
      2006, the Company has entered into a one-year consulting agreement for services
      from an investor relations firm. The Company issued 175,000 shares of common
      stock at a fair value of $78,750 and an additional 175,000 shares are issuable
      in six months if the agreement is not cancelled. The monthly fee is $10,000.





On
      June
      28, 2006, the Company agreed to issue to a consultant for services to be
      rendered warrants to purchase an aggregate of 225,000 shares of common stock
      at
      an exercise price of $0.62 per share and expiring in seven years. Warrants
      to
      purchase 100,000 of these shares vested on the date of issuance and the
      remainder will vest only if the consultant satisfies certain performance
      criteria. In addition, a maximum of 80,000 additional warrants will be granted
      to this consultant in the event he satisfies additional performance criteria.
      In
      addition, the consultant is due $100,000 through February 2007 and can earn
      an
      additional $180,000 if the consultant satisfies performance criteria as defined
      in the consulting agreement. The Company valued 100,000 vested warrants at
      $43,879 based upon the Black Scholes option pricing model. The weighted average
      assumptions used to determine fair market value of the warrants is as follows:
      interest rate of 5.23%; expected warrant life: 7 years; dividend yield of 0%
      and
      expected volatility of 70%. The Company did not value 125,000 warrants related
      due to the performance condition due to the uncertainty of satisfying this
      criteria as of June 30, 2006. If service would have been completed by June
      30,
      2006, the value of 125,000 warrants would be been approximately
      $57,000.





**NOTE
      H - SUBSEQUENT EVENT**





On
      August
      2, 2006, the Company entered into an employment agreement with its new Vice
      President - Marketing and Sales. Pursuant to this agreement, the Company’s Vice
      President - Sales and Marketing receives an annual base salary of $240,000
      during the term of the agreement and will be eligible to receive an annual
      bonus
      of up to 35% of his base salary subject to his attainment of performance
      criteria to be approved by the Board. In addition, the Company awarded the
      Vice
      President - Sales and Marketing a one-time signing bonus of $30,000 upon the
      execution of the employment agreement. In connection with his entering into
      the
      employment agreement, the Vice President - Sales and Marketing was granted
      options to purchase 600,000 shares of the Company’s common stock at an exercise
      price equal of $0.65 per share on August 2, 2006. These options vest as follows:
      200,000 shares vest on the commencement date of the employment agreement,
      options to purchase an additional 400,000 shares shall vest in equal amounts
      of
      100,000 on each of the first four anniversary dates of the commencement date.
      The option agreement provides for a change of control provision. The employment
      contract provides for a severance payment if the employee is terminated without
      cause.




12




**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**




The
      following discussion should be read in conjunction with our condensed
      consolidated financial statements and notes to those statements. In addition
      to
      historical information, the following discussion and other parts of this
      quarterly report contain forward-looking information that involves risks and
      uncertainties.





**Forward
      Looking Statements**





This
      Report on Form 10-QSB for Lev Pharmaceuticals, Inc. may contain forward-looking
      statements. We are including the following cautionary statement in this
      Quarterly Report on Form 10-QSB to make applicable the safe harbor provisions
      of
      the Private Securities Litigation Reform Act of 1995 for any forward-looking
      statements made by us or on our behalf. Forward looking statements include
      statements concerning plans, objectives, goals, strategies, future events or
      performance and underlying assumptions and other statements which are other
      than
      statements of historical facts. You can identify these statements by
      forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,”
“believe,” “estimate” and “continue” or similar words. You should read
      statements that contain these words carefully because they discuss future
      expectations and plans, which contain projections of future results of
      operations or financial condition or state other forward-looking information.
      We
      believe that it is important to communicate future expectations to investors.
      However, there may be events in the future that we are not able to accurately
      predict or control. Any forward-looking statement contained in this document
      speaks only as of the date on which the statement is made. We undertake no
      obligation to update any forward-looking statement or statements to reflect
      events or circumstances that occur after the date on which the statement is
      made
      or to reflect the occurrence of unanticipated events.





The
      forward-looking statements included herein are based on current expectations
      that involve a number of risks and uncertainties which could cause actual
      results or outcomes to differ materially from those expressed in good faith
      forward-looking statements. Certain of these risks are set forth under “Risk
      Factors” in our Annual Report on Form 10-KSB and our periodic reports filed with
      the SEC. These risks include, without limitation: the carrying-out of our
      research and development program for our product candidates, including
      demonstrating their safety and efficacy at each stage of testing; the timely
      obtaining of regulatory approvals; the commercialization of our product
      candidates, at reasonable costs; the ability to compete against products
      intended for similar use by recognized and well capitalized pharmaceutical
      companies; our ability to raise capital when needed, and without adverse and
      highly dilutive consequences to stockholders; and our ability to retain
      management and obtain additional employees as required. Our expectations,
      beliefs and projections are expressed in good faith and are believed by us
      to
      have a reasonable basis, including without limitation, management’s examination
      of historical operating trends, data contained in our records and other data
      available from third parties, but there can be no assurance that management’s
      expectations, beliefs or projections will result or be achieved or accomplished.
      Accordingly, to the extent that this Report contains forward-looking statements
      regarding the financial condition, operating results, business prospects or
      any
      other aspect of our company, please be advised that our actual financial
      condition, operating results and business performance may differ materially
      from
      that projected or estimated by us in forward-looking statements.





**Overview**





We
      are a
      development stage biopharmaceutical company that was formed in July 2003 to
      focus on developing and commercializing therapeutic products for the treatment
      of inflammatory diseases. Our product candidates are based on C1-INH, a human
      plasma protein that mediates inflammation and is potentially applicable as
      a
      treatment for a range of medical indications. We initiated a Phase III clinical
      trial of our lead product candidate, C1-INH for the acute treatment of HAE,
      in
      March 2005. In November 2005, we initiated a Phase III clinical trial of C1-INH
      for the prophylactic treatment of HAE. In October 2005, we received fast track
      designation status by the FDA for the treatment of HAE. We are also developing
      C1-INH for the treatment of acute myocardial infarction (“AMI”) and selective
      other diseases and disorders in which inflammation is known or believed to
      play
      an underlying role. **** We
      have
      certain rights to C1-INH technology through agreements with Sanquin (“Sanquin”),
      an Amsterdam-based not-for-profit organization that provides blood and plasma
      products and related services, carries out research and provides education,
      primarily in the Netherlands.




From
      July
      21, 2003 (inception) through June 30, 2006, we have not generated any revenue
      from operations. We expect to incur additional losses to perform further
      research and development activities. We do not currently have any commercial
      biopharmaceutical products, and do not expect to have such for a number of
      years, if at all.





As
      we do not
      expect to generate product revenues or profits over the next several years,
      management of cash flow is extremely important. The most significant use of
      our
      cash is for research and development activities, which include clinical trials
      and regulatory clearance. During the three and six months ended June 30, 2006,
      our research and development expenses were $840,306 and 1,936,493,
      respectively.





13




**Merger
      Transaction**





On
      November 5, 2004, Fun City Popcorn (“FCP”), its wholly-owned subsidiary, Lev
      Acquisition Corp. (“Lev Sub”) and Lev Development Corp., previously know as Lev
      Pharmaceuticals, Inc. (“Old Lev” or “LDC”), entered into the Agreement and Plan
      of Merger (as amended on December 8, 2004, the “Agreement”). On December 29,
      2004, the merger closed and pursuant to the Agreement, Lev Sub merged into
      Old
      Lev and the combined entity became a wholly-owned subsidiary of FCP (the “Public
      Company Merger”). As a result of the Public Company Merger, FCP issued 5,029,795
      shares of common stock and 4,789,433 shares of Series A convertible preferred
      stock to holders of outstanding Old Lev common stock.





On
      December 29, 2004, the Board of Directors and stockholders of FCP approved
      a
      merger of FCP into a newly formed, wholly-owned subsidiary of FCP incorporated
      in Delaware (the “Recapitalization Merger”). This merger was undertaken to
      increase the authorized number of shares of common stock to permit the
      conversion of the Series A preferred stock, to reincorporate FCP in the State
      of
      Delaware and to change the name of the company. On February 17, 2005, the
      Recapitalization Merger closed and the issued and outstanding Series A preferred
      stock of FCP was automatically converted into an aggregate of 66,767,994 shares
      of common stock which, along with the 4,505,530 shares of FCP common stock
      outstanding prior to the Public Company Merger and the 5,029,795 shares of
      common stock issued to the Old Lev stockholders in the Public Company Merger,
      resulted in a total of 76,303,319 shares of common stock outstanding as of
      February 17, 2005. As part of the Recapitalization Merger, Old Lev changed
      its
      name to Lev Development Corp., FCP changed its name to Lev Pharmaceuticals,
      Inc.
      and we increased
      our authorized common stock to 200,000,000 shares and our preferred stock to
      20,000,000 shares. As a
      result of these mergers, the stockholders of Old Lev acquired approximately
      94%
      of our outstanding common stock.





The
      Public Company Merger, which resulted in the stockholders of Old Lev obtaining
      control of FCP, represents a recapitalization of FCP, or a “reverse merger”,
      rather than a business combination. In connection therewith, Old Lev's
      historical capital accounts were retroactively adjusted to reflect the
      equivalent number of shares issued by FCP while Old Lev's historical accumulated
      deficit was carried forward. The
      Consolidated Statement of Operations reflects the activities of Old Lev from
      the
      commencement of its operations on July 21, 2003. In connection with the
      Agreement, Old Lev paid $350,000 for the acquisition of FCP including $283,731
      to certain stockholders and assuming the outstanding tax liability of $66,269.
      In connection with these mergers, the exercise price of the outstanding warrants
      and options remained the same. We recorded a charge of approximately $75,000
      for
      the change in value of our outstanding options and warrants as of December
      29,
      2004 as a result of the increase in the number of common shares into which
      these
      equity instruments are exercisable based on the exchange ratio used in the
      merger, since the aggregate intrinsic value of the warrants and options after
      the Exchange is greater than before. The Black-Scholes option-pricing model
      was
      used to calculate the value of certain options and warrants and the related
      charge based upon the following weighted average assumptions to determine fair
      value; risk-free interest rate of 3.58%; expected life of 5 years; dividend
      yield of 0% and expected volatility of 70%.




**Financing
      Activities**





In
      May
      2005, we completed a private placement of units at a price of $50,000 per unit,
      with each unit consisting of 50,000 shares of common stock and a five-year
      warrant to purchase 25,000 shares of common stock at an exercise price of $1.35
      per share. We sold 100.9 units for gross proceeds of $5,044,774. Our net
      proceeds were $4,365,097 after payment of fees and expenses, including
      registration costs. We paid $454,030 to the placement agent and issued warrants
      to the placement agent to purchase 681,044 shares of common stock. These
      warrants are immediately exercisable at $1.35 per share and expire in May 2010.
      We issued an aggregate of 5,044,774 shares of common stock and warrants to
      purchase 2,522,387 shares of common stock to investors in the private placement,
      not including the warrants issued to the placement agent.


14




**Repricing
      of Options and Warrants**





Following
      the Public Company and Reincorporation Mergers, in May 2005, our Board of
      Directors determined that the basis for the exchange of options and warrants
      to
      purchase common stock of Old Lev outstanding prior to the mergers. Though the
      number of shares issuable upon exercise of these options and warrants was
      increased, the parties to the merger did not proportionately reduce the exercise
      price of these options and warrants to account for the increase in the number
      of
      shares outstanding after the merger. The
      reduced exercise price of these warrants and options was calculated by
      multiplying the number of shares issuable upon exercise of these warrants and
      options prior to the mergers times the relevant exercise price, and then
      dividing that dollar amount by the new number of shares issuable upon exercise
      of these warrants and options after the mergers.





Prior
      to
      the Public Company Merger, warrants to purchase 66,667 and 39,000 shares of
      common stock were outstanding with exercise prices of $0.10 and $0.85 per share,
      respectively. Subsequently, pursuant to the exchange ratio in the Agreement,
      warrants to purchase 190,327 and 111,341 shares of common stock were outstanding
      with exercise prices of $0.10 and $0.85 per share, respectively. The Board
      believed this was unfair to the holders of the warrants and made a determination
      to treat the warrant holders on the same basis as the holders of common stock
      of
      Old Lev. Accordingly, in May 2005, the exercise price of outstanding warrants
      to
      purchase 190,327 shares was reduced from $0.10 to $0.04 per share, and the
      exercise price of other outstanding warrants to purchase 111,341 shares was
      reduced from $0.85 to $0.30 per share. At the date of this repricing, we
      recognized a charge to operations of approximately $28,000 for the incremental
      value of these warrants based upon the Black Scholes option pricing
      model.





In
      addition, prior to the Public Company Merger, stock options to purchase 500,000
      shares of common stock at an exercise price of $0.85 per share were held by
      each
      of Joshua D. Schein, Ph.D., our Chief Executive Officer, and by Judson Cooper,
      our Chairman. Subsequently, pursuant to the exchange ratio in the Agreement,
      each person’s options were converted into options to purchase 1,427,450 shares
      of common stock with an exercise price of $0.85 per share (an aggregate of
      2,854,900 shares). In May 2005, in addition to repricing the warrants, the
      Board
      further determined, subject to obtaining stockholder approval at our next annual
      meeting, to reduce the exercise price of these options from $0.85 to $0.30
      per
      share. The Board made the determination to seek stockholder approval because
      it
      believed that stockholder approval was necessary to reduce the exercise price
      of
      such options under the terms of our 2004 Omnibus Incentive Compensation Plan.
      In
      addition, the Board believed that the repricing of these options should be
      subject to stockholder approval because the reduction in exercise price of
      the
      stock options directly benefits our Chief Executive Officer and Chairman.
      However, it should be noted that our Chief Executive Officer and Chairman are
      also principal stockholders who voted on this proposal. The stockholders
      approved this repricing at the annual meeting held on December 12, 2005.
      Presently, Messrs. Schein and Cooper each own options to purchase 1,427,450
      shares of common stock at an exercise price of $0.30 per share as opposed to
      the
      prior exercise price of $0.85 per share. If they exercise all of these options,
      Messrs. Schein and Cooper would realize a cash savings of, and the proceeds
      we
      would receive would be reduced by, $785,098 for each of them. A charge of
      $1,427,450 was recorded to our Consolidated Statement of Operations based upon
      our stock price when our stockholders approved the repricing at the
      stockholders' meeting and subsequent changes to our stock price through December
      31, 2005. These charges ceased upon the adoption of SFAS No. 123(R) on January
      1, 2006.





**Plan
      of Operation**





Our
      plan
      of operation for the next twelve months is to focus primarily on our Phase
      III
      clinical trials of our lead product candidate, C1-INH for the acute and
      prophylactic treatment of HAE. In addition, we intend to initiate a research
      program in 2006 for the development of a genetically engineered or recombinant
      version of C1-INH to be used in the treatment of AMI.





*Satisfaction
      of Cash Resources*





To
      date,
      we have relied solely upon selling equity securities in private placements
      to
      generate cash to implement our plan of operations. We
      believe that our cash and cash equivalents of $2,928,917 as of June 30, 2006,
      will not be sufficient to meet our cash requirements for the next
      twelve months.
      We are currently pursuing equity financing alternatives in order to raise funds
      for operations for at least the next twelve months. To
      raise
      additional funds, we intend to either undertake private placements of our
      securities, either as a self-offering or with the assistance of registered
      broker-dealers, or negotiate a private sale of our securities to one or more
      institutional investors. However, we currently have no firm agreements with
      any
      third-parties for any financing arrangements and no assurances can be given
      that
      we will be successful in raising additional capital from any proposed
      financings. Further, we cannot assure you that any additional financing will
      be
      available or, even if it is available that it will be on terms acceptable to
      us.
      If we raise additional funds by selling shares of common stock or convertible
      securities, the ownership of our existing shareholders will be diluted. Further,
      if additional funds are raised though the issuance of equity or debt securities,
      such additional securities may have powers, designations, preferences or rights
      senior to our currently outstanding securities. Any inability to obtain required
      financing on sufficiently favorable terms could have a material adverse effect
      on our business, results of operations and financial condition. If we are
      unsuccessful in raising additional capital and increasing revenues from
      operations, we will need to reduce costs and operations substantially.  Further,
      if expenditures required to achieve our plans are greater than projected or
      if
      revenues are less than, or are generated more slowly than, projected, we will
      need to raise a greater amount of funds than currently expected. We
      have
      cash commitments through December 31, 2006 of approximately $1,510,000 as
      disclosed in our Annual Report on Form 10-KSB for the year ended December 31,
      2005 to primarily fund our clinical research organization and executive
      employment contracts. A significant expense for the Phase III clinical trials
      is
      the C1-INH product that we purchase from Sanquin. However, this does not affect
      our cash position because Sanquin has granted continuing loans to us in the
      amount of the aggregate purchase price of the C1-INH product. Each loan will
      be
      forgiven if regulatory approval is obtained. If regulatory approval is not
      received, then each loan is payable on the earlier of January 16, 2014 or the
      termination of the Sanquin distribution agreement. We expect to increase our
      expenditures for the Phase III clinical trials over the next twelve months.
      We
      also expect that our general and administrative expenses and will increase
      for
      the next year as we hire additional marketing staff.





15




*Research/Product
      Programs*





Hereditary
      Angioedema





In
      January 2004, we entered into a distribution and manufacturing services
      agreement with Sanquin relating to the treatment of HAE. Sanquin currently
      manufactures and markets a highly purified preparation of C1-INH in Europe
      and
      pursuant to the agreement, Sanquin agreed to provide us with C1-INH for use
      in
      our clinical trials and for commercial distribution upon regulatory licensure.
      Pursuant to the agreement, we have distribution rights in Israel and all
      countries in North, Central and South America, with the exception of the Dutch
      Overseas Territories, Argentina and Brazil.





Under
      the
      distribution agreement, it is our responsibility to conduct the Phase III
      clinical trials of C1-INH for the treatment of HAE and to prepare and file
      all
      regulatory applications necessary to register the product candidate. Sanquin
      agreed to provide us with the technical data and support necessary to assist
      us
      in preparing and filing all such regulatory applications.





Furthermore,
      Sanquin agreed to supply C1-INH for our Phase III clinical trials. Upon receipt
      of FDA approval for our product candidate for the treatment of HAE, upon
      commercial launch of this product and thereafter during the term of the
      agreement, Sanquin will supply us with our commercial requirements for C1-INH
      for the treatment of HAE in each country where we have received regulatory
      approval. Our purchase of C1-INH from Sanquin is subject to minimum annual
      purchase requirements upon receipt of FDA approval.





We
      initiated a Phase III clinical trial of C1-INH for the acute treatment of HAE
      in
      March 2005. In November 2005, we initiated a phase III clinical trial for C1-INH
      for the prophylactic treatment of HAE. In July 2004, we received orphan drug
      designation from the FDA for C1-INH (human), which, upon product licensure
      by
      the FDA, could provide us with a seven-year exclusive right to market our C1-INH
      product as a treatment for HAE in the United States. In October 2005, we
      received fast track designation status from the FDA.





Acute
      Myocardial Infarction





We
      entered into a separate license agreement with Sanquin on January 27, 2004
      relating to the treatment of AMI. Under this agreement, we have an exclusive,
      worldwide, royalty-bearing license, with the right to sublicense, to the use
      of
      C1-INH for the treatment of AMI. In connection with the license agreement,
      we
      paid Sanquin certain fees and reimbursed Sanquin expenses. In addition, we
      have
      an obligation to pay Sanquin royalties on sales of products incorporating the
      licensed technology.





This
      second development program is focused on the use of C1-INH in treating AMI.
      Current treatments for AMI, both surgical and pharmaceutical, are directed
      at
      restoring blood flow to heart tissue or preventing further obstruction. Despite
      a widespread appreciation for the role of inflammation in AMI in both the
      scientific and medical communities, no presently available treatments directly
      target the mechanisms of inflammation. Based on preliminary animal and clinical
      data, we believe that C1-INH may be useful as a treatment for AMI. We intend
      to
      initiate a research program during the fourth quarter of 2006 for the
      development of a genetically engineered or recombinant version of C1-INH to
      be
      used in the treatment of AMI. In 2007, we may initiate studies for C1-INH in
      treating AMI, if we obtain additional funding and if we are able to acquire
      additional C1-INH product from Sanquin. There can be no assurance that we will
      raise any additional funds or that we will acquire the resources needed to
      conduct further research and trials for the treatment of AMI.





16




The
      following analysis of our financial condition and results of operations should
      be read in conjunction with our condensed consolidated financial statements
      and
      notes contained elsewhere in this Form 10-QSB.





**Results
      of Operations**





*Three
      Months Ended June 30, 2006 as compared to the Three Months Ended June 30,
      2005* ******





We
      had no
      revenues during the three months ended June 30, 2006 and June 30, 2005 because
      we do not have any commercial biopharmaceutical products.





Research
      and development expenses for the three months ended June 30, 2006 and 2005
      were
      $840,306 and $579,624, respectively. The increase of $260,682 primarily
      represents expenses relating to the Phase III clinical trials. In March 2005,
      we
      initiated a Phase III clinical trial for the acute treatment of HAE. In November
      2005, we initiated a Phase III clinical trial of C1-INH for the prophylactic
      treatment of HAE. During the three months ended June 30, 2006, we entered into
      an employment agreement with our Vice President - Regulatory Affairs pursuant
      to
      which we granted him options, subject to vesting conditions, to purchase 500,000
      shares of common stock. Employee stock compensation for options granted were
      $32,911 for the three months ended June 30, 2006.





General
      and administrative costs for the three months ended June 30, 2006 and 2005
      were
      $1,109,699 and $553,558, respectively. The increase of $556,141 was primarily
      due to increases in payroll and related benefits, investor relations, donations,
      professional fees and share-based compensation for employee options. During
      the
      three months ended June 30, 2006, we entered into an employment agreement with
      our Chief Financial Officer pursuant to which we granted him options, subject
      to
      vesting conditions, to purchase 125,000 shares of common stock. Employee stock
      compensation for options granted were $37,570 for the three months ended June
      30, 2006.





Interest
      income for the three months ended June 30, 2006 and 2005 was $37,043 and
      $44,390, respectively. The decrease of $7,347 was attributed to having less
      cash
      to invest.





Due
      to
      the factors mentioned above, the net loss for the three months ended June 30,
      2006 was $1,922,895 or a loss of $ 0.02 per common share, basic and diluted
      as
      compared to a loss of $1,088,792 for the three months ended June 30, 2005 or a
      loss of $0.01 per common share, basic and diluted.





*Six
      Months Ended June 30, 2006 as compared to the Six Months Ended June 30,
      2005* ******





We
      had no
      revenues during the six months ended June 30, 2006 and June 30, 2005 because
      we
      do not have any commercial biopharmaceutical products.





Research
      and development expenses for the six months ended June 30, 2006 and 2005 were
      $1,936,493 and $1,025,789, respectively. The increase of $910,704 primarily
      represents expenses relating to the Phase III clinical trials. In March 2005,
      we
      initiated a Phase III clinical trial for the acute treatment of HAE. In November
      2005, we initiated a Phase III clinical trial of C1-INH for the prophylactic
      treatment of HAE. During the six months ended June 30, 2006, we entered into
      an
      employment agreement with our Vice President - Regulatory Affairs pursuant
      to
      which we granted him options, subject to vesting conditions, to purchase 500,000
      shares of common stock. Employee stock compensation for options granted were
      $32,911 for the six months ended June 30, 2006.





General
      and administrative costs for the six months ended June 30, 2006 and 2005 were
      $1,863,549 and $1,102,315, respectively. The increase of $761,234 was primarily
      due to increases in payroll and related benefits, investor relations, donations,
      professional fees and share-based compensation for employee options. During
      the
      six months ended June 30, 2006, we entered into an employment agreement with
      our
      Chief Financial Officer pursuant to which we granted him options, subject to
      vesting conditions, to purchase 125,000 shares of common stock. Employee stock
      compensation for options granted were $73,920 for the six months ended June
      30,
      2006.




17




Interest
      income for the six months ended June 30, 2006 and 2005 was $78,998 and $65,476,
      respectively. The increase of $13,522 was attributed to investing cash at a
      higher rate of return, offset by a reduction in cash available for
      investment.





Due
      to
      the factors mentioned above, the net loss for the six months ended June 30,
      2006
      was $3,736,420 or a loss of $ 0.05 per common share, basic and diluted as
      compared to a loss of $2,062,628 for the six months ended June 30, 2005 or
      a
      loss of $0.03 per common share, basic and diluted.





**Liquidity
      and Capital Resources**





As
      of
      June 30, 2006, we had cash, cash equivalents and investments of $2,928,917
      and
      working capital was $2,287,189. Net operating cash used in operations was
      $3,045,882 for the six months ended June 30, 2006 and was primarily due to
      our
      loss of $3,736,420. Net cash used in operating activities was $1,808,211 for
      the
      six months ended June 30, 2005. This increase in cash used of $1,237,671 in
      operating activities as compared to the same period last year primarily relates
      to net loss difference from both periods $1,673,792 and the difference in both
      periods in non -cash transactions of $655,979. The aggregate difference in
      the
      net loss and non-cash transaction for the six moths ended June 30, 2006 and
      June
      30, 2005 was $1,107,813. Pursuant to the Sanquin loan agreement, purchases
      made
      during our Phase III clinical trials are added to our loans and we are not
      required to make any principal payments. As of June 30, 2006, our
      commitment to Sanquin is approximately $4,100,000 during the trial period.
      We
      received a price increase of C1-INH effective March 1, 2006. The loans will be
      forgiven when regulatory approval from the FDA is received. If we do not receive
      regulatory approval, the loans are repayable on the earlier of January 16,
      2014,
      or the termination of the Agreement. The loans do not bear interest and we
      impute interest using the effective interest rate method. Cash provided by
      investing activities for the six months ended June 30, 2006 was $2,492,183
      primarily resulting from proceeds from the sale of investments.




Our
      distribution agreement with Sanquin terminates on December 31, 2007, unless
      extended by us for up to two three-year periods or by mutual agreement of the
      parties prior to its expiration. Commencing with the receipt of FDA regulatory
      approval of C1-INH and thereafter, we must purchase from Sanquin a minimum
      amount of C1-INH valued in Euros equal to be approximately $9,400,000 (as of
      June 30, 2006) per calendar year.




In
      connection with the license agreement with Sanquin for the treatment of AMI
      we
      are required to create a comprehensive research plan for the commercial
      exploitation of the licensed technology. We continue to work with Sanquin on
      the
      design of the research plan. We agreed to commit a minimum of $125,000 per
      annum
      during the first three years following the execution of the license agreement
      toward research on the licensed technology conducted by Sanquin and by other
      parties. To date, we have funded approximately $141,000 to third parties engaged
      in this research. We also have an obligation to pay Sanquin royalties on sales
      of products incorporating the technology.





On
      March
      2, 2005, we entered into a CRO services agreement with INC Research that governs
      INC Research’s provision of services in connection with the support of clinical
      investigation, clinical data management, clinical monitoring and/or research
      of
      our Phase III clinical trials. It is estimated that we will pay INC Research
      at
      least approximately $705,000 for its services in 2006 and 2007 as of December
      31, 2005. However, due to the variability associated with the conduct of
      clinical trials, we are unable to estimate with certainty the future costs
      we
      will incur under our CRO agreement. We anticipate that these costs will increase
      significantly above our current estimates in future periods as a result of
      our
      initiation or expansion of the clinical trials.




In
      May
      2005, we completed a private placement of units at a price of $50,000 per unit,
      with each unit consisting of 50,000 shares of common stock and a five-year
      warrant to purchase 25,000 shares of common stock at an exercise price of $1.35
      per share. We sold 100.9 units for gross proceeds of $5,044,774. Our net
      proceeds were $4,365,097 after payment of fees and expenses, including
      registration costs. We paid $454,030 to the placement agent and issued warrants
      to the placement agent to purchase 681,044 shares of common stock. These
      warrants are immediately exercisable at $1.35 per share and expire in May 2010.
      We issued an aggregate of 5,044,774 shares of common stock and warrants to
      purchase 2,522,387 shares of common stock to investors in the private placement,
      not including the warrants issued to the placement agent.





In
      February and March 2004, we received proceeds in a private placement of
      $7,968,495, net of issuance costs of $51,465, from the sale of 3,425,879 shares
      of common stock at $0.26 per share and from the sale of 23,913,848 shares of
      common stock at $0.30 per share. In December 2003, we received proceeds in
      a
      private placement of $300,000 through the sale of 1,141,960 shares of common
      stock at $0.26 per share.




18




We
      have
      cash commitments for the remainder of the 2006 fiscal year of approximately
      $1,510,000 primarily to fund our clinical research organization and executives’
employment contracts.





To
      date,
      we have relied primarily upon selling equity securities from private placements
      to generate cash to implement our plan of operations. We believe that our cash
      and cash equivalents will not be sufficient to meet our cash requirements for
      the next twelve months.
      Our capital resources are focused on the clinical development and regulatory
      approval of C1-INH for the treatment of HAE. We will need additional funding
      to
      complete these activities and have been pursuing funding options to meet our
      goals. We cannot be certain that additional funding will be available on
      acceptable terms, or at all. To raise additional funds, we intend to either
      undertake private placements of our securities. However, we currently have
      no
      firm agreements with any third-parties for any financing arrangements and no
      assurances can be given that we will be successful in raising additional capital
      from any proposed financings. Further, we cannot assure you that any additional
      financing will be available or, even if it is available that it will be on
      terms
      acceptable to us. If we raise additional funds by selling shares of common
      stock
      or convertible securities, the ownership of our existing shareholders will
      be
      diluted. Further, if additional funds are raised though the issuance of equity
      or debt securities, such additional securities may have powers, designations,
      preferences or rights senior to our currently outstanding securities. Any
      inability to obtain required financing on sufficiently favorable terms could
      have a material adverse effect on our business, results of operations and
      financial condition. If we are unsuccessful in raising additional capital and
      increasing revenues from operations, we will need to reduce costs and operations
      substantially.





As
      a
      development stage enterprise, our primary efforts, to date, have been devoted
      to
      conducting research and development, raising capital, forming collaborations
      and
      recruiting staff. We have limited capital resources and have experienced a
      net
      loss attributable to our common stockholders of $14,787,215 since inception
      and
      have had negative cash flows from operations since inception. These losses
      have
      resulted principally from costs incurred in research and development activities,
      including acquisition of technology rights and general and administrative
      expenses. We expect to incur additional operating losses until such time as
      we
      generate sufficient revenue to offset expenses, and we may never achieve
      profitable operations.





We
      expect
      our cash requirements for operating activities will increase due to the
      following future activities:





•
            Conduct
                commercialization activities in support of our product candidates,
                including development of market plans and regional sales and marketing
                capabilities;





•
            Conduct
                clinical programs, including clinical trials to support regulatory
                submissions of our product candidates;




•
            Maintain,
                protect and expand our intellectual
                property;




•
            Develop
                expanded internal infrastructure;
                and




•
            Hire
                additional personnel.




**COMMITMENTS
      AND CONTINGENCIES**




In
      our
      Annual Report on Form 10-KSB for the year ended December 31, 2005 under the
      heading “Contractual Obligations,” we outlined our commitments and
      contingencies. For the quarter ended June 30, 2006, there have been no material
      changes in our commitments and contingencies except for the employment
      agreements and consulting agreement that we entered into during June and August
      2006. See Notes F through H to our Unaudited Condensed Consolidated Financial
      Statements for additional information regarding these agreements.





**OFF
      -BALANCE SHEET ARRANGEMENTS**





We
      had no
      off-balance sheet arrangements as of June 30, 2006 with the exception of our
      office lease. As of December 31, 2005, our remaining obligation under this
      lease
      was $46,365.




19




**CRITICAL
      ACCOUNTING ESTIMATES**




In
      our
      Annual Report on Form 10-KSB for the year ended December 31, 2005, our most
      critical accounting policies and estimates upon which our financial status
      depends upon were identified as those relating to income taxes, stock based
      compensation and research and development cost . We reviewed our policies and
      determined that those policies remain our most critical accounting policies
      for
      the quarter ended June 30, 2006. On January 1, 2006 we adopted stock-based
      compensation (S FAS
      No.
      123(R)). See Note
      B (3) to our Condensed Consolidated Financial Statements for a discussion of
      the
      impact on our company of adopting SFAS No. 123(R).








**ITEM
      3. CONTROLS AND PROCEDURES**





**** As
      of the
      end of the period covered by this report, we conducted an evaluation, under
      the
      supervision and with the participation of our Chief Executive Officer and Chief
      Financial Officer of our disclosure controls and procedures (as defined in
      Rule
      13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
      our Chief Executive Officer and Principal Accounting Officer concluded that
      our
      disclosure controls and procedures are effective to ensure that information
      required to be disclosed by us in the reports that we file or submit under
      the
      Exchange Act is recorded, processed, summarized and reported, within the time
      periods specified in the SEC’s rules and forms. There have been no changes in
      our internal control over financial reporting during the quarter ended June
      30,
      2006 that have materially affected, or are reasonably likely to materially
      affect, our internal controls over financial reporting.





**PART
      II - OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





We
      are
      not currently a party to, nor are any of our property currently the subject
      of,
      any pending legal proceeding.





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





**** On
      May 4,
      2006, we issued 175,000 shares of our common stock to an investor relations
      firm
      in connection with entering into a one-year consulting services agreement.
      The
      issuance of securities described above were deemed to be exempt from
      registration under the Securities Act of 1933 in reliance on Section 4(2) of
      the
      Securities Act of 1933 as transactions by an issuer not involving any public
      offering as the recipients acquired the securities for investment only and
      not
      with a view to or for sale in connection with any distribution thereof and
      the
      securities were issued without general solicitation or advertising.


****


On
      June
      28, 2006, we agreed to issue to a consultant for services to be rendered
      warrants to purchase an aggregate of 225,000 shares of common stock at an
      exercise price of $0.62 per share and expire in seven years. Warrants to
      purchase 100,000 of these shares vested on the date of issuance and the
      remainder will vest only if the consultant satisfies certain performance
      criteria. In addition, a maximum of 80,000 additional warrants will be granted
      to this consultant in the event he satisfies additional performance criteria.
      The issuance of securities described above were deemed to be exempt from
      registration under the Securities Act of 1933 in reliance on Section 4(2) of
      the
      Securities Act of 1933 as transactions by an issuer not involving any public
      offering as the recipients acquired the securities for investment only and
      not
      with a view to or for sale in connection with any distribution thereof and
      the
      securities were issued without general solicitation or advertising.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





Not
      applicable.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





**** Not
      applicable.




20




**ITEM
      5. OTHER INFORMATION**





Effective
      July 31, 2006, Mr. Joseph Truitt was hired as our Vice President - Marketing
      and
      Sales and on August 2, 2006, we entered into an employment agreement with Mr.
      Truitt, the terms of which are described in Note H to our Unaudited Condensed
      Consolidated Financial Statements.





**ITEM
      6. EXHIBITS**





The
      following exhibits are filed herewith or incorporated by reference.




**Incorporated
                by Reference****Exhibit****Number**
            
            **Exhibit
                Description**
            
            **Form**
            
            **Dated**
            
            **Exhibit**
            
            **Filed****Herewith**10.1
            
            Employment
                Agreement between the Registrant and Douglas J. Beck
            
            8-K
            
            6/7/06
            
            10.110.2
            
            Employment
                Agreement between the Registrant and Jason Bablak
            
            8-K
            
            6/7/06
            
            10.231.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002
            
            
            
            
            
            
            
            X31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002
            
            
            
            
            
            
            
            X32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
            
            
            
            
            
            
            
            X32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
            
            
            
            
            
            
            
            X






**SIGNATURES**





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




**Lev
              Pharmaceuticals, Inc.**August
              9,
              2006
            By:
            /s/ Joshua
              D.
              Schein, Ph.D.Joshua
              D. Schein,
              Ph.D.Chief Executive
              Officer


August
                9,
                2006
              By:
              /s/ Douglas
                J. BeckDouglas
                J.
                BeckChief Financial Officer
 
 21